U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB

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

                       For the quarter ended June 30, 1998

                        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 , Chicago Stock Exchange

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.

                                    4,610,447
              -----------------------------------------------------
              (Shares of Common Stock outstanding on June 30, 1998)
<PAGE>


PIONEER RAILCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
Quarters Ended June 30, 1998 and 1997

UNAUDITED
<TABLE>

                                                                          Second Quarter                      First Six Months
                                                                  -----------------------------       -----------------------------
                                                                      1998             1997               1998             1997
                                                                  -----------------------------       -----------------------------
<S>                                                               <C>               <C>               <C>               <C>   
Operating revenue ..........................................      $ 3,653,418       $ 3,509,995       $ 6,890,265       $ 6,323,230
                                                                  -----------------------------       -----------------------------
Operating expenses
   Maintenance of way ......................................          411,733           354,099           708,762           581,776
   Maintenance of equipment ................................          416,010           391,095           818,311           759,351
   Transportation expense ..................................          796,949           782,996         1,533,543         1,492,085
   Administrative expense ..................................          944,794           782,011         1,764,681         1,576,742
   Depreciation  & amortization ............................          394,601           376,438           786,864           744,024
                                                                  -----------------------------       -----------------------------
                                                                    2,964,087         2,686,639         5,612,161         5,153,978
                                                                  -----------------------------       -----------------------------
Operating income ...........................................          689,331           823,356         1,278,104         1,169,252
                                                                  -----------------------------       -----------------------------

Other income & expense
   Other (income) expense ..................................          (36,421)          (60,902)         (105,563)         (194,820)
   Interest expense, equipment .............................          199,235           195,459           399,068           397,617
   Interest expense, other .................................          111,199           148,717           256,822           294,892
   Net (gain) loss on sale of fixed assets .................          (68,579)          (35,612)          (75,695)          (64,564)
                                                                  -----------------------------       -----------------------------
                                                                      205,434           247,662           474,632           433,125
                                                                  -----------------------------       -----------------------------

Income before income taxes .................................          483,897           575,694           803,472           736,127
Provision for income taxes .................................          180,500           209,350           294,400           268,250
                                                                  -----------------------------       -----------------------------
Income before minority interest in preferred
   stock dividends of consolidated subsidiaries ............      $   303,397       $   366,344       $   509,072       $   467,877

Minority interest in preferred stock dividends of
    consolidated subsidiaries ..............................      $    31,308       $    31,308       $    62,615       $    62,615


Net income .................................................      $   272,089       $   335,036       $   446,457       $   405,262
                                                                  =============================       =============================

Basic earnings per common share ............................      $      0.06       $      0.07       $      0.10       $      0.07
                                                                  =============================       =============================

Diluted earnings per common share ..........................      $      0.06       $      0.07       $      0.10       $      0.07
                                                                  =============================       =============================

Cash dividends per common share ............................      $      0.02       $      0.00       $      0.02       $      0.00
                                                                  =============================       =============================
</TABLE>
<PAGE>
PIONEER RAILCORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
June 30, 1998 and December 31, 1997

UNAUDITED
<TABLE>

                                                            June 30,   December 31,
                                                              1998         1997
                                                         --------------------------
<S>                                                      <C>           <C>    
ASSETS
Current Assets
   Cash ..............................................   $   891,695   $   407,428
   Accounts receivable, less allowance
     for doubtful accounts 1998 $102,450; 1997 $82,375     2,453,695     2,367,509
   Inventories .......................................       353,479       351,331
   Prepaid expenses ..................................       116,829       192,952
   Income tax refund claims ..........................        74,478        74,602
   Deferred taxes ....................................        66,400        66,400
                                                         -------------------------
        Total current assets .........................     3,956,576     3,460,222
                                                         -------------------------
Property and Equipment less accumulated
  depreciation 1998 $5,266,164; 1997 $4,602,015 ......    19,828,831    19,974,702
                                                         -------------------------
Intangible Assets, less accumulated amortization
  1998 $223,888; 1997 $140,109 .......................     1,092,591     1,117,205
                                                         -------------------------

Investments, cash value of life insurance ............       104,883        95,547
                                                         -------------------------
Total assets .........................................   $24,982,881   $24,647,676
                                                         =========================

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
   Accounts payable ..................................   $ 2,895,107   $ 2,518,190
   Notes payable .....................................       224,987       250,034
   Income taxes payable ..............................       234,149        61,749
   Current maturities of long-term debt ..............     1,967,298     1,836,132
   Accrued liabilities ...............................       412,780       432,145
                                                         -------------------------
        Total current liabilities ....................     5,734,321     5,098,250
                                                         -------------------------

Long-term debt, net of current maturities ............    11,809,577    12,465,498
Deferred income taxes ................................     2,250,700     2,250,700
                                                         -------------------------
        Total liabilities & debt .....................    19,794,598    19,814,448
                                                         -------------------------

Minority interest in subsidiaries ....................     1,186,000     1,186,000

Stockholders' Equity
   Common stock ......................................         4,607         4,607
   Additional paid-in capital ........................     2,041,003     2,040,203
   Retained earnings .................................     1,956,673     1,602,418
                                                         -------------------------
        Total stockholders' equity ...................     4,002,283     3,647,228
                                                         -------------------------

Total liabilities and equity .........................   $24,982,881   $24,647,676
                                                         =========================
</TABLE>
<PAGE>

PIONEER RAILCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS
Quarters Ended June 30, 1998 and 1997

