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 September 30, 1996

                        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.

                                    4,548,143
            ---------------------------------------------------------
           (Shares of Common Stock outstanding on September 30, 1996)

<PAGE>

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                        PIONEER RAILCORP AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME
         Three Months and Nine Months Ended September 30, 1996 and 1995

                                    UNAUDITED

<TABLE>
                                                                            Three Months                      Nine Months
                                                                         Ended September 30                 Ended September 30
                                                                  -----------------------------       -----------------------------
                                                                     1996              1995              1996              1995
                                                                  -----------       -----------       -----------       -----------
<S>                                                               <C>               <C>               <C>               <C>
Operating Revenue ..........................................      $ 2,923,037       $ 2,090,160       $ 8,545,374       $ 6,205,690
                                                                                                                        -----------

Operating Expense
   Maintenance of Ways .....................................          239,501           230,616           695,071           645,904
   Maintenance of Equipment ................................          365,567           227,961         1,037,153           766,029
   Transportation Expense ..................................          732,165           426,600         1,866,360         1,291,603
   Administrative Expense ..................................          827,800           587,161         2,251,875         1,556,113
   Depreciation and Amortization ...........................          358,097           228,967         1,028,903           656,050
                                                                  -----------------------------------------------------------------

Total Operating Expense ....................................        2,523,130         1,701,305         6,879,362         4,915,699
                                                                  -----------------------------------------------------------------

Operating Income ...........................................          399,907           388,855         1,666,012         1,289,991
                                                                   -----------------------------------------------------------------
Other Income & Expense
   Other (Income) Expense ..................................          (43,856)          (31,530)         (225,550)         (177,093)
   Interest Expense, Equipment .............................          195,544           136,206           595,687           332,143
   Interest Expense, Other .................................          145,711            65,520           390,633           228,917
   Net (Gain) Loss on Fixed Assets .........................           (1,337)              -0-           (28,212)          (36,924)
                                                                  -----------------------------------------------------------------

Total Other Income & Expense ...............................          296,062           170,196           732,558           347,043
                                                                  -----------------------------------------------------------------

Net Income Before Income Taxes .............................          103,845           218,659           933,454           942,948

Provision for Income Taxes .................................           38,175            83,550           358,785           378,150
                                                                  -----------------------------------------------------------------

Income Before Minority Interest in Preferred
   Stock Dividends of Consolidated Subsidiaries ............      $    65,670       $   135,109       $   574,669       $   564,798

Minority Interest in Preferred Stock Dividends of
    Consolidated Subsidiaries ..............................      $    31,308       $    31,308       $    93,923       $    93,923

Net Income available to
    Common Stockholders ....................................      $    34,362       $   103,802       $   480,746       $   470,875
                                                                  =================================================================


Earnings Per Share .........................................      $      0.01       $      0.02       $      0.09       $      0.09
                                                                  =================================================================


Weighted average number of common shares
and common share equivalents used in
computing earnings per share ...............................        8,376,613         8,396,883         8,359,989         8,396,883
                                                                  =================================================================
</TABLE>

<PAGE>


                        PIONEER RAILCORP AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                    September 30, 1996 and December 31, 1995


                                    UNAUDITED

<TABLE>
                                                          September 30     December 31
                                                              1996            1995
                                                          ------------    ------------
<S>                                                        <C>            <C>
Current Assets
   Cash ...............................................   $    533,273    $    276,230
   Accounts Receivable, less allowance
     for doubtful accounts (1996 $19,926; 1995 $20,590)      2,095,700       1,283,124
   Material & Supply Inventory ........................        428,321         287,772
   Prepaid Expenses ...................................        284,134         123,609
   Income Taxes Receivable ............................         86,165          50,998
   Deferred Taxes .....................................         35,000          35,000
                                                          ------------    ------------ 
        Total Current Assets ..........................      3,462,592       2,056,733
                                                          ------------    ------------

Property and Equipment
   Land ...............................................      1,351,965         280,606
   Railroad Facilities ................................      7,003,817       4,840,367
   Locomotives & Transportation Equipment .............      2,205,069       1,594,150
   Leasehold Improvements .............................         41,544          14,614
   Buildings ..........................................        898,628         673,344
   Machinery and Equipment ............................        856,947         704,117
   Office Equipment and Computers .....................        374,276         297,665
   Railcars ...........................................      9,642,790       8,328,206
   Capital Projects in Progress .......................        420,230         467,096
     less accumulated depreciation ....................     (2,959,210)     (1,979,998)
                                                          ------------    ------------
        Total Property and Equipment ..................     19,836,055      15,220,169
                                                          ------------    ------------

