TO THE SHAREHOLDERS:

I am pleased to report that Pioneer  Railcorp  turned in another solid financial
performance  in the year ended 2000  reporting  strong  gains in both  operating
revenues  and  operating  income.  Operating  revenue  increases  resulted  from
increased  freight  revenues  by the  Company's  operating  railroads  and  also
increased revenues from the Company's equipment leasing operations.

Competition  for quality short line railroads  remains  fierce,  and on April 1,
2000,  the  Company  began  operating  its   wholly-owned   subsidiary   Indiana
Southwestern  Railway Co. (ISW).  The line is in  Evansville,  Indiana and is 23
miles in length. The primary commodities shipped by the ISW are grain,  plastics
and rail equipment.

Pioneer Railcorp  continues to evaluate  potential  railroad  acquisition as one
means of providing  additional growth for the Company and expects to selectively
make solid and safe financial investments in operating railroads in the future.

Pioneer  Railcorp  continues  to seek growth  internally  by working hard in our
marketing  efforts to secure  new  customers  while  working  to  increase  rail
transportation  services  with our  existing  customers.  In  addition,  we will
continue to seek to increase  revenues by offering  competitive  locomotive  and
railcar leasing products and services.  The Company  continues to place a strong
emphasis on collecting  auxiliary  revenues generated by right of way leases and
utility royalties.

I believe  Pioneer  Railcorp is well  positioned  to improve  profitability  and
shareholder  value in the future.  As it appears  that the country is entering a
time of economic  uncertainty,  the  management  team is working  diligently  to
control  costs and  eliminate  waste.  We will  continue to take a common  sense
approach in our daily operations to insure every dollar earned is used wisely.

As I have stated in the past,  I am thankful to our loyal  employees  for all of
their hard work and  efforts  put  forth.  They are the most  important  link in
providing  the quality  service to our customers  and  ultimately  the financial
benefits reaped by all of Pioneer Railcorp shareholders.

Sincerely,

/s/ Guy L. Brenkman
------------------------

Guy L. Brenkman
Chief Executive Officer

                                       1
<PAGE>


Company Background

Pioneer Railcorp, an Iowa corporation, is a railroad holding company. As used in
this annual report, unless the context requires otherwise, the term "Company" or
"PRC" refers to the parent, Pioneer Railcorp and its subsidiaries: West Michigan
Railroad  Co.  (WMI),  Michigan  Southern  Railroad  Company  (MSO),  Fort Smith
Railroad Co. (FSR),  Alabama Railroad Co. (ALAB),  Mississippi  Central Railroad
Co. (MSCI),  Alabama & Florida Railway Co., Inc. (AF),  Decatur Junction Railway
Co. (DT), Vandalia Railroad Company (VRRC),  Keokuk Junction Railway Co. (KJRY),
Shawnee Terminal Railway Company (STR),  Pioneer  Industrial  Railway Co. (PRY),
The Garden City Western Railway,  Inc. (GCW),  Indiana  Southwestern Railway Co.
(ISW),  Kendallville  Terminal  Railway Co.  (KTR) (a spin off from the Michigan
Southern  Railroad  Company),  Elkhart & Western  Railroad Co. (EWR) (a spin off
from the Michigan Southern Railroad Company), Gettysburg & Northern Railroad Co.
(GET) (operating  effective  2/20/01),  Pioneer Resources,  Inc. (PRI),  Pioneer
Railroad  Equipment  Co.,  Ltd.  (PREL),  Pioneer Air, Inc.  (PAR),  and Pioneer
Railroad Services, Inc. (PRS).

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

Pioneer Railcorp Subsidiaries

Fort Smith Railroad Co.

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

Alabama Railroad Co.

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

Mississippi Central Railroad Co.

On April 1, 1992,  Pioneer  Railcorp  purchased  the common stock of the Natchez
Trace  Railroad  from  Kyle  Railways,  Inc.  The  railroad  runs  from  Oxford,
Mississippi to Grand Junction, Tennessee, a total of 51 miles, 45.5 of which are
located in  Mississippi.  The railroad  interchanges  with the Norfolk  Southern
Railway (NS) at Grand Junction,  Tennessee and the Burlington  Northern Santa Fe
(BNSF) at Holly  Springs,  Mississippi.  The  Company  changed  the name of this
wholly-owned  subsidiary to Mississippi  Central  Railroad Co. (MSCI) in January
1993.  The  railroad's  principal  commodities  include  outbound  finished wood
products as well as the resins,  chemicals  and pulpwood for  production  of the
finished wood products, scrap steel and cottonseed.

                                       2
<PAGE>

Alabama & Florida Railway Co.

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

Decatur Junction Railway Co.

On September 23, 1993,  the Decatur  Junction  Railway Co. (DT), a  wholly-owned
subsidiary of Pioneer Railcorp,  signed a lease agreement with Cisco Co-op Grain
Company  (Cisco) and on  September  24,  1993 with  Central  Illinois  Shippers,
Incorporated  (CISI),  for the lease of two  segments  of track in east  central
Illinois.  Approximately  38 miles of railroad is operated  including 8 miles of
trackage rights on the Illinois Central Railroad (IC) through Decatur, Illinois.
The leases run through December 31, 2006. The railroad's  principal  commodities
are primarily agriculture products.

Vandalia Railroad Company

On October 7, 1994,  Pioneer Railcorp acquired all the outstanding  common stock
of the  Vandalia  Railroad  Company.  The line  located in  Vandalia,  Illinois,
interchanges  with  Conrail  (CR) and is  approximately  3.45  miles  long.  The
railroad's  principal  commodities are steel pipe, plastic pellets,  fertilizer,
and feed ingredients.

West Michigan Railroad Co.

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

Keokuk Junction Railway Co.
On March 12, 1996, Pioneer Railcorp purchased 93% of the common stock of KNRECO,
Inc., an Iowa  corporation  d/b/a Keokuk Junction Railway  (hereinafter  "KJRY")
from the shareholders,  and purchased all of the remaining common shares of KJRY
in April of 1996.  KJRY operates a common carrier  railroad line within the City
of Keokuk,  Iowa,  from  Keokuk to  LaHarpe,  Illinois,  and a branch  line from
Hamilton to Warsaw,  Illinois,  a total of  approximately 38 miles. In addition,
KJRY  owns all of the  common  stock of  Keokuk  Union  Depot  Company,  an Iowa
corporation,  that owns the  former  Keokuk  Union  Depot  building,  along with
surrounding  track and real estate.  KNRECO,  Inc. changed its corporate name to
Keokuk Junction Railway Co. effective April 10, 1996. The KJRY interchanges with
the Burlington  Northern Santa Fe (BNSF) at Keokuk, Iowa and the Toledo Peoria &
Western Railway Corporation (TPW) at LaHarpe, Illinois. The railroad's principal
commodities are corn, corn germ, corn syrup,  meal, gluten feed,  calcined coal,
ferro silicon, scrap iron, and railroad wheels.

Shawnee Terminal Railway Company

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

                                       3
<PAGE>

Michigan Southern Railroad

On December 19,  1996,  Pioneer  Railcorp  through its  wholly-owned  subsidiary
Michigan Southern  Railroad  Company,  signed a two year lease with the Michigan
Southern  Railroad Company,  Inc., Morris Leasing,  Inc. and Gordon D. Morris to
operate  53 miles of track  and  certain  railroad  related  assets.  The  lease
contained  an exclusive  option to purchase  the stock of the Michigan  Southern
Railroad  Company,  Inc. and the railroad assets of Morris Leasing Co., Ltd. and
Gordon D. Morris, and this option was exercised on January 6, 1999. The railroad
was originally comprised of three separate, non-contiguous lines. On February 1,
2001, the Company separated 1.1 miles of track located in Kendallville, Indiana,
and on May 1, 2001,  separated 10 miles of track located in the Indiana counties
of  Elkhart  and St.  Joseph,  Indiana  and now  operates  these  lines  each as
separate,   wholly-owned  subsidiaries  of  Pioneer  Railcorp  under  the  names
Kendalville Terminal Railway Co. (KTR) and Elkhart & Western Railroad Co. (EWR).
These actions were taken to simplify interchange with the Norfolk Southern,  the
connecting  carrier to all lines.  The MSO also  interchanges  with the  Indiana
Northeastern  Railroad  Company.  The (MSO is located in southern  Michigan  and
operates  37 miles of  track.  The  primary  commodities  include  scrap  paper,
pulpboard and fertilizer.

Pioneer Industrial Railway Co.

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

The Garden City Western Railway, Inc.

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

Indiana Southwestern Railway Co.

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

Kendallville Terminal Railway Co.

On  February  1,  2001,  the  Company  separated  1.1 miles of track  located in
Kendallville, Indiana from its Michigan Southern Railroad Company subsidiary and
operates the line as a  wholly-owned  subsidiary of Pioneer  Railcorp  under the
name  Kendallville   Terminal  Railway  Co.  (KTR).  The  railroad's   principal
commodities are sugar and syrup.

Gettysburg & Northern Railroad Co.

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

Elkhart & Western Railroad Co.

On May 1, 2001,  the Company  separated 10 miles of track located in the Indiana
counties of Elkhart and St. Joseph,  Indiana from its Michigan Southern Railroad
Company subsidiary and operates the line as a wholly-owned subsidiary of Pioneer
Railcorp  under the name Elkhart & Western  Railroad Co. (EWR).  The  railroad's
principal commodities are cement and lumber.

                                       4
<PAGE>

Pioneer Railroad Equipment Co., Ltd.

Pioneer Railroad Equipment Co., Ltd. (PREL),  which was formed on April 1, 1990,
leases equipment to the Company's subsidiary railroads and also purchases, sells
and leases equipment to and from unrelated parties.  PREL also earns income from
non-company  railroads  on its  fleet of  approximately  1,100  railcars  (as of
December 31, 1999) when they carry freight on non-company  railroads.  PREL also
engages in retail sales of promotional items.

