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

                                   FORM 10-QSB

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

                    For the quarter ended September 30, 1997

                        Commission File Number 33-6658-C

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

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

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

                   Registrant's telephone number: 309-697-1400

           Securities registered pursuant to Section 12(g) of the Act:

 Title of each Class                   Name of each exchange on which registered
---------------------                  -----------------------------------------
Common Stock, Class A                        NASDAQ , Chicago Stock Exchange


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

                                    4,609,513
           ----------------------------------------------------------
           (Shares of Common Stock outstanding on September 30, 1997)
<PAGE>


PART 1. FINANCIAL INFORMATION
-----------------------------

ITEM 1. FINANCIAL STATEMENTS



PIONEER RAILCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
Quarters Ended September 30, 1997 and 1996
Nine Months Ended September 30, 1997 and 1996

UNAUDITED
<TABLE>
                                                                           Third Quarter                   First Nine Months
                                                                  -----------------------------       -----------------------------
                                                                      1997             1996             1997               1996
                                                                  -----------       -----------       -----------       -----------
<S>                                                               <C>               <C>               <C>               <C>  

Operating revenue ..........................................      $ 3,323,716       $ 2,923,037       $ 9,646,945       $ 8,545,374
                                                                  -----------       -----------       -----------       -----------

Operating expenses
   Maintenance of way ......................................          403,926           239,501           985,701           695,071
   Maintenance of equipment ................................          372,532           365,567         1,131,883         1,037,153
   Transportation expense ..................................          838,496           732,165         2,330,582         1,866,360
   Administrative expense ..................................          841,335           827,800         2,418,077         2,251,875
   Depreciation  & amortization ............................          371,590           358,097         1,115,614         1,028,903
                                                                  -----------       -----------       -----------       -----------
                                                                    2,827,879         2,523,130         7,981,857         6,879,362
                                                                  -----------       -----------       -----------       -----------

Operating income ...........................................          495,837           399,907         1,665,088         1,666,012
                                                                  -----------       -----------       -----------       -----------

Other income & expense
   Other (income) expense ..................................          (50,111)          (43,856)         (244,931)         (225,550)
   Interest expense, equipment .............................          188,135           195,544           585,753           595,687
   Interest expense, other .................................          166,595           145,711           461,488           390,633
   Net (gain) loss on sale of fixed assets .................          (40,549)           (1,337)         (105,113)          (28,212)
                                                                  -----------       -----------       -----------       -----------
                                                                      264,070           296,062           697,197           732,558
                                                                  -----------       -----------       -----------       -----------

Income before income taxes .................................          231,767           103,845           967,891           933,454

Provision for income taxes .................................           75,921            38,175           344,171           358,785
                                                                  -----------       -----------       -----------       -----------

Income before minority interest in preferred
   stock dividends of consolidated subsidiaries ............      $   155,846       $    65,670       $   623,720       $   574,669

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


Net income .................................................      $   124,538       $    34,362       $   529,796       $   480,745
                                                                  ===========       ===========       ===========       ===========

Earnings per common share ..................................      $      0.03       $      0.01       $      0.10       $      0.09
                                                                  ===========       ===========       ===========       ===========

Weighted average number of common shares
and common share equivalents used in
computing earnings per share ...............................        8,854,411         8,376,613         8,850,526         8,359,989
                                                                  ===========       ===========       ===========       ===========
</TABLE>
<PAGE>
PIONEER RAILCORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
September 30, 1997 and December 31, 1996

UNAUDITED

<TABLE>
                                                         September 30,  December 31,
                                                             1997            1996
                                                         -------------  ------------
<S>                                                      <C>            <C>  

ASSETS
Current Assets
   Cash ...............................................   $   815,177   $   501,212
   Accounts receivable, less allowance
     for doubtful accounts (1997 $85,205; 1996 $19,926)     2,186,165     2,071,289
   Inventories ........................................       402,771       420,952
   Prepaid expenses ...................................       278,250       261,427
   Income tax refund claims ...........................       338,246       349,881
   Deferred taxes .....................................        25,901        25,901
                                                          -----------   -----------
        Total current assets ..........................     4,046,510     3,630,662
                                                          -----------   ----------- 
Property and Equipment less accumulated
  depreciation 1997 $4,233,893; 1996 $2,959,210 .......    19,586,666    20,131,566
                                                          -----------   -----------

Intangible Assets, less accumulated amortization
  1997 $184,585; 1996 $129,204 ........................     1,130,950     1,171,114
                                                          -----------   -----------

Investments, cash value of life insurance .............        89,686        74,962
                                                          -----------   -----------

Total assets ..........................................   $24,853,812   $25,008,304
                                                          ===========   ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
   Accounts payable ...................................   $ 2,928,233   $ 2,973,258
   Notes payable ......................................       748,378       769,535
   Income taxes payable ...............................        78,086        18,978
   Current maturities of long-term debt ...............     1,938,054     1,813,246
   Accrued liabilities ................................       673,604       491,610
                                                          -----------   -----------
        Total current liabilities .....................     6,366,355     6,066,627
                                                          -----------   -----------

