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, 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 September 30, 1998)



<PAGE>

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS




PIONEER RAILCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
Quarters Ended September 30, 1998 and 1997
Nine Months Ended September 30, 1998 and 1997

UNAUDITED
<TABLE>
                                                         Third Quarter              First Nine Months 
                                                   -------------------------    -------------------------
                                                       1998          1997           1998         1997
                                                   -------------------------    -------------------------
<S>                                                 <C>           <C>           <C>            <C>    
Operating revenue ...............................   $3,481,246    $3,323,716    $10,367,582    $9,646,945
                                                    -----------------------------------------------------

Operating expenses
   Maintenance of way ...........................      254,934       403,926        963,697        985,701
   Maintenance of equipment .....................      391,337       372,532      1,209,648      1,131,883
   Transportation expense .......................      910,689       838,496      2,444,232      2,330,582
   Administrative expense .......................      894,379       841,335      2,659,060      2,418,077
   Depreciation  & amortization .................      395,963       371,590      1,182,827      1,115,614
                                                    ------------------------------------------------------
                                                     2,847,302     2,827,879      8,459,464      7,981,857
                                                    ------------------------------------------------------

Operating income ................................      633,944       495,837      1,908,118      1,665,088
                                                    ------------------------------------------------------

Other income & expense
   Other (income) expense .......................      (50,798)      (50,111)      (156,361)      (244,931)
   Interest expense, equipment ..................      171,364       188,135        570,432        585,753
   Interest expense, other ......................      137,200       166,595        394,014        461,488
   Net (gain) loss on sale of fixed assets ......       11,824       (40,549)       (63,871)      (105,113)
                                                    ------------------------------------------------------
                                                       269,590       264,070        744,214        697,197
                                                    ------------------------------------------------------

Income before income taxes ......................      364,354       231,767      1,163,904        967,891

Provision for income taxes ......................      130,277        75,921        424,677        344,171
                                                    ------------------------------------------------------

Income before minority interest in preferred
   stock dividends of consolidated subsidiaries .   $  234,077    $  155,846    $   739,227    $   623,720

Minority interest in preferred stock dividends of
    consolidated subsidiaries ...................   $   31,308    $   31,308    $    93,924    $    93,924


Net income ......................................   $  202,769    $  124,538    $   645,303    $   529,796
                                                    ======================================================

Basic earnings per common share .................   $     0.04    $     0.03    $      0.14    $      0.12
                                                    ======================================================

Diluted earnings per common share ...............   $     0.04    $     0.03    $      0.14    $      0.11
                                                    =======================================================

Cash dividends per common share .................   $     0.00    $     0.00    $      0.02    $      0.00
                                                    ======================================================
</TABLE>
<PAGE>

PIONEER RAILCORP AND SUBSIDIARIES

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

UNAUDITED
                                                       September 30  December 31
                                                          1998          1997
                                                       -----------   -----------
ASSETS
Current Assets
   Cash .............................................  $   712,419   $   407,428
   Accounts receivable, less allowance
     for doubtful accounts 1998 $98,834; 1997 $82,375    2,625,711     2,367,509
   Inventories ......................................      348,679       351,331
   Prepaid expenses .................................      259,769       192,952
   Income tax refund claims .........................       74,434        74,602
   Deferred taxes ...................................       66,400        66,400
                                                       -------------------------
        Total current assets ........................    4,087,412     3,460,222
                                                       -------------------------
Property and Equipment less accumulated
  depreciation 1998 $5,642,400; 1997 $4,602,015 .....   19,665,449    19,974,702
                                                       -------------------------
Intangible Assets, less accumulated amortization
  1998 $236,968; 1997 $197,724 ......................    1,079,024     1,117,205
                                                       -------------------------
Investments, cash value of life insurance ...........      108,993        95,547
                                                       -------------------------
Total assets ........................................  $24,940,878   $24,647,676
                                                       =========================

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
   Accounts payable .................................  $ 2,667,268   $ 2,518,190
   Notes payable ....................................      369,495       250,034
   Income taxes payable .............................      369,253        61,749
   Current maturities of long-term debt .............    1,989,449     1,836,132
   Accrued liabilities ..............................      464,494       432,145
                                                       -------------------------
        Total current liabilities ...................    5,859,959     5,098,250
                                                       -------------------------

Long-term debt, net of current maturities ...........   11,429,084    12,465,498
Deferred income taxes ...............................    2,250,700     2,250,700
                                                       -------------------------
        Total liabilities & debt ....................   19,539,743    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 ................................    2,169,525     1,602,418
                                                       -------------------------
        Total stockholders' equity ..................    4,215,135     3,647,228
                                                       -------------------------
Total liabilities and equity ........................  $24,940,878   $24,647,676
                                                       =========================
<PAGE>


