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

                                   FORM 10-QSB

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

                       For the quarter ended June 30, 2004

                        Commission File Number 33-6658-C

                                Pioneer Railcorp
             ------------------------------------------------------
             (Exact name of Registrant as specified in its charter)

            Iowa                                                  37-1191206
--------------------------------------------------------------------------------
(State or other jurisdiction of                              (IRS Employer ID #)
 incorporation or organization)

      1318 S. Johanson Rd Peoria, IL                               61607
--------------------------------------------------------------------------------
(Address of principal executive offices)                         (Zip code)


                   Registrant's telephone number: 309-697-1400

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days. YES [ X ] NO [   ]

                                    4,495,602
              -----------------------------------------------------
              (Shares of Common Stock outstanding on June 30, 2004)


                                       1
<PAGE>

PART I. FINANCIAL INFORMATION

ITEM I. FINANCIAL STATEMENTS



                        PIONEER RAILCORP AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME
                Three and Six Months Ended June 30, 2004 and 2003
                                    UNAUDITED
<TABLE>
                                                         Three Months Ended            Six Months Ended
                                                   ----------------------------  ----------------------------
                                                   June 30, 2004  June 30, 2003  June 30, 2004  June 30, 2003
                                                   ----------------------------------------------------------
<S>                                                <C>            <C>            <C>            <C>
Operating revenue ...............................   $ 4,056,000    $ 3,827,000    $ 8,172,000    $ 7,724,000
                                                    --------------------------------------------------------

Operating expenses
   Maintenance of way ...........................       421,000        316,000        814,000        620,000
   Maintenance of equipment .....................       410,000        375,000        796,000        730,000
   Transportation expense .......................       867,000        729,000      1,899,000      1,585,000
   Administrative expense .......................     1,086,000      1,051,000      2,114,000      2,067,000
   Depreciation  & amortization .................       551,000        546,000      1,104,000      1,089,000
   Net (gain) loss on sale of fixed assets ......        27,000          6,000         37,000              0
                                                    --------------------------------------------------------
                                                      3,362,000      3,023,000      6,764,000      6,091,000
                                                    --------------------------------------------------------

Operating income ................................       694,000        804,000      1,408,000      1,633,000
                                                    --------------------------------------------------------

Other income & expense
   Other (income) expense .......................       (71,000)       (56,000)      (346,000)      (255,000)
   Interest expense, equipment ..................        73,000         99,000        155,000        211,000
   Interest expense, other ......................       118,000        132,000        238,000        263,000
                                                    --------------------------------------------------------
                                                        120,000        175,000         47,000        219,000
                                                    --------------------------------------------------------

Income before income taxes ......................       574,000        629,000      1,361,000      1,414,000

Provision for income taxes ......................       239,000        264,000        570,000        594,000
                                                    --------------------------------------------------------

Income before minority interest in preferred
   stock dividends of consolidated subsidiaries .   $   335,000    $   365,000    $   791,000    $   820,000

Minority interest in preferred stock dividends of
    consolidated subsidiaries ...................        23,000         23,000         45,000         45,000
                                                    --------------------------------------------------------

Net income ......................................   $   312,000    $   342,000    $   746,000    $   775,000
                                                    ========================================================

Basic earnings per common share .................   $      0.07    $      0.08    $      0.17    $      0.17
                                                    ========================================================

Diluted earnings per common share ...............   $      0.06    $      0.08    $      0.15    $      0.17
                                                    ========================================================

Cash dividends per common share .................   $        --    $        --    $        --    $        --
                                                    ========================================================
</TABLE>
See notes to unaudited consolidated financial statements


                                       2
<PAGE>

                        PIONEER RAILCORP AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                       JUNE 30, 2004 and DECEMBER 31, 2003
                                    UNAUDITED
<TABLE>
                                                          June 30,  December 31,
                                                           2004          2003
                                                        -------------------------
<S>                                                     <C>         <C>
ASSETS

Current Assets
   Cash .............................................   $   896,000   $ 1,199,000
   Accounts receivable, less allowance
     for doubtful accounts 2004 $45,000; 2003 $39,000     3,774,000     3,924,000
   Inventories ......................................       361,000       353,000
   Prepaid expenses .................................       343,000       274,000
   Income tax refund claims .........................       146,000       201,000
                                                        -------------------------
        Total current assets ........................     5,520,000     5,951,000

Investments, cash value of life insurance ...........       263,000       247,000

Property and equipment, less accumulated
  depreciation 2004 $15,163,000; 2003 $14,171,000 ...    25,776,000    26,496,000
Other assets ........................................         9,000        12,000
Goodwill ............................................     1,017,000     1,017,000
                                                        -------------------------
Total assets ........................................   $32,585,000   $33,723,000
                                                        =========================

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
   Current maturities of long-term debt .............   $ 2,659,000   $ 2,955,000
   Notes payable ....................................             0       146,000
   Accounts payable .................................     2,295,000     2,544,000
   Deferred income taxes ............................        62,000        62,000
   Accrued liabilities ..............................       579,000       836,000
                                                        -------------------------
        Total current liabilities ...................     5,595,000     6,543,000
                                                        -------------------------

Long-term debt, net of current maturities ...........     8,487,000     9,638,000
                                                        -------------------------

Deferred revenue ....................................     1,749,000     1,788,000
                                                        -------------------------

Deferred income taxes ...............................     6,297,000     6,063,000
                                                        -------------------------

Minority interest in subsidiaries ...................       736,000       737,000
                                                        -------------------------

Stockholders' Equity
   Common stock :
     Outstanding 2004 4,495,602; 2003 4,485,102
     (In Treasury 2004 131,415 shares; 2003 130,615)          5,000         5,000
     Additional paid-in capital .....................     2,039,000     2,016,000
     Retained earnings ..............................     7,677,000     6,933,000
                                                        -------------------------
        Total stockholders' equity ..................     9,721,000     8,954,000
                                                        ------------------------

Total liabilities and stockholders' equity ..........   $32,585,000   $33,723,000
                                                        =========================
</TABLE>
See notes to unaudited consolidated financial statements


                                       3
<PAGE>

                        PIONEER RAILCORP AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     Six Months Ended June 30, 2004 and 2003
                                    UNAUDITED
<TABLE>
                                                           First Six Months
                                                      --------------------------
                                                          2004           2003
                                                      --------------------------
<S>                                                   <C>            <C>
Cash Flows From Operating Activities
Net income ........................................   $   746,000    $   775,000
Adjustments to reconcile net income to net cash
  provided by operating activities:
  Minority interest in preferred stock dividends of
    consolidated subsidiaries .....................        45,000         45,000
  Depreciation and amortization ...................     1,104,000      1,089,000
  Increase in cash value life insurance ...........       (16,000)       (16,000)
  (Gain) loss on sale of property & equipment .....        37,000             --
   Deferred taxes .................................       234,000        283,000
   Change in assets and liabilities
     (Increase) decrease accounts receivable ......       150,000       (131,000)
     (Increase) decrease inventories ..............        (8,000)       (18,000)
     (Increase) decrease prepaid expenses .........       (69,000)        22,000
     (Increase) decrease other assets .............         1,000       (288,000)
     Increase (decrease) accounts payable .........      (249,000)       (54,000)
     (Increase) decrease income tax refund claims .        55,000          4,000
     Increase (decrease) income tax payable .......            --        230,000
     Increase (decrease) deferred revenue .........       (39,000)       243,000
     Increase (decrease) accrued liabilities ......      (257,000)      (355,000)
                                                      --------------------------
        Net cash provided by operating activities .     1,734,000      1,829,000
                                                      --------------------------