Intangible Assets, less accumulated amortization ......        897,041         637,301
  1996 $129,204; 1995 $100,493
Other Assets ..........................................         19,242           9,729
                                                          ------------     -----------
Total Assets ..........................................   $ 24,214,930    $ 17,923,932
                                                          ============    ============
Current Liabilities
   Accounts Payable ...................................   $  2,794,914    $  1,115,241
   Notes Payable ......................................        774,737          80,333
   Income Taxes Payable ...............................        (13,888)         17,367
   Current Portion of Long Term-Debt ..................      1,910,892       1,412,551
   Accrued Liabilities ................................        450,809         354,834
                                                          ------------     -----------
        Total Current Liabilities .....................      5,917,464       2,980,326
                                                          ------------     -----------

Long-Term Debt ........................................     11,877,638       9,934,738
Deferred Income Taxes .................................      1,654,228         843,000
                                                          ------------    ------------
        Total Liabilities & Debt ......................     19,449,330      13,758,064
                                                          ------------     -----------

Minority interest in Subsidiaries .....................      1,190,000       1,195,000

Stockholders' Equity
   Common Stock .......................................          4,545           4,487
   Additional Paid-In Capital .........................      1,942,275       1,832,353
   Retained Earnings ..................................      1,628,780       1,134,028
                                                          ------------    ------------
        Total Stockholders' Equity ....................      3,575,600       2,970,868
                                                          ------------     -----------
Total Liabilities and Equity ..........................   $ 24,214,930    $ 17,923,932
                                                          ============    ============
</TABLE>
<PAGE>


                        PIONEER RAILCORP AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF CASH FLOWS
                 Nine Months Ending September 30, 1996 and 1995


                                    UNAUDITED
<TABLE>

                                                                       9 Months Ended
                                                                --------------------------
                                                                    1996          1995
                                                                -----------    -----------
<S>                                                             <C>            <C>

Cash Flows From Operating Activities
Net income ..................................................   $   480,746    $   470,877
Adjustments to reconcile net income to net cash
provided by operating activities:
          Minority interest in preferred stock dividends of
            consolidated subsidiaries .......................        93,923         93,923
          Depreciation ......................................       989,844        656,050
          Amortization ......................................        39,059            -0-
          (Gain) on sale of property & equipment ............       (28,212)       (26,261)
          Deferred taxes ....................................       160,000        162,000
Change in assets and liabilities, net of effects from
          acquisition of subsidiaries
          (Increase) decrease accounts receivable ...........       (35,460)      (269,150)
          (Increase) decrease inventories ...................        (5,379)       (95,014)
          (Increase) decrease prepaid expenses ..............      (126,820)       (11,899)
          (Increase) decrease other assets ..................       (33,213)      (105,336)
          Increase (decrease) accounts payable ..............       297,110       (107,434)
          (Increase) decrease income tax refund claims ......        50,998            -0-
          Increase (decrease) income tax payable ............       (31,255)       (12,749)
          Increase (decrease) accrued liabilities ...........       (40,697)       108,937
                                                                -----------    -----------
          Net cash provided by operating activities .........     1,810,644        863,944
                                                                -----------    -----------

Cash Flows From Investing Activities
          Proceeds from sale of property & equipment ........        55,100        302,607
          Purchase of property & equipment, net of property
               and equipment from acquisition of subsidiaries    (1,528,725)    (1,961,382)
          Acquisition of subsidiaries, net of cash acquired .    (2,786,882)           -0-
                                                                -----------    -----------
          Net cash (used in) investing activities ...........    (4,260,507)    (1,658,775)
                                                                -----------    -----------

Cash Flows From Financing Activities
          Proceeds from short-term borrowings, net of debt
             assumed in acquisition of subsidiaries .........     1,113,295        937,360
          Proceeds from long-term borrowings, net of debt
             assumed in acquisition of subsidiaries .........     3,346,619      1,788,233
          Payments on short-term borrowings .................      (418,891)      (591,675)
          Payments on long-term borrowings ..................    (1,350,942)    (1,062,856)
          Repurchase of preferred stock .....................        (5,000)       (10,000)
          Proceeds from options and warrants exercised ......       101,740
          Payments to minority interest .....................       (79,915)       (79,915)
                                                                -----------    -----------
          Net cash provided by financing activities: ........     2,706,906        981,147
                                                                -----------    -----------

