##### Table of Contents

---

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



---

FORM 10-Q



---



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

For the quarterly period ended February 28, 2006

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 000-51099



---

FCStone Group, Inc.

(Exact name of registrant as specified in its charter)



---



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

2829 Westown Parkway, Suite 200

West Des Moines, Iowa 50266

(515) 223-3788



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



---

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

There is currently no public market for the registrants
securities. As of April 13, 2006, the registrant had 4,829,679 shares of common stock outstanding.



---



---

##### Table of Contents

|                                                                                              |  |     
|--------------------------------------------------------------------------------------------- |  | ----
|                                                                                              |  | Page
|PART I 
FINANCIAL INFORMATION                                                                |  |     
|Item 1.
Financial Statements                                                                  |  |     
|Consolidated Statements of Financial Condition  February 28, 2006 and August 31, 2005        |  | 3   
|Consolidated Statements of Operations  Three and Six Months Ended February 28, 2006 and 2005 |  | 4   
|Consolidated Statements of Cash Flows  Six Months Ended February 28, 2006 and 2005           |  | 5   
|Notes to Consolidated Financial Statements                                                    |  | 6   
|Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 10  
|Item 3.
Quantitative and Qualitative Disclosures About Market Risk                            |  | 22  
|Item 4.
Controls and Procedures                                                               |  | 23  
|                                                                                              | 
|PART II 
OTHER INFORMATION                                                                   |  |     
|Item 1.
Legal Proceedings                                                                     |  | 24  
|Item 6.
Exhibits                                                                              |  | 25  
|                                                                                              | 
|SIGNATURES                                                                                    |  | 26  



2



---

##### Table of Contents

Part I

EXPLANATORY NOTE

On April 17, 2006, the Companys management advised the Audit Committee of the Companys Board of
Directors that it believed the Company was using an incorrect accounting method for the classification of common stock held by the FCStone Group Employee Stock Ownership Plan. Management and representatives of KPMG LLP discussed with the
Companys Audit Committee the application of the accounting methods and, as a result, the Audit Committee determined that pursuant to §210.5-02 (28) of Regulation S-X, shares of its common stock held by the FCStone Group Employee
Stock Ownership plan should be classified as Redeemable common stock held by employee stock ownership plan (ESOP) on the Companys Consolidated Statements of Financial Condition as of (i) August 31, 2005, together with the
Condensed Statements of Financial Condition as of such date (included in the Companys Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on November 29, 2005, referred to as the Fiscal
Year 2005 Form 10-K), (ii) November 30, 2005 (included in the Companys Quarterly Report on Form 10-Q filed with the SEC on January 13, 2006, referred to as the First Quarter 2006 Form 10-Q), and
(iii) February 28, 2006 (to be included in the Companys Quarterly Report on Form 10-Q for the quarter then ended, referred to as the Second Quarter 2006 Form 10-Q). Pursuant to §210.5-02 (28), Redeemable common
stock held by employee stock ownership plan (ESOP) will not be presented as permanent capital with Stockholders equity.

The
reclassification has no impact on the Companys Consolidated and Condensed Statements of Operation, including net income and earnings per share, and has no impact on assets or liabilities on the Companys Consolidated and Condensed
Statements of Financial Condition. On April 17, 2006, the Audit Committee also concluded that the Companys previously issued financial statements for the year ended August 31, 2005, the independent registered public accountants
report thereon, and the financial statements for the quarter ended November 30, 2005 should no longer be relied upon. The Companys Audit Committee discussed with KPMG LLP the matters referred to in this note.

The Company intends to amend as soon as practicable the Fiscal Year 2005 Form 10-K and the First Quarter 2006 Form 10-Q to restate the applicable Consolidated Statements
of Financial Condition to reclassify the redemption value of such shares of approximately $4.5 million from Stockholders equity to Redeemable common stock held by employee stock ownership plan (ESOP).



---

##### Table of Contents

Part I. Financial Information

Item 1. Financial Statements

FCSTONE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(in thousands, except share amounts)



|                                                                                                                                                 |  |                  |         |   |                |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---------------- | ------- | - | -------------- | - | ------- | -
|                                                                                                                                                 |  | February 28 2006 |         |   | August 31 2005 |  
|                                                                                                                                                 |  | (Unaudited)      |         |   | (Restated)     |  
|ASSETS                                                                                                                                           |  |                  |         |   |                |   |         |  
|Cash and cash equivalents                                                                                                                        |  |                  |         |   |                |   |         |  
|Unrestricted                                                                                                                                     |  | $                | 44,282  |   |                | $ | 25,145  |  
|Restricted                                                                                                                                       |  |                  | 1,449   |   |                |   | 1,410   |  
|Segregated                                                                                                                                       |  |                  | 17,140  |   |                |   | 10,509  |  
|Commodity accounts receivable                                                                                                                    |  |                  |         |   |                |   |         |  
|Commodity exchanges and clearing organizations  customer segregated, including United States treasury bills and notes                           |  |                  | 391,172 |   |                |   | 396,446 |  
|Proprietary commodity accounts                                                                                                                   |  |                  | 23,982  |   |                |   | 18,028  |  
|Customer regulated accounts in deficit secured by U.S. treasury bills and notes                                                                  |  |                  | 17,730  |   |                |   | 6,351   |  
|                                                                                                                                                 |  |                  |         |   |                |   |         |  
|Total commodity deposits and accounts receivable                                                                                                 |  |                  | 432,884 |   |                |   | 420,825 |  
|                                                                                                                                                 |  |                  |         |   |                |   |         |  
|Marketable securities, at fair value  customer segregated and other                                                                             |  |                  | 216,882 |   |                |   | 192,328 |  
|Accounts receivable and advances on grain                                                                                                        |  |                  | 127,258 |   |                |   | 110,246 |  
|Notes receivable                                                                                                                                 |  |                  | 23,666  |   |                |   | 9,632   |  
|Inventories  grain, fertilizer, and fuel                                                                                                        |  |                  | 38,614  |   |                |   | 14,605  |  
|Exchange memberships and stock, at cost                                                                                                          |  |                  | 2,166   |   |                |   | 1,797   |  
|Furniture, equipment, and improvements, net                                                                                                      |  |                  | 8,058   |   |                |   | 8,206   |  
|Deferred income taxes                                                                                                                            |  |                  | 4,413   |   |                |   | 4,013   |  
|Investments in affiliates                                                                                                                        |  |                  | 1,666   |   |                |   | 1,726   |  
|Investments in other organizations                                                                                                               |  |                  | 1,847   |   |                |   | 1,843   |  
|Other assets                                                                                                                                     |  |                  | 8,437   |   |                |   | 3,237   |  
|                                                                                                                                                 |  |                  |         |   |                |   |         |  
|Total Assets                                                                                                                                     |  | $                | 928,762 |   |                | $ | 805,522 |  
|                                                                                                                                                 |  |                  |         |   |                |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                             |  |                  |         |   |                |   |         |  
|Liabilities                                                                                                                                      |  |                  |         |   |                |   |         |  
|Checks written in excess of bank balance                                                                                                         |  | $                |        |   |                | $ | 4,880   |  
|Commodity and customer regulated accounts payable                                                                                                |  |                  | 605,359 |   |                |   | 549,200 |  
|Trade accounts payable and advances                                                                                                              |  |                  | 146,000 |   |                |   | 129,715 |  
|Accrued expenses                                                                                                                                 |  |                  | 22,759  |   |                |   | 20,764  |  
|Notes payable                                                                                                                                    |  |                  | 88,435  |   |                |   | 36,911  |  
|Subordinated debt                                                                                                                                |  |                  | 3,500   |   |                |   | 5,500   |  
|Obligations under capital leases                                                                                                                 |  |                  | 3,850   |   |                |   | 4,125   |  
|                                                                                                                                                 |  |                  |         |   |                |   |         |  
|Total Liabilities                                                                                                                                |  |                  | 869,903 |   |                |   | 751,095 |  
|                                                                                                                                                 |  |                  |         |   |                |   |         |  
|Minority interest                                                                                                                                |  |                  | 4,752   |   |                |   | 4,755   |  
|Redeemable common stock held by employee stock ownership plan (ESOP) (notes 2 and 8)                                                             |  |                  | 5,869   |   |                |   | 4,487   |  
|Stockholders equity:                                                                                                                            |  |                  |         |   |                |   |         |  
|Common stock, no par value, authorized 20,000,000, issued and outstanding 4,829,679 shares at February 28, 2006 and 4,828,279 at
August 31, 2005 |  |                  | 21,538  |   |                |   | 21,524  |  
|Accumulated other comprehensive loss                                                                                                             |  |                  | (4,555  | ) |                |   | (4,555  | )
|Retained earnings                                                                                                                                |  |                  | 37,124  |   |                |   | 32,703  |  
|                                                                                                                                                 |  |                  |         |   |                |   |         |  
|                                                                                                                                                 |  |                  | 54,107  |   |                |   | 49,672  |  
|Less maximum cash obligation related to ESOP shares (notes 2 and 8)                                                                              |  |                  | (5,869  | ) |                |   | (4,487  | )
|                                                                                                                                                 |  |                  |         |   |                |   |         |  
|Total stockholders equity                                                                                                                       |  |                  | 48,238  |   |                |   | 45,185  |  
|                                                                                                                                                 |  |                  |         |   |                |   |         |  
|Commitments and contingencies (note 7)                                                                                                           |  |                  |         |   |                |   |         |  
|Total liabilities and stockholders equity                                                                                                       |  | $                | 928,762 |   |                | $ | 805,522 |  
|                                                                                                                                                 |  |                  |         |   |                |   |         |  

See notes to unaudited consolidated financial statements.