Corporate Support Operations

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


             The remainder of this page is intentionally left blank

                                       5
<PAGE>

                          Independent Auditor's Report

To the Board of Directors
Pioneer Railcorp
Peoria, Illinois

We have audited the accompanying consolidated balance sheets of Pioneer Railcorp
and subsidiaries as of December 31, 2001 and 2000, and the related  consolidated
statements of income,  stockholders'  equity,  and cash flows for the years then
ended.  These  financial  statements  are the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of Pioneer Railcorp and
subsidiaries  as of  December  31,  2001  and  2000,  and the  results  of their
operations  and their cash flows for the years  then  ended in  conformity  with
accounting principles generally accepted in the United States of America.

/s/ McGladrey & Pullen, LLP

Peoria, Illinois
February 15, 2002

                                       6
<PAGE>

PIONEER RAILCORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
December 31, 2001 and 2000
<TABLE>

ASSETS                                                             2001           2000
-------------------------------------------------------------------------------------------
<S>                                                            <C>             <C>
Current Assets
  Cash .....................................................   $    976,678    $    564,490
  Accounts receivable, less allowance for doubtful
    accounts 2001 $71,981; 2000 $120,099 ...................      3,431,008       3,687,738
  Inventories ..............................................        222,257         237,091
  Prepaid expenses .........................................        202,787          96,357
  Income tax refund claims .................................        132,905         206,915
  Deferred taxes ...........................................         80,000          59,800
                                                               ----------------------------
        Total current assets ...............................      5,045,635       4,852,391

Investments, cash value of life insurance ..................        184,090         156,702

Property and Equipment, net ................................     27,128,209      25,451,459

Intangibles and Other Assets, less accumulated amortization
  2001 $204,911; 2000 $292,748 .............................      1,039,521       1,091,403
                                                               ----------------------------
                                                               $ 33,397,455    $ 31,551,955
                                                               ============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
  Current maturities of long-term debt .....................   $  4,828,203    $  2,953,155
  Notes payable ............................................         57,712              --
  Accounts payable .........................................      2,914,471       2,307,663
  Accrued expenses .........................................        775,031         643,743
  Income taxes payable .....................................             --           4,099
                                                               ----------------------------
        Total current liabilities ..........................      8,575,417       5,908,660
                                                               ----------------------------

Long-Term Debt, net of current maturities ..................     10,820,867      14,103,682
                                                               ----------------------------

Deferred Revenue ...........................................        870,066              --
                                                               ----------------------------

Deferred Taxes .............................................      5,285,000       4,825,200
                                                               ----------------------------

Minority Interest in Subsidiaries ..........................      1,103,000       1,106,000
                                                               ----------------------------

Commitments and Contingencies (Note 11)

Stockholders' Equity
  Common stock, Class A (voting), par value $.001 per share,
    authorized 20,000,000 shares, issued 2001 and 2000
    4,612,517 shares .......................................          4,612           4,612
  In treasury 2001 84,040 shares; 2000 81,240 shares .......            (84)            (81)
                                                               ----------------------------
  Outstanding 2001 4,528,477; 2000 4,531,277 ...............          4,528           4,531
  Common stock, Class B (nonvoting), no par value,
    authorized 20,000,000 shares ...........................             --              --
  Additional paid-in capital ...............................      2,044,041       2,044,041
  Retained earnings ........................................      4,694,536       3,559,841
                                                               ----------------------------
                                                                  6,743,105       5,608,413
                                                               ----------------------------

                                                               $ 33,397,455    $ 31,551,955
                                                               ============================
</TABLE>
See Notes to Consolidated Financial Statements.

                                       7
<PAGE>

PIONEER RAILCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 2001 and 2000
<TABLE>

                                                           2001            2000
-----------------------------------------------------------------------------------
<S>                                                    <C>             <C>
Railway operating revenue ..........................   $ 14,420,945    $ 14,771,656
                                                       ----------------------------
Operating expenses
  Maintenance of way and structures ................      1,396,451       1,475,431
  Maintenance of equipment .........................      1,674,703       1,441,511
  Transportation ...................................      3,368,143       3,412,965
  General and administrative .......................      4,576,346       3,815,797
  Depreciation .....................................      2,020,197       1,880,807
  Amortization .....................................         50,489          52,902
                                                       ----------------------------
                                                         13,086,329      12,079,413
                                                       ----------------------------

Operating income ...................................      1,334,616       2,692,243
                                                       ----------------------------

Other income (expenses)
  Interest income ..................................         30,196          43,685
  Interest expense .................................     (1,350,985)     (1,572,428)
  Lease income .....................................        268,159         266,776
  Gain on sale of property and equipment ...........      1,929,107          59,452
  Other, net .......................................        (33,919)          9,100
                                                       ----------------------------
                                                            842,558      (1,193,415)
                                                       ----------------------------
        Income before provision for income taxes
        and minority interest in preferred stock
        dividends of consolidated subsidiaries .....      2,177,174       1,498,828

Provision for income taxes .........................        924,539         635,535
                                                       ----------------------------

        Income before minority interest in preferred
        stock dividends of consolidated subsidiaries      1,252,635         863,293

Minority interest in preferred stock dividends of
  consolidated subsidiaries ........................        114,740         117,710
                                                       ----------------------------

        Net income .................................   $  1,137,895    $    745,583
                                                       ============================

Basic earnings per common share ....................   $       0.25    $       0.16
                                                       ============================
Diluted earnings per common share ..................   $       0.25    $       0.16
                                                       ============================
</TABLE>
See Notes to Consolidated Financial Statements.

                                       8
<PAGE>

PIONEER RAILCORP AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 2001 and 2000
<TABLE>

                                          Common Stock
                                      ------------------------
                                        Class A (Voting)           Additional
                                      ------------------------      Paid-In       Retained
                                        Shares       Amount         Capital       Earnings
-------------------------------------------------------------------------------------------
<S>                                   <C>          <C>            <C>           <C>
Balance at December 31, 1999 ....     4,592,217    $     4,592    $ 2,042,042   $ 3,017,248
  Common stock issued upon
    exercise of stock warrants ..         1,300              1          1,999            --
  Dividends on common stock,
    $.025 per share .............            --             --             --      (113,398)
  Shares acquired in treasury for
    retirement ..................       (62,240)           (62)            --       (89,592)
  Net income ....................            --             --             --       745,583
                                      -----------------------------------------------------
Balance at December 31, 2000 ....     4,531,277          4,531      2,044,041     3,559,841
  Shares acquired in treasury for
    retirement ..................        (2,800)            (3)            --        (3,200)
  Net income ....................            --             --             --     1,137,895
                                      -----------------------------------------------------
Balance at December 31, 2001 ....     4,528,477    $     4,528    $ 2,044,041   $ 4,694,536
                                      =====================================================
</TABLE>
See Notes to Consolidated Financial Statements.

                                       9
<PAGE>

PIONEER RAILCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2001 and 2000
<TABLE>
                                                                 2001           2000
----------------------------------------------------------------------------------------
<S>                                                           <C>            <C>
Cash Flows From Operating Activities
  Net income ..............................................   $ 1,137,895    $   745,583
  Adjustments to reconcile net income to net cash
    provided by operating activities:
    Minority interest in preferred stock dividends of
      consolidated subsidiaries ...........................       114,740        117,710
    Depreciation ..........................................     2,020,197      1,880,807
    Amortization ..........................................        50,489         52,902
    (Increase) in cash value life insurance ...............       (27,388)       (25,199)
    (Gain) on sale of property and equipment ..............    (1,929,107)       (59,452)
    Deferred taxes ........................................       439,600        352,100
    Changes in assets and liabilities:
      (Increase) decrease in assets:
      Accounts receivable .................................       256,730        252,291
      Income tax refund claims ............................        74,010       (112,466)
      Inventories .........................................        14,834         35,187
      Prepaid expenses ....................................      (106,430)        (4,980)
    Increase (decrease) in liabilities:
     Accounts payable .....................................       606,808     (1,675,954)
     Accrued expenses .....................................       131,288        (27,130)
     Income taxes payable .................................        (4,099)      (557,598)
     Deferred revenue .....................................       870,066             --
                                                              --------------------------
        Net cash provided by operating activities .........     3,649,633        973,801
                                                              --------------------------

Cash Flows From Investing Activities
  Proceeds from sale of property and equipment ............     2,811,719        606,332
  Purchase of property and equipment ......................    (3,177,694)    (3,100,151)
  Intangibles and other assets ............................         1,393        (21,816)
  Insurance reimbursements for damaged property ...........       202,835             --
  Acquisition of subsidiaries, net of cash acquired
    and liabilities assumed ...............................    (1,600,000)      (619,000)
                                                              --------------------------
        Net cash (used in) investing activities ...........    (1,761,747)    (3,134,635)
                                                              --------------------------

Cash Flows From Financing Activities
  Proceeds from short-term borrowings .....................     1,874,450      4,201,719
  Proceeds from long-term borrowings ......................     7,678,351      5,504,773
  Principal payments on short-term borrowings .............    (1,816,738)    (5,011,719)
  Principal payments on long-term borrowings ..............    (9,090,818)    (3,959,531)
  Proceeds from common stock issued upon exercise
    of stock warrants and options .........................            --          2,000
  Common stock dividend payments ..........................            --       (113,398)
  Preferred stock dividend payments to minority interest ..      (114,740)      (117,710)
  Purchase of common stock for the treasury ...............        (3,203)       (89,654)
  Repurchase of minority interest .........................        (3,000)       (48,000)
                                                              --------------------------

        Net cash provided by (used in) financing activities    (1,475,698)       368,480
                                                              --------------------------
</TABLE>
                                  (Continued)

                                       10
<PAGE>

PIONEER RAILCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years Ended December 31, 2001 and 2000
<TABLE>
                                                                 2001          2000
---------------------------------------------------------------------------------------
<S>                                                           <C>           <C>
        Net increase (decrease) in cash ...................   $   412,188   $(1,792,354)

Cash, beginning of year ...................................       564,490     2,356,844
                                                              -------------------------

Cash, end of year .........................................   $   976,678   $   564,490
                                                              =========================

Supplemental Disclosures of Cash Flow Information
  Cash payments for:
    Interest ..............................................   $ 1,382,037   $ 1,563,463
                                                              =========================

  Income taxes (net of refunds 2001 none; 2000 $65,370) ...   $   415,028   $   953,499
                                                              =========================

Supplemental Disclosures of Noncash Investing Information
  Railroad acquisitions:
    Fair value of assets acquired, principally property and
      equipment ...........................................   $ 1,604,700   $   619,000
    Less liabilities assumed ..............................         4,700            --
                                                              -------------------------
        Net cash paid for stock acquisitions ..............   $ 1,600,000   $   619,000
                                                              =========================
</TABLE>
See Notes to Consolidated Financial Statements.