Net increase (decrease) in cash .............................       257,043        186,316

Cash, beginning of period ...................................       276,230        179,415
                                                                -----------    -----------

Cash, end of period .........................................   $   533,273    $   365,731
                                                                ===========    ===========
</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. (WJ), Wabash
& Western Railway Co. (WGRY),  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)
formerly KNRECO, Inc., Columbia & Northern Railway Co. (CNOW), Rochelle Railroad
Co. (RRCO),  Pioneer  Railroad  Equipment  Co., Ltd.  (PREL),  Pioneer  Railroad
Services, Inc. (PRSI), and Pioneer Air, Inc. (PAR). 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 common and common equivalent share:

Primary  earnings  per common  share was  computed by dividing net income by the
weighted  average number of shares of common stock and common stock  equivalents
outstanding  at the end of the  respective  periods  under  the  Treasury  Stock
Method.

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

In November 1995, the Financial  Accounting  Standards Board issued Statement of
Financial  Accounting  Standard No. 123 (SFAS 123),  "Accounting for Stock Based
Compensation." SFAS 123 encourages,  but does not require,  accounting for stock
based compensation  awards on the basis of fair value at the date the awards are
granted.  The fair value of the award is included in expense on the statement of
income.  Companies  that do not adopt SFAS 123 will be required to disclose what
net income and  earnings  per share would have been,  had they adopted SFAS 123.
SFAS 123 is effective for fiscal years  beginning  after  December 15, 1996. The
Company does not intend to adopt SFAS 123.
<PAGE>


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 September 30,
1996, a total of 20,200 options have been exercised.

On June  26,  1996,  the  Company  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.

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
September 30, 1996, a total of 54,974 warrants had been exercised.

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.

NOTE 7. PURCHASE OF RAILROAD FACILITIES

On March 12,  1996,  Pioneer  purchased  176,675  shares of the common  stock of
KNRECO,  Inc., (an Iowa corporation  d/b/a Keokuk Junction  Railway  hereinafter
"KNRECO")  from  the  shareholders,  for  $16.50  per  share.  This  represented
approximately 93% of the outstanding  common stock of KNRECO.  Operating results
of KNRECO are included in the consolidated statements of income from the date of
acquisition.   As  of  June  30,  1996,  Pioneer  had  purchased  the  remaining
outstanding shares, and KNRECO (now KJRY) is a wholly-owned subsidiary.

Unaudited pro forma consolidated results of operations for the nine month period
ended  September  30, 1996 as though  KNRECO had been  acquired as of January 1,
1996,  and for the fiscal  year-end  December 31, 1995 as though KNRECO had been
acquired at the beginning of the fiscal year 1995 are presented below:

                                                 Nine Month
                                                 Period 1996         Fiscal 1995
                                                 -----------         -----------
Operating revenue ......................         $ 9,289,465         $11,035,763
Operating expense ......................           7,787,665           9,219,620
Income from operations .................           1,501,800           1,816,143
Other income and expense ...............             640,318             758,308
Income taxes ...........................             344,593             423,134
Minority interest ......................              93,923             124,405
Net income .............................             422,966             510,296
Earnings per share .....................         $       .09         $       .11

<PAGE>


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

The Company  operated the following eleven railroads during the third quarter of
1996: West Michigan  Railroad Co. (WJ),  Fort Smith Railroad Co. (FSR),  Alabama
Railroad Co. (ALAB),  Mississippi Central Railroad Co. (MSCI), Alabama & Florida
Railway Co. (AF),  Decatur Junction Railway Co. (DT),  Vandalia Railroad Company
(VRRC),  Minnesota  Central  Railroad Co. (MCTA),  Keokuk  Junction  Railway Co.
(KJRY),  Columbia & Northern  Railway Co.  (CNOW),  and  Rochelle  Railroad  Co.
(RRCO). The Company also operated three railroad-related  subsidiaries,  Pioneer
Railroad Equipment Co., Ltd. (PREL), Pioneer Railroad Services, Inc. (PRSI), and
Pioneer Air, Inc (PAR).

