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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended February 28, 2007

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 001-33363



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FCStone Group, Inc.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Delaware                                                       |  | 42-1091210                             
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)

2829 Westown Parkway, Suite 100

West Des Moines, Iowa 50266

(515) 223-3756

(Address of Principal Executive Offices, including zip code; registrants telephone number, including area code)



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Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) with the
Commission, and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act (Check one:)

Large accelerated filer ̈Accelerated Filer ̈Non-accelerated filer  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ̈No  x

As of April
1, 2007, there were 18,238,151 shares of the registrants common stock, $0.0001 par value per share, outstanding.



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|                                                                                              |  |     
|--------------------------------------------------------------------------------------------- |  | ----
|                                                                                              |  | Page
|                                                                                              | 
|PART I  FINANCIAL INFORMATION                                                                |  |     
|                                                                                              | 
|Item 1. Financial Statements                                                                  |  |     
|                                                                                              | 
|Consolidated Statements of Financial Condition August 31, 2006 and February 28, 2007         |  | 1   
|                                                                                              | 
|Consolidated Statements of Operations  Three and Six Months Ended February 28, 2006 and 2007 |  | 3   
|                                                                                              | 
|Consolidated Statements of Cash Flows  Six Months Ended February 28, 2006 and 2007           |  | 4   
|                                                                                              | 
|Notes to Consolidated Financial Statements                                                    |  | 5   
|                                                                                              | 
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 12  
|                                                                                              | 
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                            |  | 40  
|                                                                                              | 
|Item 4. Controls and Procedures                                                               |  | 41  
|                                                                                              | 
|PART II  OTHER INFORMATION                                                                   |  |     
|                                                                                              | 
|Item 1. Legal Proceedings                                                                     |  | 41  
|                                                                                              | 
|Item 6. Exhibits                                                                              |  | 43  
|                                                                                              | 
|SIGNATURES                                                                                    |  | 44  



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Part I

|Item 1. | Financial Statements
|------- | --------------------

FCSTONE GROUP, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(in thousands, except share amounts)



|                                                                                                                       |  |                |           |                  |   |          
|---------------------------------------------------------------------------------------------------------------------- |  | -------------- | --------- | ---------------- | - | ---------
|                                                                                                                       |  | August 31,2006 |           | February 28,2007
|                                                                                                                       |  |                |           | (Unaudited)     
|ASSETS                                                                                                                 |  |                |           |                  |   |          
|Cash and cash equivalents                                                                                              |  |                |           |                  |   |          
|Unrestricted                                                                                                           |  | $              | 59,726    |                  | $ | 50,992   
|Restricted                                                                                                             |  |                | 4,010     |                  |   | 1,517    
|Segregated                                                                                                             |  |                | 14,221    |                  |   | 11,815   
|Commodity accounts receivable                                                                                          |  |                |           |                  |   |          
|Commodity exchanges and clearing organizations  customer segregated, including United States treasury bills and notes |  |                | 604,536   |                  |   | 637,636  
|Proprietary commodity accounts                                                                                         |  |                | 20,133    |                  |   | 72,119   
|Customer regulated accounts in deficit secured by U.S. treasury bills and notes                                        |  |                | 29,166    |                  |   | 77,658   
|                                                                                                                       |  |                |           |                  |   |          
|Total commodity deposits and accounts receivable                                                                       |  |                | 653,835   |                  |   | 787,413  
|                                                                                                                       |  |                |           |                  |   |          
|                                                                                                                       |  |               
|Marketable securities, at fair value  customer segregated and other                                                   |  |                | 149,609   |                  |   | 214,734  
|Trade accounts receivable and advances on grain                                                                        |  |                | 42,176    |                  |   | 45,204   
|Open contracts receivable                                                                                              |  |                | 37,424    |                  |   | 202,809  
|Counterparty deposits and accounts receivable                                                                          |  |                | 23,607    |                  |   | 33,482   
|Notes receivable                                                                                                       |  |                | 14,971    |                  |   | 94,759   
|Inventories  grain and fertilizer (note 2)                                                                            |  |                | 26,628    |                  |   | 37,355   
|Exchange memberships and stock, at cost                                                                                |  |                | 6,587     |                  |   | 7,739    
|Furniture, equipment, software, and improvements, net                                                                  |  |                | 7,386     |                  |   | 7,561    
|Deferred income taxes                                                                                                  |  |                | 4,697     |                  |   | 4,672    
|Investments in affiliates and other organizations                                                                      |  |                | 5,537     |                  |   | 5,404    
|Other assets (note 1)                                                                                                  |  |                | 6,793     |                  |   | 28,543   
|                                                                                                                       |  |                |           |                  |   |          
|Total assets                                                                                                           |  | $              | 1,057,207 |                  | $ | 1,533,999
|                                                                                                                       |  |                |           |                  |   |          
|                                                                                                                       |  |               
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                   |  |                |           |                  |   |          
|Liabilities                                                                                                            |  |                |           |                  |   |          
|Checks written in excess of bank balance                                                                               |  | $              | 6,436     |                  | $ | 5,570    
|Commodity and customer regulated accounts payable                                                                      |  |                | 726,920   |                  |   | 929,448  
|Trade accounts payable and advances                                                                                    |  |                | 128,349   |                  |   | 117,627  
|Open contracts payable                                                                                                 |  |                | 41,301    |                  |   | 163,173  
|Accrued expenses                                                                                                       |  |                | 26,876    |                  |   | 24,354   
|Notes payable (note 3)                                                                                                 |  |                | 48,169    |                  |   | 199,331  
|Subordinated debt                                                                                                      |  |                | 7,000     |                  |   | 15,000   
|Obligations under capital lease                                                                                        |  |                | 3,575     |                  |   | 3,300    
|                                                                                                                       |  |                |           |                  |   |          
|Total liabilities                                                                                                      |  |                | 988,626   |                  |   | 1,457,803
|                                                                                                                       |  |                |           |                  |   |          



1



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|                                                                                                                                                                                                                                       |  |   |           |   |  |   |           |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | - | --------- | - |  | - | --------- | -
|Minority interest                                                                                                                                                                                                                      |  |   | 3,607     |   |  |   | 4,045     |  
|Redeemable common stock held by employee stock ownership plan (ESOP) (note 6)                                                                                                                                                          |  |   | 6,079     |   |  |   | 33,563    |  
|Stockholders equity:                                                                                                                                                                                                                  |  |   |           |   |  |   |           |  
|Common stock, no par value, authorized 20,000,000 and 40,000,000 at August 31, 2006 and February 28, 2007, respectively; issued and
outstanding 14,537,208 shares at August 31, 2006 and 14,533,131 at February 28, 2007, respectively |  |   | 21,747    |   |  |   | 21,747    |  
|Additional paid-in capital                                                                                                                                                                                                             |  |   | 120       |   |  |   | 120       |  
|Accumulated other comprehensive loss                                                                                                                                                                                                   |  |   | (1,955    | ) |  |   | (1,955    | )
|Retained earnings                                                                                                                                                                                                                      |  |   | 45,062    |   |  |   | 52,239    |  
|                                                                                                                                                                                                                                       |  |   |           |   |  |   |           |  
|                                                                                                                                                                                                                                       |  |   | 64,974    |   |  |   | 72,151    |  
|Less maximum cash obligation related to ESOP shares (note 6)                                                                                                                                                                           |  |   | (6,079    | ) |  |   | (33,563   | )
|                                                                                                                                                                                                                                       |  |   |           |   |  |   |           |  
|Total stockholders equity                                                                                                                                                                                                             |  |   | 58,895    |   |  |   | 38,588    |  
|                                                                                                                                                                                                                                       |  |   |           |   |  |   |           |  
|                                                                                                                                                                                                                                       |  |  
|Commitments and contingencies (note 8)                                                                                                                                                                                                 |  |   |           |   |  |   |           |  
|Total liabilities and stockholders equity                                                                                                                                                                                             |  | $ | 1,057,207 |   |  | $ | 1,533,999 |  
|                                                                                                                                                                                                                                       |  |   |           |   |  |   |           |  

See notes to unaudited consolidated financial statements.



2



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FCSTONE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per share amounts)



|                                                             |      |                                |         |                              |      |         |      |   |         |  |   |        
|------------------------------------------------------------ | ---- | ------------------------------ | ------- | ---------------------------- | ---- | ------- | ---- | - | ------- |  | - | -------
|                                                             |      | Three Months EndedFebruary 28, |         | Six Months EndedFebruary 28,
|                                                             | 2006 |                                | 2007    |                              | 2006 |         | 2007
|Revenues:                                                    |      |                                |         |                              |      |         |      |   |         |  |   |        
|Commissions and clearing fees                                |      | $                              | 23,783  |                              | $    | 33,353  |      | $ | 46,840  |  | $ | 66,256 
|Service, consulting and brokerage fees                       |      |                                | 8,444   |                              |      | 9,314   |      |   | 15,428  |  |   | 18,409 
|Interest                                                     |      |                                | 4,972   |                              |      | 10,729  |      |   | 9,244   |  |   | 19,127 
|Other                                                        |      |                                | 686     |                              |      | 954     |      |   | 1,166   |  |   | 1,446  
|Sales of commodities                                         |      |                                | 230,976 |                              |      | 349,098 |      |   | 546,192 |  |   | 797,886
|                                                             |      |                                |         |                              |      |         |      |   |         |  |   |        
|Total revenues                                               |      |                                | 268,861 |                              |      | 403,448 |      |   | 618,870 |  |   | 903,124
|                                                             |      |                                |         |                              |      |         |      |   |         |  |   |        
|Costs and expenses:                                          |      |                                |         |                              |      |         |      |   |         |  |   |        
|Cost of commodities sold                                     |      |                                | 226,583 |                              |      | 343,350 |      |   | 537,286 |  |   | 785,678
|Employee compensation and broker commissions                 |      |                                | 9,983   |                              |      | 11,364  |      |   | 19,649  |  |   | 23,155 
|Pit brokerage and clearing fees                              |      |                                | 10,877  |                              |      | 14,678  |      |   | 21,009  |  |   | 29,542 
|Introducing broker commissions                               |      |                                | 4,776   |                              |      | 9,007   |      |   | 9,202   |  |   | 16,376 
|Employee benefits and payroll taxes                          |      |                                | 2,483   |                              |      | 2,722   |      |   | 4,684   |  |   | 5,369  
|Interest                                                     |      |                                | 1,566   |                              |      | 4,251   |      |   | 2,734   |  |   | 6,490  
|Depreciation                                                 |      |                                | 398     |                              |      | 443     |      |   | 790     |  |   | 879    
|Bad debt expense                                             |      |                                | 150     |                              |      | 120     |      |   | 405     |  |   | 1,540  
|Other expenses                                               |      |                                | 5,489   |                              |      | 6,366   |      |   | 11,184  |  |   | 12,498 
|                                                             |      |                                |         |                              |      |         |      |   |         |  |   |        
|Total costs and expenses                                     |      |                                | 262,305 |                              |      | 392,301 |      |   | 606,943 |  |   | 881,527
|                                                             |      |                                |         |                              |      |         |      |   |         |  |   |        
|Income before income tax expense and minority interest       |      |                                | 6,556   |                              |      | 11,147  |      |   | 11,927  |  |   | 21,597 
|Minority interest                                            |      |                                | 60      |                              |      | 102     |      |   | 8       |  |   | 438    
|                                                             |      |                                |         |                              |      |         |      |   |         |  |   |        
|Income after minority interest and before income tax expense |      |                                | 6,496   |                              |      | 11,045  |      |   | 11,919  |  |   | 21,159 
|Income tax expense                                           |      |                                | 2,560   |                              |      | 4,125   |      |   | 4,600   |  |   | 7,925  
|                                                             |      |                                |         |                              |      |         |      |   |         |  |   |        
|Net income                                                   |      | $                              | 3,936   |                              | $    | 6,920   |      | $ | 7,319   |  | $ | 13,234 
|                                                             |      |                                |         |                              |      |         |      |   |         |  |   |        
|Basic and diluted shares outstanding                         |      |                                | 14,487  |                              |      | 14,533  |      |   | 14,487  |  |   | 14,533 
|                                                             |      |                                |         |                             
|Basic and diluted earnings per share                         |      | $                              | 0.27    |                              | $    | 0.48    |      | $ | 0.51    |  | $ | 0.91   
|                                                             |      |                                |         |                              |      |         |      |   |         |  |   |        

See notes to unaudited consolidated financial statements.



3



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FCSTONE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)



|                                                                                                          |      |                              |         |      |  |   |         |  
|--------------------------------------------------------------------------------------------------------- | ---- | ---------------------------- | ------- | ---- |  | - | ------- | -
|                                                                                                          |      | Six months endedFebruary 28, |        
|                                                                                                          | 2006 |                              |         | 2007 | 
|Cash flows from operating activities:                                                                     |      |                              |         |      |  |   |         |  
|Net income                                                                                                |      | $                            | 7,319   |      |  | $ | 13,234  |  
|Depreciation                                                                                              |      |                              | 790     |      |  |   | 879     |  
|Amortization of discount on note receivable                                                               |      |                              |        |      |  |   | (28     | )
|Gain on conversion of exchange membership to common stock                                                 |      |                              |        |      |  |   | (100    | )
|Equity in earnings of affiliates, net of distributions                                                    |      |                              | 60      |      |  |   | 133     |  
|Minority interest, net of distributions                                                                   |      |                              | (3      | )    |  |   | 438     |  
|Change in commodity accounts receivable/payable, marketable securities and customer segregated funds, net |      |                              | 13,015  |      |  |   | 6,231   |  
|Change in open contracts receivable/payable, net                                                          |      |                              | (39,332 | )    |  |   | (43,513 | )
|Increase in trade accounts receivable and advances on grain                                               |      |                              | (6,610  | )    |  |   | (3,028  | )
|Decrease (increase) in counterparty deposits and accounts receivable                                      |      |                              | 12,169  |      |  |   | (9,875  | )
|Increase in inventory  grain and fertilizer                                                              |      |                              | (18,480 | )    |  |   | (10,727 | )
|Increase in other assets                                                                                  |      |                              | (6,497  | )    |  |   | (21,725 | )
|Increase (decrease) in trade accounts payable and advances                                                |      |                              | 28,410  |      |  |   | (10,722 | )
|Increase (decrease) in accrued expenses                                                                   |      |                              | 1,995   |      |  |   | (2,522  | )
|                                                                                                          |      |                              |         |      |  |   |         |  
|Net cash used in operating activities                                                                     |      |                              | (7,164  | )    |  |   | (81,325 | )
|                                                                                                          |      |                              |         |      |  |   |         |  
|                                                                                                          |      |                             
|Cash flows from investing activities:                                                                     |      |                              |         |      |  |   |         |  
|Purchase of furniture, equipment, and improvements                                                        |      |                              | (642    | )    |  |   | (1,054  | )
|Issuance of notes receivable, net                                                                         |      |                              | (14,034 | )    |  |   | (79,760 | )
|Purchase of exchange memberships and stock                                                                |      |                              | (369    | )    |  |   | (1,430  | )
|Proceeds from conversion of exchange membership to common stock                                           |      |                              |        |      |  |   | 378     |  
|                                                                                                          |      |                              |         |      |  |   |         |  
|Net cash used in investing activities                                                                     |      |                              | (15,045 | )    |  |   | (81,866 | )
|                                                                                                          |      |                              |         |      |  |   |         |  
|                                                                                                          |      |                             
|Cash flows from financing activities:                                                                     |      |                              |         |      |  |   |         |  
|Decrease in checks written in excess of bank balance                                                      |      |                              | (4,880  | )    |  |   | (866    | )
|Proceeds from notes payable, net                                                                          |      |                              | 51,524  |      |  |   | 151,162 |  
|Proceeds from issuance of redeemable common stock held by ESOP                                            |      |                              | 14      |      |  |   |        |  
|Dividends paid                                                                                            |      |                              | (2,898  | )    |  |   | (6,057  | )
|Payments under capital lease                                                                              |      |                              | (275    | )    |  |   | (275    | )
|Monies deposited in escrow                                                                                |      |                              | (39     | )    |  |   | (33     | )
|Monies released from escrow                                                                               |      |                              |        |      |  |   | 2,526   |  
|Proceeds from subordinated debt                                                                           |      |                              | 500     |      |  |   | 8,000   |  
|Payments on subordinated debt                                                                             |      |                              | (2,500  | )    |  |   |        |  
|                                                                                                          |      |                              |         |      |  |   |         |  
|Net cash provided by financing activities                                                                 |      |                              | 41,446  |      |  |   | 154,457 |  
|                                                                                                          |      |                              |         |      |  |   |         |  
|Net increase (decrease) in cash and cash equivalents  unrestricted                                       |      |                              | 19,237  |      |  |   | (8,734  | )
|Cash and cash equivalents  unrestricted  beginning of period                                            |      |                              | 25,045  |      |  |   | 59,726  |  
|                                                                                                          |      |                              |         |      |  |   |         |  
|Cash and cash equivalents  unrestricted  end of period                                                  |      | $                            | 44,282  |      |  | $ | 50,992  |  
|                                                                                                          |      |                              |         |      |  |   |         |  
|                                                                                                          |      |                             
|Supplemental disclosures of cash flow information:                                                        |      |                              |         |      |  |   |         |  
|Interest paid                                                                                             |      | $                            | 2,238   |      |  | $ | 5,473   |  
|Income taxes paid                                                                                         |      | $                            | 5,084   |      |  | $ | 8,594   |  
|                                                                                                          |      |                              |         |      |  |   |         |  
|                                                                                                          |      |                             
|Noncash financing activities:                                                                             |      |                              |         |      |  |   |         |  
|Increase in maximum cash obligation related to ESOP shares                                                |      | $                            | 1,368   |      |  | $ | 27,484  |  
|                                                                                                          |      |                              |         |      |  |   |         |  

See notes to unaudited consolidated financial statements.



4



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FCSTONE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS

BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

The consolidated financial statements of FCStone Group, Inc. and
subsidiaries (the Company) included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission, and represent the consolidation of all companies in which the Company has a
controlling interest. The Company also has minority holdings in three other entities, all of which are accounted for under the equity method. Certain information and disclosures normally included in comprehensive financial statements, prepared in
accordance with U.S. generally accepted accounting principles (US GAAP), have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not
misleading. In the opinion of management, the financial statements reflect all adjustments, which are of a normal recurring nature, necessary to present fairly the Companys consolidated financial position, results of operations and cash flows
for the periods presented. These interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Companys Registration Statement on Form S-1/A, as filed with the
Securities and Exchange Commission on March 14, 2007.

USE OF ESTIMATES

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

OPEN CONTRACTS RECEIVABLE/PAYABLE

FCStone Trading, LLC (FCStone Trading), a wholly-owned subsidiary, brokers over-the-counter option and commodity swap contracts between customers and
external counterparties. The contracts are arranged on an offsetting basis such that the Company limits its risk to performance of the two parties. The offsetting nature of the contracts eliminates the effects of market fluctuations on the
Companys operating results. Due to the Companys role as a principal participating in both sides of these contracts, the amounts are presented gross on the balance sheet. Outstanding options and swaps have been netted at the
customer/counterparty level for purposes of this presentation.

FGDI, LLC (FGDI) uses futures and options contracts to minimize its net
position of merchandisable agricultural commodity inventories and forward cash purchase and sales contracts. Futures and options contracts, forward cash purchase contracts, and forward cash sales contracts of merchandisable agricultural commodities
are valued at market price. Changes in the market value of inventories of merchandisable agricultural commodities, forward cash purchase and sales contracts and futures contracts are recognized in earnings immediately in cost of goods sold.
Unrealized gains and losses on forward cash purchase contracts, forward cash sales contracts, and futures contracts represent the fair value of such instruments and are classified on the statement of financial condition as open contracts.

COUNTERPARTY DEPOSITS AND ACCOUNTS RECEIVABLE

FCStone Trading receives margin deposits from customers from OTC trades and makes margin deposits to various counterparties for open contracts. It is the Companys policy to provide for potential losses related to margin accounts in
deficit based on its knowledge of the financial stability of its customers, and the general economic climate in which it operates. The Company evaluates accounts that it believes may become uncollectible through reviewing the historical aging of its
margin deficits and by monitoring the financial strength of its customers.



5



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OTHER ASSETS

Other assets at February 28, 2007 include $18.6 million of customer deliveries taken on the Chicago Board of Trade. The Company financed these grain deliveries, for a short period, for the benefit of our customers, secured by the
warehouse receipt on such grain. There were no grain deliveries financed at August 31, 2006.

