<PAGE>
 
                                UNITED STATES  
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D. C. 20549

                                   FORM 10-K
                                   ---------

                                        

(x)  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
                                  ACT OF 1934

                    For the fiscal year ended June 30, 1997

   ( )  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
                             EXCHANGE ACT OF 1934

For the transition period from  _____________________  to  ____________________

                         Commission File No.:  0-5206

                       EMONS TRANSPORTATION GROUP, INC.
                                        
            (Exact name of registrant as specified in its charter)

                    Delaware                      23-2441662
                    ----------------------------------------
          (State of incorporation)    (I.R.S. employer identification number)
                                        
                 96 South George Street, York,  PA        17401
                 ----------------------------------------------
     (Address of principal executive offices)        (Zip Code)


      Registrant's telephone number, including area code: (717)  771-1700

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

                                     None

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

                         Common Stock, $.01 Par Value
     $.14 Series A Cumulative Convertible Preferred Stock, $.01 Par Value

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 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
                             ------------         ------------

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [ ]

As of September 12, 1997, 5,884,200 shares of voting Common Stock were
outstanding including 1,400,510 shares held by an escrow agent.  For information
regarding the escrow agent, see "Industries' Reorganization" below.  The
aggregate market value of shares of voting Common Stock held by nonaffiliates of
the registrant as of September 12, 1997 was $18,015,531.  For this purpose the
average of the closing bid and asked prices ($3.31 per share), as of September
12, 1997, has been used.

Portions of the definitive proxy statement for the annual meeting of
stockholders to be held on November 20, 1997 are incorporated by reference into
Part III of this Form 10-K.

                                       1
<PAGE>
 
                                    Part I
                                        
Item 1.  Business

         Emons Transportation Group, Inc. ("Emons Transportation Group"), a
Delaware corporation headquartered in York, Pennsylvania, is a freight
transportation and distribution services company serving the Mid-Atlantic and
Northeast regions of the United States. The Company owns three short line
railroads, operates rail/truck transload and warehouse facilities, operates a
rail intermodal terminal in Auburn, Maine, and provides customers with logistics
services for the movement and storage of freight. Emons Transportation Group was
organized in December 1986 and is the owner of all of the outstanding capital
stock of Emons Industries, Inc. ("Industries"), the Maryland and Pennsylvania
Railroad Company ("MPA"), Emons Logistics Services, Inc. ("Logistics"), Maine
Intermodal Transportation, Inc. ("MIT") and Emons Railroad Group, Inc.
("Railroad Group") which owns all of the outstanding capital stock of Yorkrail,
Inc. ("YKR") and the St. Lawrence & Atlantic Railroad Company ("SLR"). Prior to
the formation of Emons Transportation Group in December 1986, Industries, which
was formed in 1955, was the parent company. For information regarding the
formation of Emons Transportation Group, see "Industries' Reorganization" below.

         Unless the context otherwise requires, the terms "Emons" and the
"Company" when used herein shall refer to Emons Transportation Group, Inc. and
its consolidated subsidiaries. The Company's executive offices are located at 96
S. George Street, York, Pennsylvania 17401 (Telephone 717-771-1700).

         Description of Operations

         The Company owns and operates three short line railroads, MPA, YKR and
SLR. The combined revenues from these three short line railroad operations
accounted for 87%, 86% and 89% of the Company's total operating revenues in
fiscal 1997, 1996 and 1995, respectively. The Company also owns and operates a
logistics services business in York, Pennsylvania, and a rail intermodal
terminal in Auburn, Maine. These operations are intended to supplement the
Company's railroad operations by providing a wide variety of value added
services including warehousing and other distribution services and options to
businesses located both on and off of the Company's rail lines.

         The Company operates in two geographic regions, Pennsylvania and New
England. Pennsylvania operations consist of MPA, YKR and Logistics, located in
York, Pennsylvania. New England operations consist of SLR, which extends from
Portland, Maine, through New Hampshire to Norton, Vermont, and MIT, which
commenced rail intermodal operations on SLR in Auburn, Maine, in September 1994.
Local management teams are responsible for the operations in each region.

         In October 1996, CSX Corporation ("CSX") and Consolidated Rail
Corporation ("Conrail") announced plans to merge. In response to the merger
announcement, Norfolk Southern Railway ("NS") announced a competing tender offer
to acquire Conrail. Subsequently, CSX and NS agreed to divide Conrail, and filed
for approval of the transaction with the Surface Transportation Board ("STB") in
June 1997. Based upon management's review of publicly available information
currently included in the filing regarding the division of Conrail, all of the
Company's railroads will continue to maintain their dual connections with Class
I railroads. While the impact of the proposed merger on future traffic patterns
and the resultant effect on the Company's railroad operations are uncertain at
this time, the Company does not anticipate any significant negative impact as a
result of the merger, and believes that the merger may create additional
business as a result of longer Class I single line service on competitive
routes, which could result in additional rail business for the Company.

                                 Pennsylvania
                                 ------------
                                        
         MPA, located in York, Pennsylvania, owns 26 miles of mainline track and
related properties.  There are approximately 30 active customers that utilize
MPA's service for in-bound and/or out-bound shipments of freight, including
approximately 20 customers located directly on line.  MPA primarily serves
customers in the paper, building products and distribution industries.  MPA's
largest customer, P. H. Glatfelter Company, a paper manufacturer, accounted for
approximately 44% of MPA's operating revenues in fiscal 1997.  MPA interchanges
rail traffic with Conrail and YKR at York, Pennsylvania, and 

                                       2
<PAGE>
 
CSX Transportation, Inc. ("CSXT") at Hanover, Pennsylvania. Based upon current
publicly available information, MPA will interchange rail traffic with NS in
York, Pennsylvania, and maintain its CSXT and YKR interchanges upon completion
of the proposed acquisition of Conrail by CSX and NS.

         YKR operates 16 miles of mainline track and related properties in and
around York, Pennsylvania. YKR serves approximately 30 active customers,
including approximately 20 customers located directly on line. YKR primarily
serves customers in the paper, agricultural, building products and distribution
industries. YKR's largest customer, P. H. Glatfelter Company, accounted for 17%
of YKR's fiscal 1997 operating revenues. YKR interchanges rail traffic with CSXT
at Porters Sideling, Pennsylvania, MPA at York, Pennsylvania, and Conrail at
West York, Pennsylvania. Based upon current publicly available information, YKR
will interchange rail traffic with NS at West York, Pennsylvania, and maintain
its CSXT and MPA interchanges upon completion of the proposed acquisition of
Conrail by CSX and NS.

         Emons Logistics Services, Inc. offers logistics services for customers
in the Mid-Atlantic region from its facilities in York, Pennsylvania. Logistics
currently operates several facilities located either on MPA or YKR in York,
Pennsylvania, and surrounding areas, which allow manufacturers and users of
canned goods, lumber and other building products, packaged consumer products,
steel, paper products, and dry/liquid bulk commodities to take advantage of
favorable rail economics for the long-haul shipment of their products combined
with truck delivery to companies that are not located on a rail line. Logistics
provides both short and long-term storage and various value-added services, such
as rail/truck transfer and truck brokering services for its customers. These
operations generate revenues for the Company both for the logistics services
performed and for the movement of freight by rail. The Company believes that
these operations are important to the growth of the railroad operations in
Pennsylvania since they enable customers who are not located directly on line to
utilize rail transportation.

         A significant portion of the Company's logistics operations are located
at "Lincoln Yard" on YKR in West York, Pennsylvania. The facilities at Lincoln
Yard consist of approximately 25 acres, consisting of approximately two acres
utilized for bulk transfer services, and an additional 23 acres recently
purchased for outside transload and storage purposes and future expansion.
Logistics performs various bulk transfer, storage and other services at this
location which are described in detail in the following two paragraphs.

         In cooperation with CSXT, Logistics operates a bulk rail/truck transfer
facility on YKR at Lincoln Yard to service manufacturers and users of dry and
liquid bulk commodities. This facility operates under the trade name Food-Linc
and handles bulk food grade and related products such as vegetable oils and
plastic pellets. A second facility, which operates under the trade name Chem-
Linc, handles bulk products such as industrial oils and chemicals. Collectively,
these operations are referred to as Emons BIDS (Bulk Intermodal Distribution
Services). Other transfer facilities at Lincoln Yard transload various bulk
products primarily for the agricultural industry.

         In August 1995, the Company purchased 23 acres of land adjacent to
existing rail and logistics operations on YKR at Lincoln Yard and developed
approximately five acres for outside transload and storage purposes. Until March
1997, this facility was dedicated to a lumber transload and storage operation
under an agreement with a major Canadian forest products company. In March 1997,
the Canadian forest products company's primary customer developed its own
facility located on one of the Company's Pennsylvania railroad operations, and
now receives this product rail direct. This facility is currently utilized for
the storage and transfer of aggregates, steel and other products. The Company
expects to develop the remainder of the 23 acres of land for the expansion of
the transload and distribution business in the York, Pennsylvania area.

         Logistics currently operates three on-line warehouses. Logistics
operates a 15,000 square foot building located on MPA in central York that
provides rail/truck transfer and storage for the distribution of canned goods
and certain building products. In fiscal 1995, the Company made improvements to
the facility to accommodate 65,000 square feet of outside storage of products.
Logistics has arrangements with two major western rail carriers to provide 
short-term storage and rail/truck transfer services at this facility as their
designated agent for the Mid-Atlantic and Northeast regions of the United
States. Logistics also operates two other leased warehouse facilities. The first
facility is located on YKR in central York, Pennsylvania, and consists of a
50,000 square foot facility which is utilized for storage of both finished paper
and woodpulp. The second warehouse, also located on YKR in Thomasville,
Pennsylvania,

                                       3
<PAGE>
 
consists of approximately 26,000 square feet, and is utilized for the handling
and short-term storage of finished paper (newsprint, pulpboard and printing
paper). The lease for this second warehouse is scheduled to terminate in
November 1997, and business currently at this facility will be consolidated at
the warehouse in central York. The products transferred and stored at these
locations originate throughout North America for truck distribution to states
within the Mid-Atlantic and Northeast regions of the United States.

         Logistics also operates another site located on MPA in downtown York
which encompasses 70,000 square feet, including 25,000 square feet under roof
for inside storage and an outside paved storage area. The facility is currently
utilized for the transfer and storage of aggregates.

                                  New England
                                  -----------
                                        
         SLR operates approximately 165 miles of mainline track and related
properties between Portland, Maine and Norton, Vermont. SLR serves approximately
57 customers, including 20 customers located directly on line. SLR primarily
serves customers in the paper, construction, agricultural, energy, warehousing
and distribution industries. SLR's major customers, New England Public
Warehouse, Crown Vantage (formerly James River Corporation), and Champion
International Paper Corporation accounted for 16%, 13% and 9% of SLR's operating
revenues in fiscal 1997, respectively. SLR interchanges rail traffic with the
Canadian National Railway ("CN") at Island Pond, Vermont, Guilford Rail Systems
at Danville Junction, Maine and Portland, Maine (via Danville Junction), the New
Hampshire and Vermont Railroad at Groveton, New Hampshire, the Berlin Mills
Railway at Berlin, New Hampshire, and the New Hampshire Central Railroad at
North Stratford, New Hampshire.

         The MIT rail intermodal terminal located on SLR in Auburn, Maine,
commenced operations in September 1994. The development and construction of this
operation was a cooperative project between the Company, the State of Maine, the
City of Auburn and CN. The $2.9 million cost of the terminal was funded 80% by
the State of Maine with federal funds under the ISTEA legislation (Intermodal
Surface Transportation Efficiency Act) and 20% by the City of Auburn. The City
of Auburn owns the terminal and leases it to MIT under a long-term lease
arrangement which includes an initial term of 20 years, three 10 year renewal
options and a purchase option in year 50. The terminal includes 42 acres of land
(16 acres currently developed in Phase I), three double-ended working tracks for
loading, unloading and storage of intermodal railcars, lighted parking for
trailers and containers, a gate house, a truck scale, a trailer/container
maintenance facility and various other improvements. The Company believes that
this operation will be an important factor in the growth and development of SLR
by providing additional business volume to SLR's railroad operation.

         Through coordinated train service between CN and SLR, MIT offers
premium rail intermodal service which includes third morning service between
Auburn and Chicago on dedicated intermodal trains transporting truck trailers
and containers. Service is also provided to and from points in Canada by CN and
throughout North America by other connecting rail carriers at Chicago and
Detroit.

         MIT operations are conducted by an independent contractor, In-Terminal
Services (a subsidiary of Mi-Jack Products), who currently operates intermodal
terminals throughout North America.


         Employees

         At June 30, 1997, the Company employed a total of 135 persons, 79 of
which were represented by various labor organizations. The Company has labor
agreements with unions which represent certain MPA and all SLR non-management
employees. The Company is currently in the process of renegotiating agreements
with various unions representing MPA and SLR employees which expired on December
31, 1995, May 18, 1996, and December 31, 1996, while other unions have signed
agreements through May 2000. Currently, approximately 60% of all union employees
are covered by agreements that expire in May 2000. Employees of the remainder of
the Company's operations are not represented by labor organizations. The Company
has not experienced any work stoppages and considers its employee relations to
be satisfactory.