Summary:

The Company's  net income in the third quarter 1996  decreased by 67% to $34,400
down from $103,800 for the same period last year. Operating revenue in the third
quarter  1996  increased  by $832,000 or 40% to $2.9  million  from $2.1 million
during the same  period  last year.  Operating  expense  increased  in the third
quarter 1996 by $821,000,  or 49% to $2.5 million from $1.7 million for the same
period  last year.  Operating  income  increased  in the third  quarter  1996 by
$11,000  or 3% to  $400,000  from  $389,000  for  the  same  period  last  year.
Non-operating  expense  increased  $126,000 or 75% to $296,000 from $170,000 for
the same period last year.

Net income for the first nine  months 1996  increased  by 3% to $481,000 up from
$471,000  for the same  period last year.  Operating  revenue for the first nine
months 1996  increased  by $2.3 million or 37% to $8.5 million from $6.2 million
during the same period last year.  Operating  expense increased during the first
nine months 1996 by $2 million,  or 41%, to $6.9  million  from $4.9 million for
the same  period last year.  Operating  income  increased  during the first nine
months 1996 by $400,000 or 31% to $1.7  million  from $1.3  million for the same
period last year.  Non-operating  expense increased $386,000 or 112% to $733,000
from $347,000 for the same period last year.

Several factors attributed to the decrease in third quarter 1996 net income:

The  Company's  Alabama  Railroad  Co.  subsidiary  experienced  a  decrease  in
operating  profit of  approximately  $100,000  in the quarter as a result of its
major customer reducing outbound  shipments while its facilities were temporally
shutdown for most of the third quarter 1996 to facilitate a modernization of the
plant  facilities  and  equipment.  The  customer  is expected to return to full
production in the fourth  quarter 1996 and rail shipment  levels are expected to
be  equal  or  greater  than  comparative  periods  as a  result  of  the  plant
modernization.  The  temporary  plant  shutdown  also  idled a  majority  of the
Company's  boxcar fleet  assigned to service the  customer in the third  quarter
1996.

In addition,  the Company's Minnesota Central Railroad Co. subsidiary (MCTA) was
affected  by an  unexpected  seasonal  decrease  in grain  shipping in the third
quarter 1996 which idled a majority of the  Company's  covered  hopper  railcars
purchased  in the fourth  quarter  1995 and placed in service on the MCTA.  MCTA
grain shipments were significantly  reduced in the third quarter,  especially in
the months of August and September,  due to a limited marketable surplus of corn
as a result of a light 1995  harvest.  The fall 1995  national  corn harvest was
approximately  7.3 billion  bushels  compared to 10.1  billion  bushels in 1994.
Nationwide  railcar loadings of grain were down  approximately  28% in the third
quarter 1996 compared to the same period last year.

The net  decrease in third  quarter  1996 pretax  income as a result of the idle
boxcars and covered hoppers was approximately  $100,000.  Strong  utilization of
the  boxcars and covered  hoppers is  expected  in the fourth  quarter  1996 and
foreseeable  subsequent periods extending through the second quarter 1997. Grain
shipping  is  traditionally  lowest  in the  third  quarter  compared  to  other
quarterly periods.  Current national corn harvest forecasts for the fall of 1996
provided to the Company estimate a harvest of approximately  9.1 billion bushels
of corn. The Company does not  anticipate a similar grain shortage  situation in
the third quarter 1997 as a result of the 1996 harvest, and accordingly does not
anticipate  that the results of operations will be affected in the third quarter
1997 as in the third quarter 1996.

The Company increased its railroad liability  insurance coverage to ranges of $7
million  to $10  million  limits  from the  previous  ranges of $2 million to $5
million  limits.  Management  believes  that  the new  coverage  limits  are the
appropriate  levels  required to protect the  Company's  assets and  shareholder
interests.  This  increase in coverage  increased  premiums in the third quarter
1996 to $59,000 compared to $28,000 in the same period last year, an increase of
$31,000 or 111%. The additional expense the Company will recognize over the next
nine months as a result of the coverage  increase will be approximately  $93,000
or $31,000 per quarter.
<PAGE>


The Company's Keokuk Junction  Railway Co.  subsidiary which began operations on
March 13, 1996  contributed  operating  income of $318,000 in the third  quarter
1996.

