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, 2000

                        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
----------------------------------------                          ----------
(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, 2000 were $14,771,656

The  aggregate  market  value of  voting  stock  held by  non-affiliates  of the
Registrant on March 19, 2001 was $4,173,092

                                    4,612,517
             -------------------------------------------------------
             (Shares of Common Stock outstanding on March 19 , 2001)
<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.

             The remainder of this page is intentionally left blank

<PAGE>


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),  Minnesota  Central  Railroad Co.
(MCTA) (sold May 6, 1999), 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), Pioneer
Resources, Inc. (PRI), Pioneer Railroad Equipment Co., Ltd. (PREL), Pioneer Air,
Inc. (PAR), and Pioneer Railroad Services, Inc. (PRS) and an inactive subsidiary
Midwest Terminal Railway Company (formerly Rochelle Railroad Co.) (RRCO).

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),  Illinois Central Railroad (IC),  Norfolk Southern Railway (NS) and Union
Pacific Railroad (UP).  Additionally,  the Company's railroad  subsidiaries have
interchanges  with four  smaller  railroads,  the Kansas City  Southern  Railway
(KCS),  the  Arkansas & Missouri  Railroad  (AM),  the Toledo,  Peoria & Western
Railway Corporation (TPW), and Indiana Northeastern Railroad Company (IN). PRC's
rail system is 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
-------------------

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.

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, particle board, and finished lumber.

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 and cottonseed.

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.  This line runs from Georgiana to
Geneva,  Alabama, a distance of 76 miles and interchanges with CSX at Georgiana.
The AF's principal commodities are inbound resins,  plastic pellets,  fertilizer
and outbound peanuts, scrap plastic and pulpwood.
<PAGE>

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 Illinois  Central Railroad (IC) 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.

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  3.45 miles  long.  The  Railroad's
principal  commodities are steel pipe,  plastic  pellets,  fertilizer,  and feed
ingredients.

On December 12,  1994,  Pioneer  Railcorp's  wholly-owned  subsidiary  Minnesota
Central Railroad Co. acquired  certain assets of MNVA Railroad,  Inc. The assets
purchased included approximately 94 miles of operating railroad in south central
Minnesota.  The railroad  interchanges with the BNSF at Hanley Falls,  Minnesota
and the TCWR at Norwood,  Minnesota.  The railroad's  principal  commodities are
grain, clay, fertilizer, canned goods, dairy products, and particleboard. On May
6,  1999,  Pioneer  Railcorp  sold  100% of the  MCTA  stock  to  Southern  Rail
Resources,  Inc.,  an Iowa  Corporation.  Southern Rail  Resources,  Inc. is not
affiliated  with  Pioneer  Railcorp  or  any  of  Pioneer  Railcorp's  officers,
directors, or employees.

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.

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. The KJRY interchanges with
the  BNSF at  Keokuk,  Iowa and the TPW at  LaHarpe,  Illinois.  The  railroad's
principal  commodities  are corn,  corn germ,  corn syrup,  meal,  gluten  feed,
calcined coal, ferrosilicon, scrap iron, and railroad wheels.

On November 13, 1996, Pioneer Railcorp purchased 100% of the common stock of the
Shawnee Terminal Railway Co. The line located in Cairo,  Illinois,  interchanges
with the Illinois  Central  Railroad and is  approximately  2.5 miles long.  The
Railroad's  principal  commodities  are glycol  and  railroad  freight  cars for
cleaning.

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 53 miles of track and 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,  one  located in  southern  Michigan  and two  located in
northern Indiana. All lines have separate interchanges with the NS. The Michigan
line also  interchanges  with the Indiana  Northeastern  Railroad  Company.  The
railroad's  principal  commodities  are scrap  paper,  scrap  iron,  fertilizer,
plastics, plywood, sugar and corn syrup.
<PAGE>

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),  effective  February 18, 1998. The lease expires in July 2004.
PPHW is owned by the City of Peoria, Illinois and the village of Peoria Heights,
Illinois.  The Pioneer  Industrial Railway Co. has improved the condition of the
track since assuming operation and overall the track is considered to be in good
condition.  The railroad's  principal  commodities are steel,  salt,  lumber and
plastic pellets.

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.

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.

The Rochelle  Railroad Co. changed its name to Midwest  Terminal Railway Company
in 1998 and is presently an inactive subsidiary as of December 31, 2000.

Railroad Equipment Leasing
--------------------------

Pioneer  Railroad  Equipment Co., Ltd. (PREL),  formed on April 1, 1990,  leases
equipment to the Company's subsidiary railroads and also and leases railcars and
locomotives  to  unaffiliated  third  parties.   PREL  also  earns  income  from
non-company  railroads  on its  fleet of  approximately  1,300  railcars  (as of
December 31, 2000) when they carry freight on non-company railroads.

Corporate Support Operations
----------------------------

Other corporate  support  operations  engaged in by the Company are performed by
its  wholly  owned  subsidiaries,   Pioneer  Railroad  Services,  Inc.,  Pioneer
Resources,  Inc., and Pioneer Air, Inc.  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.  was formed on December 30, 1993 to manage
real estate and auxiliary resources for Company subsidiaries.  Pioneer Air, Inc.
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 operations
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.  Recent  mergers by Class I carriers  and the  associated
operating problems experienced by the Class I's has had a negative impact on the
Company's  business,  but the  Company  does not  expect  the  impact  to become
material or adverse.

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.
<PAGE>

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 operations center, with continued emphasis on safe and
efficient train operations.

Competition  for  additional  railroads as they become  available on the market,
either as direct  "spin-offs"  from Class I Railroads  or through the  secondary
market, is intense. The Company believes that it has a competitive advantage for
the acquisition of future Class III Railroads due to the following factors:  (1)
the Company's acquisition and operation of multiple railroads, (2) the Company's
experienced  management team, (3) the Company's  proficiency with industry-trend
technologies  desired by Class I Railroads,  such as Electronic Data Interchange
(EDI), (4) the quality of the Company's  employees,  and (5) Pioneer  Railcorp's
acquisition line of credit.

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,  2000,  the Company had 102  employees  which  consisted  of 71
operating personnel, 27 support staff and 4 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.

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.

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.
<PAGE>

A description  of the Company's  railroad  properties as of December 31, 2000 by
subsidiary follows:

A.)   Fort Smith  Railroad Co.  (FSR):  The FSR leases 18 miles of railroad from
      the Union  Pacific  Railroad  Company.  A twenty year lease was signed and
      operations  begun  on July 7,  1991.  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.

B.)   Alabama  Railroad Co. (ALAB):  The ALAB is 60 miles of operating  railroad
      running from  Flomaton to  Corduroy,  Alabama.  The assets and  subsidiary
      stock are pledged in various financing  agreements.  The Company considers
      the track to be in good 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
      assets and subsidiary stock are pledged in various  financing  agreements.
      The Company considers the track to be in good condition.

D.)   Alabama & Florida  Railway Co., Inc. (AF): The AF is 76 miles of operating
      railroad  running from  Georgiana 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 $2,305.  The  Company  has  exclusive  rights to the  revenues
      derived  from  the land  leases  and  easements.  In  connection  with the
      operation  of this line,  the AF also leases from the  Andalusia & Conecuh
      Railroad  Company a two mile segment of track  connecting to the AF's line
      in Andalusia, Alabama for a nominal fee. The Company also absorbs the cost
      of all maintenance of that facility.  The assets and subsidiary  stock are
      pledged in a financing agreement.  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,  that runs from Elwin to Assumption,  Illinois.  The two lines are
      connected   via  trackage   rights  on  the  Illinois   Central   Railroad
      (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
      car loads 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 is prepaid through  September 2003.  After September 2003, the lease
      payments will be equal to $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,  from Keokuk to LaHarpe,
      Illinois, and a branch line from Hamilton to Warsaw,  Illinois, a total of
      approximately  38 miles.  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.
<PAGE>

J.)   Michigan  Southern  Railroad  Company (MSO): The MSO is comprised of three
      separate,  non-contiguous lines totaling  approximately 50 miles. One line
      is 39 miles long  extending from White Pigeon to Coldwater,  Michigan,  of
      which approximately 30 miles of track from Sturgis to Quincy,  Michigan is
      owned by the Branch and St. Joseph Counties Rail Users Association  (RUA).
      The RUA leases that track to Michigan  Southern  Railroad Co., Inc., which
      has  contracted  with MSO to operate  it. On  January  7,  1999,  Michigan
      Southern  Railroad Co., Inc. gave notice to the RUA of the exercise of its
      option to purchase  the  segment.  No closing  date has been set.  The two
      other  lines are  located in northern  Indiana:  one at Elkhart,  which is
      approximately 10 miles in length, and the other at Kendallville,  which is
      approximately  1 mile in length.  All lines are  considered  to be in good
      condition.  The  assets  and  subsidiary  stock  are  pledged  in  various
      financing agreements.

K.)   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.

L.)   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.

M.)   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

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.

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 2000.

