The statements contained in Management's Discussion and Analysis of Financial Condition and Results of Operations ("MDA") which are not historical are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements represent the Company's present expectations or beliefs concerning future events. The Company cautions, however, that actual results could differ materially from those indicated in MDA.

Critical Accounting Policies

The Securities and Exchange Commission ("SEC") defines critical accounting policies as those that require application of management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.

The Company's significant accounting policies are described in Note 1 of the Notes to Financial Statements in its Annual Report on Form 10-K. Not all of these significant accounting policies require management to make difficult, subjective or complex judgments or estimates. Management believes that the Company's policy for the evaluation of long-lived asset impairment meets the SEC definition of critical.

The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When factors indicate that assets should be evaluated for possible impairment, the Company uses an estimate of the related undiscounted future cash flows over the remaining lives of the assets in measuring whether the carrying amounts of the assets are recoverable.

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

The following table sets forth the Company's  operating  revenues by category in
dollars and as a percentage of operating revenues:

                                                Three Months Ended March 31,
                                            -----------------------------------
                                                  2008                2007
                                            -----------------------------------
                                             (In thousands, except percentages)
Freight Revenues:
  Conventional carloads .......             $5,279    88.0%      $4,181    80.6%
  Containers ..................                369     6.2          772    14.9
  Other freight related .......                235     3.9          150     2.9
Other operating revenues ......                113     1.9           82     1.6
                                            ------   -----       ------   -----
     Total ....................             $5,996   100.0%      $5,185   100.0%
                                            ======   =====       ======   =====

The following table sets forth a comparison of the Company's operating expenses expressed in dollars and as a percentage of operating revenues:

                                                Three Months Ended March 31,
                                            -----------------------------------
                                                  2008                 2007
                                            -----------------------------------
                                             (In thousands, except percentages)
Salaries, wages, payroll taxes
 and employee benefits ........              $3,937      65.7%   $3,750    72.3%
Casualties and insurance ......                 225       3.8       233     4.5
Depreciation ..................                 719      12.0       707    13.6
Diesel fuel ...................                 705      11.7       464     9.0
Car hire, net .................                 202       3.4       183     3.5
Purchased services, including
 legal and professional fees ..                 508       8.5       468     9.0
Repair and maintenance of
 equipment ....................                 308       5.1       417     8.1
Track and signal materials ....                 274       4.6       416     8.0
Track usage fees ..............                  98       1.6        95     1.8
Other materials and supplies ..                 297       4.9       334     6.5
Other .........................                 476       7.9       505     9.7
                                             ------     -----    ------   -----
  Total .......................               7,749     129.2     7,572   146.0
  Less capitalized and
   recovered costs ............                 262       4.3       471     9.1
                                             ------     -----    ------   -----
     Total ....................              $7,487     124.9%   $7,101   136.9%
                                             ======     =====    ======   =====

Operating Revenues:

Operating revenues increased $811,000, or 15.6%, to $6.0 million in the first quarter of 2008 from $5.2 million in the first quarter of 2007. This increase is the net result of a $1.1 million (26.3%) increase in conventional freight revenues, an $85,000 (56.7%) increase in other freight related revenues, and a $31,000 (37.8%) increase in other operating revenues, partially offset by a $403,000 (52.2%) decrease in container freight revenues.

The increase in conventional freight revenues is attributable to a 24.8% increase in traffic volume and a small (1.2%) increase in the average revenue received per conventional carloading. The Company's conventional carloadings increased by 1,165 to 5,863 in the first quarter of 2008 from 4,698 in the first quarter of 2007.

Shipments of ethanol, coal, automobiles and steel ingots accounted for most of the increase in traffic volume. Ethanol and automobiles are commodities which the Company began hauling during the second half of 2007. These increases were somewhat offset by declines in shipments of construction aggregate, chemicals, building products and other commodities during the first quarter. These decreases largely relate to the economic slow-down which the United States economy is currently undergoing. The small increase in the average revenue received per conventional carloading is mostly attributable to a change in the mix of commodities hauled.

The decrease in container freight revenues is the result of a 55.3% decline in traffic volume partially offset by a 6.8% increase in the average revenue received per container. Container traffic volume decreased by 7,331 containers to 5,934 in the first quarter of 2008 from 13,265 in the first quarter of 2007. During the second quarter of 2007 the Company began to experience a steady decrease in the volume of its container traffic which has continued into 2008. Among other factors, rate increases imposed by western rail carriers in the United States has resulted in steamship lines using "all water" routings to the

East Coast for an increasingly larger portion of container traffic thereby significantly reducing the volume of such traffic shipped cross-country by rail. While the reduced level of traffic seems to have stabilized, the Company is unable to predict if and when container traffic volume may significantly increase. The increase in the average revenue received per container is attributable to contractual rate adjustments based upon railroad industry cost indices and to a change in the mix of containers handled.

The increase in other freight related revenues results from increased billings for demurrage and secondary switching services. This is directly attributable to the significant increase in conventional traffic volume during the quarter.

The increase in other operating revenues reflects more maintenance department billings for services rendered to freight customers and other outside parties.

Other Income:

Other income, principally rentals and interest on temporally invested cash was virtually unchanged between quarters.

Operating Expenses:

Operating expenses for the first quarter of 2008 increased by $386,000, or 5.4%, to $7.5 million from $7.1 million in the first quarter of 2007. More than sixty percent of this net increase is attributable to diesel fuel expense, which increased by $241,000 during the quarter. This is primarily the result of the significant price increases for petroleum products which have recently occurred.

Income Tax Benefit:

The income tax benefit for the first quarter of 2008 is approximately 33% of the pre tax-loss. This is the effective federal income tax rate which the Company expects to realize for 2008 before giving effect to any track maintenance credits to which it may be entitled.

Liquidity and Capital Resources

In January 2008 the Company, pursuant to an agreement with GATX Corporation ("GATX") received $5.5 million in cash in exchange for 239,523 newly-issued shares of its common stock which it sold to GATX. This infusion of capital is to be used for future capital improvements to enhance the Company's railroad lines.

During the first quarter of 2008 the Company's operations consumed $1.3 million of cash. Total cash and cash equivalents, however, increased by $2.8 during the quarter. The principal utilization of cash during the quarter, other than for operations, was to pay off its outstanding borrowings under its bank line-of-credit and for capital expenditures and the payment of dividends.

In management's opinion cash generated from operations during the remainder of 2008 will be sufficient to enable the Company to meet its operating expenses, routine capital expenditures and dividend requirements.

Seasonality

Historically, the Company's operating revenues are lowest for the first quarter due to the absence of construction aggregate shipments during a portion of this period and to winter weather conditions.