Other administrative expenses (excluding liability insurance premiums) increased
approximately  $184,000  in the third  quarter  1996 as a result of current  and
anticipated  growth of the Company.  Interest  expense  increased  approximately
$80,000  as a result  of the  financing  of the  Keokuk  Junction  Railway,  and
approximately $60,000 as a result of the Company's railcar fleet growth.

Operating Revenue:

The  increase in  operating  revenue in the third  quarter  1996 of $832,000 are
primarily attributable to $750,000 of revenue generated from the Keokuk Junction
Railway Co., (KJRY) which began operations  under Pioneer Railcorp  ownership on
March 13,  1996.  In  addition,  the  Alabama  Railroad  Co. had a  decrease  of
approximately  $100,000 in  operating  revenue in the quarter and the nine month
period as a result of the temporary  plant shutdown  detailed  above.  Also, the
Company did not realize a significant  increase in car hire revenue (in relation
to the growth of the railcar  fleet) as a result of the idle boxcars and covered
hoppers previously mentioned. Third quarter 1996 revenues from the railcar fleet
were up  $65,000,  but would have been much  higher if the  boxcars  and covered
hoppers  received  normal use in the  quarter.  For the first nine  months  1996
operating  revenue  increased  $2.3 million  primarily  resulting  from the KJRY
acquisition  and the Company's  railcar  fleet growth.  In the nine month period
ending  September  30,  1996,  the KJRY  contributed  operating  revenue of $1.5
million. Car hire revenue from the Company's railcar fleet increased by $500,000
or 42% to $1.7 million from $1.2 million for the nine month period last year. In
addition,  revenue  generated  from leasing  railcars and excess  locomotives to
non-affiliated  entities  increased $270,000 for the first nine months 1996. The
Company was not  significantly  involved in this activity  during this period in
the prior year.

The loss of the West  Jersey  Railroad  lease in April  1995 and its  subsequent
operation  of the former KLSC  railroad  as the West  Michigan  Railroad  had an
immaterial effect on operating  revenue.  The Rochelle Railroad Co., which began
operations April 15, 1996,  contributed  $70,000 of operating revenue during the
third quarter and $140,000 during the nine month period. The Columbia & Northern
Railway Co. did not have any operating  revenue during these periods (please see
Part II Item 5).

The remaining  operating  subsidiaries had constant overall revenue in the third
quarter and the first nine months 1996 compared to the same period last year.

Operating Expense:

The increase of operating  expense of $821,000 in the third  quarter 1996 and $2
million in the first nine months 1996 resulted from the following factors:

The Company's railcar fleet growth resulted in additional  depreciation  expense
of $73,000 for the quarter and  $248,000  for the first nine months  compared to
the same periods last year. In addition,  the Keokuk Junction  Railway  incurred
$424,000 of operating  expense in the third  quarter 1996 and $1 million  during
the first nine months 1996. In addition to  administrative  expense  included in
the KJRY operating expense,  other administrative  expense increased $210,000 in
the third  quarter 1996 and $573,000  during the first nine months 1996 compared
to the same period last year.  The  majority of the  increase in  administrative
expense is related to payroll  costs  associated  with the hiring of  additional
support personnel.

The loss of the West  Jersey  Railroad  lease in April  1995 and its  subsequent
operation  of the former KLSC  railroad as the West  Michigan  Railroad,  had an
immaterial  effect on operating expense in 1996. The Columbia & Northern Railway
Co. had $5,000 of  operating  expense in the quarter  and  $27,000 of  operating
expense for the nine month  period.  The  Rochelle  Railroad  Co. had $70,000 of
operating expense in the quarter and $139,000 for the nine month period.

The remaining  operating  subsidiaries had constant overall operating expense in
the third quarter 1996 compared to the same period last year.

Other Income and Expense Income Statement Line Item Discussion:

Other  Income of $44,000 for the third  quarter  1996 and $226,000 for the first
nine months 1996  consists of real estate lease  income,  scrap income and other
miscellaneous items.

Equipment  interest expense  increased in the third quarter 1996 by $60,000,  or
45% to $196,000 compared to $136,000 during the same period last year. Equipment
interest expense  increased during the first nine months 1996 by $264,000 or 80%
to  $596,000  compared to  $332,000  for the same period last year.  All of this
increase  is  a  result  of  financing  activities  for  the  Company's  railcar
acquisitions.
<PAGE>


Other interest expense  increased in the third quarter 1996 by $80,000,  or 122%
to $146,000 compared to $66,000 during the same period last year. Other interest
expense  increased  in the first nine months 1996 by $162,000 or 71% to $391,000
compared to $229,000 for the same period last year.  Most of this  increase is a
result of  financing  activities  for the  Company's  acquisition  of the Keokuk
Junction Railway Co.