NEW ACCOUNTING PRINCIPLES

In June 2005, the Financial Accounting Standards Board (FASB) issued SFAS No. 154, Accounting Changes and Error Corrections (SFAS 154), a
replacement of APB Opinion No. 20, Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements. SFAS 154 changes the requirements for the accounting for and reporting of a change in
accounting principle. Previously, most voluntary changes in accounting principles required recognition of a cumulative effect adjustment within net income of the period of the change. SFAS 154 requires retrospective application to prior
periods financial statements unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS 154 is effective for accounting changes made in fiscal years beginning after December 15,
2005; however, it does not change the transition provisions of any existing accounting pronouncements. Management does not believe adoption of SFAS 154 will have a material effect on our consolidated financial statements.

In June 2006, the FASB issued FASB Interpretation No. 48 (FIN 48 or the Interpretation), Accounting for Uncertainty in Income
Taxes, an interpretation of FASB Statement No. 109, Accounting for Income Taxes (SFAS 109). FIN 48 clarifies the accounting for uncertainty in income taxes in an enterprises financial statements in accordance with SFAS 109.
This Interpretation requires a recognition threshold and measurement factor for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This Interpretation also provides guidance on
derecognition, classification of, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for the fiscal year beginning after December 15, 2006. We are still evaluating the impact of this
Interpretation which will be applied to our consolidated financial statements from September 1, 2007.

In September 2006, FASB issued
SFAS No. 157, Fair Value Measurements (SFAS 157) which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. Additionally, it explains key concepts that are needed to apply the definition, including market participants, the markets in which a company would exchange the asset or liability and the valuation premise that follows
from assumptions market participants would make about the use of an asset. Also, SFAS 157 establishes a fair value hierarchy that prioritizes the information used in arriving at a fair-value estimate and determining the disclosure requirement. SFAS
157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company has not yet determined the impact that the implementation of SFAS 157 will have on the consolidated financial statements.

In September 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement
Plans (SFAS 158). SFAS 158 requires that the net amount by which the defined benefit postretirement obligation is over or underfunded to be reported on the balance sheet. The funded-status amount will be measured as the difference between the
fair value of plan assets and the projected benefit obligation, which includes all actuarial gains and losses, prior costs and any remaining transition amounts. SFAS 158 is effective for fiscal years ending after December 15, 2006. In addition,
SFAS 158 requires the use of a measurement date as of the balance sheet date for fiscal years ending after December 15, 2008. Application of SFAS 158 at August 31, 2006 would have resulted in the Company recording an additional pension
liability of $7.9 million, with the offset to accumulated other comprehensive income, net of applicable tax effects. The Company will adopt and apply this guidance in preparing the consolidated financial statements at August 31, 2007.

In September 2006, the SEC issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements When
Quantifying Misstatements in Current Year Financial Statements (SAB 108), which provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year
misstatement. It establishes an approach that requires quantification of financial statement misstatements based on the effects of the misstatements on each of the companys financial statements and the related financial statement disclosures.
SAB 108 will be effective for the fiscal year ending August 31, 2007. Management does not believe adoption of SAB 108 will have a material impact on the Companys consolidated financial statements.



6



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In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities (SFAS 159). SFAS 159 permits entities to choose to measure financial assets and liabilities (except for those that are specifically scoped out of the Statement) at fair value. The election to measure a financial asset or
liability at fair value can be made on an instrument-by-instrument basis and is irrevocable. The difference between carrying value and fair value at the election date is recorded as a transition adjustment to opening retained earnings. Subsequent
changes in fair value are recognized in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company will adopt SFAS 159 on September 1, 2008. Management does not believe the adoption of SFAS 159 will
have a material impact on the Companys consolidated financial statements.

2. INVENTORIES

Grain inventories are carried at market value, which is net realizable value (NRV). NRV is determined by estimating selling prices in the applicable
market location and related costs of disposal in the ordinary course of business.

Fertilizer inventory is recorded at the lower of cost or
market using the first-in, first-out method.

A summary of inventories as of August 31, 2006 and February 28, 2007 are as
follows:



|           |  |                |            |                  |   |           
|---------- |  | -------------- | ---------- | ---------------- | - | ----------
|           |  | August 31,2006 |            | February 28,2007
|Grain      |  | $              | 25,539,782 |                  | $ | 35,924,476
|Fertilizer |  |                | 1,087,799  |                  |   | 1,430,837 
|           |  |                |            |                  |   |           
|           |  | $              | 26,627,581 |                  | $ | 37,355,313
|           |  |                |            |                  |   |           

3. NOTES PAYABLE

Notes payable outstanding at August 31, 2006 and February 28, 2007 consisted of the following:



|                                    |  |                           |  |                                                        |      |     |                       |            |                  |           
|----------------------------------- |  | ------------------------- |  | ------------------------------------------------------ | ---- | --- | --------------------- | ---------- | ---------------- | ----------
|Use / Creditor                      |  | Renewal / Expiration Date |  | TotalCommitmentAmount
atFebruary 28,2007 (in millions) |      |     | Amount Outstanding at
|                                    |  |                           |  |                                                        |      |     | August 31,2006        |            | February 28,2007
|Margin Call Facilities:             |  |                           |  |                                                        |      |     |                       |            |                  |           
|Deere Credit, Inc.                  |  | March 1, 2008             |  | $                                                      | 48.7 |     |                       |           |                  |          
|Harris, N.A.                        |  | June 30, 2007             |  |                                                        | 30.0 |     |                       |           |                  |          
|CoBank, ACB                         |  | December 30, 2007         |  |                                                        | 10.0 |     |                       |           |                  |          
|CoBank, ACB                         |  | December 30, 2008         |  |                                                        | 10.0 |     |                       |           |                  |          
|Commodity Merchandising Facilities: |  |                           |  |                                                        |      |     |                       |            |                  |           
|CoBank, ACB                         |  | June 30, 2007             |  |                                                        | 88.0 | (1) |                       | 20,992,636 |                  | 59,086,708
|CoBank, ACB                         |  | June 30, 2008             |  |                                                        | 8.0  | (1) |                       |           |                  |          
|AFG Trust Finance Limited           |  | September 18, 2007        |  |                                                        | 8.0  |     |                       | 4,057,937  |                  | 2,476,660 
|Commodity Financing Facilities:     |  |                           |  |                                                        |      |     |                       |            |                  |           
|Harris, N.A.                        |  | January 31, 2008          |  |                                                        | 5.0  |     |                       |           |                  |          
|Deere Credit, Inc.                  |  | March 1, 2008             |  |                                                        | 96.0 |     |                       | 7,100,000  |                  | 47,194,000
|CoBank, ACB                         |  | May 1, 2007               |  |                                                        | 75.0 |     |                       | 3,405,000  |                  | 24,750,000
|Fortis Capital Corp.                |  | Demand                    |  |                                                        | 20.0 |     |                       | 1,116,000  |                  | 724,000   
|RZB Finance, LLC                    |  | Demand                    |  |                                                        | 8.0  |     |                       | 1,068,000  |                  | 2,530,800 
|Bank of Tokyo-Mitsubishi UFJ, Ltd   |  | Demand                    |  |                                                        | 10.0 |     |                       |           |                  |          



7



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|                                  |  |                   |  |      |     |  |   |            |  |   |            
|--------------------------------- |  | ----------------- |  | ---- | --- |  | - | ---------- |  | - | -----------
|Standard Chartered Bank, New York |  | Demand            |  | 20.0 |     |  |   |           |  |   | 12,790,973 
|Standard Chartered Bank, London   |  | Demand            |  | 34.5 | (2) |  |   |           |  |   | 34,527,613 
|Other borrowings:                 |  |                   |  |      |     |  |   |            |  |   |            
|Deere Credit, Inc.                |  | October 1, 2009   |  | 15.3 |     |  |   | 10,250,000 |  |   | 14,250,000 
|Long-term note                    |  | December 31, 2012 |  | 0.1  |     |  |   | 179,452    |  |   |           
|Short-term note                   |  | March 31, 2007    |  | 1.0  |     |  |   |           |  |   | 1,000,000  
|                                  |  |                   |  |      |     |  |   |            |  |   |            
|Total                             |  |                   |  |      |     |  | $ | 48,169,025 |  | $ | 199,330,754
|                                  |  |                   |  |      |     |  |   |            |  |   |            

---

|(1) | At February 28, 2007, Grain Merchandisings CoBank revolving credit line and term loan advances, in the aggregate, could not exceed $88.0 million. On March 23, 2007,
FGDI entered into a Third Amendment to Revolving Credit, Term Loan and Security Agreement and Related Documents (the Third Amendment) with CoBANK ACB, to its original credit agreement with CoBANK, dated May 28, 2006. The primary effect of the
Third Amendment, which was effective as of March 23, 2007, was to extend the maturity date, of the revolving credit line and term loan through June 30, 2007 and 2008, respectively. Additionally, the Third Amendment steps down the maximum
amount that can be outstanding under the credit agreement from $88 million to $73 million during the remaining term of the credit agreement.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | During December 2006, FCStone Merchant Services, LLC began entering into hedged commodity transactions with Standard Chartered Bank, London (SCBL) on a transaction by transaction
basis as part of its repurchase program business plan. There is no commitment for futures advances, and the $34.5 million outstanding at February 28, 2007 represents the repurchase obligation value of the hedged commodity transactions that were
in place at February 28, 2007.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

4. PENSION PLANS

The Company has a noncontributory retirement plan, which is a defined benefit plan that covers substantially all employees. Effective April 1, 2006, such plan was closed to new employees hired subsequent to the
April 1, 2006 date. Additionally, the Company has a nonqualified noncontributory retirement plan covering certain executive employees. The Companys policy is to fund amounts that are intended to provide for benefits attributed to service
to date. Pension expense for the three and six month periods ended February 28, 2006 and 2007 for the defined benefit plans consists of the following components:



|                                    |      |                                |          |      |                              |   |          |   |  |      |           |   |  |   |           |  
|----------------------------------- | ---- | ------------------------------ | -------- | ---- | ---------------------------- | - | -------- | - |  | ---- | --------- | - |  | - | --------- | -
|                                    |      | Three months endedFebruary 28, |          |      | Six months endedFebruary 28, |  
|                                    | 2006 |                                |          | 2007 |                              |   | 2006     |   |  | 2007 |          
|Service cost                        |      | $                              | 510,882  |      |                              | $ | 480,549  |   |  | $    | 1,021,764 |   |  | $ | 961,098   |  
|Interest cost                       |      |                                | 328,755  |      |                              |   | 400,713  |   |  |      | 657,510   |   |  |   | 801,426   |  
|Less expected return on plan assets |      |                                | (306,231 | )    |                              |   | (385,274 | ) |  |      | (612,462  | ) |  |   | (770,548  | )
|Net amortization and deferral       |      |                                | 229,776  |      |                              |   | 142,219  |   |  |      | 459,552   |   |  |   | 284,438   |  
|                                    |      |                                |          |      |                              |   |          |   |  |      |           |   |  |   |           |  
|Net periodic pension expense        |      | $                              | 763,182  |      |                              | $ | 638,207  |   |  | $    | 1,526,364 |   |  | $ | 1,276,414 |  
|                                    |      |                                |          |      |                              |   |          |   |  |      |           |   |  |   |           |  

5. EARNINGS PER SHARE

Earnings per share has been presented in the accompanying Consolidated Statement of Operations. Basic earnings per share excludes dilution and is computed by dividing the applicable net income by the weighted average
number of common shares outstanding for the period. Diluted earnings per share is calculated based on the weighted average shares of common stock as adjusted for the potential dilutive effect of stock options. Stock-based compensation arrangements,
including options, are considered to be outstanding as of the grant date for purposes of computing diluted earnings per share.



8



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For the three and six month periods ended February 28, 2006 and 2007, antidilutive options excluded
from the diluted earnings per share calculation totaled -0- options and 1,200,000 options (with a weighted average exercise price of $8.25 per share), respectively. At February 28, 2007, the Companys common stock was not traded on a
public exchange, and there has been no change between the fair value of the options at the grant date that would give rise to a dilutive effect. In the three and six month periods ended February 28, 2006, no options were granted, exercised or
forfeited.

6. EMPLOYEE STOCK OWNERSHIP PLAN

The Company has an employee stock ownership plan (ESOP) in order to provide employee incentives and an additional capital infusion to the Company. Generally, employees of the Company or any participating affiliates who meet the criteria
defined in the ESOP are eligible. The ESOP operates on a plan year which corresponds to the calendar year. The Company and the ESOP obtain an annual valuation, measured as of the end of each calendar year, in connection with the administration of
the ESOP. For plan years beginning after December 31, 2005, the Company makes matching contributions to the ESOP in an amount equal to 50% of each participants eligible elective deferral contribution to the 401(k) Plan. Dividends received
with respect to shares of Company stock allocated to participants accounts in the ESOP are credited to such participants accounts annually on the basis of the number of shares of Company stock allocated to each such participants
account. All shares held by the ESOP are treated as outstanding in computing earnings per share. In the event a terminated plan participant, whether by death, disability, retirement or other termination, desires to sell his or her shares of Company
stock, the Company may be required to purchase the shares from the participant at their appraised value at that time. To the extent that shares of common stock held by the ESOP are not readily marketable, a sponsor must reflect the maximum cash
obligation related to those securities outside of stockholders equity as temporary equity.

As of August 31, 2006 and
February 28, 2007, the shares held by the ESOP, the ESOP appraisal value per share and the maximum cash obligation were as follows:



|                                                            |  |                |           |                  |   |           
|----------------------------------------------------------- |  | -------------- | --------- | ---------------- | - | ----------
|                                                            |  | August 31,2006 |           | February 28,2007
|Shares held by the ESOP                                     |  |                | 1,398,447 |                  |   | 1,398,447 
|ESOP appraisal value per share (as of December 31, 2005)(1) |  | $              | 4.35      |                  | $ | 24.00     
|Maximum cash obligation (2)                                 |  | $              | 6,078,583 |                  | $ | 33,562,728

---

|(1) | For August 31, 2006, the ESOP appraisal value per share is the independent valuation price of $4.35 as of December 31, 2005. The Company is awaiting the annual independent
valuation, as of December 31, 2006, which should be the ESOP appraisal value per share used for February 28, 2007. In lieu of the annual independent valuation, as of December 31, 2006, the $24.00 per share initial public offering
price received on March 16, 2007 has been used for reporting purposes at February 28, 2007, and is not expected to differ significantly from the independent valuation price.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Redeemable common stock held by the ESOP represents our maximum obligation to purchase common stock distributed to a terminated plan participant based upon the most recent appraised
value as of August 31, 2006 and February 28, 2007, respectively. The Companys obligation to purchase such shares of common stock ceased on March 16, 2007 in accordance with the terms of the ESOP and the amount reflected in redeemable
common stock will thereafter be reflected in stockholders equity.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



9



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7. OPERATING SEGMENT INFORMATION

The Company reports its operating segments based on services provided to customers, which includes Commodity and Risk Management Services, Clearing and Execution Services, Grain Merchandising, and Financial Services.
The Commodity and Risk Management Services segment offers commodity services to its customers, with an emphasis on risk management using futures, options and other derivative instruments traded on exchanges and through over-the-counter markets. The
Clearing and Execution Services segment offers low-cost clearing and direct execution services to commodities firms, fund operators, commodities traders and others. The Grain Merchandising segment acts as a dealer in, and manager of, physical grain
and fertilizer in the United States and international markets. The Financial Services segment offers financing and facilitation for customers to finance the purchase of commodities. The Corporate and Other segment consists of income from investments
in other companies accounted for using the equity method and overall corporate level expenses primarily related to employee compensation and benefits, travel, technology, professional fees, director fees, interest and general insurance.

Reconciling Amounts represent the elimination of interest income and expense, and commission income and expense between segments. Such transactions
are conducted at market prices to more accurately evaluate the profitability of the individual business segments. Additionally, certain assets consisting primarily of commodity deposits and accounts receivable, notes receivable, and amounts due from
affiliates between segments have been eliminated.

The following table presents the significant items by operating segment for the results
of operations for the three and six month periods ended February 28, 2006 and 2007, respectively, and the balance sheet data as of those dates (in thousands):



|                                                        |  |                                   |         |                             |   |                    |  |                   |         |  |                  |         |   |                    |   |        |       |  |   |         |   |  |   |          
|------------------------------------------------------- |  | --------------------------------- | ------- | --------------------------- | - | ------------------ |  | ----------------- | ------- |  | ---------------- | ------- | - | ------------------ | - | ------ | ----- |  | - | ------- | - |  | - | ---------
|                                                        |  | Commodity &RiskManagementServices |         | Clearing &ExecutionServices |   | GrainMerchandising |  | FinancialServices |         |  | Corporate& Other |         |   | ReconcilingAmounts |   |        | Total
|Three Months Ended:                                     |  |                                   |         |                             |   |                    |  |                   |         |  |                  |         |   |                    |   |        |       |  |   |         |   |  |   |          
|                                                        |  |                                   |         |                             |   |                    | 
|February 28, 2006                                       |  |                                   |         |                             |   |                    |  |                   |         |  |                  |         |   |                    |   |        |       |  |   |         |   |  |   |          
|Total revenues                                          |  | $                                 | 19,892  |                             | $ | 18,630             |  | $                 | 223,352 |  | $                | 7,852   |   |                    | $ | (12    | )     |  | $ | (853    | ) |  | $ | 268,861  
|Interest revenue                                        |  |                                   | 1,676   |                             |   | 2,501              |  |                   | 212     |  |                  | 1,122   |   |                    |   | 43     |       |  |   | (582    | ) |  |   | 4,972    
|Interest expense                                        |  |                                   | 20      |                             |   | 73                 |  |                   | 1,020   |  |                  | 946     |   |                    |   | 89     |       |  |   | (582    | ) |  |   | 1,566    
|Income (loss) before minority interest and income taxes |  |                                   | 5,253   |                             |   | 2,822              |  |                   | 284     |  |                  | 3       |   |                    |   | (1,806 | )     |  |   |        |   |  |   | 6,556    
|Total assets                                            |  |                                   | 321,891 |                             |   | 492,534            |  |                   | 106,595 |  |                  | 55,807  |   |                    |   | 10,370 |       |  |   | (58,435 | ) |  |   | 928,762  
|                                                        |  |                                   |         |                             |   |                    | 
|February 28, 2007                                       |  |                                   |         |                             |   |                    |  |                   |         |  |                  |         |   |                    |   |        |       |  |   |         |   |  |   |          
|Total revenues                                          |  | $                                 | 27,272  |                             | $ | 24,263             |  | $                 | 339,995 |  | $                | 12,930  |   |                    | $ | 104    |       |  | $ | (1,116  | ) |  | $ | 403,448  
|Interest revenue                                        |  |                                   | 4,742   |                             |   | 3,654              |  |                   | 29      |  |                  | 2,971   |   |                    |   | 127    |       |  |   | (794    | ) |  |   | 10,729   
|Interest expense                                        |  |                                   | 68      |                             |   | 326                |  |                   | 1,940   |  |                  | 2,426   |   |                    |   | 285    |       |  |   | (794    | ) |  |   | 4,251    
|Income (loss) before minority interest and income taxes |  |                                   | 9,153   |                             |   | 3,431              |  |                   | 340     |  |                  | 419     |   |                    |   | (2,196 | )     |  |   |        |   |  |   | 11,147   
|Total assets                                            |  |                                   | 678,002 |                             |   | 601,846            |  |                   | 145,892 |  |                  | 132,703 |   |                    |   | 17,610 |       |  |   | (42,054 | ) |  |   | 1,533,999
|                                                        |  |                                   |         |                             |   |                    | 
|Six Months Ended:                                       |  |                                   |         |                             |   |                    |  |                   |         |  |                  |         |   |                    |   |        |       |  |   |         |   |  |   |          
|                                                        |  |                                   |         |                             |   |                    | 
|February 28, 2006                                       |  |                                   |         |                             |   |                    |  |                   |         |  |                  |         |   |                    |   |        |       |  |   |         |   |  |   |          
|Total revenues                                          |  | $                                 | 39,729  |                             | $ | 35,880             |  | $                 | 532,312 |  | $                | 12,403  |   |                    | $ | 25     |       |  | $ | (1,479  | ) |  | $ | 618,870  
|Interest revenue                                        |  |                                   | 3,343   |                             |   | 4,726              |  |                   | 233     |  |                  | 1,787   |   |                    |   | 80     |       |  |   | (925    | ) |  |   | 9,244    
|Interest expense                                        |  |                                   | 37      |                             |   | 154                |  |                   | 1,797   |  |                  | 1,509   |   |                    |   | 162    |       |  |   | (925    | ) |  |   | 2,734    
|Income (loss) before minority interest and income taxes |  |                                   | 9,675   |                             |   | 5,202              |  |                   | 282     |  |                  | (101    | ) |                    |   | (3,131 | )     |  |   |        |   |  |   | 11,927   
|Total assets                                            |  |                                   | 321,891 |                             |   | 492,534            |  |                   | 106,595 |  |                  | 55,807  |   |                    |   | 10,370 |       |  |   | (58,435 | ) |  |   | 928,762  
|                                                        |  |                                   |         |                             |   |                    | 
|February 28, 2007                                       |  |                                   |         |                             |   |                    |  |                   |         |  |                  |         |   |                    |   |        |       |  |   |         |   |  |   |          
|Total revenues                                          |  | $                                 | 55,650  |                             | $ | 48,284             |  | $                 | 779,863 |  | $                | 20,997  |   |                    | $ | 199    |       |  | $ | (1,869  | ) |  | $ | 903,124  
|Interest revenue                                        |  |                                   | 8,388   |                             |   | 7,485              |  |                   | 64      |  |                  | 4,158   |   |                    |   | 251    |       |  |   | (1,219  | ) |  |   | 19,127   
|Interest expense                                        |  |                                   | 197     |                             |   | 464                |  |                   | 3,146   |  |                  | 3,402   |   |                    |   | 500    |       |  |   | (1,219  | ) |  |   | 6,490    
|Income (loss) before minority interest and income taxes |  |                                   | 16,717  |                             |   | 7,040              |  |                   | 1,460   |  |                  | 447     |   |                    |   | (4,067 | )     |  |   |        |   |  |   | 21,597   
|Total assets                                            |  |                                   | 678,002 |                             |   | 601,846            |  |                   | 145,892 |  |                  | 132,703 |   |                    |   | 17,610 |       |  |   | (42,054 | ) |  |   | 1,533,999



10



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8. CONTINGENCIES

The Company, from time to time, is involved in various legal matters considered normal in the course of its business, including workers compensation claims, tort claims, contractual disputes and collections. It
is the Companys policy to accrue for amounts related to these matters if it is probable that a liability has been incurred and an amount can be reasonably estimated. We carry insurance that provides protection against certain types of claims,
up to the policy limits of our insurance. With the exception of the matters discussed below, we are not aware of other potential claims that could result in the commencement of material legal proceedings. In the opinion of our management,
liabilities, if any, arising from existing litigation and claims will not have a materially adverse effect on our results of operations, liquidity or financial position.