Long-term debt, net of current maturities .............    11,260,653    12,564,133
Deferred income taxes .................................     2,217,653     1,967,651
                                                          -----------   -----------
        Total liabilities & debt ......................    19,844,661    20,598,411
                                                          -----------   -----------

Minority interest in subsidiaries .....................     1,188,000     1,188,000

Stockholders' Equity
   Common stock .......................................         4,607         4,571
   Additional paid-in capital .........................     2,040,203     1,981,149
   Retained earnings ..................................     1,776,341     1,236,173
                                                          -----------   -----------
        Total stockholders' equity ....................     3,821,151     3,221,893
                                                          -----------   -----------

Total liabilities and equity ..........................   $24,853,812   $25,008,304
                                                          ===========   ===========
</TABLE>
<PAGE>
PIONEER RAILCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS
Nine Months Ending September 30, 1997 and 1996

UNAUDITED
<TABLE>
                                                                     9 Months Ended
                                                                --------------------------
                                                                   1997           1996
                                                                -----------    -----------
<S>                                                             <C>            <C>  
Cash Flows From Operating Activities
Net income ..................................................   $   529,796    $   480,746
Adjustments to reconcile net income to net cash
provided by operating activities:
          Minority interest in preferred stock dividends of
            consolidated subsidiaries .......................        93,924         93,923
          Depreciation ......................................     1,070,735        989,844
          Amortization ......................................        44,879         39,059
          Increase in cash value life insurance .............       (14,724)       (12,026)
          (Gain) on sale of property & equipment ............      (105,113)       (28,212)
          Deferred taxes ....................................       250,000        160,000
Change in assets and liabilities, net of effects from
          acquisition of subsidiaries
          (Increase) decrease accounts receivable ...........      (114,876)       (23,434)
          (Increase) decrease inventories ...................        18,181         (5,379)
          (Increase) decrease prepaid expenses ..............       (16,823)      (126,820)
          (Increase) decrease intangible assets .............        (4,715)       (33,213)
          Increase (decrease) accounts payable ..............       (45,025)       297,110
          (Increase) decrease income tax refund claims ......        11,635         50,998
          Increase (decrease) income tax payable ............        70,708        (31,255)
          Increase (decrease) accrued liabilities ...........       181,976        (40,697)
                                                                -----------    -----------
          Net cash provided by operating activities .........     1,970,558      1,810,644
                                                                -----------    -----------

Cash Flows From Investing Activities
          Proceeds from sale of property & equipment ........       194,959         55,100
          Purchase of property & equipment, net of property
               and equipment from acquisition of subsidiaries      (645,899)    (1,528,725)
          Sale of Subsidiary Stock (Columbia & Northern) ....        15,000
          Acquisition of subsidiaries, net of cash acquired .           -0-     (2,786,882)
                                                                -----------    -----------
          Net cash (used in) investing activities ...........      (435,940)    (4,260,507)
                                                                -----------    -----------

Cash Flows From Financing Activities
          Proceeds from short-term borrowings, net of debt
             assumed in acquisition of subsidiaries .........     2,122,544      1,113,295
          Proceeds from long-term borrowings, net of debt
             assumed in acquisition of subsidiaries .........       207,927      3,346,619
          Payments on short-term borrowings .................    (2,143,701)      (418,891)
          Payments on long-term borrowings ..................    (1,386,598)    (1,350,942)
          Repurchase of minority interest ...................           -0-         (5,000)
          Proceeds from warrants and options exercised ......        59,090        101,740
          Payments to minority interest .....................       (79,915)       (79,915)
                                                                -----------    -----------
          Net cash provided by financing activities: ........    (1,220,653)     2,706,906
                                                                -----------    -----------

Net increase (decrease) in cash .............................       313,965        257,043

Cash, beginning of period ...................................       501,212        276,230
                                                                -----------    -----------

Cash, end of period .........................................   $   815,177    $   533,273
                                                                ===========    ===========

</TABLE>
<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PIONEER RAILCORP AND SUBSIDIARIES

NOTE 1.   STATEMENTS

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

NOTE 2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principals of consolidation:

The consolidated financial statements include Pioneer Railcorp (Pioneer) and its
wholly-owned  and controlled  subsidiaries  (collectively,  "the Company").  The
significant  subsidiaries  are as follows:  West  Michigan  Railroad Co.  (WMI),
Wabash & Western Railway Co. d/b/a Michigan  Southern Railroad (MSO), Fort Smith
Railroad Co. (FSR),  Alabama Railroad Co. (ALAB),  Mississippi  Central Railroad
Co. (MSCI),  Alabama & Florida Railway Co., Inc. (AF),  Decatur Junction Railway
Co. (DT),  Vandalia  Railroad  Company (VRRC),  Minnesota  Central  Railroad Co.
(MCTA),  Keokuk  Junction  Railway Co.  (KJRY),  Rochelle  Railroad Co.  (RRCO),
Shawnee  Terminal Railway Company (STR),  Pioneer  Railroad  Equipment Co., Ltd.
(PREL), Pioneer Air, Inc. (PAR), and Pioneer Railroad Services,  Inc. (PRS). All
significant  intercompany  balances and  transactions  have been  eliminated  in
consolidation.