PIONEER RAILCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS
FIRST NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997

UNAUDITED
<TABLE>

                                                                      First Nine Months
                                                                    1998            1997
                                                                 -----------    -----------
<S>                                                              <C>            <C>   
Cash Flows From Operating Activities
Net income ...................................................   $   645,303    $   529,796
Adjustments to reconcile net income to net cash
provided by operating activities:
           Minority interest in preferred stock dividends of
             consolidated subsidiaries .......................        93,924         93,924
           Depreciation ......................................     1,143,582      1,070,735
           Amortization ......................................        39,245         44,879
           Increase in cash value life insurance .............       (13,446)       (14,724)
           (Gain) on sale of property & equipment ............       (63,871)      (105,113)
           Deferred taxes ....................................           -0-        250,000
Change in assets and liabilities, net of effects from
           acquisition of subsidiaries
           (Increase) decrease accounts receivable ...........      (258,202)      (114,876)
           (Increase) decrease inventories ...................         2,652         18,181
           (Increase) decrease prepaid expenses ..............       (66,817)       (16,823)
           (Increase) decrease intangible assets .............           207         (4,715)
           Increase (decrease) accounts payable ..............       149,078        (45,025)
           (Increase) decrease income tax refund claims ......           168         11,635
           Increase (decrease) income tax payable ............       307,504         70,708
           Increase (decrease) accrued liabilities ...........        32,349        181,976
                                                                  -------------------------
           Net cash provided by operating activities .........     2,011,676      1,970,558
                                                                  -------------------------

Cash Flows From Investing Activities
           Proceeds from sale of property & equipment ........       315,706        194,959
           Purchase of property & equipment, net of property
                and equipment from acquisition of subsidiaries    (1,087,439)      (645,899)
           Sale of subsidiary stock (Columbia & Northern) ....           -0-         15,000
           Acquisition of subsidiaries, net of cash acquired .           -0-            -0-
                                                                  -------------------------
           Net cash (used in) investing activities ...........      (771,733)      (435,940)
                                                                  -------------------------

Cash Flows From Financing Activities
           Proceeds from short-term borrowings, net of debt
              assumed in acquisition of subsidiaries .........     2,813,442      2,122,544
           Proceeds from long-term borrowings, net of debt
              assumed in acquisition of subsidiaries .........     3,779,181        207,927
           Payments on short-term borrowings .................    (2,693,981)    (2,143,701)
           Payments on long-term borrowings ..................    (4,662,278)    (1,386,598)
           Repurchase of minority interest
           Cash dividends paid ...............................       (92,201)           -0-
           Proceeds from warrants and options exercised ......           800         59,090
           Payments to minority interest .....................       (79,915)       (79,915)
                                                                  -------------------------
           Net cash provided by financing activities: ........      (934,952)    (1,220,653)
                                                                  -------------------------

Net increase (decrease) in cash ..............................       304,991        313,965
Cash, beginning of period ....................................       407,428        501,212
                                                                  -------------------------
Cash, end of period ..........................................    $   712,419   $   815,177
                                                                  =========================
</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 September 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  September  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
September 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 third 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: Third Quarter 1998 Compared to Third Quarter 1997.

The Company's net income in the third quarter 1998  increased by 63% to $202,769
up from  $124,538 in the same period last year.  Operating  revenue in the third
quarter 1998  increased by $158,000 or 5% to $3.48 million from $3.33 million in
the same period last year. Operating expense increased in the third quarter 1998
by approximately  $20,000 or less than 1% to $2.84 million from $2.82 million in
the same period last year.  Operating income increased in the third quarter 1998
by $138,000 or 28% to $634,000 up from $496,000 in the same period last year.

Operating Revenue:

The  increase in  operating  revenue in the third  quarter  1998 of $158,000 was
positively  affected by a $127,000  increase in revenue  from  Pioneer  Railroad
Equipment  resulting  from  increased  revenue from the Company's  railcar fleet
which recorded revenues of $573,000 compared to $446,000 in the same period last
year. In addition, the Alabama Railroad had an increase of approximately $80,000
in  operating  revenue in the third  quarter  of 1998 to  $275,000  compared  to
$195,000  in the same period  last year;  the  Alabama & Florida  Railway had an
increase of approximately  $37,000 in operating  revenue in the third quarter of
1998 to $391,000  compared to $354,000 in the same period last year; the Decatur
Junction Railway had an increase of approximately  $71,000 in operating  revenue
in the third quarter of 1998 to $102,000  compared to $31,000 in the same period
last year; and the Michigan Southern had an increase of approximately $36,000 in
operating  revenue in the third quarter of 1998 to $305,000 compared to $269,000
in the same  period  last year.  Increased  car  loadings  in the period was the
primary  reason for the  operating  revenue  increases on these  railroads.  