On May 23, 2006, a former customer, Watseka Farmers Grain Cooperative Company, filed an action in the United States District Court, Central District of Illinois seeking actual damages in excess of $4 million,
interest, punitive damages, treble damages, attorneys fees and other further relief as the court may deem just and proper relating to losses on allegedly improper speculative trades ordered by the former general manager of the customer in a
commodity futures account at FCStone, LLC. The customer was placed under supervision by Illinois state authorities in May 2004, after examination revealed deficiencies in its financial reporting and condition, and its assets were subsequently sold.
In December 2006, we called for the redemption of all of the shares of common stock held by Watseka. In March 2007, a counterclaim was filed against us asserting ownership of the redeemed shares and seeking to set aside the redemption. We intend to
vigorously defend this claim and we believe we have meritorious defenses.

On August 21, 2003, August 21,
2003, September 23, 2003, October 16, 2003, and July 16, 2004, Euro-Maritime Chartering, Inc. filed five separate claims under the arbitration facility established by the London Maritime Arbitrators Association of London,
England, alleging a breach by FGDI of charter party agreements regarding five vessels and seeking to recover damages of $242,655, $230,863, $769,302, $649,031 and $403,167, respectively. Euro-Maritime Chartering alleges that these damages arise from
detention and demurrage encountered at China ports with respect to cargos that FGDI sold to Chinese buyers. FGDI does not dispute the demurrage claims, which are estimated to total approximately $690,000. FGDI claims that, under the sales contracts
with the Chinese buyers, any detention and demurrage charges were for the account of the buyers. FGDI has collected deposits from the Chinese buyers in the total amount of $669,436, which are being held pending resolution of the detention claims.
FGDI intends to vigorously defend the detention claims and believes that it has meritorious defenses. If the claimant prevails on any of the detention claims, or otherwise in amounts above the corresponding deposit, FGDI expects to seek collection
of such amounts from the buyers.

On December 13, 2003, Liaoyang Edible Oils filed a claim in arbitration under the arbitration
facility established by the Federation of Oils, Seeds and Fats Associations Ltd. of Hong Kong alleging a breach of a sales contract by FGDI and seeking to recover damages of $1,125,000, of which $55,475 was not disputed as due under the contract.
Liaoyang Edible Oils alleged that these damages arose out of disputes related to the final pricing of the contract. On December 15, 2005 the arbitration panel rendered a decision, dismissing the claim for pricing damages, but also doing its own
accounting under the contract, and making an award to claimant, including interest and arbitration costs, of approximately $275,000. A partial award of attorneys fees and costs was also rendered in the decision, although this amount is yet to
be quantified. FGDI has made an accrual, of $275,000 related to this claim. On January 25, 2006, the claimant filed an appeal, which under the arbitration rules governing this dispute, is deemed to be a request for a new hearing. FGDI intends
to defend the appeal and seek an order that the award be upheld in its entirety, except for the accounting amount and except that each party should be ordered to bear its own legal costs. In addition, FGDI has cross appealed as to the amount
determined by the arbitration panel.

On December 9, 2004, Xiamen Zhonge Industry Co., Ltd. (Xiamen) filed a claim in arbitration
under the arbitration facility established by the Federation of Oils, Seeds and Fats Associations Ltd. of Hong Kong. Xiamens claim alleges that FGDI breached its duty to accept pricing instructions provided by Xiamen to FGDI. FGDI submitted a
statement of defense and counterclaim to which Xiamen replied with a modified claim. On March 12, 2007, the arbitration panel rendered a decision in favor of FGDI, awarding the Company recovery of grain margin



11



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losses and interest. The claimant has until April 16, 2007 to file an appeal, which under the arbitration rules governing this dispute, would be deemed
to be a request for a new hearing. FGDI intends to defend the appeal, if filed, and seek an order that the award be upheld in its entirety.

Management is currently unable to predict the outcome of these claims and, except as noted above, believes their current status does not warrant accrual under the guidance of Statement on Financial Accounting Standards No. 5,
Accounting for Contingencies, since the amount of any liability is neither probable nor reasonably estimable. As such, except as noted above, no amounts have been accrued in the financial statements. Management intends to vigorously defend
these claims and will continue to monitor the result of arbitration and assess the need for future accruals.

9. SUBSEQUENT EVENTS

In March 2007, the Company completed its initial public offering (IPO) of common stock in which a total of 5,865,000 shares were issued and sold at an IPO
price of $24.00 per share. In connection with the offering, the Company redeemed 2,159,980 shares of common stock. The Company raised a total of $140.8 million in gross proceeds from the IPO, and approximately $130.9 million in net proceeds after
deducting underwriting discounts and commission expenses of $9.9 million. Subsequently, proceeds from the IPO in the amount of approximately $48.2 million have been used to fund the share redemption, approximately $28.3 million has been used to
reduce notes payable and subordinated debt and approximately $1.6 million has been used for non-underwriting offering expenses.

On
March 16, 2007, concurrent with the completion of the IPO, the Compensation Committee of the Board of Directors of the Company granted stock options to purchase a total of 750,000 shares of common stock to executive officers, management
employees, and non-employee directors of the Company. The exercise price for the stock options, were set by the Compensation Committee at the IPO price of $24.00 per share. The options vest over a period of five years from the grant date and expire
on March 16, 2017. The Company will reflect their issuance in the third quarter of fiscal 2007.



|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

Overview

We are an integrated commodity risk management company providing risk management consulting
and transaction execution services to commercial commodity intermediaries, end-users and producers. We assist primarily middle-market customers in optimizing their profit margins and mitigating commodity price risk. In addition to our risk
management consulting services, we operate one of the leading independent clearing and execution platforms for exchange-traded futures and options contracts. In fiscal 2006, we served more than 7,500 customers and transacted more than
47.6 million contracts in the exchange-traded and over-the-counter (OTC) markets. As a natural complement to our commodity risk management consulting and execution services, we also assist our customers with the financing,
transportation and merchandising of their physical commodity inventories.

In the mid 1990s, utilizing the expertise developed in
providing risk management consulting services to our traditional grain-related customers, we began a period of growth driven by our strategic decision to expand into new products and customer segments. This expansion was further accelerated when we
acquired Saul Stone & Company, which enhanced our execution and clearing capabilities and gave us the ability to clear all U.S. exchange-traded commodity futures and options contracts. As our business expanded, revenues from customers who
were not among our existing cooperative members increased significantly. In late 2004, we recognized the need to align our corporate structure with the changed dynamics of our business and to provide access to capital to finance anticipated
increases in our Commodity Futures Trading Commission (CFTC) regulatory capital requirements. In March 2005, our members approved a restructuring plan, which resulted in our ceasing to operate as a cooperative and converted the interests
of our members into common stock. Although the restructuring changed our ownership structure, our conversion did not have a meaningful impact on the way we operate our business. We seek to pursue opportunities for growth in our business by offering
new products and services to our customers, and we expect this trend to continue.

We operate in four reportable segments consisting of
Commodity and Risk Management Services (C&RM), Clearing and Execution Services, Financial Services and Grain Merchandising. We also report a Corporate and Other segment, which contains corporate expenses and equity investments not
directly attributable to our operating segments.



12



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Our profitability is primarily driven by the C&RM and Clearing and Execution Services segments of our
business, as shown in the table below. While the revenues of our Grain Merchandising segment represent a large proportion of our total revenue, that segment is characterized by low operating profit margins. As a result, it is important that you read
our consolidated financial statements in conjunction with the segment disclosure included below and in the notes to our consolidated financial. The following table sets forth for each segment the income (loss) before minority interest and income tax
expense for each of the three month periods ended February 28, 2006 and 2007 and the six month periods ended February 28, 2006 and 2007.



|                                                       |                  |                                |        |      |                              |   |        |   |  |      |        |   |  |   |        |  
|------------------------------------------------------ | ---------------- | ------------------------------ | ------ | ---- | ---------------------------- | - | ------ | - |  | ---- | ------ | - |  | - | ------ | -
|                                                       |                  | Three Months EndedFebruary 28, |        |      | Six Months EndedFebruary 28, |  
|                                                       | 2006             |                                |        | 2007 |                              |   | 2006   |   |  | 2007 |       
|                                                       | ($ in thousands) |                               
|Commodity and Risk Management Services                 |                  | $                              | 5,253  |      |                              | $ | 9,153  |   |  | $    | 9,675  |   |  | $ | 16,717 |  
|Clearing and Execution Services                        |                  |                                | 2,822  |      |                              |   | 3,431  |   |  |      | 5,202  |   |  |   | 7,040  |  
|Financial Services                                     |                  |                                | 3      |      |                              |   | 419    |   |  |      | (101   | ) |  |   | 447    |  
|Grain Merchandising                                    |                  |                                | 284    |      |                              |   | 340    |   |  |      | 282    |   |  |   | 1,460  |  
|Corporate and Other                                    |                  |                                | (1,806 | )    |                              |   | (2,196 | ) |  |      | (3,131 | ) |  |   | (4,067 | )
|                                                       |                  |                                |        |      |                              |   |        |   |  |      |        |   |  |   |        |  
|Income before minority interest and income tax expense |                  | $                              | 6,556  |      |                              | $ | 11,147 |   |  | $    | 11,927 |   |  | $ | 21,597 |  
|                                                       |                  |                                |        |      |                              |   |        |   |  |      |        |   |  |   |        |  

Factors that Affect Our Business

Our results of operations have been, and we expect will continue to be, affected principally by customer acceptance of risk management, commodity price
volatility, transaction volumes, interest rates and our ability to develop new products for our customers.

Customer Acceptance of Risk Management

The growing sophistication of company managers and the heightened expectations of investors have increased the acceptance of
commodity risk management strategies. Demand for risk management consulting services is growing in industries that have not traditionally been significant users of hedging techniques and the derivatives market. This increased demand drives our fee
revenue from risk management consulting services and our commission and interest income generated from the trading activity of our customers. As we expand our customer base beyond the traditional users of derivative products, our ability to provide
an analysis of the commodity markets and advise our customers about how to manage the commodity risk inherent in their businesses will continue to be an important driver in our ability to generate future revenues.

Commodity Price Volatility

Rising commodity
price volatility historically has led to increases in transaction volume and better financial performance in both our C&RM and Clearing and Execution Services segments. High commodity price volatility affects our financial performance by
increasing the uncertainty of the profit margins of intermediaries, end-users and producers, which ultimately leads them to derivatives as a way of mitigating their financial risk from changing prices. At the same time, market volatility creates
opportunities for professional traders, who find derivatives a more efficient way to transact relative to traditional physical commodities. In general, high commodity price volatility increases the demand for risk management consulting services and
trade execution and clearing by commodity producers, intermediaries, end-users and professional traders.

Transaction Volumes

Since 2001, market transaction volume, as measured by numbers of contracts, has increased due to higher commodity price volatility, product innovation and
a shift to electronic trading. As noted above, high commodity



13



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price volatility results in increased demand for risk management consulting services and increased transaction volumes. In addition, product
innovation in both the international exchange-traded and OTC markets has resulted in higher transaction volumes. The continued convergence of derivatives and cash markets and the expanded use of derivatives for hedging and investment purposes have
been the primary drivers of this industry trend. The shift from open outcry, pit-based trading to electronic trading platforms has increased trading volume as customers are drawn to more efficient and lower cost markets.

Interest Rates

The level of prevailing
short-term interest rates affects our profitability because a portion of our revenue is derived from interest earned from the investment of funds deposited with us by customers in our C&RM and Clearing and Execution Services segments. Our
financial performance generally benefits from rising interest rates. Rising interest rates increase the amount of interest income earned from these customer deposits. In contrast, declining interest rates decrease the amount of interest income
earned on customer deposits.

Product Development

Our ability to develop customized products to meet our customers specialized needs affects the overall profitability of our operations. These customized products often have unique and complex structures based on
OTC traded contracts and we provide value-added service components to our customers that make these products more profitable for us.

Statement of
Operations

Revenues

Our
revenues are comprised of: (1) commissions and clearing fees, (2) risk management service, consulting and related brokerage fees, (3) interest income, (4) other revenues and (5) sales of physical commodities.

Commissions and clearing fees. Commissions and clearing fees represent revenues generated from exchange-traded and foreign exchange
(Forex) transactions that we execute or clear in our C&RM and Clearing and Execution Services segments. Commissions and clearing fee revenue is a product of the number of transactions we process for our customers and the rate charged
on those transactions. The rate that we charge our customers varies by type of customer, type of transaction and a customers volume of trading activity. The following table shows commissions and clearing fees by exchange trades and Forex
trades and the number of exchange-traded contracts that we have executed or cleared for our customers in the C&RM and Clearing and Execution Services segments for the three- and six-month periods ended February 28, 2006 and 2007.



|                                                |                  |                                |        |                              |      |        |      |   |        |  |   |       
|----------------------------------------------- | ---------------- | ------------------------------ | ------ | ---------------------------- | ---- | ------ | ---- | - | ------ |  | - | ------
|                                                |                  | Three Months EndedFebruary 28, |        | Six Months EndedFebruary 28,
|                                                | 2006             |                                | 2007   |                              | 2006 |        | 2007
|                                                | ($ in thousands)
|Commissions and clearing fees  Exchange trades |                  | $                              | 23,566 |                              | $    | 28,989 |      | $ | 46,547 |  | $ | 61,051
|Commissions and clearing fees  Forex trades    |                  |                                | 217    |                              |      | 4,364  |      |   | 293    |  |   | 5,205 
|                                                |                  |                                |        |                              |      |        |      |   |        |  |   |       
|Total commissions and clearing fees             |                  | $                              | 23,783 |                              | $    | 33,353 |      | $ | 46,840 |  | $ | 66,256
|                                                |                  |                                |        |                              |      |        |      |   |        |  |   |       
|                                                |                  |                                |        |                             
|Exchange contract volume (in millions)          |                  |                                | 11.0   |                              |      | 12.9   |      |   | 22.1   |  |   | 26.3  

Commissions and clearing fees growth was primarily related to a large Fall 2006 price rally and
ongoing volatility in the grain markets and continued volatility in the energy markets.

Service, consulting and brokerage fees.
Service, consulting and brokerage fees are revenue generated in the C&RM segment. Service revenues are monthly fees charged to IRMP customers for customized risk management consulting services. Brokerage fees are generated from OTC derivative
trades executed with our customers and with other counterparties. These brokerage fees vary on a per trade basis depending on the level of service provided and the type of transaction. Consulting fees are primarily fees we charge for providing
various other risk management-related consulting services to customers, which are generally performed on either a monthly or project-by-project basis. The following table sets forth our service, consulting and brokerage fees and OTC contract volume
for the three- and six-month periods ended February 28, 2006 and 2007.



14



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|                                       |                  |                                |        |                              |      |         |      |   |         |  |   |        
|-------------------------------------- | ---------------- | ------------------------------ | ------ | ---------------------------- | ---- | ------- | ---- | - | ------- |  | - | -------
|                                       |                  | Three Months EndedFebruary 28, |        | Six Months EndedFebruary 28,
|                                       | 2006             |                                | 2007   |                              | 2006 |         | 2007
|                                       | ($ in thousands)
|Service, consulting and brokerage fees |                  | $                              | 8,444  |                              | $    | 9,314   |      | $ | 15,428  |  | $ | 18,409 
|OTC contract volume                    |                  |                                | 76,055 |                              |      | 160,839 |      |   | 115,583 |  |   | 286,244

Service, consulting and brokerage fees growth was primarily due to increased OTC contract volume
from our renewable fuels customers and our Latin America/Brazilian customers.

Interest income. Interest income is revenue generated
from customer funds deposited with us to satisfy margin requirements and from our internally-generated cash balances invested at short-term interest rates. In addition, we earn interest income from financing fees related to grain inventory
repurchase programs within our Financial Services segment. Interest revenue is primarily driven by the level of customer segregated assets deposited with us and the level of short-term interest rates. The level of customer segregated assets
deposited with us is directly related to transaction volume and open contract interest of our customers. The following table sets forth interest income, customer segregated assets and average 90-day Treasury bill rates for the three- and six-month
periods ended February 28, 2006 and 2007.



|                                              |                  |                                |         |      |                              |   |         |   |  |      |         |   |  |   |         |   
|--------------------------------------------- | ---------------- | ------------------------------ | ------- | ---- | ---------------------------- | - | ------- | - |  | ---- | ------- | - |  | - | ------- | --
|                                              |                  | Three Months EndedFebruary 28, |         |      | Six Months EndedFebruary 28, |  
|                                              | 2006             |                                |         | 2007 |                              |   | 2006    |   |  | 2007 |        
|                                              | ($ in thousands) |                               
|Interest income                               |                  | $                              | 4,972   |      |                              | $ | 10,729  |   |  | $    | 9,244   |   |  | $ | 19,127  |   
|Customer segregated assets, end of period     |                  | $                              | 611,992 |      |                              |   | 861,780 |   |  | $    | 611,992 |   |  |   | 861,780 |   
|90-day Treasury bill average rates for period |                  |                                | 4.41    | %    |                              |   | 5.06    | % |  |      | 4.10    | % |  |   | 5.02    | %.

The interest increase is primarily the result of higher short-term interest rates, an increase in
investable customer segregated assets, and increased activity in the grain inventory financing program.

Other revenues. Revenue
generated from ocean vessel dockage and related income in our Grain Merchandising segment, profit-share arrangements in our Financial Services segment and income from equity investments, among others, are included in other revenues. Additionally, we
have historically included income received from non-recurring items such as litigation settlements, gains on the sale of exchange membership stock or exchange seats and other non-recurring items which can vary significantly. The following table sets
forth other revenues for the three- and six-month periods ended February 28, 2006 and 2007.



|               |                  |                                |      |                              |      |     |      |   |       |  |   |      
|-------------- | ---------------- | ------------------------------ | ---- | ---------------------------- | ---- | --- | ---- | - | ----- |  | - | -----
|               |                  | Three Months EndedFebruary 28, |      | Six Months EndedFebruary 28,
|               | 2006             |                                | 2007 |                              | 2006 |     | 2007
|               | ($ in thousands)
|Other revenues |                  | $                              | 686  |                              | $    | 954 |      | $ | 1,166 |  | $ | 1,446

Sales of commodities. Sales of commodities represents revenue generated from the sale of
grain in the Grain Merchandising segment, the sale of fuel in the C&RM segment and the sale of various commodities in the Financial Services segment. The price of grain is volatile and is affected by various factors, including changes in the
weather, economy and other factors affecting the supply and demand for grain. Although commodity sales generate a significant amount of our revenue, for management purposes we focus on the margin (gross profit) from commodity sales. The focus on
gross profit from commodity sales removes the effect of commodity price driven changes on revenue and cost of goods sold, which may not have an effect on net income. The margin on commodity sales also



15



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provides a more meaningful comparison from period to period. The following table sets forth sales of commodities, commodities gross profit, grain bushels
sold and fuel gallons sold for the three- and six-month periods ended February 28, 2006 and 2007.



|                              |                  |                                |         |                              |      |         |      |   |         |  |   |        
|----------------------------- | ---------------- | ------------------------------ | ------- | ---------------------------- | ---- | ------- | ---- | - | ------- |  | - | -------
|                              |                  | Three Months EndedFebruary 28, |         | Six Months EndedFebruary 28,
|                              | 2006             |                                | 2007    |                              | 2006 |         | 2007
|                              | ($ in thousands)
|Sales of commodities          |                  | $                              | 230,976 |                              | $    | 349,098 |      | $ | 546,192 |  | $ | 797,886
|Commodities gross profit      |                  | $                              | 4,393   |                              | $    | 5,748   |      | $ | 8,906   |  | $ | 12,208 
|Grain bushels sold (millions) |                  |                                | 57.9    |                              |      | 50.2    |      |   | 124.6   |  |   | 128.7  
|Fuel gallons sold (millions)  |                  |                                | 0.9     |                              |      |        |      |   | 2.1     |  |   | 0.8    

The sales volume of commodities underlying revenue from sales of commodities varied by the type of
commodity. Grain volume sales over this period increased due to strong domestic and international demand and higher commodity prices. Fuel sales in our C&RM business declined as we shifted our focus from handling physical fuels to only
periodically participating as a principal in back-to-back ethanol transactions. During the three months ended February 28, 2007 we did not participate as a principal in any ethanol transactions.