                                       4
<PAGE>
 
         Regulation

         The Company's rail subsidiaries are subject to the regulatory
jurisdiction of the Surface Transportation Board ("STB"), a federal agency that
is the successor to the Interstate Commerce Commission. The STB has jurisdiction
over, among other things, the rates charged, the issuance of securities and the
extension or abandonment of rail lines, routes or service by common carriers,
and the consolidation, merger and acquisition of control of and by such
carriers. The Company's rail subsidiaries are also subject to regulation by the
Federal Railroad Administration as to safety requirements and operating
practices, and subject to regulations by governmental authorities of
Pennsylvania, Maine, Vermont, and New Hampshire.

         Competition

         For customers located directly on line, which constitute the majority
of the Company's freight business, the Company's railroads are the only rail
carriers directly serving their respective customers. The Company's rail
operations in New England also includes a significant portion of overhead
traffic which is subject to competition from alternative rail routes. All of the
Company's railroads experience significant competition from other modes of
freight transportation, particularly highway motor carriers. Factors such as the
nature of the commodity transported, freight rates, distance, transit time, and
quality and reliability of service are considered in determining the mode of
transportation utilized. The Company's ability to compete in these areas is, to
a large extent, dependent upon the performance of its connecting rail carriers.

         Industries' Reorganization

         Prior to 1986, the Company provided management, leasing and brokerage
services for rail transportation equipment. In response to a severe decline in
the boxcar leasing business, in March 1984 Industries filed a petition for
reorganization under Chapter 11 of the United States Bankruptcy Code. In
December 1986, the Bankruptcy Court for the Southern District of New York (the
"Bankruptcy Court") confirmed Industries' Reorganization Plan (the "Plan") and
Emons Transportation Group became the parent of Industries and MPA.

         Under the Plan, each unsecured creditor received an initial
distribution of cash, Common Stock and Senior Preferred Stock for its claim.
Since numerous disputed claims remained at the time of consummation of the Plan,
an escrow agent, appointed in connection with the Plan, was instructed to
distribute additional amounts of cash and securities to holders of allowed
claims on a quarterly basis in each quarter that disputed claims are reduced by
litigation or settlement. The Bankruptcy Court postponed the distribution of any
cash and securities in 1989 until it could determine whether certain other
potential unsecured claims should be included in the Bankruptcy proceeding. In
July and August 1997, upon approval from the Bankruptcy Court for a partial
distribution, the escrow agent distributed 1,434,922 shares of the Company's
Common Stock and 589,461 shares of the Company's $.14 Series A Cumulative
Convertible Preferred Stock. The escrow agent currently holds 1,400,510 shares
of Common Stock and 615,429 shares of Preferred Stock. The escrow agent has the
right to vote the shares held by it and has expressed its intention generally to
vote such shares proportionally in accordance with the vote cast by unaffiliated
stockholders.

                                       5
<PAGE>
 
Item 2.  Properties

         With respect to material properties owned or leased by the Company, the
following table sets forth the location of the property, the approximate square
feet of space, miles of railroad track or acreage, and use made of such
facilities.  All properties are owned by the Company, except as otherwise noted,
are in good condition, adequately fulfill the Company's requirements, and are
being used to the fullest extent necessary for the Company's operations.  The
Company's primary lender has a security interest in all of the property owned by
the Company.

<TABLE>
<CAPTION>
                              Approximate
                                Square
         Address             Feet of Space                       Use
------------------------   -----------------   -------------------------------------------
<S>                        <C>                 <C>
96 South George Street               5,900      Executive and administrative offices and
York, PA (1)                                    Pennsylvania administrative offices
                                             
Princess Street                     15,000      Locomotive repair facility
York, PA                                     
                                             
Queen and Hay Streets               80,000      Rail/truck transfer and 15,000 square foot
York, PA                                        warehouse facility for canned goods,
                                                packaged consumer products, and various
                                                building products
                                             
Loucks Mill Road                    50,000      Rail/truck transfer and warehouse facility
York, PA (1)                                    for paper products storage and distribution
                                             
Commerce Drive                      26,250      Rail/truck transfer and warehouse facility
Thomasville, PA (1)                             for paper products storage and distribution
                                             
East Princess Street                70,000      Rail/truck transfer and storage facility
York, PA                                     
                                             
North George Street                 85,000      Agricultural bulk products transfer facility
York, PA                                     
                                             
Arch Street                          7,500      Rail/truck transfer facility for aggregates
York, PA                                        and fertilizer
                                             
Lewiston Junction Road               4,000      New England administrative offices
Auburn, ME (1)                               
                                             
Lewiston Junction Road             106,700      Locomotive repair facility
Auburn, ME (3)                               
                                             
Island Pond, VT (2)                295,000      Rail/truck transfer, storage and
                                                distribution facility for lumber
</TABLE>

(1)  Leased from a third party.
(2)  Leased to a third party.
(3)  Land portion leased from a third party.

                                       6
<PAGE>
 
<TABLE>
<CAPTION>
                                Acreage or
                               Approximate
        Address                  Distance                           Use
------------------------     -----------------  -------------------------------------------
<S>                              <C>            <C>
York, PA to Hanover, PA           26 miles       Mainline railroad trackage plus rail yards
                                                 and related facilities

York, PA to Porters               16 miles       Mainline railroad trackage plus rail yards
Sideling, PA                                     and related facilities

Lincoln Yard                      25 acres       Rail/truck transfer and storage facility for
West Market Street                               bulk food grade products, chemicals and
West York, PA                                    non-food bulk products, and steel,
                                                 aggregates and other products
 
Portland, ME to                  165 miles       Mainline railroad trackage plus rail yards
Norton, VT                                       and related facilities
 
Auburn, ME (1)                   4.0 miles       Branch railroad trackage

Lewiston Junction Road            42 acres       Rail intermodal terminal
Auburn, ME (1)
</TABLE>

(1)  Leased from a third party.
(2)  Leased to a third party.
(3)  Land portion leased from a third party.

                                       7
<PAGE>
 
Item 3.  Legal Proceedings

         Emons Transportation Group is not a party to any legal proceedings.
However, Emons Industries, a subsidiary of the Company, is currently a defendant
in 888 product liability actions.  The Company is in the process of cleaning up
a fuel oil spill at its locomotive maintenance facility in York, Pennsylvania.

         Product Liability Actions
         -------------------------

         Prior to March 1971, under previous management, Industries (then known
as Amfre-Grant, Inc.) was engaged in the business of distributing (but not
manufacturing) various generic and prescription drugs. Industries sold and
discontinued these business activities in March 1971 and commenced its railcar
leasing and railroad operations in October 1971. One of the drugs which had been
distributed was diethylstilbestrol ("DES") which was taken by women during
pregnancy to prevent miscarriage.

         As of June 30, 1997, Industries was one of numerous defendants
(including many of the largest pharmaceutical manufacturers) in 888 lawsuits in
which the plaintiffs allege that DES caused adenosis, infertility, cancer or
birth defects in the offspring or grandchildren of women who ingested DES during
pregnancy. In these actions, liability is premised on the defendant's
participation in the market for DES, and liability is several and limited to the
defendant's share of the market. Of these lawsuits, 883 were commenced after the
confirmation of Industries' Reorganization Plan in December 1986 (the "Plan"),
while the remaining five lawsuits are claims which will be treated under the
Plan. In one action, Industries is allegedly identified as the sole defendant.
These actions are currently in various stages of litigation.

         Industries has filed a motion in Bankruptcy Court seeking a judgment
declaring that the 883 post-confirmation lawsuits represent claims which should
be asserted against Industries' Chapter 11 estate and are not post-
reorganization liabilities.  Counsel has advised the Company that the Bankruptcy
Court should grant Industries' application to classify all of these cases as
bankruptcy claims.  In addition, on February 14, 1995, the Bankruptcy Court
advised Industries that it would sign an order which would stay execution of any
judgment rendered against Industries pending determination of Industries'
application.  The order, which was submitted to the Court on March 23, 1995, has
not yet been signed.

         Industries has product liability insurance and defense coverage for
nearly all the claims which fall within the policy period 1948 to 1970 up to
varying limits by individual and in the aggregate for each policy year. To date,
Industries has not exhausted coverage in any policy year.

         During the period July 1, 1996 through June 30, 1997, 500 new actions
were commenced in which Industries was named as a defendant. Of these actions,
365 were commenced in a single filing in the state court in Ohio shortly before
the effective date of a revision to Ohio's product liability statute which,
among other things, limits damages recoverable for pain and suffering. During
the year ended June 30, 1997, 58 lawsuits were settled or dismissed at no
material liability to Industries.

         Management intends to vigorously defend all of these actions. In the
event that the post-reorganization lawsuits described above are not treated
under the Plan, it is possible that Industries could ultimately have liability
in these actions in excess of its product liability insurance coverage described
above. However, based on Industries' experience in prior DES litigation and its
current knowledge of pending cases, the Company believes that it is unlikely
that Industries' ultimate liability, if any, in excess of insurance coverage and
existing reserves in the pending cases will be in an amount sufficient to have a
material adverse effect upon the Company's consolidated financial position or
results of operations.

                                       8
<PAGE>
 
         Environmental Liability
         -----------------------

         During fiscal 1994, the Company discovered a diesel fuel oil spill at
its locomotive maintenance facility in York, Pennsylvania, resulting from the
fueling of its locomotives. The Company is currently performing additional
testing and is working with the Pennsylvania Department of Environmental
Protection to remediate the contaminated area. In January 1997, in the next
phase of its testing procedures, the Company discovered free product in some of
its monitoring wells. The Company estimates that the cost to remediate the free
product will range from $100,000 to $200,000. The Company has provided
sufficient reserves for the anticipated remediation costs.

Item 4.  Submission of Matters to a Vote of Security Holders

         NONE


                                    Part II
                                        
Item 5.  Market for Company's Common Equity and Related Stockholder Matters

Emons Transportation Group's Common Stock is traded in the over-the-counter
securities market and is listed on the Nasdaq/Small Cap Market under the symbol
"EMON."  The table below sets forth, for the periods indicated, the high and low
bid for the Common Stock as reported on the Nasdaq/Small Cap Market.


<TABLE>
<CAPTION>
                                         COMMON STOCK PRICE RANGE
                                         ------------------------
 
     Fiscal Year       Fiscal Quarter      High Bid     Low Bid
     -----------       --------------      --------     -------
     <S>               <C>               <C>            <C>
        1997               First            $3.1875     $1.5625
                           Second            5.375       2.75
                           Third             3.5625      2.75
                           Fourth            2.75        1.875
 
        1996               First            $6.50       $1.00
                           Second            2.625       1.625
                           Third             2.00        1.50
                           Fourth            1.9375      1.0625
</TABLE>

         At September 12, 1997, the Company had 5,884,200 shares of Common Stock
issued and outstanding which were held by approximately 1,976 stockholders of
record.  No cash dividends have been paid on the Common Stock and no cash
dividends are expected to be paid on the Common Stock in the foreseeable future.
The Company's Loan and Security Agreement with its primary lender prohibits the
payment of cash dividends and certain other distributions without the prior
consent of the lender.

         As of September 12, 1997, 1,550,025 shares of $.14 Series A Cumulative
Convertible Preferred Stock were issued and outstanding which were held by
approximately 894 stockholders of record.  The holders of the $.14 Series A
Cumulative Convertible Preferred Stock are entitled to a dividend of $.14 per
share per annum which is to be paid semi-annually.  The Board of Directors voted
to omit the regular semi-annual dividend which would have been payable from the
period January 2, 1991 through July 1, 1997.  Dividends in arrears as of
September 12, 1997 aggregated $1,519,025.  These shares are traded in the over-
the-counter securities market.

                                       9
<PAGE>
 
Item 6. Selected Financial Data

               EMONS TRANSPORTATION GROUP, INC. AND SUBSIDIARIES

                            Selected Financial Data
                    For the Five Years ended June 30, 1997
           (Not Covered by Report of Independent Public Accountants)

<TABLE> 
<CAPTION> 

------------------------------------------------------------------------------------------------------------------------------------
                                                          1997            1996           1995            1994           1993
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>             <C>             <C>            <C>          <C> 
Operating revenues                                   $ 16,058,252    $ 14,917,077    $ 13,996,608    $ 11,994,286   $ 11,551,839
                                                     ============    ============    ============    ============   ============

Income from operations                               $  1,926,419    $  1,627,339    $  2,073,724    $    811,164   $  1,322,045
                                                     ============    ============    ============    ============   ============

Income (loss) before cumulative effect
  of change in accounting principle                  $    773,793    $    469,501    $    766,077    $   (184,325)  $    135,688

Cumulative effect of change in accounting
  principle for income taxes                                    -               -               -        (750,000)             - 
                                                     ------------    ------------    ------------    ------------   ------------
Net income (loss)                                    $    773,793    $    469,501    $    766,077    $   (934,325)  $    135,688
                                                     ============    ============    ============    ============   ============

Earnings (loss) per common share
  and common share equivalent:
    Earnings (loss) before cumulative effect
      of change in accounting principle              $       0.09    $       0.04    $       0.09    $      (0.08)  $      (0.02)

    Cumulative effect of change in
      accounting principle for income taxes                     -               -               -           (0.13)             - 
                                                     ------------    ------------    ------------    ------------   ------------
    Net income (loss)                                $       0.09    $       0.04    $       0.09    $      (0.21)  $      (0.02)
                                                     ============    ============    ============    ============   ============

Total assets                                         $ 24,301,875    $ 22,789,914    $ 20,745,575    $ 19,844,423   $ 20,575,690
                                                     ============    ============    ============    ============   ============

Debt                                                 $ 11,864,130    $ 11,086,009    $ 10,862,098    $ 11,047,433   $ 12,439,150
                                                     ============    ============    ============    ============   ============
</TABLE> 

                                      10
<PAGE>
 
Item 7.  Management's Discussion and Analysis of Financial Condition and
          Results of Operations

         Liquidity and Capital Resources

         The Company's primary sources of liquidity include its cash and
accounts receivable, which aggregated $3,920,000 and $3,670,000 at June 30, 1997
and 1996, respectively, and up to $2 million available under a revolving working
capital facility. On August 15, 1997, the Company entered into a Loan and
Security Agreement with a new lender which provides a $7,775,000 seven year term
loan and a $2 million revolving working capital facility. The proceeds of the
$7,775,000 term loan have been utilized to retire existing bank indebtedness and
for refinancing costs. The Company intends to utilize the $2 million working
capital facility to help fund the Company's internal growth activities and
acquisition program. The term loan is payable in increasing annual installments
with a balloon payment at the end of the seventh year. The initial term of the
working capital facility is two years, and borrowings under this facility are
limited based upon the amount of eligible accounts receivable outstanding.
Interest on both the term loan and working capital borrowings outstanding is
based upon the bank's prime rate or the eurodollar rate, plus an applicable
margin, at the option of the Company. The applicable margin ranges from prime to
prime plus 0.5% for prime based borrowings, and from the eurodollar rate plus
1.75% to 3% for eurodollar based borrowings, depending upon the Company's
financial performance.

