----

----

| [X]                                                                                                                                                                                                                                                                                                                                      | QUARTERLY      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF      1934                                                                                      |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                     | For the quarterly period      ended             March      31, 2009           |
|                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                     | 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      number                  1-7677       |
|                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                   |
|                 LSB      Industries, Inc.                                                                                                                                                    |
| Exact      name of Registrant as specified in its charter                                                                                                                                                                                                                                                                                |
|                                                                                                                                                                                                                                                                                                                                     |
|            Delaware                                                                                                                                                                                                   |      73-1015226                                                                                                                 |
| State      or other jurisdiction of incorporation      or organization                                                                                                                                                                                                                                                                   | I.R.S.      Employer Identification No.                                                                                                                                                |
|                                                                                                                                                                                                                                                                                                                                     |
|         16 South Pennsylvania      Avenue, Oklahoma City, Oklahoma                     73107                                                         |
|              Address of      principal executive offices                            (Zip      Code)                                   |
|                                                                                                                                                                                                                                                                                                                                     |
|                (405)      235-4546                                                                                                                                  |
|        Registrant's      telephone number, including area code                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                     |
|           __             None            _        ___           |
| Former      name, former address and former fiscal year, if  changed since last      report.                                                                                                                                                                                                                                        |

----

----

Table of Contents

TABLE OF CONTENTS

|               |                                                                                            |   |
|--------------------|-------------------------------------------------------------------------------------------------|--------|
|               |                                                                                            |   |
|               | PART      I – Financial Information                                                       | Page   |
|               |                                                                                            |   |
| Item      1.       | Financial      Statements                                                                       | 4      |
|               |                                                                                            |   |
| Item      2.       | Management's Discussion and      Analysis of Financial Condition and Results of      Operations | 34     |
|               |                                                                                            |   |
| Item      3.       | Quantitative and Qualitative      Disclosures About Market Risk                                 | 56     |
|               |                                                                                            |   |
| Item      4.       | Controls and      Procedures                                                                    | 57     |
|               |                                                                                            |   |
| Special Note  | Regarding Forward-Looking      Statements                                                       | 58     |
|               |                                                                                            |   |
|               | PART      II – Other Information                                                          |   |
|               |                                                                                            |   |
| Item      1.       | Legal      Proceedings                                                                          | 61     |
|               |                                                                                            |   |
| Item      1A.      | Risk      Factors                                                                               | 64     |
|               |                                                                                            |   |
| Item      2.       | Unregistered Sales of      Equity Securities and Use of Proceeds                                | 65     |
|               |                                                                                            |   |
| Item      3.       | Defaults Upon Senior      Securities                                                            | 65     |
|               |                                                                                            |   |
| Item      4.       | Submission of Matters to      a Vote of Security Holders                                        | 65     |
|               |                                                                                            |   |
| Item      5.       | Other      Information                                                                          | 65     |
|               |                                                                                            |   |
| Item      6.       | Exhibits                                                                                        | 65     |

----

Table of Contents

|   |   | March      31,2009 |   | December      31,2008 |
|--------|--------|--------------------|--------|-----------------------|

|   | (In      Thousands) |
|--------|---------------------|

| Assets                                       |   |    |   |   |    |   |
|----------------------------------------------|--------|---------|--------|--------|---------|--------|
| Current      assets:                         |   |    |   |   |    |   |
| Cash      and cash equivalents               | $      | 52,308  |   | $      | 46,204  |   |
| Restricted      cash                         |   | 745     |   |   | 893     |   |
| Accounts      receivable, net                |   | 75,856  |   |   | 78,846  |   |
| Inventories:                                 |   |    |   |   |    |   |
| Finished      goods                          |   | 32,041  |   |   | 30,679  |   |
| Work      in process                         |   | 2,465   |   |   | 2,954   |   |
| Raw      materials                           |   | 20,494  |   |   | 27,177  |   |
| Total      inventories                       |   | 55,000  |   |   | 60,810  |   |
| Supplies,      prepaid items and other:      |   |    |   |   |    |   |
| Prepaid      insurance                       |   | 2,456   |   |   | 3,373   |   |
| Precious      metals                         |   | 15,592  |   |   | 14,691  |   |
| Supplies                                     |   | 4,492   |   |   | 4,301   |   |
| Other                                        |   | 2,203   |   |   | 1,378   |   |
| Total      supplies, prepaid items and other |   | 24,743  |   |   | 23,743  |   |
| Deferred      income taxes                   |   | 10,273  |   |   | 11,417  |   |
| Total      current assets                    |   | 218,925 |   |   | 221,913 |   |
|                                         |   |    |   |   |    |   |
| Property,      plant and equipment, net      |   | 105,946 |   |   | 104,292 |   |
|                                         |   |    |   |   |    |   |
| Other      assets:                           |   |    |   |   |    |   |
| Debt      issuance costs, net                |   | 2,229   |   |   | 2,607   |   |
| Investment      in affiliate                 |   | 3,693   |   |   | 3,628   |   |
| Goodwill                                     |   | 1,724   |   |   | 1,724   |   |
| Other,      net                              |   | 1,712   |   |   | 1,603   |   |
| Total      other assets                      |   | 9,358   |   |   | 9,562   |   |
|                                         | $      | 334,229 |   | $      | 335,767 |   |

----

Table of Contents

|   |   | March      31,2009 |   | December      31,2008 |
|--------|--------|--------------------|--------|-----------------------|

|   | (In      Thousands) |
|--------|---------------------|

| Liabilities      and Stockholders’ Equity                                                                      |   |    |   |   |   |    |   |
|----------------------------------------------------------------------------------------------------------------------|--------|---------|--------|--------|--------|---------|--------|
| Current      liabilities:                                                                                            |   |    |   |   |   |    |   |
| Accounts      payable                                                                                                | $      | 33,664  |   |   | $      | 43,014  |   |
| Short-term      financing                                                                                            |   | 1,340   |   |   |   | 2,228   |   |
| Accrued      and other liabilities                                                                                   |   | 39,111  |   |   |   | 39,236  |   |
| Current      portion of long-term debt                                                                               |   | 1,980   |   |   |   | 1,560   |   |
| Total      current liabilities                                                                                       |   | 76,095  |   |   |   | 86,038  |   |
|                                                                                                                 |   |    |   |   |   |    |   |
| Long-term      debt                                                                                                  |   | 98,681  |   |   |   | 103,600 |   |
|                                                                                                                 |   |    |   |   |   |    |   |
| Noncurrent      accrued and other liabilities                                                                        |   | 10,300  |   |   |   | 9,631   |   |
|                                                                                                                 |   |    |   |   |   |    |   |
| Deferred      income taxes                                                                                           |   | 7,260   |   |   |   | 6,454   |   |
|                                                                                                                 |   |    |   |   |   |    |   |
| Contingencies      (Note 10)                                                                                         |   |    |   |   |   |    |   |
|                                                                                                                 |   |    |   |   |   |    |   |
| Stockholders'      equity:                                                                                           |   |    |   |   |   |    |   |
| Series      B 12% cumulative, convertible preferred stock, $100 par value;      20,000 shares issued and outstanding |   | 2,000   |   |   |   | 2,000   |   |
| Series      D 6% cumulative, convertible Class C preferred stock, no par      value; 1,000,000 shares issued         |   | 1,000   |   |   |   | 1,000   |   |
| Common      stock, $.10 par value; 75,000,000 shares authorized, 24,958,330      shares issued                       |   | 2,496   |   |   |   | 2,496   |   |
| Capital      in excess of par value                                                                                  |   | 127,677 |   |   |   | 127,337 |   |
| Accumulated      other comprehensive loss                                                                            |   | (48     | )      |   |   | (120    | )      |
| Retained      earnings                                                                                               |   | 31,241  |   |   |   | 19,804  |   |
|                                                                                                                 |   | 164,366 |   |   |   | 152,517 |   |
| Less      treasury stock at cost:                                                                                    |   |    |   |   |   |    |   |
| Common      stock, 3,848,518 shares                                                                                  |   | 22,473  |   |   |   | 22,473  |   |
| Total      stockholders' equity                                                                                      |   | 141,893 |   |   |   | 130,044 |   |
|                                                                                                                 | $      | 334,229 |   |   | $      | 335,767 |   |