Costs and Expenses

Cost of commodities
sold. Cost of commodities sold represents the product of the volume of purchased commodities and the cost of these commodities. Commodities purchased include grain in our Grain Merchandising segment, renewable fuels and gasoline in our C&RM
segment and various commodities in our Financial Services segment. The price of commodities and volume sold are variable, and can be influenced by weather conditions and general economic, market and regulatory factors.

Employee compensation and commissions. Employee compensation and commissions consists of salaries, incentive compensation and commissions and is
one of our primary operating expenses. We classify employees as either risk management consultants or salaried and support personnel, which includes our executive officers. The most significant component of our compensation expense is the employment
of our risk management consultants, who are compensated with commissions based on the revenues that their customers generate. Accordingly, our commission expense component is variable and is dependent on our commissions revenue and service,
consulting and brokerage fee revenue.

Pit brokerage and clearing fees. Pit brokerage and clearing fees relate directly to expenses
for exchange-traded futures and options clearing and settlement services, including fees we pay to the exchanges and the floor pit brokers. These fees are variable and fluctuate based on transaction volume.

Introducing broker commissions. Introducing broker commissions are commissions that we pay to non-employee third parties that have introduced
customers to us. Introducing brokers are individuals or organizations that maintain relationships with customers and accept futures and options orders from those customers. We directly provide all account, transaction and margining services to
introducing brokers, including accepting money, securities and property from the customers. The commissions we pay an introducing broker varies based on a variety of factors, including on the trading volume of the customers introduced to our
company. This expense is variable and is directly related to the overall volume of trades by those customers.

Employee benefits and
payroll taxes expense. Employee benefits and payroll taxes expense consist primarily of employee health insurance, a defined benefit pension plan, a defined contribution 401K/ESOP plan, and payroll taxes. Accordingly, these expenses normally
fluctuate in relation to employee compensation and commissions and the number of employees that we employ.

Interest expense.
Interest expense consists of interest charged to us by our lenders on the loans, lines of credit and letters of credit outstanding. Our interest expense depends on the amount of debt outstanding and the interest rate environment, with all of our
credit lines bearing interest at variable rates. Interest expense in our Grain



16



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Merchandising segment is affected by grain prices and the volume of bushels purchased and sold, as changes in these factors impact the amount of borrowings
required to finance grain purchases and by the duration of sales transactions, which typically is longer for exported grain.

Depreciation and amortization. Depreciation and amortization expense arises from the depreciation of property, equipment and leasehold improvements (primarily grain bins at our Mobile, Alabama port facility).

Bad debt expense. Bad debt expense consists of both amounts written off based on known defaults of customers and brokers, as well as an allowance
for accounts that we believe may become uncollectible through our review of the historical aging of our receivables and our monitoring of the financial strength of our customers, brokers and counterparties.

Other expenses. Other expenses consist primarily of office and equipment rent, communications, marketing information, travel, advertising,
insurance, professional fees and other various expenses. The majority of these expenses are relatively fixed in nature and do not necessarily vary directly with changes in revenue.

Minority interest. Minority interest reflects the 30% minority interest held by AGREX, Inc., a subsidiary of Mitsubishi Corporation, in FGDI LLC,
the subsidiary that comprises our Grain Merchandising segment. Prior to March 31, 2006, minority interest also included a 30% interest held by an unaffiliated third party in FCStone Merchants Services, LLC. Effective March 31, 2006,
FCStone Merchants Services redeemed the minority ownership interest in accordance with its limited liability company agreement.

Income
tax expense. Income tax expense consist of current and deferred tax expense relating to federal, state and local taxes. We file a consolidated federal income tax return and combined state and local income tax returns for all wholly-owned
subsidiaries.

Non-GAAP Financial Measures

The body of U.S. generally accepted accounting principles is commonly referred to as GAAP. A non-GAAP financial measure is generally defined by the SEC as one that purports to measure historical or future financial performance,
financial position or cash flows, but excludes or includes amounts that would not be so adjusted under applicable GAAP guidance. In this report on Form 10-Q, we disclose revenues, net of cost of commodities sold, and EBITDA, both of which are
non-GAAP financial measures. Revenues, net of cost of commodities sold, is not a substitute for the GAAP measure of total revenues. EBITDA is not a substitute for the GAAP measure of net income or cash flows.

Revenues, Net of Cost of Commodities Sold

Revenues, net of cost of commodities sold, consists of total revenues presented as determined in accordance with GAAP, less the cost of commodities sold. Revenues, net of cost of commodities sold, is a non-GAAP financial measure that is
used in this report on Form 10-Q because our management considers it an important supplemental measure of our performance. Management believes revenues, net of cost of commodities sold, is a more relevant measure of both our revenue growth and our
economic interest in these commodities transactions because it removes the effect of commodity price driven changes in revenue and cost of commodities sold, which may not have a meaningful effect on net income. In managing our business, management
has historically focused on revenues derived from sales of commodities, net of cost of commodities sold. This financial measure is meaningful in managing our business as profit is driven more by the margin on commodities sold rather than the price
of the commodities and analyzing consolidated costs and expenses as a percentage of total revenue is not meaningful because total revenues related to commodity sales is a disproportionately large number compared to margin. Measuring expense as a
percentage of revenues, net of cost of commodities sold, provides a clearer understanding of the trends in costs and expenses and expense management.



17



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The following table reconciles revenues, net of cost of commodities sold, with our total revenues.



|                                          |                  |                                |         |                              |      |         |      |   |         |  |   |        
|----------------------------------------- | ---------------- | ------------------------------ | ------- | ---------------------------- | ---- | ------- | ---- | - | ------- |  | - | -------
|                                          |                  | Three Months EndedFebruary 28, |         | Six Months EndedFebruary 28,
|                                          | 2006             |                                | 2007    |                              | 2006 |         | 2007
|                                          | ($ in thousands)
|Revenues:                                 |                  |                                |         |                              |      |         |      |   |         |  |   |        
|Commissions and clearing fees             |                  | $                              | 23,783  |                              | $    | 33,353  |      | $ | 46,840  |  | $ | 66,256 
|Service, consulting and brokerage fees    |                  |                                | 8,444   |                              |      | 9,314   |      |   | 15,428  |  |   | 18,409 
|Interest                                  |                  |                                | 4,972   |                              |      | 10,729  |      |   | 9,244   |  |   | 19,127 
|Other                                     |                  |                                | 686     |                              |      | 954     |      |   | 1,166   |  |   | 1,446  
|Sales of commodities                      |                  |                                | 230,976 |                              |      | 349,098 |      |   | 546,192 |  |   | 797,886
|                                          |                  |                                |         |                              |      |         |      |   |         |  |   |        
|Total revenues                            |                  |                                | 268,861 |                              |      | 403,448 |      |   | 618,870 |  |   | 903,124
|Less: Cost of commodities sold            |                  |                                | 226,583 |                              |      | 343,350 |      |   | 537,286 |  |   | 785,678
|                                          |                  |                                |         |                              |      |         |      |   |         |  |   |        
|Revenues, net of cost of commodities sold |                  | $                              | 42,278  |                              | $    | 60,098  |      | $ | 81,584  |  | $ | 117,446
|                                          |                  |                                |         |                              |      |         |      |   |         |  |   |        

EBITDA

EBITDA consists of net income before interest expense, income tax expense and depreciation and amortization. We have included EBITDA in this report on Form 10-Q because our management uses it as an important
supplemental measure of our performance and believes that it is frequently used by securities analysts, investors and other interested persons in the evaluation of companies in our industry, some of which present EBITDA when reporting their results.
We use EBITDA to evaluate our performance as compared to other companies in our industry that have different financing and capital structures and/or tax rates. Our management also believes that EBITDA is a useful tool for measuring our ability to
meet our future debt service, capital expenditures and working capital requirements, and EBITDA is commonly used by us to measure our ability to service indebtedness. EBITDA is not a substitute for the GAAP measures of net income or cash flows and
is not necessarily a measure of our ability to fund our cash needs. In addition, it should be noted that companies calculate EBITDA differently and, therefore, EBITDA as presented for us may not be comparable to EBITDA reported by other companies.
EBITDA has material limitations as a performance measure because it excludes interest expense, income tax expense and depreciation and amortization.

The following table reconciles EBITDA with our net income.



|                                    |                  |                                |       |                              |      |        |      |   |        |  |   |       
|----------------------------------- | ---------------- | ------------------------------ | ----- | ---------------------------- | ---- | ------ | ---- | - | ------ |  | - | ------
|                                    |                  | Three Months EndedFebruary 28, |       | Six Months EndedFebruary 28,
|                                    | 2006             |                                | 2007  |                              | 2006 |        | 2007
|                                    | ($ in thousands)
|Net income:                         |                  | $                              | 3,936 |                              | $    | 6,920  |      | $ | 7,319  |  | $ | 13,234
|Plus: interest expense              |                  |                                | 1,566 |                              |      | 4,251  |      |   | 2,734  |  |   | 6,490 
|Plus: depreciation and amortization |                  |                                | 398   |                              |      | 443    |      |   | 790    |  |   | 879   
|Plus income tax expense             |                  |                                | 2,560 |                              |      | 4,125  |      |   | 4,600  |  |   | 7,925 
|                                    |                  |                                |       |                              |      |        |      |   |        |  |   |       
|EBITDA                              |                  | $                              | 8,460 |                              | $    | 15,739 |      | $ | 15,443 |  | $ | 28,528
|                                    |                  |                                |       |                              |      |        |      |   |        |  |   |       

Results of Operations

Three Months Ended February 28, 2007 Compared to Three Months Ended February 28, 2006

Executive
Summary

Net income increased $3.0 million, or 75.8%, from $3.9 million in the three months ended February 28, 2006, to $6.9
million in the three months ended February 28, 2007. This increase was primarily driven by higher



18



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exchange-traded and OTC contract trading volumes from new and existing customers, increased Forex trading due to new customers, higher interest rates and
larger interest-earning segregated and OTC customer balances. During the period, exchange-traded contract volume increased by 1.9 million contracts, or 17.3%, from 11.0 million in the three months ended February 28, 2006, to
12.9 million in the three months ended February 28, 2007. The exchange-traded contract volume and related commission revenue increases in the C&RM segment continued to be affected by a significant Fall 2006 commodity price rally in the
grain markets and resulting ongoing volatility. In the Clearing and Execution Services segment, these contract volume and commission increases were driven primarily by continued volatility in the energy, metals and soft (coffee, sugar and cocoa)
commodities. OTC contract trading volume also increased by 84,784 contracts, or 111.5%, from 76,055 in the three months ended February 28, 2006, to 160,839 in the three months ended February 28, 2007. The growth in OTC contract trading
volume was primarily due to growth in our renewable fuels and Latin America\Brazilian businesses. Our increasing penetration of the renewable fuels business in particular resulted in a sharp increase in volume during the three months ended
February 28, 2007. The following chart provides revenues, costs and expenses, and net income for the period comparison.



|                                                              |              |                                     |                                            |  |                                     |              |  |                                            |         |  |              |   |  |          |         |   |  |       |   
|------------------------------------------------------------- | ------------ | ----------------------------------- | ------------------------------------------ |  | ----------------------------------- | ------------ |  | ------------------------------------------ | ------- |  | ------------ | - |  | -------- | ------- | - |  | ----- | --
|                                                              |              | Three Months EndedFebruary 28, 2006 |                                            |  | Three Months EndedFebruary 28, 2007 |              |  | Variance                                   |        
|                                                              | In Thousands |                                     | % of Revenue,Net of Cost ofCommoditiesSold |  |                                     | In Thousands |  | % of Revenue,Net of Cost ofCommoditiesSold |         |  | In Thousands |   |  | % Change |        
|Sales of commodities                                          |              | $                                   | 230,976                                    |  | N/M                                 |              |  | $                                          | 349,098 |  | N/M          |   |  | $        | 118,122 |   |  | 51.1  | % 
|Cost of commodities sold                                      |              |                                     | 226,583                                    |  | N/M                                 |              |  |                                            | 343,350 |  | N/M          |   |  |          | 116,767 |   |  | 51.5  | % 
|                                                              |              |                                     |                                            |  |                                     |              |  |                                            |         |  |              |   |  |          |         |   |  |       |   
|Gross profit on commodities sold                              |              |                                     | 4,393                                      |  | 10.4                                | %            |  |                                            | 5,748   |  | 9.6          | % |  |          | 1,355   |   |  | 30.8  | % 
|Commissions and clearing fees                                 |              |                                     | 23,783                                     |  | 56.2                                | %            |  |                                            | 33,353  |  | 55.5         | % |  |          | 9,570   |   |  | 40.2  | % 
|Service, consulting and brokerage fees                        |              |                                     | 8,444                                      |  | 20.0                                | %            |  |                                            | 9,314   |  | 15.5         | % |  |          | 870     |   |  | 10.3  | % 
|Interest                                                      |              |                                     | 4,972                                      |  | 11.8                                | %            |  |                                            | 10,729  |  | 17.8         | % |  |          | 5,757   |   |  | 115.8 | % 
|Other                                                         |              |                                     | 686                                        |  | 1.6                                 | %            |  |                                            | 954     |  | 1.6          | % |  |          | 268     |   |  | 39.1  | % 
|                                                              |              |                                     |                                            |  |                                     |              |  |                                            |         |  |              |   |  |          |         |   |  |       |   
|Revenue, net of cost of commodities sold(1)                   |              |                                     | 42,278                                     |  | 100.0                               | %            |  |                                            | 60,098  |  | 100.0        | % |  |          | 17,820  |   |  | 42.2  | % 
|                                                              |              |                                     |                                            |  |                                     |              |  |                                            |         |  |              |   |  |          |         |   |  |       |   
|                                                              |              |                                     |                                            |  |                                     |             
|Costs and expenses                                            |              |                                     |                                            |  |                                     |              |  |                                            |         |  |              |   |  |          |         |   |  |       |   
|Employee compensation and broker commissions                  |              |                                     | 9,983                                      |  | 23.6                                | %            |  |                                            | 11,364  |  | 18.9         | % |  |          | 1,381   |   |  | 13.8  | % 
|Pit brokerage and clearing fees                               |              |                                     | 10,877                                     |  | 25.7                                | %            |  |                                            | 14,678  |  | 24.4         | % |  |          | 3,801   |   |  | 35.0  | % 
|Introducing broker commissions                                |              |                                     | 4,776                                      |  | 11.3                                | %            |  |                                            | 9,007   |  | 15.0         | % |  |          | 4,231   |   |  | 88.6  | % 
|Employee benefits and payroll taxes                           |              |                                     | 2,483                                      |  | 5.9                                 | %            |  |                                            | 2,722   |  | 4.5          | % |  |          | 239     |   |  | 9.6   | % 
|Interest expense                                              |              |                                     | 1,566                                      |  | 3.7                                 | %            |  |                                            | 4,251   |  | 7.1          | % |  |          | 2,685   |   |  | 171.5 | % 
|Depreciation                                                  |              |                                     | 398                                        |  | 0.9                                 | %            |  |                                            | 443     |  | 0.7.         | % |  |          | 45      |   |  | 11.3  | % 
|Bad debt expense                                              |              |                                     | 150                                        |  | 0.4                                 | %            |  |                                            | 120     |  | 0.2          | % |  |          | (30     | ) |  | (20.0 | )%
|Other expenses                                                |              |                                     | 5,489                                      |  | 13.0                                | %            |  |                                            | 6,366   |  | 10.6         | % |  |          | 877     |   |  | 16.0  | % 
|                                                              |              |                                     |                                            |  |                                     |              |  |                                            |         |  |              |   |  |          |         |   |  |       |   
|Total costs and expenses (excluding cost of commodities sold) |              |                                     | 35,722                                     |  | 84.5                                | %            |  |                                            | 48,951  |  | 81.4         | % |  |          | 13,229  |   |  | 37.0  | % 
|                                                              |              |                                     |                                            |  |                                     |              |  |                                            |         |  |              |   |  |          |         |   |  |       |   



19



---

|                                                       |  |   |       |  |      |   |  |   |        |  |      |   |  |   |       |  |      |  
|------------------------------------------------------ |  | - | ----- |  | ---- | - |  | - | ------ |  | ---- | - |  | - | ----- |  | ---- | -
|Income before income tax expense and minority interest |  |   | 6,556 |  | 15.5 | % |  |   | 11,147 |  | 18.6 | % |  |   | 4,591 |  | 70.0 | %
|Minority interest                                      |  |   | 60    |  | 0.1  | % |  |   | 102    |  | 0.2  | % |  |   | 42    |  | 70.0 | %
|Income tax expense                                     |  |   | 2,560 |  | 6.1  | % |  |   | 4,125  |  | 6.9  | % |  |   | 1,565 |  | 61.1 | %
|                                                       |  |   |       |  |      |   |  |   |        |  |      |   |  |   |       |  |      |  
|Net income                                             |  | $ | 3,936 |  | 9.3  | % |  | $ | 6,920  |  | 11.5 | % |  | $ | 2,984 |  | 75.8 | %
|                                                       |  |   |       |  |      |   |  |   |        |  |      |   |  |   |       |  |      |  

---

|(1) | Revenues, net of cost of commodities sold, consist of total revenues presented with the sales of
commodities net of cost of commodities sold. See Non-GAAP Financial Measures for further discussion of revenues, net of cost of commodities sold.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

N/M  Percentage is not meaningful.

Revenues and Cost of Commodities Sold

Revenues, net of cost of commodities
sold, increased $17.8 million, or 42.2%, from $42.3 million in the three months ended February 28, 2006, to $60.1 million in the three months ended February 28, 2007.

Sale of Commodities and Cost of Commodities Sold. Sales of commodities increased by $118.1 million, or 51.1%, from $231.0 million in the
three months ended February 28, 2006, to $349.1 million in the three months ended February 28, 2007. Cost of commodities sold increased $116.8 million, or 51.5%, from $226.6 million in the three months ended February 28, 2006, to
$343.4 million in the three months ended February 28, 2007. The increase in sales and cost of commodities sold was due to increased grain prices, offset by a decrease in bushels handled, which accounted for $116.7 million and $115.4 million of
the increase in sales and cost of commodities sold, respectively. Grain bushels handled decreased by 7.7 million, or 13.3%, from 57.9 million in the three months ended February 28, 2006, to 50.2 million in the three months ended
February 28, 2007. The decrease in bushels handled was primarily due to a decrease in corn bushels sold in the eastern and southeastern regions. The gross profit on commodities sold increased $1.3 million, or 30.8%, from $4.4 million in the
three months ended February 28, 2006, to $5.7 million in the three months ended February 28, 2007.

Commissions and
Clearing Fees. Commissions and clearing fees increased $9.6 million, or 40.2%, from $23.8 million in the three months ended February 28, 2006, to $33.4 million in the three months ended February 28, 2007. The increase was due to
higher trading volume, especially in the C&RM segment, where we realize higher commission rates. Overall exchange-traded total volume increased by 1.9 million, or 17.3%, from 11.0 million contracts in the three months ended
February 28, 2006, to 12.9 million contracts in the three months ended February 28, 2007. This increase was primarily related to continuing effects of the significant Fall 2006 price rally in the grain markets and continued volatility
in the energy markets. Additionally, Forex trades increased significantly due to the addition of several large customers and accounted for approximately $4.1 million of this increase.

Service, Consulting and Brokerage Fees. Service, consulting and brokerage fees increased $0.9 million, or 10.3%, from $8.4 million in the
three months ended February 28, 2006, to $9.3 million in the three months ended February 28, 2007. The revenue increase resulted primarily from an increase in OTC contract volume from our renewable fuels customers and Latin
America\Brazilian customers. OTC contract volume increased 84,784, or 111.5%, from 76,055 contracts in the three months ended February 28, 2006, to 160,839 contracts in the three months ended February 28, 2007. The overall OTC rate per
contract was lower as we had no higher rate weather trades in this quarter.