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 for the periods below are as follows:

         00-1Q   00-2Q    00-3Q    00-4Q   99-1Q    99-2Q   99-3Q   99-4Q
         ----------------------------------------------------------------

High     $1.81   $1.56    $1.43    $1.31   $1.75    $1.56   $1.94   $1.88
Low      $1.25   $1.25    $1.25    $1.03   $1.25    $1.25   $1.25   $1.25

As of December 31, 2000,  the Company had 1,762 common  stockholders  of record,
including brokers who hold stock for others. A cash dividend of $.025 per common
share  was paid to  shareholders  of  record  as of April  30,  2000.  The total
dividend was $113,398 and was paid on May 24, 2000.
<PAGE>

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.

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 and 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  $2,762,000  in 2000 and
$2,824,000 in 1999.

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
---------------------------------------------------------------------

The  Company's  net income in 2000  decreased by $466,000 to $746,000  down from
$1,212,000 in 2000.  Revenue  increased in 2000 by $915,000 or 7% to $14,772,000
from $13,857,000 in 1999. Operating expense increased in 2000 by $464,000 or 4%,
to $12,079,000 from  $11,615,000 in 1999.  Operating income increased in 2000 by
$449,000  or 20% to  $2,692,000  from  $2,243,000  in 1999.  In 1999 the Company
realized a pre-tax gain of approximately  $1,481,000 attributable to the sale of
5.5 miles of railroad  right-of-way and a loss of approximately  $342,000 on the
sale of the Minnesota Central Railroad Co.

Operating income was increased in 2000 by the Company's railroad  operations and
equipment leasing operations. The railroad operations increased operating income
by approximately  $284,000 in 2000. The equipment leasing  operations  increased
operating  income by  approximately  $414,000 in 2000,  primarily from increased
revenue generated from locomotive leasing.  Corporate support services decreased
operating  income by  approximately  $249,000 in 2000  primarily  resulting from
increased expenses associated with increased payroll .

Revenue:

Revenue  increased in 2000 by $915,000 or 7% to $14,772,000  from $13,857,000 in
the prior year. This increase  included an increase in revenues of approximately
$862,000  generated  by the  railroads  operated by the Company in the year 2000
less a decrease in revenue of approximately  $374,000 generated by the Minnesota
Central  Railroad  prior to is sale on May 6,  1999.  The  Garden  City  Western
Railway,  which the Company  began  operating on April 29, 1999,  had  increased
revenues of $215,000 in 2000.  In  addition,  the Company  began  operating  the
Indiana  Southwestern  Railway Co. on April 1, 2000 which generated  $285,000 of
revenue in 2000. The equipment  leasing  operations  had a $442,000  increase in
revenue in 2000  primarily  from increased  revenue  generated  from  locomotive
leasing.

Operating Expense:

Operating  expense  increased  in 2000 by  $464,000 or 4%, to  $12,079,000  from
$11,615,000 in 1999. This increase included an increase in operating expenses of
approximately $591,000 generated by the railroads operated by the Company in the
year 2000 less a decrease in operating  expenses of approximately  $387,000 as a
result of the sale of the Minnesota  Central Railroad on May 6, 1999. The Garden
City Western  Railway,  which the Company began operating on April 29, 1999, had
increased operating expense of $101,000 in 2000. In addition,  the Company began
operating the Indiana  Southwestern Railway Co. on April 1, 2000 which generated
$176,000  of  operating  expense  in  2000.  In  2000  the  railroad  operations
experienced   increased   transportation   expense  resulting  from  significant
increases in fuel costs. The equipment leasing  operations  increased  operating
expense of approximately $27,000,  primarily from decreased costs of $135,000 in
2000  associated  with  relocating  railcars  offset by  increased  depreciation
expense of $156,000 associated with additional  equipment  purchases.  Corporate
support services increased operating expense approximately  $233,000,  primarily
related to increased  payroll expenses  related to hiring and retaining  support
personnel.
<PAGE>

Maintenance  of way and  structures  expense  (MOW)  decreased  $12,000 or 1% to
$1,475,000 from $1,487,000 in the prior year. This decrease included an increase
in MOW expense of approximately  $24,000 generated by the railroads  operated by
the  Company in the year 2000 less a decrease  in MOW  expense of  approximately
$51,000  as a result of the sale of the  Minnesota  Central  Railroad  on May 6,
1999.  The Garden City Western  Railway,  which the Company  began  operating on
April 29,  1999,  had  increased  MOW expense of $16,000 in 2000 and the Indiana
Southwestern Railway Co., which the Company began operating on April 1, 2000 had
$9,000 of MOW expense in 2000.  Corporate support services increased MOW expense
approximately $15,000 primarily related to increased payroll expenses related to
hiring and retaining support personnel.

Maintenance of equipment  expense (MOE)  decreased  $109,000 or 7% to $1,442,000
from  $1,551,000  in the prior year.  This  decrease  included a decrease in MOE
expense of  approximately  $111,000  generated by the railroads  operated by the
Company in the year 2000 less a decrease in MOE expense of approximately $27,000
as a result of the sale of the Minnesota  Central  Railroad on May 6, 1999.  The
Garden City  Western  Railway,  which the Company  began  operating on April 29,
1999, had decreased MOE expense of $29,000 in 2000 and the Indiana  Southwestern
Railway Co.,  which the Company began  operating on April 1, 2000 had $11,000 of
MOE expense in 2000.  Most of the decrease in MOE from the  railroad  operations
resulted from  decreased  payroll  expenses.  The equipment  leasing  operations
decreased  MOE  expense  approximately  $16,000 as a result of  decreased  costs
associated  with  maintaining  the Company's  railcar fleet.  Corporate  support
services  increased  MOE  expense  approximately  $45,000  primarily  related to
increased payroll expenses related to hiring and retaining support personnel

Transportation  expense  (TRAN)  increased  $371,000 or 12% to  $3,413,000  from
$3,042,000 in the prior year. This increase included an increase in TRAN expense
of approximately  $592,000 generated by the railroads operated by the Company in
the year 2000 less a decrease  in TRAN  expense of  approximately  $244,000 as a
result of the sale of the Minnesota  Central Railroad on May 6, 1999. The Garden
City Western  Railway,  which the Company began operating on April 29, 1999, had
increased TRAN expense of $69,000 in 2000 and the Indiana  Southwestern  Railway
Co.,  which the  Company  began  operating  on April 1, 2000 had $85,000 of TRAN
expense  in  2000.  Approximately  $200,000  of the  increase  in  TRAN  expense
generated by the  railroads  operated by the Company in the year 2000 relates to
increased  fuel costs and $55,000  relates to  increased  carhire  expense.  The
equipment leasing operations increased TRAN expense  approximately  $38,000 as a
result of increased  costs  associated with  maintaining the Company's  expanded
locomotive   fleet.   Corporate   support   services   decreased   TRAN  expense
approximately $15,000 primarily related to decreased payroll expenses related to
hiring and retaining support personnel

General & administration  expense (ADMIN)  increased $44,000 or 1% to $3,816,000
from $3,772,000 in the prior year.  This increase  included an increase in ADMIN
expense of  approximately  $30,000  generated by the  railroads  operated by the
Company  in the year 2000 less a  decrease  in ADMIN  expense  of  approximately
$20,000  as a result of the sale of the  Minnesota  Central  Railroad  on May 6,
1999.  The Garden City Western  Railway,  which the Company  began  operating on
April 29, 1999,  had  increased  ADMIN expense of $6,000 in 2000 and the Indiana
Southwestern Railway Co., which the Company began operating on April 1, 2000 had
$48,000 of ADMIN expense in 2000.  The equipment  leasing  operations  decreased
ADMIN expense approximately  $150,000 primarily from decreased costs of $135,000
in  2000  associated  with  relocating  railcars.   Corporate  support  services
increased ADMIN expense  approximately  $184,000  primarily related to increased
payroll expenses related to hiring and retaining support personnel

Depreciation and amortization  expense increased  $171,000 or 10%, to $1,934,000
compared to $1,763,000 in the prior year. Approximately $156,000 of the increase
is related to the growth of the Company's  railcar and  locomotive  fleet.  This
increase  included an  increase  in  depreciation  and  amortization  expense of
approximately  $57,000 generated by the railroads operated by the Company in the
year  2000  less  a  decrease  in  depreciation  and  amortization   expense  of
approximately  $44,000 as a result of the sale of the Minnesota Central Railroad
on May 6,  1999.  The Garden  City  Western  Railway,  which the  Company  began
operating on April 29, 1999, had increased depreciation and amortization expense
of $38,000 in 2000 and the Indiana  Southwestern  Railway Co., which the Company
began  operating on April 1, 2000 had $23,000 of depreciation  and  amortization
expense  in  2000.   Corporate  support  services  increased   depreciation  and
amortization expense approximately $2,000.

Other Income and Expense Income Statement Line Item Discussion:

Interest income increased $34,000 to $44,000 from $10,000 in the prior year.

