##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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

For the quarterly period ended May 31, 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



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FCStone
Group, Inc.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|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)



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

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

Large accelerated filer ̈Accelerated Filer ̈Non-accelerated filer  x

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

There is
currently no public market for the registrants securities. As of July 14, 2006, the registrant had 4,845,736 shares of common stock outstanding.



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##### Table of Contents

|                                                                                              |  |     
|--------------------------------------------------------------------------------------------- |  | ----
|                                                                                              |  | Page
|PART I  FINANCIAL INFORMATION                                                                |  |     
|Item 1.
Financial Statements                                                                  |  | 3   
|Consolidated Statements of Financial Condition  May 31, 2006 and August 31, 2005             |  | 3   
|Consolidated Statements of Operations  Three and Nine Months Ended May 31, 2006 and 2005     |  | 4   
|Consolidated Statements of Cash Flows  Nine Months Ended May 31, 2006 and 2005               |  | 5   
|Notes to Consolidated Financial Statements                                                    |  | 6   
|Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 11  
|Item 3.
Quantitative and Qualitative Disclosures About Market Risk                            |  | 24  
|Item 4.
Controls and Procedures                                                               |  | 26  
|                                                                                              | 
|PART II  OTHER INFORMATION                                                                   |  |     
|Item 1.
Legal Proceedings                                                                     |  | 26  
|Item 6.
Exhibits                                                                              |  | 28  
|                                                                                              | 
|SIGNATURES                                                                                    |  | 29  



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##### 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)



|                                                                                                                                            |  |             |           |   |                |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | --------- | - | -------------- | - | ------- | -
|                                                                                                                                            |  | May 31 2006 |           |   | August 31 2005 |  
|                                                                                                                                            |  | (Unaudited) |           |   |                |  
|ASSETS                                                                                                                                      |  |             |           |   |                |   |         |  
|Cash and cash equivalents                                                                                                                   |  |             |           |   |                |   |         |  
|Unrestricted                                                                                                                                |  | $           | 44,609    |   |                | $ | 25,145  |  
|Restricted                                                                                                                                  |  |             | 1,454     |   |                |   | 1,410   |  
|Segregated                                                                                                                                  |  |             | 17,691    |   |                |   | 10,509  |  
|Commodity accounts receivable                                                                                                               |  |             |           |   |                |   |         |  
|Commodity exchanges and clearing organizations  customer segregated, including United States treasury bills and notes                      |  |             | 542,967   |   |                |   | 396,446 |  
|Proprietary commodity accounts                                                                                                              |  |             | 18,722    |   |                |   | 18,028  |  
|Customer regulated accounts in deficit secured by U.S. treasury bills and notes                                                             |  |             | 4,688     |   |                |   | 6,351   |  
|                                                                                                                                            |  |             |           |   |                |   |         |  
|Total commodity deposits and accounts receivable                                                                                            |  |             | 566,377   |   |                |   | 420,825 |  
|                                                                                                                                            |  |             |           |   |                |   |         |  
|Marketable securities, at fair value  customer segregated and other                                                                        |  |             | 272,252   |   |                |   | 192,328 |  
|Accounts receivable and advances on grain                                                                                                   |  |             | 169,463   |   |                |   | 110,246 |  
|Notes receivable                                                                                                                            |  |             | 28,900    |   |                |   | 9,632   |  
|Inventories  grain, fertilizer, and fuel                                                                                                   |  |             | 34,112    |   |                |   | 14,605  |  
|Exchange memberships and stock, at cost                                                                                                     |  |             | 6,129     |   |                |   | 1,797   |  
|Furniture, equipment and improvements, net                                                                                                  |  |             | 7,913     |   |                |   | 8,206   |  
|Deferred income taxes                                                                                                                       |  |             | 4,843     |   |                |   | 4,013   |  
|Investments in affiliates                                                                                                                   |  |             | 1,702     |   |                |   | 1,726   |  
|Investments in other organizations                                                                                                          |  |             | 1,995     |   |                |   | 1,843   |  
|Other assets                                                                                                                                |  |             | 6,122     |   |                |   | 3,237   |  
|                                                                                                                                            |  |             |           |   |                |   |         |  
|Total Assets                                                                                                                                |  | $           | 1,163,562 |   |                | $ | 805,522 |  
|                                                                                                                                            |  |             |           |   |                |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                        |  |             |           |   |                |   |         |  
|Liabilities                                                                                                                                 |  |             |           |   |                |   |         |  
|Checks written in excess of bank balance                                                                                                    |  | $           | 5,116     |   |                | $ | 4,880   |  
|Commodity and customer regulated accounts payable                                                                                           |  |             | 756,032   |   |                |   | 549,200 |  
|Trade accounts payable and advances                                                                                                         |  |             | 219,967   |   |                |   | 129,715 |  
|Accrued expenses                                                                                                                            |  |             | 26,501    |   |                |   | 20,764  |  
|Notes payable                                                                                                                               |  |             | 83,403    |   |                |   | 36,911  |  
|Subordinated debt                                                                                                                           |  |             | 7,000     |   |                |   | 5,500   |  
|Obligations under capital leases                                                                                                            |  |             | 3,713     |   |                |   | 4,125   |  
|                                                                                                                                            |  |             |           |   |                |   |         |  
|Total Liabilities                                                                                                                           |  |             | 1,101,732 |   |                |   | 751,095 |  
|                                                                                                                                            |  |             |           |   |                |   |         |  
|Minority interest                                                                                                                           |  |             | 3,463     |   |                |   | 4,755   |  
|Redeemable common stock held by employee stock ownership plan (note 7)                                                                      |  |             | 6,079     |   |                |   | 4,487   |  
|Stockholders equity:                                                                                                                       |  |             |           |   |                |   |         |  
|Common stock, no par value, authorized 20,000,000, issued and outstanding 4,845,736 shares at May 31, 2006 and 4,828,279 at
August 31, 2005 |  |             | 21,747    |   |                |   | 21,524  |  
|Accumulated other comprehensive loss                                                                                                        |  |             | (4,555    | ) |                |   | (4,555  | )
|Retained earnings                                                                                                                           |  |             | 41,175    |   |                |   | 32,703  |  
|                                                                                                                                            |  |             |           |   |                |   |         |  
|                                                                                                                                            |  |             | 58,367    |   |                |   | 49,672  |  
|Less maximum cash obligation related to ESOP shares (note 7)                                                                                |  |             | (6,079    | ) |                |   | (4,487  | )
|                                                                                                                                            |  |             |           |   |                |   |         |  
|Total stockholders equity                                                                                                                  |  |             | 52,288    |   |                |   | 45,185  |  
|                                                                                                                                            |  |             |           |   |                |   |         |  
|Commitments and contingencies (note 6)                                                                                                      |  |             |           |   |                |   |         |  
|Total liabilities and stockholders equity                                                                                                  |  | $           | 1,163,562 |   |                | $ | 805,522 |  
|                                                                                                                                            |  |             |           |   |                |   |         |  