3



---

##### Table of Contents

FCSTONE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except
per share amounts)



|                                                             |  |                                |         |                              |   |         |  |      |         |  |   |        
|------------------------------------------------------------ |  | ------------------------------ | ------- | ---------------------------- | - | ------- |  | ---- | ------- |  | - | -------
|                                                             |  | Three Months Ended February 28 |         | Six Months Ended February 28
|                                                             |  | 2006                           |         | 2005                         |   | 2006    |  | 2005
|Revenues:                                                    |  |                                |         |                              |   |         |  |      |         |  |   |        
|Commissions  commodity futures and options                  |  | $                              | 15,569  |                              | $ | 12,143  |  | $    | 31,046  |  | $ | 25,662 
|Service, consulting and brokerage fees                       |  |                                | 8,444   |                              |   | 5,032   |  |      | 15,428  |  |   | 8,029  
|Clearing and transaction fees                                |  |                                | 7,950   |                              |   | 5,192   |  |      | 15,443  |  |   | 10,264 
|Interest                                                     |  |                                | 4,972   |                              |   | 1,684   |  |      | 9,244   |  |   | 2,927  
|Other                                                        |  |                                | 686     |                              |   | 1,372   |  |      | 1,166   |  |   | 2,025  
|Sales of commodities                                         |  |                                | 230,977 |                              |   | 320,667 |  |      | 546,192 |  |   | 742,672
|                                                             |  |                                |         |                              |   |         |  |      |         |  |   |        
|Total revenues                                               |  |                                | 268,598 |                              |   | 346,090 |  |      | 618,519 |  |   | 791,579
|                                                             |  |                                |         |                              |   |         |  |      |         |  |   |        
|Costs and expenses:                                          |  |                                |         |                              |   |         |  |      |         |  |   |        
|Cost of commodities sold                                     |  |                                | 226,320 |                              |   | 315,463 |  |      | 536,935 |  |   | 732,915
|Employee compensation and broker commissions                 |  |                                | 9,983   |                              |   | 8,205   |  |      | 19,649  |  |   | 15,959 
|Pit brokerage and clearing fees                              |  |                                | 10,877  |                              |   | 7,718   |  |      | 21,009  |  |   | 15,500 
|Introducing broker commissions                               |  |                                | 4,776   |                              |   | 3,002   |  |      | 9,202   |  |   | 6,164  
|Employee benefits and payroll taxes                          |  |                                | 2,483   |                              |   | 2,109   |  |      | 4,684   |  |   | 3,842  
|Office, equipment and facilities rent and expenses           |  |                                | 1,727   |                              |   | 1,448   |  |      | 3,482   |  |   | 3,084  
|Communications and marketing information                     |  |                                | 858     |                              |   | 861     |  |      | 1,687   |  |   | 1,673  
|Interest                                                     |  |                                | 1,566   |                              |   | 755     |  |      | 2,734   |  |   | 1,355  
|Travel and related                                           |  |                                | 719     |                              |   | 586     |  |      | 1,525   |  |   | 1,084  
|Depreciation                                                 |  |                                | 398     |                              |   | 369     |  |      | 790     |  |   | 757    
|Bad debt expense                                             |  |                                | 150     |                              |   | 317     |  |      | 405     |  |   | 1,030  
|Other operating expenses                                     |  |                                | 2,185   |                              |   | 2,035   |  |      | 4,490   |  |   | 3,422  
|                                                             |  |                                |         |                              |   |         |  |      |         |  |   |        
|Total costs and expenses                                     |  |                                | 262,042 |                              |   | 342,868 |  |      | 606,592 |  |   | 786,785
|                                                             |  |                                |         |                              |   |         |  |      |         |  |   |        
|Income before income tax expense and minority interest       |  |                                | 6,556   |                              |   | 3,222   |  |      | 11,927  |  |   | 4,794  
|Minority interest                                            |  |                                | 60      |                              |   | 416     |  |      | 8       |  |   | 468    
|                                                             |  |                                |         |                              |   |         |  |      |         |  |   |        
|Income after minority interest and before income tax expense |  |                                | 6,496   |                              |   | 2,806   |  |      | 11,919  |  |   | 4,326  
|Income tax expense                                           |  |                                | 2,560   |                              |   | 1,060   |  |      | 4,600   |  |   | 1,650  
|                                                             |  |                                |         |                              |   |         |  |      |         |  |   |        
|Net income                                                   |  | $                              | 3,936   |                              | $ | 1,746   |  | $    | 7,319   |  | $ | 2,676  
|                                                             |  |                                |         |                              |   |         |  |      |         |  |   |        
|Basic and diluted shares outstanding (note 4)                |  |                                | 4,829   |                              |   | 4,309   |  |      | 4,829   |  |   | 4,309  
|                                                             |  |                                |         |                             
|Basic and diluted earnings per share                         |  | $                              | 0.82    |                              | $ | 0.41    |  | $    | 1.52    |  | $ | 0.62   
|                                                             |  |                                |         |                              |   |         |  |      |         |  |   |        

See notes to unaudited consolidated financial statements.



4



---

##### Table of Contents

FCSTONE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)



|                                                                                                          |  |                              |         |   |      |   |         |  
|--------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                                          |  | Six months ended February 28 |        
|                                                                                                          |  | 2006                         |         |   | 2005 |  
|Cash flows from operating activities:                                                                     |  |                              |         |   |      |   |         |  
|Net income                                                                                                |  | $                            | 7,319   |   |      | $ | 2,676   |  
|Depreciation and amortization                                                                             |  |                              | 790     |   |      |   | 757     |  
|Minority interest, net of distributions                                                                   |  |                              | (3      | ) |      |   | 468     |  
|Equity in earnings of affiliates                                                                          |  |                              | 54      |   |      |   |        |  
|Change in commodity accounts receivable/payable, marketable securities and customer segregated funds, net |  |                              | 12,915  |   |      |   | (4,265  | )
|Increase in accounts receivable and advances on grain                                                     |  |                              | (17,012 | ) |      |   | (12,848 | )
|Increase in inventory  grain, fertilizer, and fuel                                                       |  |                              | (24,009 | ) |      |   | (19,889 | )
|Increase in other assets                                                                                  |  |                              | (5,604  | ) |      |   | (91     | )
|Increase in accounts payable                                                                              |  |                              | 16,285  |   |      |   | 34,797  |  
|Increase (decrease) in accrued expenses                                                                   |  |                              | 1,995   |   |      |   | (1,103  | )
|                                                                                                          |  |                              |         |   |      |   |         |  
|Net cash (used in) provided by operating activities                                                       |  |                              | (7,270  | ) |      |   | 502     |  
|                                                                                                          |  |                              |         |   |      |   |         |  
|Cash flows from investing activities:                                                                     |  |                              |         |   |      |   |         |  
|Purchase of furniture, equipment, and improvements                                                        |  |                              | (642    | ) |      |   | (391    | )
|Issuance of notes receivable, net                                                                         |  |                              | (14,034 | ) |      |   | (9,235  | )
|Purchase of exchange membership and stock                                                                 |  |                              | (369    | ) |      |   | (925    | )
|Distributions from affiliates                                                                             |  |                              | 6       |   |      |   |        |  
|                                                                                                          |  |                              |         |   |      |   |         |  
|Net cash used in investing activities                                                                     |  |                              | (15,039 | ) |      |   | (10,551 | )
|                                                                                                          |  |                              |         |   |      |   |         |  
|Cash flows from financing activities:                                                                     |  |                              |         |   |      |   |         |  
|(Decrease) increase in checks written in excess of bank balance                                           |  |                              | (4,880  | ) |      |   | 1,689   |  
|Proceeds from notes payable, net                                                                          |  |                              | 51,524  |   |      |   | 24,518  |  
|Proceeds from issuance of redeemable common stock held by ESOP                                            |  |                              | 14      |   |      |   |        |  
|Payment for redemption of stock                                                                           |  |                              |        |   |      |   | (8      | )
|Dividends paid                                                                                            |  |                              | (2,898  | ) |      |   |        |  
|Payment of prior year patronage                                                                           |  |                              |        |   |      |   | (1,869  | )
|Payments under capital lease                                                                              |  |                              | (275    | ) |      |   | (275    | )
|Monies deposited in escrow                                                                                |  |                              | (39     | ) |      |   |        |  
|Proceeds from subordinated debt                                                                           |  |                              | 500     |   |      |   | 2,000   |  
|Payments on subordinated debt                                                                             |  |                              | (2,500  | ) |      |   | (2,250  | )
|                                                                                                          |  |                              |         |   |      |   |         |  
|Net cash provided by financing activities                                                                 |  |                              | 41,446  |   |      |   | 23,805  |  
|                                                                                                          |  |                             
|Net increase in cash and cash equivalents  unrestricted                                                  |  |                              | 19,137  |   |      |   | 13,756  |  
|Cash and cash equivalents  unrestricted  beginning of period                                            |  |                              | 25,145  |   |      |   | 7,943   |  
|                                                                                                          |  |                              |         |   |      |   |         |  
|Cash and cash equivalents  unrestricted  end of period                                                  |  | $                            | 44,282  |   |      | $ | 21,699  |  
|                                                                                                          |  |                              |         |   |      |   |         |  
|Supplemental disclosures of cash flow information:                                                        |  |                              |         |   |      |   |         |  
|Interest paid                                                                                             |  | $                            | 2,238   |   |      | $ | 1,404   |  
|                                                                                                          |  |                              |         |   |      |   |         |  
|Income taxes paid                                                                                         |  | $                            | 5,084   |   |      | $ | 1,219   |  
|                                                                                                          |  |                              |         |   |      |   |         |  
|Noncash financing activities:                                                                             |  |                              |         |   |      |   |         |  
|Increase in maximum cash obligation related to ESOP shares                                                |  | $                            | 1,368   |   |      |   |        |  
|                                                                                                          |  |                              |         |   |      |   |         |  

See notes to unaudited consolidated financial statements.



5



---

##### Table of Contents

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 carried 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 to be included in the Companys amended annual report on Form 10-K/A for the Companys fiscal year ended August 31, 2005, to be filed with the Securities and Exchange Commission as soon as practicable.

USE OF ESTIMATES

The preparation of financial statements in
conformity with US GAAP 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 reported period. Actual results could differ from those estimates.

RECLASSIFICATIONS

Certain amounts, as reported in the prior years financial statements, have been reclassified to conform with the current year presentation.

2. RESTATEMENT

The Consolidated Statements of
Financial Condition, Stockholders Equity and Comprehensive Income, and Cash Flows as of August 31, 2005 and November 30, 2005 and for the periods then ended have been restated to reclassify 448,692 of shares of common stock, owned by
the ESOP separate from permanent stockholders equity. Management determined that the redemption features for shares held by the ESOP, as of those dates, with a value of $4,486,920, respectively, are not solely within the control of the
Company, thus requiring presentation as temporary equity. This restatement has no impact on the Companys results of operations or compliance with covenants related to any credit facilities for the fiscal year ended August 31, 2005 or
three month period ended November 30, 2005.