Interest expense increased $156,000 in 2000 to $1,572,000 compared to $1,416,000
in 1999. The sale of the Minnesota  Central stock resulted in a $15,000 decrease
in  interest  expense.  The  equipment  leasing  operations  had an  increase of
approximately  $162,000  in  interest  expense as a result of the  financing  of
locomotive purchases. Other changes in interest expense relates to the financing
activities for acquisitions  offset by decreased interest expense as a result of
the pay down of principal on other outstanding finance agreements.
<PAGE>

In 2000,  approximately  $267,000 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 $251,000 of lease income in 1999, an
increase  of  $16,000.  The  Company  continues  to place a strong  emphasis  on
identifying  and  collecting  revenues  from  third  parties  occupying  Company
property.

Net gain on sale of  property  and  equipment  decreased  $1,453,000  in 2000 to
$59,000 compared to $1,512,000 in 1999. In 2000 most of the gain is attributable
to the sale of a locomotive and other  miscellaneous  equipment  items. In 1999,
$1,481,000  of income  was  attributable  to the sale of 5.5  miles of  railroad
right-of-way  and  approximately  $31,000  of  income  was  attributable  to the
railroad equipment operations.

On May 6, 1999,  Pioneer Railcorp sold all of the stock of the Minnesota Central
Railroad Co. to Southern Rail  Resources,  Inc., an Iowa  Corporation.  Southern
Rail Resources,  Inc. is not affiliated with Pioneer  Railcorp or any of Pioneer
Railcorp's  officers,  directors,  or employees.  The Company realized a loss of
$342,000  on the sale of the stock and the  write-off  of net assets  associated
with the Minnesota Central Railroad.

Other income decreased $26,000 in 2000 to $9,000 from $35,000 in the prior year.
Other income and expense includes revenues generated from scrap sales, and other
miscellaneous  non-operating  revenues and expenses,  primarily generated by the
Company's railroad operations.

Impact of New Accounting Pronouncements:

The Company is not aware of any recent accounting  standard issued,  but not yet
required to be adopted by the Company,  that would have a material effect on its
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  railcars,  new operating
subsidiaries,  and other  significant  capital  expenditures.  The  Company  has
working capital facilities totaling  $1,100,000,  all of which was available for
use at the end of 2000.

On June 23, 2000, the Company entered into a credit agreement with National City
Bank of Michigan/Illinois to provide a $5 million revolving  acquisition line of
credit for railroad  acquisitions at a variable  interest rate of prime plus 1%,
renewable every 2 years.  Amounts drawn on the line are amortized over a 10 year
period.  This  credit  line is  secured  by all non real  estate  assets  of the
Mississippi  Central  Railroad  Co.,  the Alabama  Railroad Co. and all non real
estate assets of any company acquired using proceeds from the credit line.

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 obtaining  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 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,  2000,  a total of  68,766  warrants  originally  issued  had been
exercised  to date,  and the Company  realized  $137,532 on the  issuance of the
warrants.

The  Company  granted  836,000  options  to  certain  employees  under  its 1994
incentive  stock option plan.  As of December 31, 2000,  the  remaining  151,759
unexercised  options under this plan have expired and no further  options can be
exercised under this plan.

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  will be  fully  vested  and  will be
exercisable  as of July 1, 2001. The exercise date can be accelerated if Pioneer
Railcorp common shares reach a closing price of $7.25 per share, or higher,  for
any  consecutive  10-day  period,  as reported in the Wall Street  Journal.  The
options will be 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, 2000, a total of 215,000 options are
outstanding under this plan.
<PAGE>

Pioneer Railcorp  guarantees certain long-term debt obligations of the Minnesota
Central  Railroad Co. in  connection  with debt  acquired as part of the initial
asset purchase by the Minnesota  Central Railroad Co. in 1994.  Pioneer Railcorp
remains as a guarantor on one note and could be required to repay the  principal
and accrued interest on the note if it is defaulted upon. The principal  balance
of the note as of December 31, 2000 was approximately $76,000.

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, 2000, a total of 81,240 shares had been repurchased at
a cost of $116,132.  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  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 cash flow from  operations  and its available  working
capital  credit  lines,  will be more than  sufficient to meet  liquidity  needs
through at least 2001.

Balance Sheet and Cash Flow Items:

The Company generated net cash from operating activities of $974,000 in 2000 and
$3.5 million in 1999. Net cash from operating  activities for 2000 was generated
from  $746,000 of net  income,  $1,934,000  of  depreciation  and  amortization,
$352,000  of  deferred  income  taxes,  a decrease  in income  taxes  payable of
$558,000,  a decrease in accounts  payable of $1,676,000,  and $176,000 net cash
provided by changes in various other operating assets and liabilities.  Net cash
from operating  activities for 1999 was generated from $1,212,000 of net income,
$1,763,000 of depreciation and amortization,  $325,000 of deferred income taxes,
an increase in income taxes payable of $547,000, an increase in accrued expenses
of $351,000,  a loss on sale of subsidiary stock of $342,000,  $429,000 net cash
provided by changes in various other operating assets and  liabilities,  reduced
by a gain on sale of property and equipment of $1,512,000.

In 2000,  excluding  assets recorded as a result of railroad  acquisitions,  the
Company  purchased  approximately  $3.1  million  of fixed  assets  and  capital
improvements  which  included  the purchase of  approximately  150 railcars at a
total  cost of  $1.1  million.  In  addition,  $1.6  million  of  transportation
equipment  was  capitalized  in 2000 for the  purchase  of 22  locomotives.  The
Company capitalized  approximately $45,000 of leasehold improvements on the Fort
Smith  Railroad  in  connection  with some  crossing  and signal  work.  Capital
expenditures for track totaled  $135,000 in 2000. Other capital  expenditures in
2000  include   $88,000  for  vehicles  and  equipment  and  $130,000  of  other
miscellaneous capital expenditures including railcar and locomotive betterments.
The railcars and locomotive  purchases  were financed with long-term  fixed rate
financing.  The  remaining  capital  expenditures  were funded  through  working
capital.

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.  The  purchase  was  financed  with a 60 day  note  with an
interest rate of Prime plus 1% from National City Bank and was  refinanced  with
the National City Bank  revolving  acquisition  line of credit on June 18, 1999.
The Company recorded  $2,145,000 of fixed assets relating to the purchase of The
Garden City Western  Railway Inc.  stock,  of which  $1,280,000 was allocated to
track  structures,  $272,000  allocated  to land  and  right  of  way,  $253,000
allocated to buildings,  and the remaining  $340,000 allocated to transportation
equipment, vehicles, and railcars. In addition, as a result of the purchase, the
Company recorded  goodwill in the amount of $24,000 and a deferred tax liability
of $677,000.

On May 6, 1999,  Pioneer Railcorp sold all of the stock of the Minnesota Central
Railroad Co. to Southern Rail  Resources,  Inc., an Iowa  Corporation.  Southern
Rail Resources,  Inc. is not affiliated with Pioneer  Railcorp or any of Pioneer
Railcorp's  officers,  directors,  or  employees.  At the date of the sale,  the
Minnesota Central  accounted for  approximately  $1.8 million of assets and $1.3
million of  liabilities  reported on the  consolidated  balance sheet of Pioneer
Railcorp.

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  begins in  Evansville,  Indiana  and is 23 miles in  length.  The  primary
commodities are grain, plastics and rail equipment. The total purchase price was
$619,000 allocated to track assets. There was no goodwill recognized as a result
of this transaction
<PAGE>

Item 7.  Financial Statements

         The remainder of this page is intentionally left blank
<PAGE>

                        Pioneer Railcorp and Subsidiaries

                          CONSOLIDATED Financial Report

                                December 31, 2000


<PAGE>



                                    Contents

INDEPENDENT AUDITOR'S REPORT

FINANCIAL STATEMENTS
   Consolidated balance sheets
   Consolidated statements of income
   Consolidated  statements of stockholders' equity
   Consolidated  statements of cash flows
   Notes to consolidated financial statements

<PAGE>



                          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, 2000 and 1999, 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  generally   accepted  auditing
standards.  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,  2000  and  1999,  and the  results  of their
operations  and their cash flows for the years  then  ended in  conformity  with
generally accepted accounting principles.

