<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, 2001

                                       OR

 ( ) 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 6, 2001, 7,070,304 shares of voting Common Stock were
outstanding including 1,924,902 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 6, 2001 was $10,093,509. For this purpose the
average of the closing bid and asked prices ($1.625 per share), as of September
6, 2001, has been used.

Portions of the definitive proxy statement for the annual meeting of
stockholders to be held on November 15, 2001 are incorporated by reference into
Part III of this Form 10-K.

                                       1
<PAGE>

         This Form 10-K contains certain "forward-looking" statements regarding
future events and the future performance of Emons Transportation Group, Inc.
that are generally noted by terms such as "believe," "expectations," "foresee,"
"goals," "potential," and "prospects." These forward looking statements involve
risks and uncertainties that could cause actual results to differ materially.
Those risks and uncertainties include, but are not limited to, economic
conditions, continued or reduced operations at customers' facilities, service of
connecting Class I rail carriers, increased competition in the relevant market,
government regulation, and other factors described herein and in other filings
with the Securities and Exchange Commission that could cause the Company's
results to differ from its current expectations.


                                    Part I

Item 1.  Business

         Emons Transportation Group, Inc. ("Emons Transportation Group"), a
Delaware corporation headquartered in York, Pennsylvania, is a rail freight
transportation and distribution services company serving the Mid-Atlantic and
Northeast regions of the United States and Quebec, Canada. The Company owns four
short line railroads, operates rail/truck transload facilities and a rail
intermodal terminal, 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"), Emons Finance Corp. ("EFC"), Emons Logistics
Services, Inc. ("ELS"), Maine Intermodal Transportation, Inc. ("MIT") and Emons
Railroad Group, Inc. ("ERG"), which owns all of the outstanding capital stock of
the St. Lawrence & Atlantic Railroad Company ("SLR"), the St. Lawrence &
Atlantic Railroad (Quebec) Inc. ("SLQ"), York Railway Company ("YRC"), and Penn
Eastern Rail Lines, Inc. ("PRL"). SLR owns all of the outstanding capital stock
of SLR Leasing Corp. ("SLRL"), and YRC owns all of the outstanding capital stock
of the Maryland and Pennsylvania Railroad, LLC ("MPA LLC") and Yorkrail, LLC
("YKR LLC"). 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
South George Street, York, Pennsylvania 17401 (Telephone 717-771-1700).

         Description of Operations

                                    General
                                    -------

         The Company owns and operates four short line railroads which accounted
for 96% of the Company's total operating revenues in both fiscal 2001 and fiscal
2000, and 94% of total operating revenues in fiscal 1999. The Company operates a
rail intermodal terminal in Auburn, Maine which provides its customers in New
England with access to the global marketplace by transporting their freight by
rail, for further transport by steamship or truck. The Company's logistics
services business in York, Pennsylvania provides its customers with rail/truck
transfer, warehousing and other distribution services. The Company's intermodal
and logistics operations are intended to increase rail traffic by providing a
wide variety of services to businesses located both on and off the Company's
rail lines.

         The Company operates in two geographic regions, New England/Quebec,
which accounted for approximately 74% of the Company's fiscal 2001 operating
revenues, and Pennsylvania, which accounted for the remaining 26% of the
Company's fiscal 2001 operating revenues. New England/Quebec operations consist
of SLR, which extends from Portland, Maine, through New Hampshire to the
international border at Norton, Vermont, SLQ, which commenced operations on
December 1, 1998 and which connects with SLR at the international border and
with the Canadian National Railway ("CN") at Ste. Rosalie, Quebec, and MIT,
which commenced rail intermodal operations on SLR in Auburn, Maine in September
1994. Pennsylvania operations consist of YRC, PRL and ELS, which are located in
south-central and southeastern Pennsylvania. Local management teams are
responsible for the operations in each region.

                                       2
<PAGE>

         The Company's three largest rail operations, SLR, SLQ, and YRC all have
connections, directly or indirectly, with multiple Class I Railroads, which are
classified by the U.S. Code of Federal Regulations as railroad carriers having
annual revenues of approximately $261.9 million (2000 dollars) or more ("Class I
Railroads"). The Company's right to interchange rail traffic with Class I
Railroads is based upon applicable federal regulations. Multiple Class I
connections make the Company's railroad sites ideal places for industry to
locate and build new facilities because of competitive service and pricing from
the competing Class I Railroad connecting carriers. In addition, as discussed
further below, the acquisition of the Illinois Central Railroad ("IC") by CN,
the acquisition of Wisconsin Central Transportation Corporation ("WC") by CN,
and the split-up of Consolidated Rail Corporation ("Conrail") by the Norfolk
Southern Corporation ("NS") and CSX Corporation ("CSX"), provide the Company's
railroad operations with additional long-term opportunities. The consolidation
of these railroads will open up new markets for the Company's customers as a
result of single-line rail service to more regions by these merged railroads.
Single line service is generally more efficient than service through multiple
carriers for two primary reasons. First, single-line access generally provides
for shorter transit times since railcars do not have to be interchanged with
other rail carriers. Second, single-line service is generally more cost
effective since only one railroad handles the traffic and receives revenues for
providing rail services.

         On July 1, 1999, CN completed the acquisition of IC. The merger
provides CN with a single "Y" shaped network connecting the Pacific and Atlantic
coasts in Canada, and the U.S. Gulf coast in New Orleans, with the joining of
the railroads in Chicago. The merger provides CN with access to five major
ports, including Halifax, Montreal, Vancouver, New Orleans, and Mobile. Prior to
the merger, SLR and SLQ could access most markets in the midwest and south only
through multiple carriers. In addition, in April 1998, CN entered into a 15-year
marketing agreement with the Kansas City Southern Railway ("KCS") which provides
access to key southern and southwestern markets, and access to Mexico's largest
rail system through KCS's affiliate, the Texas Mexican Railway. To date, SLR and
SLQ have generated new business as a result of opportunities created by this
merger. While the total impact of this merger on future traffic patterns and the
resultant effect on the Company's railroad operations are uncertain, the Company
believes that the merger of CN and IC, and the marketing agreement with KCS,
will provide SLR and SLQ with single-line access to many points in the midwest
and south, and that the combination of single-line access to KCS (and its
affiliates) and the marketing agreement between CN and KCS should provide SLR
and SLQ with more cost competitive service and shorter transit time access to
Mexico which may open up commercial opportunities for SLR and SLQ in Mexico.

         On January 30, 2001, CN announced its intentions to acquire all of the
common stock of WC. WC operates approximately 2,850 miles of track in Wisconsin,
Illinois, Minnesota, Michigan and Ontario, including a main-line connection to
Chicago. CN's acquisition of WC would provide SLR and SLQ with additional
single-line access to many points in the midwest. On July 10, 2001, the
Government of Canada's Competition Bureau approved CN's proposed acquisition of
WC, and on September 7, 2001, the United States Surface Transportation Board
also approved the acquisition.

         On June 1, 1999, the split-up of Conrail was completed and CSX and NS
commenced operations of their respective portions of Conrail. All of the
Company's prior interchanges with Conrail were acquired by NS. As a result, YRC
maintained dual connections with Class I Railroads subsequent to the merger, and
also obtained commercial access to a third Class I Railroad, Canadian Pacific
Railway ("CP"), through a connection via NS from Harrisburg, Pennsylvania. In
addition, one of PRL's rail lines in Bristol, Pennsylvania, also obtained dual
access to NS and CSX as a result of the merger, which it did not have
previously. NS and CSX's implementation of the merger initially caused
congestion, a lack of car supply for customers and service disruptions, which
resulted in a loss of business to trucking companies for all of the Company's
rail operations. Both NS and CSX have substantially improved their service
during fiscal 2001, and the Company believes that, on a long-term basis, the
merger will create additional rail business for its Pennsylvania rail operations
as a result of longer Class I single-line rail service on competitive routes.

                                       3
<PAGE>

                              New England/Quebec
                              ------------------

         St. Lawrence & Atlantic Railroad Company - SLR owns and operates
         ----------------------------------------
approximately 165 miles of main-line track and related properties between
Portland, Maine and Norton, Vermont. SLR serves approximately 47 customers,
including 29 customers located directly on line. SLR primarily serves customers
in the paper, construction, agricultural, energy, warehousing and distribution
industries. SLR's two largest customers, New England Public Warehouse and Pulp &
Paper of America LLC ("PPA"), each accounted for approximately 17% of SLR's
operating revenues in fiscal 2001. PPA, which acquired two pulp and paper mills
located on SLR in July 1999, is a subsidiary of American Tissue Inc. On
September 10, 2001, American Tissue Inc. and 27 of its U. S. subsidiaries,
including PPA, filed for protection under Chapter 11 of the United States
Bankruptcy Code. SLR is currently not handling any business for PPA, and there
can be no assurance that PPA will be successful in its efforts to emerge from
bankruptcy and that business will return to customary levels. SLR interchanges
rail traffic with its affiliate, SLQ, at Island Pond, Vermont, Guilford Rail
Systems at Danville Junction, Maine and the New Hampshire Central Railroad at
North Stratford, New Hampshire.

         In November 1997, SLR entered into agreements to lease and operate all
of the track and property owned by the Berlin Mills Railway Company ("BMS"),
which is owned by PPA, and on November 4, 1997 commenced operations. BMS
consists of approximately 11 miles of track connecting to SLR, and serves two
pulp and paper mills in Berlin and Gorham, New Hampshire. The lease agreement
includes an initial lease term of ten years and a five-year renewal option. SLR
ceased operation of BMS in August 2001 and the resumption of operations will
depend upon the outcome of bankruptcy proceedings.

         St. Lawrence & Atlantic Railroad (Quebec) Inc. - In December 1998, SLQ
         ---------------------------------------------
acquired a 94-mile rail line in Quebec, Canada (the "Sherbrooke Line") from CN.
The Sherbrooke Line connects with CN's Halifax-to-Montreal main line at Ste.
Rosalie, Quebec, and SLR at the Quebec/Vermont international border. SLQ
commenced operations on December 1, 1998 under an interim operating agreement.
In addition to delivering overhead traffic between CN and SLR, SLQ serves 25
customers, including 12 customers located directly on line. SLQ primarily serves
customers in the paper, construction, agricultural and chemical industries.
Overhead traffic between SLR and CN accounted for approximately 49% of SLQ's
operating revenues in fiscal 2001, while services performed for CN accounted for
21% of SLQ's operating revenues in fiscal 2001. SLQ interchanges rail traffic
with CN at Richmond, Quebec, SLR at Island Pond, Vermont, and the Quebec
Southern Railway at Sherbrooke, Quebec.

         Maine Intermodal Transportation, Inc. - The MIT rail intermodal
         ------------------------------------
terminal located on SLR in Auburn, Maine commenced operations in September 1994.
The terminal was expanded from 16 to 35 developed acres during fiscal 2001,
effectively tripling its previous capacity. The $1 million expansion was funded
50% with a federal grant through the state of Maine under TEA-21 (Transportation
Equity Act for the 21st Century) and the remaining 50% by the city of Auburn.
The terminal includes three double-ended working tracks for loading, unloading
and storage of intermodal railcars, lighted parking for trailers and containers,
fencing, a gate house, a truck scale, a trailer/container maintenance facility
and various other improvements. SLR and SLQ, in combination with CN, offer the
only hi-cube, double stack, cleared route in northern New England for intermodal
trains, and provide MIT with access to CN's Vancouver, Montreal, Halifax, New
Orleans and Mobile ports. Through coordinated train service among CN, SLR and
SLQ, MIT currently provides premium rail intermodal service which includes third
morning service between Auburn and Chicago. 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. In October 1999, MIT handled its first
international steamship container and is continuing to actively pursue this
business. The terminal handled approximately 1,250 international steamship
containers in fiscal 2001, as compared to approximately 450 steamship containers
in the prior year. The Company believes that this operation will be an important
factor in the growth and development of SLR and SLQ by providing additional
business volume to its rail operations.

         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 after the third renewal. MIT's
terminal operations are conducted by an independent contractor, In-Terminal
Services (a subsidiary of Mi-Jack Products), which currently operates intermodal
terminals throughout North America.

                                       4
<PAGE>

                                 Pennsylvania
                                 ------------

         York Railway Company - On December 1, 1999, the Company merged the
         --------------------
operations of its two railroad subsidiaries located in the York, Pennsylvania
area, the Maryland and Pennsylvania Railroad Company ("MPA") and Yorkrail, Inc.
("YRC") into a new company, York Railway Company. YRC owns and operates 40 miles
of main line track and related properties. There are approximately 45 active
customers that utilize YRC's service for in-bound and/or out-bound shipments of
freight, including 29 customers located directly on line. YRC primarily serves
customers in the paper, agricultural, building products and distribution
industries. YRC's largest customer, P. H. Glatfelter Company, a paper
manufacturer, accounted for approximately 27% of YRC's operating revenues in
fiscal 2001. YRC currently interchanges rail traffic with NS at York and West
York, Pennsylvania, and CSX at Porters Sidling and Hanover, Pennsylvania. In
addition, CP negotiated commercial access to YRC through a connection via NS
from Harrisburg, Pennsylvania in connection with the split-up of Conrail between
NS and CSX.

         Penn Eastern Rail Lines, Inc. - In December 1997, PRL acquired
         -----------------------------
substantially all of the assets and leases of four railroad operations, eight
locomotives, and track equipment from an individual owner and operator (the
"Seller"), and commenced operations on December 31, 1997. The rail operations
consisted of seven individual rail lines aggregating approximately 44 miles of
track located in various areas of southeastern Pennsylvania, including two lines
owned by the Seller and five leased lines. In August 1999, PRL received notice
from the owner of four of the leased lines of its intention to offer these lines
for sale. On January 28, 2000, PRL submitted a proposal to exercise its right of
first refusal to purchase two of the four leased lines and purchased these lines
in August 2000 for an aggregate consideration of $695,000. In addition, PRL
submitted a bid to purchase one additional line consisting of approximately 8.5
miles, which was subsequently rejected and sold to another bidder. PRL is
currently operating this line for the successful bidder on a temporary basis.
PRL has elected not to purchase the fourth line consisting of approximately 4.5
miles. The Company believes that the loss of business from these remaining two
leased lines will not have a material impact on its results of operations.

         PRL serves 12 active customers which are located directly on line. PRL
serves customers in the printing, food grade, agricultural, steel, energy, scrap
and lumber industries. PRL's largest customer, Brown Printing, accounted for
approximately 33% of PRL's fiscal 2001 operating revenues. Each of PRL's five
rail lines currently interchanges rail traffic with NS at various locations in
southeastern Pennsylvania. In addition, PRL's rail line in Bristol, Pennsylvania
obtained access to CSX in connection with the split-up of Conrail between NS and
CSX.

         Emons Logistics Services, Inc. - ELS offers logistics services,
         ------------------------------
including rail/truck transfer, storage and other services, for customers in the
Mid-Atlantic region at its facilities in York, Pennsylvania. ELS currently
operates two facilities located on YRC, a bulk terminal facility at Lincoln Yard
in West York, Pennsylvania and a 15,000 square foot rail/truck transfer and
short-term storage warehouse located in downtown York, Pennsylvania. These
facilities allow companies that are not located on a rail line, including
manufacturers and users of dry/liquid bulk commodities, lumber and other
building products, canned goods and packaged consumer products, to take
advantage of favorable rail economics for the long-haul shipment of their
products combined with local truck delivery. ELS provides short-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 south-central Pennsylvania since they enable
customers who are not located directly on line to utilize rail transportation.
ELS' largest customer, Interstate Commodities, a grain and feed ingredient
company, accounted for approximately 39% of ELS' fiscal 2001 operating revenues.

         The Company's most significant logistics operations are located at
Lincoln Yard, which consists of approximately 25 acres. During fiscal 2000, ELS
constructed a new, state-of-the-art bulk transfer facility on this property
which cost approximately $1.26 million, including $747,000 of which was funded
by a grant from the state of Pennsylvania. This facility includes approximately
70 railcar spots, paving, lighting, fencing, and a 70 foot truck scale. The
Company believes that its access to three Class I Railroads in York will make
this an attractive transload facility, and is currently actively marketing the
services offered at this terminal.

                                       5
<PAGE>

         Significant Customers

         One customer, New England Public Warehouse located on SLR, accounted
for approximately 10.5% of the Company's fiscal 2001 consolidated operating
revenues. Another customer, PPA, a subsidiary of American Tissue Inc., accounted
for approximately 9% of fiscal 2001 operating revenues. On September 10, 2001,
American Tissue Inc. along with 27 of its U. S. subsidiaries, including PPA,
filed for protection under Chapter 11 of the United States Bankruptcy Code.
There can be no assurance that PPA will be successful in its efforts to emerge
from bankruptcy and that business will return to customary levels.

         Employees

         At June 30, 2001, the Company employed a total of 170 persons, 116 of
which were represented by various labor organizations. The Company has labor
agreements with unions which represent certain YRC, SLR and SLQ non-management
employees. Currently, YRC unionized employees are covered by collective
bargaining agreements one of which expires in December 2004 and some of which
expired in December 2000 and are currently in mediation with union
representatives. SLQ unionized employees are covered by collective bargaining
agreements which expire in November and December 2002. All SLR collective
bargaining agreements expired in May 2000, and the Company is currently in
negotiations with SLR union representatives. 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.

         Regulation

         The Company's U.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 or control of and by such
carriers. The Company's U.S. rail subsidiaries are also subject to regulation by
the Federal Railroad Administration as to safety requirements and operating
practices, and are subject to regulations by the governmental authorities of
Pennsylvania, Maine, Vermont and New Hampshire.