The following table summarizes the impact of the restatements on the
financial statements:



|                                               |  |                        |        |   |                  |   |        |  
|---------------------------------------------- |  | ---------------------- | ------ | - | ---------------- | - | ------ | -
|                                               |  | As previously reported |        |   | As restated      |  
|                                               |  | August 31,2005         |        |   | August 31,2005   |  
|                                               |  | (In thousands)         |       
|Consolidated Statement of Financial Condition: |  |                        |        |   |                  |   |        |  
|Redeemable common stock held by ESOP           |  | $                      |       |   |                  | $ | 4,487  |  
|                                               |  |                        |        |   |                  |   |        |  
|Stockholders Equity:                          |  |                        |        |   |                  |   |        |  
|Common stock, no par value                     |  |                        | 21,524 |   |                  |   | 21,524 |  
|Accumulated other comprehensive loss           |  |                        | (4,555 | ) |                  |   | (4,555 | )
|Retained earnings                              |  |                        | 32,703 |   |                  |   | 32,703 |  
|Maximum cash obligation related to ESOP shares |  |                        |       |   |                  |   | (4,487 | )
|                                               |  |                        |        |   |                  |   |        |  
|Total stockholders equity                     |  | $                      | 49,672 |   |                  | $ | 45,185 |  
|                                               |  |                        |        |   |                  |   |        |  
|                                               |  |                       
|                                               |  | As previously reported |        |   | As restated      |  
|                                               |  | November 30, 2005      |        |   | November 30,2005 |  
|                                               |  | (In thousands)         |       
|Consolidated Statement of Financial Condition: |  |                        |        |   |                  |   |        |  
|Redeemable common stock held by ESOP           |  | $                      |       |   |                  | $ | 4,487  |  
|                                               |  |                        |        |   |                  |   |        |  
|Stockholders Equity:                          |  |                        |        |   |                  |   |        |  
|Common stock, no par value                     |  |                        | 21,524 |   |                  |   | 21,524 |  
|Accumulated other comprehensive loss           |  |                        | (4,555 | ) |                  |   | (4,555 | )
|Retained earnings                              |  |                        | 36,086 |   |                  |   | 36,086 |  
|Maximum cash obligation related to ESOP shares |  |                        |       |   |                  |   | (4,487 | )
|                                               |  |                        |        |   |                  |   |        |  
|Total stockholders equity                     |  | $                      | 53,055 |   |                  | $ | 48,568 |  
|                                               |  |                        |        |   |                  |   |        |  

3. 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 2005 for the defined benefit plans consists of the following components:



|                                    |  |                               |         |                              |   |         |  |      |           |  |   |          
|----------------------------------- |  | ----------------------------- | ------- | ---------------------------- | - | ------- |  | ---- | --------- |  | - | ---------
|                                    |  | Three months endedFebruary 28 |         | Six months endedFebruary 28,
|                                    |  | 2006                          |         | 2005                         |   | 2006    |  | 2005
|Service cost                        |  | $                             | 510,882 |                              | $ | 427,232 |  | $    | 1,021,764 |  | $ | 854,464  
|Interest cost                       |  |                               | 328,755 |                              |   | 285,950 |  |      | 657,510   |  |   | 571,900  
|Less expected return on plan assets |  |                               | 306,231 |                              |   | 243,076 |  |      | 612,462   |  |   | 486,152  
|Net amortization and deferral       |  |                               | 229,776 |                              |   | 109,733 |  |      | 459,552   |  |   | 219,466  
|                                    |  |                               |         |                              |   |         |  |      |           |  |   |          
|Net periodic pension expense        |  | $                             | 763,182 |                              | $ | 579,839 |  | $    | 1,526,364 |  | $ | 1,159,678
|                                    |  |                               |         |                              |   |         |  |      |           |  |   |          



6



---

##### Table of Contents

4. 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. Realized and unrealized
gains and losses on futures contracts are credited or charged to current cost of sales.

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

Fuel inventory is recorded at the lower of cost or market using the weighted average method. The Company has moved
towards offering traditional brokerage services, rather than serving as a principal in fuel sales; as a result the Company held no fuel inventory at February 28, 2006, and does not intend to do so in the future.

A summary of inventories as of February 28, 2006 and August 31, 2005 are as follows:



|           |  |                  |            |                |   |           
|---------- |  | ---------------- | ---------- | -------------- | - | ----------
|           |  | February 28,2006 |            | August 31,2005
|Grain      |  | $                | 36,558,593 |                | $ | 13,507,493
|Fertilizer |  |                  | 2,055,273  |                |   | 633,293   
|Fuel       |  |                  |           |                |   | 464,315   
|           |  |                  |            |                |   |           
|           |  | $                | 38,613,866 |                | $ | 14,605,101
|           |  |                  |            |                |   |           

5. EARNINGS PER SHARE

Earnings per share has been presented in the accompanying Consolidated Statement of Operations. The calculation of the basic and diluted shares outstanding for the three-month period and six-month period ended February 28, 2005,
assumes the shares issued as a result of the restructuring (see Note 8) had been issued and outstanding for the full year.

6. 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.

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.



7



---

##### Table of Contents

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 2005, 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                                          |  | $                                 | 19,629  |                             | $ | 18,630             |  | $                 | 223,352 |  | $                | 7,852  |   |                    | $ | (12    | )     |  | $ | (853    | ) |  | $ | 268,598
|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, 2005                                       |  |                                   |         |                             |   |                    |  |                   |         |  |                  |        |   |                    |   |        |       |  |   |         |   |  |   |        
|Total Revenues                                          |  | $                                 | 15,500  |                             | $ | 11,892             |  | $                 | 309,026 |  | $                | 10,096 |   |                    | $ | 23     |       |  | $ | (447    | ) |  | $ | 346,090
|Interest Revenue                                        |  |                                   | 530     |                             |   | 869                |  |                   | 29      |  |                  | 395    |   |                    |   | 21     |       |  |   | (160    | ) |  |   | 1,684  
|Interest Expense                                        |  |                                   | 8       |                             |   | 45                 |  |                   | 516     |  |                  | 295    |   |                    |   | 51     |       |  |   | (160    | ) |  |   | 755    
|Income (loss) before minority interest and income taxes |  |                                   | 2,056   |                             |   | 869                |  |                   | 807     |  |                  | 630    |   |                    |   | (1,140 | )     |  |   |        |   |  |   | 3,222  
|Total Assets                                            |  | $                                 | 188,942 |                             | $ | 294,194            |  | $                 | 128,222 |  | $                | 30,703 |   |                    | $ | 7,221  |       |  | $ | (32,967 | ) |  | $ | 616,315
|                                                        |  |                                   |         |                             |   |                    | 
|Six Months Ended:                                       |  |                                   |         |                             |   |                    |  |                   |         |  |                  |        |   |                    |   |        |       |  |   |         |   |  |   |        
|                                                        |  |                                   |         |                             |   |                    | 
|February 28, 2006                                       |  |                                   |         |                             |   |                    |  |                   |         |  |                  |        |   |                    |   |        |       |  |   |         |   |  |   |        
|Total Revenues                                          |  | $                                 | 39,378  |                             | $ | 35,880             |  | $                 | 532,312 |  | $                | 12,403 |   |                    | $ | 25     |       |  | $ | (1,479  | ) |  | $ | 618,519
|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, 2005                                       |  |                                   |         |                             |   |                    |  |                   |         |  |                  |        |   |                    |   |        |       |  |   |         |   |  |   |        
|Total Revenues                                          |  | $                                 | 38,497  |                             | $ | 23,755             |  | $                 | 711,877 |  | $                | 18,188 |   |                    | $ | 42     |       |  | $ | (780    | ) |  | $ | 791,579
|Interest Revenue                                        |  |                                   | 943     |                             |   | 1,589              |  |                   | 79      |  |                  | 466    |   |                    |   | 40     |       |  |   | (190    | ) |  |   | 2,927  
|Interest Expense                                        |  |                                   | 24      |                             |   | 131                |  |                   | 929     |  |                  | 370    |   |                    |   | 91     |       |  |   | (190    | ) |  |   | 1,355  
|Income (loss) before minority interest and income taxes |  |                                   | 3,616   |                             |   | 1,725              |  |                   | 1,057   |  |                  | 564    |   |                    |   | (2,168 | )     |  |   |        |   |  |   | 4,794  
|Total Assets                                            |  | $                                 | 188,942 |                             | $ | 294,194            |  | $                 | 128,222 |  | $                | 30,703 |   |                    | $ | 7,221  |       |  | $ | (32,967 | ) |  | $ | 616,315

7. CONTINGENCIES

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



8



---

##### Table of Contents

Arbitrators Association of London, England, alleging a breach by FGDI, LLC (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 of approximately $175,000. Additionally, the award bears interest and arbitration costs of approximately $100,000. A partial award of attorneys fees and costs was also rendered in the decision, although this amount is yet to be
quantified. FGDI has accrued $250,000 related to this claim, during the current six-month period ending February 28, 2006. On January 3, 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 cross appeal as to the amount awarded to the claimant 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 has submitted a statement of defense and counterclaim. Xiamen has subsequently rescinded its original claim and FGDI expects to receive a modified claim. FGDI intends
to vigorously defend this claim.

Management is currently unable to predict the outcome of these claims and, with the exception of the claim in which an
arbitration panel has rendered a decision, 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
not probable. As such, with the exception of the amount recorded as a result of the arbitration panels decision, no amounts have been accrued in the financial statements. Management intends to vigorously defend these claims and will continue
to monitor the results of arbitration and assess the need for future accruals.

From time to time and in the ordinary course of its business, we are a
plaintiff or are a defendant in other legal proceedings related to various issues, including workers compensation claims, tort claims and contractual disputes. With the exception of the matters discussed above, we are not aware of other
potential claims that could result in the commencement of material legal proceedings. We carry insurance that provides protection against certain types of claims, up to the policy limits of our insurance. In the opinion of management, liabilities,
if any, arising from existing litigation and claims will not have a material effect on the Companys earnings, financial position or liquidity.

8.
RESTRUCTURING AND EMPLOYEE STOCK OWNERSHIP PLAN

On March 1, 2005, the voting stockholder/members of the Company approved the restructuring of the
Company by terminating the Companys cooperative status and ending the patronage-based rights accruing to the Companys members. Pursuant to the restructuring, stockholders and subscribers received on April 15, 2005, 500 shares of new
common stock for each fully-paid share of Class A common stock, $5,000 par value, 10,000 shares of new common stock for each fully-paid share of Class B common stock, $100,000 par value, one share of new common stock for each $10.00 of paid
subscription and one share of new common stock for each $10.00 par value of preferred stock held. Membership interests in the Company represented by patronage-based rights as of August 31, 2004, were converted on April 15, 2005 into
(i) shares of new common stock based on an appraised value and relative patronage; and (ii) subscription rights exercisable at a purchase price of $10.00 per share within 60 days after the distribution of new common stock and subscription
rights. The Company distributed 4,310,237 shares of new common stock on April 15, 2005 pursuant to the restructuring. The Company commenced the subscription rights offering on April 15, 2005 and the offering continued until June 29,
2005 with 174,372 shares sold and $1,743,720 of equity raised.