/s/ McGladrey & Pullen, LLP

Peoria, Illinois

February 15, 2001, except for Note 17,
      as to which the date is February 20, 2001

<PAGE>

PIONEER RAILCORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
December 31, 2000 and 1999
<TABLE>

ASSETS                                                                                   2000            1999
-----------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>             <C>
Current Assets
  Cash ...........................................................................   $    564,490    $  2,356,844
  Accounts receivable, less allowance for doubtful
    accounts 2000 $120,099; 1999 $186,998 ........................................      3,687,738       3,940,029
  Inventories ....................................................................        237,091         272,278
  Prepaid expenses ...............................................................         96,357          91,377
  Income tax refund claims .......................................................        206,915          94,449
  Deferred taxes .................................................................         59,800          91,800
                                                                                     ----------------------------
        Total current assets .....................................................      4,852,391       6,846,777

Investments, cash value of life insurance ........................................        156,702         131,503

Property and Equipment, net ......................................................     25,451,459      24,159,995

Intangible Assets, less accumulated amortization
  2000 $288,984; 1999 $239,846 ...................................................      1,091,403       1,122,489
                                                                                     ----------------------------

                                                                                     $ 31,551,955    $ 32,260,764
                                                                                     ============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
  Current maturities of long-term debt ...........................................   $  2,953,155    $  2,390,042
  Notes payable ..................................................................             --         810,000
  Accounts payable ...............................................................      2,307,663       3,983,617
  Accrued expenses ...............................................................        643,743         670,873
  Income taxes payable ...........................................................          4,099         561,697
                                                                                     ----------------------------
        Total current liabilities ................................................      5,908,660       8,416,229
                                                                                     ----------------------------

Long-Term Debt, net of current maturities ........................................     14,103,682      13,121,553
                                                                                     ----------------------------

Deferred Taxes ...................................................................      4,825,200       4,505,100
                                                                                     ----------------------------

Minority Interest in Subsidiaries ................................................      1,106,000       1,154,000
                                                                                     ----------------------------

Commitments and Contingencies (Note 11)

Stockholders' Equity
  Common stock, Class A (voting), par value $.001 per share, authorized 20,000,000
    shares, issued 2000 4,612,517 shares;
    1999 4,611,217 shares ........................................................          4,612           4,611
    In treasury 2000 81,240 shares; 1999 19,000 shares ...........................            (81)            (19)
                                                                                     ----------------------------
    Outstanding 2000 4,531,277; 1999 4,592,217 ...................................          4,531           4,592
  Common stock, Class B (nonvoting), no par value,
    authorized 20,000,000 shares .................................................             --              --
  Additional paid-in capital .....................................................      2,044,041       2,042,042
  Retained earnings ..............................................................      3,559,841       3,017,248
                                                                                     ----------------------------
                                                                                        5,608,413       5,063,882
                                                                                     ----------------------------

                                                                                     $ 31,551,955    $ 32,260,764
                                                                                     ============================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>

PIONEER RAILCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 2000 and 1999
<TABLE>
                                                           2000            1999
-----------------------------------------------------------------------------------
<S>                                                    <C>             <C>
Railway operating revenue ..........................   $ 14,771,656    $ 13,857,384
                                                       ----------------------------

Operating expenses
  Maintenance of way and structures ................      1,475,431       1,486,960
  Maintenance of equipment .........................      1,441,511       1,550,973
  Transportation ...................................      3,412,965       3,041,661
  General and administrative .......................      3,815,797       3,772,036
  Depreciation .....................................      1,884,571       1,699,593
  Amortization .....................................         49,138          63,531
                                                       ----------------------------
                                                         12,079,413      11,614,754
                                                       ----------------------------

        Operating income ...........................      2,692,243       2,242,630
                                                       ----------------------------

Other income (expenses)
  Interest income ..................................         43,685           9,652
  Interest expense .................................     (1,572,428)     (1,416,203)
  Lease income .....................................        266,776         251,278
  Gain on sale of property and equipment ...........         59,452       1,512,112
  Loss on sale of subsidiary .......................             --        (341,872)
  Other, net .......................................          9,100          34,524
                                                       ----------------------------
                                                         (1,193,415)         49,491
                                                       ----------------------------
        Income before provision for income taxes
        and minority interest in preferred stock
        dividends of consolidated subsidiaries .....      1,498,828       2,292,121

Provision for income taxes .........................        635,535         959,129
                                                        ---------------------------
        Income before minority interest in preferred
        stock dividends of consolidated subsidiaries        863,293       1,332,992

Minority interest in preferred stock dividends of
  consolidated subsidiaries ........................        117,710         120,515
                                                       ----------------------------

        Net income .................................   $    745,583    $  1,212,477
                                                       ============================

Basic earnings per common share ....................   $       0.16    $       0.26
                                                       ============================

Diluted earnings per common share ..................   $       0.16    $       0.26
                                                       ============================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>

PIONEER RAILCORP AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Years Ended December 31, 2000 and 1999
<TABLE>
                                        Common Stock
                                    ------------------------
                                       Class A (Voting)         Additional
                                    ------------------------      Paid-In        Retained
                                     Shares        Amount         Capital        Earnings
                                    -------------------------------------------------------
<S>                                 <C>          <C>            <C>             <C>
Balance at December 31, 1998 ..     4,610,597    $     4,610    $ 2,041,000     $ 1,934,978
 Common stock issued upon
   exercise of stock warrants .           620              1          1,042              --
  Dividends on common stock,
   $.0225 per share ...........            --             --             --        (103,748)
  Shares acquired in treasury
    for retirement ............       (19,000)           (19)            --         (26,459)
  Net income ..................            --             --             --       1,212,477
                                    -------------------------------------------------------
Balance at December 31, 1999 ..     4,592,217          4,592      2,042,042       3,017,248
  Common stock issued upon
    exercise of stock warrants          1,300              1          1,999              --
  Dividends on common stock,
    $.025 per share ...........            --             --             --        (113,398)
  Shares acquired in treasury
    for retirement ............       (62,240)           (62)            --         (89,592)
  Net income ..................            --             --             --         745,583
                                    -------------------------------------------------------
Balance at December 31, 2000 ..     4,531,277    $     4,531    $ 2,044,041     $ 3,559,841
                                    =======================================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>

PIONEER RAILCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2000 and 1999
<TABLE>
                                                                 2000           1999
----------------------------------------------------------------------------------------
<S>                                                           <C>            <C>
Cash Flows From Operating Activities
  Net income ..............................................   $   745,583    $ 1,212,477
  Adjustments to reconcile net income to net cash
    provided by operating activities:
    Minority interest in preferred stock dividends of
      consolidated subsidiaries ...........................       117,710        120,515
    Depreciation ..........................................     1,884,571      1,699,593
    Amortization ..........................................        49,138         63,531
    (Increase) in cash value life insurance ...............       (25,199)       (19,155)
    (Gain) on sale of property and equipment ..............       (59,452)    (1,512,112)
    Loss on sale of stock of subsidiary ...................            --        341,872
    Deferred taxes ........................................       352,100        325,360
    Changes in assets and liabilities:
      (Increase) decrease in assets:
        Accounts receivable ...............................       252,291     (1,474,931)
        Income tax refund claims ..........................      (112,466)       (37,516)
        Inventories .......................................        35,187         59,563
        Prepaid expenses ..................................        (4,980)        93,347
      Increase (decrease) in liabilities:
        Accounts payable ..................................    (1,675,954)     1,686,222
        Accrued expenses ..................................       (27,130)       350,698
        Income taxes payable ..............................      (557,598)       547,491
                                                              --------------------------
        Net cash provided by operating activities .........       973,801      3,456,955
                                                              --------------------------

Cash Flows From Investing Activities
  Proceeds from sale of property and equipment ............       606,332      1,584,473
  Purchase of property and equipment ......................    (3,100,151)    (2,337,041)
  Intangible assets .......................................       (18,052)       (18,818)
  Acquisition of subsidiaries, net of cash acquired .......      (619,000)    (3,893,896)
  Proceeds from sale of subsidiary, net of cash distributed            --        (43,773)
                                                              --------------------------
        Net cash (used in) investing activities ...........    (3,130,871)    (4,709,055)
                                                              --------------------------

Cash Flows From Financing Activities
  Proceeds from short-term borrowings .....................     4,201,719      3,463,323
  Proceeds from long-term borrowings ......................     5,504,773      5,021,590
  Principal payments on short-term borrowings .............    (5,011,719)    (2,961,209)
  Principal payments on long-term borrowings ..............    (3,959,531)    (2,102,538)
  Proceeds from common stock issued upon exercise
    of stock warrants and options .........................         2,000          1,043
  Common stock dividend payments ..........................      (113,398)      (103,748)
  Preferred stock dividend payments to minority interest ..      (117,710)      (120,515)
  Purchase of common stock for the treasury ...............       (89,654)       (26,478)
  Repurchase of minority interest .........................       (48,000)       (32,000)
                                                              --------------------------
        Net cash provided by financing activities .........       368,480      3,139,468
                                                              --------------------------
</TABLE>
                                  (Continued)
<PAGE>

PIONEER RAILCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years Ended December 31, 2000 and 1999
<TABLE>
                                                                 2000            1999
                                                              --------------------------
<S>                                                           <C>            <C>
        Net increase (decrease) in cash ...................   $(1,792,354)   $ 1,887,368

Cash, beginning of year ...................................     2,356,844        469,476
                                                              --------------------------
Cash, end of year .........................................   $   564,490    $ 2,356,844
                                                              ==========================

Supplemental Disclosures of Cash Flow Information
  Cash payments for:
    Interest ..............................................   $ 1,563,463    $ 1,405,846
                                                              ==========================

  Income taxes (net of refunds 2000 $65,370; 1999 $3,403) .   $   953,499    $   123,794
                                                              ==========================