         The Company's Canadian rail subsidiary is subject to the regulatory
jurisdiction of the Canadian Transportation Agency ("CTA"), a Canadian federal
agency. The CTA is responsible for the economic regulation of transportation
under Canadian federal jurisdiction and for the protection of consumers and
carriers through the administration of, among other things, rail certificates of
fitness. The Company's Canadian rail subsidiary is also subject to regulation by
Transport Canada as to safety requirements.

         The Company does not believe that compliance with U.S. or Canadian,
federal, state, provincial and local environmental regulations has or will have
a material effect upon capital expenditures, competitive position, or earnings
of the Company. The Company did not make any material investment in capital
expenditures for environmental control facilities during fiscal 2001 and does
not anticipate making any such expenditures in fiscal 2002.

         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 and Quebec also include 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, quality and reliability of service, and market conditions 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.

                                       6
<PAGE>

         Capital Transactions

         The authorized capital stock of the Company consists of 30 million
shares of Common Stock and 3 million shares of Preferred Stock.

         On April 23, 1999, the Board of Directors of the Company voted to adopt
a Stockholder Rights Plan and declared a dividend distribution of one Right for
each outstanding share of Common Stock of the Company to stockholders of record
on May 10, 1999. Each Right entitles the registered holder to purchase one or
more shares of the Company's Common Stock in accordance with the terms of the
Rights Agreement. The Rights expire on May 10, 2009. Under the Stockholder
Rights Plan, the Rights become exercisable only if a person or group acquires
15% or more of the Company's Common Stock, or commences a tender or exchange
offer which, if consummated, would result in that person or group owning at
least 15% of the Common Stock. If the Rights become exercisable, all holders of
Rights (other than the acquirer) will be entitled to purchase, by paying the
$10.00 per share exercise price, shares of the Company's Common Stock, or common
stock equivalents, at a 50% discount from the then current market price. If the
Company is subsequently acquired in a merger or other business combination
transaction, all holders of unexercised Rights (other than the acquirer) will
then be entitled to purchase common stock of the acquiring company on a similar
basis. In addition, at any time after a 15% position is acquired, the Board of
Directors may, at its option, require each outstanding Right (other than Rights
held by the acquiring person or group) to be exchanged for one share of the
Company's Common Stock, or one common stock equivalent. The Company may redeem
the Rights at $.001 per Right at any time prior to the time that a person or
group has acquired 15% or more of its Common Stock. The Rights do not have
voting or dividend rights and, until they become exercisable, have no dilutive
effect on the earnings of the Company.

         In June 1999, ETG Merger Corporation merged into Emons Transportation
Group, Inc. (the "Merger"), resulting in the exchange of each share of the
Company's outstanding $0.14 Series A Cumulative Convertible Preferred Stock
("Convertible Preferred Stock") into 1.1 shares of the Company's Common Stock.
As a result of the Merger, the Company converted 1,485,543 shares of its
Convertible Preferred Stock into 1,633,788 shares of Common Stock. This
represents an inducement premium of 296,799 shares of Common Stock in excess of
the .9 conversion rate offered under the original terms of the Convertible
Preferred Stock. Dividends in arrears that were eliminated as a result of the
Merger aggregated approximately $1,768,000 as of June 29, 1999.

         In March 2000, the Company's Board of Directors authorized a stock
repurchase program for the Company's Common Stock up to an aggregate price of $2
million. As of June 30, 2001, the Company had repurchased a total of 861,788
shares of its Common Stock for approximately $1,416,000, of which 832,788 shares
were held in treasury and 29,000 shares were retired. In addition, in June 2000,
the Company paid $20,000 to retire warrants to purchase 50,000 shares of Common
Stock at an exercise price of $1.125 per share which were due to expire in July
2000.

         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 Emons Industries, Inc. ("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, Inc. became the
parent of Industries and the Maryland and Pennsylvania Railroad.

         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

                                       7
<PAGE>

Convertible Preferred Stock. In November 1997, the Bankruptcy Court also
approved a motion to allow distributions to be made to new claimants. After the
conversion of 572,199 shares of Convertible Preferred Stock into 629,418 shares
of Common Stock in conjunction with the Merger referred to under "Capital
Transactions" above, the escrow agent currently holds 1,924,902 shares of Common
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.

         Financial Information about Segments and Geographic Area

         For financial information about segments and geographic area, see Note
14 to the Notes to Consolidated Financial Statements.

                                       8
<PAGE>

Item 2.  Properties

         The following table sets forth material physical properties owned or
leased by the Company, 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 current requirements, and are being
used to the fullest extent necessary for the Company's current operations. The
Company's primary lender, LaSalle Bank N.A., 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 and
                                                              various building products

East Princess Street                         70,000           Storage facility
York, PA

North George Street                          85,000           Agricultural bulk products transfer facility
York, PA (2)

Rodman Road                                   5,000           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
Richmond, Quebec                              2,500           Operating headquarters
</TABLE>

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

                                       9
<PAGE>

<TABLE>
<CAPTION>
                                        Acreage or
                                       Approximate
           Location                      Distance                               Use
-------------------------------     -------------------     ---------------------------------------------
<S>                                 <C>                     <C>
York, PA to Porters Sidling              40 miles           Main line railroad track plus rail yards
and Hanover, PA                                             and related facilities

Emmaus, PA to                          15.8 miles           Main line railroad track plus rail yards
East Greenville, PA

Manheim, PA                              .6 miles           Main line railroad track

Denver, PA to                            12 miles           Main line railroad track plus rail yards
Sinking Springs, PA

Bridgeport, PA                          2.1 miles           Main line railroad track

Bristol, PA (1)                            1 mile           Main line railroad track

Stanhope, Quebec to                      94 miles           Main line railroad track plus rail yards
Ste. Rosalie, Quebec                                        and related facilities

Lincoln Yard                             25 acres           Rail/truck transfer and storage facility
West Market Street                                          for bulk food grade products, chemicals and
West York, PA                                               non-food bulk products, and aggregates and
                                                            other products
Portland, ME to                         165 miles           Main line railroad track plus rail yards
Norton, VT                                                  and related facilities

Norway to                                .5 miles           Branch railroad track
South Paris, ME (1)

Auburn, ME (1)                            4 miles           Branch railroad track

Berlin, NH (1)                           11 miles           Branch railroad track and customer sidings

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.

                                       10
<PAGE>

Item 3.  Legal Proceedings

         Certain subsidiaries of the Company are currently subject to a number
of claims and legal actions that arise in the ordinary course of business,
including claims under the Federal Employers' Liability Act, a fault-based
system under which injuries to and deaths of railroad employees are settled by
negotiations or litigation based upon comparative negligence. The Company
believes that it has adequate insurance coverage and has provided adequate
reserves for any liabilities which may result from the ultimate outcome of these
claims, and that such claims will not have a material impact on the Company's
results of operations or financial position.

         Emons Industries, Inc. ("Industries"), a subsidiary of the Company, is
currently a defendant in numerous product liability actions. In addition, one of
the Company's railroads is in the process of remediating 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, 2001, Industries was one of numerous defendants
(including many of the largest pharmaceutical manufacturers) in 158 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, 153 were commenced after the
confirmation of the Plan by the Bankruptcy Court, while the remaining five
lawsuits are claims which will be treated under the Plan. These actions are
currently in various stages of litigation. Of these 158 lawsuits, 62 have been
settled in principle at no liability to Industries with one attorney
representing all 62 plaintiffs. Industries is currently awaiting execution of
the settlement documents in these cases.

         On April 16, 1998, the Bankruptcy Court granted Industries' motion for
summary judgment declaring that the post-confirmation lawsuits represent claims
which should be asserted against Industries' Chapter 11 estate and are not
post-reorganization liabilities. A formal judgment was entered by the court on
May 6, 1998. In September 1998, one counsel representing multiple DES claimants
appealed the Bankruptcy Court's judgment to the United States District Court. On
April 3, 2001, the District Court dismissed this appeal as moot. On May 2, 2001,
these claimants filed a Notice of Appeal to the United States Court of Appeals
for the Second Circuit. This appeal is currently pending. If the Bankruptcy
Court and District Court's judgments are upheld on appeal, amounts payable for
settlements of or judgments on these post-confirmation lawsuits will be paid
from the escrow account established under the Plan.

         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 exhausted insurance coverage for the 1954 policy year, in which
11 cases remained pending as of June 30, 2001. Industries, and not its insurer,
will be required to pay the direct legal expenses in connection with claims in
policy years for which coverage has been exhausted. However, to the extent that
the Bankruptcy Court and District Court's judgments referred to above are upheld
(with the result that post-confirmation claims must be asserted against
Industries' Chapter 11 estate), Industries will not be required to pay any
amounts for settlements of or judgments on such claims in excess of the amounts
already set aside in escrow under the Plan. During the period July 1, 2000 to
June 30, 2001, eight new actions were commenced in which Industries was named as
a defendant and 387 lawsuits were settled or dismissed at no liability to
Industries.

         The following table sets forth the states and courts in which DES cases
were pending, and the number of DES cases pending against the Company in each
jurisdiction as of June 30, 2001:

                                       11
<PAGE>

<TABLE>
<CAPTION>
               State                       Court                  Number of Cases
        --------------------    --------------------------    -----------------------
        <S>                     <C>                           <C>
          California              Los Angeles County                      1
                                  San Francisco County                    4

          New York                New York County                       142
                                  Bronx County                            1

          Pennsylvania            Philadelphia County                     9

          Texas                   Travis County                           1
</TABLE>

        These cases seek, as relief, compensation for injuries that plaintiffs
allegedly have sustained as a result of in utero DES exposure and punitive
damages. The amounts sought are not specified.

        Management intends to vigorously defend all of these actions. In the
event that the Bankruptcy Court and District Court's decisions referred to above
are reversed by the Court of Appeals, it is possible that Industries could
ultimately have liability in these actions in excess of its product liability
insurance coverage described above. However, based upon Industries' experience
in prior DES litigation, including the proceedings before the Bankruptcy Court,
and its current knowledge of pending cases, the Company believes that it is
unlikely that Industries' ultimate liability in the pending cases, if any, in
excess of insurance coverage and existing reserves, will be in an amount
sufficient to have a material adverse effect upon the Company's consolidated
financial position or results of operations.

         Environmental Liability

        During fiscal 1994, MPA, which was merged into YRC on December 1, 1999,
discovered a diesel fuel oil spill at its locomotive maintenance facility in
York, Pennsylvania resulting from the fueling of its locomotives. YRC has been
performing additional testing and has been working with the Pennsylvania
Department of Environmental Protection ("PADEP") to investigate and, to the
extent necessary, remediate the contaminated area. In January 1997, as a result
of these testing activities, YRC discovered free product in some of its
monitoring wells. The Company estimates that the cost to remediate the free
product could potentially range from $130,000 to $225,000, although the final
costs have not yet been determined. The Company has provided sufficient reserves
for the anticipated remediation costs. PADEP could also potentially require
further investigation and, to the extent necessary, remediation of ground water
and/or soils at this facility at some point in the future. However, the Company
cannot determine at this time whether PADEP will require further investigation
and remediation, or what the ultimate costs of addressing this matter may be or
what effect, if any, they could have upon the Company's consolidated financial
position or results of operations.

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

        None.

                                       12
<PAGE>

                                    Part II

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

        Emons Transportation Group's Common Stock is listed on The Nasdaq
SmallCap Market(SM) under the symbol "EMON." The table below sets forth the high
and low bid for the Common Stock as reported on the SmallCap(SM) for the periods
indicated.

                                                COMMON STOCK PRICE RANGE
                                                ------------------------

            Fiscal Year    Fiscal Quarter        High Bid       Low Bid
            -----------    --------------        --------       -------

                2001           First             $1.8125        $1.375
                               Second             2.375          1.46875
                               Third              1.875          1.59375
                               Fourth             1.92           1.50

                2000           First             $2.46875       $1.75
                               Second             2.1875         1.625
                               Third              2.21875        1.75
                               Fourth             2.21875        1.25

        As of September 6, 2001, the Company had 7,070,304 shares of Common
Stock outstanding which were held by approximately 1,542 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.

Item 6. Selected Financial Data

<TABLE>
<CAPTION>
                                                                     Fiscal Year Ended June 30,
                                       ---------------------------------------------------------------------------------------
                                            2001              2000              1999             1998              1997
                                            ----              ----              ----             ----              ----
<S>                                    <C>              <C>               <C>               <C>              <C>
                                                     (Not covered by Report of Independent Public Accountants)

Operating revenues                     $    25,443,536  $    25,247,247   $    22,950,085   $    17,659,930  $    16,058,252
Income from operations                       3,724,320        3,849,190         3,635,903         2,411,963        1,926,419
Net income                                   3,323,999        1,693,989         2,707,308         4,917,622          773,793

Earnings per common share:
     Basic                             $          0.47  $          0.23   $          0.31   $          0.79  $          0.09
     Diluted                                      0.46             0.22              0.26              0.63             0.09

Total Assets                           $    36,945,865  $    34,642,045   $    35,025,864   $    28,673,277  $    24,301,875

Debt                                   $    13,341,878  $    13,874,675   $    14,864,386   $    12,342,175  $    11,864,130
</TABLE>

Item 7.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations

         Management's Discussion and Analysis of Financial Condition and Results
of Operations should be read in conjunction with the Company's Consolidated
Financial Statements and related notes thereto, and other financial information
included elsewhere in this Form 10-K.

                                       13
<PAGE>

         Liquidity and Capital Resources

         On August 15, 1997, the Company entered into a Loan and Security
Agreement with its lender which provided a $7,775,000 seven-year revolving term
loan (the "A Term Loan") and a $2 million working capital facility. On December
21, 1998, the Company entered into an Amended and Restated Loan and Security
Agreement with its lender which provided an additional $4,469,450 seven-year
term loan and a $2 million three-year term loan (the "B Term Loan") to finance
the acquisition of the Sherbrooke Line.

         In August 2001, the Company and its lender amended the Amended and
Restated Loan and Security Agreement to modify the payment due date of the
$1,441,000 balance outstanding under its B Term Loan facility, to extend the
expiration date of its working capital facility through March 31, 2004, and to
amend certain covenants, in return for minor rate adjustments. Under the
amendment, the Company is required to pay $441,000 of the B Term Loan balance on
or before December 31, 2001, the original due date, and the remaining $1 million
will be repaid in quarterly installments of $55,000 through December 31, 2005,
at which time any remaining balance outstanding is due.

         The Company's primary sources of liquidity include its cash and
accounts receivable, which aggregated $5,163,000 and $4,960,000 at June 30, 2001
and 2000, respectively, the balance available under the Company's $2 million
working capital facility, and the amount prepaid on the A Term Loan, which is
available for future borrowings. As of June 30, 2001, the Company had no
borrowings under the working capital facility and had approximately $1.8 million
available in accordance with the facility's eligibility criteria. As of June 30,
2001, the Company prepaid $500,000 of the A Term Loan, which is also available
for future borrowings. The Company believes that it will be able to generate
sufficient cash flow from operations to meet its current and future capital
requirements and debt obligations.

         In March 2000, the Company's Board of Directors authorized a stock
repurchase program for the Company's Common Stock up to an aggregate price of $2
million. As of June 30, 2001, the Company had repurchased a total of 861,788
shares of its Common Stock for $1,416,000, of which 832,788 shares were held in
treasury and 29,000 shares were retired, and had paid $20,000 to retire warrants
to purchase 50,000 shares of Common Stock. As of June 30, 2001, the Company had
approximately $564,000 authorized to repurchase additional shares of Common
Stock.

         The Company intends to utilize the $2 million working capital facility
and balance available under the A Term Loan to help fund the Company's internal
growth activities, future acquisitions, and the Company's stock repurchase
program. The Company is currently investigating a potential acquisition
opportunity, but has not made any commitment to complete this transaction. There
can be no assurance that a transaction will be consummated. The Company is not
involved in substantive negotiations for any other acquisitions.

         The Company's cash and cash equivalents increased $219,000 for the year
ended June 30, 2001. The net increase includes $3,568,000 of cash provided by
operations, $16,000 of proceeds from the sale of property and equipment, and a
$14,000 exchange rate impact relating to SLQ operations. These increases were
partially offset by $2,089,000 of capital investments, $695,000 invested in the
acquisition of rail properties, $373,000 utilized for the repurchase of 222,338
shares of the Company's Common Stock, and a $222,000 net reduction in long-term
debt.

         The Company generated $3,568,000 of cash from operations for the year
ended June 30, 2001, as compared to $4,688,000 for the prior year. Excluding
changes in assets and liabilities, cash provided by operations decreased $82,000
from $4,429,000 for the year ended June 30, 2000 to $4,347,000 for the year
ended June 30, 2001, primarily as a result of a $52,000 decrease in income
before taxes. Cash used by changes in assets and liabilities aggregated $779,000
for the year ended June 30, 2001, primarily as a result of prepaid insurance
premiums for a multi-year insurance policy and reductions in accounts payable.

