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.

Recent Accounting Pronouncements

In December 2007 the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No 160, "Noncontrolling Interests in Consolidated Financial Statements - an amendment of ARB No. 51", ("SFAS No. 160"). SFAS No. 160 was issued to improve the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements by establishing accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The provisions of SFAS No. 160 shall be applied prospectively as of the beginning of the fiscal year in which it is initially applied, except for the presentation and disclosure requirements, which shall be applied retrospectively for all periods presented. SFAS No. 160 is effective for fiscal years and interim periods within those fiscal years, beginning on or after December 15, 2008. The Company adopted SFAS No. 160 on January 1, 2009. The adoption of SFAS No. 160 did not have any impact on its Financial Statements.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business Combinations" ("SFAS No. 141(R)"). SFAS No. 141R establishes principles and requirements for how the acquirer in a business combination should recognize and measure in its financial statements the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree, recognize and measure the goodwill acquired in the business combination or a gain from a bargin purchase and determine what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The provisions of SFAS No. 141(R) shall be applied prospectively to business combinations with acquisition dates on or after the beginning of the first annual reporting period in which it is initially applied. SFAS No. 141(R) is effective for fiscal years and interim periods within those fiscal years, beginning on or after December 15, 2008. The Company adopted SFAS No. 141(R) on January 1, 2009. The adoption of SFAS No. 141(R) did not have any impact on its Financial Statements.

In April 2008, the FASB issued FSP FAS 141(R)-1, "Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise form Contingencies" which amends and clarifies SFAS No. 141(R), "Business Combinations", to address application issues raised by preparers, auditors, and members of the legal profession on initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. FSP FAS 141(R)-1 is effective for assets or liabilities arising from contingencies in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company adopted FSP FAS
141(R)-1 on January 1, 2009. The adoption of FSP FAS 141(R)-1 did not have any impact on its Financial Statements.

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurement ("SFAS No. 157")." SFAS No. 157 defines fair value, establishes a framework for measuring fair value in accordance with GAAP and expands disclosures about fair value measurements. On February 12, 2008, the FASB issued FSP FAS No. 157-2, "Effective Date of FASB Statement No. 157" that partially deferred the effective date of SFAS No. 157 for one year for non-financial assets and non- financial liabilities that are recognized or disclosed at fair value in the financial statements on a non-recurring basis. SFAS No. 157 does not require any new fair value measurements, rather, it applies under other accounting pronouncements that require or permit fair value measurements. The provisions of SFAS No. 157 are to be applied prospectively as of the beginning of the fiscal year in which it is initially applied, with any transition adjustment recognized as a cumulative-effect adjustment to the opening balance of retained earnings. Notwithstanding the effective date deferral discussed above, SFAS No. 157-2 was adopted on January 1, 2008. The Company adopted the provision of FSP SFAS No. 157-2 regarding non-financial assets and non-financial liabilities on January 1, 2009 and it did not have a material impact on its Financial Statements.

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,
                                            -----------------------------------
                                                  2009                2008
                                            -----------------------------------
                                             (In thousands, except percentages)
Freight Revenues:
  Conventional carloads .......             $4,402    89.1%      $5,279    88.0%
  Containers ..................                255     5.2          369     6.2
  Other freight related .......                187     3.8          235     3.9
Other operating revenues ......                 97     1.9          113     1.9
                                            ------   -----       ------   -----
     Total ....................             $4,941   100.0%      $5,996   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,
                                            -----------------------------------
                                                  2009                2008
                                            -----------------------------------
                                             (In thousands, except percentages)
Salaries, wages, payroll taxes
 and employee benefits ........              $3,852      78.0%   $3,937    65.7%
Casualties and insurance ......                 221       4.5       225     3.8
Depreciation ..................                 735      14.9       719    12.0
Diesel fuel ...................                 427       8.6       705    11.7
Car hire, net .................                 151       3.0       202     3.4
Purchased services, including
 legal and professional fees ..                 485       9.8       508     8.5
Repair and maintenance of
 equipment ....................                 572      11.6       308     5.1
Track and signal materials ....                 282       5.7       274     4.6
Track usage fees ..............                 128       2.6        98     1.6
Other materials and supplies ..                 290       5.9       297     4.9
Other .........................                 498      10.1       476     7.9
                                             ------     -----    ------   -----
  Total .......................               7,641     154.7     7,749   129.2
  Less capitalized and
   recovered costs ............                 493      10.0       262     4.3
                                             ------     -----    ------   -----
     Total ....................              $7,148     144.7%   $7,487   124.9%
                                             ======     =====    ======   =====