In June 2005, the Company formed an employee stock ownership plan (ESOP) and filed a Form
S-8 Registration Statement 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.
Eligible participants were able to elect to make a one-time irrevocable transfer of a portion of their 401(k) Plan to the ESOP. The amount of the transfer was limited to no more than one-third (1/3) of the eligible participants 401(k)
Plan account balance. The ESOP intends to operate on a plan year which



9



---

##### Table of Contents

corresponds to the calendar year. For plan years beginning after December 31, 2005, the Company will make 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 will be credited to such
participants accounts annually on the basis of the number of shares of Company Stock allocated to each such participants account. The initial ESOP stock sale was consummated as of August 26, 2005, with the ESOP purchasing from the
Company 448,692 shares of common stock at a purchase price of $10.00 per share, for an aggregate of $4,486,920. An additional 1,400 shares were purchased in the quarter ending February 28, 2006. 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. To the extent that shares of common stock held
by the ESOP are not readily tradeable, a sponsor must reflect the maximum cash obligation related to those securities outside of stockholders equity as a liability. On March 14, 2006, the Company and the ESOP received from Stern Brothers
Valuation Advisors the valuation of the Companys Common Stock as of December 31, 2005, which valued the Common Stock at $13.04 per share for ESOP purposes. The Company and the ESOP obtain an annual valuation in connection with the
administration of the ESOP. The annual valuation will have the effect of increasing or decreasing the maximum cash obligation related to ESOP shares. This change in the value of ESOP shares is adjusted through stockholders equity, and
therefore has no impact on net income in the Consolidated Statement of Operations.

As of February 28, 2006, the shares held by the ESOP, fair value and
maximum cash obligation were as follows:



|                        |  |   |          
|----------------------- |  | - | ---------
|Shares held by the ESOP |  |   | 450,092  
|Fair value per share    |  | $ | 13.04    
|Maximum cash obligation |  | $ | 5,869,200

9. SUBSEQUENT EVENTS

On March 9, 2006, the Company sent a redemption notice to Sowood Commodity Partners Fund LP (Sowood), informing them of our intention to redeem their minority ownership interest in FCStone Merchant Services, LLC, in accordance with the
Limited Liability Company Agreement. On April 7, 2006, the Company received acknowledgment from Sowood regarding the acceptance of the redemption. The effective time of the redemption is the close of business on March 31, 2006, with the
payment of the redemption price to be made on April 28, 2006. The Company estimates the redemption price, which will equal Sowoods book value at March 31, 2006, to be approximately $900,000.

On March 28, 2006, FGDI entered into a Revolving Credit, Term Loan and Security Agreement (the Credit Agreement) with CoBank, ACB (as lender and agent)
(CoBank). The Credit Agreement amends and restates the Master Loan Agreement, dated March 25, 2005, between FGDI and CoBank, and the related Revolving Credit Supplement and Revolving Term Loan Supplement in their entirety. The
Credit Agreement provides a revolving credit line and term loan advances in the aggregate not to exceed $68.0 million. The revolving credit line terminates on March 28, 2007 and the term loan advance line terminates on March 28, 2008.
Amounts due under the Credit Agreement are secured by all of FGDIs present and future assets, including inventories, accounts receivable, equipment, real property, fixtures, farm products and intangible assets. The Credit Agreement requires
FGDI to comply with certain financial covenants, including compliance with minimum net worth, working capital, financial ratios, and base borrowing limits. Advances under the Credit Agreement will be used to finance FGDIs working capital
requirements in the ordinary course of business.

On April 19, 2006, the Company was informed that a grain merchandising customer located in Montgomery,
Alabama, with whom we have outstanding current receivables of approximately $900,000, filed Chapter 11 bankruptcy on April 18, 2006. The Company is currently reviewing our legal alternatives and position in the bankruptcy proceedings, and
consequently, a reasonable estimate of the potential loss cannot be made at this time. No provision has been recorded at this time and the Company will continue to assess this as additional information becomes available.

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

Overview

We are a commodities risk management and trading company headquartered in West Des Moines, Iowa. Risk management is designed to identify and then limit
and control the potential factors that could negatively impact the success of a business. Our chief function is to research, recognize and quantify the potential commodity risks involved in our customers operations, then plan and execute
programs that effectively mitigate those risks by capping operational expenses and maximizing margin opportunities. While the Companys initial business was centered on the risks of grain marketing of domestic elevators, todays programs
are designed to serve a much broader commodity spectrum including grain and livestock, dairy, the entire energy complex, ingredient users, food processors, and other commodity end-users. The Company utilizes all of the tools of the commodities
marketplace, including exchange-traded futures and options, cash and physical commodity trades, and over-the-counter (OTC) derivatives to provide risk management services to our customers for their businesses. We also offer direct
execution clearing services to commodities firms, traders, fund operators and others. Our grain merchandising operations facilitate the movement of grain from an originator to fill the demand of an end-user. This approach offers opportunities to add
value for our customers by merchandising their inventories as far into the marketing pipeline as possible. We also offer financing and facilitation for customers to carry energy, grain and other commodities through sale/repurchase agreements,
transactional commodity finance arrangements and processing and tolling arrangements.



10



---

##### Table of Contents

Our revenues are derived from: (1) commissions for futures and option trades, (2) service and consulting fees,
(3) brokerage mark-ups on over-the-counter and commodities trades, (4) fees for clearing customers direct trades, (5) the sale of grain, fuel and other commodities, (6) interest income on margin funds deposited with the
various commodity exchanges, and (7) interest and other income from commodity finance transactions. As a service company, our expenses primarily consist of employee compensation and broker commissions and their related fringe benefits and
payroll taxes. As commission expenses are directly related to revenues, they are for the most part a variable expense, as are the pit brokerage and clearing fees expense as they are directly related to the number of futures exchange trades. Other
significant operating expenses consist of communications, marketing information, travel, office and equipment rent and marketing and promotion.

Recent
Developments, Market Trends and Capital

Prior to our conversion from a cooperative, we realized a significant increase in our nonmember
business revenues, especially over the five years prior to the conversion. This increase is a result of the Company expanding our risk management services into other commodities in addition to our traditional grain marketing base. We expect this
trend to continue, as we offer more risk management programs and services to other industries and companies to help them manage their commodity risks. We have also seen a consolidation in the commodity exchange clearing business, which has allowed
us to capture additional customers and business.

Customer deposits and accounts receivable related to our Commodity and Risk Management Services and
Clearing and Execution Services segments have grown from $127 million at the beginning of FY 2001 to $433 million at February 28, 2006. As these segments continue to grow, we anticipate needing additional regulatory capital to meet Commodity
Futures Trading Commission (CFTC) requirements. Because of the need to finance our continued growth, in FY2005 we restructured our company to no longer operate on a cooperative basis (as described in the Registration on Form S-4 filed with the
Commission on August 18, 2004, as amended). We exchanged new common stock for the then outstanding common and preferred stock and patronage-based rights of our members. The Company then commenced a subscription rights offering on April 15,
2005, and the offering continued until June 29, 2005, with approximately 174,000 shares sold and $1.7 million of equity raised. In June 2005, the Company formed an employee stock ownership plan (ESOP) in order to provide employee incentives and
an additional capital infusion to the Company. The initial ESOP stock sale was consummated in August 2005, raising approximately $4.5 million in new capital. As a result of the exercise of member subscription rights and the initial ESOP
investment, the Company raised approximately $6.2 million of new capital. On March 14, 2006, the Company and the ESOP received from Stern Brothers Valuation Advisors the valuation of the Companys Common Stock as of December 31, 2005,
which valued the Common Stock at $13.04 per share.

Although the expansion of our services to other industries and to foreign markets does require
additional personnel and related expenses, it does not generally require any significant capital expenditures. Our primary capital concern is meeting CFTC regulatory requirements arising from our anticipated increased business. We expect our new
business structure to alleviate most of these concerns. In addition, with the ESOP in place, we also expect to raise an additional $1 million annually in equity capital from ESOP common stock purchases. This amount, plus our ability to better
control annual dividends based upon net earnings, should provide the Company with significant annual additions to capital resources. With our new structure in place, we have the flexibility to raise capital in a more timely manner through a stock or
debt offering to our current stockholders or others approved by our board of directors. Although we have no current plans for such an offering, management believes that the availability of such capital raising mechanisms will allow the Company to be
more flexible and competitive in the future. With such flexibility and with the additional capital from sources noted above and the expected capital resources generated annually through the ESOP and operations, we anticipate meeting our expected
capital needs for the next several years.

Sowood Commodity Partners Fund LP (Sowood) owns a minority interest in FCStone Merchants Services, LLC
(Merchants). On March 9, 2006, the Company sent a redemption notice to Sowood Commodity Partners Fund LP (Sowood), informing them of our intention to redeem their minority ownership interest in Merchants, in accordance with the Limited
Liability Company Agreement. On April 7, 2006, the Company received acknowledgment from Sowood regarding the acceptance of the redemption. The effective time of the redemption is the close of business on March 31, 2006, with the payment of
the redemption price to be made on April 28, 2006. The Company estimates the redemption price to be approximately $900,000.



11



---

##### Table of Contents

Results of Operations

Three Months Ended February 28, 2006 Compared to Three Months Ended February 28, 2005

Revenues

Revenues totaled $268.6 million for the three month period ended February 28, 2006 compared to $346.1 million for the three-month period ended February 28,
2005, a decrease of $77.5 million or 22.4%. This decrease was primarily a result of a 6.2 million or 9.6% decrease in grain bushels handled, which accounted for a revenue decrease of $85.9 million. Although the $85.9 million decrease in grain
sales was a significant amount when compared to total revenues, the cost of grain sold also decreased $85.2 million. The decreased grain sales and cost of sales results from the decline in bushels handled, and had little effect on net income, as the
gross profit from grain merchandising remained relatively consistent. As indicated in prior periods, the Company no longer serves as a principal in the direct purchase and sale of physical fuel and has moved towards offering traditional brokerage
services. As a result, related physical fuel sales were down $1.4 million as the Company sold 2.0 million fewer gallons than in the prior comparative period. Additionally, transactional commodity revenues in our Financial Services segment were
down $2.4 million, as result of the decrease in the number of transactions financed. Commissions were up $3.4 million due to higher trade volume, and clearing and transaction fees were up $2.8 million on higher trade volume in the clearing and
execution services segment. Service, consulting and brokerage fees were $3.4 million higher primarily due to increased volume from energy, ethanol, and grain risk management brokerage and fees from both new and existing customers. Interest income
was up $3.3 million due to higher short term interest rates, additional customer margin deposits, and increased activity in the grain inventory financing program.

Costs and Expenses

Cost of Commodities Sold. Cost of commodities sold totaled $226.3 million for the three month
period ended February 28, 2006 compared to $315.5 million for the three month period ended February 28, 2005, a decrease of $89.2 million or 28.3%. This decrease was primarily a result of lower grain and fuel volumes sold as noted above,
with minimal effect on operating income.

Employee Compensation and Broker Commissions. Employee compensation and broker commissions were
$10.0 million for the three month period ended February 28, 2006 compared to $8.2 million for the three month period ended February 28, 2005, an increase of $1.8 million or 22.0%. This increase was primarily a result of volume related
increased broker commissions due to the higher revenues at both the Companys commodity and risk management services and clearing and execution services segments and higher incentive compensation due to higher net income.