Supplemental Disclosures of Noncash Investing Information
  Railroad acquisitions:
    Fair value of assets acquired, principally property and
      equipment ...........................................   $   619,000    $ 5,745,331
    Less liabilities assumed, principally deferred income
      taxes ...............................................            --      1,845,331
                                                              --------------------------
    Cash paid .............................................       619,000      3,900,000
    Less cash acquired ....................................            --          6,104
                                                              --------------------------
        Net cash paid for stock acquisitions ..............   $   619,000    $ 3,893,896
                                                              ==========================

Sale of stock of railroad subsidiary:
  Assets disposed of including cash .......................   $        --    $ 1,877,449
  Less cash transferred to buyer ..........................            --         43,774
                                                              --------------------------
    Assets disposed of, net of cash .......................            --      1,833,675
  Less liabilities forgiven ...............................            --      1,491,802
                                                              --------------------------
    Loss before proceeds from sale of stock ...............            --        341,873
  Cash proceeds from sale of stock ........................            --              1
                                                              --------------------------
        Net loss on sale of stock of subsidiary ...........   $        --    $   341,872
                                                              ==========================
Increase in cash value of life insurance over
  premiums paid ...........................................   $    25,199    $    19,155
                                                              ==========================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>

PIONEER RAILCORP AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


Note 1.  Nature of Business and Significant Accounting Policies

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

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

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, 2000 and 1999.  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.  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.

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.
<PAGE>

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, 2000 and 1999.

Intangible  assets:  Intangible assets consist  principally of goodwill which is
being  amortized by the  straight-line  method over periods ranging from five to
forty years.  The Company reviews  intangible  assets quarterly by subsidiary to
determine potential impairment by comparing the carrying value of the intangible
with the  undiscounted  anticipated  future cash flows of the  related  property
before income taxes and management fees generated by Pioneer Railroad  Services,
Inc. If future cash flows are less than the  carrying  value,  the Company  will
determine the fair market value of the property and adjust the carrying value of
the  intangibles if the fair market value is less than the carrying  value.  The
Company  does not believe  that  impairment  exists as of December  31, 2000 and
1999.

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 agree- ments 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,
2000, 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
$20,000 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 $20,000 on an annual  basis and
total claims  exceeding  the  aggregate  excess,  subject to a maximum  lifetime
reimbursement of $2,000,000 per person.
<PAGE>

Use of estimates in the preparation of financial statements:  The preparation of
financial statements in conformity with generally accepted accounting principles
requires  management to make estimates and assumptions  that affect the reported
amounts  of assets and  liabilities  and  disclosure  of  contingent  assets and
liabilities at the date of the financial  statements and the reported amounts of
revenues and expenses during the reporting  period.  Actual results could differ
from those estimates.

Note 2.  Property and Equipment

Property and equipment consist of the following:

                                                            December 31,
                                                   -----------------------------
                                                      2000               1999
                                                   -----------------------------

Land .......................................       $ 2,979,438       $ 2,979,438
Roadbed ....................................         9,801,433         9,135,967
Transportation equipment ...................         4,766,477         2,815,931
Railcars ...................................        12,918,626        11,730,121
Buildings ..................................         1,449,526         1,397,636
Machinery and equipment ....................         1,412,644         1,420,363
Office equipment ...........................           477,987           441,110
Leasehold improvements .....................           252,684           210,247
Capital projects ...........................           301,987         1,271,914
                                                   -----------------------------
                                                    34,360,802        31,402,727
Less accumulated depreciation ..............         8,909,343         7,242,732
                                                   -----------------------------
                                                   $25,451,459       $24,159,995
                                                   =============================

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

The Company has a $5 million  master  credit  facility  with National City Bank,
Peoria,  Illinois,  to provide a  revolving  acquisition  line of  credit.  This
facility is  collateralized  by  commercial  pledges and security  agreements of
various subsidiaries,  certain transportation  equipment, and other tangible and
intangible assets. The interest rate is adjustable at 1.0% over the bank's prime
rate  (10.5%  at  December  31,  2000).  Amounts  drawn on the  master  line are
characterized  as separate  notes that must  generally  be repaid  monthly  over
periods of up to ten years. The Company's  outstanding  borrowings classified as
long-term  under  this line of credit  totaled  $600,011  and  $1,453,263  as of
December 31, 2000 and 1999,  respectively.  The  $1,453,263  note was refinanced
under a separate long-term note payable during fiscal 2000. The $600,011 note is
due June 2002. As of December 31, 1999, the Company also had a $810,000  current
note payable under the $5 million credit  facility which was refinanced  under a
separate long-term note payable during fiscal year 2000.

The Company had a $100,000 line of credit with Citizens Bank and Trust  Company,
Chillicothe,  Missouri,  that expired July 2000.  The Company had no outstanding
balance under this line of credit as of December 31, 1999.

The Company has a $600,000  and a $500,000  line of credit  with  National  City
Bank, Peoria, Illinois, each bearing interest at prime, as published in The Wall
Street  Journal,  plus .5%,  collateralized  by accounts  receivable and general
intangibles  of certain  subsidiaries.  The Company had no  outstanding  balance
under either of these lines of credit as of December 31, 2000 and 1999.
<PAGE>

Long-term debt at December 31, 2000 and 1999, consists of the following:
<TABLE>
                                                                       2000          1999
                                                                    -------------------------
<S>                                                                 <C>           <C>
Note payable under master line of credit agreement with
  National City Bank, due in monthly installments of $8,300
  including interest at 1.0% over the bank's prime rate
  (10.5% at December 31, 2000), final payment due June
  2002, collateralized by real estate, rail facilities, and other
  assets of Indiana Southwestern Railway Co. ....................   $   600,011   $        --
Note payable, National City Bank, due in monthly principle
  installments of $7,424 through July 2001, with annual
  increases therafter, plus interest at the bank's LIBOR
  rate plus 2.25% adjusted monthly (8.91% at December 31,
  2000), final installment due July 2005, collateralized by
  real estate, rail facilities, and other assets of Garden City
  & Western Railway, Inc. .......................................     1,387,654            --
Note payable, National City Bank, due in monthly principle
  installments of $18,226 through July 2001, with annual
  increases thereafter, plus interest at the bank's LIBOR
  rate plus 2.25% adjusted monthly (8.91% at December 31,
  2000), final installment due July 2005, collateralized by
  locomotives ...................................................     1,983,870            --
Note payable, Bank of America Leasing & Capital, due in
  monthly installments of $22,825, including intrest at 9.65%,
  final installment due June 2007, collateralized by railcars ...     1,318,697            --
Note payable, National City Bank, due in monthly install-
  ments of $30,830 including interest at 8.375%, final
  installment due May 2004, collateralized by the assets
  of the Michigan Southern Railroad Company and
  Michigan Southern Railroad Company, Inc. ......................     2,235,117     2,406,715
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 ............       372,410       383,958
Mortgage payable, National City Bank, due in monthly
  installments of $18,700, including interest at 8.375%
  through May 2004 when the rate will be adjusted, final
  installment due January 2007, collateralized by real estate
  rail facilities, and other assets of Alabama & Florida
  Railway Co., Inc. .............................................     1,041,422     1,170,613
Notes payable, Wells Fargo Equipment, due in monthly
  installments from $3,071 to $24,018 including interest
  ranging from 7.26% to 9.00%, final installments due
  June 2004 to May 2006, collateralized by railcars .............     1,811,385     2,146,401
                                                                    -------------------------
        Balance carried forward .................................   $10,750,566   $ 6,107,687
                                                                    -------------------------
</TABLE>
<PAGE>

Note 3.       Pledged Assets, Notes Payable, and Long-Term Debt (Continued)
<TABLE>
                                                                   2000          1999
                                                                -------------------------
<S>                                                             <C>           <C>
        Balance brought forward .............................   $10,750,566   $ 6,107,687
Note payable, Keycorp, due in monthly installments of
  $22,744, including interest at 8.86%, final installment
  due December 2003, collateralized by railcars .............       716,356       916,105
Note payable, Bank of America, due in monthly installments
  of $23,305, including interest at 8.75%, final
  installment due December 2002, collateralized by railcars .       511,708       736,060
Note payable, National City Bank, due in monthly
  installments of $37,235, including interest at 8.375%
  through May 2004 when the rate will be adjusted, final
  installment due December 2008, collateralized by Keokuk
  Junction Railway Co. stock and assets .....................     2,355,553     2,591,359
Notes payable, Center Capital Corporation, due in monthly
  installments from $1,402 to $5,202 including interest from
  8.90% to 9.75%, final installments due from January 2002
  to April 2005, collateralized by 70 ton box cars ..........       444,934       547,586
Note payable, Pullman Bank & Trust Company, due in
  monthly installments of $4,933, including interest at
  9.45%, final installment due December 2004, collateralized
  by covered hoppers ........................................       195,986       233,817
Note payable, Fifth Third Leasing, due in monthly
  installments of $39,286, including interest at 8.29%, final
  installment due May 2003, collateralized by locomotives,
  boxcars, covered hoppers, and gondolas ....................     1,029,426     1,398,524
Notes payable, United Capital, due in monthly installments
  of $32,763, and $12,028 including interest at 8.38% and
  7.63%, final installments due May 2002 and December
  2004, collateralized by railcars ..........................     1,018,178     1,454,383
Noninterest-bearing note payable, State of Mississippi,
  due in annual installments of $3,792, final installment
  due February 2009, collateralized by track structure ......        34,130        37,922
Various notes payable, due in monthly installments from
  $417 to $573, including interest ranging from 9.50% to
  10.25%, installments due through December 2000,
  collateralized by vehicles and railcars ...................            --        34,889
Note payable under master line of credit agreement with
  National City Bank, due in monthly installments of $18,900
  including interest at 9.5%, final payment due June 2001,
  collateralized by real estate, rail facilities, and other
  assets of Garden City & Western Railway , Inc. ............
  (refinanced in 2000) ......................................            --     1,453,263
                                                                -------------------------
                                                                 17,056,837    15,511,595
Less current portion ........................................     2,953,155     2,390,042
                                                                -------------------------
                                                                $14,103,682   $13,121,553
                                                                =========================
</TABLE>