Inventories:

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

Property and equipment:

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

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

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

Intangible assets:

Intangible  assets consist  principally of goodwill which is being  amortized by
the  straight-line   method  over  a  forty-year  period.  The  Company  reviews
intangible assets quarterly to determine  potential  impairment by comparing the
carrying value of the intangible with the undiscounted  anticipated  future cash
flows of the related property before interest charges.  If future cash flows are
less than the carrying  value,  the Company will determine the fair market value
of the  property and adjust the carrying  value of the  intangibles  if the fair
market value is less than the carrying value.

Earnings per common and common share equivalent share:

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

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

In February 1997, the Financial  Accounting  Standards Board issued Statement of
Financial  Accounting  Standards (SFAS) No. 128,  "Earnings Per Share." SFAS No.
128  requires  the  presentation  of both basic  earnings  per share and diluted
earnings  per share.  Basic  earnings per share will be computed by dividing net
income by the weighted  average  number of common  shares  outstanding.  Diluted
earnings  per share will be  computed  in the same manner used by the Company in
computing  earnings per share.  SFAS No. 128 will be effective for the Company's
1997 annual report.  If SFAS No. 128 had been in effect during the third quarter
of 1997,  basic  earnings  per share  would have been $.03 per share and diluted
earnings  per share would have been $.03 per share.  If SFAS No. 128 had been in
effect during the first nine months of 1997, basic earnings per share would have
been $.12 per share and  diluted  earnings  per share  would  have been $.10 per
share.

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

NOTE 4.   STOCK OPTION PLANS

On April  12,  1994,  Pioneer  adopted,  with  the  subsequent  approval  of its
shareholders,  a stock  option  plan  permitting  the  issuance of up to 836,000
shares of common stock. Options granted under the plan were incentive based. The
options became  exercisable on July 5, 1995 at a price equal to the market value
of the common  stock at the date of grant,  and the effect on earnings per share
has been reflected in the accompanying financial statements. As of September 30,
1997,  a total  of  762,300  options  are  outstanding  under  this  plan  after
forfeitures and exercises.

On June 26,  1996,  the  Company's  shareholders  approved a stock  option  plan
permitting the issuance of 407,000 shares of common stock. Options granted under
the plan are  incentive  based  except for the options  granted to the CEO whose
options are non-qualified.  The options are fully vested and will be exercisable
as of July 1, 2001,  and the effect on earnings per share has been  reflected in
the accompanying  financial statements.  The exercise date can be accelerated if
Pioneer  Railcorp  common  shares reach a closing  price of $7.25 per share,  or
higher,  for any  consecutive  10-day  period,  as  reported  in the Wall Street
Journal.  The  options  will be  exercisable  at the market  price of the common
shares at the date the options were granted, in whole or in part within 10 years
from the date of grant. As of September 30, 1997, a total of 287,000 options are
outstanding under this plan after forfeitures of 120,000 shares.

NOTE 5.   STOCK SPLIT AND STOCK WARRANTS ISSUED AS DIVIDENDS

On May 16,  1995 the  Board of  Directors  authorized  a 2 for 1 stock  split to
shareholders  of record June 30, 1995,  payable July 1, 1995. This increased the
outstanding common shares to 4,198,084 from 2,099,042.  In addition, on June 24,
1995 the  shareholders  ratified an amendment  to the Articles of  Incorporation
authorizing  the  issuance  of stock  warrants  as a  dividend  to  shareholders
immediately  after the stock split.  Each  shareholder  received one warrant for
each share of common stock owned. Each warrant permits  shareholders to purchase
an additional  share of common stock at a  predetermined  price of $2 per share.
The warrants  expire on July 1, 2015, and the effect of the warrants on earnings
per share has been reflected in the  accompanying  financial  statements.  As of
September 30, 1997, a total of 66,844 warrants had been exercised.

NOTE 6. MINORITY INTERESTS IN SUBSIDIARIES

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

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

The Company  operated the following twelve railroads during the third quarter of
1997:  West  Michigan  Railroad Co.  (WMI),  Wabash & Western  Railway Co. d/b/a
Michigan  Southern  Railroad  (MSO),  Fort Smith  Railroad  Co.  (FSR),  Alabama
Railroad Co. (ALAB),  Mississippi Central Railroad Co. (MSCI), Alabama & Florida
Railway Co., Inc. (AF),  Decatur  Junction Railway Co. (DT),  Vandalia  Railroad
Company (VRRC),  Minnesota Central Railroad Co. (MCTA),  Keokuk Junction Railway
Co. (KJRY),  Rochelle Railroad Co. (RRCO),  and Shawnee Terminal Railway Company
(STR). The Company also operated three  railroad-related  subsidiaries,  Pioneer
Railroad Equipment Co., Ltd. (PREL), Pioneer Railroad Services, Inc. (PRSI), and
Pioneer Air, Inc (PAR).  Summary:  Third  Quarter 1997 Compared to Third Quarter
1996.
<PAGE>

The Company's net income in the third quarter 1997  increased by $89,674 or 260%
to $124,036 up from $34,362 in the same period last year.  Operating  revenue in
the third  quarter  1997  increased by $400,000 or 14% to $3.3 million from $2.9
million in the same period last year.  Operating  expense increased in the third
quarter  1997 by  approximately  $300,000  or 12% to $2.83  million  from  $2.53
million in the same period last year.  Operating  income  increased in the third
quarter 1997 by $96,000 or 24% to $496,000 from $400,000 in the same period last
year.