----

Table of Contents

|   | 2009 |   | 2008 |
|--------|------|--------|------|

|   | (In      Thousands, Except Per ShareAmounts) |
|--------|----------------------------------------------|

| Net      sales                                                                                                     | $      | 150,197 |   |   | $      | 160,455 |   |
|--------------------------------------------------------------------------------------------------------------------|--------|---------|--------|--------|--------|---------|--------|
| Cost      of sales                                                                                                 |   | 109,469 |   |   |   | 122,698 |   |
| Gross      profit                                                                                                  |   | 40,728  |   |   |   | 37,757  |   |
|                                                                                                               |   |    |   |   |   |    |   |
| Selling,      general and administrative expense                                                                   |   | 21,375  |   |   |   | 18,764  |   |
| Provisions      for losses on accounts receivable                                                                  |   | 52      |   |   |   | 90      |   |
| Other      expense                                                                                                 |   | 43      |   |   |   | 181     |   |
| Other      income                                                                                                  |   | (162    | )      |   |   | (610    | )      |
| Operating      income                                                                                              |   | 19,420  |   |   |   | 19,332  |   |
| Interest      expense                                                                                              |   | 1,911   |   |   |   | 2,454   |   |
| Gain      on extinguishment of debt                                                                                |   | (1,322  | )      |   |   | -       |   |
| Non-operating      other income, net                                                                               |   | (23     | )      |   |   | (517    | )      |
| Income      from continuing operations before provisions for income      taxes and equity in earnings of affiliate |   | 18,854  |   |   |   | 17,395  |   |
| Provisions      for income taxes                                                                                   |   | 7,349   |   |   |   | 6,720   |   |
| Equity      in earnings of affiliate                                                                               |   | (240    | )      |   |   | (232    | )      |
| Income      from continuing operations                                                                             |   | 11,745  |   |   |   | 10,907  |   |
|                                                                                                               |   |    |   |   |   |    |   |
| Net      loss from discontinued operations                                                                         |   | 2       |   |   |   | -       |   |
| Net      income                                                                                                    |   | 11,743  |   |   |   | 10,907  |   |
|                                                                                                               |   |    |   |   |   |    |   |
| Dividends      on preferred stocks                                                                                 |   | 306     |   |   |   | 306     |   |
| Net      income applicable to common stock                                                                         | $      | 11,437  |   |   | $      | 10,601  |   |
|                                                                                                               |   |    |   |   |   |    |   |
| Weighted-average      common shares:                                                                               |   |    |   |   |   |    |   |
| Basic                                                                                                              |   | 21,110  |   |   |   | 21,057  |   |
|                                                                                                               |   |    |   |   |   |    |   |
| Diluted                                                                                                            |   | 23,671  |   |   |   | 24,992  |   |
|                                                                                                               |   |    |   |   |   |    |   |
| Income      per common share:                                                                                      |   |    |   |   |   |    |   |
| Basic                                                                                                              | $      | .54     |   |   | $      | .50     |   |
|                                                                                                               |   |    |   |   |   |    |   |
| Diluted                                                                                                            | $      | .51     |   |   | $      | .46     |   |
|                                                                                                               |   |    |   |   |   |    |   |

----

Table of Contents

|   | Common      Stock Shares |   | Non-Redeemable      Preferred Stock |   | CommonStock      Par Value |   | Capital      in Excess of Par Value |   | Accumulated      Other Comprehensive Loss |   | Retained      Earnings |   | Treasury      Stock-Common |   |        Total     |
|--------|--------------------------|--------|-------------------------------------|--------|----------------------------|--------|-------------------------------------|--------|-------------------------------------------|--------|------------------------|--------|----------------------------|--------|-------------------------------------------|

|   | (In      Thousands) |
|--------|---------------------|

| Balance      at December 31, 2008                                            |   | 24,958 | $      | 3,000  | $      | 2,496  | $      | 127,337  |   | $      | (120   | )      | $      | 19,804 |   |   | $      | (22,473 | )      | $      | 130,044  |   |
|------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|----------|--------|--------|--------|--------|--------|--------|--------|--------|--------|---------|--------|--------|----------|--------|
|                                                                         |   |   |   |   |   |   |   |     |   |   |   |   |   |   |   |   |   |    |   |   |     |   |
| Net      income                                                              |   |   |   |   |   |   |   |     |   |   |   |   |   | 11,743 |   |   |   |    |   |   | 11,743   |   |
| Amortization      of cash flow hedge                                         |   |   |   |   |   |   |   |     |   |   | 72     |   |   |   |   |   |   |    |   |   | 72       |   |
| Total      comprehensive income                                              |   |   |   |   |   |   |   |     |   |   |   |   |   |   |   |   |   |    |   |   | 11,815   |   |
| Dividends      paid on preferred stock                                       |   |   |   |   |   |   |   |     |   |   |   |   |   | (306   | )      |   |   |    |   |   | (306     | )      |
| Stock-based      compensation                                                |   |   |   |   |   |   |   | 261      |   |   |   |   |   |   |   |   |   |    |   |   | 261      |   |
| Excess      income tax benefit associated with stock-based      compensation |   |   |   |   |   |   |   |  79 |   |   |   |   |   |   |   |   |   |    |   |   |  79 |   |
| Balance      at March 31, 2009                                               |   | 24,958 | $      | 3,000  | $      | 2,496  | $      | 127,677  |   | $      | (48    | )      | $      | 31,241 |   |   | $      | (22,473 | )      | $      | 141,893  |   |

----

Table of Contents

|   | 2009 |   | 2008 |
|--------|------|--------|------|

|   | (In      Thousands) |
|--------|---------------------|

| Cash      flows from continuing operating activities:                                                         |   |   |   |   |   |    |   |
|---------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|---------|--------|
| Net      income                                                                                               | $      | 11,743 |   |   | $      | 10,907  |   |
| Adjustments      to reconcile net income to net cash provided (used) by continuing      operating activities: |   |   |   |   |   |    |   |
| Net      loss from discontinued operations                                                                    |   | 2      |   |   |   | -       |   |
| Deferred      income taxes                                                                                    |   | 1,950  |   |   |   | 1,010   |   |
| Gain      on extinguishment of debt                                                                           |   | (1,322 | )      |   |   | -       |   |
| Loss      (gain) on sales and disposals of property and equipment                                             |   | 13     |   |   |   | (45     | )      |
| Depreciation      of property, plant and equipment                                                            |   | 3,796  |   |   |   | 3,091   |   |
| Amortization                                                                                                  |   | 245    |   |   |   | 279     |   |
| Stock-based      compensation                                                                                 |   | 261    |   |   |   | 192     |   |
| Provisions      for losses on accounts receivable                                                             |   | 52     |   |   |   | 90      |   |
| Provision      for (realization of) losses on inventory                                                       |   | (3,032 | )      |   |   | 169     |   |
| Provision      for losses on firm sales commitments                                                           |   | -      |   |   |   | 137     |   |
| Equity      in earnings of affiliate                                                                          |   | (240   | )      |   |   | (232    | )      |
| Distributions      received from affiliate                                                                    |   | 175    |   |   |   | 280     |   |
| Changes      in fair value of commodities contracts                                                           |   | 1,498  |   |   |   | (53     | )      |
| Changes      in fair value of interest rate contracts                                                         |   | 70     |   |   |   | 187     |   |
| Cash      provided (used) by changes in assets and liabilities:                                               |   |   |   |   |   |    |   |
| Accounts      receivable                                                                                      |   | 4,055  |   |   |   | (12,424 | )      |
| Inventories                                                                                                   |   | 8,842  |   |   |   | (5,710  | )      |
| Other      supplies and prepaid items                                                                         |   | (538   | )      |   |   | (657    | )      |
| Accounts      payable                                                                                         |   | (7,748 | )      |   |   | (1,027  | )      |
| Customer      deposits                                                                                        |   | 522    |   |   |   | (2,451  | )      |
| Deferred      rent expense                                                                                    |   | 490    |   |   |   | (6,314  | )      |
| Other      current and noncurrent liabilities                                                                 |   | (2,000 | )      |   |   | 5,291   |   |
| Net      cash provided (used) by continuing operating activities                                              |   | 18,834 |   |   |   | (7,280  | )      |
|                                                                                                          |   |   |   |   |   |    |   |
| Cash      flows from continuing investing activities:                                                         |   |   |   |   |   |    |   |
| Capital      expenditures                                                                                     |   | (7,195 | )      |   |   | (4,985  | )      |
| Proceeds      from sales of property and equipment                                                            |   | 1      |   |   |   | 55      |   |
| Proceeds      from restricted cash                                                                            |   | 148    |   |   |   | 172     |   |
| Other      assets                                                                                             |   | (108   | )      |   |   | (176    | )      |
| Net      cash used by continuing investing activities                                                         |   | (7,154 | )      |   |   | (4,934  | )      |
|                                                                                                          |   |   |   |   |   |    |   |
|                                                                                                          |   |   |   |   |   |    |   |