Interest Income. Interest income increased $5.8
million, or 115.8%, from $4.9 million in the three months ended February 28, 2006, to $10.7 million in the three months ended February 28, 2007. The increase was primarily due to higher short-term interest rates, additional customer
segregated and customer OTC funds and increased activity in the grain inventory financing program.



20



---

Other Revenues. Other revenues increased by $268,000, or 39.1%, from $686,000 in the three
months ended February 28, 2006, to $954,000 in the three months ended February 28, 2007, and are primarily comprised of railcar sublease income and truck brokerage income.

Costs and Expenses

Employee Compensation and Broker Commissions. Employee compensation and broker commissions increased $1.4 million, or 13.8%, from $10.0 million in the three months ended February 28, 2006, to $11.4 million in the three
months ended February 28, 2007. The expense increase was primarily a result of volume-related increased broker commissions driven by higher revenues in the C&RM segment, and to a lesser extent additional personnel.

Pit Brokerage and Clearing Fees. Pit brokerage and clearing fees increased $3.8 million, or 35.0% from $10.9 million in the three months
ended February 28, 2006, to $14.7 million in the three months ended February 28, 2007. This increase was entirely related to increased volumes of exchange-traded and Forex traded contracts.

Introducing Broker Commissions. Introducing broker commissions increased $4.2 million, or 88.6%, from $4.8 million in the three months
ended February 28, 2006, to $9.0 million in the three months ended February 28, 2007. The increase was primarily due to higher contract trading volumes from customers introduced by our introducing brokers in both the C&RM and Clearing
and Execution Services segments.

Employee Benefits and Payroll Taxes. Employee benefits and payroll taxes increased $0.2
million, or 9.6%, from $2.5 million in the three months ended February 28, 2006, to $2.7 million in the three months ended February 28, 2007. This increase was primarily related to the higher payroll taxes from increased employee
compensation and broker commissions.

Interest. Interest expense increased $2.7 million, or 171.5%, from $1.6 million in the
three months ended February 28, 2006, to $4.3 million in the three months ended February 28, 2007. This increase was due primarily to higher short-term interest rates and higher borrowings as a result of increased activity in the grain
inventory financing program and in our grain merchandising operations.

Depreciation. Depreciation increased $45,000, or
11.3%, from $398,000 in the three months ended February 28, 2006, to $443,000 in the three months ended February 28, 2007, which was due to our increase in capital expenditures.

Bad Debt Expense. Bad debt expense decreased $30,000, from $150,000 in the three months ended February 28, 2006, to $120,000 in the
three months ended February 28, 2007.

Other Expenses. Other expenses increased $0.9 million, or 16.0% from $5.5 million
in the three months ended February 28, 2006, to $6.4 million in the three months ended February 28, 2007. This additional expense was primarily due to increases in professional fees and rent in support of the business.

Income Tax Expense. Our provision for income taxes increased $1.5 million, or 61.1%, from $2.6 million in the three months ended
February 28, 2006, to $4.1 million in the three months ended February 28, 2007. The increase was due primarily to higher profitability. Our effective income tax rate, 39.4% in the three months ended February 28, 2006, and 37.4% for
the three months ended February 28, 2007, decreased primarily as a result of the larger dividend deduction from the ESOP dividend reinvestment.

Operations by Segment

Three Months Ended February 28, 2007 Compared to Three Months Ended February 28, 2006.

Our reportable operating segments consist of C&RM, Clearing and Execution Services, Financial Services and Grain Merchandising.
We include the earnings of equity affiliates that are closely associated with our operating segments in the respective segments net income. Revenues, expenses and equity earnings from equity affiliates that are not easily identified with one
of our four operating segments are reported in the Corporate and Other segment. Segment income (loss) before minority interest and income taxes is defined as total segment revenues less total segment costs and expenses before reconciling amounts,
corporate expenses, minority interests and income taxes. Reconciling amounts represent the elimination of interest income and expense and commission income and expense



21



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between segments. Such transactions are conducted at market prices to more accurately evaluate the profitability of the individual business segments. A
reconciliation of total segment revenues and segment income before minority interest and income taxes to the Consolidated Statements of Operations is included in Note 7.

We prepared the financial results for our operating segments on a basis that is consistent with the manner in which we internally prepare financial information to assist in making internal operating decisions. We have
allocated certain common expenses among segments differently than we would for stand-alone financial information prepared in accordance with GAAP. Segment income before income taxes may not be consistent with measures used by other companies. The
accounting policies of our operating segments are the same as those applied in the consolidated financial statements. We have reclassified certain prior-period amounts to conform to the current periods presentation.

Commodity and Risk Management Services

Our
C&RM segment offers risk management consulting and access to the commodity derivative markets with the objective of helping our customers mitigate commodity price risk and optimize their profit margins. In this segment, we generate revenues from
five primary sources: (1) commission and clearing fee revenues from exchange-traded futures and options contracts, (2) brokerage fees from OTC transactions, (3) interest income derived from cash balances in our customers
accounts, (4) risk management service and consulting fees, and (5) fuel sales. Our customers in this segment consist of middle-market commodity intermediaries, end-users and producers, focused primarily in the areas of domestic and
international grain, renewable fuels and energy. In the three months ended February 28, 2007, this segment represented approximately 69% of our consolidated income before minority interest, income tax and corporate overhead. The principal
factors that affect our financial performance in this segment include:



| |  |  | the level of volatility in commodity prices,
| | - |  | --------------------------------------------



| |  |  | the level of knowledge and sophistication of our customers with respect to commodity risk,
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | the development of new risk management products for our customers,
| | - |  | ------------------------------------------------------------------



| |  |  | the volume of commodities produced and consumed by our customers, and
| | - |  | ---------------------------------------------------------------------



| |  |  | the level of short-term interest rates and the amount of cash balances in our customers accounts.
| | - |  | --------------------------------------------------------------------------------------------------

The following table provides the financial performance for this segment.



|                                                              |                |                                |        |  |   |       
|------------------------------------------------------------- | -------------- | ------------------------------ | ------ |  | - | ------
|                                                              |                | Three Months EndedFebruary 28,
|                                                              | 2006           |                                | 2007  
|                                                              | (in thousands)
|Sales of commodities                                          |                | $                              | 1,811  |  | $ |      
|Cost of commodities sold                                      |                |                                | 1,804  |  |   |      
|                                                              |                |                                |        |  |   |       
|Gross profit on commodities sold                              |                |                                | 7      |  |   |      
|Commissions and clearing fees                                 |                |                                | 7,768  |  |   | 13,021
|Service, consulting and brokerage fees                        |                |                                | 8,599  |  |   | 9,458 
|Interest                                                      |                |                                | 1,676  |  |   | 4,742 
|Other                                                         |                |                                | 38     |  |   | 51    
|                                                              |                |                                |        |  |   |       
|                                                              |                |                               
|Revenues, net of cost of commodities sold                     |                |                                | 18,088 |  |   | 27,272
|                                                              |                |                               
|Costs and expenses:                                           |                |                                |        |  |   |       
|Expenses (excluding interest expense)                         |                |                                | 12,815 |  |   | 18,051
|Interest expense                                              |                |                                | 20     |  |   | 68    
|                                                              |                |                                |        |  |   |       
|                                                              |                |                               
|Total costs and expenses (excluding cost of commodities sold) |                |                                | 12,835 |  |   | 18,119
|                                                              |                |                                |        |  |   |       
|Segment income before minority interest and income taxes      |                | $                              | 5,253  |  | $ | 9,153 
|                                                              |                |                                |        |  |   |       



22



---

Sales of commodities and cost of commodities sold both decreased $1.8 million, or 100.0%, from $1.8
million in the three months ended February 28, 2006, to $0 million in the three months ended February 28, 2007. We shifted our focus from handling physical fuels to only periodically participating as a principal in back-to-back ethanol
transactions. During the three months ended February 28, 2007 we did not participate as a principal in any ethanol transactions.

Commissions and clearing fee revenues increased $5.2 million, or 66.7%, from $7.8 million in the three months ended February 28, 2006, to $13.0 million in the three months ended February 28, 2007. This increase in commissions and
clearing fees was primarily due to a large increase in our Forex trade commission of $4.1 million from the addition of several significant customers and to the continuing effects of the significant Fall 2006 grain market price rally, which resulted
in a 142,000 contract, or 28.1%, increase in trading volume for exchange-traded contracts, from 505,000 contracts in the three months ended February 28, 2006, to 647,000 million contracts in the three months ended February 28, 2007.
Offsetting this increase in trading volume was a slight decline in the average rate per trade. Service, consulting and brokerage fees increased $0.9 million, or 10.5%, from $8.6 million in the three months ended February 28, 2006, to $9.5
million in the three months ended February 28, 2007. This increase was primarily due to a significant increase in OTC contract volume from renewable fuels customers and Latin America/Brazilian customers. Our increasing penetration of the
renewable fuels business in particular resulted in a sharp increase in volume during the three months ended February 28, 2007. Interest income increased $3.0 million, or 176.5%, from $1.7 million in the three months ended February 28,
2006, to $4.7 million in the three months ended February 28, 2007, which was due to higher short-term interest rates and an increase in customer segregated and OTC funds.

As a result of the above, revenues, net of cost of commodities sold, increased $9.2 million, or 50.8%, from $18.1 million in the three months ended
February 28, 2006, to $27.3 million in the three months ended February 28, 2007.

Expenses, excluding interest expense, increased
$5.3 million, or 41.4%, from $12.8 million in the three months ended February 28, 2006, to $18.1 million in the three months ended February 28, 2007. The expense increase was primarily related to the large volume and revenue increase and
included a $1.1 million increase in employee compensation and broker commissions and related benefits, a $1.5 million increase in pit brokerage and clearing fees and a $1.8 million increase in introducing broker commissions.

Clearing and Execution Services

The Clearing
and Execution Services segment offers low-cost clearing and execution for exchange-traded futures and options to the wholesale and professional trader market segments. In this segment, we generate revenues from two primary sources: commissions and
clearing fee revenues from the execution and clearing of exchange-traded futures and options contracts, and interest income derived from cash balances in our customers accounts. In the three months ended February 28, 2007, this segment
represented approximately 26% of our consolidated income before minority interest, income tax and corporate overhead. The principal factors that affect our financial performance in this segment include:



| |  |  | the level of volatility in commodity prices, and
| | - |  | ------------------------------------------------



| |  |  | the level of short-term interest rates and the amount of cash balances in our customers accounts.
| | - |  | --------------------------------------------------------------------------------------------------



23



---

The following table provides the financial performance for this segment.



|                                                              |                |                                |        |  |   |       
|------------------------------------------------------------- | -------------- | ------------------------------ | ------ |  | - | ------
|                                                              |                | Three Months EndedFebruary 28,
|                                                              | 2006           |                                | 2007  
|                                                              | (in thousands)
|Sales of commodities                                          |                | $                              |       |  | $ |      
|Cost of commodities sold                                      |                |                                |       |  |   |      
|                                                              |                |                                |        |  |   |       
|Gross profit on commodities sold                              |                |                                |       |  |   |      
|Commissions and clearing fees                                 |                |                                | 16,129 |  |   | 20,509
|Service, consulting and brokerage fees                        |                |                                |       |  |   |      
|Interest                                                      |                |                                | 2,501  |  |   | 3,654 
|Other                                                         |                |                                |       |  |   | 100   
|                                                              |                |                                |        |  |   |       
|Revenues, net of cost of commodities sold                     |                |                                | 18,630 |  |   | 24,263
|                                                              |                |                               
|Costs and expenses:                                           |                |                                |        |  |   |       
|Expenses (excluding interest expense)                         |                |                                | 15,735 |  |   | 20,506
|Interest expense                                              |                |                                | 73     |  |   | 326   
|                                                              |                |                                |        |  |   |       
|Total costs and expenses (excluding cost of commodities sold) |                |                                | 15,808 |  |   | 20,832
|                                                              |                |                                |        |  |   |       
|Segment income before minority interest and income taxes      |                | $                              | 2,822  |  | $ | 3,431 
|                                                              |                |                                |        |  |   |       

Commissions and clearing fees increased $4.4 million, or 27.3%, from $16.1 million in the three
months ended February 28, 2006, to $20.5 million in the three months ended February 28, 2007. This increase was the result of increased trading volume due to energy, metals and soft (coffee, sugar and cocoa) commodities price volatility.
Contract trading volume increased 1.8 million contracts, or 17.1%, from 10.5 million contracts in the three months ended February 28, 2006, to 12.3 million contracts in the three months ended February 28, 2007. The average
rate received per contract increased slightly as a result of the change in the mix of customer activity. Interest income increased $1.2 million, or 48.0%, from $2.5 million in the three months ended February 28, 2006, to $3.7 million in the
three months ended February 28, 2007, primarily due to higher short-term interest rates and increased customer segregated funds. The three months ended February 28, 2007 has other revenue of $100,000 related to the realized gain on the
conversion of an exchange membership seat to common stock.

Expenses, excluding interest expense, increased $4.8 million, or 30.6%, from
$15.7 million in the three months ended February 28, 2006, to $20.5 million in the three months ended February 28, 2007. This increase in expenses was primarily due to volume-related increases in pit brokerage and clearing fees of $2.4
million, introducing broker commissions of $2.3 million and related increased employee compensation of $0.2 million. Interest expense increased $253,000, or 346.6%, from $73,000 in the three months ended February 28, 2006, to $326,000 in the
three months ended February 28, 2007, primarily due to an increase in the amount of subordinated debt borrowed, to increase regulatory capital, and higher short-term interest rates.

Financial Services

The Financial Services segment is composed of two wholly-owned
subsidiaries: FCStone Financial, Inc. and FCStone Merchant Services, LLC. Through these subsidiaries, we finance and facilitate physical commodity inventories through traditional lending agreements, or by entering into repurchase agreements with our
customers. In addition, at times, we enter into arrangements with clients to share profits from transactions in physical commodities in exchange for financial support.

In this segment, we generate revenues from three primary sources: (1) interest income derived from commodity inventory financing through sale/repurchase agreements with commercial grain customers,
(2) revenues



24



---

from profit-share arrangements where we act as an agent in the transaction trades, and (3) revenues from the sale of energy and other various
commodities in profit-share arrangements where we act as a principal in the transaction. For transactions in which we participate as an agent, the revenue recorded is limited to the contracted profit-share. For transactions in which we participate
as a principal, we are required to record the gross amount of revenue from commodity sales and the gross amount of related costs. In the three months ended February 28, 2007, this segment represented 3% of our consolidated income before
minority interest, income tax and corporate overhead. Our customers in this segment consist primarily of commercial grain-related customers in the grain repurchase program and renewable fuels producers. The principal factors that affect our
financial performance in this segment include:



| |  |  | the level of commodity prices, and
| | - |  | ----------------------------------



| |  |  | the volume of commodities produced and consumed by our customers.
| | - |  | -----------------------------------------------------------------

The following table provides the financial performance of this segment.



|                                                                |                |                                |       |  |   |      
|--------------------------------------------------------------- | -------------- | ------------------------------ | ----- |  | - | -----
|                                                                |                | Three Months EndedFebruary 28,
|                                                                | 2006           |                                | 2007 
|                                                                | (in thousands)
|Sales of commodities                                            |                | $                              | 6,353 |  | $ | 9,599
|Cost of commodities sold                                        |                |                                | 6,322 |  |   | 9,539
|                                                                |                |                                |       |  |   |      
|                                                                |                |                               
|Gross profit on commodities sold                                |                |                                | 31    |  |   | 60   
|Commissions and clearing fees                                   |                |                                |      |  |   |     
|Service, consulting and brokerage fees                          |                |                                |      |  |   |     
|Interest                                                        |                |                                | 1,122 |  |   | 2,971
|Other                                                           |                |                                | 377   |  |   | 360  
|                                                                |                |                                |       |  |   |      
|                                                                |                |                               
|Revenue, net cost of commodities sold                           |                |                                | 1,530 |  |   | 3,391
|                                                                |                |                               
|Costs and expenses:                                             |                |                                |       |  |   |      
|Expenses (excluding interest expense)                           |                |                                | 581   |  |   | 546  
|Interest expense                                                |                |                                | 946   |  |   | 2,426
|                                                                |                |                                |       |  |   |      
|Total costs and expenses (excluding cost of commodities sold)   |                |                                | 1,527 |  |   | 2,972
|                                                                |                |                                |       |  |   |      
|Segment income (loss) before minority interest and income taxes |                | $                              | 3     |  | $ | 419  
|                                                                |                |                                |       |  |   |      

The sale of commodities increased $3.2 million, or 50.0%, from $6.4 million in the three months
ended February 28, 2006, to $9.6 million in the three months ended February 28, 2007. The cost of commodities sold increased $3.2 million, or 50.8%, from $6.3 million in the three months ended February 28, 2006, to $9.5 million in the
three months ended February 28, 2007. These increases were primarily due to an increase in the number of financing transactions we entered into as a principal, which requires us to record the gross amount of revenue and costs from commodity
sales.

Interest income increased $1.9 million, or 172.7%, from $1.1 million in the three months ended February 28, 2006, to $3.0
million in the three months ended February 28, 2007. This increase resulted from increased activity in the grain inventory financing program and higher short-term interest rates. Other income remained relatively stable, with $377,000 in the
three months ended February 28, 2006, and $360,000 in the three months ended February 28, 2007 and is primarily comprised of railcar sublease income.

Expenses, excluding interest expense, remained relatively comparable with $581,000 in the three months ended February 28, 2006, and $546,000 in the three months ended February 28, 2007. Interest expense increased



25



---

$1.5 million, or 166.7%, from $0.9 million in the three months ended February 28, 2006, to $2.4 million in the three months ended February 28,
2007. The increase in interest expense resulted from additional borrowings related to the increased activity in the grain inventory financing program and higher short-term interest rates.

Grain Merchandising

The Grain Merchandising
segment acts as a dealer in and manager of physical grain and fertilizer through a 70% interest in FGDI. FGDI acts as a grain dealer in the United States and international markets, with operations primarily in Asia, Latin America and Canada. We
generate a majority of our revenues in this segment from the sale of grain. The principal factor that affects our financial performance in this segment is the global supply of and demand for grain. In the three months ended February 28, 2007,
this segment represented approximately 2% of our consolidated income before minority interest, income tax and corporate overhead. We have taken steps to increase the profitability of this segment by focusing our efforts on domestic grain
merchandising, where there are higher risk-adjusted margins and the opportunity to capitalize on a growing renewable fuels industry. We have also conducted preliminary discussions with Agrex Inc., the other member of FGDI, regarding the sale of a
portion of our interest in FGDI with the intention of reducing our interest in FGDI to a minority ownership interest. If such a sale is consummated, subject to applicable accounting standards, FGDIs results of operations and financial
condition may not be consolidated with our consolidated financial statements in subsequent periods. There can be no assurance that such a sale will be successfully negotiated or consummated.

The following table provides the financial performance of this segment.



|                                                                |                |                                |         |  |   |        
|--------------------------------------------------------------- | -------------- | ------------------------------ | ------- |  | - | -------
|                                                                |                | Three Months EndedFebruary 28,
|                                                                | 2006           |                                | 2007   
|                                                                | (in thousands)
|Sales of commodities                                            |                | $                              | 222,813 |  | $ | 339,499
|Cost of commodities sold                                        |                |                                | 218,583 |  |   | 333,950
|                                                                |                |                                |         |  |   |        
|Gross profit on commodities sold                                |                |                                | 4,230   |  |   | 5,549  
|Commissions and clearing fees                                   |                |                                |        |  |   |       
|Service, consulting and brokerage fees                          |                |                                |        |  |   |       
|Interest                                                        |                |                                | 212     |  |   | 29     
|Other                                                           |                |                                | 327     |  |   | 467    
|                                                                |                |                                |         |  |   |        
|Revenue, net cost of commodities sold                           |                |                                | 4,769   |  |   | 6,045  
|                                                                |                |                               
|Costs and expenses:                                             |                |                                |         |  |   |        
|Expenses (excluding interest expense)                           |                |                                | 3,465   |  |   | 3,765  
|Interest expense                                                |                |                                | 1,020   |  |   | 1,940  
|                                                                |                |                                |         |  |   |        
|Total costs and expenses (excluding cost of commodities sold)   |                |                                | 4,485   |  |   | 5,705  
|                                                                |                |                                |         |  |   |        
|Segment income (loss) before minority interest and income taxes |                | $                              | 284     |  |   | 340    
|                                                                |                |                                |         |  |   |        

The sale of commodities increased $116.7 million, or 52.4%, from $222.8 million in the three
months ended February 28, 2006, to $339.5 million in the three months ended February 28, 2007. Cost of commodities sold increased $115.4 million, or 52.8%, from $218.6 million in the three months ended February 28, 2006, to $334.0
million in the three months ended February 28, 2007. Gross profit on commodities sold increased $1.3 million, or 31.0%, from $4.2 million in the three months ended February 28, 2006, to $5.5 million in the three months ended
February 28, 2007. The increase in sales of commodities and cost of commodities sold was primarily due to



26



---

significantly higher increased grain prices, offset by a 7.7 million bushel, or 13.3%, decrease in the volume of grain bushels sold from
57.9 million bushels in the three months ended February 28, 2006, to 50.2 million bushels in the three months ended February 28, 2007. The decrease in bushels handled was primarily due to lower corn sales in the eastern and
southeastern regions, impacted by the loss of a customer to bankruptcy during the third quarter of fiscal 2006.