Several factors contributed positively to the increase in third quarter 1997 net
income:

The Company's  Michigan Southern  Railroad,  which began operating in the fourth
quarter  1996,  had operating  income of $86,000 in the third quarter 1997.  The
Rochelle  Railroad,  which began  operating in April of 1996, had an increase in
operating income of $57,000,  recording operating income of $58,000 in the third
quarter 1997 compared to $1,000 in the same period last year.

The Alabama & Florida Railway  operating  income  increased by $34,000 or 27% to
$162,000 up from  $128,000 in the same  period last year.  The Alabama  Railroad
operating  income increased to $67,000 from a loss of $13,000 in the same period
last year. The increase in operating income from the Alabama  Railroad  resulted
from its  major  customer  which had  limited  outbound  shipments  in the third
quarter  1996  because  its  plant  was  temporally  shutdown  to  facilitate  a
modernization of the plant facilities and equipment.

Several factors adversely affected third quarter 1997 net income:

The Minnesota  Central  Railroad had a decrease in operating income of $126,000,
recording  operating  loss of  $14,000 in the third  quarter  1997  compared  to
operating income of $112,000 in the same period last year. Most of the decreases
in MCTA operating  income  resulted from  additional  maintenance of way expense
recorded for non-capitalized  track maintenance.  The MCTA did benefit from more
efficient  train  handling as a result of a new operating  plan developed by the
Company.

Pioneer  Railroad  Equipment  operating  income  was  down  $106,000,  recording
operating  income of $140,000 in the third  quarter 1997 compared to $246,000 in
the same  period  last year.  PREL's  decrease  related to lost  revenue  due to
under-utilization of grain hopper cars and box cars system- wide. The Company is
continuing  efforts  to  relocate  certain  groups of  railcars  and  expects an
increase in railcar revenues from these efforts.

Operating Revenue:

The increase in operating  revenue in the third  quarter 1997 of $400,000 or 14%
to $3.5  million  from $2.9  million was  positively  affected  by the  Michigan
Southern Railroad, which the Company began operating in December 1996, which had
$269,000 of operating revenue in the quarter.  In addition,  the Keokuk Junction
Railway had an increase of  approximately  $54,000 in  operating  revenue in the
third  quarter of 1997 to $795,000  compared to $741,000 in the same period last
year.  The  Rochelle  Railroad  had an  increase  of  approximately  $44,000  in
operating  revenue in the third quarter of 1997 to $114,000  compared to $70,000
in  the  same  period  last  year.  The  Alabama  Railroad  had an  increase  of
approximately  $106,000  in  operating  revenue in the third  quarter of 1997 to
$196,000  compared  to $90,000 in the same  period  last year.  The  increase in
revenues  from the Keokuk  Junction  Railway  and  Rochelle  Railroad  relate to
increases in pricing,  while the Alabama Railroad revenue increase resulted from
its major  customer  which had limited  outbound  shipments in the third quarter
1996 because its plant was temporally  shutdown to facilitate a modernization of
the plant facilities and equipment.

The  increases in  operating  revenue  from these  subsidiaries  was offset by a
operating  revenue  decrease by Pioneer  Railroad  Equipment  Co. which was down
approximately  $114,000  recording  operating  revenue of  $535,000 in the third
quarter 1997 compared to $649,000 in the same period last year. The PREL revenue
decrease  was a result of  under-utilization  of grain  hopper cars and box cars
system wide.

The remaining  operating  subsidiaries had immaterial  changes in revenue in the
third quarter 1997 compared to the same period last year.

Operating Expense:

Operating expense increased in the third quarter 1997 by approximately  $300,000
or 12% to $2.83  million from $2.53  million in the same period last year.  This
increase in operating expense resulted from the following factors:
<PAGE>

The $165,000 increase in maintenance of way expense in the third quarter 1997 to
$404,000  compared to $239,000  for the same period last year  included  $54,000
recorded by the Michigan Southern Railroad, which the Company began operating in
December  1996. The remaining  increase in  maintenance of way expense  resulted
from  increases  at the  Minnesota  Central  Railroad  and the  Keokuk  Junction
Railway.  The $106,000 increase in  transportation  expense in the third quarter
1997 to $838,000  from  $732,000  was  primarily  attributable  to the  Michigan
Southern  Railroad's  transportation  expense of $79,000  and a  combination  of
moderate  increases  from several other  operating  subsidiaries  as a result of
minor  derailments,  increased  carhire  expense,  fuel and other  miscellaneous
items.

