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.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements, including, without limitations, statements concerning the conditions in our industry and our operations, economic performance and financial condition, including, in particular, statements relating to our business and strategy. The words "may," "might," "should," "estimate," "project," "plan," "anticipate," "expect," "intend," "outlook," "believe," and other similar expressions are intended to identify forward-looking statements and information although not all forward-looking statements include these identifying words. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. These forward-looking statements are based on estimates and assumptions by our management that, although we believe to be reasonable, are inherently uncertain and subject to a number of risks and uncertainties.

In particular, our business might be affected by uncertainties affecting he railroad and transportation industry generally as well as the following, among other factors:

* general economic, financial and political conditions, including downturns affecting the railroad industry and credit markets;

* our ability to comply with financial and non-financial covenants contained in our revolving line of credit;

* limitations and restrictions on the operation of our business contained in the documents governing our indebtedness;

* increases in transportation costs, including fuel prices, which in some instances may not be passed on to customers;

* competitive pressures, including changes in competitors' pricing;

* our ability to generate cash flows to invest in the operation of our business;

* our dependence upon our key executives and other key employees;

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.

In June 2009, the FASB issued SFAS No. 167, "Amendments to FASB Interpretation No. 46(R)." SFAS No. 167, among other things, requires a qualitative rather than a quantitative analysis to determine the primary beneficiary of a variable interest entity ("VIE"); requires continuous assessments of whether an enterprise is the primary beneficiary of a VIE; enhances disclosures about an enterprise's involvement with a VIE; and amends certain guidance for determining whether an entity is a VIE. SFAS No. 167 will be effective for the Company on January 1, 2010, and will be applied prospectively. Under SFAS No. 167, a VIE must be consolidated if the enterprise has both (a) the power to direct the activities of the VIE that most significantly impact the entity's economic performance, and (b) the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. The Company is evaluating the impact that the adoption of SFAS No. 167 will have on our consolidated financial statements. The Company does not expect the adoption of SFAS No. 167 to have a material impact on the financial statements.

In June 2009, the FASB issued SFAS 168, "The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles - a replacement of FASB Statement No. 162" (SFAS 168). SFAS 168 provides for the FASB Accounting Standards Codification (the "Codification") to become the single official source of authoritative, nongovernmental U.S. generally accepted accounting principles (GAAP). The Codification did not change GAAP but reorganizes the literature. SFAS 168 is effective for interim and annual periods ending after September 15, 2009.

In May 2009, the FASB issued SFAS No. 165, "Subsequent Events." SFAS No. 165 establishes authoritative accounting and disclosure guidance for recognized and non-recognized subsequent events that occur after the balance sheet date but before financial statements are issued. SFAS No. 165 also requires disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. SFAS No. 165 was effective for the Company beginning with the Quarterly Report on Form 10-Q for the three and six months ended June 30, 2009, and will be applied prospectively. The adoption of SFAS No. 165 had no impact on the financial statements.

In April 2009 the FASB issued Staff Position No. FAS 107-1, "Interim Disclosures about Fair Value of Financial Instruments" ("FSP 107-1"). FSP 107-1 expands the fair value disclosures required for all financial instruments within the scope of Statement of Financial Accounting Standards ("SFAS") No. 107 to include interim periods. The Company adopted the provisions of FSP 107-1 for the quarter ended June 30, 2009. The adoption of FSP 107-1 had no impact on the Company's 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 June 30,  Six Months Ended June 30,
                      ---------------------------- -----------------------------
                           2009            2008         2009           2008
                      -------------  ------------- -------------- --------------
                                  (In thousands, except percentages)
Freight Revenues:
 Conventional
  carloads ......     $5,685   93.0% $7,477  92.4% $10,087  91.3% $12,756  90.5%
 Containers .....        171    2.8     351   4.3      426   3.9      720   5.1
 Other freight
  related .......        128    2.1     182   2.3      315   2.8      417   3.0
Other Operating
 Revenues .......        127    2.1      84   1.0      224   2.0      197   1.4
                      ------  -----  ------ -----  ------- -----  ------- -----
   Total ........     $6,111  100.0% $8,094 100.0% $11,052 100.0% $14,090 100.0%
                      ======  =====  ====== =====  ======= =====  ======= =====