Cash Flows From Investing Activities
  Proceeds from sale of property & equipment ......        71,000         95,000
  Purchase of property & equipment ................      (490,000)      (842,000)
                                                      --------------------------
        Net cash (used in) investing activities ...      (419,000)      (747,000)
                                                      --------------------------

Cash Flows From Financing Activities
  Proceeds from long-term borrowings ..............            --      1,232,000
  Payments on short-term borrowings ...............      (146,000)       (92,000)
  Payments on long-term borrowings ................    (1,447,000)    (2,430,000)
  Purchase of common stock for treasury ...........        (2,000)       (33,000)
  Purchase of minority interest ...................        (1,000)        (8,000)
  Payments to minority interest ...................       (45,000)       (45,000)
  Proceeds from warrants exercised ................        23,000             --
                                                      --------------------------
        Net cash (used in) financing activities ...    (1,618,000)    (1,376,000)
                                                      --------------------------

Net decrease in cash ..............................      (303,000)      (294,000)

Cash, beginning of period .........................     1,199,000      1,148,000
                                                      --------------------------

Cash, end of period ...............................   $   896,000    $   854,000
                                                      ==========================

Supplemental Disclosures of Cash Flow Information
  Cash payments for:
    Interest ......................................   $   393,000    $   474,000
                                                      ==========================

    Income taxes ..................................   $   286,000    $    81,000
                                                      ==========================
</TABLE>
See notes to unaudited consolidated financial statements


                                       4
<PAGE>

This Form 10-QSB contains certain  "forward-looking"  statements as such term is
defined in The Private Securities  Litigation Reform Act of 1995 and information
relating to the Company  and its  subsidiaries  that are based on the beliefs of
the  Company's  management.  When used in this report,  the words  "anticipate,"
"believe,"  "estimate,"  "expect,"  and "intend" and words or phrases of similar
import, as they relate to the Company or its subsidiaries or Company management,
are intended to identify forward-looking statements. Such statements reflect the
current  risks,   uncertainties  and  assumptions  related  to  certain  factors
including, without limitation, competitive factors, general economic conditions,
customer relations,  relationships with vendors,  the interest rate environment,
governmental  regulation and supervision,  seasonality,  distribution  networks,
product introductions and acceptance,  technological change, changes in industry
practices,  one-time  events  and other  factors  described  herein and in other
filings made by the Company with the Securities and Exchange  Commission.  Based
upon changing conditions, should any one or more of these risks or uncertainties
materialize,  or should  any  underlying  assumptions  prove  incorrect,  actual
results  may  vary  materially  from  those  described  herein  as  anticipated,
believed,  estimated,  expected,  or  intended.  The Company  does not intend to
update these forward-looking statements.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
PIONEER RAILCORP AND SUBSIDIARIES

NOTE 1.   STATEMENTS

The  accompanying   Consolidated  Statements  of  Income,  Balance  Sheets,  and
Statements of Cash Flows are unaudited. The interim financial statements reflect
all adjustments (consisting only of normal recurring accruals) which are, in the
opinion of  management,  necessary  for a fair  statement of the results for the
interim  periods   presented.   These  interim  statements  should  be  read  in
conjunction with the latest  financial  statements and notes thereto included in
the Company's  latest Annual  Report on Form 10-KSB and  subsequent  Form 10-QSB
filings.  The  results  of  operations  for the  interim  periods  should not be
considered indicative of results to be expected for the full year.

NOTE 2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements include Pioneer Railcorp (Pioneer) and its
wholly owned and controlled  subsidiaries  (collectively,  "the  Company").  The
Company's  railroad  operations  segment  consists  of  wholly-owned  short line
railroad  subsidiaries  that offer  similar  services and includes the following
wholly-owned  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), Elkhart & Western Railroad Co. (EWR),  Gettysburg & Northern Railroad Co.
(GET),  Pioneer  Resources,  Inc. (PRI),  Pioneer  Railroad  Equipment Co., Ltd.
(PREL), Pioneer Air, Inc. (PAR), and Pioneer Railroad Services,  Inc. (PRS). The
Company's  equipment  leasing segment leases  railcars,  locomotives,  and other
railroad equipment to affiliated and unaffiliated entities and includes only the
wholly owned subsidiary  Pioneer Railroad  Equipment Co., Ltd. (PREL). All other
Company  operations are classified as corporate and include the following wholly
owned subsidiaries:  Pioneer Resources, Inc. (PRI), Pioneer Air, Inc. (PAR), and
Pioneer Railroad Services, Inc. (PRS). All significant intercompany balances and
transactions have been eliminated in consolidation.

For a complete description of our significant accounting policies, see Note 1 to
our Consolidated Financial Statements in our 2003 Form 10-KSB.

NOTE 3. CONTINGENCIES

As of the date of this Form  10-QSB,  management  is not  aware of any  incident
which is likely to  result in a  liability  that  would  materially  affect  the
Company's consolidated financial position or results of operation.


                                       5
<PAGE>

NOTE 4. ACCOUNTING PRONOUNCEMENTS

In January 2003, FASB Interpretation No. 46, "Consolidation of Variable Interest
Entities" (FASB Interpretation No. 46), was issued. It clarifies the application
of Accounting Research Bulletin No. 51, "Consolidated  Financial Statements," to
certain  entities  in which  the  equity  investors  do not  have a  controlling
financial interest or do not have sufficient equity at risk. FASB Interpretation
No. 46, as amended in December 2003, is effective for the Company for the period
ending December 31, 2004,  except for entities  considered to be special purpose
entities,  as to which the effective  date is December 31, 2003. The Company has
not completed its full assessment of the effects of FASB  Interpretation  No. 46
on its financial  statements  and so it is uncertain as to the impact,  however,
the Company does not believe it had any special  purpose  entities to which FASB
Interpretation  No. 46, as amended,  applied as of December 31, 2003,  nor other
entities to which the standard will apply in the beginning in 2004.

In May 2003, FASB issued  Statement No. 150,  "Accounting for Certain  Financial
Instruments with Characteristics of both Liabilities and Equity".  Statement No.
150 requires  that certain  freestanding  financial  instruments  be reported as
liabilities in the balance sheet. Depending on the type of financial instrument,
it will be  accounted  for at either fair value or the  present  value of future
cash flows  determined  at each balance sheet date with the change in that value
reported  as  interest  expense  in  the  statement  of  income.  Prior  to  the
application of Statement No. 150,  either those financial  instruments  were not
required to be recognized, or if recognized,  were reported in the balance sheet
as equity with changes in the value of those instruments normally not recognized
in net income. The Company believes the adoption of FASB No. 150 will not have a
material impact on the Company's financial position or results of operations.