         The Company's cash and cash equivalents increased $250,000 for the year
ended June 30, 1997. The net increase includes $1,764,000 of cash provided by
operations and $778,000 of additional net borrowings, partially offset by
$2,311,000 of capital investments.

         The Company generated $1,764,000 of cash from operations for the year
ended June 30, 1997 as compared to $2,430,000 for the prior year. Excluding
changes in assets and liabilities, cash provided by operations increased
$505,000 from $1,845,000 for the year ended June 30, 1996 to $2,350,000 for the
current year, primarily as a result of a $412,000 increase in income before
income taxes. Cash was reduced by $586,000 for changes in assets and liabilities
for the year ended June 30, 1997, largely as a result of a $581,000 reduction in
accounts payable and accrued expenses.

         The Company invested $2,311,000 in capital expenditures during the year
ended June 30, 1997, including $1,930,000 of investments in railroad track
structures (net of $1,367,000 of government grants) in connection with the
Company's track rehabilitation program, which is in its final stages of
completion, and in connection with the construction of track sidings for new
customers.  In addition, the Company invested $224,000 in four locomotives for
the Pennsylvania rail operations.  As of June 30, 1997, the Company has in
excess of $500,000 of government grants for track rehabilitation projects and in
excess of $300,000 of government funding under no and low interest loan programs
available for future track rehabilitation projects.  On September 5, 1997, the
Company was awarded additional grants totaling $450,000 for its Pennsylvania
railroad operations.

         The Company's long-term debt obligations increased $778,000 during
fiscal 1997, including $1,117,000 of debt repayments offset by $1,895,000 of
additional borrowings. Additional long-term obligations include $225,000 of
borrowings to finance the acquisition of four locomotives for the Pennsylvania
rail operations, $1,101,000 of borrowings under government funded no and low
interest loan track rehabilitation programs, and $551,000 of borrowings to
finance a favorable three year railroad liability insurance policy renewal.

                                       11
<PAGE>
 
         Fiscal 1997 as compared to Fiscal 1996

                             Results of Operations


         The Company generated net income of $774,000 for the year ended June
30, 1997 as compared to net income of $470,000 for the year ended June 30, 1996.
Income before income taxes increased $412,000, from $759,000 for fiscal 1996 to
$1,171,000 for fiscal 1997. Operating revenues, interest and other non-operating
income, and operating expenses increased $1,141,000, $96,000 and $842,000,
respectively, over the prior year, while interest expense decreased $16,000 from
the prior year. The provision for income taxes increased $107,000 over the prior
year.

         Results for the year ended June 30, 1997 include the unfavorable impact
of a sales tax assessment from the State of Maine in the amount of $107,000,
consisting of an $84,000 charge for sales taxes relating to calendar years 1991
through 1996, and a $23,000 charge for related interest thereon, a portion of
which the Company is contesting. Results for the prior year ended June 30, 1996
include the impact of a favorable settlement of disputed local business taxes to
the City of York, Pennsylvania in the amount of $117,000 pertaining to fiscal
years 1988 through 1995, consisting of $85,000 of taxes and $32,000 of accrued
interest thereon. These items are hereafter referred to as the "state sales and
local tax adjustments." In addition, the Company recorded $153,000 of non-
operating income in the current year relating to the unanticipated proceeds from
a former investment.

         In October 1996, CSX Corporation ("CSX") and Consolidated Rail
Corporation ("Conrail") announced plans to merge. In response to the merger
announcement, Norfolk Southern Railway ("NS") announced a competing tender offer
to acquire Conrail. Subsequently, CSX and NS agreed to divide Conrail, and filed
for approval of the transaction with the Surface Transportation Board ("STB") in
June 1997. Based upon management's review of publicly available information
currently included in the filing regarding the division of Conrail, all of the
Company's railroads will continue to maintain their dual connections with Class
I railroads. While the impact of the proposed merger on future traffic patterns
and the resultant effect on the Company's railroad operations are uncertain at
this time, the Company does not anticipate any significant negative impact as a
result of the merger, and believes that the merger may create additional
business as a result of longer Class I single line service on competitive
routes, which could result in additional rail business for the Company.

                                    Revenues

         Operating revenues increased $1,141,000, or 7.7%, from $14,917,000 for
year ended June 30, 1996 to $16,058,000 for the year ended June 30, 1997. This
net increase includes $1,184,000 additional freight and haulage revenues
(excluding intermodal freight) and $156,000 additional intermodal freight and
handling revenues, partially offset by a $166,000 reduction in logistics
revenues and a $33,000 reduction in other operating revenues.

         Freight and haulage revenues increased $1,184,000, or 11.6%, consisting
of a 7.2% increase in the number of carloads handled and a 4.2% increase in
average revenues per carload. The total traffic handled increased approximately
2,475 carloads from 34,550 for the year ended June 30, 1996 to 37,025 for the
current year. The increase includes approximately 1,200 additional carloads on
the Pennsylvania rail operations and 1,275 additional carloads on the SLR
operations in New England.

         A 725 carload increase in low rated bridge moves accounts for the most
significant portion of the 1,200 carload increase in traffic for the
Pennsylvania rail operations.  The remainder of the increase consists of a
number of net increases and decreases in other business, including 325
additional carloads to the Company's largest customer in Pennsylvania, an on-
line paper manufacturer, 380 additional mini-train limestone shuttle service
carloads, 275 additional carloads to an on-line steel fabrication customer, 175
additional carloads generated by two new on-line customers, 185 additional
carloads generated by the Company's logistics 

                                       12
<PAGE>
 
operations, and a variety of less significant other increases in business. These
increases were partially offset by a reduction of 525 carloads to an on-line
warehouse and distribution services customer as the result of the relocation of
product to an alternative storage location, a reduction of 360 agricultural
carloads as a result of rate increases imposed by a connecting carrier for a
period of time earlier in fiscal 1997, and a reduction of 365 coal carloads
(four unit coal trains) due to timing of shipments and the use of higher
capacity railcars.

         The 1,275 carload increase in business on SLR includes 500 carloads
attributable to a new local oil move to an on-line paper manufacturer, 600
additional carloads to an on-line building products distributor as a result of
the expansion of its operations, 260 additional carloads to four new customers,
three of which are located on-line, and a variety of less significant increases.
These increases were partially offset by a decrease of 375 paper-related
carloads as a result of lost business due to competitive routes.

         The 4.2% increase in average revenues per carload is primarily
attributable to rate increases on SLR and higher rates on the local oil move on
SLR which encompass truck-to-rail transload services that are paid by SLR to an
independent contractor. This increase was partially offset by lower average
revenues per carload for the Company's Pennsylvania operations due to a higher
percentage of low rated bridge traffic.

         Logistics revenues generated by the Company's operations in York,
Pennsylvania, decreased $166,000, or 11.8%, for the year ended June 30, 1997 as
compared to the prior year.  The number of railcars handled increased
approximately 250 cars, or 15%, and related railcar transfer and value added
revenues increased $106,000, or 16%.  This increase was offset by a decrease in
low margin truck brokering and storage revenues of $115,000 and $157,000,
respectively.  Bulk transfer and value added revenues increased $229,000 as a
result of the expansion of one feed broker's operations and the assumption of
transfer operations previously performed by another feed broker in March 1997.
The increase in bulk transfer and value added revenues was offset by decreases
in canned goods, paper, and building products business.  Canned goods transfer
and related low margin truck brokering revenues decreased over $160,000 from the
prior year as the movement of this product continues to shift to alternative
modes of transportation.  Paper handling and related storage revenues decreased
almost $200,000 from the prior year, which included significant transfer and
inventory storage revenues for an on-line paper manufacturer as a result of pulp
and paper supply conditions that have improved in the current year.  Building
products transfer and storage revenues decreased $20,000 as a result of the
relocation of the Company's primary lumber reload customer's operations to a
facility located on one of the Company's Pennsylvania rail lines in March 1997,
where it intends to expand into other building products.  While this relocation
will reduce the Company's logistics business, it will benefit the Company's
Pennsylvania rail operations.

         The Company's rail intermodal terminal, which commenced operations on
SLR in September 1994, generated an additional $156,000 of freight and
intermodal handling revenues in fiscal 1997 as compared to the prior year.
Intermodal volume increased approximately 4,300 trailers and containers, or 50%,
from 8,600 trailers and containers in the prior year to 12,900 trailers and
containers in the current year.

         Other operating revenues decreased $33,000 from the prior year.
Easement income, which includes up front fees for a crossing agreement in the
amount of $85,000, railcar storage income and third party track work revenues
increased over the prior year, but were more than offset by a decrease in
demurrage revenues of $222,000.

         Interest income increased $11,000 as a result of higher cash balances
on hand for investment, and other non-operating income increased $85,000 from
$82,000 for the prior year to $167,000 for the current year. The current year
amount includes $153,000 for the unanticipated proceeds from a former
investment, while the prior year amount consists of gains on sales of non-
essential real estate.

                                       13
<PAGE>
 
                                    Expenses

         Operating expenses increased $842,000, or 6.3%, from $13,290,000 for
the year ended June 30, 1996 to $14,132,000 for the year ended June 30, 1997.
The increase consists of $540,000 additional cost of operations and $302,000
additional selling and administrative expenses. Excluding the impact of the
state sales and local tax adjustments, operating expenses increased $673,000, or
5%.

         Cost of operations increased $540,000, or 5.1%, from $10,521,000 for
the year ended June 30, 1996 to $11,061,000 for the current year. Excluding the
impact of the state sales and local tax adjustments, cost of operations
increased $456,000, or 4.3%. This increase includes $576,000 additional railroad
operating expenses, $90,000 additional intermodal operating expenses, and
additional provisions under profit sharing and incentive compensation
arrangements. These increases were partially offset by a $279,000 reduction in
logistics operating expenses.

         The increase in railroad operating expenses of $576,000 is primarily
attributable to a $602,000 increase in transportation expenses and, to a lesser
extent, additional locomotive maintenance expenses, partially offset by a
reduction in maintenance of way expenses.  The increase in transportation
expenses includes additional operating costs associated with the 7.2% increase
in traffic handled.  The new local oil move on SLR accounted for approximately
$300,000 of the increase, including $241,000 of fees for truck-to-rail transload
costs paid to an independent contractor.  Locomotive fuel and lubricant costs
increased $179,000 as a result of substantial price increases during the current
year, which have recently been reduced to more normal levels.  The increase in
locomotive maintenance expenses is attributable to a higher level of locomotive
repairs required in the current year for both the Pennsylvania and New England
operations as compared to the prior year.  Maintenance of way expenses decreased
over $200,000 as a result of more favorable weather conditions in the current
year as compared to the prior year, which also had a less significant favorable
impact on transportation operating costs in the current year.  The unusually
heavy snowfall and cold temperatures in both the Mid-Atlantic and Northeast
regions of the United States in the prior year had an unfavorable impact on all
three of the Company's railroads. Additional labor costs, fuel usage and other
operating expenses were required in order to keep the tracks clear and train
operations running.  SLR also incurred additional maintenance of way costs in
the prior year to repair a washed out section of track after a flood in November
1995, and to clear a fire lane as a result of summer drought conditions.

         The $279,000 decrease in logistics operating expenses is primarily
attributable to an $80,000 reduction in brokered freight expenses as a result of
the decrease in canned goods business which utilizes these services, and a
$48,000 reduction in warehouse rental expenses in conjunction with the decrease
in paper storage requirements in the current year.  In addition, the Company's
logistics operations incurred approximately $40,000 of costs in the prior year
in connection with the relocation of a portion of its warehousing operations.
These decreases were partially offset by additional operating costs in
connection with the 15% increase in railcars handled.

         Rail intermodal operating expenses increased $90,000 due to additional
fees paid to the terminal's independent operator as a result of the 50% volume
increase over the prior year and additional security costs.