UNAUDITED
<TABLE>
                                                                    Second Quarter  
                                                              --------------------------
                                                                  1998           1997
                                                              --------------------------
<S>                                                           <C>            <C>
Cash Flows From Operating Activities
Net income ................................................   $   446,457    $   405,262
Adjustments to reconcile net income to net cash
provided by operating activities:
          Minority interest in preferred stock dividends of
          consolidated subsidiaries .......................        62,615         62,615
             Depreciation .................................       760,700        712,815
             Amortization .................................        26,164         31,209
          Increase in cash value life insurance ...........        (9,336)        (9,776)
          (Gain) on sale of property & equipment ..........       (75,695)       (64,564)
           Deferred taxes .................................           -0-            -0-
Change in assets and liabilities, net of effects from
          acquisition of subsidiaries
          (Increase) decrease accounts receivable .........       (86,186)      (298,053)
          (Increase) decrease inventories .................        (2,148)        18,089
          (Increase) decrease prepaid expenses ............        76,123        151,330
          (Increase) decrease intangible assets ...........          (279)        (4,294)
          Increase (decrease) accounts payable ............       376,917       (161,316)
          (Increase) decrease income tax refund claims ....           124         11,635
          Increase (decrease) income tax payable ..........       172,400        229,200
          Increase (decrease) accrued liabilities .........       (19,365)       108,310
                                                              --------------------------
          Net cash provided by operating activities .......     1,728,491      1,192,462
                                                              --------------------------

Cash Flows From Investing Activities
          Proceeds from sale of property & equipment ......       305,709        137,957
          Purchase of property & equipment, net of property
          and equipment from acquisition of subsidiaries ..      (846,115)      (407,951)
          Acquisition of subsidiaries, net of cash acquired           -0-            -0-
                                                              --------------------------
          Net cash (used in) investing activities .........      (540,406)      (269,994)
                                                              --------------------------

Cash Flows From Financing Activities
          Proceeds from short-term borrowings, net of debt
          assumed in acquisition of subsidiaries ..........     2,097,918      1,283,301
          Proceeds from long-term borrowings, net of debt
          assumed in acquisition of subsidiaries ..........     3,692,181        119,700
          Payments on short-term borrowings ...............    (2,122,965)    (1,007,863)
          Payments on long-term borrowings ................    (4,216,936)      (927,124)
          Repurchase of minority interest
          Cash dividends paid .............................       (92,201)           -0-
          Proceeds from warrants and options exercised ....           800         29,090
          Payments to minority interest ...................       (62,615)       (62,615)
                                                              --------------------------
          Net cash provided by financing activities: ......      (703,818)      (565,511)
                                                              --------------------------

Net increase (decrease) in cash ...........................       484,267        356,957

Cash, beginning of period .................................       407,428        501,212
                                                              --------------------------
Cash, end of period .......................................   $   891,695    $   858,169
                                                              ==========================
</TABLE>
<PAGE>



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PIONEER RAILCORP AND SUBSIDIARIES

NOTE 1.   STATEMENTS

The  accompanying  unaudited  interim  financial  statements  have been prepared
pursuant to the rules and regulations for reporting on Form 10-QSB. Accordingly,
certain disclosures required by generally accepted accounting principles are not
included herein. These interim statements should be read in conjunction with the
latest  financial  statements and notes thereto included in the Company's latest
Annual Report on Form 10-KSB and subsequent Form 10-QSB filings.

NOTE 2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principals of consolidation:

The consolidated financial statements include Pioneer Railcorp (Pioneer) and its
wholly-owned  and controlled  subsidiaries  (collectively,  "the Company").  The
significant  subsidiaries  are as follows:  West  Michigan  Railroad Co.  (WMI),
Wabash & Western Railway Co. d/b/a Michigan  Southern Railroad (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),  Keokuk  Junction  Railway Co.  (KJRY),  Rochelle  Railroad Co.  (RRCO),
Shawnee Terminal Railway Company (STR),  Pioneer  Industrial  Railway Co. (PRY),
Pioneer  Resources,  Inc. (PIR),  Pioneer  Railroad  Equipment Co., Ltd. (PREL),
Pioneer  Air,  Inc.  (PAR),  and Pioneer  Railroad  Services,  Inc.  (PRS).  All
significant  intercompany  balances and  transactions  have been  eliminated  in
consolidation.

Inventories:

Inventories   consisting  of  various  mechanical  parts,  track  materials  and
locomotive  supplies are stated at the lower of cost  (determined by the average
cost method) or market.

Property and equipment:

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

Roadbed  - 20 years
Transportation  equipment - 10 to 15 years 
Railcars - 10 to 15 years 
Buildings - 20 to 40 years  
Machinery and equipment - 5 to 10 years 
Office  equipment - 5 to 10 years

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

Intangible assets:

Intangible  assets consist  principally of goodwill which is being  amortized by
the  straight-line   method  over  a  forty-year  period.  The  Company  reviews
intangible assets quarterly to determine  potential  impairment by comparing the
carrying value of the intangible with the undiscounted  anticipated  future cash
flows of the related property before interest charges.  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.

Earnings per share:

Basic  per-share  amounts are computed by dividing net income (the numerator) by
the weighted  average  number of common shares  outstanding  (the  denominator).
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 share.
<PAGE>


NOTE 3.  ESTIMATED IMPACT OF THE ADOPTION OF RECENT ACCOUNTING STANDARDS

The  Financial  Accounting  Standards  Board has issued  Statement  of Financial
Accounting  Standards  (FAS 128),  "Earnings  Per Share." FAS 128  requires  the
presentation  of both basic  earnings per share and diluted  earnings per share.
Basic  per-share  amounts are computed by dividing net income (the numerator) by
the weighted  average  number of common shares  outstanding  (the  denominator).
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 share. The Company initially applied FAS 128 for the
year ended December 31, 1997, and as required by this statement has restated all
per share information for the prior year to conform to the statement.