Other income remained
relatively comparable with $327,000 in the three months ended February 28, 2006, and $467,000 in the three months ended February 28, 2007. Interest income decreased $183,000 from $212,000 in the three months ended February 28, 2006,
to $29,000 in the three months ended February 28, 2007.

Expenses, excluding interest expense, increased $0.3 million, or 8.6%, from
$3.5 million in the three months ended February 28, 2006, to $3.8 million in the three months ended February 28, 2007 primarily due to increased employee compensation. Interest expense increased $0.9 million, or 90.0%, from $1.0 million in
the three months ended February 28, 2006, to $1.9 million in the three months ended February 28, 2007, primarily due to increasing variable interest rates on the lines of credit.

Corporate and Other

The Corporate and Other
segment consists of income from investments in other companies accounted for using the equity method and overall corporate level expenses primarily related to employee compensation and benefits, travel, technology, professional fees, director fees,
interest and general insurance. The Corporate and Other segment generated insignificant amounts of revenue during the three months ended February 28, 2006 and 2007. Corporate net expenses for the three months ended February 28, 2006 and
2007 were $1.8 million and $2.2 million, respectively. The primary reasons for the increase were increased professional fees and interest expense.

Six Months Ended February 28, 2006 Compared to Six Months Ended February 28, 2007

Executive Summary

Net income increased $5.9 million, or 80.8%, from $7.3 million in the six months ended February 28, 2006, to $13.2 million in the
six months ended February 28, 2007. This increase was primarily driven by higher exchange-traded, Forex traded and OTC contract trading volumes from new and existing customers, along with higher interest rates. The following chart provides
revenues, costs and expenses, and net income for the period comparison.



|                                             |              |                                    |                                             |  |                                    |              |  |                                             |         |  |              |   |          |   |         |  |       |  
|-------------------------------------------- | ------------ | ---------------------------------- | ------------------------------------------- |  | ---------------------------------- | ------------ |  | ------------------------------------------- | ------- |  | ------------ | - | -------- | - | ------- |  | ----- | -
|                                             |              | Six Months Ended February 28, 2006 |                                             |  | Six Months Ended February 28, 2007 |              |  | Variance                                    |        
|                                             | In Thousands |                                    | % of Revenues,Net of Cost ofCommoditiesSold |  |                                    | In Thousands |  | % of Revenues,Net of Cost ofCommoditiesSold |         |  | In Thousands |   | % Change |  
|Sales of commodities                         |              | $                                  | 546,192                                     |  | N/M                                |              |  | $                                           | 797,886 |  | N/M          |   |          | $ | 251,694 |  | 46.1  | %
|Cost of commodities sold                     |              |                                    | 537,286                                     |  | N/M                                |              |  |                                             | 785,678 |  | N/M          |   |          |   | 248,392 |  | 46.2  | %
|                                             |              |                                    |                                             |  |                                    |              |  |                                             |         |  |              |   |          |   |         |  |       |  
|Gross profit on commodities sold             |              |                                    | 8,906                                       |  | 10.9                               | %            |  |                                             | 12,208  |  | 10.4         | % |          |   | 3,302   |  | 37.1  | %
|Commissions and clearing fees                |              |                                    | 46,840                                      |  | 57.4                               | %            |  |                                             | 66,256  |  | 56.4         | % |          |   | 19,416  |  | 41.5  | %
|Service, consulting and brokerage fees       |              |                                    | 15,428                                      |  | 18.9                               | %            |  |                                             | 18,409  |  | 15.7         | % |          |   | 2,981   |  | 19.3  | %
|Interest                                     |              |                                    | 9,244                                       |  | 11.4                               | %            |  |                                             | 19,127  |  | 16.3         | % |          |   | 9,883   |  | 106.9 | %
|Other revenues                               |              |                                    | 1,166                                       |  | 1.4                                | %            |  |                                             | 1,446   |  | 1.2          | % |          |   | 280     |  | 24.0  | %
|                                             |              |                                    |                                             |  |                                    |              |  |                                             |         |  |              |   |          |   |         |  |       |  
|Revenues, net of cost of commodities sold(1) |              |                                    | 81,584                                      |  | 100.0                              | %            |  |                                             | 117,446 |  | 100.0        | % |          |   | 35,862  |  | 44.0  | %
|                                             |              |                                    |                                             |  |                                    |              |  |                                             |         |  |              |   |          |   |         |  |       |  



27



---

|                                                              |  |   |        |  |      |   |  |   |        |  |      |   |  |   |        |  |         |  
|------------------------------------------------------------- |  | - | ------ |  | ---- | - |  | - | ------ |  | ---- | - |  | - | ------ |  | ------- | -
|Costs and expenses                                            |  |   |        |  |      |   |  |   |        |  |      |   |  |   |        |  |         |  
|Employee compensation and broker commissions                  |  |   | 19,649 |  | 24.1 | % |  |   | 23,155 |  | 19.7 | % |  |   | 3,506  |  | 17.8    | %
|Pit brokerage and clearing fees                               |  |   | 21,009 |  | 25.8 | % |  |   | 29,542 |  | 25.2 | % |  |   | 8,533  |  | 40.6    | %
|Introducing broker commissions                                |  |   | 9,202  |  | 11.3 | % |  |   | 16,376 |  | 13.9 | % |  |   | 7,174  |  | 78.0    | %
|Employee benefits and payroll taxes                           |  |   | 4,684  |  | 5.7  | % |  |   | 5,369  |  | 4.6  | % |  |   | 685    |  | 14.6    | %
|Interest expense                                              |  |   | 2,734  |  | 3.3  | % |  |   | 6,490  |  | 5.5  | % |  |   | 3,756  |  | 137.4   | %
|Depreciation                                                  |  |   | 790    |  | 1.0  | % |  |   | 879    |  | 0.8  | % |  |   | 89     |  | 11.3    | %
|Bad debt expense                                              |  |   | 405    |  | 0.5  | % |  |   | 1,540  |  | 1.3  | % |  |   | 1,135  |  | 280.2   | %
|Other expenses                                                |  |   | 11,184 |  | 13.7 | % |  |   | 12,498 |  | 10.6 | % |  |   | 1,314  |  | 11.8    | %
|                                                              |  |   |        |  |      |   |  |   |        |  |      |   |  |   |        |  |         |  
|                                                              |  |   |        |  |      |  
|Total costs and expenses (excluding cost of commodities sold) |  |   | 69,657 |  | 85.4 | % |  |   | 95,849 |  | 81.6 | % |  |   | 26,192 |  | 37.6    | %
|                                                              |  |   |        |  |      |   |  |   |        |  |      |   |  |   |        |  |         |  
|                                                              |  |   |        |  |      |  
|Income before income tax expense and minority interest        |  |   | 11,927 |  | 14.6 | % |  |   | 21,597 |  | 18.4 | % |  |   | 9,670  |  | 81.1    | %
|                                                              |  |   |        |  |      |  
|Minority interest                                             |  |   | 8      |  |     | % |  |   | 438    |  | 0.3  | % |  |   | 430    |  | 5,375.0 | %
|Income tax expense                                            |  |   | 4,600  |  | 5.6  | % |  |   | 7,925  |  | 6.8  | % |  |   | 3,325  |  | 72.3    | %
|                                                              |  |   |        |  |      |   |  |   |        |  |      |   |  |   |        |  |         |  
|                                                              |  |   |        |  |      |  
|Net income                                                    |  | $ | 7,319  |  | 9.0  | % |  | $ | 13,234 |  | 11.3 | % |  | $ | 5,915  |  | 80.8    | %
|                                                              |  |   |        |  |      |   |  |   |        |  |      |   |  |   |        |  |         |  

---

|(1) | Revenues, net of cost of commodities sold, consists of total revenues presented with the sales of commodities net of cost of commodities sold. See Selected and Other
DataNon-GAAP Financial Measures for further discussion of revenues, net of cost of commodities sold.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

N/M
 Percentage is not meaningful.

Revenues and Cost of Commodities Sold

Revenues, net of cost of commodities sold, increased $35.8 million, or 44.0%, from $81.6 million in the six months ended February 28, 2006, to $117.4
million in the six months ended February 28, 2007.

Sale of Commodities and Cost of Commodities Sold. Sales of
commodities increased by $251.7 million, or 46.1%, from $546.2 million in the six months ended February 28, 2006, to $797.9 million in the six months ended February 28, 2007. Cost of commodities sold decreased $248.4 million, or 46.2%,
from $537.3 million in the six months ended February 28, 2006, to $785.7 million in the six months ended February 28, 2007. The increase in sales and cost of commodities sold was due to higher grain prices and an increase in grain bushels
handled. Grain bushels handled increased by 4.1 million bushels, or 3.3%, from 124.6 million bushels in the six months ended February 28, 2006, to 128.7 million bushels in the six months ended February 28, 2007. The increase
in bushels handled was primarily due to the large 2006 crop yield and strong demand for corn soybeans and wheat both domestically and internationally. The increase in grain prices and bushels handled accounted for $247.6 million and $244.3 million
of the increase in sales and cost of commodities sold, respectively. Physical fuel sales declined 1.3 million gallons, or 61.9%, from 2.1 million gallons in the six months ended February 28, 2006, to 0.8 million gallons in the
six months ended February 28, 2007. This decline resulted in a $2.1 million decrease in revenue from fuel sales and was due to our shift in focus from handling physical fuels to only periodically participating as a principal in back-to-back
ethanol transactions. Gross profit on commodities sold increased $3.3 million, or 37.1%, from $8.9 million in the six months ended February 28, 2006, to $12.2 million in the six months ended February 28, 2007.



28



---

Commissions and Clearing Fees. Commissions and clearing fees increased $19.5 million, or
41.5%, from $46.8 million in the six months ended February 28, 2006, to $66.3 million in the six months ended February 28, 2007. The increase was due to higher trading volume, which increased by 4.2 million exchange-traded contracts,
or 19.0%, from 22.1 million contracts in the six months ended February 28, 2006, to 26.3 million contracts in the six months ended February 28, 2007. Forex trades increased significantly due to the addition of several large
customers and accounted for approximately $4.9 million of the increase.

Service, Consulting and Brokerage Fees. Service,
consulting and brokerage fees increased $3.0 million, or 19.3%, from $15.4 million in the six months ended February 28, 2006, to $18.4 million in the six months ended February 28, 2007. The revenue increase resulted primarily from an
increase in OTC contract volume from our energy, renewable fuels, grain risk management and Latin America and China customers. OTC contract volume increased 170,661, or 147.7%, from 115,583 contracts in the six months ended February 28, 2006,
to 286,244 contracts in the six months ended February 28, 2007. The overall OTC rate per contract was lower as we had no higher rate weather trades during this period.

Interest Income. Interest income increased $9.9 million, or 106.9%, from $9.2 million in the six months ended February 28, 2006, to
$19.1 million in the six months ended February 28, 2007. The increase was primarily due to higher short-term interest rates, increased customer segregated and customer OTC funds and increased activity in the grain inventory financing program.

Other Revenues. Other revenues increased by $0.2 million, or 24.0%, from $1.2 million in the six months ended
February 28, 2006, to $1.4 million in the six months ended February 28, 2007. The increase was primarily due to an increase in transportation brokerage income, and also consists of primarily ocean vessel service income and railcar sublease
income.

Other Costs and Expenses

Employee Compensation and Broker Commissions. Employee compensation and broker commissions increased $3.5 million, or 17.8%, from $19.7 million in the six months ended February 28, 2006, to $23.2 million in the six months
ended February 28, 2007. This increase was primarily a result of a volume-related increase in broker commissions due to the higher revenues in our C&RM segment, and higher executive and staff incentive compensation due to higher net income.

Pit Brokerage and Clearing Fees. Pit brokerage and clearing fees increased $8.5 million, or 40.6% from $21.0 million in the
six months ended February 28, 2006, to $29.5 million in the six months ended February 28, 2007. This increase was entirely related to increased volumes of exchange traded and Forex traded contracts.

Introducing Broker Commissions. Introducing broker commissions increased $7.2 million, or 78.0%, from $9.2 million in the six months ended
February 28, 2006, to $16.4 million in the six months ended February 28, 2007. The increase was due to higher contract trading volumes from customers introduced by our introducing brokers in both the C&RM and Clearing and Execution
Services segments.

Employee Benefits and Payroll Taxes. Employee benefits and payroll taxes increased $0.7 million, or
14.6%, from $4.7 million in the six months ended February 28, 2006, to $5.4 million in the six months ended February 28, 2007. This increase was primarily related to the higher employee compensation and broker commissions.

Interest. Interest expense increased $3.8 million, or 137.4%, from $2.7 million in the six months ended February 28, 2006, to $6.5
million in the six months ended February 28, 2007. This increase was due primarily to higher short-term interest rates and higher borrowings as a result of increased activity in the grain inventory financing program and in our grain
merchandising operations.

Depreciation. Depreciation increased $89,000, or 11.3%, from $790,000 in the six months ended
February 28, 2006, to $879,000 in the six months ended February 28, 2007.



29



---

Bad Debt Expense. Bad debt expense increased $1.1 million, or 280.2%, from $0.4 million in
the six months ended February 28, 2006, to $1.5 million in the six months ended February 28, 2007. This increase was primarily due to the inability of a commodity pool limited partnership, for which a subsidiary of the Company acted as a
general partner and commodity pool operator, to meet a margin call from assets of the pool. The resulting liquidation of pool positions under continuing adverse market conditions resulted in a charge of $1.3 million.

Other Expenses. Other expenses increased $1.3 million, or 11.8%, from $11.2 million in the six months ended February 28, 2006, to
$12.5 million in the six months ended February 28, 2007. This additional expense was primarily due to increases in professional fees and technology to support our business.

Income Tax Expense. Our provision for income taxes increased $3.3 million, or 72.3%, from $4.6 million in the six months ended
February 28, 2006, to $7.9 million in the six months ended February 28, 2007. The increase was primarily due to higher profitability. Our effective income tax rate, 38.6% in the six months ended February 28, 2006 and 37.5% for the six
months ended February 28, 2007, decreased primarily as a result of the larger dividend deduction from the ESOP dividend reinvestment.

Operations
by Segment

Six Months Ended February 28, 2007 Compared to Six Months Ended February 28, 2006.

Our reportable operating segments consist of C&RM, Clearing and Execution Services, Financial Services and Grain Merchandising. We include the
earnings of equity affiliates that are closely associated with our operating segments in the respective segments net income. Revenues, expenses and equity earnings from equity affiliates that are not easily identified with one of our four
operating segments are reported in the Corporate and Other segment. Segment income (loss) before minority interest and income taxes is defined as total segment revenues less total segment costs and expenses before reconciling amounts, corporate
expenses, minority interests and income taxes. Reconciling amounts represent the elimination of interest income and expense and commission income and expense between segments. Such transactions are conducted at market prices to more accurately
evaluate the profitability of the individual business segments. A reconciliation of total segment revenues and segment income before minority interest and income taxes to the Consolidated Statements of Operations is included in Note 7.

We prepared the financial results for our operating segments on a basis that is consistent with the manner in which we internally prepare financial
information to assist in making internal operating decisions. We have allocated certain common expenses among segments differently than we would for stand-alone financial information prepared in accordance with GAAP. Segment income before income
taxes may not be consistent with measures used by other companies. The accounting policies of our operating segments are the same as those applied in the consolidated financial statements. We have reclassified certain prior-period amounts to conform
to the current periods presentation.

Commodity and Risk Management Services

Our C&RM segment offers risk management consulting and access to the commodity derivative markets with the objective of helping our customers mitigate
commodity price risk and optimize their profit margins. In this segment, we generate revenues from five primary sources: (1) commission and clearing fee revenues from exchange-traded futures and options contracts, (2) brokerage fees from
OTC transactions, (3) interest income derived from cash balances in our customers accounts, (4) risk management service and consulting fees, and (5) fuel sales. Our customers in this segment consist of middle-market commodity
intermediaries, end-users and producers, focused primarily in the areas of domestic and international grain, renewable fuels and energy. In the six months ended February 28, 2007, this segment represented approximately 65% of our consolidated
income before minority interest, income tax and corporate overhead. The principal factors that affect our financial performance in this segment include:



| |  |  | the level of volatility in commodity prices,
| | - |  | --------------------------------------------



| |  |  | the level of knowledge and sophistication of our customers with respect to commodity risk,
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | the development of new risk management products for our customers,
| | - |  | ------------------------------------------------------------------



| |  |  | the volume of commodities produced and consumed by our customers, and
| | - |  | ---------------------------------------------------------------------



| |  |  | the level of short-term interest rates and the amount of cash balances in our customers accounts.
| | - |  | --------------------------------------------------------------------------------------------------



30



---

The following table provides the financial performance for this segment.



|                                                              |                |                              |        |  |   |       
|------------------------------------------------------------- | -------------- | ---------------------------- | ------ |  | - | ------
|                                                              |                | Six Months EndedFebruary 28,
|                                                              | 2006           |                              | 2007  
|                                                              | (in thousands)
|Sales of commodities                                          |                | $                            | 4,655  |  | $ | 2,542 
|Cost of commodities sold                                      |                |                              | 4,572  |  |   | 2,460 
|                                                              |                |                              |        |  |   |       
|Gross profit on commodities sold                              |                |                              | 83     |  |   | 82    
|Commissions and clearing fees                                 |                |                              | 15,936 |  |   | 25,939
|Service, consulting and brokerage fees                        |                |                              | 15,730 |  |   | 18,675
|Interest                                                      |                |                              | 3,343  |  |   | 8,388 
|Other                                                         |                |                              | 65     |  |   | 106   
|                                                              |                |                              |        |  |   |       
|Revenues, net of cost of commodities sold                     |                |                              | 35,157 |  |   | 53,190
|Costs and expenses:                                           |                |                              |        |  |   |       
|Expenses (excluding interest expense)                         |                |                              | 25,445 |  |   | 36,276
|Interest expense                                              |                |                              | 37     |  |   | 197   
|                                                              |                |                              |        |  |   |       
|Total costs and expenses (excluding cost of commodities sold) |                |                              | 25,482 |  |   | 36,473
|                                                              |                |                              |        |  |   |       
|Segment income before minority interest and income taxes      |                | $                            | 9,675  |  | $ | 16,717
|                                                              |                |                              |        |  |   |       

Sales of commodities decreased $2.1 million, or 45.7%, from $4.6 million in the six months ended
February 28, 2006, to $2.5 million in the six months ended February 28, 2007. The cost of commodities sold decreased $2.1 million, or 45.7%, from $4.6 million in the six months ended February 28, 2006, to $2.5 million in the six
months ended February 28, 2007. The decrease in sales of commodities and cost of commodities sold was due to a decrease in the volume sold, as we shifted our focus from handling physical fuels to only periodically participating as a principal
in back-to-back ethanol transactions.

Commissions and clearing fee revenues increased $10.0 million, or 62.9%, from $15.9 million in the
six months ended February 28, 2006, to $25.9 million in the six months ended February 28, 2007. This increase in commissions and clearing fees was primarily due to a significant increase in Forex trade commissions, of $4.9 million, from
the addition of several large customers and to a significant Fall 2006 grain market price rally, which resulted in a 0.5 million contract, or 50.0%, increase in trading volume for exchange-traded contracts, from 1.0 million contracts in
the six months ended February 28, 2006, to 1.5 million contracts in the six months ended February 28, 2007. Offsetting this increase in trading volume was a slight decline in the average rate per trade. Service, consulting and
brokerage fees increased $3.0 million, or 19.1%, from $15.7 million in the six months ended February 28, 2006, to $18.7 million in the six months ended February 28, 2007. This increase was primarily due to a significant increase in OTC
contract volume from renewable fuels customers and Latin America/Brazilian customers. Our increasing penetration of the renewable fuels business in particular resulted in a sharp increase in volume during the six months ended February 28, 2007.
Interest income increased $5.1 million, or 154.5%, from $3.3 million in the six months ended February 28, 2006, to $8.4 million in the six months ended February 28, 2007, which was due to higher short-term interest rates and an increase in
customer segregated and customer OTC funds.