         Selling and administrative expenses increased $302,000, or 10.9%, from
$2,769,000 for the year ended June 30, 1996 to $3,071,000 for the year ended
June 30, 1997.  Excluding the impact of the state sales and local tax
adjustments, selling and administrative expenses increased $217,000, or 7.6%.
This net increase consists of additional professional fees and other expenses
incurred to pursue potential business opportunities, normal wage and other cost
increases, and additional provisions under profit sharing and incentive
compensation arrangements.

                                       14
<PAGE>
 
         Interest expense decreased $16,000 for the year ended June 30, 1997 as
compared to the prior year.  Interest expense decreased $71,000 excluding the
impact of the state sales and local tax adjustments, despite an increase in the
amount of long-term debt outstanding, due to the mix of debt which includes a
greater amount of no and low interest government trackwork loans in the current
year as compared to the prior year.

         The provision for income taxes increased $107,000, from $290,000 for
the year ended June 30, 1996 to $397,000 for the current year, while the
effective tax rate decreased from 38% for fiscal 1996 to 34% for fiscal 1997.
The increase in income tax expense is primarily the result of a $412,000
increase in income before income taxes, while the decrease in the effective tax
rate is attributable to the mix of state taxable income and deferred tax
requirements. 

         The Company currently utilizes computer software in the management of
its operations and in accounting for its operating results that could be
affected by the date change in the year 2000. All critical software utilized by
the Company has been purchased from and is supported by third party vendors. The
Company has investigated the potential impact of the year 2000, and has
determined that all critical software either is year 2000 compliant, is in the
process of being modified by third party vendors to accommodate the year 2000,
or is replaceable by alternative software options available at a reasonable
cost.


         Fiscal 1996 as compared to Fiscal 1995

                             Results of Operations

         The Company generated net income of $470,000 for the year ended June
30, 1996 as compared to net income of $766,000 for the year ended June 30, 1995.
Income before income taxes decreased $315,000 from $1,074,000 for fiscal 1995 to
$759,000 for fiscal 1996. The net decrease includes a $1,367,000 increase in
operating expenses, partially offset by $920,000 additional operating revenues,
$80,000 additional non-operating income, and a $39,000 decrease in interest
expense. Operating results for the year ended June 30, 1996 include the
favorable settlement of disputed local business taxes to the City of York,
Pennsylvania in the amount of $117,000 pertaining to fiscal years 1988 through
1995, consisting of $85,000 of taxes and $32,000 of accrued interest thereon.
Operating results for the year ended June 30, 1995 included two significant
transactions. First, the Company recorded a $223,000 favorable retroactive
pricing adjustment for SLR negotiated with CN for the period July 1, 1992
through September 30, 1994, $158,000 of which was attributable to periods prior
to fiscal 1995. Second, the Company provided $84,000 for expenses associated
with the relocation of SLR personnel and SLR's administrative offices located in
Berlin, New Hampshire, to Auburn, Maine. The provision for income taxes
decreased $18,000 from fiscal 1995 to fiscal 1996.

                                    Revenues

         Operating revenues increased $920,000, or 6.6%, from $13,997,000 for
year ended June 30, 1995 to $14,917,000 for the year ended June 30, 1996. This
net increase includes $343,000 additional freight and haulage revenues
(excluding intermodal freight), $322,000 additional intermodal freight and
handling revenues, and $268,000 additional logistics revenues, partially offset
by $13,000 less other operating revenues.

         Freight and haulage revenues increased $343,000, or 3.5%, consisting of
a 5% increase in the number of carloads handled offset by a 1.3% decrease in
average revenues per carload. The total number of carloads handled increased
approximately 1,650 carloads from 32,900 for the year ended June 30, 1995 to
34,550 for the year ended June 30, 1996. The net increase includes approximately
800 additional carloads generated by the Company's logistics operations, 600
additional coal carloads (six unit coal trains), 550 additional carloads to a
warehouse customer, 450 additional agricultural carloads, and 400 additional
bridge carloads all in York, Pennsylvania, and approximately 700 additional
paper related carloads on SLR. The significant increase in business on SLR for
fiscal 1996 is attributable to a strike on CN which 

                                       15
<PAGE>
 
occurred in fiscal 1995, as well as the favorable impact of sales and marketing
efforts despite unfavorable market conditions in the paper industry in the
second half of fiscal 1996. These increases were partially offset by over 850
fewer carloads to a paper manufacturer in York, Pennsylvania, as a result of
pulp and paper market conditions, 300 fewer mini-train limestone shuttle
carloads in York, Pennsylvania, and a variety of other less significant
decreases. The 1.3% decrease in average revenues per carload is attributable to
the mix of business which includes a greater percentage of lower rated bridge
carloads and reduced pricing on incremental SLR paper carloads in order to
attract this business.

         The Company's rail intermodal terminal, which commenced operations on
SLR in late September 1994, generated $322,000 additional freight and intermodal
handling revenues in fiscal 1996 as compared to the prior year. The terminal
handled approximately 8,600 trailers and containers during fiscal 1996 as
compared to 3,650 trailers and containers during approximately nine months of
operations in fiscal 1995.

         Total logistics revenues generated by the Company's operations in York,
Pennsylvania, increased $268,000, or 23.6%, in fiscal 1996 over the prior year.
This increase includes in excess of a 30% increase in the number of railcars
handled and an additional $247,000 of storage revenues as a result of the
expansion of warehousing services.  These increases were partially offset by
$140,000 less truck brokerage revenues and $60,000 less canned goods transfer
services due to a reduction in cross dock transfer business.  In addition, the
Company's logistics operations accounted for approximately $530,000 of freight
and haulage revenues for the railroad operations in York, Pennsylvania, during
fiscal 1996 as compared to $365,000 in fiscal 1995.

         The $13,000 net decrease in other operating revenues from fiscal 1995
to fiscal 1996 includes an $82,000 increase in demurrage revenues and a $68,000
increase in car hire revenues generated under railcar leasing arrangements,
offset by the $158,000 SLR pricing adjustment recorded in fiscal 1995.

         Non-operating income increased $80,000 over fiscal 1995 due to net
gains on the sale of non-essential real estate, including miscellaneous parcels
of land and a railroad station in Berlin, New Hampshire.

                                   Expenses

         Operating expenses increased $1,367,000, or 11.5%, from $11,923,000 for
the year ended June 30, 1995 to $13,290,000 for the year ended June 30, 1996.
The net increase consists of $1,226,000 additional cost of operations and
$141,000 additional selling and administrative expenses.

         Cost of operations increased $1,226,000, or 13%, from $9,295,000 for
the year ended June 30, 1995 to $10,521,000 for the year ended June 30, 1996.
The net increase includes $821,000 additional railroad operating expenses,
$226,000 additional logistics operating expenses, and $179,000 additional
intermodal operating expenses.

         The increase in railroad operating expenses includes additional
transportation costs to operate the dedicated intermodal train on SLR for a full
year in fiscal 1996 as compared to approximately nine months in the prior year,
additional costs to operate six additional unit coal trains on the railroad
operations in York, Pennsylvania, in fiscal 1996, and additional costs to handle
the remainder of the increase in carload volume.  Maintenance of way expenses
also increased over fiscal 1995, including additional costs incurred by SLR to
repair the washout of a section of track resulting from a heavy downpour in
November 1995, and costs incurred to clear a fire lane in Maine.  Maintenance of
way and transportation expenses, and to a lesser extent, locomotive maintenance
expenses, were also unfavorably impacted on all three of the Company's railroad
operations by the early snowfall and cold weather in the Mid-Atlantic and
Northeast regions during November and December 1995 as compared to the prior
year, and more significantly, by the continued impact of unfavorable winter
weather conditions in these 

                                       16
<PAGE>
 
regions during the third quarter of fiscal 1996 as compared to mild winter
weather conditions in the third quarter of the prior year. The unusually heavy
snowfall and cold temperatures required additional labor costs, fuel usage and
other operating expenses in order to keep the railroad tracks clear and train
operations running. In addition, expenses in the third quarter of fiscal 1995
were lower as a result of efforts to reduce expenses on SLR in anticipation of
and during the CN labor strike which took place in March 1995.

         The increases in logistics and rail intermodal operating expenses are
attributable to the corresponding increases in the level of business in each of
these operations, including a full twelve months of intermodal operations in
fiscal 1996 as compared to approximately nine months of operations in fiscal
1995. The increase in logistics operating expenses were partially offset by a
$129,000 reduction in brokered freight expense due to a reduction in cross dock
transfer business.

         Selling and administrative expenses increased $141,000, or 5.4%, from
$2,628,000 for the year ended June 30, 1995 to $2,769,000 for the year ended
June 30, 1996. The net increase includes approximately $192,000 additional wages
and benefits as a result of wage adjustments effective January 1, 1996 and staff
additions to accommodate increased business levels, $93,000 additional
intermodal sales and administrative expenses as a result of twelve months of
operations in fiscal 1996 versus nine months of operations in fiscal 1995, and
$100,000 additional professional fees and travel expenses to pursue potential
business opportunities. These increases were partially offset by the favorable
settlement of disputed local business taxes to the City of York, Pennsylvania in
the amount of $85,000 pertaining to fiscal years 1988 through 1995, which was
recorded as a reduction of expense in fiscal 1996, and a net decrease in a
variety of other expense categories.

         Interest expense decreased $39,000 in fiscal 1996 as compared to the
prior year due to a $32,000 reduction of interest expense recorded in fiscal
1996 as a result of the favorable settlement of disputed local business taxes to
the City of York, Pennsylvania pertaining to fiscal years 1988 through 1995.

         The provision for income taxes decreased $18,000 from $308,000 for the
year ended June 30, 1995 to $290,000 for the year ended June 30, 1996 as a
result of a reduction in pre-tax income. The effective tax rate increased from
29% in fiscal 1995 to 38% in fiscal 1996 due to deferred tax liabilities
associated with depreciation of the Company's railroad track structures and the
significant amount of capital trackwork performed in fiscal 1996, partially
offset by limited tax assets recognized for net operating loss carryforwards in
fiscal 1996.


Item 8.  Financial Statements and Supplementary Data

         Financial Statements and the notes and schedules thereto are listed
under Item 14 hereof.


Item 9.  Change in and Disagreements with Accountants on Accounting and
          Financial Disclosure

         NONE

                                       17
<PAGE>
 
                                    Part III
                                        
         Items 10 through 12 have been omitted. A definitive proxy statement
will be filed by the Company not later than 120 days after the close of its
fiscal year which is hereby incorporated by reference.


Item 13.  Certain Relationships and Related Transactions

         NONE

                                       18
<PAGE>
 
             REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES



The Board of Directors
Emons Transportation Group, Inc.:


We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of Emons Transportation Group, Inc. and
Subsidiaries included in this Form 10-K, and have issued our report thereon
dated September 5, 1997.  Our audit was made for the purpose of forming an
opinion on those statements taken as a whole.  The financial statement schedules
referred to in Item 14 are the responsibility of the Company's management and
are presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic financial statements.  The
financial statement schedules have been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion,
fairly state in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.


/s/ Arthur Andersen LLP


Lancaster, PA
 September 5, 1997

                                       19
<PAGE>
 
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



The Board of Directors
Emons Transportation Group, Inc.:


We have audited the accompanying consolidated balance sheets of Emons
Transportation Group, Inc. and Subsidiaries as of June 30, 1997 and 1996, and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended June 30, 1997.  These
financial statements are the responsibility of the Company's management.  Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Emons Transportation
Group, Inc. and Subsidiaries as of June 30, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended June 30, 1997 in conformity with generally accepted accounting principles.



/s/ Arthur Andersen LLP


Lancaster, PA
 September 5, 1997

                                       20
<PAGE>
                                    Part IV

   Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K

                 (Index to Financial Statements and Schedules)

<TABLE> 
<CAPTION> 
                                                                                       Page
                                                                                       ---- 
<S>                                                                                    <C>       
(a) (1)  Financial Statements of Emons Transportation Group, Inc. and                 
          Subsidiaries:                                                               
                                                                                      
          Consolidated Balance Sheets as of June 30, 1997 and 1996                      22
                                                                                      
          Consolidated Statements of Operations for the years ended                   
            June 30, 1997, 1996 and 1995                                                23
                                                                                      
          Consolidated Statements of Stockholders' Equity for the                     
            years ended June 30, 1997, 1996 and 1995                                    24
                                                                                      
          Consolidated Statements of Cash Flows for the years                         
            ended June 30, 1997, 1996 and 1995                                          25
                                                                                      
          Notes to Consolidated Financial Statements                                    26
                                                                                      
    (2)  Schedules Applicable to Consolidated Financial Statements:                   
                                                                                      
     Schedule III - Financial Statements of Emons Transportation Group, Inc.          
                      (Parent Company Only)                                           
                                                                                      
         Balance Sheets as of June 30, 1997 and 1996                                    37
                                                                                      
         Statements of Operations for the years ended June 30, 1997, 1996 and 1995      38
                                                                                      
         Statements of Cash Flows for the years ended June 30, 1997, 1996 and 1995      39

    All other schedules are omitted as the required information is not applicable or 
    information is presented in the financial statements or related notes.

(b) No reports on Form 8-K were filed during the quarter ended June 30, 1997.