         The Company invested $2,089,000 in capital expenditures during fiscal
2001, including $1,714,000 of investments in railroad track structures (net of
$743,000 of government grants), a $50,000 investment in the completion of the
Company's new bulk transfer facility in York, Pennsylvania, and $325,000 of
other capital investments primarily in data processing and other equipment. As
of June 30, 2001, the Company had approximately $600,000 of state government
grants and approximately $500,000

                                       14
<PAGE>

of Quebec government grants available for future track rehabilitation and other
track improvement projects, and was awarded approximately $300,000 of additional
state government grants in August 2001. The Company also expanded its intermodal
terminal which is leased from the city of Auburn, Maine from 16 to 35 acres
during fiscal 2001, effectively tripling its previous capacity. The $1 million
expansion was funded 50% with a federal grant through the state of Maine under
TEA-21 (Transportation Equity Act for the 21st Century) and the remaining 50% by
the city of Auburn. The lease payment for the terminal will be adjusted to
reflect the portion funded by the city of Auburn.

         In March 2001, the Company entered into an agreement to purchase rail
and related materials for approximately $1.5 million over the next four years in
conjunction with a rail replacement project on SLR in New England. In June 2001,
SLR entered into a purchase contract with its primary fuel supplier to purchase
546,000 gallons of diesel fuel in the period November 1, 2001 through April 30,
2002 at prices ranging from $0.8544 to $0.8794 per gallon. The Company has no
other material commitments for capital expenditures or other purchase
commitments.

         In August 1999, the Company received notice from the owner of four of
the rail lines leased by PRL of its intention to offer these lines for sale. On
January 28, 2000, PRL submitted a proposal to exercise its right of first
refusal to purchase two of the four leased lines and purchased these lines in
August 2000 for $695,000. In addition, PRL submitted a bid to purchase one
additional line, which was subsequently rejected and the line was sold to
another bidder. PRL is currently operating this line for the successful bidder
on a temporary basis. PRL has elected not to purchase the fourth line. The
Company believes that the loss of business from these remaining two leased lines
will not have a material impact on its results of operations.

         The Company's net long-term debt obligations decreased $222,000 during
fiscal 2001, including a $700,000 draw on the prepaid portion of the A Term
Loan, $665,000 of borrowings to finance a multi-year insurance policy, and
$3,000 of borrowings under state government no-interest loan track
rehabilitation programs, offset by $1,590,000 of scheduled debt repayments. The
Company drew down the prepaid amount under the A Term Loan to fund PRL's
acquisition of the two previously leased rail lines.

         Fiscal 2001 as compared to Fiscal 2000

                             Results of Operations
                             ---------------------

         The Company generated net income of $3,324,000 for the year ended June
30, 2001, as compared to net income of $1,694,000 for the year ended June 30,
2000. Net income for the current year includes the recognition of $1,572,000 of
deferred tax benefits associated with the Company's net operating loss
carryforwards, which were recorded in the Company's fourth fiscal quarter, based
upon an analysis of expected future income and the expiration of certain net
operating loss carryforward periods. Excluding this tax benefit, net income
increased $58,000 from $1,694,000 for fiscal 2000 to $1,752,000 for fiscal 2001.
Income before income taxes decreased $52,000, or 1.9%, from $2,796,000 for the
year ended June 30, 2000, to $2,744,000 for the year ended June 30, 2001.
Operating revenues increased $196,000, while operating expenses increased
$321,000 over the prior year. Interest expense decreased $63,000, and interest
and other non-operating income increased $10,000 primarily due to foreign
currency exchange gains and losses in connection with the Company's Canadian
operations.

         Operating results for fiscal 2001 were adversely affected by the
downturn in economic conditions in the second half of the fiscal year, and the
Company's fourth quarter in particular. Operating revenues in the fourth quarter
of fiscal 2001 decreased $589,000, or 9%, from the same quarter in the prior
year. Operating results for fiscal 2001 were also adversely affected by
financial difficulties encountered by one of the Company's larger customers, a
paper manufacturer in New England, which accounted for approximately 9% of
fiscal 2001 operating revenues. This customer, which owns and operates two pulp
and paper mills located on SLR in New England, filed for protection under
Chapter 11 of the United States Bankruptcy Code on September 10, 2001. SLR is
not currently handling any business for PPA, and there can be no assurance that
this customer will be successful in its efforts to emerge from bankruptcy and
that business will return to customary levels. In addition, while the Company
cannot anticipate future economic conditions, it is taking steps to control
operating costs to adjust to the current lower levels of business.

                                       15
<PAGE>

                                   Revenues
                                   --------

         Operating revenues increased $196,000, or .8%, from $25,247,000 for the
year ended June 30, 2000 to $25,443,000 for the year ended June 30, 2001. The
net increase consists of a $216,000 decrease in freight and haulage revenues
(excluding intermodal freight), a $476,000 increase in intermodal freight and
handling revenues, a $232,000 decrease in logistics revenues and a $168,000
increase in other operating revenues.

         Freight and haulage revenues (excluding intermodal freight) decreased
$216,000, or 1.1%, consisting of a 4.4% decrease in the number of carloads
handled partially offset by a 3.5% increase in average revenues per carload.
Traffic handled decreased approximately 3,000 carloads from 67,000 for fiscal
2000 to 64,000 for fiscal 2001. Traffic for fiscal 2001 and 2000 includes
approximately 19,750 and 20,200 overhead carloads, respectively, between SLR in
New England and SLQ in Quebec that are counted as revenue carloads for both SLR
and SLQ. Freight and haulage revenues on New England/Quebec rail operations
increased $311,000 and traffic decreased approximately 450 carloads, while
freight and haulage revenues on Pennsylvania rail operations decreased $527,000
and traffic decreased approximately 2,550 carloads.

         The 450 carload net decrease in New England/Quebec traffic includes
approximately 800 additional paper-related carloads as a result of increased
business with existing customers and increased share of the New England paper
market despite the continued softness in the paper industry. This increase was
partially offset by a 400 carload decrease with one of the Company's larger
customers, an on-line paper manufacturer, that is currently experiencing
financial difficulties. Fiscal 2001 New England/Quebec traffic also included 315
additional carloads to an on-line bulk transload customer, 170 additional
carloads to a liquid propane gas distributor as a result of colder weather
conditions in New England in the current year as compared to the prior year, 170
additional carloads of new fly ash business to an on-line cement producer, 475
additional carload movements in conjunction with railcars stored on SLR, and 570
additional moves on SLQ (excluding overhead moves with SLR) primarily as a
result of new business added to this line, partially offset by the loss of a
salt move on SLQ to an alternate competitive route. These increases were offset
by a decrease of 700 salt carloads on SLR as a result of the customer's loss of
supply contracts and the customer utilizing a new supply source, a decrease of
500 one-time carloads of cement in the prior year for a major construction
project in New England, a decrease of 450 overhead carloads between SLR and SLQ,
a decrease of 240 overhead agricultural shipments as a result of an alternative
supply source and alternative route in the current year, a decrease of 170
carloads to a lumber transload customer that closed its operations in the prior
year, and a variety of other less significant decreases in other business.

         The 2,550 carload decrease in Pennsylvania rail operations is
attributable to a 1,330 carload reduction in agricultural business as a result
of exceptional business in the prior year caused by local drought conditions, a
reduction of 200 carloads to an on-line corrugated paper facility which closed
during fiscal 2000, a reduction of 210 coal carloads for an on-line paper
customer's co-generation power facility as a result of a temporary shutdown for
repairs and the timing of such shipments, a 260 carload reduction in business to
an on-line warehouse as a result of lower turnover of product stored, a 180
carload reduction in business for an on-line clay products manufacturer as a
result of its loss of a supply contract, a 370 carload reduction in logistics
carloads, and a number of other decreases as a result of a reduction in
customers' business levels attributable to less favorable economic conditions in
the current year as compared to the prior year. These decreases were offset by a
210 carload increase in business for an on-line feed mill products distributor.
The Company believes that prospects for its Pennsylvania rail operations are
better now that service on its connecting rail carriers, NS and CSX, has
substantially improved as they have resolved operating issues associated with
the split up and acquisition of Conrail in 1999.

         The 3.5% increase in average revenues per carload is primarily
attributable to rate adjustments, which reflect the increase in locomotive fuel
prices.

         Intermodal freight and handling revenues generated by the Company's
rail intermodal terminal in Auburn, Maine increased $476,000, or 36.6%, from
$1,298,000 for the year ended June 30, 2000 to $1,774,000 for the year ended
June 30, 2001. Intermodal volume increased 3,800 trailers and containers, or
34.5%, from 11,000 trailers and containers for fiscal 2000 to 14,800 trailers
and containers for fiscal

                                       16
<PAGE>

2001. In October 1999, the Company's intermodal terminal handled its first
international steamship container, and is optimistic that this business will
result in an increase in future intermodal volume. The Company's intermodal
terminal handled approximately 1,250 international steamship containers in
fiscal 2001, as compared to approximately 450 steamship containers in the prior
year. As a result of the continued increase in intermodal business, the Company
expanded its intermodal terminal from 16 to 35 acres during fiscal 2001 using a
combination of funding from a federal grant through the state of Maine under
TEA-21 and local funding. SLR and SLQ, in conjunction with CN, offer the only
hi-cube, double stack, cleared route in northern New England for intermodal
trains, and provide the Company's intermodal terminal with access to CN's
Vancouver, Montreal, Halifax, New Orleans and Mobile ports.

         Logistics revenues generated by the Company's operations in York,
Pennsylvania, decreased $232,000, from $476,000 for the year ended June 30, 2000
to $244,000 for the year ended June 30, 2001. The number of railcars handled
decreased 37.5%, including the transfer of certain agricultural transload
business that is not compatible with the Company's new bulk transfer facility to
another rail direct facility located on line, a reduction in canned goods
business, and a reduction in lumber reload business due to slower economic
conditions. Truck brokerage revenues associated primarily with the lumber reload
and canned goods business accounted for $117,000 of the decrease. These
decreases were partially offset by business from new customers that are starting
to utilize the Company's upgraded terminal facilities.

         Other operating revenues increased $168,000 from the prior year,
including $225,000 of additional demurrage and railcar storage revenues,
$127,000 recovered in the current year from CN for the period September 1999
through June 2000 pursuant to the terms of SLQ's operating agreement with CN as
a result of the adverse impact of a change in CN's operating plan for the
delivery of trains to SLQ, a $121,000 reduction in easement income as a result
of one-time easement fees received in the prior year, and a variety of other
less significant increases and decreases.

                                   Expenses
                                   --------

         Operating expenses increased $321,000, or 1.5%, from $21,398,000 for
the year ended June 30, 2000 to $21,719,000 for the year ended June 30, 2001.
The increase consists of $510,000 additional cost of operations, partially
offset by a $189,000 reduction in selling and administrative expenses.

         Cost of operations increased $510,000, or 2.9%, from $17,569,000 for
the year ended June 30, 2000 to $18,079,000 for the year ended June 30, 2001.
This increase includes $542,000 additional railroad operating expenses and
$163,000 additional intermodal operating expenses, partially offset by a
$195,000 decrease in logistics operating expenses.

         Railroad operating expenses increased $542,000, or 3.3%, for the year
ended June 30, 2001 as compared to the prior year, including a $540,000, or 31%,
increase in locomotive fuel costs as a result of the significant increase in
fuel prices over the past year. Excluding the increase in locomotive fuel costs,
railroad operating expenses increased slightly by $2,000, consisting of a
$291,000 increase in expenses for New England/Quebec rail operations, partially
offset by a $289,000 decrease in expenses for Pennsylvania rail operations.

         The $291,000 increase in railroad operating costs for New
England/Quebec rail operations, excluding locomotive fuel, is attributable to a
number of factors. Track maintenance costs increased over $200,000 due to
efforts to improve track conditions in order to increase speeds and operate more
efficiently, and due to additional costs incurred as a result of above average
snowfall during the current year. Transportation labor and benefit costs
increased over $250,000 due to the additional complexity of operations as a
result of the concentration of business and related congestion in the Auburn,
Maine area, and due to additional costs incurred as a result of above average
snowfall during the current year. Locomotive maintenance costs increased over
$500,000 as a result of the continued increase in locomotive repair costs in
conjunction with operating larger trains with older locomotives, and as a result
of increased short-term locomotive rental costs. The Company is currently in the
final stages of its locomotive improvement project, and in September 2001,
entered into a five year lease agreement for the lease of 9 locomotives. These
locomotives are expected to be in service by the end of calendar 2001. Safety
costs also increased in the current year as a result of an investment in a loss
control program implemented by the Company to reduce the number of accidents and
incidents on these operations. The increases in railroad operating expenses were
partially offset by a reduction in injuries, accidents and

                                       17
<PAGE>

incidents in the current year that resulted in $300,000 of cost savings as a
result of loss control efforts, including a $143,000 favorable settlement of a
crossing accident, a $230,000 reduction in car hire expense primarily as a
result of favorable car hire adjustments in the current year, and a $125,000
reduction in profit sharing expense as a result of the failure of certain
operations to meet prescribed plan operating targets.

         The $289,000 net decrease in railroad operating costs for Pennsylvania
rail operations, excluding locomotive fuel, is attributable to the reduction in
business levels in the current year, an unfilled railroad operations manager
position in the current year, a decrease in accidents and incidents in the
current year, a decrease in a variety of operating costs attributable to the
merger of the MPA and YKR operations on December 1, 1999 and cost containment
efforts.

         Intermodal operating expenses increased $163,000, from $454,000 for the
prior year to $617,000 for the current year due to additional fees paid to the
terminal's independent operator in conjunction with the 34.5% volume increase
over the prior year, additional snow removal costs as a result of above average
snowfalls in the current year, additional facility rental costs in conjunction
with the expansion of the terminal, and due to the favorable settlement in the
prior year of a previously accrued loss and damage claim.

         Logistics operating expenses decreased $195,000, from $663,000 for year
ended June 30, 2000 to $468,000 for the year ended June 30, 2001 in conjunction
with the 37.5% volume decrease from the prior year. Brokered freight expense
associated with the reduction in canned goods and lumber reload business
accounted for $121,000 of this decrease, while labor and benefits accounted for
the majority of the remainder of the decrease.

         Selling and administrative expenses decreased $189,000, or 4.9%, from
$3,829,000 for the year ended June 30, 2000 to $3,640,000 for the year ended
June 30, 2001. The net decrease consists of a reduction in a wide variety of
expense categories including a reduction in professional fees as a result of
costs incurred in the prior year in pursuit of strategic initiatives, a
reduction in systems projects as a result of costs incurred in the prior year to
develop the Company's web site, a decrease in public relations and other costs
as a result of efforts to control administrative costs, and a reduction in costs
related to the unfilled president position for the New England/Quebec operations
for most of the current year. The responsibilities of the president of the New
England/Quebec operations were assumed by the Company's President and Chief
Executive Officer during the search for a replacement, who joined the Company in
late May 2001. These decreases were partially offset by additional wages and
benefits as a result of normal wage increases and staff additions, additional
provisions under profit sharing and incentive compensation arrangements, and
less significant increases in several other expense categories.

         Interest expense decreased $63,000 for the year ended June 30, 2001 as
compared to the prior year. The decrease is attributable to scheduled principal
payments and a reduction in interest rates on variable rate debt, partially
offset by additional borrowings from temporary prepayments of the A Term Loan to
finance the acquisition of two previously leased rail lines.

         The provision for income taxes decreased $1,682,000, from $1,102,000 of
tax expense for the year ended June 30, 2000 to a $580,000 net tax benefit for
the year ended June 30, 2001. The provision for income taxes for fiscal 2001
includes a reduction in the valuation allowance and recognition of deferred tax
benefits recorded in the fourth fiscal quarter relating to the Company's federal
net operating loss carryforwards of $1,572,000. In accordance with applicable
accounting standards, the Company continually reassesses the estimated amount of
net operating loss carryforward benefits that it believes it will be able to
utilize in the future. Based upon the sustained increase in taxable income in
excess of amounts previously estimated, the Company reduced the valuation
allowance and recognized a deferred tax benefit in the amount of $1,572,000
relating to its federal net operating loss carryforwards in fiscal 2001. The
Company reduced the valuation allowance in fiscal 2001 because its reassessment
indicated that it was more likely than not that the benefits would be realized.
The recognition of deferred tax benefits relating to the Company's federal net
operating loss carryforwards in fiscal 2001 had the impact of increasing both
basic and diluted earnings per share by $0.22.

                                       18
<PAGE>

         Excluding the $1,572,000 tax benefit, the provision for income taxes
decreased $110,000, from $1,102,000 for the year ended June 30, 2000 to $992,000
for the year ended June 30, 2001. Excluding this tax benefit, the effective tax
rate decreased from 39.4% in the prior year to 36.2% for the current year as a
result of the mix between United States and foreign taxable income. The
provision for income taxes for fiscal 2001 and fiscal 2000 includes $871,000 and
$897,000, respectively, of deferred federal tax expense relating to the
amortization of deferred tax assets which will not require any tax payments by
the Company currently or in the future.

         Fiscal 2000 as compared to Fiscal 1999

         Results for the year ended June 30, 2000 were impacted by, among other
things, the Company's merger of the operations of two of its subsidiaries, the
Maryland and Pennsylvania Railroad Company and Yorkrail, Inc., on December 1,
1999. For comparability, car count information included in this section has been
adjusted to eliminate bridge moves between MPA and YKR, which were counted as
two moves prior to the merger (once by MPA and once by YKR) and are counted as
one move subsequent to the merger. Bridge moves represent traffic that is
received from one connecting rail carrier and delivered to another connecting
rail carrier, as opposed to being received from or delivered to a customer
located directly on line.