Revenues, net of cost of commodities sold, increased $18.0 million, or 51.1%, from $35.2
million in the six months ended February 28, 2006, to $53.2 million in the six months ended February 28, 2007.

Expenses,
excluding interest expense, increased $10.9 million, or 42.9%, from $25.4 million in the six months ended February 28, 2006, to $36.3 million in the six months ended February 28, 2007. The expense increase was



31



---

primarily related to the large volume and revenue increase and included a $2.8 million increase in employee compensation and broker commissions and related
benefits, a $2.9 million increase in pit brokerage and clearing fees, a $2.8 million increase in introducing broker commissions and a $1.3 million increase in bad debt expense. The bad debt expense increase was primarily due to the inability of a
commodity pool limited partnership, for which a subsidiary of the Company acted as a general partner and commodity pool operator, to meet a margin call from assets of the pool. The resulting liquidation of pool positions under continuing adverse
market conditions resulted in a charge of $1.3 million.

Clearing and Execution Services

The Clearing and Execution Services segment offers low-cost clearing and execution for exchange-traded futures and options to the wholesale and
professional trader market segments. In this segment, we generate revenues from two primary sources: commissions and clearing fee revenues from the execution and clearing of exchange-traded futures and options contracts, and interest income derived
from cash balances in our customers accounts. In the six months ended February 28, 2007, this segment represented approximately 27% of our consolidated income before minority interest, income tax and corporate overhead. The principal
factors that affect our financial performance in this segment include:



| |  |  | the level of volatility in commodity prices, and
| | - |  | ------------------------------------------------



| |  |  | the level of short-term interest rates and the amount of cash balances in our customers accounts.
| | - |  | --------------------------------------------------------------------------------------------------

The following table provides the financial performance for this segment.



|                                                              |                |                              |        |  |   |       
|------------------------------------------------------------- | -------------- | ---------------------------- | ------ |  | - | ------
|                                                              |                | Six Months EndedFebruary 28,
|                                                              | 2006           |                              | 2007  
|                                                              | (in thousands)
|Sales of commodities                                          |                | $                            |       |  | $ |      
|Cost of commodities sold                                      |                |                              |       |  |   |      
|                                                              |                |                              |        |  |   |       
|Gross profit on commodities sold                              |                |                              |       |  |   |      
|Commissions and clearing fees                                 |                |                              | 31,154 |  |   | 40,699
|Service, consulting and brokerage fees                        |                |                              |       |  |   |      
|Interest                                                      |                |                              | 4,726  |  |   | 7,485 
|Other                                                         |                |                              |       |  |   | 100   
|                                                              |                |                              |        |  |   |       
|Revenues, net of cost of commodities sold                     |                |                              | 35,880 |  |   | 48,284
|                                                              |                |                             
|Costs and expenses:                                           |                |                              |        |  |   |       
|Expenses (excluding interest expense)                         |                |                              | 30,524 |  |   | 40,780
|Interest expense                                              |                |                              | 154    |  |   | 464   
|                                                              |                |                              |        |  |   |       
|Total costs and expenses (excluding cost of commodities sold) |                |                              | 30,678 |  |   | 41,244
|                                                              |                |                              |        |  |   |       
|Segment income before minority interest and income taxes      |                | $                            | 5,202  |  | $ | 7,040 
|                                                              |                |                              |        |  |   |       

Commissions and clearing fees increased $9.5 million, or 30.4%, from $31.2 million in the six
months ended February 28, 2006, to $40.7 million in the six months ended February 28, 2007. This increase was the result of increased trading volume due to energy, metals and soft (coffee, sugar and cocoa) commodities price volatility.
Contract trading volume increased 3.7 million contracts, or 17.5%, from 21.1 million contracts in the six months ended February 28, 2006, to 24.8 million contracts in the six months ended February 28, 2007. The average rate
received per contract increased as a result of the change in the mix of customer activity. Interest income increased



32



---

$2.8 million, or 59.6%, from $4.7 million in the six months ended February 28, 2006, to $7.5 million in the six months ended February 28, 2007,
primarily due to higher short-term interest rates and increased customer segregated funds. The six months ended February 28, 2007 has other revenue of $100,000 related to the realized gain on the conversion of an exchange membership seat to
common stock.

Expenses, excluding interest expense, increased $10.3 million, or 33.8%, from $30.5 million in the six months ended
February 28, 2006, to $40.8 million in the six months ended February 28, 2007. This increase in expenses was primarily due to volume-related increases in pit brokerage and clearing fees of $5.7 million, introducing broker commissions of
$4.4 million and related increased employee compensation of $0.4 million. Offsetting the increased expenses was a decrease in travel and related expenses of $0.2 million. Interest expense increased $310,000, or 201.3%, from $154,000 in the six
months ended February 28, 2006, to $464,000 in the six months ended February 28, 2007, primarily due to an increase in the amount of subordinated debt borrowed, to increase regulatory capital, and higher short-term interest rates.

Financial Services

The
Financial Services segment is composed of two wholly-owned subsidiaries: FCStone Financial, Inc. and FCStone Merchant Services, LLC. Through these subsidiaries, we finance and facilitate physical commodity inventories through traditional lending
agreements, or by entering into repurchase agreements with our customers. In addition, at times, we enter into arrangements with clients to share profits from transactions in physical commodities in exchange for financial support.

In this segment, we generate revenues from three primary sources: (1) interest income derived from commodity inventory financing through
sale/repurchase agreements with commercial grain customers, (2) revenues from profit-share arrangements where we act as an agent in the transaction trades, and (3) revenues from the sale of energy and other various commodities in
profit-share arrangements where we act as a principal in the transaction. For transactions in which we participate as an agent, the revenue recorded is limited to the contracted profit-share. For transactions in which we participate as a principal,
we are required to record the gross amount of revenue from commodity sales and the gross amount of related costs. In the six months ended February 28, 2007, this segment represented 2% of our consolidated income before minority interest, income
tax and corporate overhead. Our customers in this segment consist primarily of commercial grain-related customers in the grain repurchase program and renewable fuels producers. The principal factors that affect our financial performance in this
segment include:



| |  |  | the level of commodity prices, and
| | - |  | ----------------------------------



| |  |  | the volume of commodities produced and consumed by our customers.
| | - |  | -----------------------------------------------------------------

The following table provides the financial performance of this segment.



|                                                                |                |                              |       |      |  |   |       
|--------------------------------------------------------------- | -------------- | ---------------------------- | ----- | ---- |  | - | ------
|                                                                |                | Six Months EndedFebruary 28,
|                                                                | 2006           |                              |       | 2007
|                                                                | (in thousands)
|Sales of commodities                                            |                | $                            | 9,916 |      |  | $ | 16,157
|Cost of commodities sold                                        |                |                              | 9,870 |      |  |   | 16,069
|                                                                |                |                              |       |      |  |   |       
|Gross profit on commodities sold                                |                |                              | 46    |      |  |   | 88    
|Commissions and clearing fees                                   |                |                              |      |      |  |   |      
|Service, consulting and brokerage fees                          |                |                              |      |      |  |   |      
|Interest                                                        |                |                              | 1,787 |      |  |   | 4,158 
|Other                                                           |                |                              | 700   |      |  |   | 682   
|                                                                |                |                              |       |      |  |   |       
|Revenue, net cost of commodities sold                           |                |                              | 2,533 |      |  |   | 4,928 
|                                                                |                |                             
|Costs and expenses:                                             |                |                              |       |      |  |   |       
|Expenses (excluding interest expense)                           |                |                              | 1,125 |      |  |   | 1,079 
|Interest expense                                                |                |                              | 1,509 |      |  |   | 3,402 
|                                                                |                |                              |       |      |  |   |       
|Total costs and expenses (excluding cost of commodities sold)   |                |                              | 2,634 |      |  |   | 4,481 
|                                                                |                |                              |       |      |  |   |       
|Segment income (loss) before minority interest and income taxes |                | $                            | (101  | )    |  | $ | 447   
|                                                                |                |                              |       |      |  |   |       



33



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The sale of commodities increased $6.3 million, or 63.6%, from $9.9 million in the six months ended
February 28, 2006, to $16.2 million in the six months ended February 28, 2007. The cost of commodities sold increased $6.2 million, or 62.6%, from $9.9 million in the six months ended February 28, 2006, to $16.1 million in the six
months ended February 28, 2007. These increases were primarily due to an increase in the number of financing transactions we entered into as a principal, which requires us to record the gross amount of revenue and costs from commodity sales.

Interest income increased $2.4 million, or 133.3%, from $1.8 million in the six months ended February 28, 2006, to $4.2 million in
the six months ended February 28, 2007. This increase resulted from increased activity in the grain inventory financing program and higher short-term interest rates. Other income remained relatively stable, with $700,000 in the six months ended
February 28, 2006, and $682,000 in the six months ended February 28, 2007 and is primarily comprised of railcar sublease income.

Expenses, excluding interest expense, remained relatively comparable with $1.1 million in the six months ended February 28, 2006, and 2007, respectively. Interest expense increased $1.9 million, or 126.7%, from $1.5 million in the six
months ended February 28, 2006, to $3.4 million in the six months ended February 28, 2007. The increase in interest expense resulted from additional borrowings related to the increased activity in the grain inventory financing program and
higher short-term interest rates.

Grain Merchandising

The Grain Merchandising segment acts as a dealer in and manager of physical grain and fertilizer through a 70% interest in FGDI. FGDI acts as a grain dealer in the United States and international markets, with
operations primarily in, Asia, Latin America and Canada. We generate a majority of our revenues in this segment from the sale of grain. The principal factor that affects our financial performance in this segment is the global supply of and demand
for grain. In the six months ended February 28, 2007, this segment represented approximately 6% of our consolidated income before minority interest, income tax and corporate overhead. We have taken steps to increase the profitability of this
segment by focusing our efforts on domestic grain merchandising, where there are higher risk-adjusted margins and the opportunity to capitalize on a growing renewable fuels industry. We have also conducted preliminary discussions with Agrex Inc.,
the other member of FGDI, regarding the sale of a portion of our interest in FGDI with the intention of reducing our interest in FGDI to a minority ownership interest. If such a sale is consummated, subject to applicable accounting standards,
FGDIs results of operations and financial condition may not be consolidated with our consolidated financial statements in subsequent periods. There can be no assurance that such a sale will be successfully negotiated or consummated.



34



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The following table provides the financial performance of this segment.



|                                                                |                |                              |         |  |   |        
|--------------------------------------------------------------- | -------------- | ---------------------------- | ------- |  | - | -------
|                                                                |                | Six Months EndedFebruary 28,
|                                                                | 2006           |                              | 2007   
|                                                                | (in thousands)
|Sales of commodities                                            |                | $                            | 531,621 |  | $ | 779,187
|Cost of commodities sold                                        |                |                              | 523,125 |  |   | 767,462
|                                                                |                |                              |         |  |   |        
|Gross profit on commodities sold                                |                |                              | 8,496   |  |   | 11,725 
|Commissions and clearing fees                                   |                |                              |        |  |   |       
|Service, consulting and brokerage fees                          |                |                              |        |  |   |       
|Interest                                                        |                |                              | 233     |  |   | 64     
|Other                                                           |                |                              | 458     |  |   | 612    
|                                                                |                |                              |         |  |   |        
|Revenue, net cost of commodities sold                           |                |                              | 9,187   |  |   | 12,401 
|Costs and expenses:                                             |                |                              |         |  |   |        
|Expenses (excluding interest expense)                           |                |                              | 7,108   |  |   | 7,795  
|Interest expense                                                |                |                              | 1,797   |  |   | 3,146  
|                                                                |                |                              |         |  |   |        
|Total costs and expenses (excluding cost of commodities sold)   |                |                              | 8,905   |  |   | 10,941 
|                                                                |                |                              |         |  |   |        
|Segment income (loss) before minority interest and income taxes |                | $                            | 282     |  |   | 1,460  
|                                                                |                |                              |         |  |   |        

The sale of commodities increased $247.6 million, or 46.6%, from $531.6 million in the six months
ended February 28, 2006, to $779.2 million in the six months ended February 28, 2007. Cost of commodities sold increased $244.4 million, or 46.7%, from $523.1 million in the six months ended February 28, 2006, to $767.5 million in the
six months ended February 28, 2007. Gross profit on commodities sold increased $3.2 million, or 37.6%, from $8.5 million in the six months ended February 28, 2006, to $11.7 million in the six months ended February 28, 2007. The
increase in sales of commodities, cost of commodities sold and gross profit was primarily the result of a 4.1 million bushel, or 3.3%, increase in the volume of grain bushels sold from 124.6 million bushels in the six months ended
February 28, 2006, to 128.7 million bushels in the six months ended February 28, 2007, and the increase in gross margin per bushel of 33.6%. The increase in bushels handled and margin per bushel were primarily due to the large 2006
crop yield and strong demand for corn, soybeans and wheat both domestically, especially in the eastern grain belt, and internationally.

Other income remained relatively comparable with $458,000 in the six months ended February 28, 2006, and $612,000 in the six months ended February 28, 2007. Interest income decreased $169,000 from $233,000 in the six months ended
February 28, 2006, to $64,000 in the six months ended February 28, 2007.

Expenses, excluding interest expense, increased $0.7
million, or 9.9%, from $7.1 million in the six months ended February 28, 2006, to $7.8 million in the six months ended February 28, 2007 primarily due to increased employee compensation. Interest expense increased $1.3 million, or 72.2%,
from $1.8 million in the six months ended February 28, 2006, to $3.1 million in the six months ended February 28, 2007, primarily due to increasing variable interest rates on the lines of credit.

Corporate and Other

The Corporate and Other
segment consists of income from investments in other companies accounted for using the equity method and overall corporate level expenses primarily related to employee compensation and benefits, travel, technology, professional fees, director fees,
interest and general insurance. The Corporate and Other segment generated insignificant amounts of revenue during the six months ended February 28, 2006 and 2007. Corporate net expenses for the six months ended February 28, 2006 and 2007
were $3.1 million and $4.1 million, respectively. The primary reasons for the increase were increased employee compensation, related employee benefits, professional fees and interest expense.

Liquidity and Capital Resources

Overview

We have substantial lines of credit available and annual cash flow from operations to support continued additional growth in each segment of our
operations. We believe we have a strong liquidity position and expect to maintain this position over the next twelve months as a result of the available capacity under our revolving credit facilities, operating cash flows and our remaining balance
of available cash and temporary cash investments.



35



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In March 2007, the Company completed its initial public offering (IPO) of common stock in which a total
of 5,865,000 shares were issued and sold at an IPO price of $24.00 per share. In connection with the offering, the Company redeemed 2,159,980 shares of common stock. The Company raised a total of $140.8 million in gross proceeds from the IPO, and
approximately $130.9 million in net proceeds after deducting underwriting discounts and commission expenses of $9.9 million. Subsequently, proceeds from the IPO in the amount of approximately $48.2 million has been used to fund the share redemption,
approximately $28.3 million has been used to reduce notes payable and subordinated debt and approximately $1.6 million has been used for non-underwriting offering expenses.

Primary Sources and Uses of Cash

Operating cash flow provides the primary source of funds to
finance operating needs, capital expenditures and equity investments. As necessary, we supplement operating cash flow with debt to fund these activities, primarily in the Grain Merchandising and Financial Services segments. Excess operating cash is
used to fund shareholder dividends.

Cash Flows

Unrestricted cash and cash equivalents consist of unrestricted cash and highly liquid investments with original maturities of three months or less. Changes to our unrestricted cash and cash equivalents balances are
due to our operating, investing and financing activities discussed below.

The following table presents a summary of unrestricted cash
flows for the six months ended February 28, 2006 compared to the six months ended February 28, 2007.



|                                                                  |                        |                              |         |      |  |   |         |  
|----------------------------------------------------------------- | ---------------------- | ---------------------------- | ------- | ---- |  | - | ------- | -
|                                                                  |                        | Six months endedFebruary 28, |        
|                                                                  | 2006                   |                              |         | 2007 | 
|                                                                  | (dollars in thousands) |                             
|Cash Flows (used in) provided by:                                 |                        |                              |         |      |  |   |         |  
|Operating Activities                                              |                        | $                            | (7,164  | )    |  | $ | (81,325 | )
|Investing Activities                                              |                        |                              | (15,045 | )    |  |   | (81,866 | )
|Financing Activities                                              |                        |                              | 41,446  |      |  |   | 154,457 |  
|                                                                  |                        |                              |         |      |  |   |         |  
|Net increase (decrease) in cash and cash equivalentsunrestricted |                        | $                            | 19,137  |      |  | $ | (8,734  | )
|                                                                  |                        |                              |         |      |  |   |         |  

Cash Flows from Operations

In the commodities industry, companies report trading activities in the operating section of the statement of cash flows. Due to the potential volatility
in the commodities market, wide fluctuations in the balances of customer segregated assets, deposits held at various exchanges, marketable securities and customer commodity accounts may occur from day-to-day. As a result of this volatility, cash
flows from operations may fluctuate positively or negatively at the end of a reporting period. These fluctuations may not be indicative of the health of our business.

Net cash used in operations was $81.3 million for the six months ended February 28, 2007, which consisted of net income of $13.2 million increased by $1.3 million of non-cash items, and decreased by $95.8 million
of cash utilized for working capital. The uses for working capital included an increase in open contracts receivable/payable, net of $43.5 million, of which $41.1 million relates to grain contracts in the Grain Merchandising segment and $2.4
million, relates to OTC contracts in the C&RM segment. Additionally, uses of working capital included financing $18.6 million of customer deliveries taken on the Chicago Board of Trade, a $9.9 million increase in deposits made to counterparties
related to increased OTC transaction volume, a $10.7 million increase in inventory and a $10.7 million decrease in trade accounts payable and advances.



36



---

Cash used in operating activities was $7.2 million for the six months ended February 28, 2006, which
consisted of net income of $7.3 million increased by $0.8 million of non-cash items and decreased by $15.3 million of cash utilized for working capital.

Cash Flows from Investing Activities

Cash used in investing activities was $81.9 million for the six months ended
February 28, 2007, primarily consisting of $80.1 million of issued notes receivable, associated with the increased activity of the grain inventory financing program within the Financial Services segment, and $1.4 million used to purchase an
exchange membership on the Board of Trade of the City of New York, Inc. and a COMEX membership seat. The exchange membership seats and stock provide us with the right to do business on the various exchanges. We have moved towards owning our own
exchange seats and stock, rather than relying on memberships from affiliated individuals. We also invested $1.1 million in fixed asset expenditures primarily for office furniture and equipment and computer software and hardware.

The Company used cash of $15.0 million in its investing activities for the six-month periods ended February 28, 2006, primarily due to the issuance
of notes receivable associated with the activity of the grain inventory financing program within the Financial Services segment

Cash Flows from
Financing Activities

Cash provided by financing activities was $154.5 million for the six months ended February 28, 2007,
primarily consisting of $151.2 million of net proceeds drawn on our credit facilities and $8.0 million of proceeds from the issuance of subordinated debt. Approximately $110.8 million of the proceeds drawn on our credit facilities was used to
support the grain inventory financing programs, $36.5 million was primarily for the increase in inventory and receivables in the Grain Merchandising segment and $4.0 million was primarily for general corporate purposes. The additional subordinated
debt was used to increase the regulatory capital of FCStone LLC, our FCM.

The Company had cash provided by financing activities of $41.4
million for the six-month period ended February 28, 2006 primarily due to drawing down on our lines of credit available within our Grain Merchandising and Financial Services segments, offset by dividend payments and partial repayment of
subordinated debt.

Common Stock Dividends

On November 9, 2006, the Companys board of directors declared a dividend of $0.42 per share on the 14,537,208 shares outstanding, totaling $6.1 million. The stock record date for such dividend was November 9, 2006, payable
on December 20, 2006. Previously, on October 27, 2005, our board of directors declared a dividend of $0.20 per share, totaling $2.9 million, payable on December 22, 2005. Future regular dividends may be declared and paid at the
discretion of the board of directors. Any determination to pay cash dividends will be at the discretion of our board of directors, and will depend upon our results of operations and cash flows, our financial position and capital requirements,
general business conditions, legal, tax, regulatory, rating agency and any contractual restrictions on the payment of dividends and any other factors our board of directors deems relevant.

Short-and Long-Term Debt

We believe we have adequate
lines of credit available to conduct our business. See Credit Facilities. Certain of the credit facilities are used to a greater extent than others, and represent a significant portion of the proceeds drawn on our lines. Our Grain
Merchandising segment had an $88.0 million line of credit with CoBank and has a $8.0 million line of credit with AFG Trust Finance available to finance its operations, including carrying significant accounts receivable and inventory, and is used
extensively throughout the year. Our Financial Services segment has a total available line of credit of $229.0 million available for its commodity financing programs, and also funds a repurchase program on a transaction by transaction basis with
Standard Chartered Bank, London. These programs demand tends to fluctuate throughout the year. While usage corresponds to demand fluctuations, the lines are used consistently throughout the year.