NOTE 5. SEGMENT INFORMATION

Description of products and services from reportable segments:

Pioneer Railcorp has two reportable segments,  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  including  intersegment  revenues,  but before
provision  for income  taxes,  items of other income and  expense,  and minority
interest in preferred stock dividends of consolidated subsidiaries.

Intersegment transactions:

Intersegment   transactions  are  recorded  at  cost  and  are  eliminated  from
consolidated financial results.


                                       6
<PAGE>

Factors management used to identify the reportable segments:

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>
                                                                                        Second Quarter
                                                                                   --------------------------
                                                                                      2004           2003
                                                                                   --------------------------
<S>                                                                                <C>            <C>
Revenues from external customers
   Railroad operations .........................................................   $ 3,383,000    $ 3,089,000
   Equipment leasing operations ................................................       670,000        735,000
   Corporate support services ..................................................         3,000          3,000
                                                                                   --------------------------
      Total revenues from external customers ...................................   $ 4,056,000    $ 3,827,000
                                                                                   ==========================

Intersegment revenues
   Railroad operations .........................................................   $        --    $        --
   Equipment leasing operations ................................................        99,000         99,000
   Corporate support services ..................................................     1,541,000      1,611,000
                                                                                   --------------------------
      Total intersegment revenues ..............................................   $ 1,640,000    $ 1,710,000
                                                                                   ==========================

Segment profit
   Railroad operations .........................................................   $ 1,385,000    $ 1,361,000
   Equipment leasing operations ................................................       271,000        320,000
   Corporate support services ..................................................       678,000        833,000
                                                                                   --------------------------
      Total segment profit .....................................................     2,334,000      2,514,000

Reconciling items
    Intersegment revenues ......................................................    (1,640,000)    (1,710,000)
    Income taxes ...............................................................      (239,000)      (264,000)
    Minority interest ..........................................................       (23,000)       (23,000)
    Other income (expense), net ................................................      (120,000)      (175,000)
                                                                                   --------------------------

       Total consolidated net income ...........................................   $   312,000    $   342,000
                                                                                   ==========================


                                                                                        First Six Months
                                                                                   --------------------------
                                                                                       2004           2003
                                                                                   --------------------------
Revenues from external customers
   Railroad operations .........................................................   $ 6,729,000    $ 6,096,000
   Equipment leasing operations ................................................     1,436,000      1,620,000
   Corporate support services ..................................................         7,000          8,000
                                                                                   --------------------------
      Total revenues from external customers ...................................   $ 8,172,000    $ 7,724,000
                                                                                   ==========================

Intersegment revenues
   Railroad operations .........................................................   $        --    $        --
   Equipment leasing operations ................................................       198,000        199,000
   Corporate support services ..................................................     2,929,000      3,017,000
                                                                                   --------------------------
      Total intersegment revenues ..............................................   $ 3,127,000    $ 3,216,000
                                                                                   ==========================

Segment profit
   Railroad operations .........................................................   $ 2,568,000    $ 2,522,000
   Equipment leasing operations ................................................       647,000        827,000
   Corporate support services ..................................................     1,320,000      1,500,000
                                                                                   --------------------------
      Total segment profit .....................................................     4,535,000      4,849,000

Reconciling items
    Intersegment revenues ......................................................    (3,127,000)    (3,216,000)
    Income taxes ...............................................................      (570,000)      (594,000)
    Minority interest ..........................................................       (45,000)       (45,000)
    Other income (expense), net ................................................       (47,000)      (219,000)
                                                                                   --------------------------

       Total consolidated net income ...........................................   $   746,000    $   775,000
                                                                                   ==========================
</TABLE>


                                       7
<PAGE>

Note 6. EARNINGS PER COMMON SHARE

Following is information  about the  computation of the earnings per share (EPS)
data for the quarters ended June 30, 2004 and 2003:

<TABLE>
                                                                For the Quarter Ended June 30, 2004
                                                               -------------------------------------
                                                                 Income        Shares      Per-Share
                                                               (Numerator)  (Denominator)    Amount
                                                               -------------------------------------
<S>                                                             <C>          <C>           <C>
Basic EPS
Income available to common stockholders ..............          $ 312,000     4,492,767     $   0.07
                                                                                            ========

Effect of Dilutive Securities ........................                 --       715,560        -0.01

Diluted EPS
                                                               ------------------------------------
Income available to common stockholders
    plus assumed conversions ..........................         $ 312,000     5,208,327     $   0.06
                                                                ====================================

                                                                For the Quarter Ended June 30, 2003
                                                               -------------------------------------
                                                                 Income        Shares      Per-Share
                                                               (Numerator)  (Denominator)    Amount
                                                               -------------------------------------
Basic EPS
Income available to common stockholders ................       $ 342,000      4,491,348     $   0.08
                                                                                            ========

Effect of Diluted Securities - None ....................              --             --           --

Diluted EPS
Income available to common stockholders
                                                               -------------------------------------
    plus assumed conversions ...........................       $ 342,000       4,491,348    $   0.08
                                                               =====================================
</TABLE>

Following is information  about the  computation of the earnings per share (EPS)
data for the six months ended June 30, 2004 and 2003:
<TABLE>
                                                               For the Six Months Ended June 30, 2004
                                                               --------------------------------------
                                                                 Income        Shares      Per-Share
                                                               (Numerator)  (Denominator)    Amount
                                                               -------------------------------------
<S>                                                            <C>           <C>           <C>
Basic EPS
Income available to common stockholders .................       $ 746,000      4,489,271    $   0.17
                                                                                            ========

Effect of Dilutive Securities ...........................              --        409,623       -0.02
Diluted EPS
                                                                 -----------------------------------
Income available to common stockholders
    plus assumed conversions ............................        $ 746,000     4,898,894    $   0.15
                                                                 ===================================


                                                               For the Six Months Ended June 30, 2004
                                                               --------------------------------------
                                                                 Income        Shares      Per-Share
                                                               (Numerator)  (Denominator)    Amount
                                                               -------------------------------------
Basic EPS
Income available to common stockholders .................       $ 775,000      4,500,206    $   0.17
                                                                                            ========

Effect of Diluted Securities - None .....................              --             --          --

Diluted EPS
                                                               ------------------------------------
Income available to common stockholders
    plus assumed conversions ............................       $ 775,000      4,500,206    $   0.17
                                                                ====================================
</TABLE>


                                        8
<PAGE>

NOTE 7. CRITICAL ACCOUNTING POLICIES

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  reported  amounts  of assets and
liabilities and disclosure of contingent  assets and liabilities at the dates of
the financial statements and the reported amounts of revenue and expenses during
the reporting periods.  The financial statement  components or accounts that are
subject to  significant  estimation  are reserves for  litigation,  casualty and
environmental matters, accounts receivable,  deferred income taxes and property,
plant and equipment.

In accordance with Statement of Financial Accounting Standards,  or SFAS, No. 5,
"Accounting for  Contingencies," an accrual for a loss contingency  (litigation,
casualty and  environmental  matters) is established  if  information  available
prior to the issuance of the financial  statements indicates that it is probable
that a  liability  has been  incurred  or an  asset  has  been  impaired.  These
estimates have been developed in consultation  with outside counsel handling our
defense in these  matters and are based upon an analysis of  potential  results,
assuming a  combination  of litigation  and  settlement  strategies.  Subsequent
changes to those  estimates  are  reflected in our  statements  of income in the
period of the change.  Management  believes  that it has  adequate  insurance to
cover most of the likely loss  contingency  situations,  and most accruals for a
loss  contingency  would be no more than the Company's  maximum  insurance  self
retention of $50,000 per occurance. To date all losses on such matters have been
within management's expectations.