In July 1997,  Statement of Financial  Accounting  Standard No. 130,  "Reporting
Comprehensive  Income"  (FAS  130),  was  issued  by  the  Financial  Accounting
Standards Board. The standard establishes  reporting of comprehensive income for
general purpose  financial  statements.  Comprehensive  income is defined as the
change in equity of a business  enterprise  during a period and all other events
and  circumstances  from  non-owner  sources.  The  standard  is  effective  for
financial  statement periods beginning after December 15, 1997. The Company does
not believe  the  adoption of the  standard  will have a material  impact on its
consolidated financial statements.

In July 1997,  Statement of Financial  Accounting Standard No. 131,  "Disclosure
about Segments of an Enterprise and Related  Information"  (FAS 131), was issued
by the Financial  Accounting  Standards Board. The standard requires the Company
to disclose the factors used to identify reportable segments including the basis
of  organization,  differences in products and services,  geographic  areas, and
regulatory  environments.  FAS 131 additionally requires financial results to be
reported in the financial  statements for each reportable segment.  The standard
will be effective  for the Company's  1998 annual  report and interim  financial
statements  following the 1998 annual  report.  The Company does not believe the
adoption  of the  standard  will  have a  material  impact  on its  consolidated
financial statements.

The Company is not aware of any other 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.

NOTE 4.   STOCK OPTION PLANS

On April  12,  1994,  Pioneer  adopted,  with  the  subsequent  approval  of its
shareholders,  a stock  option  plan  permitting  the  issuance of up to 836,000
shares of common stock. Options granted under the plan were incentive based. The
options became  exercisable on July 5, 1995 at a price equal to the market value
of the common  stock at the date of grant,  and the effect on earnings per share
has been  reflected in the  accompanying  financial  statements.  As of June 30,
1998,  a total  of  238,759  options  are  outstanding  under  this  plan  after
forfeitures and exercises.

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 are fully vested and will be exercisable
as of July 1, 2001,  and the effect on earnings per share has been  reflected in
the accompanying  financial statements.  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 the market  price of the common
shares at the date the  options  were  granted,  in whole or in part,  within 10
years from the date of grant.  As of June 30, 1998,  a total of 272,000  options
are outstanding under this plan after forfeitures of 135,000 shares.

NOTE 5.   STOCK SPLIT AND STOCK WARRANTS ISSUED AS DIVIDENDS

On May 16,  1995 the  Board of  Directors  authorized  a 2 for 1 stock  split to
shareholders  of record June 30, 1995,  payable July 1, 1995. This increased the
outstanding common shares to 4,198,084 from 2,099,042.  In addition, on June 24,
1995 the  shareholders  ratified an amendment  to the Articles of  Incorporation
authorizing  the  issuance  of stock  warrants  as a  dividend  to  shareholders
immediately  after the stock split.  Each  shareholder  received one warrant for
each share of common stock owned. Each warrant permits  shareholders to purchase
an additional  share of common stock at a  predetermined  price of $2 per share.
The warrants  expire on July 1, 2015, and the effect of the warrants on earnings
per share has been reflected in the  accompanying  financial  statements.  As of
June 30,  1998,  a total of  67,244  warrants  had been  exercised  since  their
issuance on June 24, 1995.
<PAGE>


NOTE 6. MINORITY INTERESTS 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.

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

The Company operated the following  thirteen railroads during the second quarter
of 1998:  West Michigan  Railroad Co. (WMI),  Wabash & Western Railway Co. d/b/a
Michigan  Southern  Railroad  (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),  Keokuk Junction Railway
Co. (KJRY),  Rochelle  Railroad Co. (RRCO),  Shawnee  Terminal  Railway  Company
(STR), and Pioneer Industrial  Railway Co.(PRY).  The Company also operated four
railroad-related  subsidiaries,  Pioneer Resources, Inc. (PIR), Pioneer Railroad
Equipment Co., Ltd. (PREL), Pioneer Railroad Services,  Inc. (PRSI), and Pioneer
Air, Inc. (PAR).

Summary: Second Quarter 1998 Compared to Second Quarter 1997.

The Company's net income in the second quarter 1998 decreased by 19% to $272,089
down from $335,036 in the same period last year. Operating revenue in the second
quarter 1998  increased by $143,000 or 4% to $3.65 million from $3.51 million in
the same period last year.  Operating  expense  increased in the second  quarter
1998 by approximately $277,000 or 10% to $2.96 million from $2.69 million in the
same period last year.  Operating income decreased in the second quarter 1998 by
$134,000 or 16% to $689,000 down from $823,000 in the same period last year.

The following factors adversely affected second quarter 1998 net income:

The Minnesota  Central  Railroad had a decrease in operating income of $163,000,
recording an  operating  loss of $7,000 in the second  quarter 1998  compared to
operating  income of $156,000 in the same period last year. Most of the decrease
in MCTA operating income resulted from additional switching revenues recorded in
1997 due to adjustments  involving time limits for the settlement of freight and
switching liabilities required by railway accounting rules as established by the
Association  of American  Railroads,  the governing  body of all North  American
railroads.  The MCTA also was  adversely  effected  by a decrease in loadings of
grain  resulting from market  conditions and reduced  loadings of clay resulting
from a delay in the  arrival  of empty  cars for  clay  loading  from the  Union
Pacific.