The  increases in  operating  revenue  from these  subsidiaries  was offset by a
$144,000 operating revenue decrease by the Minnesota Central Railroad, which had
operating  revenue of $247,000 in the third quarter 1998 compared to $391,000 in
the same  period  last year.  Most of the  decrease  in MCTA  operating  revenue
resulted  from  decreased car loadings of grain and clay  resulting  from market
conditions (grain) and track conditions. The Rochelle Railroad had a decrease in
operating  revenue of $37,000 ( 33%) in the third quarter 1998 recording revenue
of $76,000 compared to $113,000 in the same period last year. This decrease is a
result of the lost business  resulting from the joint  operation of the railroad
associated with the City of Rochelle,  Illinois terminating the RRCO's lease and
replacing  RRCO as operator of the line with one of the on-line  customers.  The
Vandalia  Railroad had a decrease in operating  revenue of $27,000  (26%) in the
third quarter 1998 recording revenue of $77,000 compared to $104,000 in the same
period last year.  This decrease is the result of a down-turn in the business of
one of the major customers on the line.
<PAGE>


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

Operating Expense:

The increase in operating  expense of $20,000 in the third  quarter 1998 was the
result of the following factors:

In the third quarter 1998,  maintenance of way expense  decreased as a result of
the  capitalization of labor expense related to  rehabilitation  projects on the
Alabama Railroad,  Alabama & Florida Railway, Minnesota Central Railroad and the
Mississippi  Central  Railroad.  The  total  amount  of  labor  capitalized  was
approximately  $105,000.  The maintenance of equipment  expense increase was the
result of increased  maintenance  expense on the railcar fleet.  The increase in
transportation  expense is the result of normal  activities  associated with the
increased car loadings in the period.

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

Other Income and Expense Income Statement Line Item Discussion:

Other  income of $51,000 in the third  quarter  1998 and  $50,000  for the third
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 $46,000 in the third
quarter  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 loss on fixed asset  dispositions  during the third  quarter 1998 of $12,000
included a gain of $4,000  from the sale of two  railcars  and a loss of $16,000
resulting  from  the  destruction  of  a  railcar.   Net  gain  on  fixed  asset
dispositions  during the third quarter 1997 of $40,000 included $32,000 from the
sale of an excess locomotive and $7,800 from the disposal of two railcars.

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

The  Company's  net income in the first nine  months  1998  increased  by 22% to
$645,303 up from $529,796 in the same period last year. Operating revenue in the
first nine months 1998  increased  by $721,000 or 7% to $10.4  million from $9.6
million in the same period last year.  Operating  expense increased in the first
nine months 1998 by $477,000 or 6% to $8.46  million  from $7.99  million in the
same period last year.  Operating income increased in the first nine months 1998
by $243,000 or 15% to $1,908,000 from $1,665,000 in the same period last year.

Operating Revenue:

The increase in operating  revenue in the first nine months 1998 of $721,000 was
positively  affected  by a $555,000  increase  in carhire  revenue  from  PREL's
railcar fleet which recorded revenue of $1,981,000 compared to $1,426,000 in the
same period last year. In addition, increased car loadings resulted in increased
revenues by several railroad subsidiaries  including the Keokuk Junction Railway
which had $255,000 of increased  operating revenue in the first nine months 1998
recording  operating  revenue of  $2,421,000  compared to $2,166,000 in the same
period last year; the Rochelle Railroad which had $99,000 of increased operating
revenue in the first nine months 1998 recording $415,000 compared to $316,000 in
the same period last year;  the Decatur  Junction which had $81,000 of increased
operating  revenue in the first nine months 1998 recording  $273,000 compared to
$192,000 in the same period last year; and the Michigan  Southern Railroad which
had  increased  operating  revenue of  $134,000  in the first nine  months  1998
recording  $874,000  compared to $740,000 in the same period last year.  Pioneer
Industrial  Railway,  which  began  operations  in February  1998 had  operating
revenue of $104,000 in the first nine months 1998.
<PAGE>


Operating  revenue in the first nine  months  1998 was  adversely  affected by a
$303,000 operating revenue decrease by the Minnesota Central Railroad, which had
operating revenue of $606,000 in the first nine months 1998 compared to $909,000
in the same period last year.  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 initial
arrival  of empty  cars for clay  loading  from the Union  Pacific.  MCTA  track
conditions also adversely effected car loadings in the first nine months 1998.