Provisions are made for estimated uncollectible accounts receivable.  An account
receivable is considered to be past due if any portion of the receivable balance
is outstanding  for more than 90 days.  Management  determines the allowance for
doubtful accounts by regularly  evaluating  individual customer  receivables and
considering  a  customers  financial  condition,  credit  history,  and  current
economic   conditions.   Accounts   receivables  are  written  off  when  deemed
uncollectible.  Recoveries  of  trade  receivables  previously  written  off are
recorded when received. To date, losses on accounts receivable have been minimal
in  relation  to  the  volume  of  sales  and  have  been  within   management's
expectations.

Deferred  taxes  are  recognized  based on  differences  between  the  financial
statement  carrying  amounts  and the tax bases of assets  and  liabilities.  We
regularly review our deferred tax assets for recoverability. 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 based on projected  future taxable income,  a material change in
the  actual  effective  tax rates or time  period  within  which the  underlying
temporary  differences become taxable or deductible,  and the expected timing of
the reversals of existing  temporary  differences.  If we are unable to generate
sufficient  future  taxable income to utilize  deferred tax assets,  we would be
required to  establish a valuation  allowance  against a portion of our deferred
tax assets,  resulting  in an increase in our future  effective  tax rate with a
coinciding adverse impact on earnings. To date the Company has not had to record
a valuation  allowance  for deferred  tax assets  previously  recognized  on its
balance sheet,  nor does it expect to record such an allowance  through at least
December 31, 2004.

Property,  plant and equipment  comprised 79% of our total assets as of June 30,
2004. These assets are stated at cost, less accumulated depreciation. We use the
straight-line  method of depreciation over estimated lives generally  applicable
to the railroad  industry.  Expenditures  that  increase  asset values or extend
useful lives are capitalized. Repair and maintenance expenditures are charged to
operating  expense  when the  work is  performed.  We  periodically  review  the
carrying value of our  long-lived  assets for  impairment.  This review is based
upon  our  projections  of  anticipated  future  cash  flows.  If the sum of the
expected future cash flows  (undiscounted  and without interest charges) is less
than the carrying amount of the asset, the Company would recognize an impairment
loss measured by the amount by which the carrying value of the asset exceeds the
fair value of the asset.  The  estimate of fair value shall be based on the best
information available in the circumstances.  While we believe that our estimates
of future cash flows are reasonable,  different  assumptions regarding such cash
flows could materially affect our evaluations.

For a complete description of our significant accounting policies, see Note 1 to
our Consolidated Financial Statements in our 2003 Form 10-KSB.


                                       9
<PAGE>

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
             CONDITION AND 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  segment  consists  of  wholly-owned  short  line  railroad
subsidiaries  that offer similar  services and the Company's  equipment  leasing
segment leases railcars, locomotives, and other railroad equipment to affiliated
and  unaffiliated  entities.  All other  operations  are classified as corporate
support services for purposes 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.

Pioneer Railcorp, an Iowa corporation, is a railroad holding company. As used in
this Form 10-QSB,  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), Elkhart & Western Railroad Co.
(EWR), Gettysburg & Northern Railroad Co. (GET), Pioneer Resources,  Inc. (PRI),
Pioneer  Railroad  Equipment  Co., Ltd.  (PREL),  Pioneer Air, Inc.  (PAR),  and
Pioneer Railroad Services, Inc. (PRS)

Overview:

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.  PRC's rail system is primarily devoted
to carrying  freight.  The railroad  subsidiaries  generate revenue from several
activities,  with the primary source referred to as switching revenue. Switching
revenue is the amount the Company receives for handling and delivering a load of
freight via railcar to and from its online  customers.  The railroad  operations
also generate revenue through repair of foreign  railcars  (railcars owned by an
unrelated entity) used to carry freight on the Company's railroads. In addition,
the  railroad  operations  earn  revenue  from  demurrage,  a charge  to  online
customers  for  holding  a  foreign  railcar  for an  excessive  number of days.
Generally,  demurrage  revenues  will be  partially  offset by  carhire  expense
(charges to the Company's railroad  operations for using a foreign railcar).  In
addition to revenues generated from online customers, the Company also generates
revenue  from the  storage of  private  railcars  (railcars  that are owned by a
non-railroad  company). In addition, the railroad operations generate revenue by
performing contract services,  primarily track construction and maintenance, for
customers and governmental  agencies.  Finally, the Company,  through its wholly
owned railroad  subsidiary  Gettysburg & Northern Railroad Co. generates revenue
from a tourist passenger train in Gettysburg, PA.

The Company's revenue from its railroad  operations could be affected by several
events.  In most  instances,  several  railroads  take part in the  delivery  of
freight to and from the Company's customers.  Each railroad will set its revenue
requirement for handling the freight. If the total revenue  requirements for all
railroads involved is not competitive with other  transportation  options, it is
likely the freight will not move by rail.  In addition,  the  Company's  current
customers make changes in the origin of their raw materials and  destination for
their finished products that could positively or negatively affect rail traffic.
In  addition,  a  significant  portion  of the  Company's  freight is carried in
railcars  supplied by the  nation's  largest  railroads,  referred to as Class 1
railroads.  The Class 1 railroads  ability to continue to supply  railcars is an
important  factor  in  generating  revenues.  The  Company's  equipment  leasing
operations  own  a  large  railcar  fleet,   which  helps  to  minimize  adverse
consequences from a limited railcar supply. The Company continually searches for
railcars to purchase that will provide its customers with a reliable car supply.


                                       10
<PAGE>

The equipment leasing operations  generate revenue from carhire revenue (charges
non-affiliated  railroads  pay the Company for using its  railcars)  and revenue
from locomotive leases to unaffiliated  entities.  The Company's railcars have a
limited useful life,  generally 40 to 50 years from the year they were built. In
future  years,  as the  Company's  railcars  reach their useful life limit,  the
Company  will need to replace  the  railcars to  maintain  its  current  carhire
revenue levels. Any significant purchase of railcars will require long term debt
financing.  When the Company's  railcars reach the end of their useful life, the
Company  could still use some of the railcars on its own  railroads  for captive
grain loads or generate  income from the scrap value of the  railcars,  which is
currently  about  $3,000  per  car.  Below  is a  chart  illustrating  the  life
expectancy of the Company's railcar fleet as of December 31, 2003:
<TABLE>

   Expiration Year      Box Car     Cov.Hop.     Gondola    Flat    Hopper       Total      % of Fleet
------------------------------------------------------------------------------------------------------
<S>                     <C>         <C>          <C>        <C>     <C>          <C>        <C>