The  remaining  operating  subsidiaries  had no  material  changes in  operating
expense in the third quarter 1997 compared to the same period last year.

Other Income and Expense Income Statement Line Item Discussion:

Other income of $50,000 for the third quarter 1997 consists of real estate lease
income,  scrap income and other  miscellaneous  items.  None of the other income
transactions  are material in nature when  considered  alone.  Interest  expense
increased slightly in the third quarter 1997 to $354,000 compared to $341,000 in
the same period last year. Net gain on fixed asset dispositions during the third
quarter 1997 of $40,000 included  $32,000 from the sale of an excess  locomotive
and $7,800 from the disposal of two railcars.

Summary: First Nine Months 1997 Compared to First Nine Months 1996.

The Company's  net income in the first nine months 1997  increased by $49,051 or
10% to $529,796 up from $480,745 in the same period last year. Operating revenue
in the first nine months 1997  increased  by $1.1 million or 13% to $9.6 million
from $8.5 million in the same period last year.  Operating  expense increased in
the first nine  months  1997 by $1.1  million or 16% to $7.9  million  from $6.8
million in the same period last year. Operating income remained constant at $1.6
million in both nine month periods ended in 1997 and 1996.

The following factors attributed to the first nine months 1997 net income:

The Minnesota  Central Railroad had limited rail operations in the first quarter
1997 as a result of the severe winter  weather in the region which resulted in a
decrease in operating income of $129,000 in the first quarter 1997 when compared
to the same period in 1996.  The  Minnesota  Central  resumed  operations in the
second  quarter 1997,  and as a result of a more  efficient  operating  plan and
additional switching revenues recorded due to adjustments  involving time limits
for the  settlement  of freight and  switching  liabilities  required by railway
accounting  rules as established by the Association of American  Railroads,  the
governing body of all North American railroads,  the MCTA was able to record six
month  operating  income not  materially  different  than the same period in the
prior year.  However,  due to increased  operating cost in the third quarter the
Minnesota  Central had a decrease  in  operating  income of $125,000  during the
first nine months 1997 compared to the same period last year.

Pioneer  Railroad  Equipment  operating  income  was  down  $574,000,  recording
operating  income  of  $510,000  in the  first  nine  months  1997  compared  to
$1,084,000 in the same period last year. PREL's decrease related to lost revenue
due to  non-utilization  of grain hopper cars  assigned to the MCTA in the first
quarter 1997, under-utilization of grain hopper cars and boxcars system wide and
the non-renewal of a short-term  lease of 75 covered hoppers to a non-affiliated
party that was in effect from November 1995 through May of 1996 which  generated
$200,000 of revenue in 1996.  The Company has made  efforts to relocate  certain
groups of  railcars  and  expects an  increase  in railcar  revenues  from these
efforts.

The  Mississippi  Central  Railroad  operating  income  decreased  approximately
$128,000 in the first nine months 1997, recording operating income of $76,000 in
the first nine  months  1997  compared to $204,000 in the same period last year.
MSCI's  decrease  resulted  from  changes  in  logistics  and  supply of inbound
pulpwood which has reduced the  competitiveness of MSCI's served locations.  The
Company is vigorously pursuing avenues to regain pulpwood shipments.

The  Company's  Keokuk  Junction  Railway  subsidiary,  which the Company  began
operating on March 13,  1996,  contributed  operating  income of $979,000 in the
first nine months  1997,  compared  to  $566,000 in the same period in 1996,  an
increase of $413,000.  The Rochelle  Railroad,  which began  operations in April
1996, had increased operating income of $144,000 recording $146,000 in the first
nine  months of 1997  compared  to $2,000 in the same  period  last  year.  This
increase  primarily  resulted  from  increased  pricing.  The Michigan  Southern
Railroad,  which began  operations in December  1996,  had  operating  income of
$253,000.  The Alabama & Florida Railway Co. had increased  operating  income of
$90,000 recording $499,000 in the first nine months of 1997 compared to $409,000
in the same period last year.  This increase  primarily  resulted from increased
pricing.

Interest expense increased  approximately  $61,000 in the first nine months 1997
to $1,047,000  compared to $986,000 in the same period last year,  most of which
was a direct result of the financing of the Keokuk Junction Railway acquisition.
<PAGE>

Operating Revenue:

The increase in operating  revenue in the first nine months 1997 of $1.1 million
was  positively  affected by a $769,000  increase in revenue  generated from the
Keokuk Junction Railway which began operations under Pioneer Railcorp  ownership
on March 13, 1996. Also, the Rochelle Railroad,  which began operations in April
1996, had $175,000 of increased operating revenue in the first nine months 1997,
and the Michigan Southern Railroad, which began operations in December 1996, had
$739,000 of operating revenue in the nine month period. In addition, the Alabama
& Florida Railway had an increase of approximately $160,000 in operating revenue
in the first nine months with revenues of $1,072,000 compared to $912,000 in the
same  period  last  year  and  the  Alabama  Railroad  Co.  had an  increase  of
approximately  $58,000  in  operating  revenue  in the first  nine  months  with
revenues of $517,000 compared to $459,000 in the same period last year.