Pit Brokerage and Clearing Fees. The increase of pit brokerage and clearing fees from $7.7 million for the three month period ended February 28, 2005
to $10.9 million for the three month period ending February 28, 2006 is entirely related to increased commissions and clearing and transaction fee revenues.

Introducing Broker Commissions. Introducing Broker (IB) commissions expenses are directly related to the commission income generated by the introducing broker customers of the Company. Such expenses increased from $3.0
million for the three month period ended February 28, 2005 to $4.8 million for the three month period ended February 28, 2006 due primarily to increased commissions from IB customers in the clearing and execution services segment.

Interest. Interest expense increased to $1.6 million for the three month period ended February 28, 2006 from $0.8 million for the three
month period ending February 28, 2005 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.

Other Operating Expenses. Other operating expenses were $8.5 million for the three month period ended February 28, 2006 compared to $7.7 million for
the three month period ended February 28, 2005, an increase of $0.8 million. This increase was primarily a result of an increase in the Companys employee benefits and payroll taxes of $0.4 million, office, equipment, and facilities rent
and expenses of $0.3 million, travel expense of $0.1 million, and insurance costs of $0.2 million. Offsetting these increases was a $0.2 million decrease in bad debt expense.



12



---

##### Table of Contents

Income Tax Expense. Our provision for income taxes for the three-month period ended February 28, 2006
increased over 2005, due to higher income before income tax expense in the three month period ended February 28, 2006. The effective tax rate was 39.4% in 2006 and 37.8% in 2005.

Operations by Segment

Three Months Ended February 28, 2006 Compared to Three Months Ended
February 28, 2005.

Our reportable operating segments consist of Commodity and Risk Management Services, Clearing and Execution Services, Grain
Merchandising, Financial Services and Corporate and Other. We include the earnings of equity affiliates that are closely associated with our operating segments in the respective segments net income. Segment amounts exclude revenues, expenses
and equity earnings not specifically identifiable to segments. These amounts are included in the Corporate and Other segment.

We prepared the financial
results for our operating segments on a basis that is consistent with the manner in which we internally disaggregate 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 U.S. generally accepted accounting principles (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.

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.

The following table and discussion provides a summary of each segments revenues, costs and expenses, and income before taxes; and compares the operating results
for the three months ended February 28, 2006 and 2005 (in thousands):



|                                                        |  |                                   |        |                            |   |                    |  |                   |         |  |                  |        |   |                    |   |        |       |  |   |      |   |  |   |        
|------------------------------------------------------- |  | --------------------------------- | ------ | -------------------------- | - | ------------------ |  | ----------------- | ------- |  | ---------------- | ------ | - | ------------------ | - | ------ | ----- |  | - | ---- | - |  | - | -------
|                                                        |  | Commodity& RiskManagementServices |        | Clearing&ExecutionServices |   | GrainMerchandising |  | FinancialServices |         |  | Corporate& Other |        |   | ReconcilingAmounts |   |        | Total
|Three Months Ended:                                     |  |                                   |        |                            |   |                    |  |                   |         |  |                  |        |   |                    |   |        |       |  |   |      |   |  |   |        
|February 28, 2006                                       |  |                                   |        |                            |   |                    |  |                   |         |  |                  |        |   |                    |   |        |       |  |   |      |   |  |   |        
|Revenues                                                |  | $                                 | 19,629 |                            | $ | 18,630             |  | $                 | 223,352 |  | $                | 7,852  |   |                    | $ | (12    | )     |  | $ | (853 | ) |  | $ | 268,598
|Costs and Expenses                                      |  |                                   | 14,376 |                            |   | 15,808             |  |                   | 223,068 |  |                  | 7,849  |   |                    |   | 1,794  |       |  |   | (853 | ) |  |   | 262,042
|Income (loss) before minority interest and income taxes |  |                                   | 5,253  |                            |   | 2,822              |  |                   | 284     |  |                  | 3      |   |                    |   | (1,806 | )     |  |   |     |   |  |   | 6,556  
|Minority interest                                       |  |                                   |       |                            |   |                   |  |                   | 85      |  |                  | (25    | ) |                    |   |       |       |  |   |     |   |  |   | 60     
|Income (loss) before income taxes                       |  |                                   | 5,253  |                            |   | 2,822              |  |                   | 199     |  |                  | 28     |   |                    |   | (1,806 | )     |  |   |     |   |  |   | 6,496  
|Grain bushels sold                                      |  |                                   |        |                            |   |                    |  |                   | 58,042  |  |                  |        |   |                    |   |        |       |  |   |      |   |  |   |        
|Gross profits on grain sales                            |  |                                   |        |                            |   |                    |  |                   | 4,230   |  |                  |        |   |                    |   |        |       |  |   |      |   |  |   |        
|                                                        |  |                                   |        |                            |   |                    | 
|February 28, 2005                                       |  |                                   |        |                            |   |                    |  |                   |         |  |                  |        |   |                    |   |        |       |  |   |      |   |  |   |        
|Revenues                                                |  | $                                 | 15,500 |                            | $ | 11,892             |  | $                 | 309,026 |  | $                | 10,096 |   |                    | $ | 23     |       |  | $ | (447 | ) |  | $ | 346,090
|Costs and expenses                                      |  |                                   | 13,444 |                            |   | 11,023             |  |                   | 308,219 |  |                  | 9,466  |   |                    |   | 1,163  |       |  |   | (447 | ) |  |   | 342,868
|Income (loss) before minority interest and income taxes |  |                                   | 2,056  |                            |   | 869                |  |                   | 807     |  |                  | 630    |   |                    |   | (1,140 | )     |  |   |     |   |  |   | 3,222  
|Minority interest                                       |  |                                   |       |                            |   |                   |  |                   | 242     |  |                  | 174    |   |                    |   |       |       |  |   |     |   |  |   | 416    
|Income (loss) before income taxes                       |  |                                   | 2,056  |                            |   | 869                |  |                   | 565     |  |                  | 456    |   |                    |   | (1,140 | )     |  |   |     |   |  |   | 2,806  
|Grain bushels sold                                      |  |                                   |        |                            |   |                    |  |                   | 64,238  |  |                  |        |   |                    |   |        |       |  |   |      |   |  |   |        
|Gross profit on grain sales                             |  |                                   |        |                            |   |                    |  |                   | 4,894   |  |                  |        |   |                    |   |        |       |  |   |      |   |  |   |        



13



---

##### Table of Contents

Commodity and Risk Management Services. Our Commodity and Risk Management Services segment offers commodity
services to our customers, with an emphasis on risk management using futures, options and other derivative instruments.

Revenues totaled $19.6 million for
the three-month period ended February 28, 2006 compared to $15.5 million for the three month period ended February 28, 2005, an increase of $4.1 million or 26.5%. This increase was despite lower fuel sales of approximately $1.4 million as
the Company is moving more towards traditional brokerage services, rather than serving as a principal in fuel sales. Service, consulting and brokerage fees were up $3.6 million due to increased energy, ethanol, and grain related risk management
brokerage and additional customers on our fee based risk management program. Commissions were up $0.8 million as a result of increased volume from both new and existing customers primarily as a result of a larger fall 2005 grain crop and higher
grain prices. Interest income increased by $1.1 million due to higher short term interest rates and higher customer margin deposits over the prior year period.

Operating expenses of $14.4 million for the three month period ended February 28, 2006, increased compared to $13.4 million for the three month period ended February 28, 2005, an increase of $1.0 million. The reduced volume of
fuel sold of 2.0 million gallons caused a $1.4 million decrease. This was offset by increases in employee compensation and broker commissions and related benefits of $1.6 million due primarily to higher broker commissions on increased futures
commissions and service, consulting and brokerage fees. Introducing broker commissions also increased $0.3 million due to higher commission revenue.

Clearing and Execution Services. The Clearing and Execution Services segment offers low-cost clearing and direct execution services to commodities firms, fund operators, commodities traders and others.

Revenues totaled $18.6 million for the three month period ended February 28, 2006 compared to $11.9 million for the three month period ended February 28, 2005,
an increase of $6.7 million or 56.3%. This increase was primarily due to higher commissions of $2.3 million and higher transaction fees of $2.8 million due to volume increases as a result of volatility in the energy related commodities. Trade volume
increased from 8.1 million contracts in 2005 to 10.5 million contracts in 2006. Interest income also increased $1.6 million due to higher short term interest rates and much higher customer margin deposits for this segment.

Operating expenses were higher at $15.8 million for the three month period ended February 28, 2006 compared to $11.0 million for the three month period ended
February 28, 2005, an increase of $4.8 million. The increase was primarily a result of volume related additional pit brokerage and clearing fees of $3.2 million and introducing broker commissions of $1.3 million, and increased salaries, wages
and related benefits of $0.2 million.

Grain Merchandising. The Grain Merchandising segment acts as a dealer in, and manager of, physical
grain and fertilizer through a majority interest in FGDI, LLC. FGDI acts as a grain dealer in the United States and international markets, primarily in Canada, Latin America and the Far East and also manages a pool of grain originated by a group of
elevators in Texas.

Gross profit was $4.2 million and $4.9 million for the three-month periods ended February 28, 2006 and 2005, respectively. The
gross profit was lower, primarily due to the decrease in bushels merchandised from 64.2 million for the three month period ended February 28, 2005 to 58.0 million for the three-month period ended February 28, 2006.

Operating expenses were $4.5 million for the three month period ended February 28, 2006 and $4.4 million for the three month period ended February 28, 2005 an
increase of $0.1 million. The increase in operating expenses was a net result of an increase in the Companys office, equipment, and facilities rent and expenses of $0.2 million and interest expense of $0.5 million, offset by the decrease in
the Companys bad debt expense of $0.3 million, and legal and professional fees of $0.3 million.



14



---

##### Table of Contents

Financial Services. The Financial Services segment offers financing and facilitation for customers to carry
commodities through the use of sale/repurchase agreements whereby we purchase grain evidenced by warehouse receipts subject to a simultaneous agreement to resell such grain to the seller at a later date. Additionally, we offer clients specialized
financing through transactional commodity finance arrangements and processing and tolling arrangements. Historically, this segment was primarily entering into sale/repurchase agreements whereby it purchased grain evidenced by warehouse receipts. In
late 2004, this segment, through the recently formed subsidiary FCStone Merchant Services, LLC (Merchants), began engaging in similar transactions in energy, grain and other commodities, as well as transactions where it shares in commodity profits
with customers in exchange for financial support.