(c) A list of exhibits can be found on page 41 hereof.
</TABLE> 

                                      21
<PAGE>

               EMONS TRANSPORTATION GROUP, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                         as of June 30, 1997 and 1996

<TABLE> 
<CAPTION> 
-------------------------------------------------------------------------------------------------
                                                                         1997            1996
-------------------------------------------------------------------------------------------------
<S>                                                                 <C>              <C> 
ASSETS                                                                            
  Current Assets:                                                                 
    Cash and cash equivalents                                       $  1,515,188     $  1,265,373
    Accounts receivable, less allowance of                                        
      $102,898 in 1997 and $76,899 in 1996                             2,405,304        2,404,730
    Materials and supplies                                                87,154          204,656
    Prepaid expenses                                                     338,512          339,523
    Deferred income taxes (Note 5)                                        70,000           79,000
                                                                    ------------     ------------
      Total current assets                                             4,416,158        4,293,282
                                                                    ------------     ------------ 
                                                                                  
  Property, plant and equipment, net (Note 1)                         19,392,709       18,252,452
                                                                                  
  Deferred expenses and other assets                                     493,008          244,180
                                                                    ------------     ------------   
                                                                                  
TOTAL ASSETS                                                        $ 24,301,875     $ 22,789,914
                                                                    ============     ============
                                                                                  
LIABILITIES AND STOCKHOLDERS' EQUITY                                              
  Current Liabilities:                                                            
    Current portion of long-term debt                               $    887,791     $    967,837
    Accounts payable                                                   1,045,742        1,806,969
    Accrued payroll and related expenses                                 995,880          876,472
    Income taxes payable                                                  81,569           84,108
    Other accrued expenses                                             1,267,343        1,203,876
                                                                    ------------     ------------    
      Total current liabilities                                        4,278,325        4,939,262
                                                                    ------------     ------------ 
                                                                                  
  Long-term debt (Note 2)                                             10,976,339       10,118,172
  Other liabilities                                                      814,040          600,861
  Deferred income taxes (Note 5)                                       1,794,000        1,513,000
                                                                    ------------     ------------ 
      Total Liabilities                                               17,862,704       17,171,295
                                                                    ------------     ------------  
                                                                                  
  Commitments and contingencies (Notes 3 and 8)                                -                -
                                                                                  
  Stockholders' Equity:                                                           
    Preferred stock, authorized 3,000,000 shares                                  
      $0.14 Series A Cumulative Convertible Preferred Stock,                      
      $0.01 par value, issued and outstanding 1,650,857 and                       
      1,680,230 shares at June 30, 1997 and 1996, respectively                    
      (redeemable at Company's option, involuntary liquidation                    
      value of $2.00 per share) (Note 4)                                  16,509           16,802
                                                                                  
    Common stock, $0.01 par value, authorized 15,000,000 and                      
      11,000,000 shares at June 30, 1997 and 1996, respectively,                  
      issued and outstanding 5,800,624 and 5,703,689 shares                       
      at June 30, 1997 and 1996, respectively                             58,006           57,037
                                                                                  
    Additional paid-in capital                                        23,503,442       23,281,993
    Deficit                                                          (16,789,121)     (17,562,914)
                                                                    ------------     ------------  
                                                                       6,788,836        5,792,918
    Unearned compensation - restricted stock awards                     (349,665)        (174,299)
                                                                    ------------     ------------  
      Total Stockholders' Equity                                       6,439,171        5,618,619
                                                                    ------------     ------------  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                          $ 24,301,875     $ 22,789,914
                                                                    ============     ============
</TABLE> 

See accompanying notes to consolidated financial statements.

                                      22
<PAGE>

                EMONS TRANSPORTATION GROUP, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                for the years ended June 30, 1997, 1996 and 1995

<TABLE> 
<CAPTION> 
-----------------------------------------------------------------------------------------------
                                                  1997              1996             1995
-----------------------------------------------------------------------------------------------
<S>                                         <C>               <C>               <C> 
Operating revenues                           $  16,058,252     $  14,917,077     $  13,996,608
                                                                                
Operating expenses:                                                             
     Cost of operations                         11,061,247        10,521,232         9,295,039
     Selling and administrative                  3,070,586         2,768,506         2,627,845
                                            ---------------   ---------------   ---------------
         Total operating expenses               14,131,833        13,289,738        11,922,884
                                            ---------------   ---------------   ---------------
                                                                                 
Income from operations                           1,926,419         1,627,339         2,073,724
                                                                                 
Other income (expense):                                                          
     Interest income                                86,080            74,827            62,123
     Interest expense                           (1,008,945)       (1,025,175)       (1,063,939)
     Other, net                                    167,239            82,010             2,469
                                            ---------------   ---------------   ---------------
         Total other income (expense)             (755,626)         (868,338)         (999,347)
                                            ---------------   ---------------   ---------------
                                                                                 
Income before income taxes                       1,170,793           759,001         1,074,377
                                                                                 
Provision for income taxes (Note 5)                397,000           289,500           308,300
                                            ---------------   ---------------   ---------------
                                                                                 
Net income                                         773,793           469,501           766,077
                                                                                 
Preferred dividend requirements (Note 7)           233,135           237,757           241,773
                                            ---------------   ---------------   ---------------
                                                                                
Income applicable to common shareholders     $     540,658     $     231,744     $     524,304
                                            ===============   ===============   ===============
                                                                                
Average common shares and common                                                
    share equivalents (Note 1)                   6,281,225         6,072,221         5,805,373
                                            ===============   ===============   ===============
                                                                                
Earnings per common share and                                                   
    common share equivalent (Note 1)         $        0.09     $        0.04     $        0.09
                                            ===============   ===============   ===============
</TABLE> 

      See accompanying notes to consolidated financial statements.

                                      23
<PAGE>

               EMONS TRANSPORTATION GROUP, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                for the years ended June 30, 1997, 1996 and 1995

<TABLE> 
<CAPTION> 

-------------------------------------------------------------------------------------------------------------------------------
                                            Cumulative                                                                           
                                            Convertible                                                                          
                                           Preferred Stock              Common Stock             Additional        Retained      
                                      --------------------------   ------------------------        Paid-in         Earnings      
                                         Shares        Amount        Shares        Amount          Capital         (Deficit)     
-------------------------------------------------------------------------------------------------------------------------------  
<S>                                     <C>            <C>           <C>           <C>           <C>             <C> 
 Balance at June 30, 1994               1,727,006      $ 17,270      5,690,093     $ 56,901      $ 23,295,036    $ (18,798,492)  
                                                                                                                                 
 Conversion of preferred stock                (56)            -             50            -                 -                -   
                                                                                                                                 
 Stock issued under restricted                                                                                                   
     stock plan                                 -             -         17,000          170            17,893                -   
                                                                                                                                 
 Cancellation of restricted                                                                                                      
     stock issued                               -             -        (37,500)        (375)          (23,063)               -   
                                                                                                                                 
 Amortization of unearned                                                                                                        
     compensation                               -             -              -            -                 -                -   
                                                                                                                                 
 Net income                                     -             -              -            -                 -          766,077   
                                      ------------  ------------  ------------- ------------   ---------------  ---------------  
 Balance at June 30, 1995               1,726,950        17,270      5,669,643       56,696        23,289,866      (18,032,415)  
                                                                                                                                 
 Conversion of preferred stock            (46,720)         (468)        42,046          421                47                -   
                                                                                                                                 
 Cancellation of restricted                                                                                                      
     stock issued                               -             -         (8,000)         (80)           (7,920)               -   
                                                                                                                                 
 Amortization of unearned                                                                                                        
     compensation                               -             -              -            -                 -                -   
                                                                                                                                 
 Net income                                     -             -              -            -                 -          469,501   
                                      ------------  ------------  ------------- ------------   ---------------  ---------------  
 Balance at June 30, 1996               1,680,230        16,802      5,703,689       57,037        23,281,993      (17,562,914)  
                                                                                                                                 
 Conversion of preferred stock            (29,373)         (293)        26,435          264                29                -   
                                                                                                                                 
 Shares issued pursuant to                                                                                                       
     1986 Stock Option Plan                     -             -          4,000           40             4,085                -   
                                                                                                                                 
 Stock issued under restricted                                                                                                   
     stock plan                                 -             -         69,000          690           219,185                -   
                                                                                                                                 
 Cancellation of restricted                                                                                                      
     stock issued                               -             -         (2,500)         (25)           (1,850)               -   
                                                                                                                                 
 Amortization of unearned                                                                                                        
     compensation                               -             -              -            -                 -                -   
                                                                                                                                 
 Net income                                     -             -              -            -                 -          773,793   
                                      ------------  ------------  ------------- ------------   ---------------  ---------------  
 Balance at June 30, 1997               1,650,857      $ 16,509      5,800,624     $ 58,006      $ 23,503,442    $ (16,789,121)  
                                      ============  ============  ============= ============   ===============  ===============  

<CAPTION> 

---------------------------------------------------------------------------
                                            Unearned                        
                                          Compensation                     
                                           Restricted      Stockholders'  
                                          Stock Awards        Equity      
---------------------------------------------------------------------------
<S>                                       <C>              <C> 
 Balance at June 30, 1994                 $ (251,389)      $ 4,319,326   
                                                                         
 Conversion of preferred stock                     -                 -   
                                                                         
 Stock issued under restricted                                           
     stock plan                              (18,063)                -   
                                                                         
 Cancellation of restricted                                              
     stock issued                             23,438                 -   
                                                                         
 Amortization of unearned                                                
     compensation                             30,913            30,913   
                                                                         
 Net income                                        -           766,077   
                                       --------------    --------------  
 Balance at June 30, 1995                   (215,101)        5,116,316   
                                                                         
 Conversion of preferred stock                     -                 -   
                                                                         
 Cancellation of restricted                                              
     stock issued                              8,000                 -   
                                                                         
 Amortization of unearned                                                
     compensation                             32,802            32,802   
                                                                         
 Net income                                        -           469,501   
                                       --------------    --------------  
 Balance at June 30, 1996                   (174,299)        5,618,619   
                                                                         
 Conversion of preferred stock                     -                 -   
                                                                         
 Shares issued pursuant to                                               
     1986 Stock Option Plan                        -             4,125   
                                                                         
 Stock issued under restricted                                           
     stock plan                             (219,875)                -   
                                                                         
 Cancellation of restricted                                              
     stock issued                              1,875                 -   
                                                                         
 Amortization of unearned                                                
     compensation                             42,634            42,634   
                                                                         
 Net income                                        -           773,793   
                                       --------------    --------------  
 Balance at June 30, 1997                 $ (349,665)      $ 6,439,171   
                                       ==============    ==============  

</TABLE> 

See accompanying notes to consolidated financial statements.

                                      24
<PAGE>

               EMONS TRANSPORTATION GROUP, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
               for the years ended June 30, 1997, 1996 and 1995
<TABLE> 
<CAPTION> 
--------------------------------------------------------------------------------------------------------
                                                              1997             1996             1995
--------------------------------------------------------------------------------------------------------
<S>                                                      <C>              <C>              <C> 
Cash flow from operating activities:                                                   
 Net income                                              $    773,793     $    469,501     $    766,077
  Adjustments to reconcile net income to net                                           
    cash provided by operating activities:                                             
     Depreciation                                           1,170,720        1,136,301        1,022,467
     Amortization                                             130,146          127,201          120,078
     Gain on sale of assets                                   (14,273)         (82,010)          (3,638)
     Increase in deferred income taxes                        290,000          194,000          203,000
     Changes in assets and liabilities:                                                
      Accounts receivable, materials and                                               
       supplies and prepaid expenses                          117,939         (533,407)        (265,712)
      Accounts payable and accrued expenses                  (580,891)       1,095,986          (79,675)
      Other assets and liabilities, net                      (123,161)          22,827          134,067
                                                        --------------   --------------   --------------
Net cash provided by operating activities                   1,764,273        2,430,399        1,896,664
                                                        --------------   --------------   --------------
Cash flow from investing activities:                                                      
 Proceeds from sale of assets                                  14,273          179,586            9,762
 Additions to property, plant and equipment                (2,310,977)      (2,801,382)      (2,053,395)
                                                        --------------   --------------   --------------
Net cash used in investing activities                      (2,296,704)      (2,621,796)      (2,043,633)
                                                        --------------   --------------   --------------
Cash flow from financing activities:                                                      
 Proceeds from issuance of long-term debt                   1,894,853        1,025,775          472,647
 Reduction in long-term debt                               (1,116,732)        (801,864)        (657,982)
 Proceeds from issuance of common stock                         4,125                -                -
                                                        --------------   --------------   --------------
Net cash provided by (used in) financing activities           782,246          223,911         (185,335)
                                                        --------------   --------------   --------------
                                                                                          
Net increase (decrease) in cash and cash equivalents          249,815           32,514         (332,304)
                                                                                          
Cash and cash equivalents at beginning of year              1,265,373        1,232,859        1,565,163
                                                        --------------   --------------   --------------
                                                                                          
Cash and cash equivalents at end of year                 $  1,515,188     $  1,265,373     $  1,232,859
                                                        ==============   ==============   ==============
</TABLE> 

 See accompanying notes to consolidated financial statements.