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 June 30,  Six Months Ended June 30,
                      ---------------------------- -----------------------------
                           2009            2008         2009           2008
                      -------------  ------------- -------------- --------------
                                  (In thousands, except percentages)
Salaries, wages,
 payroll taxes and
 employee benefits.   $3,892  63.7% $3,863  47.7%  $7,744   70.1%  $7,800  55.3%
Casualties and
 insurance ......        315   5.2     222   2.7      536    4.8      447   3.2
Depreciation ....        772  12.6     719   8.9    1,507   13.6    1,438  10.2
Diesel fuel .....        457   7.5   1,215  15.0      884    8.0    1,920  13.6
Car hire, net ...        153   2.5     229   2.8      304    2.8      431   3.0
Purchased
 services,
 including legal
 and professional
 fees ...........        566   9.3     461   5.7    1,051    9.5      969   6.9
Repair and
 maintenance of
 equipment ......        394   6.4     338   4.2      966    8.7      646   4.6
Track and signal
 materials ......        364   6.0     271   3.3      646    5.9      545   3.9
Track usage fees.        130   2.1     177   2.2      258    2.3      275   2.0
Other materials
 and supplies ...        211   3.5     280   3.5      501    4.5      577   4.1
Other ...........        425   6.9     499   6.2      923    8.4      975   6.9
                      ------ -----  ------ -----  -------  -----  ------- -----
 Total ..........      7,679 125.7   8,274 102.2   15,320  138.6   16,023 113.7
 Less capitalized
  and recovered
  costs .........        946  15.5     472   5.8    1,439   13.0      734   5.2
                      ------ -----  ------ -----  -------  -----  ------- -----
   Total ........     $6,733 110.2% $7,802  96.4% $13,881  125.6% $15,289 108.5%
                      ====== =====  ====== =====  =======  =====  ======= =====

Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008

Operating Revenues:

Operating revenues decreased $3.0 million, or 21.6%, to $11.1 million in the six months ended June 30, 2009 from $14.1 million in 2008. This decrease is the result of a $2.7 million (20.9%) decrease in conventional freight revenues, a $294,000 (40.8%) decrease in container freight revenues and a $102,000 (24.5%), decrease in other freight-related revenues offset, to a minor extent, by a $27,000 (13.7%) increase in other operating revenues.

The decrease in conventional freight revenues results from a 19.8% decline in traffic volume and a small (1.3%) reduction in the average revenue received per conventional carloading. The Company's conventional carloadings decreased by 3,174 to 12,820 in the first six months of 2009 from 15,994 in 2008.

Shipments of most commodities handled by the Company decreased during the first six months 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. Carloadings for some new customers have partially offset the overall decrease in conventional traffic volume. While there have been some recent signs of improvement, management cannot predict if and when economic conditions will improve enough to enable the Company to return to operating profitability. The small decrease in the average revenue received per conventional carloading is largely attributable to a reduction in diesel fuel surcharges due to the significant reduction in the cost of diesel fuel experienced this year.

The decrease in container freight revenues is the result of a 47.1% decline in traffic volume partially offset by an 11.9% increase in the average revenue received per container. Container traffic volume decreased by 5,410 containers to 6,069 containers in the first six months of 2009 from 11,479 containers in 2008. This significant decline in traffic volume 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 results, primarily, from a decrease in demurrage revenue. This decrease is consistent with the decrease in conventional traffic volume and the related decline in net car hire expense.

The small increase in other-operating revenues reflects an increase in maintenance department billings, primarily during the second quarter of 2009, for services rendered to freight customers and other outside parties.

Other Income:

Other income increased from $307,000 in the first six months of 2008 to $1.3 million in 2009. This increase is attributable to $950,000 received in June 2009 for the settlement of certain legal proceedings and the granting of a permanent easement.