Revenues totaled $7.9 million for the three month period ended February 28, 2006 compared to $10.1
million for the three month period ended February 28, 2005, a decrease of $2.2 million. This decrease is primarily the result of a $2.4 million decrease in revenue from financing arrangements the Company offers through Merchants, initiating
transactional commodity financing arrangements in energy, grain and other commodities. Although this decrease in revenue from financing arrangements was significant amount when compared to total revenues, the cost of commodities sold also decreased
$2.4 million, resulting in a minimal effect on net income. Additionally, Merchants had a $0.7 million decrease in revenue from commodity profit sharing transactions during the three month period ended February 28, 2006. Offsetting this decrease
was a $0.7 million increase in interest revenue from increased activity in the grain inventory financing program, and a $0.1 million increase in rental income from subleased railcars.

Operating expenses totaled $1.5 million for the three month period ended February 28, 2006 compared to $0.8 million for the three month period ended February 28, 2005, an increase of $0.7 million. This
increase is primarily the result of a $0.7 million increase in interest expense from increased activity in the grain inventory financing program.

Corporate and Other. The Corporate and Other segment generated insignificant amounts of revenue, comprised of interest income for the three month period ended February 28, 2006 and 2005. Operating expenses increased $0.6
million for the three month period ended February 28, 2006 over the three months ended February 28, 2005 primarily due to higher employee incentive compensation and additional staff and related benefits.

Six Months Ended February 28, 2006 Compared to Six Months Ended February 28, 2005

Revenues

Revenues totaled $618.5 million for the six-month period ended February 28, 2006 compared to
$791.6 million for the six-month period ended February 28, 2005, a decrease of $173.1 million or 21.9%. This decrease was primarily a result of a 17.8 million or 12.5% decrease in grain bushels handled, which accounted for a revenue
decrease of $179.5 million. Although the $179.5 million decrease in grain sales was a significant amount when compared to total revenues, the cost of grain sold also decreased $178.7 million. The decreased grain sales and cost of sales results from
the decline in bushels handled, and had little effect on net income, as the gross profit from grain merchandising remained relatively consistent. As indicated in prior periods, the Company no longer serves as a principal in the direct purchase and
sale of physical fuel and has moved towards offering traditional brokerage services. As a result, related physical fuel sales were down $5.8 million as the Company sold 6.6 million fewer gallons than in the prior comparative period.
Additionally, transactional commodity revenues in our Financial Services segment were down $6.6 million, as result of the decrease in the number of transactions financed. Commissions were up $5.4 million due to higher trade volume, and clearing and
transaction fees were up $5.2 million on higher trade volume in the clearing and execution services segment. Service, consulting and brokerage fees were $7.4 million higher primarily due to increased volume from energy, ethanol, and grain risk
management and brokerage fees from both new and existing customers. Interest income was up $6.3 million due to higher short term interest rates, additional customer margin deposits, and increased activity in the grain inventory financing program.

Costs and Expenses

Cost of Commodities Sold. Cost of commodities sold totaled $536.9 million for the six month period ended



15



---

##### Table of Contents

February 28, 2006 compared to $732.9 million for the six month period ended February 28, 2005, a decrease of
$196.0 million or 26.7%. This decrease was primarily a result of lower grain and fuel volumes sold as noted above, and had minimal effect on net income.

Employee Compensation and Broker Commissions. Employee compensation and broker commissions were $19.6 million for the six month period ended February 28, 2006 compared to $16.0 million for the six month period ended
February 28, 2005, an increase of $3.6 million or 22.5%. This increase was primarily a result of volume related increased broker commissions due to the higher revenues at both the Companys commodity and risk management services and
clearing and execution services segments and higher incentive compensation due to higher net income.

Pit Brokerage and Clearing Fees. The
increase of pit brokerage and clearing fees from $15.5 million for the six month period ended February 28, 2005 to $21.0 million for the six month period ending February 28, 2006 is entirely related to increased commissions and clearing
and transaction fee revenues.

Introducing Broker Commissions. Introducing Broker (IB) commissions expenses are directly related to the
commission income generated by the introducing broker customers of the Company. Such expenses increased from $6.2 million for the six month period ended February 28, 2005 to $9.2 million for the six month period ended February 28, 2006 due
primarily to increased commissions from IB customers in the clearing and execution services segment.

Interest. Interest expense increased to
$2.7 million for the six month period ended February 28, 2006 from $1.4 million for the six month period ending February 28, 2005 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.

Other Operating Expenses. Other operating expenses were
$17.1 million for the six month period ended February 28, 2006 compared to $14.9 million for the six month period ended February 28, 2005, an increase of $2.2 million. This increase was primarily a result of an increase in the
Companys employee benefits and payroll taxes of $0.8 million, office, equipment and facilities rent and expenses of $0.4 million, travel and related expenses of $0.4 million, advertising and promotion costs of $0.5 million, insurance costs of
$0.2 million, railcar lease costs of $0.2 million, and professional fees of $0.1 million. Offsetting these increases was a $0.6 million decrease in bad debt expense.

Income Tax Expense. Our provision for income taxes for the six-month period ended February 28, 2006 increased over 2005, due to higher income before income tax expense in the six month period ended
February 28, 2006. The effective tax rate was 38.6% in 2006 and 38.1% in 2005.



16



---

##### Table of Contents

Operations by Segment

Six Months Ended February 28, 2006 Compared to Six Months Ended February 28, 2005.

The following table and discussion
provides a summary of each segments revenues, costs and expenses, and income before taxes; and compares the operating results for the six month period ending February 28, 2006 with the six month period ended February 28, 2005 (in
thousands) :



|                                                        |  |                                   |        |                             |   |                    |  |                   |         |  |                  |        |   |                    |   |        |       |  |   |        |   |  |   |        
|------------------------------------------------------- |  | --------------------------------- | ------ | --------------------------- | - | ------------------ |  | ----------------- | ------- |  | ---------------- | ------ | - | ------------------ | - | ------ | ----- |  | - | ------ | - |  | - | -------
|                                                        |  | Commodity &RiskManagementServices |        | Clearing &ExecutionServices |   | GrainMerchandising |  | FinancialServices |         |  | Corporate& Other |        |   | ReconcilingAmounts |   |        | Total
|Six Months Ended:                                       |  |                                   |        |                             |   |                    |  |                   |         |  |                  |        |   |                    |   |        |       |  |   |        |   |  |   |        
|February 28, 2006                                       |  |                                   |        |                             |   |                    |  |                   |         |  |                  |        |   |                    |   |        |       |  |   |        |   |  |   |        
|Revenues                                                |  | $                                 | 39,378 |                             | $ | 35,880             |  | $                 | 532,312 |  | $                | 12,403 |   |                    | $ | 25     |       |  | $ | (1,479 | ) |  | $ | 618,519
|Costs and Expenses                                      |  |                                   | 29,703 |                             |   | 30,678             |  |                   | 532,030 |  |                  | 12,504 |   |                    |   | 3,156  |       |  |   | (1,479 | ) |  |   | 606,592
|Income (loss) before minority interest and income taxes |  |                                   | 9,675  |                             |   | 5,202              |  |                   | 282     |  |                  | (101   | ) |                    |   | (3,131 | )     |  |   |       |   |  |   | 11,927 
|Minority interest                                       |  |                                   |       |                             |   |                   |  |                   | 85      |  |                  | (77    | ) |                    |   |       |       |  |   |       |   |  |   | 8      
|Income (loss) before income taxes                       |  |                                   | 9,675  |                             |   | 5,202              |  |                   | 197     |  |                  | (24    | ) |                    |   | (3,131 | )     |  |   |       |   |  |   | 11,919 
|Grain bushels sold                                      |  |                                   |        |                             |   |                    |  |                   | 124,697 |  |                  |        |   |                    |   |        |       |  |   |        |   |  |   |        
|Gross profits on grain sales                            |  |                                   |        |                             |   |                    |  |                   | 8,496   |  |                  |        |   |                    |   |        |       |  |   |        |   |  |   |        
|                                                        |  |                                   |        |                             |   |                    | 
|February 28, 2005                                       |  |                                   |        |                             |   |                    |  |                   |         |  |                  |        |   |                    |   |        |       |  |   |        |   |  |   |        
|Revenues                                                |  | $                                 | 38,497 |                             | $ | 23,755             |  | $                 | 711,877 |  | $                | 18,188 |   |                    | $ | 42     |       |  | $ | (780   | ) |  | $ | 791,579
|Costs and expenses                                      |  |                                   | 34,881 |                             |   | 22,030             |  |                   | 710,820 |  |                  | 17,624 |   |                    |   | 2,210  |       |  |   | (780   | ) |  |   | 786,785
|Income (loss) before minority interest and income taxes |  |                                   | 3,616  |                             |   | 1,725              |  |                   | 1,057   |  |                  | 564    |   |                    |   | (2,168 | )     |  |   |        |   |  |   | 4,794  
|Minority interest                                       |  |                                   |       |                             |   |                   |  |                   | 317     |  |                  | 151    |   |                    |   |       |       |  |   |       |   |  |   | 468    
|Income (loss) before income taxes                       |  |                                   | 3,616  |                             |   | 1,725              |  |                   | 740     |  |                  | 413    |   |                    |   | (2,168 | )     |  |   |       |   |  |   | 4,326  
|Grain bushels sold                                      |  |                                   |        |                             |   |                    |  |                   | 142,505 |  |                  |        |   |                    |   |        |       |  |   |        |   |  |   |        
|Gross profit on grain sales                             |  |                                   |        |                             |   |                    |  |                   | 9,275   |  |                  |        |   |                    |   |        |       |  |   |        |   |  |   |        

Commodity and Risk Management Services. Revenues increased $0.9 million between the comparative
periods, despite the companys much lower fuel sales of $4.7 million, as the company is moving more towards brokering fuel rather than acting as a principal. Although fuel sales declined $10.4 million from 2005, the margin on such fuel sales
increased $0.2 million. Service, consulting and brokerage fees were up $7.5 million due to increased energy, ethanol, and grain risk management brokerage and additional customers on our fee based risk management program. Commission revenues
increased $1.3 million as higher grain commodity prices and a larger fall 2005 crop year resulted in increased volume in 2006. As a result of higher short-term interest rates and customer margin deposits, interest income increased $2.4 million in
2006.

Costs and expenses decreased $5.2 million between the comparative periods. As noted above, much lower fuel volume accounted for $10.6 million of
such decreased costs and expenses, offset by a $3.9 million increase in employee compensation and broker commissions, due primarily to the volume related increased commission revenues and service, consulting, and brokerage fee revenues.

Clearing and Execution Services. Revenues increased $12.1 million between comparative periods. Commission revenues were up $3.8 million and transaction
fees were $5.2 million higher on increased volume due primarily to energy commodities price volatility. Trade volume increased from 16.0 million contracts in 2005 to 21.1 million contracts in 2006. Interest income increased by $3.1 million
as a result of higher short-term interest rates and customer margin deposits.

Costs and expenses increased $8.6 million between comparative periods. This
increase was primarily due to volume-related clearing fees of $5.6 million, pit brokerage of $0.2 million, introducing broker commissions of $2.1 million, and related increased employee compensation of $0.3 million.