                                      25
<PAGE>
 
Notes to Consolidated Financial Statements
For the Years Ended June 30, 1997, 1996 and 1995


Note 1.  The Company and Summary of Significant Accounting Policies

         a.  The Company and Operations
             --------------------------

         Emons Transportation Group, Inc. ("Emons Transportation Group") is a
freight transportation and distribution services company serving the Mid-
Atlantic and Northeast regions of the United States. Emons Transportation Group
and its subsidiaries (collectively the "Company") own and operate two short line
railroads and rail/truck transload and warehouse facilities in South-Central
Pennsylvania, and a short line railroad and a rail intermodal operation in New
England, which provide customers with logistics services for the movement and
storage of freight.

         b.  Principles of Consolidation
             ---------------------------

         The consolidated financial statements include the accounts of Emons
Transportation Group, Inc. and its wholly-owned subsidiaries.  All significant
intercompany balances and transactions have been eliminated in consolidation.

         c.  Use of Estimates
             ----------------

         The preparation of financial statements in conformity with generally
accepted accounting principles 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 date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period.  Actual results could differ from those estimates.

         d.  Cash and Cash Equivalents
             -------------------------

         Cash and cash equivalents include cash on hand and highly liquid short-
term investments, including bank repurchase agreements and money market funds,
with a maturity of three months or less. Short-term instruments are carried at
cost which approximates market value.

         e.  Materials and Supplies
             ----------------------

         Materials and supplies are stated at the lower of cost or market.

         f.  Properties
             ----------

         Property, plant and equipment are carried at cost less accumulated
depreciation.  The Company uses the Depreciation Accounting method for its three
railroad operations, the Maryland and Pennsylvania Railroad ("MPA"), Yorkrail
("YKR") and the St. Lawrence & Atlantic Railroad ("SLR").  Under Depreciation
Accounting, the initial cost or purchase price of railroad track structures is
depreciated over the estimated useful life of the track structures, and the cost
of replacing railroad track structures is capitalized and depreciated over the
estimated useful life of the replacements.  Government grants received for track
rehabilitation programs relating to the replacement of railroad track structures
are accounted for as a reduction of the related capitalized cost of the track
structures.

         Depreciation expense is computed on a straight-line basis over the
estimated useful lives of the respective assets which range from 25 to 35 years
for railroad track structures and from 3 to 20 years for all other assets.

                                       26
<PAGE>
 
         Property, plant and equipment at June 30, 1997 and 1996 consists of the
following:

<TABLE>
<CAPTION>
                                                       1997           1996
                                                      ------         ------
            <S>                                   <C>            <C> 
            Land and railroad track structures    $ 22,347,581   $ 20,418,033
            Equipment                                4,473,853      4,116,825
            Buildings                                2,160,155      2,147,450
            Other                                       60,560         60,560
                                                 -------------  -------------
                                                    29,042,149     26,742,868
            Less accumulated depreciation            9,649,440      8,490,416
                                                 -------------  -------------
                                                  $ 19,392,709   $ 18,252,452
                                                 =============  =============
</TABLE>

         g.  Deferred Expenses
             -----------------

         Deferred expenses consist of deferred financing costs, deferred costs
incurred in connection with operating contracts, and deferred costs incurred in
connection with the design and lease of the Company's rail intermodal terminal.
Deferred financing costs are amortized over the terms of the related agreements,
deferred costs incurred in connection with operating contracts are amortized
over the terms of the related contracts, and deferred costs associated with the
design and lease of the Company's rail intermodal terminal are amortized over a
five year period, in each case using the straight-line method of amortization.

         h.  Earnings Per Common Share
             -------------------------

         Earnings per common share is computed by dividing net earnings by the
weighted average number of common shares and common share equivalents for the
period.  Earnings per common share for the years ended June 30, 1997, 1996 and
1995 does not include shares of convertible preferred stock, because the effect
of such inclusion would be anti-dilutive.

         Fully diluted earnings per common share amounts are not presented
because the effect on earnings per share is not material or is anti-dilutive.

         In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("SFAS No. 128") "Earnings
per Share."  SFAS No. 128 supersedes APB Opinion No. 15 to conform earnings per
share with international standards, as well as to simplify the complexity of the
computation under APB Opinion No. 15.  SFAS No. 128 is effective for financial
statements for both interim and annual periods ending after December 15, 1997,
and requires restatement of earnings per share data for all prior periods
presented.  Earlier application of this statement is not permitted.  As a
result, earnings per share information for the fiscal years ended June 30, 1997,
1996 and 1995 is presented under APB Opinion No. 15.  The impact of SFAS No. 128
for these periods is not material.

         i.  Stock-Based Compensation
             ------------------------

         In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 ("SFAS No. 123") "Accounting
for Stock-Based Compensation" which is effective for fiscal years beginning
after December 15, 1995.  SFAS No. 123 encourages, but does not require,
accounting for stock based compensation awards on the basis of fair value at the
date the awards are granted.  Under the fair value based method of accounting,
the fair value of awards is included as expense in the statement of operations.
Companies that do not recognize compensation based upon fair value can continue
to account for awards under APB Opinion No. 25, "Accounting for Stock Issued to
Employees," but are required to disclose on a pro forma basis what net income
and earnings per share would have been under the fair value method.  The Company
has adopted the disclosure requirements of SFAS No. 123 only and, accordingly,
there has been no impact on the consolidated financial statements other than the
pro forma disclosures provided in Note 9, "Stock-Based Compensation and
Warrants."

                                       27
<PAGE>
 
Note 2.  Long-Term Debt

         Long-term debt at June 30, 1997 and 1996 consists of the following:

<TABLE>
<CAPTION>
                                                                  1997            1996
                                                                --------        --------
<S>                                                          <C>              <C>          
SLR Revolver Commitment, interest at prime                   $  3,500,000     $ 3,700,000
SLR Term Note, interest at 11%                                  3,756,744       4,261,811
SLR Promissory Note, interest at 8.5%                           1,500,000       1,500,000
SLR Deferred Interest Note, interest at prime                      97,768         137,599
SLR 1994 Track Rehabilitation Assistance Loan               
   from the State of Maine, non-interest bearing                  603,710         646,832
SLR 1995 Track Rehabilitation Assistance Loan               
   from the State of Maine, non-interest bearing                  102,274           4,302
SLR 1995 Track Rehabilitation Assistance Loan                                            
   from the State of New Hampshire, interest at 4.95%           1,170,715         190,944
YKR Senior Secured Term Loan, interest at 8.94%                   164,005         193,335
YKR Senior Secured Term Loan, interest at prime plus 2%           225,000               -
YKR Seller Land Financing, interest at 10%                        113,333         170,000
Railroad Liability Insurance Financing, interest at 8.16%         485,091               -
Equipment Loans, interest ranging from 9.5% to 12%                145,490         281,186
                                                            -------------   -------------
                                                               11,864,130      11,086,009
Less current portion                                              887,791         967,837
                                                            -------------   -------------
                                                             $ 10,976,339    $ 10,118,172
                                                            =============   ============= 
</TABLE>

The prime rate as of June 30, 1997 was 8.5%.

         On August 15, 1997, the Company entered into a Loan and Security
Agreement (the "Agreement") with a new lender which provides a $7,775,000 seven
year term loan and a $2 million working capital facility.  The $7,775,000
proceeds from the term loan were utilized to retire the SLR Revolver Commitment,
the SLR Term Note, the two outstanding YKR Senior Secured Term Loans, and to pay
a portion of the refinancing costs.  The term loan is payable in increasing
quarterly installments with a final balloon payment at the end of the seventh
year.  The initial term of the working capital facility is two years, and
borrowings under this facility are limited based upon the balance of eligible
accounts receivable outstanding, as defined in the Agreement.  Interest on both
the term loan and working capital borrowings outstanding is based upon the
bank's prime rate or the eurodollar rate, plus an applicable margin, at the
option of the Company.  The applicable margin ranges from prime to prime plus
0.5% for prime based borrowings, and from the eurodollar rate plus 1.75% to 3%
for eurodollar based borrowings, depending upon the Company's financial
performance.  The non-use fee on the working capital facility ranges from 0.25%
to 0.5%, also based upon the Company's financial performance.  The term loan and
working capital facility borrowings are secured by all of the assets of the
Company, and the Agreement includes certain restrictive covenants, the more
significant of which require that the Company meet prescribed financial ratios
and maintain specified levels of insurance, and which also restrict additional
borrowings, capital expenditures and lease commitments, and dividends.  The
Agreement also requires that the Company enter into an interest rate contract by
September 30, 1997, including an interest rate cap or similar interest expense
hedging arrangement, with respect to a notional principal amount of at least
one-half of the available term loan balance.

         The SLR $1,500,000 Promissory Note is subordinated to the $7,775,000
term loan and $2 million working capital facility.  In conjunction with the
aforementioned refinancing transaction, the Company renegotiated the terms of
SLR's Operating and Marketing Agreement with its primary connecting carrier, the
Canadian National Railway, including the terms of the $1,500,000 Promissory
Note.  In accordance with the revised agreements, the $1,500,000 Promissory Note
will be amortized over a seven year period commencing October 1, 1997 at an
interest rate of 8.5%, without any principal or interest payment requirements,
provided the Company continues to 

                                       28
<PAGE>
 
own and operate SLR. The SLR Deferred Interest Note is payable in monthly
installments of $3,621, plus interest at prime, until paid in full.

        In fiscal 1994, the State of Maine awarded SLR a $646,832 non-interest
bearing term loan in connection with the State's track rehabilitation assistance
program. The term loan is payable in thirty semi-annual installments of $21,561
commencing December 31, 1996.  In September 1995, the State of Maine awarded SLR
an additional $463,158 non-interest bearing term loan under the State's track
rehabilitation assistance program, $102,274 of which had been drawn as of 
June 30, 1997. This term loan is payable in 20 semi-annual installments of
$23,158 commencing June 30, 1997. In fiscal 1995, the State of New Hampshire
awarded SLR a $1,150,000, 4.95% track rehabilitation assistance term loan,
$1,130,298 of which had been drawn as of June 30, 1997 for track work completed
under this program. This term loan, plus accrued interest through completion of
the project, is payable in quarterly installments of approximately $23,000 over
a twenty year period commencing March 1, 1998.

        The YKR seller land financing is payable in three equal annual
installments through August 1998.  In February 1997, the Company purchased a
three year railroad liability insurance policy which was financed over a 30
month period with monthly payments of $20,419.  The Equipment Loans are payable
in various amounts ranging up to $2,357 per month, including interest, and
mature at various dates through November 2000.

        Maturities of debt over the next five years are as follows:

<TABLE>
<CAPTION>
                                                     Amount
                                                     ------   
                       Fiscal Year                    Due
                       -----------                    ---   
                       <S>                        <C> 
                          1998                    $    887,791
                          1999                       1,280,591
                          2000                       1,170,276
                          2001                       1,098,241
                          2002                       1,360,527
</TABLE>

        For the fiscal years ended June 30, 1997, 1996 and 1995, the Company
made interest payments of $1,013,733, $1,044,323 and $1,063,779, respectively.


Note 3. Lease Commitments

        The Company leases land, rail facilities, its rail intermodal terminal,
locomotives and other equipment, automobiles and office space under non-
cancelable operating lease arrangements. The Company leases its rail intermodal
terminal from the City of Auburn, Maine under a lease agreement which includes
an initial term of 20 years, three optional 10 year renewal periods, and a
purchase option in year 50. As of June 30, 1997, future minimum lease
commitments under non-cancelable operating leases are as follows:

<TABLE>
<CAPTION>
                       Fiscal Year                    
                       -----------                    
                       <S>                        <C> 
                          1998                    $    698,520
                          1999                         579,718
                          2000                         427,335
                          2001                         388,163
                          2002                         330,277
                          2003 and thereafter        2,716,330
                                                 -------------
                                                  $  5,140,343
                                                 =============
</TABLE>

                                       29
<PAGE>
 
        Rent expense totaled $1,190,601, $1,116,477 and $722,253 for the fiscal
years ended June 30, 1997, 1996 and 1995, respectively.


Note 4. Preferred Stock

        As of June 30, 1997, a total of 1,650,857 shares of $.14 Series A
Cumulative Convertible Preferred Stock were issued and outstanding.  The
principal terms of the Preferred Stock are as follows:

        a.  Liquidation value is $2.00 per share.

        b.  Dividends, when and as declared by the Board of Directors, are
cumulative and payable semi-annually on January 1 and July 1 each year at a rate
of $.14 per share per annum.

        c.  Commencing on the second anniversary of the date of issuance,
September 27, 1989, and continuing thereafter, the $.14 Series A Cumulative
Convertible Preferred Stock may be redeemed, in whole or in part, at the option
of the Company at the following redemption prices:

<TABLE>
                           <S>                            <C>
                           September 27, 1996             2.05
                           after September 27, 1997       2.00
</TABLE>

        d.  Holders of the $.14 Series A Cumulative Convertible Preferred Stock
have the right to vote (on a one vote per share basis) as a class together with
the holders of Common Stock on all matters.

        e.  Each share of $.14 Series A Cumulative Convertible Preferred Stock
is convertible, at any time, into nine-tenths shares of Common Stock.


Note 5. Income Taxes

        The provision for income taxes for the years ended June 30, 1997, 1996
and 1995 is comprised of the following:

<TABLE>
<CAPTION>
                                   1997           1996           1995
                                   ----           ----           ----    
            <S>                <C>            <C>            <C> 
            Current:
             Federal            $   17,000     $    7,000     $   25,000
             State                  90,000         88,500         80,300
                               ------------   ------------   ------------
            Total current          107,000         95,500        105,300

            Deferred:
             Federal               232,000        122,000        205,000
             State                  58,000         72,000         (2,000)
                               ------------   ------------   ------------
            Total deferred         290,000        194,000        203,000
 
            Total               $  397,000     $  289,500     $  308,300
                               ============   ============   ============
</TABLE>

        The Company utilized approximately $1,800,000 of federal and $750,000 of
state net operating loss carryforwards in computing the fiscal 1997 provision
for income taxes.