In  addition,  the Fort Smith  Railroad  had a decrease in  operating  income of
$92,000 in the second  quarter  1998,  reporting  operating  income of  $266,000
compared to $358,000 in the same period last year.  This decrease  resulted from
the absence of  military  car loads and also a  reduction  in  overhead  traffic
handled from the Union Pacific Railroad to the AM and KCS.

Several factors positively affected second quarter 1998 net income:

Pioneer Railroad Equipment operating income increased  approximately $198,000 in
the second  quarter 1998,  recording  operating  income of $227,000  compared to
$28,000 in the same period last year.  The PREL revenue  increase  resulted from
Company  efforts to increase  utilization of its rail car fleet and the addition
of higher earning boxcars to its fleet in late 1997.

The Alabama Railroad  operating income  increased  approximately  $54,000 in the
second quarter 1998,  recording operating income of $102,000 compared to $48,000
in the same  period  last year.  The ALAB's  increase  resulted  from  increased
loadings on the line.

The Alabama & Florida Railway operating income increased  approximately  $39,000
in the second quarter 1998,  recording  operating income of $184,000 compared to
$145,000 in the same period last year. The AF's increase resulted primarily from
a  transportation  mix that  resulted in the handling of higher  dollar  revenue
loads.

The Decatur Junction Railway operating income increased approximately $37,000 in
the second  quarter  1998,  recording  operating  income of $68,000  compared to
$31,000 in the same period last year.  The DT's increase  resulted not only from
increases in grain loadings but also increases of non- agricultural commodities.
<PAGE>


The Rochelle Railroad operating income increased  approximately  $57,000, in the
second quarter 1998,  recording operating income of $109,000 compared to $52,000
in the same period last year.  The RRCO increase  resulted  from both  increased
rail  loadings and freight  rates in the quarter.  As reported in the  Company's
Form 8-K filed June 18, 1998,  it is  anticipated  that within a short period of
time rail  shipments to and from the Total  Logistics  Control  facility will be
handled by the city and not RRCO. TLC's traffic represents  approximately 75% of
the  business  on the line.  The RRCO  anticipates  it will  continue  to handle
traffic for the other two customers on the line. The loss of the Total Logistics
Control  business  will have a significant  negative  impact on RRCO revenue and
operating income and subsequently  the operating  revenue,  operating income and
net income of the consolidated operating results of Company.

Operating Revenue:

The  increase in  operating  revenue in the second  quarter 1998 of $143,000 was
positively  affected by a $288,000  increase in revenue  from  Pioneer  Railroad
Equipment  resulting  from  increased  revenue from the Company's  railcar fleet
which recorded revenues of $681,000 compared to $393,000 in the same period last
year. In addition, the Alabama Railroad had an increase of approximately $38,000
in  operating  revenue in the second  quarter of 1998 to  $214,000  compared  to
$176,000  in the same period  last year;  the  Alabama & Florida  Railway had an
increase of approximately  $28,000 in operating revenue in the second quarter of
1998 to $392,000  compared to $364,000 in the same period last year; the Decatur
Junction Railway had an increase of approximately  $25,000 in operating  revenue
in the second quarter of 1998 to $100,000 compared to $75,000 in the same period
last year; and the Michigan Southern had an increase of approximately $68,000 in
operating revenue in the second quarter of 1998 to $322,000 compared to $254,000
in the same  period  last year.  Increased  car  loadings  in the period was the
primary reason for the operating revenue increases on these railroads. Also, the
Rochelle Railroad had an increase of approximately  $77,000 in operating revenue
in the second  quarter of 1998 to  $183,000  compared  to  $106,000  in the same
period last year.  The Rochelle  increases  resulted from increases in both rail
loadings and freight rates in the quarter.

The  increases in  operating  revenue  from these  subsidiaries  was offset by a
$256,000 operating revenue decrease by the Minnesota Central Railroad, which had
operating revenue of $241,000 in the second quarter 1998 compared to $497,000 in
the same  period  last year.  Most of the  decrease  in MCTA  operating  revenue
resulted from additional  switching revenues recorded in 1997 due to adjustments
involving  time limits for the  settlement of freight and switching  liabilities
required  by railway  accounting  rules as  established  by the  Association  of
American Railroads, the governing body of all North American railroads. The MCTA
also was adversely  effected by a decrease in loadings of grain  resulting  from
market  conditions  and reduced  loadings of clay  resulting from a delay in the
arrival of empty cars for clay loading from the Union  Pacific.  Also,  the Fort
Smith Railroad  operating  revenue decreased $77,000 in the second quarter 1998,
recording  revenues  of  $431,000  compared  to $508,000 in the same period last
year. This decrease  resulted from the abscence of military car loads and also a
reduction in overhead  traffic handled from the Union Pacific Railroad to the AM
and KCS.

The remaining  operating  subsidiaries had immaterial  changes in revenue in the
second quarter 1998 compared to the same period last year.

Operating Expense:

The increase in operating expense of $277,000 in the second quarter 1998 was the
result of the following factors:

In the second quarter 1998,  Pioneer Railroad  Equipment Co., Ltd. had increased
operating  expense of $82,000,  recording  $476,000  compared to $394,000 in the
same  period  last year,  as a result of  increased  maintenance  expense on the
railcar fleet,  increased  depreciation expense and increased freight expense to
relocate the railcar fleet in a manner that would maximize  usage.  The Michigan
Southern  Railroad  had an increase in operating  expense of $76,000,  recording
operating expense of $217,000 in the second quarter 1998 compared to $141,000 in
the same  period  last  year.  Most of this  increase  resulted  from  increased
personnel  and  transportation  costs  resulting  from  increased  rail traffic.
Support  services  provided by the parent company,  Pioneer  Railcorp,  and also
support services  provided by Pioneer  Railroad  Services,  increased  operating
expense $160,000 in the second quarter 1998. Most of this increase is related to
increased payroll expenses related to hiring and retaining support personnel.