Grain Merchandising. Grain sales decreased $179.5 million, primarily as a result of a 12.5% decrease in the volume of grain bushels sold during the first
six months of fiscal 2006. Additionally, the lower volumes resulted in a decrease in gross profit on the sales of $0.8 million. Directly related to the decrease in the volume of bushels sold, the cost of grain sales decreased $178.7 million



17



---

##### Table of Contents

Operating expenses were $8.9 million for the six month period ended February 28, 2006 compared to $9.0 million for
the six month period ended February 28, 2005, a decrease of $0.1 million. This decrease was primarily due to a decrease in bad debt expense of $1.0 million, offset by a $0.9 million increase in interest costs.

Please see additional disclosure under the heading Liquidity and Capital Resources.

Financial Services. Revenues totaled $12.4 million for the six month period ended February 28, 2006 compared to $18.2 million for the six month period
ended February 28, 2005, a decrease of $5.8 million. The decrease is primarily the result of a $6.6 million decrease in revenue from purchase and sales financing arrangements, the Company offers through FCStone Merchant Services, LLC, in energy
and other commodities. Although this decrease in revenue from financing arrangements was a significant amount when compared to total revenues, the cost of commodities sold also decreased $6.5 million, resulting in a minimal effect on net income.
Additionally, there was a $0.7 million decrease in revenues earned as a profit-share in financing arrangements. These decreases in revenues were offset by increased interest income of $1.3 million, resulting from increased activity in the grain
inventory warehouse receipts program and higher short term interest rates.

Costs and expenses also decreased between the comparative periods by $5.1
million, primarily as a result of the decrease in the cost of commodities sold discussed above. Offsetting the decrease in the cost of commodities sold, is the increase in interest expense of $1.1 million, resulting from additional borrowings
related to the increased activity in the grain inventory warehouse receipts program and higher short term interest rates. Additionally, railcar lease costs have increased $0.2 million.

Corporate and Other. The Corporate and Other segment generated insignificant amounts of revenue, comprised of interest income for the six month periods ended February 28, 2006 and 2005. Operating
expenses were $3.2 million for the six month period ended February 28, 2006 and $2.2 million for the comparable six month period ended February 29, 2005, an increase of $1.0 million primarily a result of increased employee incentive plan
accruals due to the higher net income and additional staff.

Liquidity and Capital Resources

The following table presents a summary of cash flows for the six months ended February 28, 2006 compared to the six months ended February 28, 2005.



|                                                         |  |                              |         |   |      |   |         |  
|-------------------------------------------------------- |  | ---------------------------- | ------- | - | ---- | - | ------- | -
|                                                         |  | Six months endedFebruary 28, |        
|                                                         |  | 2006                         |         |   | 2005 |  
|                                                         |  | (dollars in thousands)       |        
|Cash Flows provided by (used in):                        |  |                              |         |   |      |   |         |  
|Operating Activities                                     |  | $                            | (7,270  | ) |      | $ | 502     |  
|Investing Activities                                     |  |                              | (15,039 | ) |      |   | (10,551 | )
|Financing Activities                                     |  |                              | 41,446  |   |      |   | 23,805  |  
|                                                         |  |                              |         |   |      |   |         |  
|Net Increase in cash and cash equivalents - unrestricted |  | $                            | 19,137  |   |      | $ | 13,756  |  
|                                                         |  |                              |         |   |      |   |         |  

Our principal sources of liquidity are from internally generated funds from operations and from borrowings under
various credit facilities. We expect that cash on hand, internally generated cash flow, and available credit from third-party financing agreements will provide sufficient funds for current operating and recurring cash needs (including working
capital, capital expenditures and debt repayments) into the foreseeable future. We have approximately $419 million available under current credit agreements. While there is no guarantee that we will be able to replace current credit agreements when
they expire, we expect to be able to do so.



18



---

##### Table of Contents

Cash and cash equivalents increased $19.1 million in the six months ended February 28, 2006 and $13.8 million in the
six months ended February 28, 2005.

Cash Flows from Operations

In the commodities industry, companies trading activities are reported in the operating section of the statement of cash flows. Due to the potential volatility in the commodities market, wide fluctuations in the
balance of customer segregated funds may exist 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.

The Company used in its operations, cash of $7.3 million for the six-month period ended February 28, 2006, as compared to generating cash of $0.5 million from
operations for the six-month period ended February 28, 2005, primarily due to changes in the following:



| |  | Commodity accounts receivable/payable and marketable securities for customer segregated funds and other decreased by $12.9 million during the six-month period ended
February 28, 2006, primarily due to slightly reduced customer margin deposits with the company as a result of lower margin requirements on grain commodities by the exchanges. In contrast, commodity accounts receivable/payable and marketable
securities for customer segregated funds and other increased by $4.3 million during the six-month period ended February 28, 2005.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Accounts receivable and advances on grain increased by $17.0 million during the six-month period ended February 28, 2006 primarily due to increases in receivables on our OTC
transactions and receivables in our grain merchandising segment. Accounts receivable and advances on grain increased by $12.8 million during the six-month period ended February 28, 2005, also primarily due to increases in receivables on our OTC
transactions and receivables in our grain merchandising segment.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Inventories of grain, fertilizer, and fuel increased by $24.0 million during the six-month period ended February 28, 2006. Inventories of grain, fertilizer, and fuel increased
by $19.9 million during the six-month period ended February 28, 2005. The variance is primarily due to the increase in grain bushels held in inventory. During the six-month period ended February 28, 2006, grain inventory bushels increased
by 3.6 million to 7.4 million bushels. During the six-month period ended February 28, 2005, grain inventory bushels increased by 3.5 million to 6.4 million bushels. Additionally, fertilizer inventory increased by $1.4
million to $2.1 million during the six-month period ended February 28, 2006, whereas fertilizer inventory was minimal in the prior comparative period. The Company held no fuel inventory at February 28, 2006, as it has moved towards
offering traditional brokerage services, rather than serving as a principal in fuel sales, compared to fuel inventory of $3.1 million at February 28, 2005.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Accounts payable increased by $16.3 million during the six-month period ended February 28, 2006, primarily due to increased customer deposits on OTC transactions, offset by a
decrease in payables related to grain merchandising, primarily due to the timing of inventory purchases and related freight costs. Accounts payable increased by $34.8 million during the six-month period ended February 28, 2005, primarily due to
increased customer deposits on OTC transactions, as well as, the timing of payments for commodity purchases and freight costs within our grain merchandising and financial services segments;
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Cash Flows from Investing Activities

The Company used in its
investing activities, cash of $15.0 million and $10.6 million for the six-month periods ended February 28, 2006 and 2005, respectively, primarily due to the issuance of notes receivable associated with the increased activity of the grain
inventory financing program within the financial services segment.

Cash Flows from Financing Activities

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



19



---

##### Table of Contents

financing services segments, offset by dividend payments and partial repayment of subordinated debt. The Company had cash
provided by financing activities of $23.8 million for the six-month period ended February 28, 2005 primarily due to drawing down on our lines of credit available within our grain merchandising and financing services segments, offset by
patronage payments.

The Company has substantial lines of credit available and annual cash flow from operations to support continued additional growth in
each segment of our operations. See, Financing Activities. In addition, the Company generated $4.5 million in additional capital as a result of the initial sale of stock to the ESOP, which was consummated in August 2005. The
Companys subscription offering, which was commenced on April 15, 2005 and continued until June 29, 2005, raised an additional $1.7 million. These transactions have provided substantial capital expected to be used primarily to meet
expected CFTC regulatory capital requirements as a result of our increased growth in the Commodity and Risk Management Services and the Clearing and Execution Services segments of our business. Such additional capital also enabled us to increase our
lines of credit above previous levels.

An expansion of the grain facility located in Mobile, Alabama was placed in partial service in October 2004. This
facility is reported under a capital lease with the Alabama State Docks. The expansion was constructed under a design/build type of contract and is financed by an offering of $5.5 million in industrial development revenue bonds. On October 15,
2004, after major construction was complete, but before acceptance of the project, the foundation of one of the four bins subsided during initial bin filling operations, causing significant damage to the affected bin, its foundation and other
structures. Negotiations for recovery and remediation with potentially responsible parties have been undertaken. In November 2005, a claim for certain resulting damage to the facility against FDGIs own insurer was settled for $570,500. The
Company expects to use these funds to cover expected costs in repairing equipment that was damaged. Such settlement does not cover the damage to the underlying foundation, the costs of remediating any foundation defects, or loss of use or other
consequential damages. Negotiation has failed to resolve the issues with other responsible parties, and a lawsuit to recover remediation costs, loss of use damages and other damages has been commenced in state court in Mobile, Alabama. FGDI intends
to vigorously pursue such litigation to seek a full recovery of all of its damages.

In view of the subsidence incident, FGDI delayed placing the directly
affected bin and two of the other new bins, which were of similar construction, into service. The fourth bin, which was constructed on a pre-existing foundation, has been in full service without known problem. Engineering investigations have been
undertaken into the cause of the problem and proposals for alternative forms of remediation have been obtained. After considering available information, FGDI has proceeded with additional testing which involves partial use of the three affected
binds. This testing is being conducted under controlled engineering conditions designed to limit the risk of another subsidence incident. Such testing has been successful to date yielding data that will be used to help confirm the causes of the
problem.