        2004                31           18                                         49           3.62%
        2005                42           44           3       12                   101           7.46%
        2006               103           80           5        1                   189          13.96%
        2007                 3          156                              2         161          11.89%
        2008                28            5           5                  2          40           2.95%
        2009                40          154           4                            198          14.62%
        2010                 9            4           5                             18           1.33%
        2011                90           50                              1         141          10.41%
        2012               164           14           4                  4         186          13.74%
        2013                 6           32           2                             40           2.95%
        2014                20            9           3                  1          33           2.44%
        2015                10           11                              1          22           1.62%
        2016                20           10           1                             31           2.29%
        2017                 4            6           2                             12           0.89%
        2018                13            4           1                             18           1.33%
        2019                15            2                                         17           1.26%
        2020                 3            8                                         11           0.81%
        2021                11            4          46       19         2          82           6.06%
        2023                              3                                          3           0.22%
        2024                              2                                          2           0.15%
                          ----------------------------------------------------------------------------
                           612          616          81       32        13        1354         100.00%
                          ============================================================================
</TABLE>

Nationally  there is a surplus  of  locomotives  for  lease and sale,  which has
caused a  decrease  in lease  rates and a  decrease  in  opportunities  to lease
locomotives as potential customers may choose to purchase locomotives in lieu of
leasing them. The Company's  lease renewals will be subject to market rates that
are currently  lower than the Company is earning.  Historically,  there has been
upturns  and  downturns  in the  locomotive  leasing  industry,  and the Company
believes it is well  positioned to take advantage of the next up turn due to the
size and quality of its locomotive fleet.

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  primary  outflow  of cash  pertains  to  employee  wages,  track
materials, repair expenses to railcars and locomotives,  fuel, car hire expense,
liability insurance, health insurance, and debt repayments. The Company uses the
following categories to group expense in the financial statements:

     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.

     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.

     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.

     General &  administration  expense (ADMIN) includes general manager 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.

                                       11
<PAGE>

Summary:  Second  Quarter 2004 Compared to Second Quarter 2003 Financial Results
          discussion:

The Company's  net income in the second  quarter 2004 was $312,000 a decrease of
$30,000 or 8%  compared  to  $342,000  net income in the  second  quarter  2003.
Revenue  increased in the second  quarter 2004 by $229,000 or 6%, to  $4,056,000
from $3,827,000 in the second quarter 2003.  Operating  expense increased in the
second  quarter 2004 by $339,000 or 11%, to  $3,362,000  from  $3,023,000 in the
second quarter 2003.  Operating  income  decreased in the second quarter 2004 by
$110,000 or 14%, to $694,000 from $804,000 in the second quarter 2003.

Revenue  increased in the second  quarter  2004 by $229,000 or 6% to  $4,056,000
from  $3,827,000  in the prior year.  The railroad  operations  generated  total
revenue of $3,383,000  in the second  quarter 2004, an increase of $294,000 (9%)
compared to revenue of  $3,089,000  in the second  quarter  2003.  The  railroad
operations  increased  revenue  primarily  from increased  switching  revenue of
$128,000  primarily  related  to an 8%  increase  in  freight  volume,  and also
demurrage  revenue  of  $147,000.  As the  economy  continues  to  improve,  the
Company's  railroad  operations have  experienced a decrease in revenue from the
storage of railcars for  non-affiliated  companies as they find  utilization for
their railcars in an improving economy.  In the second quarter 2004 revenue from
car  storage  decreased  $59,000 to $78,000  compared  to $137,000 in the second
quarter  2003.  The  Company  continues  to  aggressively  market car storage to
private car owners. The equipment leasing operations  generated total revenue of
$670,000 in the second  quarter  2004,  a decrease of $65,000  (8%)  compared to
$735,000 in the second quarter 2003. In the second quarter 2004 revenue from the
equipment leasing operations included carhire revenue of $507,000, a decrease of
$64,000 (11%) from $571,000 in the second quarter 2003, and  unaffiliated  lease
income of $162,000,  the same amount of revenue  generated in the second quarter
2003. The decrease in carhire  revenue in the quarter  primarily  relates to the
Company's  covered hopper fleet. The Company expects to lease 130 excess covered
hoppers to non-affiliates in the third quarter 2004. The lease terms will be for
two years at an  average  rate of $320 per car.  This is  expected  to  increase
revenues  from the  equipment  leasing  operations  $500,000  per year while the
leases remain in effect. Corporate services did not have significant revenues in
either second quarter 2004 or 2003.

Operating  expense  increased in the second  quarter 2004 by $339,000 or 11%, to
$3,362,000  from  $3,023,000  in the second  quarter  2003.  The majority of the
increase in operating expense resulted from the Company's  railroad  operations.
The railroad operations generated operating expenses of $1,998,000 in the second
quarter 2004, a $270,000  increase  (16%) from  $1,728,000 in the second quarter
2003. The primary increase in operating  expenses by the railroads resulted from
increased  maintenance  of  way  expenses  of  $99,000  due to  increased  track
maintenance and from increased  transportation  expenses of $108,000  related to
increased labor and fuel expenses.  The equipment leasing  operations  generated
operating  expenses of $498,000 in the second  quarter 2004, a $16,000  decrease
(3%) from $514,000 in the second quarter 2003. The primary increase in operating
expenses by the equipment leasing  operations  relates to increased  maintenance
expense for  railcars  and  locomotives,  and a net loss on sale of property and
equipment of $27,000 in the second  quarter 2004 related to the  disposition  of
railcars  compared  to a net loss on  similar  assets of  $6,000  in the  second
quarter 2003. Corporate support services generated operating expense of $866,000
in the second quarter 2004 a $85,000 increase or 11% from $781,000 in the second
quarter  2003.The  increase in  corporate  support  services  operating  expense
primarily relates to increased support services personnel.

Operating  income  decreased  in the second  quarter 2004 by $110,000 or 14%, to
$694,000  from $804,000 in 2003.  The railroad  operations  generated  operating
income of  $1,385,000 in the second  quarter 2004, a $24,000  increase (2%) from
$1,361,000  in  the  second  quarter  2003.  The  equipment  leasing  operations
generated  operating  income of $172,000 in the second  quarter  2004, a $49,000
decrease  (22%) from  $221,000 in the second  quarter  2003.  Corporate  support
services reduced operating income $863,000 in the second quarter 2004,  compared
to  reduced  operating  income in the second  quarter  2003 of  $778,000.  These
represents an $85,000 decrease in the second quarter 2004 operating income (11%)
compared to the second quarter 2003.