                                       11
<PAGE>

PIONEER RAILCORP AND SUBSIDIARIES

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

Note 1.  Nature of Business and Significant Accounting Policies

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

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

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

Significant accounting policies:

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

Cash and cash equivalents: For the purposes of reporting cash flows, the Company
considers all highly liquid debt  instruments  purchased  with maturity of three
months  or less to be cash  equivalents.  There  are no cash  equivalents  as of
December 31, 2001 and 2000.  Periodically  throughout  the year, the Company has
amounts  on deposit  with  financial  institutions  that  exceed the  depository
insurance limits.  The Company has not experienced any loss as a result of those
deposits and does not expect any in the future.

Receivables  credit risk: The Company performs ongoing credit evaluations of its
customers and generally  does not require  collateral.  Provisions  are made for
estimated  uncollectible trade accounts receivable.  To date, losses on accounts
receivable  have been  minimal in  relation to the volume of sales and have been
within management's expectations.

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

                                       13
<PAGE>

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

                                                                           Years
                                                                           -----

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

Property and equipment:  Property and equipment is stated at cost.  Depreciation
is generally  computed on a  straight-line  basis over the  following  estimated
useful lives:  Leasehold  improvements  are  depreciated  over the lesser of the
lease term or life of the improvements.

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

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

The  Company  reviews  applicable  assets  on a  quarterly  basis  to  determine
potential  impairment by comparing  carrying value of underlying assets with the
anticipated  future cash flows and does not believe that impairment exists as of
December 31, 2001 and 2000.

Intangible  assets:  Intangible assets consist  principally of goodwill which is
being  amortized by the  straight-line  method over periods ranging from five to
forty years.  The Company reviews  intangible  assets quarterly by subsidiary to
determine potential impairment by comparing the carrying value of the intangible
with the  undiscounted  anticipated  future cash flows of the  related  property
before income taxes and management fees generated by Pioneer Railroad  Services,
Inc. If future cash flows are less than the  carrying  value,  the Company  will
determine the fair market value of the property and adjust the carrying value of
the  intangibles if the fair market value is less than the carrying  value.  The
Company  does not believe  that  impairment  exists as of December  31, 2001 and
2000.

Deferred revenue: In 2001, the Company incurred costs of $870,066 relating to an
ongoing  upgrade of the track and roadbed of the Gettysburg & Northern  Railroad
Company.  The upgrade is required in order to service a customer that has agreed
to reimburse the Company for the costs  relating to the upgrade.  As of December
31, 2001, the customer has reimbursed to the Company approximately  $840,000. As
the  project is ongoing as of December  31,  2001,  the  Company has  recognized
deferred  revenue of $870,066  and  capitalized  the  related  track and roadbed
upgrade in the capital projects category of property and equipment. Commensurate
with the completion of the upgrade,  the capitalized  assets will be depreciated
on a straight-line  basis over their estimated useful lives,  while the deferred
revenue will be  amortized  to income over the same lives as the capital  assets
are depreciated.

                                       14
<PAGE>

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

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

Government  grants:  From time to time,  the  Company,  through  its  subsidiary
railroads,  enters into agree- ments with state  agencies in the form of federal
or state aid projects or grant  agreements which are designed to aid the Company
with labor,  material, and other costs relating to the rehabilitation and repair
of track and bridge  structures  belonging  to the  Company.  As of December 31,
2001, all amounts  relative to these agreements have been received and satisfied
in full.

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

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

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

                                       15
<PAGE>

Note 2.  Property and Equipment

Property and equipment consist of the following:

                                                            December 31,
                                                   -----------------------------
                                                       2001              2000
                                                   -----------------------------

Land .......................................       $ 3,197,483       $ 2,979,438
Roadbed ....................................        10,281,530         9,801,433
Transportation equipment ...................         5,002,475         4,766,477
Railcars ...................................        13,378,214        12,918,626
Buildings ..................................         1,382,375         1,449,526
Machinery and equipment ....................         1,544,251         1,412,644
Office equipment ...........................           485,804           477,987
Leasehold improvements .....................           252,684           252,684
Capital projects ...........................         1,667,580           301,987
                                                   -----------------------------
                                                    37,192,396        34,360,802
Less accumulated depreciation ..............        10,064,187         8,909,343
                                                   -----------------------------
                                                   $27,128,209       $25,451,459
                                                   =============================

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

The Company has a $5 million  master  credit  facility  with National City Bank,
Peoria,  Illinois,  to provide a  revolving  acquisition  line of  credit.  This
facility is  collateralized  by  commercial  pledges and security  agreements of
various subsidiaries,  certain transportation  equipment, and other tangible and
intangible assets. The interest rate is adjustable at 1.0% over the bank's prime
rate  (5.75%  at  December  31,  2001).  Amounts  drawn on the  master  line are
characterized  as separate  notes that must  generally  be repaid  monthly  over
periods of up to ten years. The Company's  outstanding  borrowings classified as
long-term  under  this line of credit  totaled  $2,709,343  and  $600,011  as of
December 31, 2001 and 2000, respectively. The $2,709,343 note is due June 2002.

The Company has a $57,712 note payable as of December 31, 2001 for the financing
of insurance premiums.  This note is payable in monthly installments of $19,238,
including interest at 6.08%, through March 2002.

The Company has a $600,000  and a $500,000  line of credit  with  National  City
Bank, Peoria, Illinois, each bearing interest at prime, as published in The Wall
Street  Journal,  plus 1%,  collateralized  by accounts  receivable  and general
intangibles  of certain  subsidiaries.  The Company had no  outstanding  balance
under either of these lines of credit as of December 31, 2001 and 2000.

                                       16
<PAGE>

Long-term debt at December 31, 2001 and 2000, consists of the following:
<TABLE>
                                                                       2001          2000
---------------------------------------------------------------------------------------------
<S>                                                                 <C>            <C>
Note payable under master line of credit agreement with
  National City Bank, due in monthly installments of $27,705
  including interest at 1.0% over the bank's prime rate
  (5.75% at December 31, 2001), final payment due June
  2002, collateralized by real estate, rail facilities, and other
  assets of the Indiana Southwestern Railway Co. and the
  Gettysburg & Northern Railroad Co. ............................   $ 2,709,343   $   600,011
Note payable, National City Bank, due in monthly principal
  installments of $8,433 through July 2002, with annual
  increases thereafter, plus interest at the bank's LIBOR
  rate plus 2.25% adjusted monthly (4.18% at December 31,
  2001), final installment due July 2005, collateralized by
  real estate, rail facilities, and other assets of Garden City
  & Western Railway, Inc. .......................................     1,293,521     1,387,654
Note payable, National City Bank, due in monthly installments
  of $33,012 including interest at 8.15%, final installment due
  July 2005, collateralized by locomotives ......................     1,765,273     1,983,870
Note payable, National City Bank, due in monthly installments
  of $30,830 including interest at 8.375%, final installment due
  May 2004, collateralized by the assets of the Michigan
  Southern Railroad Company and Michigan Southern Rail-
  road Company, Inc. ............................................     2,047,793     2,235,117
Note payable, National City Bank, due in monthly installments
  of $37,235, including interest at 8.375% through May 2004
  when the rate will be adjusted, final installment due
  December 2008, collateralized by Keokuk Junction Railway
  Co. stock and assets ..........................................     2,098,919     2,355,553
Noninterest-bearing note payable, State of Mississippi,
  due in annual installments of $3,792, final installment
  due February 2009, collateralized by track structure ..........        30,338        34,130
Mortgage payable, National City Bank, due in monthly
  installments of $4,049 including interest at 9.75%. The
  interest rate is adjustable every five years and is presently
  based on the Bank's base rate plus 1.5% as of October 31,
  1999. Final installment due June 2008, collateralized by
  Pioneer Railcorp's corporate headquarters building ............       360,105       372,410
Mortgage payable, National City Bank, due in monthly
  installments of $26,057, including interest at 8.35%, final
  installment due July 2006, collateralized by railcars .........     1,184,756            --
Note payable, Bank of America Leasing & Capital, due in
  monthly installments of $30,375 commencing January 2002,
  including interest at 5.90%, final installment due
  December 2004, collateralized by locomotives ..................     1,000,000            --
Note payable, State of Iowa, due in annual installments
  of $17,102 commencing December 2002, including
  interest at 3.0%, final installment due December 2011,
  collateralized by track material ..............................       145,891            --
Noninterest-bearing note payable, Main Street Inc.,
  due in monthly installments of $100, final installment
  due January 2005, uncollateralized ............................         3,700            --
Notes payable, TCF leasing Inc., due in monthly installments
  of $18,029 and $13,064 including interest at 7.40% and
  6.70%, final installment due August 2006 and September
  2006 collateralized by railcars ...............................     1,487,884            --
Notes payable, Center Capital Corporation, due in monthly
  installments of $47,008 including interest at 6.85%, final
  installment due January 2005, collateralized by 70 ton
  box cars ......................................................     1,521,547            --
Mortgage payable, National City Bank, due in monthly
  installments of $18,700, including interest at 8.375%
  through May 2004 when the rate will be adjusted, final
  installment due January 2007, collateralized by real estate,
  rail facilities, and other assets of Alabama & Florida
  Railway Co., Inc. (refinanced in 2001) ........................            --     1,041,422
Note payable, Bank of America Leasing & Capital, due in
  monthly installments of $22,825, including interest at 9.65%,
  final installment due June 2007, collateralized by
  railcars (paid off in 2001) ...................................            --     1,318,697
Notes payable, Wells Fargo Equipment, due in monthly
  installments from $3,071 to $24,018 including interest
  ranging from 7.26% to 9.00%, final installments due
  June 2004 to May 2006, collateralized by railcars
  (refinanced in 2001) ..........................................            --     1,811,385
                                                                    -------------------------
Balance carried forward .........................................   $15,649,070   $13,140,249
                                                                    -------------------------
</TABLE>
                                       17
<PAGE>
<TABLE>
                                                                        2001          2000
                                                                    -------------------------
<S>                                                                 <C>           <C>
Balance brought forward .........................................   $15,649,070   $13,140,249
Note payable, Keycorp, due in monthly installments of
  $22,744, including interest at 8.86%, final installment due
  December 2003, collateralized by railcars (refinanced in
  2001) .........................................................            --       716,356
Note payable, Bank of America, due in monthly installments
  of $23,305, including interest at 8.75%, final installment due
  December 2002, collateralized by railcars (refinanced in
  2001) .........................................................            --       511,708
Notes payable, Center Capital Corporation, due in monthly
  installments from $1,402 to $5,202 including interest from
  8.90% to 9.75%, final installments due from January 2002
  to April 2005, collateralized by 70 ton box cars (refinanced
  in 2001) ......................................................            --       444,934
Note payable, Pullman Bank & Trust Company, due in
  monthly installments of $4,933, including interest at
  9.45%, final installment due December 2004, collateralized
  by covered hoppers (refinanced in 2001) .......................            --       195,986
Note payable, Fifth Third Leasing, due in monthly installments
  of $39,286, including interest at 8.29%, final installment due
  May 2003, collateralized by locomotives, boxcars, covered
  hoppers, and gondolas (refinanced in 2001) ....................            --     1,029,426
Notes payable, United Capital, due in monthly installments
  of $32,763, and $12,028 including interest at 8.38% and
  7.63%, final installments due May 2002 and December
  2004, collateralized by railcars (refinanced in 2001) .........            --     1,018,178
                                                                    -------------------------
                                                                     15,649,070    17,056,837
Less current portion ............................................     4,828,203     2,953,155
                                                                    -------------------------
                                                                    $10,820,867   $14,103,682
                                                                    =========================
</TABLE>