Aggregate maturities required on long-term debt as of December 31, 2000, are due
in future years as follows:

Years ending December 31:                     Amount
------------------------------------------------------
  2001 ..............................      $ 2,953,155
  2002 ..............................        3,492,400
  2003 ..............................        2,469,054
  2004 ..............................        3,578,512
  2005 ..............................        2,862,642
  Thereafter ........................        1,701,074
                                           -----------
                                           $17,056,837
                                           ===========

Note 4.  Income Tax Matters

The  Company and all but two of its  subsidiaries  file a  consolidated  federal
income tax return.  Those two  subsidiaries  file  separate  federal  income tax
returns.
<PAGE>

The  provision  for income  taxes  charged  to  operations  for the years  ended
December 31, 2000 and 1999, was as follows:

                                                     2000                 1999
                                                   -----------------------------
Current:
  Federal ............................             $223,814             $549,067
  State ..............................               59,621               84,702
                                                   -----------------------------
                                                    283,435              633,769
                                                   -----------------------------
Deferred:
  Federal ............................              307,943              296,660
  State ..............................               44,157               28,700
                                                   -----------------------------
                                                    352,100              325,360
                                                   -----------------------------

                                                   $635,535             $959,129
                                                   =============================


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, 2000 and 1999, due to the following:

                                                             2000     1999
                                                             --------------

Computed "expected" tax expense .........................    35.0%    35.0%
Increase in income taxes resulting from:
  State income taxes, net of federal tax benefit ........     4.6      3.3
  Goodwill amortization .................................     1.1       .7
  Other .................................................     1.7      2.8
                                                             --------------
                                                             42.4%    41.8%
                                                             ==============


Deferred tax assets and  liabilities  consist of the following  components as of
December 31, 2000 and 1999:

                                                    2000                 1999
                                                -------------------------------
Deferred tax assets:
  AMT credit carryforwards .............        $   983,200         $   869,800
  NOL carryforwards ....................            180,000             391,100
  Deferred compensation ................             47,800              44,600
  Other ................................             59,800              91,800
                                                -------------------------------
                                                  1,270,800           1,397,300
Deferred tax liabilities:
  Property and equipment ...............         (6,036,200)         (5,810,600)
                                                -------------------------------
                                                $(4,765,400)        $(4,413,300)
                                                ===============================


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,
2000 and 1999, as follows:

                                                       2000             1999
                                                   ----------------------------

Current deferred tax assets ..................     $    59,800      $    91,800
Net noncurrent deferred tax liabilities ......      (4,825,200)      (4,505,100)
                                                   ----------------------------
Net deferred tax liability ...................     $(4,765,400)     $(4,413,300)
                                                   ============================
<PAGE>

The Company  and its  subsidiaries  have  Alternative  Minimum Tax (AMT)  credit
carryforwards  of  approximately  $983,000 and $870,000 at December 31, 2000 and
1999,  respectively.  This excess of AMT over regular tax can be carried forward
indefinitely   to  reduce  future  federal  income  tax   liabilities.   Certain
subsidiaries of the Company also have net operating loss carryforwards  totaling
approximately  $326,000 at December 31, 2000, which can be used to offset future
taxable income of those subsidiaries. Net operating loss carryforwards expire as
follows:

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

2012 .............................................                     $ 141,000
2018 .............................................                       185,000
                                                                       ---------
                                                                       $ 326,000
                                                                       =========

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  $10,500.   Company   contributions  are   discretionary.   Company
contributions,  at  the  rate  of  50%  of  the  first  8%  of  each  employee's
contributions,  were made to the plan through  September 30, 1999, at which time
management elected to discontinue making future Company contributions.  Expenses
under the plan were $5,000 and $38,000 for the years ended December 31, 2000 and
1999, 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.  If an employee  terminates  employment with
the  Company  for any reason  other than death  prior to the  employees'  normal
retirement  date,  benefits  are  rendered on a pro rata basis.  The Company has
recorded  the $124,000 and $116,000  present  value of the  estimated  liability
under the  agreements  as of December 31, 2000 and 1999,  respectively,  using a
discount rate of 7%.  Deferred  compensation  expense totaled $8,000 and $24,000
for the years  ended  December  31, 2000 and 1999,  respectively.  Note 7. 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  recognition  and  measurement
provisions of SFAS 123, it is required to make certain  disclosures  pursuant to
SFAS 123.

On April 12, 1994, the Board of Directors approved a stock option plan (the 1994
plan)  under  which  the  Company  granted  options  to  key  management,  other
employees,  and outside  directors  for the  purchase  of 760,000  shares of its
common stock.  The plan was approved by the Company's  stockholders  on June 11,
1994.  The options  became  exercisable  when the  Company's  stock reached a $4
trading  price for a ten day  period in July  1995,  as  specified  in the stock
option plan. The exercise price is equal to the trading price on the date of the
grants and ranges  from  $3.56 to $3.92 per  share.  Since the target  price was
reached by December 31, 1995,  in  accordance  with the  provisions of the plan,
additional options for 76,000 shares were granted.  The exercise price for these
options is equal to or greater than the trading  price on the date of the grants
and ranges from $4.00 to $4.40 per share.  As of December 31, 2000,  all options
under the 1994 plan had expired.

On May 28, 1996,  the Board of Directors  approved a stock option plan (the 1996
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 become fully vested and exercisable as of July 1, 2001, except
that the vesting and  exercise  date are  accelerated  to the tenth  consecutive
business  day that the  Company's  stock  trades  at a price of at least  $7.25.
Vested  options  may be  exercised  in whole or in part within 10 years from the
date of grant.  The exercise price for these options ranges from $2.75 to $3.03,
based upon the trading price on the date of the grant.  As of December 31, 2000,
215,000 options are still outstanding under the 1996 plan.
<PAGE>

Note 7.       Stock Options and Warrants (Continued)

Other pertinent information related to the plans is as follows:

                                           2000                1999
                                   --------------------- ---------------------
                                               Weighted-             Weighted-
                                               Average               Average
                                               Exercise              Exercise
                                    Shares      Price     Shares      Price
                                   -------------------------------------------

Outstanding at beginning of year    366,759    $  3.22   436,759     $  3.13
Forfeited ......................   (151,759)      3.74   (70,000)       2.68
Exercised ......................         --         --        --          --
                                   -----------------------------------------
Outstanding at end of year .....    215,000    $  2.85   366,759     $  3.22
                                   =========================================

Exercisable at end of year .....         --              151,759
                                   ========              =======

A further summary about stock options outstanding as of December 31, 2000, is as
follows:
<TABLE>
                                    Options Outstanding           Options Exercisable
                            ----------------------------------   ---------------------
                                          Weighted-
                                           Average    Weighted                Weighted
                                          Remaining   Average                  Average
                              Number     Contractual  Exercise     Number     Exercise
Range of Exercise Prices    Outstanding      Life      Price     Exercisable    Price
--------------------------------------------------------------------------------------
<S>                         <C>          <C>          <C>        <C>          <C>
$2.75 - $3.03                 215,000     5.4 years    $ 2.85           -     $     --
</TABLE>

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) reported net income, and earnings per common share would have
been reduced to the proforma amounts shown below:

                                                    2000        1999
                                                  ----------------------
Net income:
  As reported ..............................      $ 745,583   $1,212,477
  Proforma .................................      $ 683,723   $1,150,477

Basic earnings per common share:
  As reported ..............................      $    0.16   $     0.26
  Proforma .................................      $    0.15   $     0.25

Diluted earnings per common share:
  As reported ..............................      $    0.16   $     0.26
  Proforma .................................      $    0.15   $     0.25

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 4,129,720  and 4,130,420  warrants
outstanding as of December 31, 2000 and 1999, respectively.