Net gain on fixed asset dispositions  during the first nine months 1996 includes
$29,505  generated from the sale of 5.36 miles of Alabama  Railroad Co. right of
way. The real estate was not located on an active part of the rail line.

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 had  approximately  $500,000 in unused  working  capital  facilities
available at the end of the third  quarter  1996.  In addition,  the Company has
seen the market value of its railcar and locomotive fleet increase significantly
over the last several years.  This increase in value has resulted from the short
supply of railcars and  locomotives  compared to the increased  demand for their
use. The Company  believes it could  refinance part of its railcar or locomotive
fleet with an asset-based  lender and generate up to $1 million in cash. 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  common  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 per  share.  The  shares  purchased  through  the
exercise of the warrants  must be held for 1 year from the date of purchase.  In
the first nine months 1996, a total of 35,720 warrants were  exercised,  and the
Company  realized  $71,440 on the issuance of the warrants.  The Company expects
increased  capital to be generated by the continued  exercise of warrants but is
uncertain as to the amount. A total of 4,143,110  warrants are outstanding as of
September 30, 1996.

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 are from $1.50 to $4.40 per share. The Company expects  increased capital
to be generated by the exercise of options but is uncertain as to the amount.  A
total of 20,200  options have been  exercised  as of September  30, 1996 and the
Company realized $30,300 as a result of their exercise.

In the first  quarter  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 10.75%. The interest rate is adjustable quarterly
to 2.5% over New York Prime, limited, however, to a 1 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.  As of the date of this
filing,  the line has been fully  drawn upon in  connection  with the  Company's
March 12, 1996  acquisition  of a  controlling  interest of KNRECO,  Inc.  d/b/a
Keokuk  Junction  Railway,  common  stock (See Item 5- Other  Information).  The
current  monthly  debt  service  resulting  from the $2.5  million  borrowed  is
$43,000.

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  equipment  debt in the  foreseeable  future  are
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 through the first quarter of 1997.

The Company is  considering  refinancing  some of its present debt.  The Company
currently has agreed in principal to a financing  proposal  providing capital to
refinance the debt secured by the Alabama & Florida Railway Co. assets. Included
in this refinancing are proceeds to pay for the  rehabilitation of the Pea River
bridge which has been out of service since early 1994. This  rehabilitation  was
completed  in the third  quarter  1996 and  restored  rail  service  to  several
customers east of the bridge. The Company is carrying  approximately $200,000 in
accounts payable related to this project. In addition, the Company is seeking to
refinance the Citizens Bank & Trust  acquisition line of credit which would make
available $2.5 million for the purchase of operating railroads.
<PAGE>


The Company's  Minnesota  Central Railroad  subsidiary  (MCTA) continues work to
improve its track  conditions.  MCTA has begun a mini  rehabilitation,  focusing
primarily on the east-end of the line.  MCTA has budgeted  $125,000 in materials
and labor for the  remaining  1996 fiscal  year  related to this  project.  MCTA
intends to seek  financing to replenish  working  capital used for this project,
but is prepared to use internal cash flows if needed.

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 adequate to meet  liquidity  needs for at least the
next twelve months.

Balance Sheet and Cash Flow Items:

The Company generated net cash from operating  activities of $1.8 million in the
first nine  months 1996  compared to $864,000  during the same period last year.
Net cash from  operating  activities  for the first nine  months  1996  resulted
primarily  from  $481,000  of net  income,  $1.1  million  of  depreciation  and
amortization,  an increase in prepaid expenses of $127,000, an increase in trade
payables of $297,000 and an increase in deferred taxes of $160,000.

During the first nine  months  1996 the  Company  purchased  approximately  $1.5
million of fixed  assets  and  capital  improvements.  Included  in the  capital
additions were 61 railcars purchased at a cost of $770,000.  All of the railcars
purchased  were  financed  with  long-term  fixed rate  financing.  The  Company
capitalized approximately $400,000 of track betterments in the first nine months
1996, all of which were funded with operating cash flows. The remaining  capital
additions of  approximately  $330,000 were primarily for machinery and equipment
and also were funded by operating cash. Therefore, approximately $730,000 of the
Company's  capital additions were funded by internal cash flow in the first nine
months 1996. The Company is considering  refinancing  equipment to replenish the
working capital used for the 1996 capital additions.