Operating Revenues:

Operating revenues decreased $1.1 million, or 17.6%, to $4.9 million in the first quarter of 2009 from $6.0 million in the first quarter of 2008. This decrease is the combined result of an $877,000 (16.6%) decrease in conventional freight revenues, a $114,000 (30.9%) decrease in container freight revenues, a $48,000 (20.4%) decrease in other freight related revenues and a $16,000 (14.2%) decrease in other operating revenues.

The decrease in conventional freight revenues is attributable to an 18.9% decline in traffic volume offset, to a small degree, by a 2.8% increase in the average revenue received per conventional carloading. The Company's conventional carloadings decreased by 1,106 to 4,757 in the first quarter of 2009 from 5,863 in 2008.

Shipments of most commodities handled by the Company decreased during the first quarter of 2009. This decline is primarily attributable to the current state of the United States and world economies and is consistent with the experience of other railroads in North America. The modest increase in the average revenue received per conventional carloading is the combined result of a shift in the mix of commodities, as well as some rate increases. While the Company's traffic volume has begun to improve during the second quarter of 2009 management cannot predict if and when economic conditions will improve enough to enable the Company to return to profitable operations.

The decrease in container freight revenues is the result of a 38.2% decline in traffic volume partially offset by an 11.8% increase in the average revenue received per container. Container traffic volume decreased by 2,267 containers to 3,667 in the first quarter of 2009 from 5,934 in 2008. This decline in traffic continues a trend which began in 2007 in which cross country container traffic to the East Coast has been shifted from rail to all water routes. Current economic conditions have further added to this decline in traffic. The increase in the average revenue received per container is attributable to a change in the mix of traffic toward higher rated containers as well as contractual rate adjustments based upon railroad industry cost indices.

The decrease in other freight-related revenues is the result of a decrease in demurrage billings. The decrease in demurrage revenue is consistent with the decrease in conventional traffic volume and the related decline in net car hire expense.

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

Other Income:

Increased rental income received accounted for most of the $26,000 increase in other income realized during the quarter.

Operating Expenses:

Operating expenses for the first quarter of 2009 decreased by $339,000, or 4.5%, to $7.1 million from $7.5 million in the first quarter of 2008. More than eighty percent of this decrease consists of a $278,000 decrease in the cost of diesel fuel due to declining prices of petroleum products as well as decreased usage due to the reduced traffic volume. Decreases in other operating expenses were somewhat offset by increased locomotive repair and maintenance costs.

Income Tax Benefit:

The income tax benefit for the first quarter of 2009 and 2008 is approximately 33% of the pre-tax loss. This is the effective benefit which the Company expects to realize on any net operating losses which it may incur.

Liquidity and Capital Resources

During the first quarter of 2009 the Company's operations generated $896,000 of cash. Total cash and cash equivalents, however, remained virtually unchanged from the beginning of the quarter. The principal uses of cash, other than for operations, were for capital expenditures and the payments of dividends.

The Company intends to extend the five million revolving dollar line of credit with its principal bank that is due to expire on May 31, 2009, and is currently engaged in the negotiation of terms for such an extension with several Banks. If for some reason the Company should not be successful in renewing or replacing this credit line management believes that cash generated from operations during the remainder of the year will be sufficient to fund its operations, capital additions 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.