----

Table of Contents

|   | 2009 |   | 2008 |
|--------|------|--------|------|

|   | (In      Thousands) |
|--------|---------------------|

| Cash      flows from continuing financing activities:                                                             |   |     |   |   |   |     |   |
|-------------------------------------------------------------------------------------------------------------------|--------|----------|--------|--------|--------|----------|--------|
| Proceeds      from revolving debt facilities                                                                      | $      | 143,503  |   |   | $      | 126,031  |   |
| Payments      on revolving debt facilities                                                                        |   | (143,503 | )      |   |   | (126,031 | )      |
| Acquisition      of 5.5% convertible debentures                                                                   |   | (4,174   | )      |   |   | -        |   |
| Payments      on other long-term debt                                                                             |   | (267     | )      |   |   | (277     | )      |
| Payments      on short-term financing                                                                             |   | (888     | )      |   |   | (394     | )      |
| Proceeds      from exercise of stock options                                                                      |   | -        |   |   |   | 206      |   |
| Purchase      of treasury stock                                                                                   |   | -        |   |   |   | (3,421   | )      |
| Excess      income tax benefit associated with stock-based compensation and stock      options exercised          |   | 79       |   |   |   | 702      |   |
| Dividends      paid on preferred stock                                                                            |   | (306     | )      |   |   | (306     | )      |
| Net      cash used by continuing financing activities                                                             |   | (5,556   | )      |   |   | (3,490   | )      |
|                                                                                                              |   |     |   |   |   |     |   |
| Cash      flows of discontinued operations:                                                                       |   |     |   |   |   |     |   |
| Operating      cash flows                                                                                         |   | (20      | )      |   |   | (34      | )      |
| Net      increase (decrease) in cash and cash equivalents                                                         |   | 6,104    |   |   |   | (15,738  | )      |
|                                                                                                              |   |     |   |   |   |     |   |
| Cash      and cash equivalents at beginning of period                                                        |   | 46,204   |   |   |   | 58,224   |   |
| Cash      and cash equivalents at end of period                                                                   | $      | 52,308   |   |   | $      | 42,486   |   |
|                                                                                                              |   |     |   |   |   |     |   |
| Supplemental      cash flow information:                                                                          |   |     |   |   |   |     |   |
|                                                                                                              |   |     |   |   |   |     |   |
| Cash      payments for income taxes, net of refunds                                                               | $      | 4,159    |   |   | $      | 2,745    |   |
|                                                                                                              |   |     |   |   |   |     |   |
| Noncash      investing and financing activities:                                                                  |   |     |   |   |   |     |   |
|                                                                                                              |   |     |   |   |   |     |   |
| Receivable      associated with a property insurance claim                                                        | $      | 1,135    |   |   | $      | -        |   |
| Current      other assets, accounts payable and long-term debt associated with      property, plant and equipment | $      | 2,444    |   |   | $      | 2,098    |   |
| Debt      issuance costs associated with the acquisition of the 5.5% convertible      debentures                  | $      | 204      |   |   | $      | -        |   |
|                                                                                                              |   |     |   |   |   |     |   |

----

Table of Contents

----

Table of Contents

|   |   | March      31,2009 |   | December      31,2008 |
|--------|--------|--------------------|--------|-----------------------|

|   | (In      Thousands) |
|--------|---------------------|

| Trade      receivables               | $      | 73,890 |   |   | $      | 78,092 |   |
|--------------------------------------|--------|--------|--------|--------|--------|--------|--------|
| Insurance      claims                |   | 1,255  |   |   |   | 252    |   |
| Other                                |   | 1,415  |   |   |   | 1,231  |   |
|                                 |   | 76,560 |   |   |   | 79,575 |   |
| Allowance      for doubtful accounts |   | (704   | )      |   |   | (729   | )      |
|                                 | $      | 75,856 |   |   | $      | 78,846 |   |

|   |   | Three      Months EndedMarch      31, |
|--------|--------|---------------------------------------|

|   |   | 2009 |   | 2008 |
|--------|--------|------|--------|------|

|   | (In      Thousands) |
|--------|---------------------|

| Balance      at beginning of period        |   | $      | 4,141  |   |   | $      | 473 |   |
|--------------------------------------------|--------|--------|--------|--------|--------|--------|-----|--------|
| Provision      for (realization of) losses |   |   | (3,032 | )      |   |   | 169 |   |
| Write-offs/disposals                       |   |   | -      |   |   |   | (32 | )      |
| Balance      at end of period              |   | $      | 1,109  |   |   | $      | 610 |   |

----

Table of Contents

|   |   | Three      Months EndedMarch      31, |
|--------|--------|---------------------------------------|

|   | 2009 |   | 2008 |
|--------|------|--------|------|

|   | (In      Thousands) |
|--------|---------------------|

| Precious      metals expense                   | $      | 1,727  |   |   | $      | 2,460 |   |
|------------------------------------------------|--------|--------|--------|--------|--------|-------|--------|
| Recoveries      of precious metals             |   | (2,213 | )      |   |   | -     |   |
| Precious      metals expense (recoveries), net | $      | (486   | )      |   | $      | 2,460 |   |

----

Table of Contents

|   | Three      Months EndedMarch      31, |
|--------|---------------------------------------|

|   | 2009 |   | 2008 |
|--------|------|--------|------|

|   | (In      Thousands) |
|--------|---------------------|

| Balance      at beginning of period      | $      | 2,820  |   |   | $      | 1,944 |   |
|------------------------------------------|--------|--------|--------|--------|--------|-------|--------|
| Add:      Charged to costs and expenses  |   | 1,858  |   |   |   | 731   |   |
| Deduct:      Costs and expenses incurred |   | (1,814 | )      |   |   | (619  | )      |
| Balance      at end of period            | $      | 2,864  |   |   | $      | 2,056 |   |

----

Table of Contents

|   | March      31,2009 |   | December      31,2008 |
|--------|--------------------|--------|-----------------------|

|   | (In      Thousands) |
|--------|---------------------|

| Accrued      payroll and benefits                                                     |   | $      | 8,431  |   |   | $      | 6,422  |   |
|---------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|
| Fair      value of derivatives                                                        |   |   | 6,789  |   |   |   | 8,347  |   |
| Deferred      revenue on extended warranty contracts                                  |   |   | 4,345  |   |   |   | 4,028  |   |
| Customer      deposits                                                                |   |   | 3,764  |   |   |   | 3,242  |   |
| Accrued      insurance                                                                |   |   | 2,900  |   |   |   | 2,971  |   |
| Accrued      warranty costs                                                           |   |   | 2,864  |   |   |   | 2,820  |   |
| Accrued      income taxes                                                             |   |   | 2,861  |   |   |   | 1,704  |   |
| Accrued      death benefits                                                           |   |   | 2,851  |   |   |   | 2,687  |   |
| Accrued      commissions                                                              |   |   | 2,109  |   |   |   | 2,433  |   |
| Deferred      rent expense                                                            |   |   | 1,914  |   |   |   | 1,424  |   |
| Accrued      contractual manufacturing obligations                                    |   |   | 1,794  |   |   |   | 2,230  |   |
| Accrued      precious metals costs                                                    |   |   | 1,578  |   |   |   | 1,298  |   |
| Accrued      interest                                                                 |   |   | 1,314  |   |   |   | 2,003  |   |
| Billings      in excess of costs and estimated earnings on uncompleted      contracts |   |   | 1,117  |   |   |   | 1,882  |   |
| Accrued      executive benefits                                                       |   |   | 1,001  |   |   |   | 1,111  |   |
| Other                                                                                 |   |   | 3,779  |   |   |   | 4,265  |   |
|                                                                                  |   |   | 49,411 |   |   |   | 48,867 |   |
| Less      noncurrent portion                                                          |   |   | 10,300 |   |   |   | 9,631  |   |
| Current      portion of accrued and other liabilities                                 |   | $      | 39,111 |   |   | $      | 39,236 |   |

|   | March      31, |   | December      31, |
|--------|----------------|--------|-------------------|
|   | 2009           |   | 2008              |

|   | (In      Thousands) |
|--------|---------------------|

| Working      Capital Revolver Loan due 2012 (A)                                                                                           | $      | -       |   | $      | -       |   |
|-------------------------------------------------------------------------------------------------------------------------------------------|--------|---------|--------|--------|---------|--------|
| 5.5%      Convertible Senior Subordinated Notes due 2012 (B)                                                                              |   | 34,800  |   |   | 40,500  |   |
| Secured      Term Loan due 2012 (C)                                                                                                       |   | 50,000  |   |   | 50,000  |   |
| Other,      with a current weighted-average interest rate of 6.66%, most of which is      secured by machinery, equipment and real estate |   | 15,861  |   |   | 14,660  |   |
|                                                                                                                                      |   | 100,661 |   |   | 105,160 |   |
| Less      current portion of long-term debt                                                                                               |   | 1,980   |   |   | 1,560   |   |
| Long-term      debt due after one year                                                                                                    | $      | 98,681  |   | $      | 103,600 |   |