The increases in operating  revenue from the subsidiaries  mentioned  previously
were offset by a decrease in revenues from Pioneer Railroad  Equipment Co. which
had a $574,000  decrease in revenues to $1,692,000 in the first nine months 1997
compared to $2,266,000 in the same period last year.  The PREL revenue  decrease
was a result of non-utilization of grain hopper cars assigned to the MCTA in the
first quarter 1997,  under-utilization  of grain hopper cars and boxcars  system
wide in the first nine months 1997, and the non-renewal of a short-term lease of
75 covered  hoppers to a  non-affiliated  party that was in effect from November
1995 through May of 1996 and generated $200,000 of revenue in 1996.

Mississippi  Central Railroad operating revenue was down approximately  $199,000
with  revenues of $447,000 in the first nine months 1997 compared to $646,000 in
the same period last year.  MSCI's decrease in revenues resulted from changes in
logistics and supply of inbound  pulpwood which has reduced the  competitiveness
of MSCI's served locations. The Company is vigorously pursuing avenues to regain
pulpwood shipments.  The Minnesota Central Railroad which had limited operations
in the first  quarter  1997  because of severe  winter  weather,  strong  second
quarter 1997  revenues and constant  third quarter  revenues,  reported a slight
decrease in operating revenue of $48,000 in the first nine months 1997.

The  remaining  operating  subsidiaries  had no  material  changes in  operating
revenues in the first nine months 1997 compared to the same period last year.

Operating Expense:

The increase in operating  expense of $1.1 million in the first nine months 1997
resulted from the following factors:

Increases in maintenance of way,  maintenance of equipment,  and  transportation
expense in the first nine months 1997 was primarily attributable to the Michigan
Southern  Railroad  which  began  operations  in December  1996,  and the Keokuk
Junction  Railway  which  the  Company  began  operating  in March of 1996.  The
Michigan Southern Railroad increased  maintenance of way expense $102,000 in the
first nine months 1997 and the Keokuk Junction Railway increased  maintenance of
way expense $67,000 in the period.  In addition,  the Minnesota Central Railroad
had  increased  maintenance  of way  expense of $85,000 in the first nine months
1997  resulting  from an  increase in  non-capitalized  track  maintenance.  The
Michigan Southern Railroad increased maintenance of equipment expense $85,000 in
the first nine months 1997 and the Keokuk Junction Railway increased maintenance
of  equipment  expense  $42,000 in the period.  The  increase in  transportation
expense was primarily  attributable to the Michigan  Southern Railroad which had
transportation  expense of $238,000 and the Keokuk  Junction  Railway  which had
increased transportation expense of $162,000 when compared to 1996. The increase
in administrative expense in the first nine months 1997 was attributable to both
new operating  subsidiaries and administrative  expense related to payroll costs
associated with the hiring of additional support personnel.

The  remaining  operating  subsidiaries  had no  material  changes in  operating
expenses in the first nine months 1997 compared to the same period last year.

Other Income and Expense Income Statement Line Item Discussion:

Other income of $245,000 for the first nine months 1997  consists of real estate
lease  income,  scrap income and other  miscellaneous  items.  None of the other
income transactions are material in nature when considered alone.

Interest expense increased  approximately  $61,000 in the first nine months 1997
to $1,047,000  compared to $986,000 in the same period last year,  most of which
was a direct result of the financing of the Keokuk Junction Railway acquisition.

Net gain on fixed  asset  dispositions  during  the first  nine  months  1997 of
$105,000  included  $62,000 from the sale of three excess  locomotives,  $13,000
from the disposition of three railcars,  $11,000 from the sale of a small parcel
of land  and  $20,000  from  the sale of a crane  that  was  used  sparingly  in
operations.  Net gain on fixed asset  dispositions  during the first nine months
1996 of $28,000 was primarily  attributable to the sale of 5.36 miles of Alabama
Railroad  right of way. The real estate was not located on an active part of the
rail line.
<PAGE>

Liquidity and Capital Resources:

The Company  primarily  uses cash  generated  from  operations  to fund  working
capital  needs and relies on long-term  financing  for  railcars,  new operating
subsidiaries,  and other  significant  capital  expenditures.  The  Company  has
working  capital  lines of credit  totaling  $1,175,000  of which  approximately
$582,000 was available at the end of the third quarter 1997.

In addition, the Company has seen the market value of its railcar and locomotive
fleet increase significantly over the last several years. This increase in value
has resulted from the short supply of railcars and  locomotives  compared to the
increased  demand for their use. The Company believes it could refinance part of
its railcar or locomotive fleet with an asset-based lender and generate up to $1
million in cash.

