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 is a critical accounting policy.

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 September 30,Nine Months Ended September 30,
                      ---------------------------- -----------------------------
                           2008            2007         2008           2007
                      -------------  ------------- -------------- --------------
                                  (In thousands, except percentages)
Freight Revenues:
 Conventional
  carloads ......     $7,487   92.0% $6,517  89.3% $20,243  91.1% $16,731  86.0%
 Containers .....        351    4.3     539   7.4    1,071   4.8    1,960  10.1
 Other freight-
  related .......        174    2.2     174   2.4      591   2.7      543   2.8
Other Operating
 Revenues .......        124    1.5      66    .9      321   1.4      219   1.1
                      ------  -----  ------ -----  ------- -----  ------- -----
   Total ........     $8,136  100.0% $7,296 100.0% $22,226 100.0% $19,453 100.0%
                      ======  =====  ====== =====  ======= =====  ======= =====

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 September 30,Nine Months Ended September 30,

                      ---------------------------- -----------------------------
                           2008            2007         2008           2007
                      -------------  ------------- -------------- --------------
                                  (In thousands, except percentages)
Salaries, wages,
 payroll taxes and
 employee benefits.$3,886   47.8% $3,898   53.4% $11,686   52.6% $11,367   58.4%
Casualties and
 insurance .......    198    2.4     226    3.1      645    2.9      691    3.6
Depreciation .....    720    8.8     707    9.7    2,158    9.7    2,122   10.9
Diesel fuel ......  1,161   14.3     672    9.2    3,081   13.9    1,733    8.9
Car hire, net ....    374    4.6     282    3.9      805    3.6      651    3.4
Purchased
 services,
 including legal
 and professional
 fees ............    496    6.1     531    7.3    1,465    6.6    1,436    7.4
Repair and
 maintenance of
 equipment .......    537    6.6     389    5.3    1,183    5.3    1,309    6.7
Track and signal
 materials .......    846   10.4     601    8.2    1,391    6.3    1,591    8.2
Track usage fees .    195    2.4     253    3.5      470    2.1      554    2.8
Other materials
 and supplies ....    317    3.9     324    4.4      894    4.0      930    4.8
Other ............    423    5.2     400    5.5    1,398    6.3    1,440    7.4
                   ------  -----  ------  -----  -------  -----   ------  -----
 Total ...........  9,153  112.5   8,283  113.5   25,176  113.3   23,824  122.5
 Less capitalized
  and recovered
  costs ..........  1,189   14.6   1,109   15.2    1,923    8.7    2,656   13.7
                   ------  -----  ------  -----  -------  -----   ------  -----
   Total ......... $7,964   97.9% $7,174   98.3% $23,253  104.6% $21,168  108.8%
                   ======  =====  ======  =====  =======  =====  =======  =====

Nine Months Ended September 30, 2008 Compared to Nine Months Ended September 30, 2007

Operating Revenues:

Operating revenues increased $2.8 million, or 14.3%, to $22.2 million in the nine months ended September 30, 2008 from $19.4 million in the nine months ended September 30, 2007. This increase is the net result of a $3.5 million (21.0%) increase in conventional freight revenues, a $48,000 (8.8%) increase in other freight-related revenues and a $102,000 (46.6%) increase in other operating revenues partially offset by an $889,000 (45.4%) decrease in container freight revenues.

The increase in conventional freight revenues is attributable to a 12.3% increase in traffic volume and an 8.4% increase in the average revenue received per carloading. The Company's conventional carloadings increased by 2,808 to 25,577 in the nine- month period ended September 30, 2008 from 22,769 in 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 period. These decreases appear largely to result from the economic slow-down which the United States economy is currently experiencing.

The increase in the average revenue received per conventional carloading is attributable to a shift in the mix of freight toward higher rated commodities, as well as some rate increases, including diesel fuel surcharges.

The decrease in container freight revenues is the result of a 49.4% decline in traffic volume partially offset by a 7.9% increase in the average revenue

received per container. Container traffic volume decreased by 16,409 containers to 16,841 in the nine-month period ended September 30, 2008 from 33,250 in 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 have 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 special train and secondary switching services. This is directly attributable to the significant increase in conventional traffic volume during the nine month period.

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 increased by $172,000 to $924,000 in the nine-month period ended September 30, 2008 from $752,000 in 2007. The most significant change was an increase in gains realized from the sale of property, equipment and easements, which revenues can vary significantly from period to period.

Operating Expenses:

Operating expenses for the nine months ended September 30, 2008 increased by $2.1 million, or 9.8%, to $23.3 million from $21.2 million in 2007. The increased cost of diesel fuel during the period accounted for $1.3 million of this increase. This is primarily the result of significantly higher prices for petroleum products which have been in effect for most of 2008. The Company anticipates that expenditures for diesel fuel will decrease, somewhat, during the fourth quarter of 2008 due to lower prices. Also contributing to the increased operating expenses is the fact that the Company's maintenance of way personnel have been engaged in fewer capitalized track projects in 2008 than was the case in 2007.

Income Tax Benefit:

The income tax benefit for the first nine months 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.

Three Months Ended September 30, 2008 Compared to Three Months Ended September 30, 2007

Operating Revenues:

Operating revenues increased $840,000, or 11.5%, to $8.1 million in the third quarter of 2008 from $7.3 million in the third quarter of 2007. This increase is the net result of a $970,000 (14.9%) increase in conventional freight revenues and a $58,000 (87.9%) increase in other operating revenues partially offset by a $188,000 (34.9%) decrease in container freight revenues. The amount of other freight-related revenues was virtually unchanged between quarters.

The increase in conventional freight revenues is attributable to a 1.7% increase in traffic volume and a 13.0% increase in the average revenue received per conventional carloading. The Company's conventional carloadings increased by 160 to 9,583 in the third quarter of 2008 from 9,423 in the third quarter of 2007.

The reasons for the increases in traffic volume and revenue received per carloading are as explained in the discussion of the results of operations for the nine months ended September 30, 2008.

The decrease in container freight revenues is the result of a 40.7% decrease in traffic volume partially offset by a 9.8% increase in the average revenue received per container. Container traffic volume decreased by 3,681 containers to 5,362 in the third quarter of 2008 from 9,043 in the third quarter of 2007. The reasons for the decrease in traffic volume and the increase in the average revenue received per container are as previously explained in the discussion of the results of operations for the nine months ended September 30, 2008.

Other freight-related revenues consisting of billings for demurrage, secondary switching, weighing, special train and other ancillary services were virtually unchanged between quarters.

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

Other Income:

Other income increased by $458,000 to $617,000 in the third quarter of 2008 from $159,000 in the third quarter 2007. Increased gains from the sale of property and equipment accounts for this increase.

Operating Expenses:

Operating expenses for the third quarter of 2008 increased by $790,000, or 11.0%, to $8.0 million from $7.2 million. The increased cost of diesel fuel, as previously discussed, accounts for $489,000 of this increase.

Income Taxes:

The income tax provision for the third quarter of 2008 is approximately 33% of pre tax income. This is the effective federal income tax rate which the Company expects to pay in 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 approximately $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 equity is being used for capital improvements to enhance the Company's railroad lines.

During the first nine months of 2008 the Company's operations generated $772,000 of cash. Total cash and cash equivalents, increased by $2.1 million during the period. The principal utilization of cash during the period, other than for operations, was to pay off the Company's 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.