Second Quarter 2004 Operations by Business Segment

                              Railroad     Equipment    Corporate
                              Operations     Leasing     Services       Total
                              --------------------------------------------------

Revenue ...................   $3,383,000   $  670,000   $    3,000    $4,056,000
                              --------------------------------------------------
Expenses:
  Mow .....................   $  392,000   $       --   $   29,000    $  421,000
  Moe .....................   $  211,000   $  107,000   $   92,000    $  410,000
  Tran ....................   $  786,000   $   26,000   $   55,000    $  867,000
  Admin ...................   $  397,000   $   12,000   $  677,000    $1,086,000
  Dep/Amort ...............   $  212,000   $  326,000   $   13,000    $  551,000
  (Gain)/Loss sale of F.A .   $       --   $   27,000   $       --    $   27,000
                              --------------------------------------------------
Operating Expense .........   $1,998,000   $  498,000   $  866,000    $3,362,000
                              --------------------------------------------------

Operating Income ..........   $1,385,000   $  172,000   ($ 863,000)   $  694,000
                              ==================================================

                                       12
<PAGE>

Second Quarter 2004-2003 Variances by Business Segment
Increase (decrease)

                                Railroad    Equipment     Corporate
                               Operations    Leasing      Services      Total
                                -----------------------------------------------

Revenue .....................   $ 294,000   $( 65,000)   $      --    $ 229,000
                                -----------------------------------------------

Expenses:
  Mow .......................   $  99,000   $      --    $   6,000    $ 105,000
  Moe .......................   $  35,000   $( 23,000)   $  23,000    $  35,000
  Tran ......................   $ 108,000   $( 16,000)   $  46,000    $ 138,000
  Admin .....................   $  26,000   $(  5,000)   $  14,000    $  35,000
  Dep/Amort .................   $   2,000   $   5,000    $(  4,000)   $   5,000
  (Gain)/Loss sale of F.A ...   $      --   $  21,000    $      --    $  21,000
                                -----------------------------------------------
Operating Expense ...........   $ 270,000   $( 16,000)   $  85,000    $ 339,000
                                -----------------------------------------------

Operating Income ............   $  24,000   $( 49,000)   $( 85,000)   $(110,000)
                                ===============================================

Other Income and Expense Income Statement Line Item Discussions:

Interest expense  decreased $40,000 (17%) in the second quarter 2004 to $191,000
compared to $231,000 in the second  quarter  2003.  All of this  decrease is the
result of reduced debt.  Interest  expense  related to the financing of railroad
acquisitions and railroad  improvements was $118,000 in the second quarter 2004,
a $14,000 decrease (11%) from $132,000 in the second quarter 2003. The equipment
leasing  operations  interest  expense was $73,000 in the second quarter 2004, a
$26,000 decrease (26%) from $99,000 in the second quarter 2003.

In the second  quarter 2004,  $71,000 of other income was earned by the Company,
including $53,000 of lease income generated by the Company's railroad operations
from the granting of easements  and leases for the use of railroad  right of way
property.  In the second quarter 2003, $56,000 of other income was earned by the
Company,  including $42,000 of lease income generated by the Company's  railroad
operations.

Summary: First Six Months 2004 Compared to First Six Months 2003 Financial
         Results discussion:

The Company's net income in the first six months 2004 was $746,000 a decrease of
$29,000 or 4%  compared  to  $775,000  net income in the first six months  2003.
Revenue  increased in the first six months 2004 by $448,000 or 6%, to $8,172,000
from $7,724,000 in the first six months 2003. Operating expense increased in the
first six months 2004 by $673,000 or 11%, to $6,764,000  from  $6,091,000 in the
first six months 2003.  Operating  income decreased in the first six months 2004
by $225,000 or 14%, to $1,408,000 from $1,633,000 in the first six months 2003.

                                       13
<PAGE>

Revenue  increased in the first six months 2004 by $448,000 or 6%, to $8,172,000
from  $7,724,000  in the prior year.  The railroad  operations  generated  total
revenue of  $6,729,000  in the first six months  2004,  an  increase of $633,000
(10%)  compared  to  revenue  of  $6,096,000  in the prior  year.  The  railroad
operations  increased  revenue  primarily  from increased  switching  revenue of
$419,000  primarily  related  to an 8%  increase  in  freight  volume,  and also
demurrage  revenue  of  $170,000.  As the  economy  continues  to  improve,  the
Company's  railroad  operations have  experienced a decrease in revenue from the
storage of railcars for  non-affiliated  companies as they find  utilization for
their  railcars in an  improving  economy.  In the first six months 2004 revenue
from car storage  decreased  $112,000  to  $199,000  compared to $311,000 in the
first six months 2003. The Company continues to aggressively  market car storage
to private car owners. The equipment leasing operations  generated total revenue
of  $1,436,000  in the first six months  2004,  a  decrease  of  $184,000  (11%)
compared to  $1,620,000  in the prior year. In the first six months 2004 revenue
from the equipment leasing operations included carhire revenue of $1,122,000,  a
decrease of $173,000 (13%) from  $1,295,000 in the prior year, and  unaffiliated
lease income of $314,000, a decrease of $11,000 from $325,000 in the prior year.
The Company expects to lease 130 excess covered hoppers to non-affiliates in the
third quarter 2004.  The lease terms will be for two years at an average rate of
$320 per car. This is expected to increase  revenues from the equipment  leasing
operations  $500,000  per year  while the  leases  remain in  effect.  Corporate
services did not have  significant  revenues in either the first six months 2004
or 2003.

Operating  expense increased in the first six months 2004 by $673,000 or 11%, to
$6,764,000  from  $6,091,000  in the first six months 2003.  The majority of the
increase in operating expense resulted from the Company's  railroad  operations.
The railroad operations  generated operating expenses of $4,161,000 in the first
six months 2004, a $587,000  increase  (16%) from  $3,574,000 in the prior year.
The  primary  increase in  operating  expenses by the  railroads  resulted  from
increased  maintenance  of way  expenses  of  $187,000  due to  increased  track
maintenance and from increased  transportation  expenses of $260,000  related to
increased labor and fuel expenses.  The equipment leasing  operations  generated
operating  expenses of $987,000 in the first six months 2004, a $5,000  decrease
(less than 1%) from $992,000 in the prior year. The equipment leasing operations
had a $57,000 decrease in railcar and locomotive  maintenance  offset by $15,000
of  increased  depreciation  and a loss on sale of assets of $37,000.  Corporate
support  services  generated  operating  expense of  $1,616,000 in the first six
months 2004 a $91,000  increase  (6%),  from  $1,525,000 in the prior year.  The
increase in corporate  support services  operating  expense primarily relates to
increased support services personnel.

Operating  income  decreased in the first six months 2004 by $225,000 or 13%, to
$1,408,000  from  $1,633,000  in the first six months 2003.  The majority of the
decrease in operating  income  resulted  from the  Company's  corporate  support
services as a result of increased personnel and the equipment leasing operations
as a result of decreased car hire  revenue.  The railroad  operations  increased
operating  income in the first six months 2004,  generating  operating income of
$2,568,000,  a $46,000  increase  (2%) from  $2,522,000  in the prior year.  The
equipment leasing operations generated operating income of $449,000 in the first
six months  2004,  a $179,000  decrease  (28%) from  $628,000 in the prior year.
Corporate  support services reduced operating income $1,609,000 in the first six
months 2004,  compared to reduced  operating  income of  $1,517,000 in the prior
year. This represents a $92,000  decrease in the first six months 2004 operating
income (6%) compared to the first six months 2003.