----

Table of Contents

| ·   | incur      additional indebtedness, |
|--------------------|-------------------------------------|

| ·   | incur      liens, |
|--------------------|-------------------|

| ·   | make      restricted payments or loans to affiliates who are not      Borrowers, |
|--------------------|----------------------------------------------------------------------------------|

| ·   | engage      in mergers, consolidations or other forms of recapitalization,      or |
|--------------------|------------------------------------------------------------------------------------|

| ·   | dispose      assets. |
|--------------------|----------------------|

----

Table of Contents

----

Table of Contents

----

Table of Contents

| A. | Environmental      Matters |
|----|----------------------------|

----

Table of Contents

----

Table of Contents

----

Table of Contents

----

Table of Contents

| ·   | for      a period of five years from the completion of an exchange or tender to      repurchase, redeem or otherwise acquire shares of our common stock,      without approval of the outstanding Series 2 Preferred irrespective that      dividends are accrued and unpaid with respect to the Series 2 Preferred;      or |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | to      provide that holders of Series 2 Preferred may not elect two directors to      our Board of Directors when dividends are unpaid on the Series 2 Preferred      if less than 140,000 shares of Series 2 Preferred remain      outstanding. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | fraudulent      inducement and fraud, |
|--------------------|---------------------------------------|

| ·   | violation      of 10(b) of the Exchange Act and Rule10b-5, |
|--------------------|------------------------------------------------------------|

| ·   | violation      of 17-12A501 of the Kansas Uniform Securities Act,  and |
|--------------------|------------------------------------------------------------------------|

| ·   | breach      of contract. |
|--------------------|--------------------------|

----

Table of Contents

----

Table of Contents

----

Table of Contents

|   | Fair      Value Measurements at March      31, 2009 Using |
|--------|----------------------------------------------------------------|

|     Description |   |  Total      FairValue      atMarch      31,2009 |   | Quoted      Prices in      ActiveMarkets      for Identical      Assets (Level      1) |   | SignificantOtherObservableInputs(Level      2) |   |  Significant      Unobservable Inputs(Level      3) |   |  Total      FairValue      atDecember      31,2008 |
|-------------------------------------|--------|------------------------------------------------------|--------|---------------------------------------------------------------------------------------------|--------|------------------------------------------------|--------|----------------------------------------------------------|--------|---------------------------------------------------------|

|   | (In      Thousands) |
|--------|---------------------|

| Assets      – Supplies, prepaid items      and other:                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Foreign      exchange contracts                                                          |   | $      | -      |   |   | $      | -      |   |   | $      | -      |   |   | $      | -      |   |   | $ | 35 |   |
|                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities      – Current and noncurrent      accrued and other      liabilities: |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commodities      contracts                                                               |   | $      | 4,281  |   |   | $      | 472    |   |   | $      | 3,809  |   |   | $      | -      |   |   | $ | 5,910 |   |
| Interest      rate contracts                                                             |   |   | 2,507  |   |   |   | -      |   |   |   | 2,507  |   |   |   | -      |   |   |   | 2,437 |   |
| Foreign      exchange contracts                                                          |   |   | 1      |   |   |   | -      |   |   |   | 1      |   |   |   | -      |   |   |   | - |   |
| Total                                                                                    |   | $      | 6,789  |   |   | $      | 472    |   |   | $      | 6,317  |   |   | $      | -      |   |   | $ | 8,347 |   |

----

Table of Contents

|   | Commodities      Contracts |
|--------|----------------------------|

|   | (In      Thousands) |
|--------|---------------------|

| Beginning      balance                                            |   | $      | (1,388 | )      |
|-------------------------------------------------------------------|--------|--------|--------|--------|
| Total      realized and unrealized gain included      in earnings |   |   | 493    |   |
| Purchases,      issuances, and settlements                        |   |   | 895    |   |
| Transfers      in and/or out of Level 3                           |   |   | -      |   |
| Ending      balance                                               |   | $      | -      |   |

|   | Three      Months EndedMarch      31, |
|--------|---------------------------------------|

|   | 2009 |   | 2008 |
|--------|------|--------|------|

|   | (In      Thousands) |
|--------|---------------------|

| Total      gains (losses) included in earnings:       |   |   |   |   |   |   |   |
|-------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
| Cost      of sales – Commodities contracts      | $      | (1,156 | )      |   | $      | 3,197  |   |
| Cost      of sales – Foreign exchange contracts |   | (30    | )      |   |   | -      |   |
| Interest      expense – Interest rate contracts |   | (269   | )      |   |   | (169   | )      |
|                                                  | $      | (1,455 | )      |   | $      | 3,028  |   |

| Change      in unrealized gains and losses relating to      contracts still held at period end: |   |   |   |   |   |   |   |
|-------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
| Cost      of sales – Commodities contracts                                                | $      | (1,498 | )      |   | $      | 53     |   |
| Cost      of sales – Foreign exchange contracts                                           |   | (1     | )      |   |   | -      |   |
| Interest      expense – Interest rate contracts                                           |   | (70    | )      |   |   | (187   | )      |
|                                                                                            | $      | (1,569 | )      |   | $      | (134   | )      |

----

Table of Contents

| ·   | we      paid cash dividends on our Series B 12% cumulative, convertible preferred      stock (“Series B Preferred”), Series D 6% cumulative, convertible Class C      preferred stock (“Series D Preferred”) and noncumulative redeemable      preferred stock (“Noncumulative Preferred”) totaling approximately      $240,000, $60,000 and $6,000, respectively;and |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | we      acquired $5.7 million aggregate principal amount of our 2007      Debentures. |
|--------------------|---------------------------------------------------------------------------------------|

| ·   | we      acquired 200,000 shares of our commonstock; |
|--------------------|-----------------------------------------------------|

| ·   | we      issued 124,304 shares of our common stock as the result of the exercise of      stock options; |
|--------------------|--------------------------------------------------------------------------------------------------------|

| ·   | we      paid cash dividends on our Series B Preferred, Series D Preferred and      Noncumulative Preferred totaling approximately $240,000, $60,000 and      $6,000, respectively. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Table of Contents

|   | Three      Months EndedMarch      31, |
|--------|---------------------------------------|

|   | 2009 |   | 2008 |
|--------|------|--------|------|

| Numerator:                                                                                                                                                   |   |       |   |   |   |       |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------|--------|--------|--------|------------|--------|
| Net      income                                                                                                                                              | $      | 11,743     |   |   | $      | 10,907     |   |
| Dividends      on Series B Preferred                                                                                                                         |   | (240       | )      |   |   | (240       | )      |
| Dividends      on Series D Preferred                                                                                                                         |   | (60        | )      |   |   | (60        | )      |
| Dividends      on Noncumulative Preferred                                                                                                                    |   | (6         | )      |   |   | (6         | )      |
| Total      dividends on preferred stock                                                                                                                      |   | (306       | )      |   |   | (306       | )      |
| Numerator      for basic net income per common share - net income applicable to common      stock                                                            |   | 11,437     |   |   |   | 10,601     |   |
| Dividends      on preferred stock assumed to be converted, if dilutive                                                                                       |   | 306        |   |   |   | 306        |   |
| Interest      expense including amortization of debt issuance costs,      net of income taxes, on convertible debt assumed to be converted, if      dilutive |   |  349  |   |   |   |  602  |   |
| Numerator      for diluted net income per common share                                                                                                       | $      | 12,092     |   |   | $      | 11,509     |   |
|                                                                                                                                                         |   |       |   |   |   |       |   |
| Denominator:                                                                                                                                                 |   |       |   |   |   |       |   |
| Denominator      for basic net income per common share - weighted-average      shares                                                                        |   | 21,109,812 |   |   |   | 21,056,786 |   |
| Effect      of dilutive securities:                                                                                                                          |   |       |   |   |   |       |   |
| Convertible      notes payable                                                                                                                               |   | 1,270,720  |   |   |   | 2,188,000  |   |
| Convertible      preferred stock                                                                                                                             |   | 938,546    |   |   |   | 940,066    |   |
| Stock      options                                                                                                                                           |   | 351,888    |   |   |   | 806,972    |   |
| Dilutive      potential common shares                                                                                                                        |   | 2,561,154  |   |   |   | 3,935,038  |   |
| Denominator      for diluted net income per common share - adjusted      weighted-average shares and assumed conversions                                     |   | 23,670,966 |   |   |   | 24,991,824 |   |
|                                                                                                                                                         |   |       |   |   |   |       |   |
| Basic      net income per common share                                                                                                                       | $      | .54        |   |   | $      | .50        |   |
|                                                                                                                                                         |   |       |   |   |   |       |   |
| Diluted      net income per common share                                                                                                                     | $      | .51        |   |   | $      | .46        |   |

----

Table of Contents

|   | Three      Months EndedMarch      31, |
|--------|---------------------------------------|

|   | 2009 |   | 2008 |
|--------|------|--------|------|

| Stock      options | 842,000 |   | - |
|--------------------|---------|--------|---|

|   | Three      Months EndedMarch      31, |
|--------|---------------------------------------|

|   | 2009 |   | 2008 |
|--------|------|--------|------|

|   | (In      Thousands) |
|--------|---------------------|

| Current:                         |   |   |   |   |   |   |
|----------------------------------|--------|--------|--------|--------|--------|--------|
| Federal                          | $      | 4,808  |   | $      | 4,895  |   |
| State                            |   | 590    |   |   | 815    |   |
| Total      current provisions    | $      | 5,398  |   | $      | 5,710  |   |
|                             |   |   |   |   |   |   |
| Deferred:                        |   |   |   |   |   |   |
| Federal                          | $      | 1,751  |   | $      | 830    |   |
| State                            |   | 200    |   |   | 180    |   |
| Total      deferred provisions   |   | 1,951  |   |   | 1,010  |   |
| Provisions      for income taxes | $      | 7,349  |   | $      | 6,720  |   |