Aggregate maturities required on long-term debt as of December 31, 2001, are due
in future years as follows:

Years ending December 31:                                                Amount
--------------------------------------------------------------------------------
2002                                                               $  4,828,203
2003                                                                  2,332,044
2004                                                                  3,940,205
2005                                                                  2,942,321
2006                                                                    868,131
Thereafter                                                              738,166
                                                                   -------------
                                                                   $ 15,649,070
                                                                   =============

Note 4.  Income Tax Matters

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

The  provision  for income  taxes  charged  to  operations  for the years  ended
December 31, 2001 and 2000, was as follows:

                                                     2001                 2000
                                                   -----------------------------
Current:
  Federal ............................             $374,805             $223,814
  State ..............................              110,134               59,621
                                                   -----------------------------
                                                    484,939              283,435
                                                   -----------------------------
Deferred:
  Federal ............................              414,875              307,943
  State ..............................               24,725               44,157
                                                   -----------------------------
                                                    439,600              352,100
                                                   -----------------------------
                                                   $924,539             $635,535
                                                   =============================

                                       18
<PAGE>

The income tax  provision  differs from the amount of income tax  determined  by
applying the federal  income tax rate to pretax income from  operations  for the
years ended December 31, 2001 and 2000, due to the following:

                                                               2001        2000
                                                               -----------------

Computed "expected" tax expense ............................   34.0%       34.0%
Increase in income taxes resulting from:
  State income taxes, net of federal tax benefit ...........    4.1         4.6
  Goodwill amortization ....................................     .7         1.1
  Other ....................................................    3.7         2.7
                                                               -----------------
                                                               42.5%       42.4%
                                                               =================

Deferred tax assets and  liabilities  consist of the following  components as of
December 31, 2001 and 2000:

                                                   2001                 2000
                                                --------------------------------
Deferred tax assets:
  AMT credit carryforwards .............        $   772,000         $   983,200
  NOL carryforwards ....................             33,000             180,000
  Deferred compensation ................             49,000              47,800
  Other ................................             49,000              59,800
                                                --------------------------------
                                                    903,000           1,270,800
Deferred tax liabilities:
  Property and equipment ...............         (6,108,000)         (6,036,200)
                                                --------------------------------
                                                $(5,205,000)        $(4,765,400)
                                                ================================

The components giving rise to the deferred tax assets and liabilities  described
above have been included in the  consolidated  balance sheets as of December 31,
2001 and 2000, as follows:

                                                      2001              2000
                                                   -----------------------------

Current deferred tax assets ..................     $    80,000      $    59,800
Net noncurrent deferred tax liabilities ......      (5,285,000)      (4,825,200)
                                                   -----------------------------
Net deferred tax liability ...................     $(5,205,000)     $(4,765,400)
                                                   =============================

The Company  and its  subsidiaries  have  Alternative  Minimum Tax (AMT)  credit
carryforwards  of  approximately  $772,000 and $983,000 at December 31, 2001 and
2000,  respectively.  This excess of AMT over regular tax can be carried forward
indefinitely   to  reduce  future  federal  income  tax   liabilities.   Certain
subsidiaries of the Company also have net operating loss carryforwards  totaling
approximately  $87,000 at December 31, 2001,  which can be used to offset future
taxable income of those subsidiaries. Net operating loss carryforwards expire as
follows:

Year ending December 31:                                                Amount
-------------------------------------------------------------------------------

2021                                                                   $ 87,000
                                                                       ========

Note 5.  Retirement Plan

The Company has a defined  contribution  401(k) plan covering  substantially all
employees. Employees are eligible to participate in the plan upon employment and
may elect to  contribute,  on a tax deferred  basis,  the lesser of 15% of their
salary,  or  the  Internal  Revenue  Service  maximum  deferral  limit.  Company
contributions are  discretionary and there were no Company  contributions to the
plan in either 2001 or 2000.  Administrative  expenses paid by the Company under
the plan were $4,000 and $5,000 for the years ended  December 31, 2001 and 2000,
respectively.

                                       19
<PAGE>

Note 6.  Deferred Compensation Agreements

The Company has deferred compensation agreements with two former Keokuk Junction
Railway Co.  employees.  The agreements  provide  monthly  benefits for 15 years
beginning with the month immediately  following the employees' normal retirement
date, as defined in the agreements.  If an employee  terminates  employment with
the  Company  for any reason  other than death  prior to the  employees'  normal
retirement  date,  benefits are rendered on a pro rata basis.  Since both former
employees  were fully eligible for benefits when they  terminated  employment in
1999, no  additional  compensation  benefits will accrue.  Therefore the present
value of these  benefits was fully  accrued,  using a discount  rate of 7%, by a
charge to  compensation  expense as of December  31, 1999.  One  employee  began
receiving  benefits in 2001 while the other employee is not scheduled to receive
benefits  until 2008.  The accrual is increased each year by charges to interest
expense for the cost of deferring  such benefit to the one employee who will not
receive  benefits until in 2008. The liability  recorded under these  agreements
totaled  $129,000  and  $124,000  at December  31, 2001 and 2000,  respectively.
Interest expense under these agreements  totaled $8,600 and $8,000 for the years
ended December 31, 2001 and 2000, respectively.

Note 7.  Stock Options and Warrants

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

On May 28, 1996,  the Board of Directors  approved a stock option plan (the 1996
plan)  under  which  the  Company  granted  options  to  key  management,  other
employees,  and outside  directors  for the  purchase  of 407,000  shares of its
common stock.  The plan was approved by the Company's  stockholders  on June 26,
1996. The options became fully vested and exercisable as of July 1, 2001. Vested
options  may be  exercised  in whole or in part within 10 years from the date of
grant.  The exercise price for these options  ranges from $2.75 to $3.03,  based
upon the  trading  price on the date of the  grant.  As of  December  31,  2001,
175,000 options are still outstanding under the 1996 plan.

Other pertinent information related to the plans is as follows:

                                                      2001               2000
                                           -------------------------------------
                                                    Weighted-          Weighted-
                                                    Average            Average
                                                    Exercise           Exercise
                                           Shares    Price    Shares     Price
                                           -------------------------------------

Outstanding at beginning of year ......    215,000   $2.85    366,759    $3.22
Forfeited .............................    (40,000)   2.75   (151,759)    3.74
Exercised .............................         --      --         --       --
                                           -------------------------------------
Outstanding at end of year ............    175,000   $2.88    215,000    $2.85
                                           =====================================
Exercisable at end of year ............    175,000                 --
                                           =====================================

                                       20
<PAGE>

A further summary about stock options outstanding as of December 31, 2001, is as
follows:
<TABLE>
                                    Options Outstanding            Options Exercisable
                            ----------------------------------   -----------------------
                                          Weighted-
                                           Average    Weighted                  Weighted
                                          Remaining   Average                   Average
                               Number    Contractual  Exercise     Number       Exercise
Range of Exercise Prices    Outstanding     Life        Price    Exercisable     Price
----------------------------------------------------------------------------------------
<S>                         <C>          <C>          <C>        <C>            <C>
$2.75 - $3.03                 175,000     4.4 years     $2.88      175,000        $2.88
</TABLE>

Had  compensation  cost for the stock-based  compensation  plans been determined
based on the grant date fair  values of awards  (the  method  described  in FASB
Statement No. 123) reported net income, and earnings per common share would have
been reduced to the proforma amounts shown below.

                                                       2001               2000
Net income:
  As reported ..............................      $   1,137,895      $   745,583
  Proforma .................................      $   1,106,965      $   683,723

Basic earnings per common share:
  As reported ..............................      $        0.25      $      0.16
  Proforma .................................      $        0.24      $      0.15

Diluted earnings per common share:
  As reported ..............................      $        0.25      $      0.16
  Proforma .................................      $        0.24      $      0.15

On June 24, 1995,  the Company  issued  4,198,284  warrants to  stockholders  of
record as a dividend.  Each warrant permits  stockholders a right to purchase an
additional  share of  stock at a  predetermined  price  of $2 per  share.  Stock
acquired by exercise of each warrant must be held for a one-year period of time.
The warrants expire July 1, 2015. There are 4,129,720 warrants outstanding as of
December 31, 2001 and 2000, respectively.