The  remaining  operating  subsidiaries  had no  material  changes in  operating
expense in the second quarter 1998 compared to the same period last year.
<PAGE>


Other Income and Expense Income Statement Line Item Discussion:

Other  income of $36,000 in the second  quarter  1998 and $61,000 for the second
quarter  1997  consists  of real estate  lease  income,  scrap  income and other
miscellaneous  items.  None of the other  income  transactions  are  material in
nature when considered alone.

The Company  experienced a decrease in interest expense of $34,000 in the second
quarter  1997  compared  to the  same  period  last  year as the  result  of the
reduction in long term-debt from scheduled principal  payments,  and refinancing
activities.

Net gain on fixed asset  dispositions  during the second quarter 1998 of $69,000
included  a gain of  $97,000  from the sale of  railcars  and a loss of  $28,000
resulting from the sale of the Company's old corporate  building in Chillicothe,
Illinois. Net gain on fixed asset dispositions during the second quarter 1997 of
$36,000 included $5,500 from the sale of an excess locomotive,  $11,000 from the
sale of a small  parcel of land and  $20,000  from the sale of a crane  that was
used sparingly in Company operations.

Summary: First Six Months 1998 Compared to First Six Months 1997.

The  Company's  net  income in the first six  months  1998  increased  by 10% to
$446,457 up from $405,262 in the same period last year. Operating revenue in the
first six months 1998  increased  by $567,000  or 9% to $6.8  million  from $6.3
million in the same period last year.  Operating  expense increased in the first
six months 1998 by $458,000 or 9% to $5.6  million from $5.1 million in the same
period last year.  Operating  income  increased  in the first six months 1998 by
$108,000 or 9% to $1,278,000 from $1,169,000 in the same period last year.

Several factors positively affected first six months 1998 net income:

Pioneer  Railroad  Equipment  operating  income  increased  $306,000,  recording
operating income of $675,000  compared to $369,000 in the same period last year.
The PREL revenue increase resulted from Company efforts to increase  utilization
of its rail car fleet and the addition of higher earning boxcars to its fleet in
late 1997.

The Alabama Railroad  operating income  increased  approximately  $30,000 in the
first six months  1998,  recording  operating  income of  $116,000  compared  to
$86,000  in the same  period  last  year.  The  ALAB's  increase  resulted  from
increased loadings on the line.

The Decatur Junction Railway operating income increased approximately $33,000 in
the first six months 1998,  recording  operating  income of $91,000  compared to
$58,000 in the same period last year.  The DT's increase  resulted not only from
increases in grain loadings but also increases of non- agricultural commodities.
The Rochelle Railroad operating income increased  approximately  $115,000 in the
first six months  1998,  recording  operating  income of  $204,000  compared  to
$89,000 in the same period last year.  This increase  resulted from increases in
both rail loadings and freight rates in the period. As reported in the Company's
Form 8-K filed June 18, 1998,  it is  anticipated  that within a short period of
time rail  shipments to and from the Total  Logistics  Control  facility will be
handled by the city and not RRCO. TLC's traffic represents  approximately 75% of
the  business  on the line.  The RRCO  anticipates  it will  continue  to handle
traffic for the other two customers on the line. The loss of the Total Logistics
Control  business  will have a significant  negative  impact on RRCO revenue and
operating income and subsequently  the operating  revenue,  operating income and
net income of the consolidated operating results of Company.

The Michigan Southern Railroad had an increase in operating income of $25,000 in
the first six months 1998,  recording  operating income of $191,000  compared to
$166,000  in the same  period  last year.  The  increase  is a direct  result of
increased loadings on the line.

Several factors adversely affected the first six months 1998 net income:

In the first six months 1998, the Minnesota  Central  Railroad had a decrease in
operating income of $63,000,  recording an operating loss of $66,000 compared to
operating  loss of $3,000 in the same period last year.  Most of the decrease in
MCTA operating income resulted from additional  switching  revenues  recorded in
1997 due to adjustments  involving time limits for the settlement of freight and
switching liabilities required by railway accounting rules as established by the
Association  of American  Railroads,  the governing  body of all North  American
railroads.  The MCTA also was  adversely  effected  by a decrease in loadings of
grain  resulting from market  conditions and reduced  loadings of clay resulting
from a delay in the  arrival  of empty  cars for  clay  loading  from the  Union
Pacific.
<PAGE>


In  addition,  the Fort Smith  Railroad  had a decrease in  operating  income of
$143,000 in the first six months 1998,  reporting  operating  income of $477,000
compared to $620,000 in the same period last year.  This decrease  resulted from
the absence of  military  car loads and also a  reduction  in  overhead  traffic
handled from the Union Pacific Railroad to the AM and KCS.

The Alabama & Florida Railway operating income decreased  approximately  $55,000
in the first six months  1998,  recording  operating  income of  $282,000 in the
first six months 1998  compared  to  $337,000 in the same period last year.  The
AF's  decrease in  operating  income  resulted  from the  railroad  being out of
service  for  approximately  10 days in March as a result of severe  flooding in
southern  Alabama.  Several  sections  of the  line  remain  out of  service  as
described in more detail in Part II Item 5 of this report.