In March of 1996, the Company negotiated a credit facility with its primary bank
to provide a $2.5 million  annual  revolving  acquisition  line of credit.  This
facility is  collateralized  by the common stock of the Alabama Railroad Co. and
the  Mississippi  Central  Railroad Co., as well as the Company's  investment in
stock of any  subsidiaries  acquired  under the line.  The interest rate for the
line is currently 11.00%. The interest rate is adjustable quarterly to 2.5% over
New York Prime,  limited to a one percent  annual  increase or decrease,  not to
exceed  13.5% or be reduced  below 10%.  Any  amounts  drawn on the line must be
repaid  monthly  over a seven  year  period.  The line was fully  drawn  upon in
connection  with the  Company's  March 12,  1996  acquisition  of a  controlling
interest of KNRECO, Inc. d/b/a Keokuk Junction Railway,  common stock and has an
available balance of approximately $400,000 as of September 30, 1997.

On July 1, 1995, the Company's  stock split and warrant  issuance became payable
to  shareholders.  The 2 for 1 stock split increased the number of shares issued
and  outstanding  from  2,099,042 to  4,198,084.  At the same time  shareholders
became entitled to purchase an additional  4,198,084 common shares through stock
warrants  issued by the  Company as  dividends.  One warrant was issued for each
share of common stock held after the split,  entitling  the holder to purchase 1
share of  common  stock for $2 per  share.  The  shares  purchased  through  the
exercise of the warrants  must be held for 1 year from the date of  purchase.  A
total of 9,670  warrants were  exercised in the first nine months 1997,  and the
Company  realized  $19,340 on the exercise of the warrants.  The Company expects
increased  capital to be generated by the continued  exercise of warrants but is
uncertain as to the amount. A total of 4,131,240  warrants are outstanding as of
September 30, 1997.

The  Company  granted  836,000  options  to  certain  employees  under  its 1994
incentive  stock option plan. The options are exercisable at prices equal to the
market value of the  Company's  stock at the date of grant.  The exercise  price
ranges are from $1.50 to $4.40 per share. The Company expects  increased capital
to be generated by the exercise of options but is uncertain as to the amount.  A
total of 26,500  options  were  exercised  in the first nine months 1997 and the
Company  realized  $39,750 as a result of their  exercise.  As of September  30,
1997,  a total  of  762,300  options  are  outstanding  under  this  plan  after
forfeitures and exercises.

Long-term  equipment  financing has historically  been readily  available to the
Company for its railcar  acquisition needs. The Company believes it will be able
to continue obtaining  long-term  equipment financing should the need arise. The
Company's plans for new equipment debt in the  foreseeable  future is contingent
upon new railroad  acquisitions  and increased  needs and/or  opportunities  for
railcars.  The  Company  does not expect to make  significant  additions  to its
railcar fleet in the next twelve months.

The Company is considering  and analyzing the refinancing of some of its present
debt, particularly its $2.5 million annual revolving acquisition line of credit.
As of the date of this report,  the Company has  approved  financing in place to
repay its acquisition line of credit upon review and execution of loan documents
which is expected to be completed in early November, 1997. Upon execution of the
loan  doucments  the  Comapny  will have $2.5  million  available  for  railroad
acquisitions up to at least March 8, 1998.

The Company anticipates  favorable outcomes involving current legal proceedings.
The Company does not anticipate any material judgements against it or any of its
subsidiaries will arise out of the current proceedings.

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

Balance Sheet and Cash Flow Items:

The Company  generated net cash from  operating  activities of $1,971,000 in the
first nine months 1997 compared to $1,811,000 in the same period last year.  Net
cash from operating activities for the first nine months 1997 resulted primarily
from $530,000 of net income,  $1,115,000 of depreciation  and  amortization,  an
increase in accounts  receivable of $115,000,  an increase in deferred  taxes of
$250,000, and an increase in accrued liabilities of $182,000.

In the first nine months 1997 the Company  purchased  approximately  $650,000 of
fixed  assets and capital  improvements.  The  capital  additions  included  the
purchase of 29 railcars at a total cost of  $210,000,  financed  with  long-term
fixed  rate  financing.  In  addition,  the  Company  capitalized  approximately
$152,000 of track and structure betterments,  $150,000 in railcar and locomotive
betterments,  $61,000 of leasehold  improvements to several operating railroads,
$18,000 for a parcel of  industrial  development  land  located  adjacent to the
Alabama  &  Florida   Railway  and  the  remaining   capital   expenditures   of
approximately  $45,000 were for machinery,  equipment and other assets.  All the
expenditures  other than the  railcars  purchased  were  financed  with  working
capital cash flow.

PART II.  OTHER INFORMATION

Item 1.   LEGAL PROCEEDINGS

Several  lawsuits  were  pending  by and  against  Pioneer  Railcorp  and/or its
subsidiaries (collectively, the "Company") during the third quarter of 1997.