37



---

Credit Facilities. The Company maintains a number of lines of credit to support operations.
A summary of such lines is noted in the following table:



|                                                         |  |                                     |  |                                             |  |                                          |       |     |                                      |   |      
|-------------------------------------------------------- |  | ----------------------------------- |  | ------------------------------------------- |  | ---------------------------------------- | ----- | --- | ------------------------------------ | - | -----
|Creditor                                                 |  | Renewal/Expiration Date             |  | Use                                         |  | TotalCommitmentAmount atFebruary 28,2007 |       |     | AmountOutstanding atFebruary 28,2007
|Deere Credit, Inc.                                       |  | March 1, 2008                       |  | Margin Calls                                |  | $                                        | 48.7  |     |                                      | $ |     
|Deere Credit, Inc.                                       |  | March 1, 2008                       |  | Repurchase Agreements                       |  |                                          | 96.0  |     |                                      |   | 47.2 
|Deere Credit, Inc.                                       |  | October 1, 2009                     |  | Subordinated Debt for Regulatory Capital    |  |                                          | 15.0  |     |                                      |   | 14.0 
|Deere Credit, Inc.                                       |  | October 1, 2009                     |  | General Corporate                           |  |                                          | 15.3  |     |                                      |   | 14.3 
|                                                         |  |                                     |  |                                             |  |                                          |       |     |                                      |   |      
|Total Deere Credit, Inc.                                 |  |                                     |  |                                             |  |                                          | 175.0 |     |                                      |   | 75.5 
|                                                         |  |                                     |  |                                             |  |                                          |       |     |                                      |   |      
|CoBank, ACB                                              |  | June 30, 2007                       |  | Grain Merchandising                         |  |                                          | 88.0  | (1) |                                      |   | 59.1 
|CoBank, ACB                                              |  | June 30, 2008                       |  | Grain Merchandising                         |  |                                          | 8.0   | (1) |                                      |   |     
|CoBank, ACB                                              |  | December 30, 2007                   |  | OTC & Fuel Operations                       |  |                                          | 10.0  |     |                                      |   |     
|CoBank, ACB                                              |  | December 30, 2008                   |  | OTC & Fuel Operations                       |  |                                          | 10.0  |     |                                      |   |     
|CoBank, ACB                                              |  | May 1, 2007                         |  | Repurchase Agreements                       |  |                                          | 75.0  |     |                                      |   | 24.7 
|                                                         |  |                                     |  |                                             |  |                                          |       |     |                                      |   |      
|Total CoBank, ACB                                        |  |                                     |  |                                             |  |                                          | 183.0 |     |                                      |   | 83.8 
|                                                         |  |                                     |  |                                             |  |                                          |       |     |                                      |   |      
|Harris, N.A.                                             |  | June 30, 2007                       |  | Margin Calls                                |  |                                          | 30.0  |     |                                      |   |     
|Harris, N.A.                                             |  | January 31, 2008                    |  | Grain Deliveries                            |  |                                          | 5.0   |     |                                      |   |     
|AFG Trust Finance Limited                                |  | September 18, 2007                  |  | Grain Merchandising                         |  |                                          | 8.0   |     |                                      |   | 2.5  
|Industrial Revenue Bonds (Capitalized Lease Obligations) |  | December 1, 2012                    |  | Mobile, Alabama facility additional storage |  |                                          | 3.3   |     |                                      |   | 3.3  
|Fortis Capital Corp.                                     |  | Demand                              |  | Financial Services operations               |  |                                          | 20.0  |     |                                      |   | 0.7  
|RZB Finance, LLC                                         |  | Demand                              |  | Financial Services operations               |  |                                          | 8.0   |     |                                      |   | 2.5  
|Bank of Tokyo-Mitsubishi UFJ, Ltd.                       |  | Demand                              |  | Financial Services operations               |  |                                          | 10.0  |     |                                      |   |     
|Standard Chartered Bank, New York                        |  | Demand                              |  | Financial Services operations               |  |                                          | 20.0  |     |                                      |   | 12.8 
|Standard Chartered Bank, London                          |  | Demand                              |  | Financial Services operations               |  |                                          | 34.5  | (2) |                                      |   | 34.5 
|Short-term Note                                          |  | March 31, 2007                      |  | Financial Services operations               |  |                                          | 1.0   |     |                                      |   | 1.0  
|Subordinated Debt                                        |  | June 30, 2007 and December 31, 2007 |  | Regulatory Capital                          |  |                                          | 1.0   |     |                                      |   | 1.0  
|                                                         |  |                                     |  |                                             |  |                                          |       |     |                                      |   |      
|                                                         |  |                                     |  |                                             |  | $                                        | 498.8 |     |                                      | $ | 217.6
|                                                         |  |                                     |  |                                             |  |                                          |       |     |                                      |   |      

---

|(1) | At February 28, 2007, Grain Merchandisings CoBank revolving credit line and term loan advances, in the aggregate, could not exceed $88.0 million. Effective March 23,
2007, the maximum amount, in the aggregate, that can be outstanding under the credit agreement will be stepped down from $88 million to $73 million during the remaining term of the credit agreement.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | During December 2006, FCStone Merchant Services, LLC began entering into hedged commodity transactions with Standard Chartered Bank, London (SCBL) on a transaction by transaction
basis as part of its repurchase program business plan. There is no commitment for futures advances, and the $34.5 million outstanding at February 28, 2007 represents the repurchase obligation value of the hedged commodity transactions that were
in place at February 28, 2007.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



38



---

We have approximately $498.8 million available under current credit agreements and transaction
arrangements. While there is no guarantee that we will be able to replace current credit agreements when they expire, based on our strong liquidity position and new capital structure, we believe we will be able to do so.

All of our credit facilities include financial covenants and the failure to comply with any such covenants could result in the debt becoming payable on
demand. The Company was in compliance with all debt covenants effective February 28, 2007, and expects to remain in compliance in the future.

Due to the terms of the existing lines of credit in our Grain Merchandising segment, we expect our growth in this business segment will be limited by the capital it can retain from annual operations.

We carry significant open futures positions on behalf of our customers in the C&RM and the Clearing and Execution Services segments of our business.
The above lines of credit in place for margin calls are rarely used, but necessary to cover any abnormal commodity market fluctuations and the margin calls they may produce. With our own and customer funds on deposit and the available credit lines
noted above, management believes we have adequate capital reserves to meet any foreseeable market fluctuations based upon current commodity market activities.

Other Capital Considerations

Our wholly-owned subsidiaries, FCStone, LLC and FCC Investments, Inc., are subject to
various regulations and capital adequacy requirements. Pursuant to the rules, regulations, and requirements of the CFTC and other self-regulatory organizations, FCStone, LLC is required to maintain certain minimum net capital as defined in such
rules, regulations, and requirements. Net capital will fluctuate on a daily basis. FCStone, LLCs adjusted net capital and minimum net capital requirement at February 28, 2007, were $50.8 million and $38.8 million, respectively. FCC
Investments, Inc. is required to maintain certain net capital as defined by the SEC and at November 30, 2006, the net capital and minimum capital requirement were $459,307 and $250,000, respectively.

In fiscal 2006, FCStone Merchant Services, LLC (FCStone Merchant Services) loaned $1.5 million to Green Diesel LLC as part of its financing to build a
biodiesel production facility to be located in Houston, Texas. The loan included the issuance of warrants exercisable for 48% of the equity of Green Diesel. Subsequently, Green Diesel decided to raise additional equity in order to build a larger
production facility with an annual production capacity of approximately 46 million gallons. In order to prevent the dilution of our potential 48% interest in Green Diesel, the Company invested an additional $2.4 million. On November 2,
2006, FCStone Merchant Services loaned an additional $600,000 to Green Diesel to finance the expanded facility. On April 9, 2007, Fortis Capital Corp. established an uncommitted line of credit for Green Diesel, in an initial amount of $10.0
million, which can be increased under certain conditions to $22.5 million. Green Diesels obligations under the Fortis line of credit are guaranteed by FCStone Merchant Services, which is supported in part by a $2.0 million guarantee to Fortis
from FCStone Group. We are not contractually bound to invest additional equity in Green Diesel, although we may do so. We believe the Green Diesel production facility will begin commercial production in April 2007.

Seasonality and Fluctuations in Operating Results

We
historically experience seasonality in our operations with the first quarter typically being our strongest period as a result of the U.S. grain harvest. However, in the past few years, with global political factors and their effect on the
commodities markets, we have been seeing more frequent trading volume spikes throughout the year than in the past.

Other Matters

Critical Accounting Policies and Estimates. In preparing its most recent annual report on Form 10-K, the Company disclosed information about
critical accounting policies and estimates the Company makes in applying its accounting policies. We have made no changes to the methods of application or the assumptions used in applying these policies from those as disclosed in the most recent
annual report on Form 10-K.



39



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|Item 3. | Quantitative and Qualitative Disclosures about Market Risk
|------- | ----------------------------------------------------------

Commodity Price Risk

As part of our trading activity, we utilize futures and option contracts offered through
regulated commodity exchanges to reduce risk. The Company follows the policy of hedging its grain transactions and physical fuel through the use of cash and futures contracts in order to minimize risk due to market fluctuations. Inventories and
purchases and sales contracts are hedged to the extent practical so as to arrive at a net commodity position within the formal position limits set by the Company and deemed prudent for each commodity. The Company is exposed to risk of loss in the
market value of net open commodity positions, which are calculated by aggregating grain inventories and grain subject to contract for purchase and sale. The following table presents the number of bushels in inventory, under purchase and sales
contracts, and in futures positions by commodity at February 28, 2007:



|                     |      |                        |   |          |        |   |       |         |   |             |      |  
|-------------------- | ---- | ---------------------- | - | -------- | ------ | - | ----- | ------- | - | ----------- | ---- | -
|                     |      | Bushels (in thousands) |  
|                     | Corn |                        |   | Soybeans |        |   | Wheat |         |   | Oats&Barley |     
|Inventory            |      | 2,171                  |   |          | 2,128  |   |       | 1,844   |   |             | 13   |  
|Purchase Contracts   |      | 35,188                 |   |          | 9,051  |   |       | 14,446  |   |             | 613  |  
|Sale Contracts       |      | (8,916                 | ) |          | (7,151 | ) |       | (4,410  | ) |             | (580 | )
|Futures Long/(Short) |      | (28,444                | ) |          | (4,095 | ) |       | (11,917 | ) |             | (40  | )
|                     |      |                        |   |          |        |   |       |         |   |             |      |  
|Net Open Position    |      | (1                     | ) |          | (67    | ) |       | (37     | ) |             | 6    |  
|                     |      |                        |   |          |        |   |       |         |   |             |      |  

Bushel information is used to calculate the net open commodity position, which is sensitive to
changes in commodity prices. Open cash and futures contracts for the purchase and sale of grain are reported at market value; therefore the net open commodity position multiplied by the year-end market price approximates fair value. A hypothetical
10% increase (or decrease) in the market price of the commodities listed in the table from the February 28, 2007, level would result in a gain (or loss) to future earnings of approximately $70,000.

Interest Rate Risk

We manage interest expense
using fixed and floating rate debt. The debt instruments are carried at amounts approximating estimated fair value. Of our normal borrowing, greater than 90% of the outstanding balance at February 28, 2007, had a variable interest rate and,
except for the industrial revenue development bonds associated with the Mobile facility, almost all of our borrowing is on a short-term basis.

Short-term debt used to finance inventories and receivables is represented by notes payable within thirty days or less. The blended interest rate for all such notes approximates current market rates.

In the financing of grain, as interest rates increase, the spread between future option months generally becomes wider, allowing larger incomes in grain
margins to offset the potential increases in interest expense. A portion of the outstanding balance of variable rate debt is used to finance certain notes receivable to customers in the Financial Services segment. The interest charged on the notes
receivable is also at a variable rate, therefore eliminating the interest rate risk on that debt. Of the variable rate debt, the average outstanding balance subject to interest rate risk of the past year was $37.3 million. A hypothetical 100 basis
point increase (or decrease) in interest rates would result in a (loss) or gain to future earnings of $373,000, assuming a similar debt level throughout fiscal 2007.

The risk on variable rate long-term debt associated with the capital lease obligation in the amount of $3.3 million is not material to the financial statements. We believe the interest rate risk associated with these
borrowings will not have an adverse effect on our financial position, results of operations or cash flows.

Foreign Currency Risk

We conduct most of our international business in U.S. dollars, but there remains a minor risk regarding foreign currency fluctuations. We hedge foreign
currency risk using forward contracts to the extent practicable on those transactions. These contracts are marked to market though the same financial statement line as the underlying transactions to which they relate. Foreign currency fluctuations
do, however, impact the ability of foreign buyers to purchase U.S. agricultural products and the competitiveness of U.S. agricultural products compared to the same products offered by alternative sources of world supply.



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|Item 4. | Controls and Procedures
|------- | -----------------------

Evaluation of
disclosure controls and procedures. The Companys Chief Executive Officer (CEO) and Chief Financial Officer (CFO) have evaluated the effectiveness of the Companys disclosure controls and procedures (as defined
in the Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by the Quarterly Report (the Evaluation Date). They have concluded that, as of the Evaluation Date, these disclosure controls and procedures were
effective to ensure that material information relating to the Company and its consolidated subsidiaries would be made known to them by others within those entities and would be disclosed on a timely basis.

Changes in internal control over financial reporting. There were no changes to internal controls over financial reporting that occurred during the
three months ended February 28, 2007, that have materially affected, or are reasonably likely to materially impact the Companys internal controls over financial reporting.

Part II. Other Information



|Item 1. | Legal Proceedings
|------- | -----------------

The Company, from time to time,
is involved in various legal matters considered normal in the course of its business, including workers compensation claims, tort claims, contractual disputes and collections. It is the Companys policy to accrue for amounts related to
these matters if it is probable that a liability has been incurred and an amount can be reasonably estimated. We carry insurance that provides protection against certain types of claims, up to the policy limits of our insurance. With the exception
of the matters discussed below, we are not aware of other potential claims that could result in the commencement of material legal proceedings. In the opinion of our management, liabilities, if any, arising from existing litigation and claims will
not have a materially adverse effect on our results of operations, liquidity or financial position.

On May 23, 2006, a former
customer, Watseka Farmers Grain Cooperative Company, filed an action in the United States District Court, Central District of Illinois seeking actual damages in excess of $4 million, interest, punitive damages, treble damages, attorneys fees
and other further relief as the court may deem just and proper relating to losses on allegedly improper speculative trades ordered by the former general manager of the customer in a commodity futures account at FCStone, LLC. The customer was placed
under supervision by Illinois state authorities in May 2004, after examination revealed deficiencies in its financial reporting and condition, and its assets were subsequently sold. In December 2006, we called for the redemption of all of the shares
of common stock held by Watseka. In March 2007, a counterclaim was filed against us asserting ownership of the redeemed shares and seeking to set aside the redemption. We intend to vigorously defend this claim and we believe we have meritorious
defenses.

On August 21, 2003, August 21, 2003, September 23, 2003, October 16, 2003, and July 16,
2004, Euro-Maritime Chartering, Inc. filed five separate claims under the arbitration facility established by the London Maritime Arbitrators Association of London, England, alleging a breach by FGDI of charter party agreements regarding five
vessels and seeking to recover damages of $242,655, $230,863, $769,302, $649,031 and $403,167, respectively. Euro-Maritime Chartering alleges that these damages arise from detention and demurrage encountered at China ports with respect to cargos
that FGDI sold to Chinese buyers. FGDI does not dispute the demurrage claims, which are estimated to total approximately $690,000. FGDI claims that, under the sales contracts with the Chinese buyers, any detention and demurrage charges were for the
account of the buyers. FGDI has collected deposits from the Chinese buyers in the total amount of $669,436, which are being held pending resolution of the detention claims. FGDI intends to vigorously defend the detention claims and believes that it
has meritorious defenses. If the claimant prevails on any of the detention claims, or otherwise in amounts above the corresponding deposit, FGDI expects to seek collection of such amounts from the buyers.

On December 13, 2003, Liaoyang Edible Oils filed a claim in arbitration under the arbitration facility established by the Federation of Oils, Seeds
and Fats Associations Ltd. of Hong Kong alleging a breach of a sales contract by FGDI and seeking to recover damages of $1,125,000, of which $55,475 was not disputed as due under the contract. Liaoyang Edible Oils alleged that these damages arose
out of disputes related to the final pricing of the contract. On December 15, 2005 the arbitration panel rendered a decision, dismissing the claim for pricing damages, but also doing its own accounting under the contract, and making an award to
claimant, including interest and



41



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arbitration costs, of approximately $275,000. A partial award of attorneys fees and costs was also rendered in the decision, although this amount is
yet to be quantified. FGDI has made an accrual, of $275,000 related to this claim. On January 25, 2006, the claimant filed an appeal, which under the arbitration rules governing this dispute, is deemed to be a request for a new hearing. FGDI
intends to defend the appeal and seek an order that the award be upheld in its entirety, except for the accounting amount and except that each party should be ordered to bear its own legal costs. In addition, FGDI has cross appealed as to the amount
determined by the arbitration panel.

On December 9, 2004, Xiamen Zhonge Industry Co., Ltd. (Xiamen) filed a claim in arbitration
under the arbitration facility established by the Federation of Oils, Seeds and Fats Associations Ltd. of Hong Kong. Xiamens claim alleges that FGDI breached its duty to accept pricing instructions provided by Xiamen to FGDI. FGDI submitted a
statement of defense and counterclaim to which Xiamen replied with a modified claim. On March 12, 2007, the arbitration panel rendered a decision in favor of FGDI, awarding the Company recovery of grain margin losses and interest. The claimant
has until April 16, 2007 to file an appeal, which under the arbitration rules governing this dispute, would be deemed to be a request for a new hearing. FGDI intends to defend the appeal, if filed, and seek an order that the award be upheld in
its entirety.

Management is currently unable to predict the outcome of these claims and, except as noted above, believes their current
status does not warrant accrual under the guidance of Statement on Financial Accounting Standards No. 5, Accounting for Contingencies, since the amount of any liability is neither probable nor reasonably estimable. As such, except as
noted above, no amounts have been accrued in the financial statements. Management intends to vigorously defend these claims and will continue to monitor the result of arbitration and assess the need for future accruals.



|Item 1A. | Risk Factors
|-------- | ------------

Not applicable



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

Not applicable



|Item 3. | Defaults upon Senior Securities
|------- | -------------------------------

Not applicable



|Item 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------

At the Companys Annual Meeting of Stockholders held on January 11, 2007, Paul G. Anderson, Kenneth Hahn, Dave Reinders and Rolland Svoboda were re-elected as Class I directors, each to hold office until the Annual Meeting of
Stockholders to be held after the Companys fiscal year 2009 and until their respective successors are duly elected and qualified. The terms of the directorships held by David Andresen, Brent Bunte, Douglas Derscheid, Jack Friedman, Daryl
Henze, Bruce Krehbiel, Tom Leiting and Eric Parthemore did not expire this year, and these individuals continued as directors after the meeting. At the Annual Meeting of Stockholders, the selection of KPMG LLP as independent registered public
accounting firm of the Company for fiscal year 2007 was ratified by the stockholders. Votes cast on these issues were as follows:



|                        |  |           |  |                  |  |        
|----------------------- |  | --------- |  | ---------------- |  | -------
|                        |  | For       |  | Against/Withheld |  | Abstain
|Paul G. (Pete) Anderson |  | 7,476,243 |  | 163,146          |  |       
|Kenneth Hahn            |  | 7,504,416 |  | 134,973          |  |       
|Dave Reinders           |  | 7,441,023 |  | 198,366          |  |       
|Rolland Svoboda         |  | 7,475,250 |  | 164,139          |  |       
|KPMG LLP                |  | 7,568,421 |  | 65,034           |  | 5,934  



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|Item 5. | Other Information
|------- | -----------------

None



|        |  |                                                                                                                        
|------- |  | -----------------------------------------------------------------------------------------------------------------------
|Item 6. |  | Exhibits                                                                                                               
|31.1    |  | Certification of Paul G. Anderson, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 
|        | 
|31.2    |  | Certification of Robert V. Johnson, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|        | 
|32.1    |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|        | 
|32.2    |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



43



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|               |  |                     |  |                        
|-------------- |  | ------------------- |  | -----------------------
|               |  | FCStone Group, Inc.
|               |  | Registrant         
|               |  |                    
|April 16, 2007 |  | By:                 |  | /s/ Paul G. Anderson   
|               |  |                     |  | Paul G. Anderson       
|               |  |                     |  | Chief Executive Officer
|               |  |                    
|April 16, 2007 |  | By:                 |  | /s/ Robert V. Johnson  
|               |  |                     |  | Robert V. Johnson      
|               |  |                     |  | Chief Financial Officer



44