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

Operating Expense:

The  increase  in  operating  expense of  $478,000 in the first nine months 1998
resulted from the following factors:

Pioneer  Railroad  Equipment  Co.,  Ltd.  had  increased  operating  expense  of
$213,000, recording operating expense of 1,394,000 compared to $1,181,000 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 $96,000,  recording
operating expense of $583,000 compared to $487,000 in the same period last year.
Most of this increase resulted from increased personnel and transportation costs
resulting from increased rail traffic.  Pioneer Industrial Railway,  which began
operations in February  1998 had operating  expense of $99,000 in the first nine
months 1998. Support services provided by the parent company,  Pioneer Railcorp,
and also  support  services  provided by Pioneer  Railroad  Services,  increased
operating  expense $268,000 in the first nine 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 nine months 1998 compared to the same period last year.

Other Income and Expense Income Statement Line Item Discussion:

Other  income of $156,000  for the first nine months 1998 and  $245,000  for the
first nine 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 $83,000 in the first
nine  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 nine months
1998 of $64,000  included a net gain of $92,000 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.  Net gain on fixed
asset  dispositions  during  the first nine  months  1997 of  $105,000  included
$62,000 from the sale of three excess locomotives,  $13,000 from the disposition
of three  railcars,  $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 operations.

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.  Based on this review the Company  believes  its  internal
systems and the major  systems it depends  upon from third  parties will be Year
2000  compliant on a timely basis.  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.
<PAGE>

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 $1,200,000 of which $974,000
was available  for use at the end of the third  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 September 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.

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 September 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  September  30,  1998,  a total of 238,759
options are outstanding under this plan.
<PAGE>

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  September  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  $4.0 million of  interest-free  financing to
rehabilitate  the  Minnesota  Central  Railroad.  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 third quarter of 1998 the Rochelle Railroad
Co. generated  $76,000 in revenue and $19,000 of operating  income. In the first
nine months 1998 the  Rochelle  Railroad Co.  generated  $415,000 in revenue and
$224,000 in operating income.

The Michigan Southern  Railroad's lease expires in December 1998, and the Wabash
&  Western  Railway  Co.,  d/b/a  Michigan  Southern  Railroad   ("Wabash"),   a
wholly-owned subsidiary of Pioneer Railcorp, reached an agreement with Gordon D.
Morris,   Michigan  Southern  Railroad  Co.,  Inc.,  and  Morris  Leasing,  Ltd.
("Leasing"),  the entities from which Wabash currently leases its rail lines, to
acquire the stock of Michigan  Southern Railroad Co., Inc. and the leased assets
of Morris and Leasing for $2.4 million.  The Company  believes this  transaction
will close on January 1, 1999. 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 third quarter of 1998 the Michigan Southern
Railroad  generated  $305,000 in revenue and $99,000 of operating income, and in
the first nine months 1998 the Michigan Southern Railroad  generated $874,000 of
revenue and $290,000 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.

Balance Sheet and Cash Flow Items:

The Company  generated net cash from  operating  activities of $2,012,000 in the
first nine months 1998 compared to $1,971,000 in the same period last year.  Net
cash from operating activities for the first nine months 1998 resulted primarily
from $645,303 of net income,  $1,183,000 of depreciation and amortization and an
increase in income tax payable of $308,000.

In the first nine months 1998 the Company purchased approximately  $1,087,000 of
fixed  assets and capital  improvements.  The  capital  additions  included  the
purchase of 60 railcars at a total cost of approximately  $525,000, all financed
with  long-term  fixed-rate  financing.  In  addition,  the Company  capitalized
approximately $247,000 of track and structure repair primarily related to severe
flooding in Alabama and  Mississippi.  Also,  $65,000 in railcar and  locomotive
betterments, $60,000 of leasehold improvements to the Pioneer Industrial Railway
track,   $46,000  for  the  purchase  of  industrial   development   land,   and
miscellaneous  capital expenditures of approximately  $144,000 for equipment and
other  assets  were  capitalized  in the first nine  months  1998.  All  capital
expenditures  other than the  purchase of railcars  were  financed  with working
capital cash flow.
<PAGE>

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

No matters  were  submitted to a vote of security  holders in the third  quarter
1998.

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 was finalized at approximately $658,000, lower then previous estimates by
the  Company.  The  Company  was  awarded  a federal  grant for the full  amount
required to restore the track and  expects  all repairs to be  completed  in the
spring of 1999.

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.

Item 6.   EXHIBITS AND REPORTS ON FORM 8-K

Exhibit # 11 - Statement re  computation of per share  earnings.  
Exhibit # 27 - Financial data schedule.

No reports were filed on Form 8-K during the third quarter 1998.
<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
      10/27/98                -----------------------------------
        DATE                  GUY L. BRENKMAN
                              PRESIDENT & CEO


                              J. Michael Carr
      10/27/98                -----------------------------------
        DATE                  J. MICHAEL CARR
                              TREASURER & CHIEF FINANCIAL OFFICER