Two crossing accident cases are currently  pending,  one in the Circuit Court of
Sebastian County, Arkansas, involving a crossing accident which occurred in Fort
Smith in December 1993, and another in the Federal District Court for the Middle
District  of Alabama  (Montgomery),  involving  an  accident  which  occurred in
Andalusia, Alabama in May, 1996. Management is vigorously defending these cases.
The Company does not believe it has any liability in the Arkansas case.  Alabama
law is  considerably  less favorable to the Company's  interests,  however,  the
Company  believes it has  adequate  insurance  coverage and that neither case is
likely to result in a material adverse effect on the  Registrant's  consolidated
financial position or results of operation.

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

Another FELA action is currently pending against the Keokuk Junction Railway Co.
in the U.S.  District Court for the Central  District of Illinois.  This case is
still under investigation, but the Company believes it has adequate insurance to
cover any  possible  liability,  and that the case is not  likely to result in a
material adverse effect on the Registrant's  consolidated  financial position or
results of operation.

The Company  recently  settled the two cases  involving  Ralston L. Taylor,  the
former General Manager of Keokuk Junction  Railway  ("KJRY").  The settlement of
these  cases did not result in a  material  adverse  effect on the  Registrant's
consolidated  financial  position  or  results  of  operation.  As  part  of the
settlement,  Mr. Taylor  entered into a  non-competition  agreement that extends
until January 1, 2025.

The  Company is  pursuing  two  declaratory  judgment  actions  against  utility
companies   which   management   believes  are  illegally   occupying   railroad
right-of-way. Management believes it has valid legal arguments for the positions
it has taken it these  cases,  but  neither  are  likely to result in a material
adverse effect on the Registrant's consolidated financial position or results of
operation, if determined adversely.

Fort Smith Railroad's  appeal of a Railway Labor Act ruling by the United States
District Court for the Central District of Illinois to the Seventh Circuit Court
of Appeals was not  successful.  Management  believes  the issue of the situs of
bargaining is an important one and has filed a Petition for a Writ of Certiorari
with the United States Supreme Court in this case.
<PAGE>

Recently,  Fort Smith  Railroad Co. ("FSR") filed an action against the American
Train  Dispatchers  Division of the Brotherhood of Locomotive  Engineers  (which
represents  hourly employees of FSR) in the United States District Court for the
Western  District of Arkansas at Fort Smith,  alleging that the  publication  of
certain material was defamatory,  and was in violation of a previous  settlement
agreement between the union and FSR. The union has not as yet filed an answer to
that suit.

The City of Rochelle also recently  filed an action in the Circuit Court of Ogle
County,  Illinois to construe  the  contract  between the City and the  Rochelle
Railroad Co.  Management does not believe that the Ogle County Circuit Court has
jurisdiction to hear this case and is evaluating its options in this matter.

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

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

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

In other legal  matters  affecting  the Company,  Wabash & Western  Railway Co.,
d/b/a Michigan  Southern  Railroad  ("MSO") has given notice that it is renewing
its lease of its Michigan Southern  Railroad  properties for an additional year.
The lease was due to expire  December 19, 1997. By renewing its lease,  MSO also
retains its purchase option on the railroad.

MSO also reached an agreement  with Norfolk  Southern  Corporation  ("NS") which
will  preserve  MSO's  access to two  Class I  railroads  after the  anticipated
takeover by NS of the Conrail  trackage  which  connects with MSO's lines.  This
agreement will preserve competitive access for MSO's customers and MSO now fully
supports the NS/CSX plan for the distribution of Conrail's lines.

Finally,  as of the  date  of this  10-QSB  the  labor  dispute  at FSR  remains
unresolved.  The National  Mediation Board declared an impasse in  negotiations,
and FSR declined the Board's offer of arbitration.  The cooling-off period ended
October 27, 1997,  and FSR then  exercised its right to self- help by imposing a
20% wage increase. The union has not called a strike, although it may yet do so.
Management continues to assess its options in this matter, and is hopeful that a
strike  can be  averted,  but is  confident  that  FSR  will be able to  provide
uninterrupted service to its customers regardless of the course events may take.

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

No matters  were  submitted to a vote of security  holders in the third  quarter
1997.

Item 5.   OTHER INFORMATION

Pioneer  Railcorp  sold all of the  outstanding  stock of  Columbia  &  Northern
Railway Co. to a non- affiliated  non-railroad entity,  effective July 26, 1997.
This  transaction did not have a material  effect on the Company's  consolidated
financial position or results of operation.

The  Company  has been  notified  by the City of  Rochelle  that it  intends  to
terminate the Rochelle  Railroad Co.'s lease,  without  cause,  in January 1998.
Management  is  evaluating  its options in this matter,  and it is possible that
litigation may result.

Item 6.   EXHIBITS AND REPORTS ON FORM 8-K

No reports were filed on Form 8-K during the second quarter 1997.
<PAGE>




                                   SIGNATURES


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





PIONEER RAILCORP
(Registrant)




                              /s/ Guy L. Brenkman
       11/10/97               ------------------------------------------
        DATE                  GUY L. BRENKMAN
                              PRESIDENT & CEO



                              /s/ J. Michael Carr
       11/10/97               ------------------------------------------
       DATE                   J. MICHAEL CARR
                              TREASURER & CHIEF FINANCIAL OFFICER