Note 8.  Lease Commitments and Total Rental Expense

The Company has entered  into seven  lease  agreements  covering  certain of its
railroad properties. For rail- road 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 five railroad properties are based on a
per car basis, generally ranging from $10 to $15 on all cars over a range of 300
to 1,000 cars per year on each segment. The leases expire between September 2001
and July  2011 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.
<PAGE>

The total  approximate  minimum  rental  commitment  as of  December  31,  2000,
required under  noncancelable  leases, and excluding executory costs and per car
rentals, is due in future years as follows:

Years Ending December 31:                                     Amount
---------------------------------------------------------------------
  2001  ...........................................          $ 45,000
  2002  ...........................................            42,000
  2003  ...........................................            42,000
  2004  ...........................................            42,000
  2005  ...........................................            42,000
  Thereafter ......................................           191,000
                                                             --------
                                                             $404,000
                                                             ========

The total  rental  expense  under the  leases  was  approximately  $144,000  and
$154,000 for the years ended December 31, 2000 and 1999, respectively.

Note 9.  Major Customer

Revenue earned from a major railroad segment customer  amounted to approximately
$2,762,000  and  $2,824,000  during the years ended  December 31, 2000 and 1999,
respectively.  Accounts  receivable  as of December  31, 2000 and 1999,  include
approximately $351,000 and $529,000, respectively, from this customer.

Note 10. Minority Interest in Subsidiaries

Three of the Company's subsidiaries have preferred stock outstanding. This stock
is accounted for as minority interest in subsidiaries and dividends on the stock
are accounted for as a current expense.

Following is a summary of the minority  interest in  subsidiaries as of December
31, 2000 and 1999:
<TABLE>
                                                                  2000        1999
                                                               -----------------------
<S>                                                            <C>           <C>
Preferred stock of Alabama Railroad Co. ....................
  Par value - $1,000 per share
  Authorized - 700 shares
  Issued and outstanding - 406 and 409 shares (cumulative
    12% dividend; callable at Company's option at 150% of
    face value) at December 31, 2000 and 1999, respectively    $  406,000   $  409,000
Preferred stock of Alabama & Florida Railway Co., Inc. .....
  Par value - $1,000 per share
  Authorized - 500 shares
  Issued and outstanding - 367 and 406 shares (cumulative
    9% dividend; callable at Company's option after
    June 22, 1995, at 150% of face value) at December 31,
    2000 and 1999, respectively ............................      367,000      406,000
Preferred stock of Mississippi Central Railroad Co. ........
  Par value - $1,000 per share
  Authorized - 1,000 shares
  Issued and outstanding - 333 and 339 shares (cumulative
    10% dividend; convertible at a rate of $10 per common
    share, callable at Company's option after March 1, 1996,
    at 110% of face value) at December 31, 2000 and 1999,
    respectively ...........................................      333,000      339,000
                                                               -----------------------
                                                               $1,106,000   $1,154,000
                                                               =======================
</TABLE>

Note 11. Commitments and Contingencies

Commitments:  In December 1999, the Company entered into a two-year extension of
an existing  executive  employment  contract with the Company's  president.  The
two-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.
<PAGE>

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 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.  The  repair  and
rehabilitation  of the track and related  structures was completed in the fiscal
year ended December 31, 1999.

The Company is contingently liable as a guarantor on an outstanding loan payable
to the U.S.  Small  Business  Administration.  The  $76,000  loan is the primary
responsibility of the Minnesota Central Railroad Co. (Minnesota Central),  which
the Company sold in 1999; however,  the Company had guaranteed the debt prior to
the sale of the Minnesota Central.

Note 12. Earnings Per Share

Following is information  about the  computation of the earnings per share (EPS)
data for the years ended December 31, 2000 and 1999:


                                              Income       Shares      Per Share
                                            (Numerator) (Denominator)    Amount
                                            ------------------------------------
                                            For the Year Ended December 31, 2000
Basic EPS

Income available to common stockholders .   $  745,583   $4,539,379     $   0.16
                                                                        ========
Effect of Dilutive Securities
Employee stock options ..................           --           --
                                            -----------------------
Diluted EPS
Income available to common stockholders
  plus assumed conversions ..............   $  745,583   $4,539,379     $   0.16
                                            ====================================

                                            For the Year Ended December 31, 1999
                                            ------------------------------------
Basic EPS
Income available to common stockholders .   $1,212,477   $4,610,439     $   0.26
                                                                        ========
Effect of Dilutive Securities
Employee stock options ..................           --           --
                                            -----------------------
Diluted EPS
Income available to common stockholders
  plus assumed conversions ..............   $1,212,477   $4,610,439     $   0.26
                                            ====================================

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

During the year ended  December  31,  1999,  the  Company's  Board of  Directors
approved a plan to begin repurchasing  shares of the Company's common stock from
stockholders.  During 2000 and 1999, the Company  repurchased  62,240 and 19,000
shares of common stock at an average price of approximately  $1.43 and $1.39 per
share, respectively, for a cost of $89,654 in 2000 and $26,478 in 1999.
<PAGE>

The common stock repurchased is accounted for as treasury stock in the Company's
2000 and 1999  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,  2000 and  1999,  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 $89,592  and $26,459 was
charged to retained  earnings as of  December  31, 2000 and 1999,  respectively.
Note 14. Fair Value of Financial Instruments

The following methods and assumptions were used by the Company in estimating the
fair value of its financial instruments:

     The carrying value of cash,  cash value of life  insurance,  notes payable,
     and variable rate long-term debt approximates fair value.

     The remaining  carrying  value of fixed rate  long-term  debt  collectively
     approximates  fair  value  based  upon the  similarity  of  interest  rates
     negotiated  on debt  instruments  in 2000 and 1999 as  compared to existing
     interest rates.

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.
<PAGE>

Factors management used to identify the reportable  segment:  Pioneer Railcorp's
reportable  segments consists of wholly-owned  short line railroad  subsidiaries
that offer similar  services and a railroad  equip- ment  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,
                                                                ----------------------------
                                                                    2000            1999
                                                                ----------------------------
<S>                                                             <C>             <C>
Segment Assets
  Railroad operations .......................................   $ 17,612,933    $ 18,394,208
  Equipment leasing operations ..............................     13,031,695      11,558,068
  Corporate support services ................................        907,327       2,308,488
                                                                ----------------------------
        Total consolidated segment assets ...................   $ 31,551,955    $ 32,260,764
                                                                ============================

Expenditures for additions to long-lived assets
  Railroad operations
    Purchases ...............................................   $    215,744    $    128,005
    Acquired through purchase of subsidiaries ...............        619,000       5,614,510
  Equipment leasing operations ..............................      2,876,766       2,176,434
  Corporate support services ................................          7,641          32,602
                                                                ----------------------------
        Total expenditures for additions to long-lived assets   $  3,719,151    $  7,951,551
                                                                ============================

Revenues

Revenues from external customers
  Railroad operations .......................................   $ 11,634,662    $ 11,146,579
  Equipment leasing operations ..............................      3,120,139       2,678,305
  Corporate support services ................................         16,855          32,500
                                                                ----------------------------
        Total revenues from external customers ..............   $ 14,771,656    $ 13,857,384
                                                                ============================

Intersegment revenues
  Railroad operations .......................................   $       --      $       --
  Equipment leasing operations ..............................        393,900         392,700
  Corporate support services ................................      6,318,783       5,933,463
                                                                ----------------------------
        Total intersegment revenues .........................   $  6,712,683    $  6,326,163
                                                                ============================

Total revenue ...............................................   $ 21,484,339    $ 20,183,547

Reconciling items
  Intersegment revenues .....................................     (6,712,683)     (6,326,163)
                                                                ----------------------------
        Total consolidated revenues .........................   $ 14,771,656    $ 13,857,384
                                                                ============================
</TABLE>
<PAGE>

Note 15.      Segment Information (Continued)

                                                     For Year Ended December 31,
                                                     ---------------------------
                                                        2000            1999
                                                     ---------------------------
Expenses

Interest expense
  Railroad operations ............................   $    95,251    $   120,143
  Equipment leasing operations ...................       821,467        659,359
  Corporate support services .....................       655,710        636,701
                                                     --------------------------
        Total consolidated interest expense ......   $ 1,572,428    $ 1,416,203
                                                     ==========================

Depreciation and amortization expense
  Railroad operations ............................   $   712,857    $   701,634
  Equipment leasing operations ...................     1,129,992        972,868
  Corporate support services .....................        90,860         88,622
                                                     --------------------------
        Total consolidated depreciation and
        amortization expense .....................   $ 1,933,709    $ 1,763,124
                                                     ==========================

Segment profit
  Railroad operations ............................   $ 4,843,851    $ 4,559,919
  Equipment leasing operations ...................     1,686,778      1,271,247
  Corporate support services .....................     2,874,297      2,737,627
                                                     --------------------------
        Total segment profit .....................     9,404,926      8,568,793

Reconciling items
  Intersegment revenues ..........................    (6,712,683)    (6,326,163)
  Income taxes ...................................      (635,535)      (959,129)
  Minority interest in preferred stock dividends
    of subsidiaries ..............................      (117,710)      (120,515)
  Other income (expense), net ....................    (1,193,415)        49,491
                                                     --------------------------
        Total consolidated net income ............   $   745,583    $ 1,212,477
                                                     ==========================

Note 16. Purchases and Disposition of Railroad Facilities

On April 1, 2000,  the  Company,  through its  wholly-owned  subsidiary  Indiana
Southwestern Railway Co., acquired for $619,000 certain assets, including all of
the rail facilities owned or leased by the Evansville  Terminal Railway Company,
in a transaction  accounted for by the purchase  method of accounting.  The fair
value of the assets  acquired  of $619,000  was  allocated  to the track  assets
acquired.  The operating  results of the acquired  company have been included in
the consolidated statement of income since the date of acquisition.  The Company
financed this acquisition with $615,000 of long-term borrowings.