Operating Revenue:

The increase in  operating  revenue in the first six months 1998 of $567,000 was
positively  affected  by a $440,000  increase  in carhire  revenue  from  PREL's
railcar fleet which recorded  revenue of $1,352,000  compared to $912,000 in the
same period last year. In addition, increased car loadings resulted in increased
revenues by the Keokuk Junction Railway of $118,000, recording operating revenue
of $1,663,000  compared to $1,545,000 in the same period last year; the Rochelle
Railroad  which had  $136,000 of  increased  operating  revenue in the first six
months  1998  recording  $339,000  compared  to $203,000 in the same period last
year; and the Michigan Southern  Railroad which had increased  operating revenue
of $98,000 in the first six months 1998 recording  $568,000 compared to $470,000
in the same period last year.

Operating  revenue  in the first six months  1998 was  adversely  affected  by a
$157,000 operating revenue decrease by the Minnesota Central Railroad, which had
operating  revenue of $353,000 in the first six months 1998 compared to $510,000
in the same period last year.  Most of the  decrease  in MCTA  operating  income
resulted from additional  switching revenues recorded in 1997 due to adjustments
involving  time limits for the  settlement of freight and switching  liabilities
required  by railway  accounting  rules as  established  by the  Association  of
American Railroads, the governing body of all North American railroads. The MCTA
also was adversely  effected by a decrease in loadings of grain  resulting  from
market  conditions  and reduced  loadings of clay  resulting from a delay in the
arrival of empty cars for clay loading from the Union  Pacific.  Also,  the Fort
Smith  Railroad  operating  revenue  decreased  $111,000 in the first six months
1998,  recording  revenues of  $811,000  compared to $922,000 in the same period
last year.  This  decrease  resulted from the abscence of military car loads and
also a reduction in overhead  traffic handled from the Union Pacific Railroad to
the AM and KCS.

The Alabama & Florida Railway operating revenue decreased  approximately $33,000
in the first six months 1998,  recording  operating revenue of $685,000 compared
to $718,000 in the same period last year. The AF's decrease in operating  income
resulted  from the railroad  being out of service for  approximately  10 days in
March as a result of severe flooding in southern  Alabama.  Several  sections of
the line remain out of service as  described in more detail in Part II Item 5 of
this report

The  remaining  operating  subsidiaries  had no  material  changes in  operating
revenues in the first six months 1998 compared to the same period last year.

Operating Expense:

The  increase  in  operating  expense of  $458,000  in the first six months 1998
resulted from the following factors:

Pioneer  Railroad  Equipment  Co.,  Ltd.  had  increased  operating  expense  of
$157,000,  recording  operating  expense of $944,000 compared to $787,000 in the
same  period  last  year as a result of  increased  maintenance  expense  on the
railcar fleet,  increased  depreciation expense and increased freight expense to
relocate the railcar fleet in a manner that would maximize  usage.  The Michigan
Southern  Railroad  had an increase in operating  expense of $73,000,  recording
operating expense of $377,000 compared to $304,000 in the same period last year.
Most of this increase resulted from increased personnel and transportation costs
resulting from increased rail traffic.  Support services  provided by the parent
company,  Pioneer  Railcorp,  and also  support  services  provided  by  Pioneer
Railroad Services,  increased operating expense $198,000 in the first six months
1998. Most of this increase is related to increased  payroll expenses related to
hiring and retaining support personnel.

The  remaining  operating  subsidiaries  had no  material  changes in  operating
expenses in the first six months 1998 compared to the same period last year.
<PAGE>


Other Income and Expense Income Statement Line Item Discussion:

Other income of $105,000  for the first six months 1998  consists of real estate
lease  income,  scrap income and other  miscellaneous  items.  None of the other
income  transactions are material in nature when considered alone.  Other income
of $195,000 for the first six months 1997  consists of real estate lease income,
scrap  income  and  other   miscellaneous   items.  None  of  the  other  income
transactions are material in nature when considered alone.

The Company  experienced a decrease in interest  expense of $35,000 in the first
six  months  1998  compared  to the same  period  last year as the result of the
reduction in long term-debt from scheduled principal  payments,  and refinancing
activities.  Net gain on fixed  asset  dispositions  during the first six months
1998 of $76,000  included a gain of  $105,000  from the sale or  disposition  of
railcars and a loss of $28,000  resulting from the sale of the Company's  former
corporate headquarters building in Chillicothe, Illinois.

Year 2000 Compliance:

The Year  2000  compliance  issue  exists  because  many  computer  systems  and
applications  currently use two-digit fields to designate a year. As the century
date  change  occurs,  date-sensitive  systems  may either  fail or not  operate
properly unless the underlying programs are modified or replaced.

The Company has  initiated  a program to ensure that all  computer  applications
will be Year 2000 compliant by the year-end 1998. The program includes  engaging
an outside  consultant  to review all of the  Company's  computer  hardware  and
software,  as well as to confirm  with outside  vendors that their  products are
Year 2000 compliant.  Although final cost estimates have not been determined, it
is not expected that these expenses will have a material impact on the Company's
financial condition, liquidity, 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 of which $875,000
was  available for use at the end of the second  quarter 1998. In addition,  the
Company has seen the market value of its railcar  fleet  increase  significantly
over the last several years.  This increase in value has resulted from the short
supply of railcars  compared to the increased  demand for their use. The Company
believes it could  refinance  or sell part of its railcar  fleet and generate at
least $1 million in cash.