Note 8.  Lease Commitments and Total Rental Expense

The  Company  has  entered  into six lease  agreements  covering  certain of its
railroad  properties.  For railroad properties it leases, the Company ordinarily
assumes,   upon   the   commencement   date,   all   operating   and   financial
responsibilities,   including  maintenance,   payment  of  property  taxes,  and
regulatory compliance. Lease payments on four railroad properties are based on a
per car basis, generally ranging from $10 to $15 on all cars over a range of 300
to 1,000 cars per year on each segment. The leases expire between September 2003
and July  2011 and three of these  railroads  have ten to  twenty  year  renewal
options.

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

The total  approximate  minimum  rental  commitment  as of  December  31,  2001,
required under  noncancelable  leases, and excluding executory costs and per car
rentals, is due in future years as follows:

Years Ending December 31:                                               Amount
--------------------------------------------------------------------------------
2002                                                                   $ 31,000
2003                                                                     31,000
2004                                                                     31,000
2005                                                                     31,000
2006                                                                     31,000
Thereafter                                                              102,000
                                                                       ---------
                                                                       $257,000
                                                                       =========

The total  rental  expense  under the  leases  was  approximately  $119,000  and
$144,000 for the years ended December 31, 2001 and 2000, respectively.

                                       21
<PAGE>

Note 9.  Major Customer

Revenue earned from a major railroad segment customer  amounted to approximately
$2,829,000  and  $2,762,000  during the years ended  December 31, 2001 and 2000,
respectively.  Accounts  receivable  as of December  31, 2001 and 2000,  include
approximately $340,000 and $351,000, respectively, from this customer.

Note 10. Minority Interest in Subsidiaries

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

Following is a summary of the minority  interest in  subsidiaries as of December
31, 2001 and 2000:
<TABLE>

                                                                  2001         2000
                                                               -----------------------
<S>                                                            <C>          <C>
Preferred stock of Alabama Railroad Co. ....................
  Par value - $1,000 per share
  Authorized - 700 shares
  Issued and outstanding - 405 and 406 shares (cumulative
    12% dividend; callable at Company's option at 150% of
    face value) at December 31, 2001 and 2000, respectively    $  405,000   $  406,000
Preferred stock of Alabama & Florida Railway Co., Inc. .....
  Par value - $1,000 per share
  Authorized - 500 shares
  Issued and outstanding - 366 and 367 shares (cumulative
    9% dividend; callable at Company's option after
    June 22, 1995, at 150% of face value) at December 31,
    2001 and 2000, respectively ............................      366,000      367,000
Preferred stock of Mississippi Central Railroad Co. ........
  Par value - $1,000 per share
  Authorized - 1,000 shares
  Issued and outstanding - 332 and 333 shares (cumulative
    10% dividend; convertible at a rate of $10 per common
    share, callable at Company's option after March 1, 1996,
    at 110% of face value) at December 31, 2001 and 2000,
    respectively ...........................................      332,000      333,000
                                                               -----------------------
                                                               $1,103,000   $1,106,000
                                                               =======================
</TABLE>

Note 11. Commitments and Contingencies

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

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

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

                                       22
<PAGE>

The Company is presently involved in litigation surrounding trackage rights with
a Class I railroad regarding fees charged between March 1999 and May 2001 by the
Company  for the Class I  carrier's  access  to and  usage of a  segment  of the
Company's  tracks as a means of gaining access to certain  trackage owned by the
Class I railroad.  The Surface Transportation Board (STB), in a decision in June
2001,  ruled  that the  Class I  railroad  could  have  access  to and cross the
Company's  tracks  in  order to get to the  branch  line  owned  by the  Class I
railroad. The STB did not set compensation or other terms and conditions as part
of its decision and ordered the two parties to negotiate  terms and  conditions,
and ordered  that if no  agreement  could be reached,  that the STB would make a
ruling.  From May 2001 through December 31, 2001, the Company did not charge the
Class I railroad for access to the segment of the  Company's  track in question;
however,  from March 1999  through  May 2001,  the  Company  charged the Class I
railroad  approximately  $660,000 for access to the Company's track. The Class I
railroad  has filed a motion  with STB to have the STB rule that the  Company be
required to  reimburse  the Class I railroad  the amount of fees  charged by the
Company  above the rate the STB  establishes  for all  activity  which  occurred
between March 1999 and May 2001.  The Company  intends to continue to vigorously
defend  itself in this matter.  As of December  31, 2001,  it is not possible to
ascertain the ultimate  financial impact,  if any, upon the Company.  Management
has made no provision for any estimated losses  associated with this matter.  In
the event that the STB makes an  unfavorable  ruling  against the  Company  with
respect to the fees charged  from March 1999  through May 2001,  it is possible,
however,  that the outcome could have a material  adverse effect on the Company'
financial condition and results of operations.

The  Company  was awarded  grants  totaling  $722,097 in 1998 for the repair and
rehabilitation of certain railroad track and related structures the Company owns
in Alabama.  The Company's  obligations under the grants expire five years after
the  completion  of the  repairs.  In the  unlikely  event  the  Company  should
discontinue   using  the  underlying  track  prior  to  the  expiration  of  the
aforementioned  commitment period,  the Company is contingently  liable to repay
the  full  value of  awarded  funds  pursuant  to the  grants.  The  repair  and
rehabilitation  of the track and related  structures was completed in the fiscal
year ended December 31, 1999.

The  Company  was  contingently  liable as a guarantor  on an  outstanding  loan
payable to the U.S.  Small  Business  Administration.  The $79,000  loan was the
primary   responsibility  of  the  Minnesota  Central  Railroad  Co.  (Minnesota
Central),  which the Company sold in 1999;  however,  the Company had guaranteed
the debt prior to the sale of the Minnesota Central. The Company was required by
the U.S.  Small Business  Administration  to pay the $79,000 loan in 2001 as the
purchaser of Minnesota  Central Railroad Co. had defaulted on paying the $79,000
outstanding loan balance.

Note 12. Earnings Per Share

Following is information  about the  computation of the earnings per share (EPS)
data for the years ended December 31, 2001 and 2000:
<TABLE>
                                                       For the Year Ended December 31, 2001
                                                      --------------------------------------
                                                         Income       Shares       Per Share
                                                      (Numerator)  (Denominator)     Amount
                                                      --------------------------------------
<S>                                                   <C>           <C>            <C>
Basic EPS
Income available to common stockholders ...........   $1,137,895    $4,529,297      $   0.25
                                                                                    ========
Effect of Dilutive Securities
Employee stock options ............................           --            --
                                                      ------------------------
Diluted EPS
Income available to common stockholders
  plus assumed conversions ........................   $1,137,895    $4,529,297      $   0.25
                                                      ======================================

                                                       For the Year Ended December 31, 2000
                                                      --------------------------------------
Basic EPS
Income available to common stockholders ...........   $  745,583    $4,539,379      $   0.16
                                                                                    ========
Effect of Dilutive Securities
Employee stock options ............................           --            --
                                                      ------------------------
Diluted EPS
Income available to common stockholders
  plus assumed conversions ........................   $  745,583    $4,539,379      $   0.16
                                                      ======================================
</TABLE>

                                       23
<PAGE>

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

Note 13. Common Stock Repurchase

In 1999, the Company's Board of Directors  approved a plan to begin repurchasing
shares of the Company's  common stock from  stockholders.  During 2001 and 2000,
the Company  repurchased  2,800 and 62,240  shares of common stock at an average
price of approximately  $1.14 and $1.44 per share,  respectively,  for a cost of
$3,203 in 2001 and $89,654 in 2000.

The common stock repurchased is accounted for as treasury stock in the Company's
2001 and 2000  consolidated  balance  sheets  and  statements  of  stockholders'
equity.  As such,  treasury  shares  held  reduce the number of shares of common
stock  outstanding  as of  December  31,  2001 and  2000,  and the  value of the
treasury stock reduces stockholders' equity. The excess of the purchase price of
the  treasury  stock over the par value of the stock of $3,200 and  $89,592  was
charged to retained earnings as of December 31, 2001 and 2000, respectively.

Note 14. Fair Value of Financial Instruments

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

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

  The  remaining  carrying  value  of fixed  rate  long-term  debt  collectively
  approximates fair value based upon the similarity of interest rates negotiated
  on debt instruments in 2001 and 2000 as compared to existing interest rates.

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

Note 15. Segment Information

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

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

                                       24
<PAGE>

Intersegment transactions: Intersegment transactions are recorded at cost.

Factors management used to identify the reportable  segment:  Pioneer Railcorp's
reportable  segments  consist of wholly-owned  short line railroad  subsidiaries
that offer  similar  services and a railroad  equipment  subsidiary  that leases
railcars,   locomotives,   and  other  railroad   equipment  to  affiliated  and
unaffiliated  entities.  The corporate  operations  consist of support  services
provided to the operating segments.
<TABLE>
                                                                For Year Ended December 31,
                                                                ----------------------------
                                                                    2001             2000
                                                                ----------------------------
<S>                                                             <C>             <C>
Segment Assets
  Railroad operations .......................................   $ 19,813,484    $ 17,612,933
  Equipment leasing operations ..............................     12,733,344      13,031,695
  Corporate support services ................................        850,627         907,327
                                                                ----------------------------
        Total consolidated segment assets ...................   $ 33,397,455    $ 31,551,955
                                                                ============================

Expenditures for additions to long-lived assets
  Railroad operations
    Purchases ...............................................   $  2,114,118    $    215,744
    Acquired through purchase of subsidiaries ...............      1,604,700         619,000
  Equipment leasing operations ..............................      1,051,826       2,876,766
  Corporate support services ................................         16,450           7,641
                                                                ----------------------------
        Total expenditures for additions to long-lived assets   $  4,787,094    $  3,719,151
                                                                ============================

Revenues

Revenues from external customers
  Railroad operations .......................................   $ 11,310,471    $ 11,634,662
  Equipment leasing operations ..............................      3,080,117       3,120,139
  Corporate support services ................................         30,357          16,855
                                                                ----------------------------
        Total revenues from external customers ..............   $ 14,420,945    $ 14,771,656
                                                                ============================