First Six Months 2004 Operations by Business Segment
<TABLE>
                            Railroad       Equipment     Corporate
                           Operations       Leasing      Services        Total
                           ------------------------------------------------------
<S>                        <C>           <C>           <C>            <C>
Revenue ................   $ 6,729,000   $ 1,436,000   $     7,000    $ 8,172,000
                           ------------------------------------------------------

Expenses:
  Mow ..................   $   767,000   $         0   $    47,000    $   814,000
  Moe ..................   $   423,000   $   209,000   $   164,000    $   796,000
  Tran .................   $ 1,753,000   $    62,000   $    84,000    $ 1,899,000
  Admin ................   $   794,000   $    26,000   $ 1,294,000    $ 2,114,000
  Dep/Amort ............   $   424,000   $   653,000   $    27,000    $ 1,104,000
  (Gain)/Loss sale of F.A  $         0   $    37,000   $         0    $    37,000
                           ------------------------------------------------------
Operating Expense ......   $ 4,161,000   $   987,000   $ 1,616,000    $ 6,764,000
                           ------------------------------------------------------

Operating Income .......   $ 2,568,000   $   449,000   ($1,609,000)   $ 1,408,000
                           ======================================================
</TABLE>

                                       14
<PAGE>

First Six Months 2004-2003 Variances by Business Segment
Increase (decrease)

                                Railroad    Equipment     Corporate
                               Operations    Leasing      Services      Total
                               ------------------------------------------------

Revenue .....................   $ 633,000   $(184,000)   $(  1,000)   $ 448,000
                                -----------------------------------------------

Expenses:
  Mow .......................   $ 187,000   $      --    $   7,000    $ 194,000
  Moe .......................   $  67,000   $( 38,000)   $  37,000    $  66,000
  Tran ......................   $ 260,000   $( 19,000)   $  73,000    $ 314,000
  Admin .....................   $  65,000   $      --    $( 18,000)   $  47,000
  Dep/Amort .................   $   8,000   $  15,000    $(  8,000)   $  15,000
  (Gain)/Loss sale of F.A ...   $      --   $  37,000    $      --    $  37,000
                                -----------------------------------------------
Operating Expense ...........   $ 587,000   $(  5,000)   $  91,000    $ 673,000
                                -----------------------------------------------

Operating Income ............   $  46,000   $(179,000)   $( 92,000)   $(225,000)
                                ===============================================

Other Income and Expense Income Statement Line Item Discussions:

Interest  expense  decreased  $81,000 in the first six months  2004 to  $393,000
compared  to  $474,000  in the  prior  year.  Interest  expense  related  to the
financing of railroad acquisitions and railroad improvements was $238,000 in the
first six months 2004, a $25,000 decrease (10%) from $263,000 in the prior year.
The equipment leasing operations  interest expense was $155,000 in the first six
months 2004, a $56,000 decrease (26%) from $211,000 in the prior year.

In the first  six  months  2004,  $346,000  of other  income  was  earned by the
Company,  including $313,000 of lease income generated by the Company's railroad
operations  from the  granting of  easements  and leases for the use of railroad
right of way  property.  In the first six months 2003,  $255,000 of other income
was earned by the Company,  including  $238,000 of lease income generated by the
Company's railroad operations.

Impact of New Accounting Pronouncements:

The Company is not aware of any recent accounting  standard issued,  but not yet
required to be adopted by the Company,  that would have a material effect on its
financial position or results of operations. See Note 4 for further discussions.

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 that are available
for use at the end of the second quarter 2004. The Company's  credit  agreements
with National City Bank contain various  restrictive loan covenants.  As of June
30, 2004, the Company believes it is in compliance with all of these covenants.

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 to obtain 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.

Historically,  the Company has negotiated  reduced  interest rates on several of
its notes  outstanding  with  National  City Bank.  The  ability to  renegotiate
interest rates is limited by the  assessment of prepayment  premiums by National
City Bank in accordance with the terms of the original notes.  Therefore,  it is
not cost effective to renegotiate all notes, and the reduction in interest rates
on renegotiated notes was limited by the prepayment premiums.

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
June 30, 2004, a total of 83,064 warrants  originally issued had been exercised,
and the Company realized $166,128 from the exercise of the warrants.


                                       15
<PAGE>

On June 26,  1996,  the  Company's  shareholders  approved a stock  option  plan
permitting the issuance of 407,000 shares of common stock. Options granted under
the plan are  incentive  based  except for the options  granted to the CEO whose
options are non-qualified. The options became fully vested and exercisable as of
July 1, 2001.  The options are  exercisable  at $2.75,  the trading price on the
date of the grant,  in whole or in part  within 10 years from the date of grant.
As of June 30, 2004, a total of 150,000 options are outstanding under this plan.

In 1999,  Pioneer  Railcorp's  Board of  Directors  authorized  and approved the
repurchase  of up to one  million  (1,000,000)  shares of the  Company's  common
stock. As of June 30, 2004, a total of 131,415 shares had been  repurchased at a
cost of $193,504. 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.

In 2004 the  Company  plans  to make  significant  upgrades  to  existing  track
structure  on  several  of  its  railroad  properties  at an  expected  cost  of
approximately  $1 million.  The anticipated  costs  represent  track  materials,
additional  labor and contractors that will be required to perform the upgrades.
Through the first six months 2004 the company has capitalized  $220,000  related
to the planned upgrades. The Company plans to initially fund a majority of these
expenditures with working capital, but is also considering using long term fixed
rate financing, which it believes would be available if requested.

The  Company  has  a  feeder   line   application   on  file  with  the  Surface
Transportation  Board  (STB) to acquire  the west end of the  Toledo  Peoria and
Western Railway (TPW). The Company believes this acquisition would add synergies
to its Keokuk Junction  Railway Co., as the two lines would connect,  giving the
Company's  largest  customer  access to additional  markets via Peoria,  IL. The
Company  continues  to wait for a decision  by the STB and is hopeful a decision
will be issued in later  2004.  In the event the  Company is  successful  in its
attempt  to  acquire  the west end of the TPW,  the  acquisition  price  will be
determined by the STB. The Company is uncertain as to what the acquisition price
will be, but the Company's  estimated fair value is $3.3 million.  The Company's
primary  lender has offered to provide long term fixed rate  financing  for this
acquisition. The Company believes that the cash it would generate from operating
the  west  end of the TPW  would  more  than  offset  debt  requirements  of the
acquisition.

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

The Company  believes its cash flow from  operations  and its available  working
capital  credit  lines  will be more than  sufficient  to meet  liquidity  needs
through at least the next 12 months.

Balance Sheet and Cash Flow Items:

The Company  generated net cash from  operating  activities of $1,734,000 in the
first six months 2004 compared to $1,829,000  net cash  generated from operating
activities in the first six months 2003. Net cash from  operating  activities in
the first six months 2004 was provided by $746,000 of net income,  $1,104,000 of
depreciation and amortization, an increase in deferred income taxes of $234,000,
a decrease in accounts  receivable of $150,000,  a decrease in income tax refund
claims of $55,000,  and $83,000 from changes in various other  operating  assets
and  liabilities.  Net cash was used in  operating  activities  in the first six
months  2004 from a decrease  in  accounts  payable of  $249,000,  a decrease in
accrued  liabilities of $257,000,  a decrease in prepaid expenses of $69,000 and
$63,000 from changes in various other operating assets and liabilities.