----

Table of Contents

|   | Three      Months EndedMarch      31, |
|--------|---------------------------------------|

|   | 2009 |   | 2008 |
|--------|------|--------|------|

|   | (In      Thousands) |
|--------|---------------------|

| Other      expense:                        |   |   |   |   |   |   |   |
|--------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
| Total      other expense (1)               | $      | 43     |   |   | $      | 181    |   |
|                                       |   |   |   |   |   |   |   |
| Other      income:                         |   |   |   |   |   |   |   |
| Settlements      of litigation (2)         | $      | -      |   |   | $      | 525    |   |
| Other      miscellaneous income (1)        |   | 162    |   |   |   | 85     |   |
| Total      other income                    | $      | 162    |   |   | $      | 610    |   |
|                                       |   |   |   |   |   |   |   |
| Non-operating      other income, net:      |   |   |   |   |   |   |   |
| Interest      income                       | $      | 45     |   |   | $      | 541    |   |
| Miscellaneous      expense (1)             |   | (22    | )      |   |   | (24    | )      |
| Total      non-operating other income, net | $      | 23     |   |   | $      | 517    |   |

| (1)   | Amounts      represent numerous unrelated transactions, none of which are individually      significant requiring separatedisclosure. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | During      the three months ended March 31, 2008, a settlement was reached for      $400,000 for the recovery of certain environmental-related costs incurred      in previous periods relating to property used by Corporate and other      business operations. In addition, a settlement was reached relating to a      Section 16(b) short-swing profit claim of which we recognized      $125,000. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Table of Contents

|   | Three      Months EndedMarch      31, |
|--------|---------------------------------------|

|   | 2009 |   | 2008 |
|--------|------|--------|------|

|   | (In      Thousands) |
|--------|---------------------|

| Net      sales:                                                        |   |    |   |   |   |    |   |
|------------------------------------------------------------------------|--------|---------|--------|--------|--------|---------|--------|
| Climate      Control                                                   | $      | 72,048  |   |   | $      | 66,323  |   |
| Chemical                                                               |   | 74,478  |   |   |   | 91,330  |   |
| Other                                                                  |   | 3,671   |   |   |   | 2,802   |   |
|                                                                   | $      | 150,197 |   |   | $      | 160,455 |   |
|                                                                   |   |    |   |   |   |    |   |
| Gross      profit: (1)                                                 |   |    |   |   |   |    |   |
| Climate      Control (2)                                               | $      | 22,428  |   |   | $      | 21,522  |   |
| Chemical      (3)                                                      |   | 17,148  |   |   |   | 15,353  |   |
| Other                                                                  |   | 1,152   |   |   |   | 882     |   |
|                                                                   | $      | 40,728  |   |   | $      | 37,757  |   |
|                                                                   |   |    |   |   |   |    |   |
| Operating      income: (4)                                             |   |    |   |   |   |    |   |
| Climate      Control (2)                                               | $      | 8,978   |   |   | $      | 9,327   |   |
| Chemical      (3) (5)                                                  |   | 12,638  |   |   |   | 12,125  |   |
| General      corporate expenses and other business operations, net (6) |   | (2,196  | )      |   |   | (2,120  | )      |
|                                                                   |   | 19,420  |   |   |   | 19,332  |   |
| Interest      expense                                                  |   | (1,911  | )      |   |   | (2,454  | )      |
| Gain      on extinguishment of debt                                    |   | 1,322   |   |   |   | -       |   |
| Non-operating      other income, net:                                  |   |    |   |   |   |    |   |
| Climate      Control                                                   |   | -       |   |   |   | 1       |   |
| Chemical                                                               |   | 3       |   |   |   | 4       |   |
| Corporate      and other business operations                           |   | 20      |   |   |   | 512     |   |
| Provisions      for income taxes                                       |   | (7,349  | )      |   |   | (6,720  | )      |
| Equity      in earnings of affiliate-Climate Control                   |   | 240     |   |   |   | 232     |   |
| Income      from continuing operations                                 | $      | 11,745  |   |   | $      | 10,907  |   |

----

Table of Contents

| (1) | Gross      profit by industry segment represents net sales less cost of sales. Gross      profit classified as “Other” relates to the sales of industrial machinery      and related components. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | During      the first quarters of 2009 and 2008, we recognized gains totaling $463,000      and $2,575,000, respectively, on our exchange-traded futures contracts for      copper. These gains contributed to an increase in gross profit and      operating income. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | As      the result of entering into sales commitments with higher firm sales      prices during 2008, we recognized sales with a gross profit of $2,500,000      higher than our comparable product sales made at lower market prices      available during the first quarter of 2009.  In addition, we      recognized recoveries of precious metals totaling $2,213,000. These      transactions contributed to an increase in gross profit and operating      income for the first quarter of 2009.  During the first quarter      of 2009, we recognized losses totaling $1,619,000 on our futures/forward      contracts for natural gas and ammonia compared to gains totaling $621,000      during the first quarter of 2008. These losses contributed to a decrease      (gains contributed to an increase) in gross profit and operating income      for each respective period. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (4) | Our      chief operating decision makers use operating income by industry segment      for purposes of making decisions which include resource allocations and      performance evaluations. Operating income by industry segment represents      gross profit by industry segment less Selling, general and administration      expense (“SG&A”) incurred by each industry segment plus other income      and other expense earned/incurred by each industry segment before general      corporate expenses and other business operations, net. General corporate      expenses and other business operations, net, consist of unallocated      portions of gross profit, SG&A, other income and other      expense. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (5) | During      the first quarters of 2009 and 2008, we incurred expenses of $1,996,000      and $421,000, respectively, associated with our idle chemical facility      located in Pryor, Oklahoma that we are in the process of activating. See      discussion concerning an urea ammonium nitrate ("UAN") purchase and sales      agreement under Note 18 - SubsequentEvent. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (6) | The      amounts included are not allocated to our Climate Control and Chemical      Businesses since these items are not included in the operating results      reviewed by our chief operating decision makers for purposes of making      decisions as discussed above. A detail of these amounts are as      follows: |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Table of Contents

|   | Three      Months EndedMarch      31, |
|--------|---------------------------------------|

|   | 2009 |   | 2008 |
|--------|------|--------|------|

|   | (In      Thousands) |
|--------|---------------------|

| Gross      profit-Other                                                       |   | $      | 1,152  |   |   | $      | 882    |   |
|-------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|
| Selling,      general and administrative:                                     |   |   |   |   |   |   |   |   |
| Personnel      costs                                                          |   |   | (1,725 | )      |   |   | (1,592 | )      |
| Professional      fees                                                        |   |   | (984   | )      |   |   | (1,181 | )      |
| Office      overhead                                                          |   |   | (188   | )      |   |   | (176   | )      |
| Property,      franchise and other taxes                                      |   |   | (83    | )      |   |   | (126   | )      |
| Advertising                                                                   |   |   | (70    | )      |   |   | (70    | )      |
| All      other                                                                |   |   | (385   | )      |   |   | (291   | )      |
| Total      selling, general and administrative                                |   |   | (3,435 | )      |   |   | (3,436 | )      |
|                                                                          |   |   |   |   |   |   |   |   |
| Other      income                                                             |   |   | 110    |   |   |   | 535    |   |
| Other      expense                                                            |   |   | (23    | )      |   |   | (101   | )      |
| Total      general corporate expenses and other business      operations, net |   | $      | (2,196 | )      |   | $      | (2,120 | )      |

|   |   | March      31,2009 |   | December      31,2008 |
|--------|--------|--------------------|--------|-----------------------|

|   | (In      Thousands) |
|--------|---------------------|

| Climate      Control            |   | $      | 113,104 |   |   | $      | 117,260 |   |
|---------------------------------|--------|--------|---------|--------|--------|--------|---------|--------|
| Chemical                        |   |   | 145,090 |   |   |   | 145,518 |   |
| Corporate      assets and other |   |   | 76,035  |   |   |   | 72,989  |   |
| Total      assets               |   | $      | 334,229 |   |   | $      | 335,767 |   |

----

Table of Contents

Management’s Discussion and Analysis of Financial Condition andResults of Operations

| ·   | Climate      Control Business manufactures and sells a broad range of air conditioning      and heating products in the niche markets we serve consisting of      geothermal and water source heat pumps, hydronic fan coils, large custom      air handlers and other related products used to control the environment in      commercial and residential new building construction, renovation of      existing buildings and replacement of existing systems.  For the      first three months of 2009, approximately 48% of our consolidated net      sales relates to the Climate ControlBusiness. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Chemical      Business manufactures and sells nitrogen based chemical products produced      from three plants located in Arkansas, Alabama and Texas for the      industrial, mining and agricultural markets. Our products include      industrial and fertilizer grade ammonium nitrate (“AN”), urea ammonium      nitrate (“UAN”), nitric acid in various concentrations, nitrogen solutions      and various other products. For the first three months of 2009,      approximately 50% of our consolidated net sales relates to the Chemical      Business. We have recently announced that we are taking steps to start-up      our idled chemical facility located in Pryor, Oklahoma to produce      UAN.  This project is described in more detail      below. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Table of Contents

| ·   | nitric      acid, sulfuric acid and anhydrous ammonia sold to industrial customers;      and |
|--------------------|----------------------------------------------------------------------------------------------|

| ·   | industrial      grade AN and nitrogen solutions sold to mining  customers. |
|--------------------|----------------------------------------------------------------------------|

| ·   | AN      produced at our El Dorado Facility from purchased anhydrous ammonia      and, |
|--------------------|---------------------------------------------------------------------------------------|

| ·   | UAN      produced at our Cherokee Facility from natural  gas. |
|--------------------|---------------------------------------------------------------|