Intersegment revenues
  Railroad operations .......................................   $         --    $         --
  Equipment leasing operations ..............................        398,400         393,900
  Corporate support services ................................      6,714,521       6,318,783
                                                                ----------------------------
        Total intersegment revenues .........................   $  7,112,921    $  6,712,683
                                                                ============================

        Total revenue .......................................   $ 21,533,866    $ 21,484,339

Reconciling items
  Intersegment revenues .....................................     (7,112,921)     (6,712,683)
                                                                ----------------------------
        Total consolidated revenues .........................   $ 14,420,945    $ 14,771,656
                                                                ============================
Expenses

Interest expense
  Railroad operations .......................................   $     53,037    $     95,251
  Equipment leasing operations ..............................        627,250         821,467
  Corporate support services ................................        670,698         655,710
                                                                ----------------------------
        Total consolidated interest expense .................   $  1,350,985    $  1,572,428
                                                                ============================
</TABLE>

                                       25
<PAGE>


                                                     For Year Ended December 31,
                                                     ---------------------------
                                                         2001           2000
                                                     ---------------------------
Depreciation and amortization expense
  Railroad operations ............................   $   751,832    $   712,857
  Equipment leasing operations ...................     1,228,825      1,129,992
  Corporate support services .....................        90,029         90,860
                                                     --------------------------
        Total consolidated depreciation and
        amortization expense .....................   $ 2,070,686    $ 1,933,709
                                                     ==========================

Segment profit
  Railroad operations ............................   $ 3,809,823    $ 4,843,851
  Equipment leasing operations ...................     1,464,980      1,686,778
  Corporate support services .....................     3,172,734      2,874,297
                                                     --------------------------
        Total segment profit .....................     8,447,537      9,404,926

Reconciling items
  Intersegment revenues ..........................    (7,112,921)    (6,712,683)
  Income taxes ...................................      (924,539)      (635,535)
  Minority interest in preferred stock dividends
    of subsidiaries ..............................      (114,740)      (117,710)
  Other income (expense), net ....................       842,558     (1,193,415)
                                                     --------------------------
        Total consolidated net income ............   $ 1,137,895    $   745,583
                                                     ==========================

Note 16. Purchases of Railroad Facilities

On  February  20,  2001,  the  Company,   through  its  wholly-owned  subsidiary
Gettysburg & Northern  Railroad Co., acquired for $1,604,700 the railroad assets
of the former  Gettysburg  Railway,  Inc., and the Gettysburg Scenic Railway and
assumed  $4,700 of  liabilities  in a transaction  accounted for by the purchase
method of  accounting.  The fair value of the assets  acquired of $1,604,700 was
allocated to the track assets  acquired.  The operating  results of the acquired
company  have been  included in the  consolidated  statement of income since the
date of acquisition.  The Company  financed this  acquisition with $1,600,000 of
long-term borrowings.

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

Unaudited  pro forma  consolidated  results of  operations  for the years  ended
December  31,  2001 and 2000,  as though  the  aforementioned  acquisitions  had
occurred as of January 1, 2000, follows:

                                                     2001                2000
                                                 -------------------------------
Railway operating revenue ..............         $14,557,004         $15,670,921
Net income .............................           1,101,033             572,681
Earnings per common share ..............                0.24                0.13

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

                                       26
<PAGE>

Note 17. New Accounting Pronouncements

In July 2001, the FASB issued  Statement of Financial  Accounting  Standards No.
141,  "Business  Combinations"  (SFAS  No.  141),  and  Statement  of  Financial
Accounting  Standards No. 142,  "Goodwill and Other Intangible Assets" (SFAS No.
142).  SFAS No. 141 addresses  financial  accounting  and reporting for business
combinations,  and is effective for all business  combinations  initiated  after
June 30, 2001.  SFAS No. 142 addresses  financial  accounting  and reporting for
acquired goodwill and other intangible  assets, and is effective for fiscal year
beginning after December 15, 2001 and interim periods within those fiscal years.
These statements are summarized as follows:

Statement 141:

o    Eliminates the pooling method for accounting for business combinations.

o    Requires  that  intangible  assets that meet  certain  criteria be reported
     separately  from  goodwill.

o    Requires  negative  goodwill  arising  from a  business  combination  to be
     recorded as an extra-ordinary gain.

Statement 142:

o    Eliminates  the  amortization  of goodwill and other  intangibles  that are
     determined to have an  indefinite  life.

o    Requires,  at a minimum,  annual  impairment  tests for  goodwill and other
     intangible assets that are determined to have an indefinite life.

Upon adoption of these Statements, the Company is required to:

o    Re-evaluate  goodwill and other intangible  assets that arose from business
     combinations  entered  into  before  July 1, 2001.  If the  recorded  other
     intangible assets do not meet the criteria for recognition,  they should be
     reclassified to goodwill.  Similarly,  if there are other intangible assets
     that meet the criteria for  recognition  but were not  separately  recorded
     from goodwill, they should be reclassified from goodwill.

o    Reassess the useful  lives of  intangible  assets and adjust the  remaining
     amortization periods accordingly.

The Company will apply  Statement No. 142 beginning in 2002.  Application of the
nonamortization  provisions  of  Statement  No. 142 is  expected to result in an
increase  in net  income of  approximately  $35,000  ($.01 per  share) per year.
During 2002, the Company will perform the first of the required impairment tests
of goodwill and indefinite lived intangible  assets,  but has not yet determined
what effect those tests will have on the earnings and financial  position of the
Company.

In August 2001, the Financial Accounting Standards Board (FASB) issued Statement
No. 143,  "Accounting for Asset Retirement  Obligations."  This statement amends
FASB  Statement  No. 19,  "Financial  Accounting  and  Reporting  by Oil and Gas
Producing  Companies."  It addresses  financial  accounting  and  reporting  for
obligations  associated with the retirement of tangible,  long-lived  assets and
the associated asset retirement costs, and is effective for financial statements
issued for fiscal years beginning after June 15, 2002.

In  October  2001,  the  Financial  Accounting  Standards  Board  (FASB)  issued
Statement  No. 144,  "Accounting  for the  Impairment  or Disposal of Long-Lived
Assets." This statement  supersedes FASB Statement No. 121,  "Accounting for the
Impairment of Long-Lived  Assets and for  Long-Lived  Assets and for  Long-Lived
Assets to be Disposed  Of," and APB Opinion  No. 30,  "Reporting  the Results of
Operations - Reporting  the Effects of Disposal of a Segment of a Business,  and
Extraordinary,  Unusual and Infrequently Occurring Events and Transactions," for
the disposal of a segment of a business. This statement also amends ARB No. 151,
"Consolidated  Financial  Statements," and is effective for financial statements
issued for fiscal years  beginning  after December 15, 2001, and interim periods
within those fiscal years.

The Company has not yet  completed  its full  assessment of the effects of these
new  pronouncements  on its financial  statements  and so is uncertain as to the
impact.

                                       27
<PAGE>

               Management's Discussion and Analysis of Financial
                      Condition and Results of Operations

The  following  discussion  should  be read in  connection  with  the  Company's
consolidated financial statements. related notes and other financial information
included elsewhere in this annual report.

Results of Operations

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

The  Company's  railroad  operating  segment  had  revenue  earned  from a major
customer,  Roquette  America,  Inc.,  of  approximately  $2,829,000  in 2001 and
$2,762,000 in 2000.

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

The  Company's  net income in 2001  increased by $392,000 to  $1,138,000 up from
$746,000 in 2000.  Revenue  decreased in 2001 by $351,000 or 2%, to  $14,421,000
from $14,772,000 in 2000.  Operating  expense increased in 2001 by $1,007,000 or
8%, to $13,086,000 from $12,079,000 in 2000.  Operating income decreased in 2001
by $1,357,000 or 50%, to $1,335,000 from $2,692,000 in 2000. In 2001 the Company
realized a pre-tax gain of approximately of $1,738,000  attributable to the sale
of 33 miles of  Alabama  & Florida  Railway  Co.  track  from  Georgiana,  AL to
Andalusia, AL.

Operating  income  decreased by $1,357,000.  The railroad  operations  decreased
operating income by approximately  $1,034,000 in 2001, which includes a decrease
of $589,000 attributable to a decline in business from the sale of the Alabama &
Florida  Railway  track and a decrease of  $449,000  attributable  to  decreased
operating  income from the Keokuk Junction  Railway as a result of lost revenues
from service and rate increases on traffic routed over the former TPW track from
LaHarpe to Peoria,  Illinois,  and lost revenue from switch  charges to the BNSF
for handling its Mooar Line traffic as a result of a STB ruling  disallowing the
per car switch fee  previously  recognized by the Company.  This ruling has been
appealed in federal court. In 2001, the Company's railroad operations  wrote-off
several larger receivable  balances due to bankruptcy  filings by the customers.
The total of these write-offs was approximately  $157,000. The equipment leasing
operations  decreased  operating  income  by  approximately  $227,000  in  2001,
primarily  from   increased   locomotive   maintenance   expense  and  increased
depreciation   expense  from  railcar  purchases.   Corporate  support  services
decreased operating income by approximately $96,000 in 2001 primarily related to
increased costs related to the Company's health plan.

Revenue:

Revenue  decreased in 2001 by $351,000 or 2% to $14,421,000  from $14,772,000 in
the  prior  year.  The  railroad  operations  decreased  revenue   approximately
$326,000.  Included in this decrease is $941,000 of decreased revenues after the
sale of the Alabama & Florida  track and $432,000 of decreased  revenue from the
Keokuk  Junction  Railway as a result of lost  revenues  from  service  and rate
increases  on traffic  routed over the former TPW track from  LaHarpe to Peoria,
Illinois,  and lost  revenue  from switch  charges to the BNSF for  handling its
Mooar Line  traffic as a result of a STB ruling  disallowing  the per car switch
fee  previously  recognized  by the  Company.  This ruling has been  appealed in
federal court. The remaining  operating railroads generated increased revenue of
$1,047,000 in 2001,  including increased revenue of $529,000 from the Gettysburg
and Northern Railroad Co., which the Company began operating  February 20, 2001.
The  equipment  leasing  operations  had a $40,000  decrease  in revenue in 2001
primarily from a $229,000  reduction in revenue from its railcar fleet offset by
$189,000 increased revenue generated from locomotive leasing. Corporate services
increased revenues $15,000.