Effective  January 6, 1999, the Company,  through its  wholly-owned  subsidiary,
Michigan Southern Railroad Company,  exercised its option to purchase the common
stock  of  Michigan  Southern  Railroad  Co.,  Inc.  for  $2,400,000  cash  in a
transaction accounted for using the purchase method. Accordingly,  the operating
results of the acquired company have been included in the consolidated statement
of income since the date of acquisition.

The excess of the aggregate purchase price over the fair market value of the net
assets  acquired  of  $90,000  is  being  amortized  over  40  years  using  the
straight-line  method.  The Company financed this acquisition with $2,400,000 of
long-term borrowings.

On April 29,  1999,  the Company  acquired  the common  stock of the Garden City
Western Railway,  Inc. for $1,500,000 cash in a transaction  accounted for using
the purchase  method.  The operating  results of the acquired  company have been
included in the consolidated statement of income since the date of acquisition.

The excess of the aggregate purchase price over the fair market value of the net
assets  acquired  of  $24,077  is  being  amortized  over  40  years  using  the
straight-line  method.  The Company financed this acquisition with $1,500,000 of
long-term borrowings.
<PAGE>

Unaudited  pro forma  consolidated  results of  operations  for the years  ended
December  31,  2000 and 1999,  as though  the  aforementioned  acquisitions  had
occurred as of January 1, 1999, follows:

                                                    2000                 1999
                                                 -------------------------------

Railway operating revenue ..............         $14,806,081         $14,274,678
Net income .............................             713,715           1,106,209
Earnings per common share ..............                0.16                0.24

The above amounts reflect  adjustments for amortization of goodwill,  additional
depreciation on revalued purchased assets, and interest on borrowed funds.

Effective May 6, 1999, the Company entered into an agreement whereby it sold the
common stock of the Minnesota  Central  Railroad Co. for $1. The  subsidiary had
historically generated net losses, thus manage- ment decided to dispose of it in
1999. The Company recognized a loss of $341,872 associated with this sale.

Note 17. Subsequent Event

On February 20, 2001, the Company through its wholly-owned subsidiary Gettysburg
&  Northern  Railroad  Co.  acquired  all of the  railroad  assets of the former
Gettysburg  Railway,  Inc.  and  the  Gettysburg  Scenic  Railway  for  cash  of
$1,600,000  in a transaction  to be accounted  for using the purchase  method of
accounting.  The acquisition was financed with $1,600,000 borrowings against the
Company's $5 million master credit facility.
<PAGE>

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

        None.

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, 2000.

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

Guy L. Brenkman (53)                Director (Chairman) & President
Orvel L. Cox (58)                   Director
Timothy F. Shea (52)                Director
John S. Fulton (68)                 Director
J. Michael Carr (36)                Director & Treasurer
Daniel A. LaKemper (43)             Secretary
Scott Isonhart  (34)                Assistant 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 20, 2000 to
serve until the next annual meeting. There is no family relationship between any
officer or director.

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. Cox,  Director,  also serves as same for each of the Company's  subsidiaries
and Vice  President  of  Mechanical  for  same.  Mr.  Cox has 41 years of active
railroading experience with 31 of those years working for Class I railroads. 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.

Timothy F. Shea,  Director,  was elected to the board in 1997. Mr Shea owns Shea
Property  Management in Peoria,  Illinois,  and has been a real estate  property
manager  since  1984.  Mr.  Shea  has  a  BS-Business  Management  from  Bradley
University, Peoria, Illinois.

Mr. Fulton,  Director, was elected to the Board in 1993. Mr. Fulton has 17 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.  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.  LaKemper,  Secretary,  also  serves  as  same  for  each  of the  Company's
subsidiaries.  Mr. LaKemper is the Company's  General Counsel and serves as same
for each of the Company's  subsidiaries.  Mr.  LaKemper has been employed by the
Company since May 1992. Before joining the Company,  Mr. LaKemper  practiced law
since 1982 working in private  practice and, most recently,  as General  Counsel
for a manufacturing concern. Mr. LaKemper holds a Juris Doctorate from Creighton
University  School of Law in  Omaha,  Nebraska  and a  BS-History  from  Bradley
University in Peoria, Illinois.
<PAGE>

Mr.  Isonhart,  Assistant  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.

Item 10.  Executive Compensation

Summary Compensation Table
--------------------------

                             Annual
                          Compensation     Long Term Compensation
                         ---------------  ------------------------
                                          Restricted
Name &                                      Stock                      Other
Position                 Year    Salary     Award     Options/SARs  Compensation
--------------------------------------------------------------------------------

Guy L. Brenkman, CEO     2000   $532,341     ----         ----      $  5,000 (a)
                         1999   $538,297     ----         ----      $  5,000 (a)
                         1998   $486,494     ----         ----      $  5,000 (a)

(a) - Registrant's contribution to the Company's defined contribution plan.

Option/SAR Grants in Last Fiscal Year
-------------------------------------

None

Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
---------------------------------------------------
<TABLE>
                                                                          Value of
                                                                         Unexercised
                                                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           0/ 80,000              $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 2001
by the Board of Directors.  The agreement provides for a base salary with annual
inflation  adjustments  based  upon  the  Consumer  Price  Index.  The  original
agreement  provided  for three weeks paid  vacation in 1993 to be increased by 1
week each year  thereafter.  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,  2001,  the  president's  base  salary  was  $509,586.   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 years  salary for the  consulting  services
rendered.

             The remainder of this page is intentionally left blank
<PAGE>



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.              11/12/96             01/01/98
Michigan Southern Railroad                12/18/96             01/01/97
Pioneer Industrial Railway Co.            02/20/98         No Raise Taken
The Garden City Western Railway Co.       05/01/99             05/01/99
Indiana Southwestern Railway Co.          04/01/00             01/01/01

Directors of the Registrant each were compensated $3,000 in 2000.

Item 11.  Security Ownership of Certain Beneficial Owners and Management

The following table sets forth information, as of March 19, 2001, 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 19,  2001  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) ......................          3,473,476          40.11%
Orvel L. Cox (3) .........................            168,582           1.95%
Daniel A. LaKemper (4) ...................             78,480            .91%
John S. Fulton (5) .......................             21,400            .25%
J. Michael Carr (6) ......................              1,050            .01%
Scott Isonhart (7) .......................                100            .01%
Tim Shea .................................              5,000            .06%
                                                    ---------          ---------
Directors and Executive
  Officers as a Group: ...................          3,748,088          43.29%(1)

FOOTNOTES:

(1)  Based on 8,658,997 shares of Common Stock and Equivalents outstanding as of
     March 19, 2001.

(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.  Mr.  Brenkman  owns all
     shares in joint tenancy with his wife. In addition,  22,976 shares are held
     by Mr.  Brenkman  under the Pioneer  Railcorp  Retirement  Savings Plan and
     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.  In addition,  1,942 shares are held
     by Mr. Cox under the Pioneer  Railcorp  Retirement  Savings Plan. Mr. Cox's
     shares are owned in joint  tenancy with his wife.  Mr. Cox and his wife own
     one Preferred Share in the Mississippi Central Railroad Co.

(4)  Of the total number of shares shown as owned by Mr. LaKemper, 40,000 shares
     represent the number of shares Mr. LaKemper has the right to acquire within
     60 days through the exercise of Warrants. In addition,  980 shares are held
     by Mr.  LaKemper under the Pioneer  Railcorp  Retirement  Savings Plan. Mr.
     LaKemper's shares are owned in joint tenancy with his wife.

(5)  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.
<PAGE>

(6)  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.

(7)  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.

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, 2000 and 1999 all Section
16(a) filing requirements were satisfied.

             The remainder of this page is intentionally left blank

<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 - Subsidiaries of the registrant.

Exhibit # 27 - Financial Data Schedule.

No reports were filed on Form 8-K during the fourth quarter 2000.


<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 21, 2001

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 21, 2001

By:  /s/ Orvel Cox
     ------------------------------------
     Orvel Cox, Director

Dated: March 21, 2001

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

Dated: March 21, 2001