20



---

##### Table of Contents

Financing Activities. 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/ExpirationDate     |  | Use                                                                  |  | AmountAvailable |       |   | AmountOutstandingat February28, 2006
|Deere Credit, Inc.                                       |  | March 1, 2007              |  | Margin Calls                                                         |  | $               | 40.8  |   |                                      | $ |    
|Deere Credit, Inc.                                       |  | March 1, 2007              |  | Repurchase Agreements                                                |  |                 | 96.0  |   |                                      |   | 35.6
|Deere Credit, Inc.                                       |  | December 1, 2006           |  | Subordinated Debt forRegulatory Capital                              |  |                 | 7.0   |   |                                      |   | 2.0 
|Deere Credit, Inc.                                       |  | October 1, 2006            |  | General Corporate                                                    |  |                 | 6.2   |   |                                      |   | 5.2 
|                                                         |  |                            |  |                                                                      |  |                 |       |   |                                      |   |     
|Total Deere                                              |  |                            |  |                                                                      |  | $               | 150.0 |   |                                      | $ | 42.8
|CoBank, ACB                                              |  | March 28, 2007             |  | Grain Merchandising                                                  |  | $               | 68.0  | * |                                      | $ | 28.3
|CoBank, ACB                                              |  | March 28, 2008             |  | Grain Merchandising                                                  |  |                 | 8.0   | * |                                      |   |    
|CoBank, ACB                                              |  | June 30, 2006              |  | OTC & Fuel Operations                                                |  |                 | 15.0  |   |                                      |   |    
|CoBank, ACB                                              |  | May 1, 2006                |  | Repurchase Agreements                                                |  |                 | 75.0  |   |                                      |   | 4.0 
|                                                         |  |                            |  |                                                                      |  |                 |       |   |                                      |   |     
|Total CoBank                                             |  |                            |  |                                                                      |  | $               | 158.0 |   |                                      | $ | 32.3
|Harris Bank                                              |  | January 1, 2007            |  | Margin Calls                                                         |  | $               | 15.0  |   |                                      | $ |    
|AFG Trust Finance Limited                                |  | May 25, 2006               |  | Grain Merchandising                                                  |  | $               | 20.0  |   |                                      | $ | 5.5 
|Industrial Revenue Bonds (Capitalized Lease Obligations) |  | Annual paymentsto 2013     |  | Mobile, Alabamafacility additionalstorage                            |  | $               | 5.5   |   |                                      | $ | 3.9 
|Sowood Commodity Partners Fund, LP.                      |  | March 4, 2006              |  | Junior, securedrevolving creditfacilityFinancialServices operations |  | $               | 30.0  |   |                                      | $ |    
|Fortis Capital Corp.                                     |  | Demand                     |  | Financial Servicesoperations                                         |  | $               | 20.0  |   |                                      | $ | 6.9 
|RZB Finance, LLC                                         |  | Demand                     |  | Financial Servicesoperations                                         |  | $               | 8.0   |   |                                      | $ | 2.6 
|UFJ Bank Limited                                         |  | Demand                     |  | Financial Servicesoperations                                         |  | $               | 10.0  |   |                                      | $ |    
|Subordinated Debt                                        |  | June 30, 2006              |  | Regulatory Capital                                                   |  | $               | 1.8   |   |                                      | $ | 1.5 
|Long-term Note                                           |  | Monthlypayments for 8years |  | NYMEX seat                                                           |  | $               | 0.5   |   |                                      | $ | 0.3 

---

|* | Grain merchandisings CoBank revolving credit line and term loan advances in the aggregate cannot exceed $68.0 million.
|- | -----------------------------------------------------------------------------------------------------------------------

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 at February 28, 2006 and expects to remain in compliance in the future.

We carry significant open
futures positions on behalf of our customers in the Commodity and Risk Management Services and the Clearing and Execution Services segments of our business. The above lines of credit in place of margin calls are rarely used, but necessary to cover
any abnormal commodity market fluctuations and the margins calls they may produce. With the Company 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.



21



---

##### Table of Contents

Our Grain Merchandising segment has a $68.0 million line of credit with CoBank and a $20.0 million line of credit with
AFG Trust Finance available to finance its operations. The segment can also utilize part of the Deere Credit repurchase agreement line to carry inventories when considered appropriate. As this segment of our business carries significant accounts
receivable and inventory, the CoBank line is utilized to a great extent.

Our Financial Services segment has a $96.0 million line of credit with Deere
Credit, Inc. as of March 1, 2006, an increase of $50.0 million subsequent to February 28, 2006, and a $75.0 million line of credit with CoBank, ACB available to finance its grain inventory repurchasing program. This programs demand
tends to fluctuate, therefore, these lines of credit are utilized to a great extent.

Seasonality and Fluctuations in Operating Results

We generally experience seasonality in our operations with the first quarter typically being our strongest period as a result of the U.S. grain harvest, however with
lower commodities prices this fall our volume was not as strong as in prior years. Also, with global political factors and their effect on the commodities markets, we are seeing more frequent trading volume spikes throughout the year.

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.

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, 2006:



|                   |  |                        |   |  |          |   |  |         |   |  |               |  
|------------------ |  | ---------------------- | - |  | -------- | - |  | ------- | - |  | ------------- | -
|                   |  | Bushels (in thousands) |  
|                   |  | Corn                   |   |  | Soybeans |   |  | Wheat   |   |  | Oats & Barley |  
|Inventory          |  | 1,848                  |   |  | 1,939    |   |  | 3,543   |   |  | 59            |  
|Purchase Contracts |  | 32,238                 |   |  | 9,458    |   |  | 10,256  |   |  | 883           |  
|Sale Contracts     |  | (11,427                | ) |  | (7,501   | ) |  | (2,874  | ) |  | (692          | )
|Futures Long       |  | 487                    |   |  |         |   |  |        |   |  |              |  
|Futures Short      |  | (23,287                | ) |  | (4,019   | ) |  | (10,550 | ) |  | (65           | )
|                   |  |                        |   |  |          |   |  |         |   |  |               |  
|Net Open Position  |  | (141                   | ) |  | (123     | ) |  | 375     |   |  | 185           |  
|                   |  |                        |   |  |          |   |  |         |   |  |               |  

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.



22



---

##### Table of Contents

A hypothetical 10% increase (or decrease) in the market price of corn from the February 28, 2006 level of $2.40 per
bushel would result in a gain (or loss) to future earnings of $(34,000).

A hypothetical 10% increase (or decrease) in the market price of soybeans from
the February 28, 2006 level of $5.99 per bushel would result in a gain (or loss) to future earnings of $(74,000).

A hypothetical 10% increase (or
decrease) in the market price of wheat from the February 28, 2006 level of $4.53 per bushel would result in a gain (or loss) to future earnings of $170,000.

A hypothetical 10% increase (or decrease) in the market price of oats and barley from the February 28, 2006 level of $1.91 per bushel would result in a gain (or loss) to future earnings of $35,000.

Interest Rate Risk

The Company manages 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, 2006 has a variable interest rate, and except for
the industrial revenue development bonds associated with the Mobile facility, practically 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 so that the blended interest rate to the Company 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 $43.7 million. A hypothetical 100 basis point
increase (or decrease) in interest rates would result in a (loss) or gain to future earnings of $437,000, assuming a similar debt level throughout FY2006.

The risk on variable rate long-term debt associated with the capital lease obligation in the amount of $3.9 million is not material to the financial statements. We believe the risk associated with these borrowings will not have an adverse
effect on our financial position, results of operations or cash flows.

Foreign Currency Risk

The Company conducts most of its business in U.S. dollars but does have minor risk regarding foreign currency fluctuations. The Company hedges foreign currency risk using
futures contracts on U.S. exchanges to the extent practicable on those transactions involving foreign currency. 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.

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. As of the end of the period covered by this Quarterly Report on Form 10-Q, there were no changes in the Companys internal control over financial reporting that occurred during the three months
ended February 28, 2006 that have materially affected or are reasonable likely to materially affect the Companys internal control over financial reporting.



23



---

##### Table of Contents

Limitations on the effectiveness of controls. The Companys management, including the CEO and CFO, does not
expect that the Companys disclosure controls and procedures will prevent all errors and fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control
system are met.

Institution of internal controls in compliance with Section 404 of Sarbanes-Oxley. As a result of the restructuring described
above, the Company will be subject to Section 404 of the Sarbanes-Oxley Act of 2002 and regulations promulgated thereunder. We are currently in the process of instituting an internal controls program that will meet the requirements of
Section 404 and the applicable regulations. Our CEO and CFO currently believe that the internal controls program will be implemented by the SECs extended compliance deadline, which will require the Company to meet the requirements of
Section 404 by the end of its 2007 fiscal year. We believe, however, that any deficiencies uncovered by our 404 compliance process will not affect the accuracy of our financial statements included in this report.

Part II. Other Information

Item 1. Legal Proceedings

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, LLC 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 of approximately $175,000. Additionally, the award bears interest and arbitration costs of approximately $100,000. A partial award of attorneys fees and costs was also rendered in the decision, although this amount is yet to be
quantified. FGDI has accrued $250,000 related to this claim, during the current six-month period ending February 28, 2006. On January 3, 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 cross appeal as to the amount awarded to the claimant 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 has submitted a statement of defense and counterclaim. Xiamen has subsequently rescinded its original claim, and FGDI expects to receive a modified claim. FGDI intends
to vigorously defend this claim.

Management is currently unable to predict the outcome of these claims and, with the exception of the claim in which an
arbitration panel has rendered a decision, 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, with the exception of the amount recorded as a result of the arbitration panels decision, 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.



24



---

##### Table of Contents

From time to time and in the ordinary course of its business, we are a plaintiff or are a defendant in other legal
proceedings related to various issues, including workers compensation claims, tort claims and contractual disputes. With the exception of the matters discussed above, we are not aware of other potential claims that could result in the
commencement of material legal proceedings. We carry insurance that provides protection against certain types of claims, up to the policy limits of our insurance. In the opinion of management, liabilities, if any, arising from existing litigation
and claims will not have a material effect on the Companys earnings, financial position or liquidity.

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 5, 2006, Bruce Krehbiel, Tom Leiting and Doug Derscheid were re-elected as Class I directors and
Brent Bunte was re-elected as the Class II director, each to hold office until the Annual Meeting of Stockholders to be held after the Companys fiscal year 2008 and until their respective successors are duly elected and qualified. The terms of
the directorships held by Jack Friedman, Eric Parthemore, Dave Reinders, Rolland Svoboda, David Andresen and Kenneth Hahn 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 2006 was ratified by the stockholders. Votes cast on these issues were as follows:



|               |  |           |  |                  |  |        
|-------------- |  | --------- |  | ---------------- |  | -------
|               |  | For       |  | Against/Withheld |  | Abstain
|Bruce Krehbiel |  | 2,161,376 |  | 16,455           |  | 26,517 
|Tom Leiting    |  | 2,161,177 |  | 16,924           |  | 26,517 
|Doug Derscheid |  | 2,161,177 |  | 16,924           |  | 26,517 
|Brent Bunte    |  | 2,161,177 |  | 16,924           |  | 26,517 
|               |  | For       |  | Against/Withheld |  | Abstain
|KPMG LLP       |  | 2,078,527 |  | 5,045            |  | 120,776

Item 5. Other Information

None



|        |  |                                                                                                                                           
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------
|Item 6. |  | Exhibits                                                                                                                                  
|        | 
|10.1    |  | Revolving Credit, Term Loan and Security Agreement, dated March 28, 2006, by and between FGDI, L.L.C. and CoBank ACB, as lender and agent.
|        | 
|10.2    |  | Amended and Restated Revolving Statused Operating Note, dated February 23, 2006 between FCStone Financial, Inc. and Deere Credit, Inc.    
|        | 
|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.                   



25



---

##### Table of Contents

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 19, 2006 |  | By:                 |  | /s/ Paul G. Anderson   
|               |  |                     |  | Paul G. Anderson       
|               |  |                     |  | Chief Executive Officer
|               |  |                    
|April 19, 2006 |  | By:                 |  | /s/ Robert V. Johnson  
|               |  |                     |  | Robert V. Johnson      
|               |  |                     |  | Chief Financial Officer



26