----

Table of Contents

|   |   | Percentage      Change of |
|--------|--------|---------------------------|

|   |   | Tons |   | Dollars |
|--------|--------|------|--------|---------|

|                    | Increase  (Decrease) |
|-------------------------|--------------------------------|
| Chemical      products: |                           |

| Agricultural      products         |   |   | 12.3  |  % |   |   | (5.0  | )% |
|------------------------------------|--------|--------|-------|---------|--------|--------|-------|----|
| Mining      products               |   |   | 29.4  |  % |   |   | (17.5 | )% |
| Industrial      acids and other    |   |   | (27.4 | )%      |   |   | (31.6 | )% |
| Total      weighted-average change |   |   | (4.5  | )%      |   |   | (18.5 | )% |

----

Table of Contents

| ·   | Multi-Family |
|--------------------|--------------|

| ·   | Lodging |
|--------------------|---------|

| ·   | Education |
|--------------------|-----------|

| ·   | Healthcare |
|--------------------|------------|

| ·   | Offices |
|--------------------|---------|

| ·   | Manufacturing |
|--------------------|---------------|

----

Table of Contents

| ·   | monitoring      and managing to the current economic environment, to optimize operating      results, but with a long-termperspective |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------|

| ·   | developing      and introducing new and energy efficient  products, |
|--------------------|---------------------------------------------------------------------|

| ·   | improving      production and product deliveryperformance, |
|--------------------|------------------------------------------------------------|

| ·   | expanding      the markets we serve, both domestic and foreign,  and |
|--------------------|----------------------------------------------------------------------|

| ·   | increase      our manufacturing capacity for geothermal and water source heat      pumps |
|--------------------|------------------------------------------------------------------------------------------|

----

Table of Contents

|   |   | Increase      (Decrease) |
|--------|--------|--------------------------|

|   | (In      Millions) |
|--------|--------------------|

| Gross      profit margins in excess of current quarter’s pricing, resulting from      sales commitments in prior periods |   | $      | 2.5  |   |
|--------------------------------------------------------------------------------------------------------------------------------|--------|--------|------|--------|
| Recoveries      of precious metals                                                                                             |   |   | 2.2  |   |
| Losses      on natural gas and ammonia hedging contracts                                                                       |   |   | (2.2 | )      |
| Total      effect on change in gross profit                                                                                    |   |   | 2.5  |   |
| Expenses      - Pryor Facility                                                                                                 |   |   | (1.6 | )      |
| Total      effect on change in operating income                                                                                |   | $      | 0.9  |   |

----

Table of Contents

|   | March      31,2009 |   | December      31,2008 |
|--------|--------------------|--------|-----------------------|
|   | (In      Millions) |

| Cash      and cash equivalents        | $      | 52.3   |   | $      | 46.2   |   |
|---------------------------------------|--------|--------|--------|--------|--------|--------|
|                                  |   |   |   |   |   |   |
| Long-term      debt:                  |   |   |   |   |   |   |
| 2007      Debentures due 2012         | $      | 34.8   |   | $      | 40.5   |   |
| Secured      Term Loan due 2012       |   | 50.0   |   |   | 50.0   |   |
| Other                                 |   | 15.9   |   |   | 14.7   |   |
| Total      long-term debt             | $      | 100.7  |   | $      | 105.2  |   |
|                                  |   |   |   |   |   |   |
| Total      stockholders’ equity | $      | 141.9  |   | $      | 130.0  |   |

----

Table of Contents

----

Table of Contents

----

Table of Contents

----

Table of Contents

----

Table of Contents

| ·   | the      amount of income taxes that ThermaClime would be required to pay if they      were not consolidated with us; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------|

----

Table of Contents

| ·   | an      amount not to exceed fifty percent (50%) of ThermaClime's consolidated net      income during each fiscal year determined in accordance with generally      accepted accounting principles plus amounts paid to us within the first      bullet above, provided that certain other conditions are    met; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | the      amount of direct and indirect costs and expenses incurred by us on behalf      of ThermaClime pursuant to a certain services  agreement; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | the      amount under a certain management agreement between us and ThermaClime,      provided certain conditions are met,and |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------|

| ·   | outstanding      loans entered into subsequent to November 2, 2007 not to exceed $2.0      million at any time. |
|--------------------|-----------------------------------------------------------------------------------------------------------------|

| ·   | Series      D Preferred, all of which is owned by the Golsen Group, at the rate of      $.06 a share payable on October 9, which dividend is      cumulative; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Series      B Preferred, all of which is owned by the Golsen Group, at the rate of      $12.00 a share payable January 1, which dividend is cumulative;      and |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Noncumulative      Preferred at the rate of $10.00 a share payable April 1, which is      noncumulative. |
|--------------------|----------------------------------------------------------------------------------------------------------|

----

Table of Contents

----

Table of Contents

----

Table of Contents

|   |  2009 |   |  2008 |   |  Change |   | Percentage      Change |
|--------|------------|--------|------------|--------|--------------|--------|------------------------|

|   | (Dollars      In Thousands) |
|--------|-----------------------------|

| Net      sales:                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|----------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Geothermal      and water source heat pumps              |   | $      | 50,482 |   |   |   | $      | 36,774 |   |   |   | $      | 13,708 |   |   |   |   | 37.3 | % |
| Hydronic      fan coils                                  |   |   | 13,566 |   |   |   |   | 20,574 |   |   |   |   | (7,008 | )      |   |   |   | (34.1 | )      % |
| Other      HVAC products                                 |   |   | 8,000  |   |   |   |   | 8,975  |   |   |   |   | (975   | )      |   |   |   | (10.9 | )      % |
| Total      Climate Control                               |   | $      | 72,048 |   |   |   | $      | 66,323 |   |   |   | $      | 5,725  |   |   |   |   | 8.6 | % |
|                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gross      profit – Climate Control                |   | $      | 22,428 |   |   |   | $      | 21,522 |   |   |   | $      | 906    |   |   |   |   | 4.2 | % |
|                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gross      profit percentage – Climate Control (1) |   |   | 31.1   |   | %      |   |   | 32.5   |   | %      |   |   | (1.4   | )      | %      |   |   |   |   |
|                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating      income – Climate Control            |   | $      | 8,978  |   |   |   | $      | 9,327  |   |   |   | $      | (349   | )      |   |   |   | (3.7 | )      % |

| · | Net      sales of our geothermal and water source heat pump products increased      primarily as a result of a 22% increase in our average selling price per      unit, which included a 5% increase in our list prices. The balance of the      increase was due to a change in product mix as more residential GHP      products and accessories that have higher selling prices were sold. During      the first quarter of 2009, we continued to maintain a market share      leadership position of approximately 40%, based on data supplied by the      Air-Conditioning, Heating and Refrigeration Institute      (“AHRI”); |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Net      sales of our hydronic fan coils decreased primarily due to a 41% decrease      in the number of units sold partially offset by an 11% increase in our      average selling price; |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Net      sales of our other HVAC products decreased primarily as the result of      decrease in sales of large custom air handlers partially offset by an      increase in engineering and construction services completed on      construction contracts. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Table of Contents

|   |  2009 |   |  2008 |   |  Change |   | Percentage      Change |
|--------|------------|--------|------------|--------|--------------|--------|------------------------|

|   | (Dollars      In Thousands) |
|--------|-----------------------------|

| Net      sales:                                   |   |   |   |   |   |   |   |   |   |   |   |   |    |   |   |
|---------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|---------|--------|--------|
| Agricultural      products                        |   | $      | 32,838 |   |   |   | $      | 34,567 |   |   |   | $      | (1,729  | )      |   |   |   | (5.0 | )      % |
| Industrial      acids and other chemical products |   |   | 25,231 |   |   |   |   | 36,882 |   |   |   |   | (11,651 | )      |   |   |   | (31.6 | )      % |
| Mining      products                              |   |   | 16,409 |   |   |   |   | 19,881 |   |   |   |   | (3,472  | )      |   |   |   | (17.5 | )      % |
| Total      Chemical                               |   | $      | 74,478 |   |   |   | $      | 91,330 |   |   |   | $      | (16,852 | )      |   |   |   | (18.5 | )      % |
|                                              |   |   |   |   |   |   |   |   |   |   |   |   |    |   |   |   |   |   |   |
| Gross      profit – Chemical                |   | $      | 17,148 |   |   |   | $      | 15,353 |   |   |   | $      | 1,795   |   |   |   |   | 11.7 | % |
|                                              |   |   |   |   |   |   |   |   |   |   |   |   |    |   |   |   |   |   |   |
| Gross      profit percentage – Chemical (1) |   |   | 23.0   |   | %      |   |   | 16.8   |   | %      |   |   | 6.2     |   | %      |   |   |   |   |
|                                              |   |   |   |   |   |   |   |   |   |   |   |   |    |   |   |   |   |   |   |
| Operating      income – Chemical            |   | $      | 12,638 |   |   |   | $      | 12,125 |   |   |   | $      | 513     |   |   |   |   | 4.2 | % |