                             Results of Operations
                             ---------------------

         The Company generated net income of $1,694,000 for the year ended June
30, 2000, as compared to net income of $2,707,000 for the year ended June 30,
1999. Income from operations increased $213,000, or 6%, from $3,636,000 for
fiscal 1999 to $3,849,000 for fiscal 2000, and income before income taxes
increased $98,000, or 3.6%, from $2,698,000 to $2,796,000. Operating revenues
increased $2,297,000, operating expenses increased $2,084,000, interest income
increased $13,000, interest expense increased $78,000, and the provision for
income taxes increased $1,111,000 over fiscal 1999. Other non-operating expense
increased $50,000 over fiscal 1999 primarily due to foreign currency exchange
losses in connection with the Company's Canadian operations. Operating expenses
for the year ended June 30, 1999 include $205,000 of start-up expenses
associated with the acquisition and first seven months of operations of SLQ,
which commenced on December 1, 1998. Excluding these start-up expenses, income
from operations increased $8,000 while income before income taxes decreased
$107,000 for the year ended June 30, 2000, as compared to the year ended June
30, 1999.

                                   Revenues
                                   --------

         Operating revenues increased $2,297,000, or 10%, from $22,950,000 for
the year ended June 30, 1999 to $25,247,000 for the year ended June 30, 2000.
SLQ generated $5,467,000 of operating revenues in the year ended June 30, 2000
as compared to $3,085,000 for seven months of operations in fiscal 1999.
Excluding operating revenues generated by SLQ, the Company's operating revenues
decreased $85,000, consisting of a $278,000 increase in freight and haulage
revenues (excluding intermodal freight) and a $136,000 increase in intermodal
freight and handling revenues, offset by a $22,000 decrease in logistics
revenues and a $477,000 decrease in other operating revenues.

         Freight and haulage revenues (excluding intermodal freight) increased
$1,978,000, or 11%, consisting of a 19% increase in the number of carloads
handled, partially offset by a 6.6% decrease in average revenues per carload.
Total traffic handled increased approximately 10,800 carloads from 56,200 for
fiscal 1999 to 67,000 for fiscal 2000. Traffic for fiscal years 2000 and 1999
includes approximately 20,200 and 12,400 overhead carloads on SLQ, respectively,
that are delivered to SLR and counted as revenue carloads for both SLR and SLQ.
Excluding revenues generated by SLQ, which accounted for $3,984,000 of freight
and haulage revenues in fiscal 2000 as compared to $2,284,000 for seven months
of operations in fiscal 1999, the Company's freight and haulage revenues
increased $278,000, or 2%, while traffic decreased slightly by approximately 200
carloads. Freight and haulage revenues on SLR operations in New England
decreased $366,000 and traffic decreased approximately 1,200 carloads, while
freight and haulage revenues on Pennsylvania rail operations increased $644,000
and traffic increased 1,000 carloads.

                                       19
<PAGE>

         The 1,200 carload decrease in SLR traffic is attributable to a decrease
of approximately 285 paper-related carloads resulting from a variety of reasons,
including 360 less carloads as a result of the closing of a paper mill (which
was subsequently sold and reopened) and problems associated with NS's and CSX's
implementation of the Conrail merger, approximately 1,600 carloads of one-time
shipments of pipe and cement in fiscal 1999 that did not recur or did not recur
at the same volume levels in fiscal 2000, and a decrease of 530 fuel oil
carloads for a customer that converted from oil to natural gas. The congestion
and service disruptions caused by NS's and CSX's implementation of the Conrail
merger adversely affected SLR's overall business as a result of service and car
supply problems. These decreases were partially offset by 500 additional salt
carloads, 400 additional carloads to an on-line liquid propane gas distributor,
and a variety of less significant increases in business.

         Freight and haulage revenues for Pennsylvania rail operations increased
$644,000 and traffic handled increased 1,000 carloads, despite being adversely
impacted by the congestion and service disruptions caused by NS's and CSX's
implementation of the Conrail merger. The increase in freight and haulage
revenues is attributable to almost 2,000 additional agricultural carloads due to
local drought conditions in fiscal 1999, 200 carloads for a new customer,
Goodyear Tire & Rubber Company, which completed construction of an on-line
regional distribution center and commenced operations in June 1999, and other
less significant increases in business. These increases were partially offset by
300 less carloads to a corrugated paper facility which closed during fiscal
2000, a 200 carload reduction in coal business as a result of problems with the
customer's cogeneration facility, and a number of other decreases in business
primarily attributable to problems caused by the Conrail merger, including
business lost to truck during fiscal 2000.

         The 6.6% decrease in average revenues per carload is attributable to
SLQ, which has an average freight rate that is lower than the Company's other
rail operations since a large percentage of SLQ's business is overhead traffic
from CN to SLR, and since pricing for this business reflects the operating
synergies between SLR and SLQ. Excluding revenues generated by SLQ, average
revenues per carload increased 2.2% as a result of mix of business and price
adjustments.

         Intermodal freight and handling revenues generated by the Company's
rail intermodal terminal in Auburn, Maine, excluding SLQ, increased $136,000, or
16.5%, from $816,000 for the year ended June 30, 1999 to $952,000 for the year
ended June 30, 2000. Intermodal volume increased 16%, or 1,500 trailers and
containers, from 9,500 trailers and containers for fiscal 1999 to 11,000
trailers and containers for fiscal 2000. Intermodal freight revenues generated
by SLQ aggregated $346,000 for fiscal 2000 as compared to $150,000 for seven
months of operations in fiscal 1999. In October 1999, the Company's intermodal
terminal handled its first international steamship container, and the Company is
cautiously optimistic that this business will continue to result in an increase
in future intermodal volume. SLR and SLQ, in conjunction with CN, offer the only
hi-cube, double stack, cleared route in northern New England for intermodal
trains, and provide the Company's intermodal terminal with access to five CN
served ports including Vancouver, Montreal, Halifax, New Orleans and Mobile.

         Logistics revenues generated by the Company's operations in York,
Pennsylvania, decreased $22,000, or 4.5%, from $498,000 for the year ended June
30, 1999 to $476,000 for the year ended June 30, 2000, including a 15.5%
decrease in the number of carloads handled. The decrease in business is
primarily attributable to the transfer of certain business that is not
compatible with our new bulk transfer facility to another rail direct facility
located on line, partially offset by an increase in truck brokering revenues
attributable to mix of business.

         Excluding other operating revenues generated by SLQ, the Company's
other operating revenues decreased $477,000 from fiscal 1999, primarily as a
result of a $364,000 decrease in railcar storage and demurrage revenues,
$108,000 of one-time blocking revenues from CN in fiscal 1999, and $132,000 of
additional third-party track work revenues in fiscal 1999, partially offset by
less significant increases in other operating revenues. The decrease in
demurrage revenues is partly attributable to demurrage associated with a
one-time pipe move for a gas line project in New England in fiscal 1999, and
partly to a reduction in business for a printing customer in Pennsylvania which
normally generates substantial demurrage revenues. These decreases were
partially offset by $142,000 of one-time easement revenues. SLQ generated
$1,137,000 of other operating revenues in fiscal 2000, including blocking fees
and trackage rights revenues, as compared to $650,000 of other operating
revenues for seven months of operations in fiscal 1999.

                                       20
<PAGE>

                                   Expenses
                                   --------

         Operating expenses increased $2,084,000, or 11%, from $19,314,000 for
the year ended June 30, 1999 to $21,398,000 for the year ended June 30, 2000.
The increase consists of $2,080,000 additional cost of operations and $4,000
additional selling and administrative expenses. Excluding operating expenses
incurred by SLQ, the Company's operating expenses increased $952,000, or 5.5%.
This $952,000 increase includes additional expenses incurred by SLR in
conjunction with the operations of SLQ as a result of the centralization of
operations management, dispatching and locomotive maintenance functions at SLR's
facilities in Auburn, Maine.

         Cost of operations increased $2,080,000, or 13.4%, from $15,489,000 for
the year ended June 30, 1999 to $17,569,000 for the year ended June 30, 2000.
Cost of operations for fiscal 2000 includes $2,906,000 of SLQ operating expenses
as compared to $1,799,000 of operating expenses for seven months of operations
in fiscal 1999. Excluding operating expenses incurred by SLQ, the Company's cost
of operations increased $973,000, including $899,000 additional railroad
operating expenses, $3,000 additional intermodal operating expenses and $71,000
additional logistics operating expenses.

         Railroad operating expenses increased $2,006,000 for the year ended
June 30, 2000 as compared to the year ended June 30, 1999. Excluding SLQ,
railroad operating expenses increased $899,000, consisting of a $981,000
increase in SLR expenses in New England partially offset by an $82,000 decrease
in expenses for Pennsylvania rail operations.

         The $981,000 net increase in railroad operating costs for SLR is
primarily attributable to additional expenses incurred by SLR in conjunction
with the operations of SLQ as a result of the centralization of operations
management, dispatching and locomotive maintenance functions at SLR's facilities
in Auburn, Maine, and the significant increase in fuel prices during fiscal
2000. Locomotive maintenance expenses, which include a full year of SLQ
operations in fiscal 2000 as compared to seven months of operations in fiscal
1999, increased as a result of the addition of a chief mechanical officer and
locomotive maintenance personnel in conjunction with the 13 locomotives acquired
or leased in connection with the acquisition of SLQ. SLR's agency and
dispatching costs also increased as a result of additional personnel hired to
perform these services on behalf of SLQ. Locomotive fuel costs increased over
$500,000 as a result of the significant increase in fuel prices over fiscal
1999. These increases in SLR's railroad operating costs were partially offset by
a decrease of over $250,000 in fuel oil transload fees and railcar leasing costs
as a result of the loss of a local oil move, a reduction of costs to perform
one-time blocking services for CN for the period September through December 1998
for which SLR received blocking fees, and a reduction in the provision for
derailments and accidents as a result of more favorable experience in fiscal
2000 as compared to fiscal 1999.

         The $82,000 net decrease in railroad operating costs for Pennsylvania
rail operations includes approximately $100,000 additional locomotive fuel costs
as a result of the significant increase in fuel prices in fiscal 2000,
additional maintenance of way expense as a result of a reduction in capitalized
track work performed in fiscal 2000 as compared to fiscal 1999, and additional
costs incurred in conjunction with filling two vacant management/supervisory
positions that were unfilled in fiscal 1999. These increases were offset by a
reduction in car hire expense of approximately $100,000 in conjunction with a
corresponding decrease in demurrage revenues, and a decrease in the provision
for derailments and accidents as a result of more favorable experience in fiscal
2000 as compared to fiscal 1999.

         Rail intermodal operating expenses increased $3,000, from $452,000 for
fiscal 1999 to $455,000 for fiscal 2000. The increase is attributable to a 16%
increase in the number of trailers and containers handled, partially offset by
the favorable settlement in fiscal 2000 of a previously accrued loss and damage
claim.

         Logistics operating expenses increased $71,000, from $592,000 for the
year ended June 30, 1999 to $663,000 for the year ended June 30, 2000 despite a
15.5% decrease in the number of railcars handled. The increase is attributable
to additional truck brokering expenses associated with the increase in related
revenues as a result of mix of business and an increase in fuel prices.

                                       21
<PAGE>

         Selling and administrative expenses increased $4,000, from $3,825,000
for the year ended June 30, 1999 to $3,829,000 for the year ended June 30, 2000.
Excluding selling and administrative expenses incurred by SLQ, the Company's
selling and administrative expenses decreased $21,000, or .5%. Selling and
administrative expenses for fiscal 2000 include approximately $180,000 of
additional professional fees incurred in conjunction with the pursuit of
strategic plan initiatives, including a significant project which did not
materialize, costs incurred to develop the Company's new web site which was
released in December 1999, and a general increase in a number of other expense
categories including higher salaries and wages as a result of additional
personnel and wage adjustments, and higher employee benefits as a result of
increased health benefit costs. These increases were offset by a reduction in
the provisions for commission, profit sharing and incentive compensation plans
as a result of the extraordinary fiscal 1999 operating results. SLQ selling and
administrative expenses aggregated $113,000 in fiscal 2000, including the
addition of a sales person at the beginning of the year, as compared to $88,000
for seven months of operations in fiscal 1999, which includes $42,000 of
start-up expenses associated with the acquisition of SLQ.

         Interest expense increased $78,000 for the year ended June 30, 2000 as
compared to the year ended June 30, 1999. The increase is attributable to
additional borrowings incurred in fiscal 1999 to finance the acquisition of SLQ
and an increase in interest rates on variable rate debt, partially offset by
scheduled principal payments.

         The Company recorded a provision for income taxes of $1,102,000 for the
year ended June 30, 2000 as compared to a tax benefit of $9,000 for the year
ended June 30, 1999. The provision for income taxes for fiscal 1999 includes a
fourth quarter $1.1 million reduction in the valuation allowance and recognition
of deferred tax benefits relating to the Company's federal net operating loss
carryforwards. In accordance with applicable accounting standards, the Company
continually reassesses the estimated amount of net operating loss carryforward
benefits that it believes it will be able to utilize in the future. Based upon
tax planning strategies implemented in connection with the acquisition of the
Sherbrooke Line from CN in December 1998, the Company reduced the valuation
allowance and recognized an additional $1.1 million of deferred tax benefits
relating to its federal net operating loss carryforwards in fiscal 1999. The
Company reduced the valuation allowance in fiscal 1999 because its reassessment
indicated that it was more likely than not that the benefits will be realized.
The recognition of deferred tax benefits relating to the Company's federal net
operating loss carryforwards in fiscal 1999 had the impact of increasing basic
earnings per share by $0.18 and diluted earnings per share by $0.14.

         Excluding changes in the valuation allowance relating to the Company's
federal net operating loss carryforwards, the provision for income taxes
increased $16,000, from $1,086,000 in fiscal 1999 to $1,102,000 in fiscal 2000,
while the effective tax rate decreased from 40.3% in fiscal 1999 to 39.4% in
fiscal 2000.

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.

                                       22
<PAGE>

                                   Part III

Item 10. Directors and Executive Officers of Registrant

         Information concerning the directors and executive officers of the
Company shall be set forth in the definitive Proxy Statement to be provided to
stockholders and filed not later than 120 days after the close of the Company's
fiscal year (the "Proxy Statement") under the caption "Security Ownership of
Management" and each of the headings "Election of Directors" and "Executive
Officers," which information is incorporated herein by reference.

Item 11. Executive Compensation

         Information concerning executive compensation shall be set forth in the
Proxy Statement under the heading "Executive Compensation," which information is
incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management

         Information concerning security ownership of certain beneficial owners
and management shall be set forth in the Proxy Statement under the heading
"Security Ownership of Management," which information is incorporated herein by
reference.

Item 13. Certain Relationships and Related Transactions

         In February 2001, the Company entered into a short-term lease agreement
for the lease of eight locomotives from a leasing company, of which a director
of the Company is a vice president. The original lease term, which commenced in
March 2001, was for 120 days at a rate of $255 per day per locomotive. In June
2001, the Company extended the lease term for an additional 60 days and provided
for the continuation of this lease on a month-to-month basis thereafter.

         In September 2001, the Company entered into a five year lease agreement
for the lease of nine locomotives from the same leasing company at rates ranging
from $120 to $134 per day per locomotive. The lease agreement also includes an
option to purchase the locomotives at the end of the lease term. The Company
will continue to lease the eight locomotives referred to above at a reduced rate
of $200 per day until the locomotives under the five year lease are delivered,
which is scheduled to take place prior to the end of calendar 2001.

                                       23
<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:

            Report of Independent Public Accountants                                                  25

            Consolidated Balance Sheets as of June 30, 2001 and 2000                                  26

            Consolidated Statements of Operations for the years ended
              June 30, 2001, 2000 and 1999                                                            27

            Consolidated Statements of Stockholders' Equity for the
              years ended June 30, 2001, 2000 and 1999                                                28

            Consolidated Statements of Cash Flows for the years
              ended June 30, 2001, 2000 and 1999                                                      29

            Notes to Consolidated Financial Statements                                                30

      (2) Schedules Applicable to Consolidated Financial Statements:

       Schedule I - Financial Statements of Emons Transportation Group, Inc.
                       (Parent Company Only)

          Balance Sheets as of June 30, 2001 and 2000                                                 44

          Statements of Operations for the years ended June 30, 2001, 2000 and 1999                   45

          Statements of Cash Flows for the years ended June 30, 2001, 2000 and 1999                   46
</TABLE>

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

(b)   Reports on Form 8-K.

         No reports on Form 8-K were filed during the three-month period ended
June 30, 2001.

(c)   A list of exhibits can be found on pages 48 to 50 hereof.

                                       24
<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. (a Delaware Corporation) and Subsidiaries as of June
30, 2001 and 2000, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended June 30, 2001. These financial statements and schedule referred to below
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 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, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 2001 in conformity with accounting principles generally accepted in the
United States.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in our audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.