                                       28
<PAGE>

Operating Expense:

Operating  expense  increased in 2001 by $1,007,000 or 8%, to  $13,086,000  from
$12,079,000  in  2000.  The  railroad  operations  increased  operating  expense
approximately  $553,000.  Included in this  increase  is  $470,000 of  increased
operating expense from the Gettysburg & Northern Railroad Co., which the Company
began  operating  on February  20,  2001.  In  addition,  operating  expense was
decreased  after  the  sale of the  Alabama  &  Florida  track by  $352,000.  In
addition,  in 2001 the Company's  railroad  operations  wrote-off several larger
receivable  balances due to bankruptcy  filings by the  customers.  The total of
these write-offs was approximately  $157,000.  Excluding these  write-offs,  the
remaining  operating railroads generated increased operating expense of $435,000
in 2001,  primarily from increased payroll and material costs related to foreign
railcar repair and increased  legal fees,  particularly  those  associated  with
various matters before the STB. The equipment leasing  operations had a $187,000
increase  in  operating  expense in 2001  primarily  from  increased  locomotive
maintenance expense and increased  depreciation  expense from railcar purchases.
Corporate support services increased operating expense  approximately  $110,000,
primarily related to increased costs related to the Company's health plan.

Maintenance of Way and structure  expense (MOW) includes all expenses related to
track  maintenance;  including  payroll,  track materials,  signal  maintenance,
vegetation  control,  and bridge  maintenance.  MOW  decreased  $79,000 or 5% to
$1,396,000 from $1,475,000 in the prior year. The railroad operations  decreased
MOW by $28,000,  including a $59,000 decrease in MOW attributable to the sale of
the AF track.  The  Gettysburg  & Northern  Railroad,  which the  Company  began
operating on February 20, 2001, increased MOW expense $60,000. Corporate support
services  decreased  MOW  expense  approximately  $51,000  primarily  related to
decreased payroll expenses from staff reductions.

Maintenance  of equipment  expense (MOE)  includes  expenses  related to railcar
repair expenses for both foreign and Company owned railcars;  including payroll,
car  repair  parts,  processing  fees  for  Company  owned  railcars,  and  also
maintenance  to  Company  owned  vehicles.  MOE  increased  $233,000  or  16% to
$1,675,000 from $1,442,000 in the prior year. The railroad operations  increased
MOE $235,000 as a result of increased  payroll and material costs for repairs to
foreign  rail cars.  The  equipment  leasing  operations  decreased  MOE expense
approximately $30,000 as a result of decreased costs associated with maintaining
the Company's railcar fleet.  Corporate  support services  increased MOE expense
approximately  $28,000  primarily  related  to  increased  expenses  related  to
locomotive maintenance.

Transportation  expense  (TRAN)  includes  expenses  related  to train  movement
operations;  including  payroll,  locomotive fuel and supplies  expense,  repair
expenses to Company owned  locomotives,  car hire expense,  derailment  expense,
lading and damage  claims,  switching  services  purchased,  and joint  facility
expenses with other  carriers.  TRAN decreased  $45,000 or 1% to $3,368,000 from
$3,413,000 in the prior year. The railroad operations  decreased  transportation
expense  approximately  $60,000.  Included  in  this  decrease  is  $208,000  of
decreased  transportation  expense from the sale of the Alabama & Florida track.
In addition, transportation expense was increased $210,000 from the Gettysburg &
Northern  Railroad Co., which the Company began  operating on February 20, 2001.
In  addition,  transportation  expense  was  decreased  $138,000  by the  Keokuk
Junction  Railway  as a result  of  reduced  operating  costs  from the  service
reductions  and rate  increases on traffic routed over the former TPW track from
LaHarpe to Peoria,  Illinois.  The equipment leasing  operations  increased TRAN
expense  approximately  $134,000 as a result of increased costs  associated with
maintaining the Company's expanded locomotive fleet.  Corporate support services
decreased TRAN expense  approximately  $119,000  primarily  related to decreased
payroll expenses from staff reductions.

General &  administration  expense  (ADMIN)  includes  includes  general  manger
payroll  expenses,  legal  expenses,  bad  debt  expense  related  to  interline
settlements,  liability insurance,  utilities,  postage and freight, real estate
taxes, dues, licenses and fees, vehicle insurance, freight to move company owned
railcars  and  locomotives,  health and dental  insurance  expense,  audit fees,
printing,  and  corporate  headquarters  support  service  payroll for executive
management,  accounting,  operations,  marketing,  real estate, legal, and other
support staff.  ADMIN increased $760,000 or 20% to $4,576,000 from $3,816,000 in
the prior year. The railroad  operations  increased ADMIN expense  approximately
$524,000.  Included in this increase is $114,000 from the  Gettysburg & Northern
Railroad  Co.,  which the Company  began  operating  on February  20,  2001.  In
addition, ADMIN expense was increased $117,000 by the Keokuk Junction Railway as
a result of increased legal fees involving  disputes with the TPW and BNSF. Most
of the remaining  increase in ADMIN expense from  railroad  operations  resulted
form  increased  legal fees and payroll  costs  associated  with adding  general
managers to several  properties.  In addition,  in 2001, the Company's  railroad
operations  wrote-off  several  larger  receivable  balances  due to  bankruptcy
filings  by the  customers.  The  total of these  write-offs  was  approximately
$157,000. The equipment leasing operations decreased ADMIN expense approximately
$17,000  as a result  of  decreased  costs  associated  with  repositioning  the
Company's  railcar fleet.  Corporate  support  services  increased ADMIN expense
approximately  $253,000  primarily  related to  increased  payroll  expense  and
increased costs related to the Company's health plan.

                                       29
<PAGE>

Depreciation and amortization  expense  increased  $137,000 or 7%, to $2,071,000
compared to $1,934,000 in the prior year.  Approximately $98,000 of the increase
is related to the growth of the Company's  railcar and  locomotive  fleet.  This
increase  included an  increase  in  depreciation  and  amortization  expense of
approximately $38,000 generated by the railroad operations,  primarily due to an
increase of $63,000 by the Gettysburg & Northern  Railroad  offset by a decrease
of  $34,000  by the  Alabama  &  Florida  Railway.  Corporate  support  services
decreased depreciation and amortization expense approximately $1,000.

Other Income and Expense Income Statement Line Item Discussion:

Interest income decreased $13,000 to $31,000 from $44,000 in the prior year.

Interest expense decreased $221,000 in 2001 to $1,351,000 compared to $1,572,000
in 2000.  The  equipment  leasing  operations  had a decrease  of  approximately
$194,000 in  interest  expense as a result of the early  repayment  of some debt
with  proceeds  from the AF track sale and  reduction  in interest  expense as a
result of refinances due to a more favorable  interest rate environment in 2001.
In addition,  the railroad operations had decreased interest expense of $42,000,
including a decrease of $51,000 resulting from the sale of the Alabama & Florida
Railway  track.  Other  changes  in  interest  expense  relate to the  financing
activities for acquisitions  offset by decreased interest expense as a result of
the pay down of principal on other outstanding finance agreements.

In 2001,  approximately  $268,000 of lease income was generated by the Company's
railroad  operations  from the granting of  easements  and leases for the use of
railroad  right of way  property,  compared to $267,000 of lease income in 2000.
The Company  continues to place a strong  emphasis on identifying and collecting
revenues from third parties occupying Company property.

Net gain on sale of property and equipment  increased  $1,870,000  in 2001.  The
total gain on sale of property and  equipment of  $1,929,000  in 2001 included a
pre-tax gain of $1,738,000  from the Alabama & Florida Railway sale of a 33 mile
segment of its track from Georgiana, AL to Andalusia,  AL, and the West Michigan
Railroad Co. which sold 3 small parcels of commercial development land to one of
its  online  patrons  and  realized  a $183,000  pre-tax  gain on the sale.  The
equipment leasing  operations  realized a gain of $9,000 from the disposition of
various railcars and locomotives.

Other net  expense/income  increased  $43,000 in 2001 to $34,000 of expense from
$9,000 of income in the prior year. Other income and expense  includes  revenues
generated from scrap sales, and other miscellaneous  non-operating  revenues and
expenses, primarily generated by the Company's railroad operations. In addition,
the  Company  incurred  approximately  $79,000 of expense as a  guarantor  on an
outstanding  loan by the Minnesota  Central Railroad Co., which the Company sold
in 1999.

Impact of New Accounting Pronouncements:

In July 2001, the FASB issued  Statement of Financial  Accounting  Standards No.
141,  "Business   Combinations"  (SFAS  No.  141)  and  Statement  of  Financial
Accounting  Standards No. 142,  "Goodwill and Other Intangible Assets" (SFAS No.
142).  SFAS No. 141 addresses  financial  accounting  and reporting for business
combinations and is effective for all business combinations initiated after June
30, 2001. SFAS No. 142 addresses financial accounting and reporting for acquired
goodwill and other intangible assets and is effective for fiscal years beginning
after December 15, 2001.

In August 2001 the Financial  Accounting Standards Board (FASB) issued statement
No. 143,  "Accounting for Asset Retirement  Obligations."  This statement amends
FASB  Statement  No. 19,  "Financial  Accounting  and  Reporting  by Oil and Gas
Producing  Companies",  it addresses  financial  accounting  and  reporting  for
obligations associated with the retirement of tangible long-lived assets and the
associated  asset retirement  costs,  and is effective for financial  statements
issued for fiscal years beginning after June 15, 2002.

In October 2001 the Financial Accounting Standards Board (FASB) issued Statement
No. 144,  "Accounting for the Impairment or Disposal of Long-Lived Assets." This
statement  supersedes FASB Statement No. 121,  "Accounting for the Impairment of
Long-Lived Assets and for Long- Lived Assets to Be Disposed Of", and APB Opinion
No. 30, "Reporting the Results of  Operations-Reporting  the Effects of Disposal
of  a  Segment  of a  Business,  and  Extraordinary,  Unusual  and  Infrequently
Occurring Events and Transactions", for the disposal of a segment of a business.
This statement also amends ARB No. 51, "Consolidated  Financial  Statements" and
is effective for financial  statements  issued for fiscal years  beginning after
December 15, 2001.