| · | Sales      prices at the El Dorado Facility decreased 22% related, in part, to the      lower cost of raw material, anhydrous ammonia, part of which is passed      through to our customers pursuant to contacts and/or pricing arrangements      that include raw material feedstock as a pass-through component in the      sales price. Additionally, pricing for agricultural nitrogen based      products has decreased due to lower demand that resulted, in part, because      of unfavorable weather conditions in certain parts of the United States      coupled with falling commodity markets. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Table of Contents

|   | However,      volume at the El Dorado Facility increased 40% or 53,000 tons. The      increase in tons sold was primarily attributable to (i) 35,000 more tons      of agricultural ammonium nitrate primarily due to more favorable weather      conditions in El Dorado’s market area versus the prior year, and (ii)      18,000 more tons of industrial grade ammonium nitrate, utilized in the      mining industry, all of which is sold under a multi-year supply agreement      contract for which our customer failed to meet contractual minimum volumes      in the first quarter 2008. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Sales      prices and volumes at the Cherokee Facility decreased 17% and 13%,      respectively, primarily related to the market-driven low demand for UAN in      the first quarter of 2009. Many distributors are working off higher priced      inventories and have been unwilling to fill available storage due to      falling prices, all of which has been compounded by the slow start to the      spring application season.  Sales prices also decreased with the      pass through of our lower natural gas costs in the first quarter of 2009      compared to 2008, under pricing arrangements with certain of our      industrial customers. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Sales      prices decreased approximately 13% at the Baytown Facility due to lower      global ammonia pricing pursuant to the Original Bayer Agreement. Overall      volumes decreased 46% as the result of a decline in customer demand as of      the result of the economic downturn. The lower sales prices and lower      volumes had only a minimum impact to gross profit and operating income due      to the provisions of the Original Bayer  Agreement. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Table of Contents

|   |  2009 |   |  2008 |   |  Change |   | Percentage      Change |
|--------|------------|--------|------------|--------|--------------|--------|------------------------|

|   | (Dollars      In Thousands) |
|--------|-----------------------------|

| Net      sales – Other                                      | $      | 3,671  |   |   | $      | 2,802  |   |   | $      | 869    |   |   | 31.0   | %      |
|-------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gross      profit – Other                                   | $      | 1,152  |   |   | $      | 882    |   |   | $      | 270    |   |   | 30.6   | %      |
|                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gross      profit percentage – Other (1)                    |   | 31.4   |   | %      |   | 31.5   |   | %      |   | (0.1   | )      | %      |   |   |
|                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| General      corporate expense and other business operations, net | $      | (2,196 | )      |   | $      | (2,120 | )      |   | $      | (76    | )      |   | 3.6    | %      |

----

Table of Contents

|   | · | a      net decrease of $2.7 million relating to the Climate Control Business as      the result of the decrease in sales relating to our hydronic fan coil and      large custom air handler products and an improvement in the timing of      collections partially offset by an increase due to the increase in sales      of heat pump products and |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | a      decrease of $0.9 million relating to the industrial machinery business due      primarily to payments received on certain large machinery sales during the      first quarter of 2009. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | a      decrease of $6.6 million relating to the Chemical Business primarily      relating to the increase in sales volume of AN at the El Dorado Facility      and the decrease in costs of our raw material feedstocks    and |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | a      decrease of $2.2 million relating the Climate Control Business due      primarily to the decrease in certain raw material costs associated with      our fan coil products. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | a      decrease of $3.9 million in the Climate Control Business primarily as the      result of a reduction in raw material purchases and a decrease in certain      raw material costs and |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | a      decrease of $3.5 million in the Chemical Business due, in part, to the      decrease in costs of our raw material  feedstocks. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------|

----

Table of Contents

| · | an      increase of $1.5 million in the Chemical Business as the result of      deposits received primarily associated with products to be shipped during      the spring planting season partially offsetby |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | a      decrease of $0.6 million in the Climate Control Business and $0.3 million      in our industrial machinery business primarily as the result of the      shipment of products associated with these  deposits. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | a      decrease in the fair value of commodities contracts of $3.1 million      associated with contracts settled during the first quarter of      2009, |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | decrease      in accrued interest of $0.7 million relating primarily to the semi-annual      interest payment on the 2007 Debentures and the acquisition of a portion      of the 2007 Debentures during the first quarter of  2009, |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | a      decrease in billings in excess of costs and estimated earnings on      uncompleted contracts of $0.8 million primarily due to costs incurred      during the first quarter of 2009 associated with these construction      contracts, partially offset by |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | an      increase in accrued payroll and benefits of $2.0 million due primarily to      the timing of our payroll-related payments,and |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------|

| ·   | an      increase in accrued income taxes of $1.2 million primarily as the result      of an increase in taxable income and a higher effective income tax rate      partially offset by payments made to the taxing    authorities. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Table of Contents

|   | · | long-term      debt, |
|--------|--------|----------------------|

|   | · | interest      payments on long-term debt, |
|--------|--------|-------------------------------------------|
|   | · | interest      rate contracts,             |

|   | · | capital      expenditures, |
|--------|--------|----------------------------|

|   | · | operating      leases, |
|--------|--------|------------------------|

|   | · | futures/forward      contracts,             |
|--------|--------|---------------------------------------------|
|   | · | contractual      manufacturing obligations, |

|   | · | purchase      obligations and |
|--------|--------|-------------------------------|

|   | · | other      contractual obligations. |
|--------|--------|-------------------------------------|

|   | · | our      contractual obligations relating to futures/forward contracts were $11.1      million as of March 31, 2009 and |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------|

|   | · | our      committed capital expenditures were approximately $13.1 million for the      remainder of 2009. |
|--------|--------|----------------------------------------------------------------------------------------------------------|

----

Table of Contents

Item 3.

----

Table of Contents

Item 4.

As of the end of the period covered by this report, we carried outan evaluation, with the participation of our Principal Executive Officer andPrincipal Financial Officer, of the effectiveness of the design and operation ofour disclosure controls and procedures (as defined in Rule 13a-15 under theSecurities Exchange Act of 1934). Based upon that evaluation, we have concluded,with the participation of our Principal Executive Officer and our PrincipalFinancial Officer, that our disclosure controls and procedures were effective.There were no changes to our internal control over financial reporting duringthe quarter ended March 31, 2009 that has materially affected, or is reasonablylikely to materially affect, our internal control over financialreporting.

----

Table of Contents

FORWARD-LOOKING STATEMENTS

| · | taking      steps to start-up our idled chemical facility located in Pryor, Oklahoma      to produce UAN,                                                                                                                 |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | our      2009 business plan is based upon our assumption that the economy will      continue to contract due to additional loss of jobs, declining consumer      demand and limited credit availability,                  |
| · | our      2009 business plan will be adjusted frequently as we measure customer      demand during the remainder of the year,                                                                                              |
| · | continue      to adjust our controllable costs when and as market conditions      dictate,                                                                                                                                |
| · | see      lower sales volumes for most of our Climate Control products during 2009,      as compared to 2008,                                                                                                              |
| · | the      longer term outlook after 2009 will, depend upon the recovery of the      credit and capital markets and the general economy,                                                                                    |
| · | the      new tax credits and other GHP incentives should stimulate demand for these      products,                                                                                                                        |
| · | many      of these mining and industrial customers will take less product in 2009      than in 2008 due to the downturn in housing, automotive and other      sectors,                                                    |
| · | due      to the unpredictable volatility in the commodity markets, it is difficult      at this point to predict with any certainty the volume level and profit      margins for the remainder of 2009,                   |
| · | uncertainty      continues concerning the magnitude of the nitrogen fertilizer application      for the remainder of the spring fertilizer season and the balance of      2009,                                           |
| · | global      demand for corn, wheat and other grains will continue to be the      fundamental drivers of nitrogen demand,                                                                                                  |
| · | the      supply and demand fundamentals for nitrogen fertilizer will be favorable      for the remainder of the spring season,                                                                                            |
| · | based      on the current costs of our raw material feedstocks of natural gas and      anhydrous ammonia at current plant production levels and current selling      prices, we are able to produce at profitable levels, |
| · | when      this product moves out of storage, most industry sources believe that we      should see significant demand for nitrogen fertilizer,                                                                            |
| · | actual      results for agricultural products will depend upon the global and domestic      demand for nitrogen fertilizer in addition to traditional seasonal      factors,                                              |
| · | these      indications imply that a significant rebound in 2009 is      unlikely,                                                                                                                                         |
| · | make      changes to our controllable cost structure, as conditions      dictate,                                                                                                                                         |
| · | backlog      consists of confirmed customer purchase orders for product to be shipped      at a future date,                                                                                                              |
| · | we      continue to focus our sales efforts on sales agreements and/or pricing      formulas that provide for the pass through of raw material and other      variable costs and certain fixedcosts,                      |