Lancaster, Pennsylvania
September 5, 2001

                                                             ARTHUR ANDERSEN LLP

                                       25
<PAGE>

               EMONS TRANSPORTATION GROUP, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                         as of June 30, 2001 and 2000
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
                                                                                    2001                2000
----------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>                 <C>
ASSETS
   Current Assets:
      Cash and cash equivalents                                                 $ 2,310,933         $ 2,092,073
      Accounts receivable, less allowance of
         $247,175 in 2001 and $218,619 in 2000                                    2,851,592           2,868,319
      Materials and supplies                                                        278,198             273,598
      Prepaid expenses                                                              580,227             217,002
      Deferred income taxes (Note 9)                                                567,000             519,000
                                                                           ----------------    ----------------
         Total current assets                                                     6,587,950           5,969,992

   Property, plant and equipment, net (Note 1)                                   28,553,058          27,745,947

   Deferred financing costs and other assets                                        520,857             316,106

   Deferred income taxes (Note 9)                                                 1,284,000             610,000
                                                                           ----------------    ----------------

TOTAL ASSETS                                                                    $36,945,865         $34,642,045
                                                                           ================    ================

LIABILITIES AND STOCKHOLDERS' EQUITY
   Current Liabilities:
      Current portion of long-term debt (Note 5)                                $ 2,456,084         $   492,138
      Accounts payable                                                            1,461,041           1,610,843
      Accrued payroll and related expenses                                        1,678,806           1,651,517
      Income taxes payable                                                          223,490             182,984
      Other accrued expenses                                                      1,471,673           1,534,862
                                                                           ----------------    ----------------
         Total current liabilities                                                7,291,094           5,472,344

   Long-term debt (Note 5)                                                       10,885,794          13,382,537
   Other liabilities                                                                870,508             837,133
                                                                           ----------------    ----------------
         Total Liabilities                                                       19,047,396          19,692,014
                                                                           ----------------    ----------------

   Commitments and contingencies (Notes 7 and 11)                                         -                   -

   Stockholders' Equity (Note 8):
      Preferred stock, authorized 3,000,000 shares
         $0.14 Series A Cumulative Convertible Preferred Stock,
         $0.01 par value, issued and outstanding -0- shares
         at June 30, 2001 and 2000                                                        -                   -

      Common stock, $0.01 par value, authorized 30,000,000 shares, issued
         7,909,292 and 7,852,274 shares at June 30, 2001
         and 2000, respectively                                                      79,093              78,523

      Additional paid-in capital                                                 23,636,401          23,536,693
      Deficit                                                                    (4,146,203)         (7,470,202)
                                                                           ----------------    ----------------
                                                                                 19,569,291          16,145,014
      Treasury stock, at cost (832,788 and 610,450 shares at
         June 30, 2001 and 2000, respectively)                                   (1,368,690)           (995,981)
      Cumulative other comprehensive income (loss)                                  (16,184)             39,156
      Unearned compensation - restricted stock awards                              (285,948)           (238,158)
                                                                           ----------------    ----------------
         Total Stockholders' Equity                                              17,898,469          14,950,031
                                                                           ----------------    ----------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                      $36,945,865         $34,642,045
                                                                           ================    ================
</TABLE>


         See accompanying notes to consolidated financial statements.

                                       26
<PAGE>

               EMONS TRANSPORTATION GROUP, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
               for the years ended June 30, 2001, 2000 and 1999

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
                                                                       2001                2000                1999
-------------------------------------------------------------------------------------------------------------------------
 <S>                                                            <C>                 <C>                 <C>
Operating revenues                                                  $25,443,536         $25,247,247         $22,950,085

Operating expenses:
    Cost of operations                                               18,078,904          17,569,504          15,489,586
    Selling and administrative                                        3,640,312           3,828,553           3,824,596
                                                                ---------------   -----------------   -----------------
       Total operating expenses                                      21,719,216          21,398,057          19,314,182
                                                                ---------------   -----------------   -----------------

Income from operations                                                3,724,320           3,849,190           3,635,903

Other income (expense):
    Interest income                                                     101,909             106,904              93,956
    Interest expense                                                 (1,075,342)         (1,138,159)         (1,059,555)
    Other, net                                                           (6,888)            (21,946)             28,004
                                                                ---------------   -----------------   -----------------
       Total other income (expense)                                    (980,321)         (1,053,201)           (937,595)
                                                                ---------------   -----------------   -----------------

Income before income taxes                                            2,743,999           2,795,989           2,698,308

Provision (benefit) for income taxes (Note 9)                          (580,000)          1,102,000              (9,000)
                                                                ---------------   -----------------   -----------------

Net income                                                            3,323,999           1,693,989           2,707,308

Preferred dividend requirements (Note 8)                                      -                   -             103,949
Preferred stock conversion premium (Note 8)                                   -                   -             704,898
                                                                ---------------   -----------------   -----------------

Income applicable to common shareholders                            $ 3,323,999         $ 1,693,989         $ 1,898,461
                                                                ===============   =================   =================

Weighted average number of common shares (Notes 1 and 4):

       Basic                                                          7,092,327           7,499,933           6,114,126
                                                                ===============   =================   =================
       Diluted                                                        7,272,843           7,750,350           7,836,218
                                                                ===============   =================   =================

Earnings per common share (Notes 1 and 4):

       Basic                                                        $      0.47         $      0.23         $      0.31
                                                                ===============   =================   =================
       Diluted                                                      $      0.46         $      0.22         $      0.26
                                                                ===============   =================   =================
</TABLE>

      See accompanying notes to consolidated financial statements.

                                       27
<PAGE>

               EMONS TRANSPORTATION GROUP, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
               for the years ended June 30, 2001, 2000 and 1999

<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, 1998                  1,528,231    $     15,282       6,039,811    $     60,398    $ 23,733,554    $(11,871,499)

 Conversion of preferred stock
    at 0.9 exchange rate                    (42,688)           (427)         38,418             384              43               -

 Conversion of preferred stock
    at 1.1 exchange rate                 (1,485,543)        (14,855)      1,633,788          16,338        (331,397)              -

 Shares issued pursuant to
    1986 Stock Option Plan                        -               -           1,500              15           2,798               -

 Shares issued pursuant to
    1996 Stock Option Plan                        -               -           5,750              58           5,926               -

 Shares issued under restricted
    stock plan                                    -               -          57,000             570         142,285               -

 Shares issued in connection
    with exercise of warrants                     -               -         100,000           1,000          98,000               -

 Cancellation of restricted
    stock issued                                  -               -         (12,900)           (129)        (16,972)              -

 Restricted stock repurchased
    and retired                                   -               -          (3,093)            (31)         (8,766)              -

 Amortization of unearned
    compensation                                  -               -               -               -               -               -

 Comprehensive income:
    Net income                                    -               -               -               -               -       2,707,308
    Foreign currency translation                  -               -               -               -               -               -
                                       ------------    ------------    ------------    ------------    ------------    ------------
 Total comprehensive income                       -               -               -               -               -       2,707,308
                                       ------------    ------------    ------------    ------------    ------------    ------------
Balance at June 30, 1999                          -               -       7,860,274          78,603      23,625,471      (9,164,191)

 Conversion of preferred stock
    at 1.1 exchange rate                          -               -               -               -         (21,486)              -

 Shares issued pursuant to
    1986 Stock Option Plan                        -               -          15,000             150          18,600               -

 Shares issued under restricted
    stock plan                                    -               -          40,000             400          77,624               -

 Cancellation of restricted
    stock issued                                  -               -         (34,000)           (340)        (96,681)              -

 Restricted stock repurchased
    and retired                                   -               -         (14,000)           (140)        (22,610)              -

 Common stock repurchased
    and retired                                   -               -         (15,000)           (150)        (24,225)              -

 Warrants retired                                 -               -               -               -         (20,000)              -

 Purchase of treasury stock                       -               -               -               -               -               -

 Amortization of unearned
    compensation                                  -               -               -               -               -               -

 Comprehensive income:
    Net income                                    -               -               -               -               -       1,693,989
    Foreign currency translation                  -               -               -               -               -               -
                                       ------------    ------------    ------------    ------------    ------------    ------------
 Total comprehensive income                       -               -               -               -               -       1,693,989
                                       ------------    ------------    ------------    ------------    ------------    ------------
Balance at June 30, 2000                          -               -       7,852,274          78,523      23,536,693      (7,470,202)

 Shares issued under restricted
    stock plan                                    -               -          62,000             620         110,265               -

 Cancellation of restricted
    stock issued                                  -               -          (5,000)            (50)        (10,557)              -

 Purchase of treasury stock                       -               -               -               -               -               -

 Amortization of unearned
    compensation                                  -               -               -               -               -               -

 Adjustment to conversion of
    preferred stock                               -               -              18               -               -               -

 Comprehensive income (loss):
    Net income                                    -               -               -               -               -       3,323,999
    Other comprehensive income (loss):
      Cash flow hedging derivatives               -               -               -               -               -               -
      Income tax benefit                          -               -               -               -               -               -
                                       ------------    ------------    ------------    ------------    ------------    ------------
         Cash flow hedging
           derivatives, net of tax                -               -               -               -               -               -
      Foreign currency translation                -               -               -               -               -               -
                                       ------------    ------------    ------------    ------------    ------------    ------------
 Total comprehensive income                       -               -               -               -               -       3,323,999
                                       ------------    ------------    ------------    ------------    ------------    ------------
Balance at June 30, 2001                          -    $          -       7,909,292    $     79,093    $ 23,636,401    $ (4,146,203)
                                       ============    ============    ============    ============    ============    ============
<CAPTION>

                                                                          Cumulative
                                                                             Other
                                                  Treasury Stock,           Compre-        Unearned
                                                      at Cost               hensive      Compensation -
                                           ----------------------------     Income        Restricted     Stockholders'
                                               Shares       Amount          (Loss)       Stock Awards       Equity
                                           --------------------------------------------------------------------------
<S>                                        <C>           <C>             <C>             <C>             <C>
Balance at June 30, 1998                            -    $          -    $          -    $   (303,775)   $ 11,633,960

 Conversion of preferred stock
    at 0.9 exchange rate                            -               -               -               -               -

 Conversion of preferred stock
    at 1.1 exchange rate                            -               -               -               -        (329,914)

 Shares issued pursuant to
    1986 Stock Option Plan                          -               -               -               -           2,813

 Shares issued pursuant to
    1996 Stock Option Plan                          -               -               -               -           5,984

 Shares issued under restricted
    stock plan                                      -               -               -        (142,855)              -

 Shares issued in connection
    with exercise of warrants                       -               -               -               -          99,000

 Cancellation of restricted
    stock issued                                    -               -               -          17,101               -

 Restricted stock repurchased
    and retired                                     -               -               -               -          (8,797)

 Amortization of unearned
    compensation                                    -               -               -         104,181         104,181

 Comprehensive income:
    Net income                                      -               -               -               -       2,707,308
    Foreign currency translation                    -               -          33,615               -          33,615
                                         ------------    ------------    ------------    ------------    ------------
 Total comprehensive income                         -               -          33,615               -       2,740,923
                                         ------------    ------------    ------------    ------------    ------------
Balance at June 30, 1999                            -               -          33,615        (325,348)     14,248,150

 Conversion of preferred stock
    at 1.1 exchange rate                            -               -               -               -         (21,486)

 Shares issued pursuant to
    1986 Stock Option Plan                          -               -               -               -          18,750

 Shares issued under restricted
    stock plan                                      -               -               -         (78,024)              -

 Cancellation of restricted
    stock issued                                    -               -               -          97,021               -

 Restricted stock repurchased
    and retired                                     -               -               -               -         (22,750)

 Common stock repurchased
    and retired                                     -               -               -               -         (24,375)

 Warrants retired                                   -               -               -               -         (20,000)

 Purchase of treasury stock                   610,450        (995,981)              -               -        (995,981)

 Amortization of unearned
    compensation                                    -               -               -          68,193          68,193

 Comprehensive income:
    Net income                                      -               -               -               -       1,693,989
    Foreign currency translation                    -               -           5,541               -           5,541
                                         ------------    ------------    ------------    ------------    ------------
 Total comprehensive income                         -               -           5,541               -       1,699,530
                                         ------------    ------------    ------------    ------------    ------------
Balance at June 30, 2000                      610,450        (995,981)         39,156        (238,158)     14,950,031

 Shares issued under restricted
    stock plan                                      -               -               -        (110,885)              -

 Cancellation of restricted
    stock issued                                    -               -               -          10,607               -

 Purchase of treasury stock                   222,338        (372,709)              -               -        (372,709)

 Amortization of unearned
    compensation                                    -               -               -          52,488          52,488

 Adjustment to conversion of
    preferred stock                                 -               -               -               -               -

 Comprehensive income (loss):
    Net income                                      -               -               -               -       3,323,999
    Other comprehensive income (loss):
      Cash flow hedging derivatives                 -               -         (61,460)              -         (61,460)
      Income tax benefit                            -               -          24,584               -          24,584
                                         ------------    ------------    ------------    ------------    ------------
         Cash flow hedging
           derivatives, net of tax                  -               -         (36,876)              -         (36,876)
      Foreign currency translation                  -               -         (18,464)              -         (18,464)
                                         ------------    ------------    ------------    ------------    ------------
 Total comprehensive income                         -               -         (55,340)              -       3,268,659
                                         ------------    ------------    ------------    ------------    ------------
Balance at June 30, 2001                      832,788    $ (1,368,690)   $    (16,184)   $   (285,948)   $ 17,898,469
                                         ============    ============    ============    ============    ============
</TABLE>

See accompanying notes to consolidated financial statements.

                                       28
<PAGE>

                EMONS TRANSPORTATION GROUP, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
               for the years ended June 30, 2001, 2000 and 1999

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                                                             2001               2000               1999
----------------------------------------------------------------------------------------------------------------------------
 <S>                                                                   <C>                <C>                <C>
 Cash flows from operating activities:
   Net income                                                              $3,323,999         $1,693,989         $2,707,308
    Adjustments to reconcile net income to net
      cash provided by operating activities:
       Depreciation                                                         1,832,548          1,853,998          1,474,099
       Amortization                                                           121,289            141,500            191,743
       (Gain) loss on sales of assets                                          (1,594)             2,629                  -
       (Gain) on forgiveness of debt                                         (206,888)          (189,545)          (174,855)
       Change in deferred income taxes                                       (722,000)           926,000           (234,000)
       Changes in assets and liabilities:
         Accounts receivable, materials and
           supplies and prepaid expenses                                     (368,716)           185,707           (756,864)
         Accounts payable and accrued expenses                               (130,390)          (105,436)         1,141,655
         Other assets and liabilities, net                                   (280,515)           179,465            364,913
                                                                       ---------------    ---------------    ---------------
 Net cash provided by operating activities                                  3,567,733          4,688,307          4,713,999
                                                                       ---------------    ---------------    ---------------

 Cash flows from investing activities:
   Proceeds from sales of assets                                               16,132              7,500             13,576
   Additions to property, plant and equipment                              (2,088,698)        (2,797,652)        (2,651,720)
   Investment in acquired rail properties                                    (694,928)                 -         (4,822,588)
                                                                       ---------------    ---------------    ---------------
 Net cash used in investing activities                                     (2,767,494)        (2,790,152)        (7,460,732)
                                                                       ---------------    ---------------    ---------------

 Cash flows from financing activities:
   Proceeds from Issuance of long-term debt                                   667,429            214,455          6,389,039
   Borrowings from long-term debt                                             700,000          1,300,000                  -
   Reduction in long-term debt                                             (1,590,216)        (2,294,985)        (3,859,325)
   Purchase of treasury stock                                                (372,709)          (995,981)                 -
   Common stock purchased and retired                                               -            (48,375)                 -
   Debt Issuance costs                                                              -                  -           (198,864)
   Proceeds from Issuance of common stock                                           -                  -             99,000
   Preferred stock conversion costs                                                 -            (21,486)          (329,914)
                                                                       ---------------    ---------------    ---------------
 Net cash provided by (used in) financing activities                         (595,496)        (1,846,372)         2,099,936
                                                                       ---------------    ---------------    ---------------
 Effect of exchange rate changes on cash                                       14,117             12,012             (1,929)
                                                                       ---------------    ---------------    ---------------
 Net increase (decrease) in cash and cash equivalents                         218,860             63,795           (648,726)
 Cash and cash equivalents at beginning of year                             2,092,073          2,028,278          2,677,004
                                                                       ---------------    ---------------    ---------------
 Cash and cash equivalents at end of year                                  $2,310,933         $2,092,073         $2,028,278
                                                                       ===============    ===============    ===============
</TABLE>

         See accompanying notes to consolidated financial statements.

                                       29
<PAGE>

Notes to Consolidated Financial Statements
For the Years Ended June 30, 2001, 2000 and 1999

Note 1.  The Company and Summary of Significant Accounting Policies

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

         Emons Transportation Group, Inc. ("Emons Transportation Group") is a
rail freight transportation and distribution services company serving the
Mid-Atlantic and Northeast regions of the United States and Quebec, Canada.
Emons Transportation Group and its subsidiaries (collectively the "Company") own
four short line railroads, operate rail/truck transfer facilities and a rail
intermodal terminal, and provide customers with warehousing and 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.  Revenue Recognition
             -------------------

         Freight revenues are recognized as rail shipments initially move onto
the Company's rail lines which, due to the relatively short length of haul,
approximates the recognition of revenues as shipments progress.

         e.  Cash and Cash Equivalents
             -------------------------

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

         f.  Materials and Supplies
             ----------------------

         Materials and supplies used for the maintenance of railroad track
structures and equipment are stated at the lower of cost or market.

         g.  Properties
             ----------

         Property, plant and equipment are carried at cost less accumulated
depreciation. 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.