The first six months 2004 decrease in accounts  receivable is primarily  related
to a $190,000  receivable  collected  for a state funded  crossing  project.  In
addition,  $190,000 of the  decrease in accounts  payable  also  relates to this
state funded crossing  project whereby cash was received from the state and paid
to a contractor. As previously discussed, several railroads are usually involved
in the process of delivering freight. The Company collects the total revenue for
all  railroads  involved  in  the  delivery  of  freight  in a  majority  of its
shipments.  The Company  records its share of the revenue and records the amount
due the other  railroads  as a current  payable.  The  amounts  payable to other
railroads are settled  monthly.  Depending on the mix of freight  handled by the
Company,  there  could be  significant  variances  in  accounts  receivable  and
accounts payable in comparable periods. Under normal operating conditions, these
changes do not have a material  impact on liquidity or the Company's  ability to
meet its cash requirements. The decrease in accrued liabilities in the first six
months 2004 resulted from the payment or settlement of December 31, 2003 accrued
expenses.

                                       16
<PAGE>

Cash  flow  used for  investing  activities  primarily  relates  to the  Company
purchasing and capitalizing  approximately  $490,000 of fixed assets and capital
improvements  in the  first  six  months  2004.  Included  in the  2004  capital
additions is the purchase of a used locomotive for $31,000 and $310,000 of track
structure  additions and improvements.  Other capital  expenditures in the first
six months  2004  include  approximately  $78,000  for  railcar  and  locomotive
betterments, $33,000 for four vehicles, $17,000 for bridge upgrades, and $21,000
of various  equipment  items. All of the capital  expenditures  were funded with
working capital.

Cash flow from  financing  activities  primarily  relates to the  borrowing  and
repayment of debt and certain  treasury  stock and warrant  transactions.  There
were no new  borrowings  in the first six months  2004.  In the first six months
2004, 11,300 warrants were exercised generating cash of $22,600.

The Company anticipates  additional cash requirements  approximating $200,000 in
2004 as a result of the reversal of deferred taxes. In future years, the Company
anticipates  additional cash  requirements  totaling $400,000 as a result of the
reversal of deferred taxes.

Item 3. CONTROLS AND PROCEDURES

As of the end of the period  covered by this  report,  the Company  conducted an
evaluation,  under the supervision and with the  participation  of the principal
executive officer and principal financial officer,  of the Company's  disclosure
controls and procedures (as defined in Rules  13a-15(e) and 15d-15(e)  under the
Securities Exchange Act of 1934 (the "Exchange Act")). Based on this evaluation,
the principal  executive officer and principal  financial officer concluded that
the Company's  disclosure  controls and  procedures are effective to ensure that
information  required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is recorded,  processed,  summarized and reported
within the time periods  specified in Securities and Exchange  Commission  rules
and forms.  There was no change in the Company's internal control over financial
reporting  during the Company's most recently  completed fiscal quarter that has
materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.

                                       17
<PAGE>

PART II.  OTHER INFORMATION

Item 1.   LEGAL PROCEEDINGS

In the course of business, the Company experiences crossing accidents,  employee
injuries,  delinquent and/or disputed accounts, and other incidents,  which give
rise to claims  that may result in  litigation.  Management  vigorously  pursues
settlement and release of such claims, but at any one time, some such incidents,
which could  result in lawsuits by and against the Company,  remain  unresolved.
Management believes it has valid claims for, or good defenses to, these actions.
Management considers such claims to be a routine part of the Company's business.

Item 2. CHANGES IN  SECURITIES  AND SMALL  BUSINESS  ISSUER  PURCHASES OF EQUITY
        SECURITIES

The  following  table  presents  for the  periods  indicated  a  summary  of the
purchases  made by or on  behalf of  Pioneer  Railcorp  of shares of its  common
stock.
<TABLE>
                                                                          Total              Maximum
                                                                        Number of           Number of
                                                                         Shares               Shares
                                                                        Purchased            that May
                                                                       as Part of             Yet Be
                                    Total                               Publicly            Purchased
                                  Number of          Average            Announced           Under the
                                    Shares       Price Paid per         Plans or             plans or
                                  Purchased           Share             Programs           Programs (1)
-------------------------------------------------------------------------------------------------------
<S>                             <C>              <C>                   <C>                 <C>
January 1 - 31, 2004                  -           $        -                  -               869,385
February 1 - 29, 2004                 -                    -                  -               869,385
March 1 - 31, 2004                    -                    -                  -               869,385
April 1 - 30, 2004                   300                 2.42               300               869,085
May 1 - 31, 2004                      -                    -                  -               869,085
June 1 - 30, 2004                    500                 2.33               500               868,585
                                ------------------------------------------------------------------------
Total                                800          $      2.37               800               868,585
                                ========================================================================
<FN>
(1)  Pioneer  Railcorp's  Board of Directors  approved a stock  purchase plan on
     December 14, 1999 for the  repurchase  of up to 1,000,000  shares of common
     stock. This repurchase plan has no expiration date.
</FN>
</TABLE>

Item 3.   DEFAULTS UPON SENIOR SECURITIES

There are no defaults upon senior debt securities as of June 30, 2004.

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

The  Annual  Meeting  of the  Shareholders  was  held  on June  28,  2004 at the
Company's  headquarters  in  Peoria,  Illinois.  All five  seats on the Board of
Directors were up for election at this meeting.  Directors' Guy L. Brenkman,  J.
Michael Carr, Orvel L. Cox, J. Clifton T. Lopez, and John S. Fulton were elected
for a one-year term. The vote totals for the Directors were as follows:

    Proposal                                   Votes For          Votes Withheld
--------------------------------------------------------------------------------

Nomination of Guy L. Brenkman
to the Board of Directors                      3,678,990              131,576

Nomination of Orvel L. Cox
to the Board of Directors                      3,685,040              125,526

Nomination of Clifton T. Lopez
to the Board of Directors                      3,687,640              122,926

Nomination of John S. Fulton
to the Board of Directors                      3,687,940              122,626

Nomination of J. Michael Carr
to the Board of Directors                      3,683,240              127,326

In addition to the election of the Board of Directors, shareholders ratified the
appointment of McGladrey & Pullen,  LLP,  Certified Public  Accountants,  as the
Company's  independent  public  accountants  for the coming year with  3,763,615
votes for and 34,737 votes against.

                                       18
<PAGE>

Item 5.   OTHER INFORMATION

None.

Item 6.   EXHIBITS AND REPORTS ON FORM 8-K

          Exhibit # 20 -   Proxy Statement used to solicit votes for the Annual
                           Meeting of Shareholders,  held  June 28,  2004  and
                           2003  Annual  Report to Stockholders (incorporated by
                           reference on form DEF 14A filed April 28, 2004.)

          Exhibit # 31.1 - Certification by the Chief Executive Officer.

          Exhibit # 31.2 - Certification by the Chief Financial Officer.

          Exhibit # 32.1 - Certification under 18 U.S.C. Section 1350, as
                           adopted pursuant to Section 906 of the
                           Sarbanes-Oxley Act of 2002.

No reports were filed on Form 8-K during the first six months 2004.

                                       19
<PAGE>

                                   SIGNATURES

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

PIONEER RAILCORP
(Registrant)


08/05/04                                        /s/ Guy L. Brenkman
--------                                        --------------------------------
 DATE                                           GUY L. BRENKMAN, CEO



08/05/04                                        /s/ J. Michael Carr
--------                                        --------------------------------
 DATE                                           J. MICHAEL CARR
                                                PRESIDENT, TREASURER &
                                                CHIEF FINANCIAL OFFICER


                                       20