----

Table of Contents

| ·       | our      Chemical Business continues to focus on growing our non-seasonal      industrial customer base with an emphasis on customers accepting the risk      inherent with raw material costs, while at the same time, maintaining a      strong presence in the seasonal agricultural sector,                                                                                     |
|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·       | our      long-term strategy includes optimizing production efficiency of our      facilities, thereby lowering the fixed cost of each ton      produced,                                                                                                                                                                                                                            |
| ·       | our      capital structure and liquidity reflect a reasonably sound financial      position,                                                                                                                                                                                                                                                                                        |
| ·       | our      primary cash needs will be for working capital and capital      expenditures,                                                                                                                                                                                                                                                                                              |
| ·       | rely      upon internally generated cash flows, cash on hand, secured property and      equipment financing, and the borrowing availability under the Working      Capital Revolver Loan to fund operations and pay    obligations,                                                                                                                                                 |
| ·       | the      amount of committed and planned capital expenditures for the Climate      Control and Chemical Businesses, including the Pryor Facility, and how it      will be funded,                                                                                                                                                                                                   |
| ·       | the      amount to be incurred relating Turnarounds during the remainder of      2009,                                                                                                                                                                                                                                                                                              |
| ·       | starting      production at the Pryor Facility during the third quarter of      2009,                                                                                                                                                                                                                                                                                               |
|  · | start-up      losses associated with the Pryor Facility will continue to increase until      we are in full production, which is expected to begin in the fourth      quarter of 2009,                                                                                                                                                                                              |
| ·       | the      ADEQ will meet with the EPA to discuss what additional information the EPA      requires,                                                                                                                                                                                                                                                                                  |
| ·       | the      ADEQ will extend the CAO after its discussions with the EPA and the      schedule for obtaining the additional information,                                                                                                                                                                                                                                                |
| ·       | not      paying dividends on our common stock in the foreseeable      future,                                                                                                                                                                                                                                                                                                       |
| ·       | the new products of our      Climate Control Business have good long-term      prospects,                                                                                                                                                                                                                                                                                           |
| ·       | net      sales will decrease as a result of the reduction in the Baytown Facility’s      lease expense beginning in June 2009,                                                                                                                                                                                                                                                |
| ·       | the      products and amount of products to be produced from the Pryor      Facility,                                                                                                                                                                                                                                                                                               |
| ·       | the      agricultural products are the only significant seasonal      products,                                                                                                                                                                                                                                                                                                     |
| ·       | recognizing      and paying federal income taxes at regular corporate tax rates for the      remainder of 2009,                                                                                                                                                                                                                                                                     |
| ·       | meeting      all required covenant tests for all the remaining quarters of 2009 and the      year ending in 2009, and                                                                                                                                                                                                                                                               |
| ·       | environmental      and health laws and enforcement policies thereunder could result, in      compliance expenses, cleanup costs, penalties or other liabilities      relating to the handling, manufacture, use, emission, discharge or      disposal of pollutants or other substances at or from our facilities or      the use or disposal of certain of its chemical  products. |

| · | decline      in general economic conditions, both domestic and  foreign,          |
|--------|-----------------------------------------------------------------------------------|
| · | material      reduction in revenues,                                              |
| · | material      changes in interest rates,                                          |
| · | ability      to collect in a timely manner a material amount of      receivables, |
| · | increased      competitive pressures,                                             |

----

Table of Contents

| · | changes      in federal, state and local laws and regulations, especially environmental      regulations, or in interpretation of such,  pending, |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------|

| · | additional      releases (particularly air emissions) into the  environment,                                                                             |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | material      increases in equipment, maintenance, operating or labor costs not      presently anticipated by us,                                        |
| · | the      requirement to use internally generated funds for purposes not presently      anticipated,                                                      |
| · | the      inability to pay or secure additional financing for planned capital      expenditures,                                                          |
| · | material      changes in the cost of certain precious metals, anhydrous ammonia, natural      gas, copper and steel,                                     |
| · | changes      in competition,                                                                                                                             |
| · | the      loss of any significant customer,                                                                                                               |
| · | changes      in operating strategy or development plans,                                                                                                 |
| · | inability      to fund the working capital and expansion of our    businesses,                                                                           |
| · | changes      in the production efficiency of our facilities,                                                                                             |
| · | adverse      results in any of our pending litigation,                                                                                                   |
| · | modifications      to or termination of the suspension agreement between the United States      and Russia,                                              |
| · | activating      operations at the Pryor Facility,                                                                                                        |
| · | inability      to obtain necessary raw materials, and                                                                                                    |
| · | other      factors described in "Management's Discussion and Analysis of Financial      Condition and Results of Operation" contained in this    report. |

----

Table of Contents

Item 1. LegalProceedings

----

Table of Contents

| ·   | for      a period of five years from the completion of an exchange or tender to      repurchase, redeem or otherwise acquire shares of our common stock,      without approval of the outstanding Series 2 Preferred irrespective that      dividends are accrued and unpaid with respect to the Series 2 Preferred;      or |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | to      provide that holders of Series 2 Preferred may not elect two directors to      our Board of Directors when dividends are unpaid on the Series 2 Preferred      if less than 140,000 shares of Series 2 Preferred remain      outstanding. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Table of Contents

| ·   | fraudulent      inducement and fraud, |
|--------------------|---------------------------------------|

| ·   | violation      of 10(b) of the Exchange Act and Rule10b-5, |
|--------------------|------------------------------------------------------------|

| ·   | violation      of 17-12A501 of the Kansas Uniform Securities Act,  and |
|--------------------|------------------------------------------------------------------------|

| ·   | breach      of contract. |
|--------------------|--------------------------|

----

Table of Contents

Item 1A.Risk Factors

----

Table of Contents

Unregistered 

During the three months ended March 31, 2009, the Company andaffiliated purchasers, as defined, purchased its 2007 Debentures as shown in thefollowing table:

|      Period |   (a)      Total numberof      units acquired      (A) |    (b)      Average price      paidper      unit (A) |  (c)      Total number of units      purchased aspart      of publiclyannounced      plansor      programs | (d)      Maximum number(or      approximatedollar      value) ofunits      that may yetbe      purchased underthe      plans or programs |
|--------------------------------------|------------------------------------------------------------------|---------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------|

| January      1, 2009 - January      31, 2009   |  -     |   |  $ |  -      |  -     |   |
|------------------------------------------------|-------------|--------|---------|--------------|-------------|--------|
|                                           |        |   |    |         |        |   |
| February      1, 2009 - February      28, 2009 |  -     |   |  $ |  -      |  -     |   |
|                                           |        |   |    |         |        |   |
| March      1, 2009 -March      31, 2009        |  5,700 |   |  $ |  732.35 |  5,700 |   |
| Total                                          | 5,700       |   | $       | 732.35       | 5,700       | 34,800 |

Defaults

Submission 

OtherInformation

Exhibits

| (a) |   | Exhibits The      Company has included the following exhibits in this  report: |
|-----|--------|--------------------------------------------------------------------------------|

|   |                                                                                                                               |
|--------|------------------------------------------------------------------------------------------------------------------------------------|
| 31.1   | Certification      of Jack E. Golsen, Chief Executive Officer, pursuant to Sarbanes-Oxley Act      of 2002, Section 302.           |
|   |                                                                                                                               |
| 31.2   | Certification      of Tony M. Shelby, Chief Financial Officer, pursuant to Sarbanes-Oxley Act      of 2002, Section 302.           |
|   |                                                                                                                               |
| 32.1   | Certification      of Jack E. Golsen, Chief Executive Officer, furnished pursuant to      Sarbanes-Oxley Act of 2002, Section 906. |
|   |                                                                                                                               |
| 32.2   | Certification      of Tony M. Shelby, Chief Financial Officer, furnished pursuant to      Sarbanes-Oxley Act of 2002, Section906.  |

----

Table of Contents

|   | LSB      INDUSTRIES, INC. |
|--------|---------------------------|

|   | By:      /s/ Tony M. Shelby                                                                                               |   |
|--------|---------------------------------------------------------------------------------------------------------------------------|--------|
|   | Tony      M. ShelbyExecutive      Vice President of Finance and Chief Financial Officer(Principal      Financial Officer) |

|   | By:      /s/ Harold L. Rieker, Jr.                                            |   |
|--------|-------------------------------------------------------------------------------|--------|
|   | Harold      L. Rieker, Jr.Vice      President and Principal AccountingOfficer |

----