                                       30
<PAGE>

         Property, plant and equipment at June 30, 2001 and 2000 consists of the
following:

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

                Land and railroad track structures   $ 34,266,285  $ 31,950,498
                Equipment                               7,419,072     7,198,643
                Buildings                               2,382,155     2,372,087
                Other                                     307,648       276,904
                                                     ------------  ------------
                                                       44,375,160    41,798,132
                Less accumulated depreciation          15,822,102    14,052,185
                                                     ------------  ------------
                                                     $ 28,553,058  $ 27,745,947
                                                     ============  ============

         h.  Deferred Financing Costs
             ------------------------

         Deferred financing costs are amortized over the terms of the related
agreements using the straight-line method of amortization.

         i.  Earnings Per Share
             ------------------

         Basic earnings per common share is computed by dividing income
applicable to common shareholders by the weighted average number of common
shares outstanding during the period. Diluted earnings per common share is
computed by dividing income applicable to common shareholders by the weighted
average number of common shares and dilutive potential common shares outstanding
during the period.

         j.  Foreign Currency Translation
             ----------------------------

         The financial statements of the St. Lawrence & Atlantic Railroad
(Quebec) Inc. ("SLQ"), the Company's Canadian subsidiary, are maintained in its
functional currency, Canadian dollars. The assets and liabilities of SLQ have
been translated into U.S. dollars using the current exchange rate in effect as
of the balance sheet date, while results of operations have been translated into
U.S. dollars at the average exchange rate in effect during the applicable
period. Foreign currency translation adjustments are recorded in Stockholders'
Equity, while gains and losses resulting from foreign currency transactions are
included currently in income. The Company recognized foreign currency losses of
approximately $7,000 in fiscal 2001 and $19,000 in fiscal 2000, and a foreign
currency gain of approximately $28,000 in fiscal 1999.

         k.  Stock-Based Compensation
             ------------------------

         The Company accounts for stock options issued under its stock option
plans in accordance with Accounting Principles Board Opinion No. 25 and,
accordingly, no compensation expense has been recognized in the Company's
financial statements. The Company has adopted the disclosure requirements of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123") which are provided in Note 12, "Stock-Based
Compensation and Warrants."

Note 2.  Acquisition of Railroad Operations

         On November 25, 1998, the Company's newly-created, wholly-owned
subsidiary, SLQ, entered into an Asset Purchase Agreement to acquire a 94-mile
rail line in Quebec, Canada (the "Sherbrooke Line") from the Canadian National
Railway Company ("CN") for $4,575,000, plus $248,000 of capitalized acquisition
costs. The acquisition was completed on December 21, 1998. The Sherbrooke Line
connects with CN's Halifax-to-Montreal main line at Ste. Rosalie, Quebec, and
the Company's St. Lawrence & Atlantic Railroad ("SLR") at the Quebec/Vermont
international border. SLQ commenced operations on December 1, 1998 under an
interim operating arrangement provided for in the Asset Purchase Agreement.

                                       31
<PAGE>

         In August 1999, the Company received notice from the owner of four of
the rail lines leased by Penn Eastern Rail Lines ("PRL") of its intention to
offer these lines for sale. On January 28, 2000, PRL submitted a proposal to
exercise its right of first refusal to purchase two of the four leased lines and
purchased these lines in August 2000 for $694,928.

Note 3.  Supplemental Cash Disclosures

         a.  Cash Payments
             -------------

         The Company made the following cash payments for the fiscal years ended
June 30, 2001, 2000 and 1999:

                                           2001          2000           1999
                                        ----------    -----------    ----------

                 Interest                $ 994,285    $ 1,042,882     $ 951,604
                 Income Taxes              101,000        165,460        93,074

         b.  Non-cash Investing and Financing Activities
             -------------------------------------------

         During fiscal 2000 and 1999, the Company repurchased and retired 11,539
and 3,093 shares of restricted Common Stock, respectively, and issued 15,000 and
7,250 shares of Common Stock, respectively, pursuant to the 1986 and 1996 Stock
Option Plans.

Note 4.  Earnings Per Share

         Earnings per share amounts for the fiscal years ended June 30, 2001,
2000 and 1999 are computed as follows:

<TABLE>
<CAPTION>
                                                          For the Year Ended June 30, 2001
                                                  -------------------------------------------------
                                                      Income               Shares            EPS
                                                  ---------------      ---------------     --------
     <S>                                          <C>                  <C>                 <C>
     Basic EPS
        Income applicable to common
           shareholders                           $   3,323,999            7,092,327       $  0.47
                                                                                           =======

     Effect of Dilutive Securities
        Stock options and warrants                        ---                180,516
                                                  -------------        -------------

     Diluted EPS
        Income applicable to common
             shareholders plus assumed
             conversions                          $   3,323,999            7,272,843       $  0.46
                                                  =============        =============       =======
</TABLE>

<TABLE>
<CAPTION>
                                                          For the Year Ended June 30, 2000
                                                  -------------------------------------------------
                                                      Income               Shares            EPS
                                                  ---------------      ---------------     --------
     <S>                                          <C>                  <C>                 <C>
     Basic EPS
        Income applicable to common
           shareholders                           $   1,693,989            7,499,933       $  0.23
                                                                                           =======

     Effect of Dilutive Securities
        Stock options and warrants                        ---                250,417
                                                  -------------        -------------

     Diluted EPS
        Income applicable to common
             shareholders plus assumed
             conversions                          $   1,693,989            7,750,350       $  0.22
                                                  =============        =============       =======
</TABLE>

                                       32
<PAGE>

<TABLE>
<CAPTION>
                                                          For the Year Ended June 30, 1999
                                                  -------------------------------------------------
                                                      Income               Shares            EPS
                                                  ---------------      ---------------     --------
     <S>                                          <C>                  <C>                 <C>
     Net Income                                   $   2,707,308
        Less:
           Preferred dividend requirements              103,949
           Preferred stock conversion
              premium                                   704,898
                                                  -------------

     Basic EPS
        Income applicable to common
           shareholders                           $   1,898,461            6,114,126       $  0.31
                                                                                           =======

     Effect of Dilutive Securities
        Stock options and warrants                           ---             385,606
        Convertible preferred stock                     103,949            1,336,486
                                                  -------------        -------------

     Diluted EPS
        Income applicable to common
             shareholders plus assumed
             conversions                          $   2,002,410            7,836,218       $  0.26
                                                  =============        =============       =======
</TABLE>

Note 5.  Long-Term Debt

         Long-term debt at June 30, 2001 and 2000 consists of the following:

<TABLE>
<CAPTION>
                                                                                2001                2000
                                                                           ---------------     ---------------
  <S>                                                                      <C>                 <C>
  A Term Loan Facility                                                     $    4,046,956      $    4,546,956
  B Term Loan Facility                                                          1,441,000           1,441,000
  Canadian Term Loan Facility                                                   4,346,692           4,449,814
  SLR $1,500,000 Promissory Note                                                  806,239           1,013,126
  SLR 1994 Track Rehabilitation Assistance Loan
     from the State of Maine                                                      431,222             474,344
  SLR 1995 Track Rehabilitation Assistance Loan
     from the State of Maine                                                      254,608             298,329
  SLR 1995 Track Rehabilitation Assistance Loan
     from the State of New Hampshire                                            1,062,665           1,103,417
  Capital Lease Obligations - Locomotives, interest at 7.5%                       392,613             441,920
  Multi-year Insurance Policies Financing, interest at 8.16%                      558,300              99,445
  Other Loans, interest at 10.6%                                                    1,583               6,324
                                                                           --------------      --------------
                                                                               13,341,878          13,874,675
  Less current portion                                                          2,456,084             492,138
                                                                           --------------      --------------
                                                                           $   10,885,794      $   13,382,537
                                                                           ==============      ==============
</TABLE>

         At June 30, 2001, the prime rate was 6.75%, the one- and three-month
eurodollar ("LIBOR") rates were 3.835% and 3.79%, respectively, and the one- and
three-month Canadian Dollars bankers' acceptance ("CDOR") rates were 4.55% and
4.523%, respectively.

         On August 15, 1997, the Company entered into a Loan and Security
Agreement (the "Original Loan Agreement") which provided a $7,775,000 seven-year
revolving term loan (the "A Term Loan") and a $2 million working capital
facility. Interest on both the A Term Loan and working capital facility
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 0.0% to 0.5% for prime based borrowings, and from 2% to 3%
for eurodollar based borrowings, depending upon the Company's financial
performance. The applicable margin at June 30, 2001 was 0.0% for prime base
borrowings and 2.25% for eurodollar based borrowings.

                                       33
<PAGE>

         On December 21, 1998, the Company entered into an Amended and Restated
Loan and Security Agreement (the "Amended Loan Agreement") with its lender which
provided an additional $4,469,450 seven-year term loan (the "Canadian Term
Loan") and a $2 million three-year term loan (the "B Term Loan") to finance the
acquisition of the Sherbrooke Line and related expenditures. The Canadian Term
Loan is payable in Canadian dollars. Interest on the Canadian Term Loan is based
upon the bank's prime rate or CDOR rate, plus an applicable margin, at the
option of the Company. The applicable margin ranges from 0.0% to 0.5% for prime
based borrowings, and from 2% to 3% for CDOR based borrowings, depending upon
the Company's financial performance. The applicable margin at June 30, 2001 was
0.0% for prime base borrowings and 2.25% for CDOR based borrowings. Interest on
the B Term Loan is based upon the bank's prime rate plus 0.5% or the eurodollar
rate plus 3%, at the option of the Company. In addition, the Company is required
to pay an additional loan fee every six months of 1% on the B Term Loan balance
outstanding.

         On August 20, 2001, the Company and its lender amended the Amended Loan
Agreement to modify the payment due date of the $1,441,000 balance outstanding
under its B Term Loan Facility, to extend the expiration date of its working
capital facility through March 31, 2004, and to amend certain covenants, in
return for minor rate adjustments. Under the amendment, the Company is required
to pay $441,000 of the B Term Loan on or before December 31, 2001, the original
due date, and the remaining $1 million will be repaid in quarterly installments
of $55,000 through December 31, 2005, at which time any remaining balance
outstanding is due, as reflected in the accompanying Consolidated Balance
Sheets.

         Borrowings under the working capital facility are limited based upon
eligible accounts receivable as defined in the Amended Loan Agreement. As of
June 30, 2001, the Company had no borrowings and had approximately $1.8 million
available in accordance with the facility's eligibility criteria. The non-use
fee on the working capital facility ranges from 0.375% to 0.5%, based upon the
Company's financial performance, and was 0.375% at June 30, 2001.

         The Company is required to make additional principal payments equal to
50% of "Excess Cash Flow," as defined in the Amended Loan Agreement within 120
days after the end of each fiscal year, 50% of the net cash proceeds from the
sale of the Company's capital stock in excess of $3 million, and the net cash
proceeds from the sale of property of the Company in excess of a minimum amount.
The Excess Cash Flow payment required based upon the Company's operating results
for the year ended June 30, 2001 is estimated to total $335,000. The amount of
the Excess Cash Flow payment will reduce the $441,000 due on December 31, 2001
under the B Term Loan Facility.

         All borrowings under the term loans and working capital facility are
secured by all of the assets of the Company, and the Amended Loan 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, lease commitments, and the payment of dividends. As of June 30,
2001, the Company is in compliance with its covenants.

         The Original Loan Agreement required the Company to enter into an
interest rate contract with respect to a principal amount of at least one-half
of the available A Term Loan balance. Accordingly, on September 23, 1997, the
Company entered into a five-year interest rate swap agreement under which the
Company fixed its LIBOR interest rate at 6.28% on one-half of the scheduled
available term loan balance outstanding per the Original Loan Agreement. In
addition, the Amended Loan Agreement required the Company to enter into an
interest rate contract with respect to the principal amount of at least one-half
of the Canadian Term Loan balance. On January 21, 1999, the Company entered into
a five-year interest rate swap agreement under which the Company fixed its CDOR
interest rate at 5.33% on one-half of the Canadian term loan balance. The fair
value of the LIBOR and CDOR interest rate swap agreements at June 30, 2001
aggregated approximately $60,000, reflecting the recent decline in interest
rates, and is included in Other liabilities in the accompanying Consolidated
Balance Sheets.

         The $1,500,000 Promissory Note is being amortized on a quarterly basis
over a seven-year period commencing October 1, 1997, without any principal or
interest payment requirements at an assumed interest rate of 8.5%, provided that
the Company continues to own and operate SLR. Principal payments amortized in
fiscal 2001, 2000 and 1999 totaled $206,888, $189,545 and $174,855,
respectively, and

                                       34
<PAGE>

interest forgiven in fiscal 2001, 2000 and 1999 totaled $79,637, $96,979 and
$111,669, respectively. The SLR $1,500,000 Promissory Note is subordinated to
the term loans and working capital facility.

         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 semiannual installments of $21,561 through
June 30, 2011. 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. This additional term loan is payable in semiannual
installments of $23,158. In fiscal 1995, the state of New Hampshire awarded SLR
a $1,150,000, 4.95% track rehabilitation assistance term loan. This term loan is
payable in quarterly installments of $23,656, including principal and interest,
through December 2017.

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


                            Fiscal Year            Amount Due
                          ---------------        --------------

                                2002             $   2,456,084
                                2003                 2,471,553
                                2004                 2,553,944
                                2005                 3,127,792
                                2006                 1,667,936

         The carrying value of debt obligations outstanding approximates market
value.

Note 6. Derivatives

         On July 1, 2000, the Company adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("FAS 133"). FAS 133 establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires that companies
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure the derivatives at fair value. The Company has
entered into two interest rate hedging transactions that constitute cash flow
hedges under FAS 133.

         In accordance with the September 1997 Original Loan Agreement and the
December 1998 Amended Loan Agreement, respectively, the Company entered into a
five-year interest rate swap agreement under which the Company fixed its LIBOR
interest rate at 6.28% on one-half of the scheduled available A Term Loan
balance outstanding and in January 1999, entered into a five-year interest rate
swap agreement under which the Company fixed its CDOR interest rate at 5.33% on
one-half of the Canadian Term Loan balance outstanding.

         The Company's objective for entering into these interest rate hedging
transactions is to hedge the Company's exposure to fluctuations in the variable
interest rates on the A Term Loan and the Canadian Term Loan as required by the
respective loan agreements. As a result, on July 1, 2000, the Company designated
these instruments as cash flow hedging instruments and, accordingly, the net
gain or loss on such instruments is reported in comprehensive income in
accordance with FAS 133. The loss, net of income taxes, for the year ended June
30, 2001 is as follows:

                Cumulative effect of change in accounting
                   principal for derivatives - July 1, 2000     $   60,302
                Change in fair value                               (95,274)
                Reclassification to earnings                        (1,904)
                                                                ----------

                Net loss for period                             $  (36,876)
                                                                ==========

The Company has reported the fair value of its cash flow hedging derivatives in
Other liabilities in the accompanying Consolidated Balance Sheets, and expects
to reclassify approximately $30,000, net of taxes, of the existing losses in
comprehensive income to earnings in fiscal 2002.

                                       35
<PAGE>

Note 7.  Commitments

         a.  Lease Commitments

         Capital Leases
         --------------

         In December 1997, the Company entered into sale-leaseback transactions
for the sale of ten locomotives in the amount of $557,000, which have been
accounted for as capital leases. The locomotives are leased for a period of
seven years, and the lease includes a buyout for approximately 35% of the sales
value at the end of the seventh year.

         Operating Leases
         ----------------

         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. The lease agreement dated July 19, 1994, includes an initial term
of 20 years, three optional ten-year renewal periods, and a purchase option
after the third renewal.

         SLR leases all of the track, consisting of approximately 11 miles, and
property owned by the Berlin Mills Railway Company. SLR is required to make
monthly lease payments of $8,333, adjusted annually by an escalation provision
based upon a specified railroad inflation index. The lease agreement, which
commenced on November 1, 1997, includes an initial term of ten years and a
five-year renewal option.

         PRL currently leases one rail line that includes an initial five-year
lease term that expires in December 2002 and three successive five-year renewal
options, and which provides PRL with a right of first refusal in the event of
sale.

         Future Minimum Lease Payments
         -----------------------------

         Future minimum lease commitments under non-cancelable leases as of June
30, 2001 are as follows:

<TABLE>
<CAPTION>
                                                                        Operating             Capital
                                  Fiscal Year                            Leases                Leases
                 -----------------------------------------------    ------------------    -----------------
                 <S>                                                <C>                   <C>
                                      2002                          $      752,735        $      80,595
                                      2003                                 751,850               80,595
                                      2004                                 730,760               80,595
                                      2005                                 642,551              228,534
                                      2006                                 615,445                  ---
                                      2007 and thereafter                2,860,233                  ---
                                                                    --------------        -------------
                 Total future minimum lease payments                $    6,353,574              470,319
                                                                    ==============
                 Less - amount representing interest,
                    at 7.5%                                                                     (77,706)
                                                                                          -------------
                 Present value of future minimum lease
                    payments                                                              $     392,613
                                                                                          =============
</TABLE>

         Rent expense totaled $1,440,164, $1,221,287 and $1,269,331 for the
fiscal years ended June 30, 2001, 2000 and 1999, respectively.

         b.  Purchase Commitments

         In March 2001, the Company entered into an agreement to purchase rail
and related materials for approximately $1.5 million over the next four years in
conjunction with a rail replacement project on SLR in New England. In June 2001,
SLR entered into a purchase contract with its primary fuel supplier to purchase
546,000 gallons of diesel fuel in the period November 1, 2001 through April 30,
2002 at prices ranging from $0.8544 to $0.8794 per gallon.