In March 1996, the Company negotiated a credit facility with its primary bank to
provide  a $2.5  million  annual  revolving  acquisition  line of  credit.  This
facility is  collateralized  by the common stock of the Alabama Railroad Co. and
the  Mississippi  Central  Railroad Co., as well as the Company's  investment in
stock of any  subsidiaries  acquired  under the line.  The interest rate for the
line is currently  11%. The interest rate is  adjustable  quarterly to 2.5% over
New York Prime,  limited to a one percent  annual  increase or decrease,  not to
exceed  13.5% or be reduced  below 10%.  Any  amounts  drawn on the line must be
repaid monthly over a seven year period.  The line is fully available for use as
of June 30, 1998.

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.
The Company does not expect to make  significant  additions to its railcar fleet
in 1998.

In the second quarter 1998 the Company took advantage of the favorable  interest
rate  environment  and refinanced  approximately  $3.3 million of debt which had
interest  rates  averaging  10% and  replaced  it with debt  having  fixed  rate
interest  of  approximately  8.3%.  Over the next 5 years  this  transaction  is
projected  to reduce  interest  expense by  $250,000  and  increase  cashflow by
$200,000.
<PAGE>


On July 1, 1995, the Company's  stock split and warrant  issuance became payable
to  shareholders.  The 2-for-1 stock split increased the number of shares issued
and  outstanding  from  2,099,042 to  4,198,084.  At the same time  shareholders
became  entitled  to purchase  an  additional  4,198,084  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.  In 1998
400  warrants  have  been  exercised.  As of June 30,  1998,  a total of  67,244
warrants originally issued had been exercised, and the Company realized $134,488
on the issuance of the warrants.  The Company expects  additional  capital to be
generated  by the  continued  exercise of warrants  but is  uncertain  as to the
amount.

The  Company  granted  836,000  options  to  certain  employees  under  its 1994
incentive  stock option plan. The options are exercisable at prices equal to the
market value of the  Company's  stock at the date of grant.  The exercise  price
ranges from $1.50 to $4.40 per share.  No options  have been  exercised in 1998.
Since the plans  inception a total of 69,700  options had been exercised and the
Company has realized $104,550 on the exercise of the options.  On June 15, 1998,
the  Company,  acting  upon a  resolution  approved  by its Board of  Directors,
entered into  agreements  with  employees to repurchase  all of the  outstanding
stock options with exercise  prices equal to or less than $1.65. In exchange for
forfeiting the options,  employees received a one-time  adjustment to their base
salary equal to $.15 per option share. In total,  441,512 options were forfeited
as a result of these agreements. A total of 20,000 options remain exercisable at
$1.50 and are held by an outside  director.  The primary  reason this action was
taken by the Board of  Directors  was to lessen the  potential  dilution  to all
common  share  holders  from the  exercise of the  options  based on the trading
volume of the Company stock. As of June 30, 1998, a total of 238,759 options are
outstanding 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 $2.75,  the market price of the common shares at
the date the options were granted, in whole or in part, within 10 years from the
date of grant.  As of June 30, 1998, a total of 272,000  options are outstanding
under this plan.

The  Company  is  currently   negotiating  with  the  Minnesota   Department  of
Transportation  for  approximately  $6.0 million of  interest-free  financing to
rehabilitate  the  Minnesota  Central  Railroad.  The Company is reviewing  loan
documents  and as of the date of this report  negotiations  are still in process
with no certainty as to what the outcome will be.

The City of Rochelle,  Illinois  terminated  the Rochelle  Railroad  Co.'s lease
agreement  effective  January  19,  1998.  The City is seeking  to  replace  the
Rochelle Railroad as operator of the line with one of the on-line customers. The
Rochelle   Railroad  is  seeking  damages,   seeking  relief  from  the  Surface
Transportation  Board, and is also seeking to condemn the property.  The outcome
of these actions is uncertain.  If the Rochelle  Railroad  ceases  operating the
railroad,  it would have a material  adverse effect on the Company's  results of
operation.  In 1997 the Rochelle Railroad Co. generated  $408,000 in revenue and
$250,000  of  operating  income.  In the  second  quarter  of 1998 the  Rochelle
Railroad Co. generated  $183,000 in revenue and $106,000 of operating income. In
the first six months  1998 the  Rochelle  Railroad  Co.  generated  $339,000  in
revenue and $204,000 in operating income.

The Michigan Southern Railroad's lease expires in December 1998, and the Company
has an option to purchase the stock and leased personal property of the railroad
for $2.6 million.  The Company believes it will exercise this purchase option in
early October 1998. The purchase will be funded with long-term debt. In 1997 the
Michigan  Southern  Railroad  generated  $1 million in revenue  and  $326,000 of
operating  income.  In the second quarter of 1998 the Michigan Southern Railroad
generated $322,000 in revenue and $105,000 of operating income, and in the first
six months 1998 the Michigan Southern Railroad generated $568,000 of revenue and
$191,000 of operating income.

Except for the  uncertainties  of the  Rochelle  Railroad  Co.  litigation,  the
Company anticipates favorable outcomes involving current legal proceedings.  The
Company does not  anticipate  any material  judgements  against it or any of its
subsidiaries will arise out of the current proceedings.

The Company  believes its cash flow from  operations  and its available  working
capital credit lines will be more than sufficient to meet liquidity needs for at
least the next twelve months.
<PAGE>


Balance Sheet and Cash Flow Items:

The Company  generated net cash from  operating  activities of $1,729,000 in the
first six months 1998 compared to  $1,192,000 in the same period last year.  Net
cash from operating  activities for the first six months 1998 resulted primarily
from $446,457 of net income,  $786,864 of depreciation  and  amortization and an
increase  in  accounts  payable of  $377,000.  Most of the  increase in accounts
payable  relates  to  repairs  to the  Company's  railcars  which  were  made by
non-affiliated  railroads late in the first six months 1998.  This increase is a
direct result of increased utilization of the Company's railcar fleet.