The Company's  consolidated  balance sheet as of September 30, 1996 includes the
assets and  liabilities  acquired in the  purchase of KNRECO  stock on March 12,
1996. Additions to the balance sheet as a result of the purchase of KNRECO stock
are as follows:

Cash  $339,000,  Accounts  Receivable  $849,521,   Inventory  $145,000,  Prepaid
Expenses $34,000, Fixed Assets $4,099,300,  Goodwill $275,000,  Accounts Payable
$1,383,000,  Note Payable  $445,563,  Deferred Income Tax Liability of $651,000,
and Other  Liabilities  of $136,000.  In  addition,  the Company  borrowed  $2.5
million and used $625,000 of working capital to finance the acquisition.

PART II.  OTHER INFORMATION

Item 1.   LEGAL PROCEEDINGS

Several  lawsuits  were  pending  by and  against  Pioneer  Railcorp  and/or its
subsidiaries  (collectively,  the  "Company")  during the third quarter of 1996,
including the following:

There is litigation  pending between Minnesota Central Railroad Co. ("MCTA") and
MNVA Railroad,  Inc.  ("MNVA") and Dakota,  Missouri Valley & Western  Railroad,
Inc.,  resulting  from the asset sale from MNVA to MCTA in  December  1994.  Two
cases,  involving claims by and against MCTA and Pioneer,  are currently pending
in Minnesota and Illinois.  A third case was settled during  September 1996, and
MCTA is working on implementing the settlement agreement which involves the Twin
Cities & Western  Railroad.  Management does not believe that any of these cases
will  result  in a  material  adverse  effect on the  Registrant's  consolidated
financial position or results of operation.

A Federal Employer's  Liability Act ("FELA") lawsuit is also pending against the
Alabama & Florida  Railway Co. in  Alabama.  That action was brought by a former
employee of a track contractor (or its sub-contractor), and is being defended by
the contractor  pursuant to an indemnification  agreement.  The Company does not
believe it has any  liability in the matter,  and does not believe the case will
result in a material adverse effect on the Registrant's  consolidated  financial
position or results of operation.

There is litigation  pending in the District Court of Lee County,  Iowa, between
Keokuk Junction Railway Co. ("KJRY") and Pioneer Railcorp and Ralston L. Taylor,
the former General Manager of KJRY (prior to Pioneer's  purchase of the stock of
KJRY)  involving  certain alleged  contractual  obligations of KJRY. The Company
does not believe it has any  liability  in the matter,  and does not believe the
case will result in a material adverse effect on the  Registrant's  consolidated
financial position or results of operation.
<PAGE>


There is litigation  pending in the Federal  Courts  between Fort Smith Railroad
Co.  ("FSR") and the American  Train  Dispatchers  (the union  representing  FSR
employees) involving  interpretation of the Railway Labor Act. Regardless of the
outcome,  it is not anticipated  that either side will have a material  monetary
liability resulting from this litigation.

Finally,  a lawsuit that was brought  against the West Jersey Railroad Co. (as a
result of a crossing  accident that occurred in December  1990),  was dismissed,
based upon the  statute of  limitations,  during the first  quarter of 1996.  An
appeal of that  dismissal was recently  denied by the New Jersey  Supreme Court.
The Company believes that it is unlikely this dismissal will be reversed, should
there be any further  appeal,  and does not believe the case is likely to result
in a material adverse effect on the Registrant's consolidated financial position
or results of operation.

Pioneer's  subsidiary  railroads  have a number  of  claims  against  delinquent
licensees,  customers and others, some of which are in litigation, and others of
which are likely to result in litigation. None of the amounts involved, however,
would have a material impact on the Company's consolidated financial position or
results of operations if they proved to be uncollectible.

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 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,  the  Company  is  aware  of only one such
incident  which could  result in a liability  that would  materially  affect the
Company's consolidated financial position or results of operation. That incident
involved  a grade  crossing  accident  on the  Alabama  & Florida  Railway  that
seriously injured two people. Both the Company's investigation,  and that of the
local police, determined that the driver was at fault in this accident, however,
the Company discloses it as a matter of prudence.

Item 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters  were  submitted to a vote of security  holders in the third  quarter
1996.