                                       36
<PAGE>

Note 8.  Stockholders' Equity

         a.  Stockholder Rights Plan
             -----------------------

         On April 23, 1999, the Board of Directors of the Company voted to adopt
a Stockholder Rights Plan and declared a dividend distribution of one Right for
each outstanding share of Common Stock of the Company to stockholders of record
on May 10, 1999. Each Right entitles the registered holder to purchase one or
more shares of the Company's Common Stock in accordance with the terms of the
Rights Agreement. The Rights expire on May 10, 2009.

         b.  Preferred Stock
             ---------------

         At a Special Meeting of the Stockholders of the Company held on June
29, 1999, the shareholders voted to approve the merger of ETG Merger Corporation
into Emons Transportation Group, Inc. (the "Merger"), resulting in the exchange
of each share of the Company's outstanding $0.14 Series A Cumulative Convertible
Preferred Stock ("Convertible Preferred Stock") into 1.1 shares of the Company's
Common Stock. As a result of the Merger, the Company converted 1,485,543 shares
of its Convertible Preferred Stock into 1,633,788 shares of Common Stock. This
represents an inducement premium of 296,799 shares of Common Stock in excess of
the 0.9 conversion rate offered under the original terms of the Convertible
Preferred Stock. The estimated fair market value of the conversion premium in
the amount of $704,898, based upon the average closing bid and ask price of the
Company's Common Stock of $2.375 on the date of the Merger, has been charged to
income applicable to common shareholders for fiscal 1999 in the accompanying
Consolidated Statement of Operations. The conversion premium charged to income
applicable to common shareholders reduced fiscal 1999 basic and diluted earnings
per share by $0.12 and $0.09, respectively. Dividends in arrears that were
eliminated as a result of the Merger aggregated $1,767,796 as of June 29, 1999.

         c.  Stock Repurchase Program
             ------------------------

         On March 8, 2000, the Company repurchased 310,450 shares of its Common
Stock for $506,000. On March 20, 2000, the Company's Board of Directors, with
the approval of the Company's lender, authorized a stock repurchase program for
the Company's Common Stock up to an aggregate price of $2 million, including the
previously acquired 310,450 shares. As of June 30, 2001, the Company had
repurchased 861,788 shares of its Common Stock for $1,415,816, of which 832,788
shares were held in treasury and 29,000 shares were retired. In addition, the
Company paid $20,000 to retire warrants to purchase 50,000 shares of Common
Stock at an exercise price of $1.125 per share which were due to expire in July
2000.

Note 9.  Income Taxes

         The provision for income taxes for the years ended June 30, 2001, 2000
and 1999 is comprised of the following:

<TABLE>
<CAPTION>
                                              2001                2000                 1999
                                        -----------------    ----------------     ---------------
                   <S>                  <C>                  <C>                  <C>
                   Current:
                      Federal           $        55,000      $        55,000      $       60,000
                      State                      85,000              115,000              90,000
                      Foreign                     2,000                6,000              75,000
                                        ---------------      ---------------      --------------
                   Total current                142,000              176,000             225,000
                                        ---------------      ---------------      --------------
                   Deferred:
                      Federal                  (726,000)             911,000            (179,000)
                      State                       4,000               15,000             (55,000)
                                        ---------------      ---------------      --------------
                   Total deferred              (722,000)             926,000            (234,000)
                                        ---------------      ---------------      --------------

                   Total                $      (580,000)     $     1,102,000      $       (9,000)
                                        ================     ===============      ==============
</TABLE>

                                       37
<PAGE>

     The Company utilized approximately $2.5 million of federal and $1 million
of state net operating loss carryforwards in computing the fiscal 2001 current
provision for income taxes. At June 30, 2001, the Company had approximately
$31.5 million of federal net operating loss carryforwards available that expire
in various years from fiscal 2002 through fiscal 2008, a significant portion of
which expire in fiscal 2002.

     Deferred tax assets and liabilities are comprised of the following at June
30, 2001 and 2000:

<TABLE>
<CAPTION>
                                                                       2001                 2000
                                                                 -----------------   -----------------
               <S>                                               <C>                 <C>
               Deferred tax assets:
                  Accrued expenses                               $     1,108,000     $     1,111,000
                  Net operating loss carryforwards                    10,876,000          11,688,000
                                                                 ---------------     ---------------
                                                                      11,984,000          12,799,000
                  Valuation allowance                                 (7,899,000)         (9,395,000)
                                                                 ---------------     ---------------
                                                                       4,085,000           3,404,000
               Deferred tax liabilities:
                  Property, plant and equipment                       (2,234,000)         (2,275,000)
                                                                 ---------------     ---------------

               Net deferred tax asset                            $     1,851,000     $     1,129,000
                                                                 ===============     ===============
</TABLE>

     The valuation allowance has been provided to reduce the deferred tax
assets, which relate principally to the Company's net operating loss
carryforwards, to the estimated recoverable amount based upon the estimated
utilization of the deferred tax assets. The Company continually reassesses the
estimated amount of deferred tax assets that it believes it will be able to
utilize in the future. In the fourth quarter of fiscal 2001, based upon an
analysis of expected future income and the expiration of certain net operating
loss carryforward periods, the Company reduced the valuation allowance and
recognized an additional $1,572,000 of deferred tax benefits relating to its
federal net operating loss carryforwards. In fiscal 1999, based upon tax
planning strategies implemented in connection with the acquisition of the
Sherbrooke Line from the Canadian National Railway in December 1998, the Company
reduced the valuation allowance and recognized $1.1 million of deferred tax
benefits relating to its federal net operating loss carryforwards. The Company
reduced the valuation allowance in fiscal 2001 and 1999 because its
reassessments indicated that it was more likely than not that the benefits would
be realized. The recognition of deferred tax benefits relating to the Company's
federal net operating loss carryforwards in fiscal 2001 and 1999 had the impact
of increasing diluted earnings per share by $0.22 and $0.14, respectively, and
basic earnings per share by $0.22 and $0.18, respectively.

     A reconciliation of the difference between the United States statutory
federal income tax rate and the Company's effective income tax rate for the
years ended June 30, 2001, 2000 and 1999 is as follows:

<TABLE>
<CAPTION>
                                                              2001              2000             1999
                                                          --------------    -------------    --------------
               <S>                                        <C>               <C>              <C>
               United States statutory tax rate                 34.0%             34.0%            34.0%
               State income taxes, net of
                  federal income taxes                           2.1               3.1              0.9
               Foreign income taxes                             (0.9)              3.1              4.8
               Reduction of prior valuation
                  allowance against net
                  operating loss carryforwards                 (57.0)             (1.8)           (40.6)
               Other, net                                        0.7               1.0              0.6
                                                          ----------        ----------       ----------

               Effective tax rate                              (21.1)%            39.4%            (0.3)%
                                                          ==========        ==========       ==========
</TABLE>

Note 10.  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, and Quebec, Canada, many of whom are involved in
the pulp and paper industry.

                                       38
<PAGE>

     One customer accounted for approximately 10.5% of the Company's fiscal
2001, 2000 and 1999 total operating revenues. Another customer, which accounted
for approximately 9% of fiscal 2001 operating revenues, filed for protection
under Chapter 11 of the United States Bankruptcy Code on September 10, 2001. The
Company has provided an adequate allowance for any potential collection losses
associated with this customer.

Note 11.  Contingencies

     Certain subsidiaries of the Company are currently subject to a number of
claims and legal actions that arise in the ordinary course of business,
including claims under the Federal Employers' Liability Act, a fault-based
system under which injuries to and deaths of railroad employees are settled by
negotiations or litigation based upon comparative negligence. The Company
believes that it has adequate insurance coverage and has provided adequate
reserves for any liabilities which may result from the ultimate outcome of these
claims, and that such claims will not have a material impact on the Company's
results of operations or financial position.

     a.  Product Liability Actions
         -------------------------

     Prior to March 1971, under previous management, Emons Industries, Inc.
("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, 2001, Industries was one of numerous defendants (including
many of the largest pharmaceutical manufacturers) in 158 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, 153 were commenced after the confirmation by the
United States Bankruptcy Court for the Southern District of New York (the
"Bankruptcy Court") of Industries' Reorganization Plan in December 1986 (the
"Plan"), while the remaining five lawsuits are claims which will be treated
under the Plan. These actions are currently in various stages of litigation. Of
these 158 lawsuits, 62 have been settled in principle at no liability to
Industries with one attorney representing all 62 plaintiffs. Industries is
currently awaiting execution of the settlement documents in these cases.

     On April 16, 1998, the Bankruptcy Court granted Industries' motion for
summary judgment declaring that the post-confirmation lawsuits represent claims
which should be asserted against Industries' Chapter 11 estate and are not post-
reorganization liabilities. A formal judgment was entered by the court on May 6,
1998. In September 1998, one counsel representing multiple DES claimants
appealed the Bankruptcy Court's judgment to the United States District Court. On
April 3, 2001, the District Court dismissed this appeal as moot. On May 2, 2001,
these claimants filed a Notice of Appeal to the United States Court of Appeals
for the Second Circuit. This appeal is currently pending. If the Bankruptcy
Court and District Court's judgments are upheld on appeal, amounts payable for
settlements of or judgments on these post-confirmation lawsuits will be paid
from the escrow account established under the Plan.

     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 exhausted insurance coverage for the 1954 policy year, in which
11 cases remained pending as of June 30, 2001. Industries, and not its insurer,
will be required to pay the direct legal expenses in connection with claims in
policy years for which coverage has been exhausted. However, to the extent that
the Bankruptcy Court and District Court's judgments referred to above are upheld
(with the result that post-confirmation claims must be asserted against
Industries' Chapter 11 estate), Industries will not be required to pay any
amounts for settlements of or judgments on such claims in excess of the amounts
already set aside in escrow under the Plan. During the period July 1, 2000 to
June 30, 2001, eight new actions were commenced in which Industries was named as
a defendant and 387 lawsuits were settled or dismissed at no liability to
Industries.

                                       39
<PAGE>

     Management intends to vigorously defend all of these actions. In the event
that the Bankruptcy Court and District Court's decisions referred to above are
reversed by the Court of Appeals, it is possible that Industries could
ultimately have liability in these actions in excess of its product liability
insurance coverage described above. However, based upon Industries' experience
in prior DES litigation, including the proceedings before the Bankruptcy Court,
and its current knowledge of pending cases, the Company believes that it is
unlikely that Industries' ultimate liability in the pending cases, if any, in
excess of insurance coverage and existing reserves, will be in an amount
sufficient to have a material adverse effect upon the Company's consolidated
financial position or results of operations.

     b.  Environmental Liability
         -----------------------

     During fiscal 1994, the Company's Maryland and Pennsylvania Railroad, which
was merged into York Railway Company ("YRC") on December 1, 1999, discovered a
diesel fuel oil spill at its locomotive maintenance facility in York,
Pennsylvania resulting from the fueling of its locomotives. YRC has been
performing additional testing and has been working with the Pennsylvania
Department of Environmental Protection ("PADEP") to investigate and, to the
extent necessary, remediate the contaminated area. In January 1997, as a result
of these testing activities, YRC discovered free product in some of its
monitoring wells. The Company estimates that the cost to remediate the free
product could potentially range from $130,000 to $225,000, although the final
costs have not yet been determined. The Company has provided sufficient reserves
for the anticipated remediation costs. PADEP could also potentially require
further investigation and, to the extent necessary, remediation of ground water
and/or soils at this facility at some point in the future. However, the Company
cannot determine at this time whether PADEP will require further investigation
and remediation, or what the ultimate costs of addressing this matter may be or
what effect, if any, they could have upon the Company's consolidated financial
position or results of operations.

Note 12.  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 "Stock Option Plan"), which replaced the Company's
expiring 1986 Stock Option Plan. The terms of the new Stock Option Plan are
substantially the same as the terms of the 1986 Stock Option Plan. The Stock
Option Plan provides for the issuance of a maximum of 500,000 shares of the
Company's Common Stock to key employees. Under the Stock Option 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 2001, the Company issued options to purchase 53,500 shares
of the Company's Common Stock under the Stock Option Plan at prices ranging from
$1.6875 to $1.925, which vest over five years. As of June 30, 2001, 59,100
options were available for issuance under the Stock Option Plan. On March 20,
2000, the Compensation Committee of the Board of Directors accelerated the
exercise date of all currently unexercisable portions of outstanding stock
options granted to certain employees of the Company prior to March 20, 1999,
which resulted in the acceleration of 198,000 options.

     Separate from the above plans, the Company has granted stock options to its
non-employee directors on various dates from fiscal 1993 through fiscal 2000 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. In addition, in March 2000, the Company issued
130,000 non-qualified stock options to certain employees at an exercise price
equal to the fair market value of the stock on the date of grant which vested
immediately.

                                       40
<PAGE>

     A summary of stock option activity under the Company's stock option plans
is as follows:

<TABLE>
<CAPTION>
                                                                                 Option Price per Share
                                                                     -----------------------------------------------
                                                  Stock Options              Range               Weighted Average
                                                -----------------    --------------------    -----------------------
            <S>                                 <C>                  <C>                     <C>
            Balance at June 30, 1998                   924,000          $0.81  -  $3.91              $1.93
               Options granted                         143,000           2.09  -   2.72               2.49
               Options exercised                        (7,250)          1.00  -   1.88               1.21
               Options forfeited                       (10,750)          1.00  -   3.22               2.11
                                                --------------
            Balance at June 30, 1999                 1,049,000           0.81  -   3.91               2.01
               Options granted                         238,500           1.72  -   2.19               2.01
               Options exercised                       (15,000)               1.25                    1.25
               Options forfeited                       (31,500)          2.09  -   3.91               3.05
                                                --------------
            Balance at June 30, 2000                 1,241,000           0.81  -   3.91               2.00
               Options granted                          53,500           1.69  -   1.93               1.85
               Options exercised                             -                 -                        -
               Options forfeited                      (110,600)          1.69  -   3.25               2.35
                                                --------------
            Balance at June 30, 2001                 1,183,900           0.81  -   3.91               1.95
                                                ==============
</TABLE>

<TABLE>
<CAPTION>
                                              June 30, 2001         June 30, 2000        June 30, 1999
                                             -----------------    ------------------    -----------------
            <S>                              <C>                  <C>                   <C>
            Options exercisable                   1,009,297             1,036,666              612,666
            Weighted average exercise price    $       1.93          $       1.94           $     1.51
</TABLE>

     A summary of stock option information regarding options outstanding at June
30, 2001 is as follows:

<TABLE>
<CAPTION>
                                         Weighted           Weighted            Stock             Weighted
     Range of          Unexercised        Average           Average            Options            Average
     Exercise             Stock          Remaining          Exercise          Currently           Exercise
      Prices             Options        Life (Years)         Price           Exercisable           Price
      ------             -------        -----------          -----           -----------           -----
   <S>                 <C>              <C>                 <C>              <C>                  <C>
   $0.75 - $1.25          435,000              3.5            $1.03              435,000            $1.03
    1.26 -  2.25          343,000              8.2             1.92              201,865             1.92
    2.26 -  3.25          375,900              6.4             2.91              342,432             2.92
    3.26 -  4.00           30,000              7.7             3.91               30,000             3.91
                      -----------                                            -----------
       Total            1,183,900              5.9             1.95            1,009,297             1.93
                      ===========                                            ===========
</TABLE>

     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 FAS 123 for the
years ended June 30, 2001, 2000 and 1999 would have been as follows:

<TABLE>
<CAPTION>
                                             2001              2000                1999
                                       ---------------    --------------     --------------
            <S>                        <C>                <C>                <C>
            Net income:
               As reported               $ 3,323,999       $ 1,693,989        $ 2,707,308
               Pro forma                   3,300,269           997,661          2,465,490

            Basic earnings per share:
               As reported               $      0.47       $      0.23        $      0.31
               Pro forma                        0.47              0.13               0.27

            Diluted earnings per share:
               As reported               $      0.46       $      0.22        $      0.26
               Pro forma                        0.45              0.13               0.22

            Weighted average fair value
               of options granted        $      1.34       $      1.52        $      1.84
</TABLE>

                                       41
<PAGE>

     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 FAS 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 FAS 123 been applied to prior years, and may not be indicative of
compensation cost under FAS 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, 2001, 2000 and 1999 was estimated using the Black-Scholes option-
pricing model using the following assumptions:

<TABLE>
<CAPTION>
                                                      2001              2000             1999
                                                 -------------     -------------    ------------
                    <S>                          <C>               <C>              <C>
                    Weighted average:
                        Risk-free interest rate        5.70%             7.21%           5.10%
                        Expected life               10 years          10 years        10 years
                        Expected volatility            56.4%             58.1%           60.1%
                        Expected dividend yield         0.0%              0.0%            0.0%
</TABLE>

     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, 2001,
2000 and 1999, 207,350, 264,350 and 270,350 shares were available for issuance,
respectively. A summary of activity under the Company's Restricted Stock Plan is
as follows:

<TABLE>
<CAPTION>
                                                           2001             2000             1999
                                                       -------------    ------------     ------------
                    <S>                                <C>              <C>              <C>
                    Awards:
                       Shares                              62,000           40,000           57,000
                       Fair value at date of grant     $  110,885       $   78,024       $  142,855

                    Cancellations:
                       Shares                               5,000           34,000           12,900
                       Fair value at date of grant     $   10,607       $   97,021       $   17,101

                    Compensation expense               $   52,488       $   68,193       $  104,181
</TABLE>

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

     At June 30, 2001, the Company had warrants outstanding to purchase up to
60,000 shares of Common Stock at prices ranging from $2.625 to $2.75 per share.


Note 13.  Related Party Transactions

     In February 2001, the Company entered into a short-term lease agreement for
the lease of eight locomotives from a leasing company, of which a director of
the Company is a vice president. The original lease term, which commenced in
March 2001, was for 120 days at a rate of $255 per day per locomotive. In June
2001, the Company extended the lease term for an additional 60 days and provided
for the continuation of this lease on a month-to-month basis thereafter.