Operating Expenses:

Operating expenses for the first six months of 2009 decreased by $1.4 million, or 9.2%, to $13.9 million from $15.3 million in 2008. Reductions in the cost of diesel fuel due to declining prices of petroleum products as well as decreased usage due to the reduced traffic volume accounted for $1.0 million of this decrease. Also contributing to decreased operating costs is the fact that the Company's maintenance of way personnel were engaged in more capitalized track projects in the first half of 2009 than was the case in 2008 resulting in more capitalized labor and overhead costs. Decreases in other operating expenses have been some what offset by increased costs incurred for the repair and maintenance of locomotives and freight cars during the six month period.

Provision for Income Taxes (Benefit):

The income tax benefit for the first six months of 2009 is equal to 29.1% of the pre-tax loss. This effective rate reflects the federal income tax rate reduced by the effect of non deductible expenses and the non utilization of net operating losses for state tax purposes.

Three Months Ended June 30, 2009 Compared to Three Months Ended June 30, 2008

Operating Revenues:

Operating revenues decreased $2.0 million, or 24.5%, to $6.1 million in the second quarter of 2009 from $8.1 million in the second quarter of 2008. This decrease is the result of $1.8 million (24.0%) decrease in conventional freight revenues a, $180,000 (51.3%) decrease in container freight revenues and a $54,000 (29.7%) decrease in other freight-related revenues offset, to a small degree, by a $43,000 (51.2%) increase in other operating revenues.

The decrease in conventional freight revenues is attributable to 20.4% decline in traffic volume and a 4.5% decrease in the average revenue received per conventional carloading. The Company's conventional carloadings decreased by 2,068 to 8,063 in the second quarter of 2009 from 10,131 in 2008. The reasons for the declines in conventional traffic volume and average revenue per carloading are as previously discussed for the six months ended June 30, 2009.

The decrease in container freight revenues is the result of a 56.7% decline in traffic volume partially offset by a 12.5% increase in the average revenue received per container. Container traffic volume decreased by 3,143 containers to 2,402 in the second quarter of 2009 from 5,545 in the second quarter of 2008. The reasons for the decrease in traffic volume and the average revenue received per container during the second quarter are as previously discussed.

The reasons for the decrease in other freight-related revenues and the increase in other operating revenues are as previously discussed

Other Income:

Other income increased from $188,000 in the second quarter of 2008 to $1.2 million in the second quarter of 2009, primarily because of $950,000 received in June 2009 as previously discussed.

Operating Expenses:

Operating expenses for the second quarter of 2009 decreased by $1.1 million, or 13.7%, to $6.7 million from $7.8 million in the second quarter of 2008. The principal reasons for this overall reduction were decreased diesel fuel costs, in the amount of $758,000 and increased levels of track capitalization as previously discussed.

Provision for Income Taxes:

The income tax provision for the second quarter of 2009 is equal to approximately 43% of pre-tax income. This effective tax rate represents the federal income tax rate increased by the impact of state income taxes and non deductible expenses.

Liquidity and Capital Resources

During the six months ended June 30, 2009 the Company generated $2.5 million of cash from its operations. Total cash and cash equivalents increased by $561,000 during the period. The principal uses of cash, other than for operations, were for capital expenditures and the payment of dividends. 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.

The Company's $5.0 million revolving line of credit with its, then, principal bank expired on May 31, 2009. In June 2009 the Company obtained a $5.0 million line of credit facility with another commercial bank which expires in June 2011. Borrowings under this new line of credit are unsecured, due on demand and bear interest at either the bank's prime rate or one and three quarters per cent over the thirty, sixty or ninety day London Interbank Offered Rate ("LIBOR") with a LIBOR floor of one and one quarter percent. The Company pays no commitment fee on this line of credit and has no compensating balance requirements. It is subject to financial and non-financial covenants including maintenance of a minimum net worth and restrictions as to the incurrence of additional indebtedness, as well as the sale or encumbrance of its assets. Although we have not utilized this revolving credit facility, a review of the underlying credit commitment indicates there is relatively little risk that funds would not be available should we attempt to draw on the line of credit.

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.