                                       30
<PAGE>
 
    Deferred tax assets and liabilities are comprised of the following at June
30, 1997 and 1996:

<TABLE>
<CAPTION>
                                                         1997               1996
                                                         ----               ----
<S>                                               <C>                <C>     
Deferred tax assets:
   Accrued expenses                                $     712,000      $     566,000
   Net operating loss carryforwards                   21,345,000         22,130,000
                                                   -------------      -------------
                                                      22,057,000         22,696,000
   Valuation allowance                               (21,539,000)       (21,778,000)
                                                   -------------      -------------
                                                         518,000            918,000
                                                   -------------      -------------
Deferred tax liabilities:
   Property, plant and equipment                       2,242,000          2,352,000
                                                   -------------      -------------
 
Net deferred tax liability                         $   1,724,000      $   1,434,000
                                                   =============      =============
</TABLE>

       The valuation allowance has been provided to reduce the deferred tax
asset, which relates principally to the significant net operating loss
carryforwards, to the estimated recoverable amount based upon the estimated
utilization of the net operating loss carryforwards.

       At June 30, 1997, the Company had approximately $50,000,000 of net
operating loss ("NOL") carryforwards available, which expire in various years
from fiscal 1998 through fiscal 2008, a significant portion of which expire in
fiscal 2002.

       Due to the interaction between the Company's large net operating loss
carryforwards and significant deferred taxes resulting from the book versus tax
depreciation of the Company's railroad track structures, an effective tax rate
reconciliation for the years ended June 30, 1997, 1996 and 1995 would not be
meaningful.

       During fiscal 1997, 1996 and 1995, the Company made income tax payments
of $85,940, $99,965 and $182,172, respectively.


Note 6.  Customer Concentrations

       The majority of the Company's revenues are generated from freight
transportation services provided to customers in the Northeast and Mid-Atlantic
regions of the United States, many of whom are involved in the pulp and paper
industry.

       During fiscal 1997, the Company's two largest customers accounted for 10%
and 9% of the Company's operating revenues.  These two customers accounted for
10% and 12% of fiscal 1996 revenues, respectively, and each accounted for 10% of
fiscal 1995 revenues.  The Company collects the majority of its revenues from
its Class I connecting carriers to whom the Company regularly grants credit.
The Company considers its credit risk with these carriers to be minimal.


Note 7.  Dividends

       On November 20, 1996, and June 19, 1997, the Board of Directors voted to
omit the regular semi-annual dividend of $.07 per share on its $.14 Cumulative
Convertible Preferred Stock which would have been payable on January 2, 1997 and
July 1, 1997, respectively.  Dividends in arrears as of June 30, 1997 aggregated
$1,617,840 as compared to $1,411,393 for the prior year.

                                       31
<PAGE>
 
Note 8.  Contingent Liabilities

       Emons Transportation Group is not a party to any legal proceedings.
However, Emons Industries, Inc. ("Industries"), a subsidiary of Emons
Transportation Group, is currently a defendant in 888 product liability actions.
The Company is in the process of cleaning up a fuel oil spill at its locomotive
maintenance facility in York, Pennsylvania.

       Product Liability Actions
       -------------------------

       Prior to March 1971, under previous management, Industries (then known as
Amfre-Grant, Inc.) was engaged in the business of distributing (but not
manufacturing) various generic and prescription drugs.  Industries sold and
discontinued these business activities in March 1971 and commenced its railcar
leasing and railroad operations in October 1971.  One of the drugs which had
been distributed was diethylstilbestrol ("DES") which was taken by women during
pregnancy to prevent miscarriage.

       As of June 30, 1997, Industries was one of numerous defendants (including
many of the largest pharmaceutical manufacturers) in 888 lawsuits in which the
plaintiffs allege that DES caused adenosis, infertility, cancer or birth defects
in the offspring or grandchildren of women who ingested DES during pregnancy.
In these actions, liability is premised on the defendant's participation in the
market for DES, and liability is several and limited to the defendant's share of
the market.  Of these lawsuits, 883 were commenced after the confirmation of
Industries' Reorganization Plan in December 1986 (the "Plan"), while the
remaining five lawsuits are claims which will be treated under the Plan.  In one
action, Industries is allegedly identified as the sole defendant.  These actions
are currently in various stages of litigation.

       Industries has filed a motion in Bankruptcy Court seeking a judgment
declaring that the 883 post-confirmation lawsuits represent claims which should
be asserted against Industries' Chapter 11 estate and are not post-
reorganization liabilities.  Counsel has advised the Company that the Bankruptcy
Court should grant Industries' application to classify all of these cases as
bankruptcy claims.  In addition, on February 14, 1995, the Bankruptcy Court
advised Industries that it would sign an order which would stay execution of any
judgment rendered against Industries pending determination of Industries'
application.  The order, which was submitted to the Court on March 23, 1995, has
not yet been signed.

       Industries has product liability insurance and defense coverage for
nearly all the claims which fall within the policy period 1948 to 1970 up to
varying limits by individual and in the aggregate for each policy year.  To
date, Industries has not exhausted coverage in any policy year.

       During the period July 1, 1996 through June 30, 1997, 500 new actions
were commenced in which Industries was named as a defendant.  Of these actions,
365 were commenced in a single filing in the state court in Ohio shortly before
the effective date of a revision to Ohio's product liability statute which,
among other things, limits damages recoverable for pain and suffering.  During
the year ended June 30, 1997, 58 lawsuits were settled or dismissed at no
material liability to Industries.

       Management intends to vigorously defend all of these actions.  In the
event that the post-reorganization lawsuits described above are not treated
under the Plan, it is possible that Industries could ultimately have liability
in these actions in excess of its product liability insurance coverage described
above.  However, based on Industries' experience in prior DES litigation and its
current knowledge of pending cases, the Company believes that it is unlikely
that Industries' ultimate liability, if any, in excess of insurance coverage and
existing reserves in the pending cases will be in an amount sufficient to have a
material adverse effect upon the Company's consolidated financial position or
results of operations.

                                       32
<PAGE>
 
       Environmental Liability
       -----------------------

       During fiscal 1994, the Company discovered a diesel fuel oil spill at its
locomotive maintenance facility in York, Pennsylvania, resulting from the
fueling of its locomotives.  The Company is currently performing additional
testing and is working with the Pennsylvania Department of Environmental
Protection to remediate the contaminated area. In January 1997, in the next
phase of its testing procedures, the Company discovered free product in some of
its monitoring wells. The Company estimates that the cost to remediate the free
product will range from $100,000 to $200,000. The Company has provided
sufficient reserves for the anticipated remediation costs.


Note 9.  Stock-Based Compensation and Warrants

       a.  Stock Option Plans
           ------------------

       In November 1996, the Board of Directors and shareholders adopted the
1996 Stock Option Plan (the "Plan"), which replaced the Company's expiring 1986
Stock Option Plan.  The terms of the new Plan are substantially the same as the
terms of the 1986 Stock Option Plan.  The Plan provides for the issuance of a
maximum of 500,000 shares of the Company's Common Stock to key employees.  Under
the Plan, the Company may grant either non-qualified or incentive stock options
at an exercise price not less than 100% of the fair market value at the date of
grant.  Options may be exercised in accordance with time periods established by
the Compensation Committee of the Board of Directors, and expire ten years after
the date of grant.  During fiscal 1997, the Company issued options to purchase
183,000 shares of the Company's Common Stock under the Plan at prices ranging
from $2.5625 to $3.25, which vest over a five year period.  As of June 30, 1997,
317,000 options were available for issuance under the Plan.

       Separate from the above plans, the Company has granted stock options to
its non-employee directors on various dates from fiscal 1988 through fiscal 1997
to purchase shares of the Company's Common Stock at exercise prices equal to the
fair market value of the stock on the date of grant.  The vesting period for
these options ranges from three to four years, and these options expire ten
years from the date of grant.

                                       33
<PAGE>
 
       A summary of stock option activity under the stock option plans described
above is as follows:

<TABLE>
<CAPTION>
                                                                                
                                                         Option Price per Share
                                    Stock                ----------------------
                                   Options           Range          Weighted Average
                                   -------           -----          ----------------
   <S>                          <C>             <C>                 <C>
   Balance at June 30, 1994         605,000     $ 0.81  - $ 2.56        $ 1.01
      Options granted               525,000           1.06                1.06
      Options forfeited            (415,000)      0.84  -   2.50          1.02
                                 ----------                                   
   Balance at June 30, 1995         715,000       0.81  -   2.56          1.05
      Options granted                60,000       1.25  -   2.44          1.69
      Options forfeited             (32,500)      0.91  -   2.56          1.51
                                 ----------                                   
   Balance at June 30, 1996         742,500       0.81  -   2.44          1.08
      Options granted               220,500       2.28  -   3.25          3.16
      Options exercised              (4,000)      1.00  -   1.06          1.03
      Options forfeited             (36,000)      0.91  -   1.06          1.01
                                 ----------                                   
   Balance at June 30, 1997         923,000       0.81  -   3.25          1.58
                                 ==========
</TABLE>

<TABLE>
<CAPTION>
                                             June 30,    June 30,   June 30, 
                                               1997        1996       1995    
                                               ----        ----       ----
       <S>                                   <C>         <C>        <C>
       Options exercisable                   377,333     223,750     88,000
       Weighted average exercise price       $  1.04     $  0.99     $ 1.12
</TABLE>

      A summary of stock option information regarding options outstanding at
June 30, 1997 is as follows:

<TABLE>
<CAPTION>
    Range of       Unexercised     Weighted       Weighted        Stock        Weighted
    Exercise          Stock         Average        Average       Options        Average    
     Prices          Options       Remaining      Exercise      Currently      Exercise     
     ------          -------      Life (Years)     Price       Exercisable       Price      
                                  ------------     -----       ------------      -----  
  <S>              <C>            <C>             <C>          <C>             <C>
  $0.75 - $1.25      657,500          7.5          $1.03          363,000        $1.01
   1.26 -  2.25       30,000          8.8           1.53            9,333         1.54
   2.26 -  3.25      235,500          9.6           3.12            5,000         2.44
                    ---------                                    ---------     
      Total          923,000          8.1          $1.58          377,333        $1.04
                    =========                                    =========  
</TABLE>

                                       34
<PAGE>
 
    The Company accounts for stock options issued under its stock option plans
in accordance with APB Opinion No. 25 and, accordingly, no compensation expense
has been recognized in the Company's financial statements.  The Company's pro
forma net income and earnings per share under the provisions of SFAS No. 123 for
the years ended June 30, 1997 and 1996 would have been as follows:

<TABLE>
<CAPTION>
                                              1997                   1996
                                              ----                   ----
<S>                                         <C>                    <C> 
Net income:
   As reported                              $773,793               $469,501
   Pro forma                                 721,741                460,668

Earnings per share:
   As reported                              $   0.09               $   0.04
   Pro forma                                    0.08                   0.04

Weighted average fair value
   of options granted                       $   2.38               $   1.26

</TABLE>

    The pro forma information provided above does not include the impact of
stock options granted prior to July 1, 1995.  As a result, compensation cost
under SFAS No. 123 included in the determination of the pro forma information
may not be representative of what compensation cost would have been had the
provisions of SFAS No. 123 been applied to prior years, and may not be
indicative of compensation cost under SFAS No. 123 in future years.  The fair
value of options granted on the date of grant included in the pro forma
information for the years ended June 30, 1997 and 1996 has been estimated using
the Black-Scholes option pricing model using the following assumptions:

<TABLE>
<CAPTION>
                                               1997                   1996
                                               ----                   ----
<S>                                         <C>                     <C> 
Weighted average:
    Risk free interest rate                     6.8%                    6.7%
    Expected life                           10 years                10 years
    Expected volatility                        58.4%                   57.7%
    Expected dividend yield                     0.0%                    0.0%
</TABLE>

                                       35
<PAGE>
 
    b.  Restricted Stock Plan
        ---------------------

    The Company has a Restricted Stock Plan under which the Company can award up
to 800,000 shares of Common Stock to employees.  Shares awarded under the
Restricted Stock Plan may not be sold or transferred until they vest.  The
Management Compensation Committee of the Board of Directors determines the
vesting schedule for each of the recipients of the Restricted Stock Awards.
Compensation under the Restricted Stock Plan is charged to earnings over the
respective vesting periods ranging from five to ten years.  At June 30, 1997 and
1996, 269,950 and 336,450 shares were available for issuance, respectively.  A
summary of activity under the Company's Restricted Stock Plan is as follows:


<TABLE>
<CAPTION>
                                        1997             1996              1995
                                        ----             ----              ----
<S>                                   <C>              <C>               <C> 
Awards:
   Shares                               69,000               -            17,000
   Fair value at date of grant        $219,875         $     -           $18,063
 
Cancellations:
   Shares                                2,500           8,000            37,500
   Fair value at date of grant        $  1,875         $ 8,000           $23,438
 
Compensation expense                  $ 42,634         $32,802           $30,913
</TABLE>


    c.  Common Stock Warrants
        ---------------------

    At June 30, 1997, the Company had warrants outstanding to purchase up to
160,000 shares of common stock at prices ranging from $1.00 to $2.625 per share.