     In September 2001, the Company entered into a five year lease agreement for
the lease of nine locomotives from the same leasing company at rates ranging
from $120 to $134 per day per locomotive. The lease agreement also includes an
option to purchase the locomotives at the end of the lease term. The Company
will continue to lease the eight locomotives referred to above at a reduced rate
of $200 per day until the locomotives under the five year lease are delivered,
which is scheduled to take place prior to the end of calendar 2001.

                                       42
<PAGE>

Note 14.  Segment Information

         The Company identifies its reportable segments by the geographic region
in which each segment operates. All of the Company's principal operating
segments, which involve the operation of short line railroads, have similar
economic characteristics. As a result, all of the Company's reportable segments
have been aggregated into one segment for purposes of Statement of Financial
Accounting Standard No. 131, "Disclosures about Segments of an Enterprise and
Related Information."

         Financial information by geographic area is as follows:

<TABLE>
<CAPTION>
                                                                    Year Ended June 30,
                                                  ---------------------------------------------------------
                                                       2001                 2000                1999
                                                  ----------------     ----------------    ----------------
<S>                                               <C>                  <C>                 <C>
     Operating revenues
        United States                             $ 19,754,439         $ 19,780,445        $ 19,864,916
        Canada                                       5,689,097            5,466,802           3,085,169
                                                  ------------         ------------        ------------
     Total operating revenues                     $ 25,443,536         $ 25,247,247        $ 22,950,085
                                                  ============         ============        ============

     Identifiable assets
        United States                             $ 29,761,816         $ 27,884,230        $ 28,564,478
        Canada                                       7,184,049            6,757,815           6,461,386
                                                  -----------          ------------        ------------
     Total identifiable assets                    $ 36,945,865         $ 34,642,045        $ 35,025,864
                                                  ============         ============        ============
</TABLE>

Note 15.  Quarterly Financial Data (Unaudited)

<TABLE>
<CAPTION>
                                                                   Three Months Ended
                                           --------------------------------------------------------------------
                                             September 30       December 31        March 31        June 30
                                             ------------       -----------        --------        -------
<S>                                        <C>                  <C>                <C>             <C>
For the fiscal year ended
June 30, 2001:
---------------------------------------
Operating revenues                         $   6,696,246      $   6,542,030     $   6,368,804   $   5,836,456
Income from operations                         1,172,090          1,090,808           722,717         738,705
Net income                                       564,084            574,551           187,758       1,997,606
Earnings per common share:
     Basic                                 $        0.08      $        0.08     $        0.03   $        0.28
     Diluted                                        0.08               0.08              0.03            0.28

For the fiscal year ended
June 30, 2000:
---------------------------------------
Operating revenues                         $   6,184,935      $   6,391,411     $   6,245,268   $   6,425,633
Income from operations                         1,135,599          1,072,305           585,374       1,055,912
Net income                                       511,025            448,519            77,170         657,275
Earnings per common share:
     Basic                                 $        0.07      $        0.06     $        0.01   $        0.09
     Diluted                                        0.06               0.06              0.01            0.09
</TABLE>

                                       43
<PAGE>
                                                                      Schedule 1

                        EMONS TRANSPORTATION GROUP, INC.
                              (Parent Company Only)
                                 Balance Sheets
                          as of June 30, 2001 and 2000

<TABLE>
<CAPTION>
                                                                                        2001                    2000
                                                                                  ----------------        ----------------
<S>                                                                               <C>                     <C>
ASSETS

   Current assets:
      Cash and cash equivalents                                                       $ 1,119,168             $ 1,812,552
      Accounts receivable                                                                   2,962                   3,908
      Prepaid expenses and other current assets                                           (40,697)                (36,750)
      Deferred income taxes                                                               443,000                 395,000
                                                                                  ----------------        ----------------
         Total current assets                                                           1,524,433               2,174,710

   Investments in subsidiaries at equity                                               26,115,898              22,591,239
   Property and equipment, net of accumulated
      depreciation of $599,321 and $571,581
      as of June 30, 2001 and 2000, respectively                                           97,212                  93,573
   Due from affiliates                                                                  1,142,975               1,142,975
   Deferred income taxes                                                                1,670,000                 984,000
   Deferred expenses and other assets                                                      29,567                  36,239
                                                                                  ----------------        ----------------
TOTAL ASSETS                                                                          $30,580,085             $27,022,736
                                                                                  ================        ================

LIABILITIES AND STOCKHOLDERS' EQUITY

   Current liabilities:
      Current portion of long-term debt                                               $   552,583             $    16,877
      Accounts payable                                                                    207,939                 151,327
      Accrued payroll and related expenses                                                300,730                 185,786
      Income taxes payable                                                              1,668,545               1,045,917
      Other accrued expenses                                                              127,549                  97,181
      Due to affiliates                                                                 8,184,270               8,384,617
                                                                                  ----------------        ----------------
         Total current liabilities                                                     11,041,616               9,881,705

   Long-term debt                                                                         890,000               1,441,000
   Note payable to affiliate                                                              750,000                 750,000
                                                                                  ----------------        ----------------
         Total Liabilities                                                             12,681,616              12,072,705
                                                                                  ----------------        ----------------

   Stockholders' Equity:

       Preferred stock, authorized 3,000,000 shares $0.14 Series A
          Cumulative Convertible Preferred Stock, $0.01 par value, issued
          and outstanding -0- shares
          at June 30, 2001 and 2000                                                             -                       -

      Common stock, $0.01 par value, authorized 30,000,000 shares, issued
         7,909,292 and 7,852,274 shares at June 30, 2001
         and 2000, respectively                                                            79,093                  78,523

      Additional paid-in capital                                                       23,636,401              23,536,693
      Deficit                                                                          (4,146,203)             (7,470,202)
                                                                                  ----------------        ----------------
                                                                                       19,569,291              16,145,014
      Treasury stock, at cost (832,788 and 610,450 shares at
         June 30, 2001 and 2000, respectively)                                         (1,368,690)               (995,981)
      Cumulative other comprehensive income (loss)                                        (16,184)                 39,156
      Unearned compensation - restricted stock awards                                    (285,948)               (238,158)
                                                                                  ----------------        ----------------
         Total Stockholders' Equity                                                    17,898,469              14,950,031
                                                                                  ----------------        ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                            $30,580,085             $27,022,736
                                                                                  ================        ================
</TABLE>

                                       44
<PAGE>

                                                                      Schedule I


                       EMONS TRANSPORTATION GROUP, INC.
                             (Parent Company Only)
                           Statements of Operations
               for the years ended June 30, 2001, 2000 and 1999


<TABLE>
<CAPTION>
                                                                  2001                   2000                    1999
                                                             ---------------        ---------------         --------------
<S>                                                          <C>                    <C>                     <C>
Operating revenues:
   Intercompany management fees                                  $ 2,471,125            $ 2,591,832            $ 2,455,880
                                                             ---------------        ---------------         --------------

Operating expenses:
   General and administrative expenses                             2,293,105              2,378,208              2,312,305
   Depreciation                                                       28,947                 39,354                 31,008
                                                             ---------------        ---------------         --------------
      Total operating expenses                                     2,322,052              2,417,562              2,343,313
                                                             ---------------        ---------------         --------------

Income from operations                                               149,073                174,270                112,567

Other income (expense):
   Intercompany interest income                                       18,240                      -                      -
   Interest and other income                                          51,647                 57,235                 58,424
   Interest expense                                                 (218,960)              (231,505)              (170,991)
                                                             ---------------        ---------------         --------------
      Total other income (expense)                                  (149,073)              (174,270)              (112,567)
                                                             ---------------        ---------------         --------------

Income before income taxes and equity in
   undistributed net earnings of subsidiaries                              -                      -                      -

Provision (benefit) for income taxes                                (679,000)               977,000               (110,000)
                                                             ---------------        ---------------         --------------


Income (loss) before equity in undistributed net
   earnings of subsidiaries                                          679,000               (977,000)               110,000

Equity in undistributed net earnings of
   subsidiaries                                                    2,644,999              2,670,989              2,597,308
                                                             ---------------        ---------------         --------------


Net income                                                       $ 3,323,999            $ 1,693,989            $ 2,707,308
                                                             ===============        ===============         ==============
</TABLE>

                                      45
<PAGE>

                                                                      Schedule I


                       EMONS TRANSPORTATION GROUP, INC.
                             (Parent Company Only)
                           Statements of Cash Flows
               for the years ended June 30, 2001, 2000 and 1999


<TABLE>
<CAPTION>
                                                                         2001                   2000                   1999
                                                                    ---------------        ----------------       ----------------
<S>                                                                 <C>                    <C>                    <C>
Cash flows from operating activities:
   Net income                                                         $  3,323,999            $  1,693,989           $  2,707,308
      Adjustments to reconcile net income to net cash
      provided by operating activities:

         Depreciation                                                       28,947                  39,354                 31,008
         Amortization of deferred compensation                              52,488                  68,193                104,181
         Amortization of deferred financing                                  6,672                   6,672                  3,336
         Loss on disposition of assets                                       1,379                       -                      -
         Equity in net earnings of subsidiaries                         (2,644,999)             (2,670,989)            (2,597,308)
         Change in deferred income taxes                                  (734,000)                922,000               (190,000)
         Changes in assets and liabilities:
            Accounts receivable, prepaid expenses and
               other current assets                                          4,893                  34,872                 47,438
            Accounts payable and accrued expenses                          824,552                  76,881                705,949
            Other assets                                                         -                  44,920                 41,758
                                                                    --------------         ---------------        ---------------
Net cash provided by operating activities                                  863,931                 215,892                853,670
                                                                    --------------         ---------------        ---------------

Cash flows from investing activities:
   Additions to property and equipment                                     (33,965)                (31,308)               (54,114)
   Investments in subsidiaries                                          (1,085,000)             (3,000,000)            (2,000,000)
   Change in due to/from affiliates, net                                  (200,347)              4,665,590             (1,169,164)
   Dividends received from subsidiaries                                    150,000                       -                      -
                                                                    --------------         ---------------        ---------------
Net cash provided by (used in) investing activities                     (1,169,312)              1,634,282             (3,223,278)
                                                                    --------------         ---------------        ---------------

Cash flows from financing activities:
   Proceeds from issuance of long-term debt                                      -                       -              2,000,000
   Reduction in long-term debt                                             (15,294)               (637,894)               (74,131)
   Purchase of treasury stock                                             (372,709)               (995,981)                     -
   Common stock purchased and retired                                            -                 (48,375)                     -
   Debt issuance costs                                                           -                       -                (20,000)
   Proceeds from issuance of common stock                                        -                       -                 99,000
   Preferred stock conversion costs                                              -                 (21,486)              (329,914)
                                                                    --------------         ---------------        ---------------
Net cash provided by (used in) financing activities                       (388,003)             (1,703,736)             1,674,955
                                                                    --------------         ---------------        ---------------

Net increase (decrease) in cash and cash equivalents                      (693,384)                146,438               (694,653)

Cash and cash equivalents at beginning of year                           1,812,552               1,666,114              2,360,767
                                                                    --------------         ---------------        ---------------

Cash and cash equivalents at end of year                              $  1,119,168            $  1,812,552           $  1,666,114
                                                                    ==============         ===============        ===============
</TABLE>

                                      46
<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 20, 2001
     --------------------------------------                 --------------------
     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 20, 2001
-------------------------------------------                 --------------------
Robert Grossman, Chairman of the Board
of Directors, President and Chief Executive
Officer


/s/ Scott F. Ziegler                                  Date:  September 20, 2001
-------------------------------------------                 --------------------
Scott F. Ziegler, Senior Vice President and
Chief Financial Officer and Secretary,
signing on behalf of the registrant as its
principal financial and accounting officer
and as Director



/s/ Robert J. Smallacombe                             Date:  September 20, 2001
-------------------------------------------                 --------------------
Robert J. Smallacombe, Director



/s/ Dean H. Wise                                      Date:  September 20, 2001
-------------------------------------------                ---------------------
Dean H. Wise, Director



/s/ Alfred P. Smith                                   Date:  September 20, 2001
-------------------------------------------                ---------------------
Alfred P. Smith, Director



/s/ Kimberly A. Madigan                               Date:  September 20, 2001
-------------------------------------------                ---------------------
Kimberly A. Madigan, Director



/s/ Michael J. Blake                                  Date:  September 20, 2001
-------------------------------------------                ---------------------
Michael J. Blake, Director

                                       47
<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
                                                                                           Sequentially
  Exhibit                                                                                    Numbered
   Number                                      Exhibit                                         Copy
-------------    --------------------------------------------------------------------    ----------------
<S>              <C>                                                                     <C>
 3 (i) (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 (i) (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 (i) (c)       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))
                                                                                               --

 3 (i) (d)       Certificate of Amendment of Certificate of Incorporation of Emons
                 Transportation Group, Inc. dated June 29, 1999 (incorporated by
                 reference from Emons Transportation Group, Inc. Report on Form
                 10-K for the year ended June 30, 1999, Exhibit Number 3 (e))                  --

   3 (ii)        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))                                                                        --

     4           Rights Agreement dated as of April 23, 1999 between Emons
                 Transportation Group, Inc. and American Stock Transfer & Trust
                 Company, as Rights Agent (incorporated by reference from Emons
                 Transportation Group, Inc. Report on Form 8-K dated April 29,
                 1999, Exhibit Number 1)                                                       --

   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 (incorporated by reference
                 from Emons Transportation Group, Inc. Report on Form 10-K for
                 the year ended June 30, 1997, Exhibit Number 10 (b))
                                                                                               --
</TABLE>

                                       48
<PAGE>

<TABLE>
<CAPTION>
                                                                                             Page in
                                                                                           Sequentially
  Exhibit                                                                                    Numbered
   Number                                      Exhibit                                         Copy
-------------    --------------------------------------------------------------------    ----------------
<S>              <C>                                                                     <C>
   10 (c)        Amendment to the Amended and Restated Employment Agreement
                 with Robert Grossman dated May 26, 1994 (incorporated by
                 reference from Emons Transportation Group, Inc. Report on Form
                 10-K for the year ended June 30, 1997, Exhibit Number 10 (c))
                                                                                               --
   10 (d)        Amendment to the Amended and Restated Employment Agreement with
                 Robert Grossman dated June 17, 1998 (incorporated by reference
                 from Emons Transportation Group, Inc. Report on Form 10-K for
                 the year ended June 30, 1998, Exhibit Number 10 (d))                          --

   10 (e)        Amendment to the Amended and Restated Employment Agreement
                 with Robert Grossman dated March 20, 2000 (incorporated by
                 reference from Emons Transportation Group, Inc. Report on Form
                 10-K for the year ended June 30, 2000, Exhibit Number 10 (e))
                                                                                               --
   10 (f)        Amendment to the Amended and Restated Employment Agreement with
                 Robert Grossman dated January 26, 2001                                        --

   10 (g)        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 (incorporated by reference from Emons Transportation
                 Group, Inc. Report on Form 10-K for the year ended June 30, 1997,
                 Exhibit Number 10 (f))
                                                                                               --
   10 (h)        Lease Agreement dated as of November 1, 1997 between St. Lawrence
                 & Atlantic Railroad Company and Berlin Mills Railway, Inc.
                 (incorporated by reference from Emons Transportation Group, Inc.
                 Report on Form 10-Q for the quarter ended September 30, 1997,
                 Exhibit Number 10 (b))                                                        --

   10 (i)        Asset Purchase Agreement between St. Lawrence & Atlantic Railroad
                 (Quebec) Inc. and Canadian National Railway Company dated November
                 25, 1998 (incorporated by reference from Emons Transportation
                 Group, Inc. Report on Form 8-K dated December 23, 1998, Exhibit
                 Number 10 (a))                                                                --
</TABLE>

                                       49
<PAGE>

<TABLE>
<CAPTION>
                                                                                             Page in
                                                                                           Sequentially
  Exhibit                                                                                    Numbered
   Number                                      Exhibit                                         Copy
-------------    --------------------------------------------------------------------    ----------------
<S>              <C>                                                                     <C>
   10 (j)        Amended and Restated Loan and Security Agreement dated as of
                 December 21, 1998 among Emons Transportation Group, Inc., Emons
                 Industries, Inc., Emons Finance Corp., Maryland and Pennsylvania
                 Railroad Company, Emons Logistics Services, Inc., Maine Intermodal
                 Transportation, Inc., Yorkrail, Inc., St. Lawrence & Atlantic
                 Railroad Company, Penn Eastern Rail Lines, Inc., St. Lawrence &
                 Atlantic Railroad (Quebec) Inc., and SLR Leasing Corp., as the
                 Borrowers, and LaSalle National Bank, as the Lender  (incorporated
                 by reference from Emons Transportation Group, Inc. Report on Form
                 8-K dated December 23, 1998, Exhibit Number 10 (b))

                                                                                               --
   10 (k)        Letter Agreement dated August 21, 1997 regarding
                 renegotiation of the Canadian National Railway Promissory Note
                 and Operating and Marketing Agreement (incorporated by
                 reference from Emons Transportation Group, Inc. Report on Form
                 10-Q for the quarter ended December 31, 1998, Exhibit Number 10
                 (f))
                                                                                               --
   10 (l)        Agreement of Merger dated as of April 25, 1999 between Emons
                 Transportation Group, Inc. and NEWCO  (incorporated by reference
                 from Emons Transportation Group, Inc. Report on Form 10-K for the
                 year ended June 30, 1999, Exhibit Number 10 (l))
                                                                                               --

     21          Listing of Subsidiaries                                                       --

     23          Consent of Arthur Andersen LLP                                                --
</TABLE>

                                       50