Item 5.   OTHER INFORMATION

On March 12, 1996, the Registrant  purchased  176,675 shares of the common stock
of KNRECO,  Inc., an Iowa corporation d/b/a Keokuk Junction Railway (hereinafter
"KJRY")  from  the   shareholders,   for  $16.50  per  share.   This  represents
approximately  93% of the outstanding  common stock of KJRY. The Registrant also
offered to purchase all of the remaining  common  shares of KJRY,  and as of the
date of this report, Pioneer Railcorp has acquired 100% of said shares.

KJRY operates a common  carrier  railroad line within the City of Keokuk,  Iowa,
and from  Keokuk to  LaHarpe,  Illinois,  as well as a branch  from  Hamilton to
Warsaw,  Illinois,  a  total  of  approximately  38  miles.  KJRY  also  owns  5
locomotives,  30 railcars (of various descriptions),  an office building, engine
house, and several vehicles,  miscellaneous  pieces of equipment,  materials and
supplies.  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.

Prior to the purchase there was no material  relationship between the Registrant
and KNRECO,  Inc. or any of the officers,  directors or  shareholders of KNRECO,
Inc. and the Registrant.

The total  consideration  for the purchase of 100% of the outstanding  shares of
KNRECO,  Inc.  was  $3,125,597.  This was paid by  $3,124,357  in cash,  and the
remainder in Pioneer  Railcorp  Class A common stock (342 shares).  The purchase
was financed  largely through a $2.5 million  acquisition line of credit Pioneer
Railcorp has with Citizens Bank & Trust Company of  Chillicothe,  Missouri.  The
line of credit 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 10.75%. The interest rate is adjustable quarterly to 2.5% over
New York Prime,  limited,  however,  to a 1 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 current  monthly debt service
resulting  from the $2.5  million  borrowed is  $43,000.  The  remainder  of the
purchase price was financed through internal cash flow.
<PAGE>


The Company,  through its wholly-owned  subsidiary  Rochelle Railroad Co. (RRCO)
signed a one year lease with the city of  Rochelle,  Illinois on March 25, 1996,
to operate  approximately 2 miles of track serving the Rochelle Industrial Park.
Train  operations  began April 15, 1996. The lease requires RRCO to make monthly
payments  to the city on a per car  basis  and to  maintain  the  trackage.  The
Company estimates the RRCO will handle  approximately  5,000 carloads during the
first year of operations.  As a result of certain shipping contracts in place at
time of operation,  the RRCO is not expected to significantly increase operating
income until the 4th quarter 1996.

The Company through its wholly-owned  subsidiary Columbia & Northern Railway Co.
(CNOW) signed a lease with the Marion County  (Mississippi)  Railroad  Authority
("Authority") to operate approximately 29 miles of trackage between Columbia and
Silver Creek, Mississippi. The lease with the Authority was executed on February
21, 1996 and provides for a term of ten years,  with 5 ten-year  renewal options
at a rental of $1.00 per year.  The lease  requires  CNOW to maintain the track.
CNOW  exercised its renewal  options and has prepaid the lease for 60 years.  In
addition,  CNOW leases  approximately  5 miles of track between Silver Creek and
Furguson,  Mississippi,  from the  Illinois  Central  Railroad  for  interchange
purposes. CNOW has been restoring the tracks and preparing to begin operation of
the line, but has not yet started train  operation.  The Company  estimates that
CNOW will handle a small number of cars in 1996 and will not  materially  affect
the results of operations of the Company.

In the second  quarter 1996,  the Company's  Keokuk  Junction  Railway  signed a
contract with its major customer, Roquette America, Inc, granting KJRY the right
to exclusively  switch cars into and from the plant. It is anticipated that this
contract will have a positive effect on operating  income in the future,  but is
uncertain as to what extent.
<PAGE>


Item 6.   EXHIBITS AND REPORTS ON FORM 8-K

None.

SIGNATURES


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





PIONEER RAILCORP
(Registrant)





       11/01/96               /s/ Guy L. Brenkman
       --------               -------------------------------
        DATE                  GUY L. BRENKMAN
                                PRESIDENT & CEO




      11/01/96                /s/ Michael Carr
      --------                --------------------------------
       DATE                   J. MICHAEL CARR
                                 ASSISTANT TREASURER &
                                 CHIEF FINANCIAL OFFICER


<PAGE>