The Company has not yet  completed  its  assessment  of the effects of these new
pronouncements on its financial statements, however, management does not believe
that the adoption of these new accounting  standards will have a material effect
on the Company's financial position or results of operations.

                                       30
<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 the purchase of railcars,
new operating  subsidiaries,  and other significant  capital  expenditures.  The
Company has working capital facilities totaling $1,100,000,  which was available
for use at the end of 2001.

On June 23, 2000, the Company entered into a credit agreement with National City
Bank of Michigan/Illinois to provide a $5 million revolving  acquisition line of
credit for railroad  acquisitions at a variable  interest rate of prime plus 1%,
renewable every 2 years.  Amounts drawn on the line are amortized over a 10 year
period.  This  credit  line is  secured  by all non real  estate  assets  of the
Mississippi  Central  Railroad  Co.,  the Alabama  Railroad Co. and all non real
estate assets of any company acquired using proceeds from the credit line. As of
December 31, 2001,  $2,709,000 was drawn on the credit line leaving an available
balance of $2,291,000.

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 debt in the  foreseeable  future is contingent upon
new railroad acquisitions and increased needs and/or opportunities for railcars.

On June 11, 2001, the Company's  Alabama & Florida  Railway Co. (AF)  subsidiary
sold a 33 mile segment of its track from Georigiana, AL to Andalusia, AL, to the
Three  Notch  Railroad  Co.  (TNR),  a wholly  owned  subsidiary  of Gulf & Ohio
Railways  in  Knoxville,  TN.  The cash sale price was  $2,500,000  and the sale
generated a pre-tax gain of $1,738,000.

The Company refinanced approximately $2.2 million of equipment debt in the third
quarter 2001,  taking advantage of the historically low corporate  lending rates
prevalent in the current  economic  environment.  Some of the Company's  debt is
subject to fixed pricing  agreements and can not be refinanced without penalties
that would offset any savings from the reduced interest rates.

On July 1, 1995, the Company's  stock split and warrant  issuance became payable
to  shareholders.  The 2 for 1 stock split increased the number of shares issued
and  outstanding  from  2,099,142 to  4,198,284.  At the same time  shareholders
became  entitled  to purchase  an  additional  4,198,284  shares  through  stock
warrants  issued by the  Company as  dividends.  One warrant was issued for each
share of common stock held after the split,  entitling  the holder to purchase 1
share of common  stock for $2.00 per share.  The shares  purchased  through  the
exercise of the warrants  must be held for 1 year from date of  purchase.  As of
December  31,  2001,  a total of  68,766  warrants  originally  issued  had been
exercised  to date,  and the Company  realized  $137,532 on the  issuance of the
warrants.

On June 26,  1996,  the  Company's  shareholders  approved a stock  option  plan
permitting the issuance of 407,000 shares of common stock. Options granted under
the plan are  incentive  based  except for the options  granted to the CEO whose
options are non-qualified. The options became fully vested and exercisable as of
July 1, 2001. The options are exercisable at prices ranging from $2.75 to $3.03,
based  upon the  trading  price on the  date of the  grant,  in whole or in part
within 10 years from the date of grant.  As of  December  31,  2001,  a total of
175,000 options are outstanding under this plan.

In 1999,  Pioneer  Railcorp's  Board of  Directors  authorized  and approved the
repurchase of up to one million  shares  (1,000,0000)  of the  Company's  common
stock. As of December 31, 2001, a total of 84,040 shares had been repurchased at
a cost of $119,335.  The Company plans to continue  buying back its common stock
but believes the  repurchase  will be on a more  limited  scope then  previously
anticipated due to capital  requirements and the trading volume of the Company's
stock.

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

The Company  believes its cashflow from  operations  and its  available  working
capital  credit  lines,  will be more than  sufficient to meet  liquidity  needs
through at least December 31, 2002.

                                       31
<PAGE>

Balance Sheet and Cash Flow Items:

The Company  generated net cash from operating  activities of $3,650,000 in 2001
and $974,000 in 2000. Net cash from operating  activities for 2001 was generated
from  $1,138,000 of net income,  $2,071,000 of  depreciation  and  amortization,
$440,000 of deferred  income  taxes,  a decrease in income tax refund  claims of
$74,000,  an increase in accounts  payable of  $607,000,  a decrease in accounts
receivable  of  $257,000,  an  increase  in deferred  revenue of  $870,000,  and
$122,000  net cash  provided by changes in various  other  operating  assets and
liabilities  less a gain on sale of property and  equipment of  $1,929,000.  Net
cash from  operating  activities  for 2000 was  generated  from  $746,000 of net
income, $1,934,000 of depreciation and amortization, $352,000 of deferred income
taxes and  $176,000  net cash  provided  by changes in various  other  operating
assets and liabilities, less a decrease in income taxes payable of $558,000, and
a decrease in accounts payable of $1,676,000.

In 2001,  excluding  assets recorded as a result of railroad  acquisitions,  the
Company  purchased   approximately   $2,713,000  of  fixed  assets  and  capital
improvements  which  included  the purchase of  approximately  168 railcars at a
total cost of $633,000.  In addition,  $110,000 was capitalized for the purchase
of 2  locomotives.  The Company  capitalized  approximately  $1,618,000 of track
structure additions and improvements  including $870,000 for upgrades to the GET
track to handle heavy loads for a power plant and $457,000 for a yard  expansion
at the  KJRY.  The GET  track  upgrades  were  paid for by the  power  plant and
recorded as deferred  revenue on the  Company's  balance  sheet.  This  deferred
revenue will be amortized to income at a rate equal to depreciation  expense and
therefore  will have no effect on net  income in future  periods.  The KJRY yard
expansion is being funded by a loan from the Iowa  Department of  Transportation
for 66% of the total cost,  with the  remaining  34% being funded with  internal
cash flow.  Other capital  expenditures in 2001 include $89,000 for vehicles and
equipment,   $43,000   of  other   miscellaneous   capital   expenditures,   and
approximately $220,000 for railcar and locomotive betterments.  The railcars and
locomotive  purchases were financed with  long-term  fixed rate  financing.  The
remaining capital expenditures were funded through working capital.

On February 20, 2001, the Company through its wholly-owned subsidiary Gettysburg
& Northern  Railroad Co. (GET),  acquired in a transaction  accounted for by the
purchase  method of  accounting,  the railroad  assets of the former  Gettysburg
Railway,  Inc.  (GBRY) and the Gettysburg  Scenic Railway  (GSRX),  from various
corporate entities owned by John H. Marino of Manassas, Virginia. The line is 25
miles in length  running from  Gettysburg,  PA to Mount Holly  Springs,  PA. The
primary  commodities  are canned goods,  pulpboard and scrap paper. In addition,
the GET generates revenues from a scenic passenger operation. The total purchase
price  was  $1,604,700  (including  $4,700  for  liabilities  assumed)  of which
$1,007,000  was allocated to track  structures,  $315,000 was allocated to land,
$146,000 was allocated to buildings and the remaining  $136,700 was allocated to
equipment. There was no goodwill recognized as a result of this transaction.

On December 19,  2001,  the KJRY  purchased  12.1 miles of track from LaHarpe to
Lomax,  Illinois and was  assigned  trackage  rights from Lomax,  Illinois to Ft
Madison,  Iowa, a distance of approximately  15.5 miles over the BNSF,  allowing
the KJRY to  interchange  traffic  with the UP.  The  total  purchase  price was
$500,000 all of which was allocated to track structures.

On April 1, 2000,  the  Company  through  its  wholly-owned  subsidiary  Indiana
Southwestern Railway Co. (ISW) acquired,  in a transaction  accounted for by the
purchase  method  of  accounting,  certain  assets  including  all of  the  rail
facilities owned or leased by the Evansville Terminal Railway Company (EVT). The
line  begins in  Evansville,  Indiana  and is 23 miles in  length.  The  primary
commodities are grain, plastics and rail equipment. The total purchase price was
$619,000 allocated to track assets. There was no goodwill recognized as a result
of this transaction.

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                                       32
<PAGE>

Market for Pioneer Railcorp Common Stock

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

        01-1Q   01-2Q    01-3Q    01-4Q   00-1Q    00-2Q   00-3Q   00-4Q
        ----------------------------------------------------------------

High    $1.88   $1.56    $1.40    $1.39   $1.81    $1.56   $1.43   $1.31
Low     $1.06   $1.12    $1.05    $1.03   $1.25    $1.25   $1.25   $1.03

As of December 31, 2001,  the Company had 1,734 common  stockholders  of record,
including brokers who hold stock for others. A cash dividend of $.025 per common
share  was paid to  shareholders  of  record  as of April  30,  2000.  The total
dividend  was  $113,398  and was paid on May 24,  2000.  No dividend was paid in
2001.

Board of Directors

Guy L. Brenkman, CEO and President, Pioneer Railcorp
J. Michael Carr, Chief Financial Officer, Pioneer Railcorp
Orvel L. Cox, Vice President, Pioneer Railroad Equipment Co., Ltd.
John S. Fulton, The Fayette Companies
Timothy F. Shea, President, Shea Property Management

Officers

Guy L. Brenkman, Chief Executive Officer and President
J. Michael Carr, Treasurer
Scott Isonhart, Secretary

Corporate Information

The Corporate  offices of Pioneer  Railcorp and its  subsidiaries are located at
1318 S. Johanson Road, Peoria, Illinois, 61607; Telephone number 309-697-1400.

Reports and Publications

A copy of Pioneer  Railcorp's  2001 Form 10-KSB to the  Securities  and Exchange
Commission   (without   exhibits),   quarterly   financial   reports  and  other
publications  and news releases can be obtained  through the Investor  Relations
Department   or   accessed   through   the   Company's   web  page   located  at
www.Pioneer-Railcorp.com.

                                       33