                                       36
<PAGE>

                                                                    Schedule III

                       EMONS TRANSPORTATION GROUP, INC.
                             (Parent Company Only)
                                Balance Sheets
                         as of June 30, 1997 and 1996
<TABLE> 
<CAPTION> 
                                                                                        1997               1996
                                                                                   --------------      -------------
<S>                                                                                 <C>                 <C> 
ASSETS                                                                                             
                                                                                                   
    Current Assets:                                                                                
        Cash and cash equivalents                                                   $    390,391       $    491,259
        Accounts receivable                                                               10,957              5,431
        Prepaid expenses and other current assets                                         24,264             76,285
        Due from affiliates                                                            3,901,542          2,036,348
        Deferred income taxes                                                             14,000             22,000
                                                                                   --------------     --------------
           Total current assets                                                        4,341,154          2,631,323
                                                                                                   
    Investments in subsidiaries at equity                                              2,242,123          3,648,330
    Property and equipment, net of accumulated                                                     
        depreciation of $472,982 and $448,004                                                      
        as of June 30, 1997 and 1996, respectively                                        76,086             92,689
    Due from affiliates                                                                1,956,592          1,705,330
    Other assets                                                                          21,515             32,990
                                                                                   --------------     --------------
TOTAL ASSETS                                                                        $  8,637,470       $  8,110,662
                                                                                   ==============     ==============
LIABILITIES AND STOCKHOLDERS' EQUITY                                                               
                                                                                                   
    Current Liabilities:                                                                           
        Current portion of long-term debt                                           $     13,121       $     11,807
        Accounts payable                                                                  63,405            107,246
        Accrued payroll and related expenses                                             155,175             90,587
        Income taxes payable                                                              30,720              8,244
        Other accrued expenses                                                           121,534            163,593
        Due to affiliates                                                                      -            505,970
                                                                                   --------------     --------------
           Total current liabilities                                                     383,955            887,447
                                                                                                   
    Long-term debt                                                                        41,344             55,596
    Note payable to affiliate                                                            450,000            450,000
    Deferred income taxes                                                              1,323,000          1,099,000
                                                                                   --------------     --------------
           Total liabilities                                                           2,198,299          2,492,043
                                                                                   --------------     --------------
                                                                                                   
    Stockholders' Equity:                                                                          
        Preferred stock, authorized 3,000,000 shares $0.14 Series A                                
           Cumulative Convertible Preferred Stock, $0.01 par value, issued                         
           and outstanding 1,650,857 and 1,680,230 shares at June 30,                              
           1997 and 1996, respectively                                                    16,509             16,802
                                                                                                   
        Common stock, $0.01 par value, authorized 15,000,000 and 11,000,000                        
           shares at June 30, 1997 and 1996, respectively, issued and                              
           outstanding 5,800,624 and 5,703,689 shares at June 30, 1997 and 1996,                   
           respectively                                                                   58,006             57,037
                                                                                                   
        Additional paid-in capital                                                    23,503,442         23,281,993
        Deficit                                                                      (16,789,121)       (17,562,914)
                                                                                   --------------     --------------
                                                                                       6,788,836          5,792,918
        Unearned compensation - restricted stock awards                                 (349,665)          (174,299)
                                                                                   --------------     --------------
           Total Stockholders' Equity                                                  6,439,171          5,618,619
                                                                                   --------------     --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                          $  8,637,470       $  8,110,662
                                                                                   ==============     ==============
</TABLE> 

                                      37
<PAGE>

                                                                    Schedule III

                       EMONS TRANSPORTATION GROUP, INC.
                             (Parent Company Only)
                           Statements of Operations
               for the years ended June 30, 1997, 1996 and 1995
<TABLE> 
<CAPTION> 
                                                          1997               1996               1995
                                                     --------------    ---------------    ---------------
<S>                                                   <C>               <C>                <C> 
Operating revenues:                                                 
    Intercompany management fees                      $  1,762,846      $   1,471,555      $   1,375,939
                                                     --------------    ---------------    ---------------
Operating expenses:                                                 
    General and administrative expenses                  1,727,671          1,451,705          1,342,731
    Depreciation                                            24,978             21,733             14,151
                                                     --------------    ---------------    ---------------
       Total operating expenses                          1,752,649          1,473,438          1,356,882
                                                     --------------    ---------------    ---------------
                                                                    
Income (loss) from operations                               10,197             (1,883)            19,057
                                                                    
Other income (expense):                                             
    Interest and other income                               35,359             35,670             23,456
    Interest expense                                       (45,556)           (33,787)           (42,513)
                                                     --------------    ---------------    ---------------
       Total other income (expense)                        (10,197)             1,883            (19,057)
                                                     --------------    ---------------    ---------------
Income (loss) before income taxes and equity in                     
    undistributed net earnings of subsidiaries                   -                  -                  -
                                                                    
Provision for income taxes                                  20,000             10,000           (156,500)
                                                     --------------    ---------------    ---------------
                                                                    
Income (loss) before equity in undistributed net                    
    earnings of subsidiaries                               (20,000)           (10,000)           156,500
                                                                    
Equity in undistributed net earnings of                             
    subsidiaries                                           793,793            479,501            609,577
                                                     --------------    ---------------    ---------------
                                                                    
Net income                                            $    773,793      $     469,501      $     766,077
                                                     ==============    ===============    ===============
</TABLE> 

                                      38
<PAGE>

                                                                    Schedule III

                       EMONS TRANSPORTATION GROUP, INC.
                             (Parent Company Only)
                           Statements of Cash Flows
               for the years ended June 30, 1997, 1996 and 1995
<TABLE> 
<CAPTION> 
                                                                1997             1996              1995
                                                           --------------    -------------    --------------
<S>                                                        <C>               <C>              <C> 
Cash flow from operating activities:                                                        
  Net income                                                $    773,793      $   469,501      $    766,077
   Adjustments to reconcile net income to net cash                                          
   provided by operating activities:                                                        
                                                                                            
      Depreciation                                                24,978           21,733            14,151
      Amortization of deferred compensation                       42,634           32,802            30,913
      Equity in net earnings of subsidiaries                    (793,793)        (479,501)         (609,577)
      Provision for deferred income taxes                          2,000            1,000          (184,000)
      Changes in assets and liabilities:                                                    
        Accounts receivable, prepaid expenses and                                           
          other current assets                                    46,495           (6,233)            9,748
        Accounts payable and accrued expenses                      1,164          (14,139)          (10,781)
        Other assets                                              11,475           (5,079)           86,066
                                                           --------------    -------------    --------------
Net cash provided by operating activities                        108,746           20,084           102,597
                                                           --------------    -------------    --------------
Cash flow from investing activities:                                                        
  Additions to property and equipment                             (8,375)         (68,347)          (23,354)
  Investments in subsidiaries                                          -                -          (118,671)
  (Increase) decrease in due to/from affiliates, net          (2,392,426)          53,467           (63,051)
  Dividends received from subsidiaries                         2,200,000                -                 -
  Proceeds from issuance of common stock                           4,125                -                 -
                                                           --------------    -------------    --------------
Net cash used in investing activities                           (196,676)         (14,880)         (205,076)
                                                           --------------    -------------    --------------
Cash flow from financing activities:                                                        
  Proceeds from issuance of long-term debt                             -           75,300                 -
  Reduction in long-term debt                                    (12,938)          (7,897)                -
                                                           --------------    -------------    --------------
Net cash provided by (used in) financing activities              (12,938)          67,403                 -
                                                           --------------    -------------    --------------
                                                                                            
Net increase (decrease) in cash and cash equivalents            (100,868)          72,607          (102,479)
                                                                                            
Cash and cash equivalents at beginning of year                   491,259          418,652           521,131
                                                           --------------    -------------    --------------
                                                                                            
Cash and cash equivalents at end of year                    $    390,391      $   491,259      $    418,652
                                                           ==============    =============    ==============
</TABLE> 

                                      39
<PAGE>

 
         Pursuant to the requirement of Section 13 or 15 (d) of the Securities
     Exchange Act of 1934, the registrant has duly caused this report to be
     signed on its behalf by the undersigned, thereto duly authorized.

     EMONS TRANSPORTATION GROUP, INC.

     By: /s/ Robert Grossman                        Date:   September 18, 1997
         ---------------------------------------          ----------------------
     Robert Grossman, Chairman of the
     Board of Directors, President and
     Chief Executive Officer



     Pursuant to the requirements of the Securities Exchange Act of 1934, this
     report has been signed below by the following persons on behalf of the
     registrant and in the capacities and on the dates indicated.



     /s/ Robert Grossman                            Date:   September 18, 1997
     -------------------------------------------          ----------------------
     Robert Grossman, Chairman of the Board              
     of Directors, President and Chief Executive         
     Officer                                             
                                                         
                                                         
     /s/ Scott F. Ziegler                           Date:   September 18, 1997
     -------------------------------------------          ----------------------
     Scott F. Ziegler, Vice President - Finance,         
     Controller and Secretary, signing on                
     behalf of the registrant as its principal           
     accounting officer                                  
                                                         
                                                         
     /s/ Robert J. Smallacombe                      Date:   September 18, 1997
     -------------------------------------------          ----------------------
     Robert J. Smallacombe, Director                     
                                                         
                                                         
     /s/ Dean H. Wise                               Date:   September 18, 1997
     -------------------------------------------          ----------------------
     Dean H. Wise, Director                              
                                                         
                                                         
     /s/ Alfred P. Smith                            Date:   September 18, 1997
     -------------------------------------------          ----------------------
     Alfred P. Smith, Director                           
                                                         
                                                         
     /s/ Kimberly A. Madigan                        Date:   September 18, 1997
     -------------------------------------------          ----------------------
     Kimberly A. Madigan, Director

                                       40
<PAGE>
 
EXHIBITS

    The following exhibits are filed as a part of this report.  For convenience
of reference, exhibits are listed according to numbers assigned in the Exhibit
Table of Item 601 of Regulation S-K under the Securities Exchange Act of 1934.


<TABLE>
<CAPTION>
                                                                                       Page in
 Exhibit                                                                            Sequentially
  Number                                   Exhibit                                  Numbered Copy
<S>         <C>                                                                     <C>
3 (a)       Certificate of Incorporation for Emons Holdings, Inc. dated December
            19, 1986 (incorporated by reference from Emons Holdings, Inc. Report
            on Form 10-K for the year ended June 30, 1987, Exhibit Number 3 (a))         --      
                                                                                                 
3 (b)       Certificate of Amendment of Certificate of Incorporation for Emons                   
            Holdings, Inc. dated September 26, 1989 (incorporated by reference                   
            from Emons Holdings, Inc. Report on Form 10-Q for the quarter ended                  
            September 30, 1989, Exhibit Number 3 (b))                                    --      
                                                                                                 
3 (c)       Amended and Restated By-Laws for Emons Holdings, Inc. (incorporated                  
            by reference from Emons Holdings, Inc. Report on Form 10-Q for the                   
            quarter ended September 30, 1989, Exhibit Number 3 (c))                      --      
                                                                                                 
3 (d)       Certificate of Amendment of Certificate of Incorporation of Emons                    
            Holdings, Inc. dated November 18, 1993 (incorporated by reference                    
            from Emons Transportation Group, Inc. Report on Form 10-Q for the                    
            quarter ended December 31, 1993, Exhibit Number 3 (d))                       --      
                                                                                                 
10 (a)      Lease Agreement dated July 19, 1994 by and between the City of                       
            Auburn, Maine and Maine Intermodal Transportation, Inc. (incorporated                
            by reference from Emons Transportation Group, Inc. Report on Form                    
            10-K for the year ended June 30, 1995, Exhibit Number 10 (a))                --      
                                                                                                 
10 (b)      Amended and Restated Employment Agreement with Robert Grossman dated                 
            December 31, 1989                                                            --      
                                                                                                 
10 (c)      Amendment to the Amended and Restated Employment Agreement with                      
            Robert Grossman dated May 26, 1994                                           --      
                                                                                                 
10 (d)      Employment Agreement with Alfred P. Smith dated December 31, 1989            --      

10 (e)      Amendment to the Employment Agreement with Alfred P. Smith dated May                 
            26, 1994                                                                     --       
 
</TABLE>

                                       41
<PAGE>
 
<TABLE>
<CAPTION>
                                                                                       Page in
 Exhibit                                                                            Sequentially
  Number                                   Exhibit                                  Numbered Copy
<S>         <C>                                                                     <C>
10 (f)      Loan and Security Agreement dated August 15, 1997 among Emons
            Transportation Group, Inc., Emons Industries, Inc., Emons Finance
            Corp., Maryland and Pennsylvania Railroad, Emons Logistics Services,
            Inc., Maine Intermodal Transportation, Inc., Emons Railroad Group,
            Inc., Yorkrail, Inc., and St. Lawrence & Atlantic Railroad, as the
            Borrowers, and LaSalle National Bank, as the Lender                         --       
                                                                                                 
11 (a)      Earnings per share calculation                                              --       

21 (a)      Listing of subsidiaries                                                     --       

23 (a)      Consent of Arthur Andersen LLP                                              --       

27 (a)      Financial Data Schedule                                                     --        
</TABLE>

                                       42