In the first six months 1998 the  Company  purchased  approximately  $846,000 of
fixed  assets and capital  improvements.  The  capital  additions  included  the
purchase of 38 railcars at a total cost of  $437,000  which were  financed  with
long-term   fixed-rate   financing.   In  addition,   the  Company   capitalized
approximately $228,000 of track and structure repair primarily related to severe
flooding in Alabama and  Mississippi.  Also,  $40,000 in railcar and  locomotive
betterments, $53,000 of leasehold improvements to the Pioneer Industrial Railway
track,   $33,000  for  the  purchase  of  industrial   development   land,   and
miscellaneous  capital  expenditures of approximately  $55,000 for equipment and
other  assets  were  capitalized  in the  first six  months  1998.  All  capital
expenditures  other than the  purchase of railcars  were  financed  with working
capital cash flow.

PART II.  OTHER INFORMATION

Item 1.   LEGAL PROCEEDINGS

There are a number of legal actions  pending  between the Rochelle  Railroad Co.
("RRCO"), the City of Rochelle, Illinois, and other entities, arising out of the
City's  termination  of RRCO's lease  agreement.  The City is seeking to replace
RRCO as operator of the line with one of the on-line customers.  RRCO is seeking
damages,  seeking  relief from the  Surface  Transportation  Board,  and is also
seeking to condemn the property.  The outcome of these actions is uncertain.  If
RRCO were to cease  operating  the  railroad,  it would have a material  adverse
effect on the  Company's  results of operation.  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-QSB,  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

The  Annual  Meeting  of the  Shareholders  was  held  on June  16,  1998 at the
Company's  headquarters  in  Peoria,  Illinois.  All five  seats on the Board of
Directors were up for election at this meeting.  Directors Guy L.  Brenkman,  J.
Michael Carr,  Orvel L. Cox, Timothy F. Shea, and John S. Fulton were re-elected
for a one year term.

In addition to the election of the Board of Directors, shareholders ratified the
appointment  of  McGladrey  & Pullen,  LLP,  Certified  Public  Accountants  and
Consultants,  as the Company's  independent  public  accountants  for the coming
year.
<PAGE>


The vote  totals  for the  matters  voted  upon at the  Annual  Meeting  were as
follows:
<TABLE>
    Proposal                                         Votes For   Votes Withheld   Abstained
------------------------------------------------     ---------   --------------   ---------
<S>                                                  <C>         <C>              <C> 
Nomination of Guy L. Brenkman
to the Board of Directors ......................     4,205,822        81,600        35,919

Nomination of Orvel L. Cox
to the Board of Directors ......................    4,287,372            50         35,919

Nomination of Timothy F.Shea
to the Board of Directors ......................     4,203,072        83,850        35,919

Nomination of John S. Fulton
to the Board of Directors ......................     4,206,172        81,250        35,919

Nomination of J. Michael Carr
to the Board of Directors ......................     4,287,422             0        35,919

Ratification of McGladrey & Pullen, LLP
as Independent Auditor .........................     4,295,572        12,100         5,950
</TABLE>

Item 5.   OTHER INFORMATION

The Alabama & Florida  Railway had five miles of track washed out as a result of
severe  floods  and heavy  rains in March  1998.  This  damage  has cut off rail
service  between  Andalusia  and the end of the  line in  Geneva,  Alabama.  The
customers  affected by the washout  had not  previously  been heavy users of the
railroad, although several opportunities for significantly increased loads which
had just begun to be realized in the first  quarter of 1998 have been lost until
such time the railroad is repaired. The total estimated cost to repair the flood
damage is  approximately  $2 million.  Federal  legislation  has been passed and
signed  by the  President,  which  may  result  in  allocation  of  grant  funds
sufficient to repair the railroad.  If such grant funds do not become available,
the Company will have to consider alternative plans to restore rail usage to the
affected  customers.  This event will not have a material  adverse effect on the
Company's operating results.

On April 2, 1998,  Pioneer  Railcorp's  Board of  Directors  declared a $.02 per
common share dividend  payable to  shareholders  of record as of April 30, 1998,
and was paid  June 5,  1998.  The  total  dividend  paid out was  $92,200.94  to
4,610,047 shareholders.

Item 6.   EXHIBITS AND REPORTS ON FORM 8-K

Exhibit # 11 - Statement re computation of per share earnings.

Exhibit # 27 - Financial data schedule.

Exhibit # 20.1  Notice of Annual  Meeting  and Proxy  Statement  used to solicit
votes for the Annual Meeting of Shareholders, held June 16, 1998.

Exhibit # 20.2 Form of Ballot used at the Annual Meeting on June 16, 1997.

Exhibit # 20.3 Annual  Report for 1997 sent to  shareholders  with the Notice of
Annual Meeting and Proxy Statement.

The following reports were filed on Form 8-K during the second quarter 1998:

(1) Form 8-K filed June 18,  1998  regarding  the  Rochelle  Railroad  operating
situation.

(2) Form 8-K filed June 18, 1998 regarding the repurchase of employee stock .
<PAGE>



                                   SIGNATURES


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





PIONEER RAILCORP
(Registrant)




                              /s/ Guy L. Brenkman
       8/05/98                ---------------------------------------
        DATE                  GUY L. BRENKMAN
                              PRESIDENT & CEO



                              /s/ J. Michael Carr
       8/05/98                ----------------------------------------
       DATE                   J. MICHAEL CARR
                              TREASURER & CHIEF
                              FINANCIAL OFFICER