See notes to consolidated financial statements.



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##### Table of Contents

FCSTONE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands except per
share amounts)



|                                                             |  |                           |         |                          |      |   |         |  |   |         |   |  |   |          
|------------------------------------------------------------ |  | ------------------------- | ------- | ------------------------ | ---- | - | ------- |  | - | ------- | - |  | - | ---------
|                                                             |  | Three Months Ended May 31 |         | Nine Months Ended May 31
|                                                             |  | 2006                      |         |                          | 2005 |   | 2006    |  |   | 2005   
|Revenues:                                                    |  |                           |         |                          |      |   |         |  |   |         |   |  |   |          
|Commissions  commodity futures and options                  |  | $                         | 18,008  |                          |      | $ | 12,671  |  | $ | 49,405  |   |  | $ | 38,333   
|Service, consulting and brokerage fees                       |  |                           | 9,170   |                          |      |   | 5,215   |  |   | 24,598  |   |  |   | 13,244   
|Clearing and transaction fees                                |  |                           | 9,787   |                          |      |   | 6,243   |  |   | 25,230  |   |  |   | 16,507   
|Interest                                                     |  |                           | 6,033   |                          |      |   | 2,342   |  |   | 15,277  |   |  |   | 5,269    
|Other                                                        |  |                           | 1,314   |                          |      |   | 2,695   |  |   | 2,480   |   |  |   | 4,720    
|Sales of commodities                                         |  |                           | 314,486 |                          |      |   | 286,204 |  |   | 860,678 |   |  |   | 1,028,876
|                                                             |  |                           |         |                          |      |   |         |  |   |         |   |  |   |          
|Total revenues                                               |  |                           | 358,798 |                          |      |   | 315,370 |  |   | 977,668 |   |  |   | 1,106,949
|                                                             |  |                           |         |                          |      |   |         |  |   |         |   |  |   |          
|Costs and expenses:                                          |  |                           |         |                          |      |   |         |  |   |         |   |  |   |          
|Cost of commodities sold                                     |  |                           | 311,194 |                          |      |   | 282,418 |  |   | 848,480 |   |  |   | 1,015,435
|Employee compensation and broker commissions                 |  |                           | 11,014  |                          |      |   | 8,041   |  |   | 30,663  |   |  |   | 24,000   
|Pit brokerage and clearing fees                              |  |                           | 12,617  |                          |      |   | 8,502   |  |   | 33,626  |   |  |   | 23,900   
|Introducing broker commissions                               |  |                           | 6,373   |                          |      |   | 3,726   |  |   | 15,575  |   |  |   | 9,890    
|Employee benefits and payroll taxes                          |  |                           | 2,608   |                          |      |   | 2,148   |  |   | 7,292   |   |  |   | 5,990    
|Office, equipment and facilities rent and expenses           |  |                           | 1,660   |                          |      |   | 1,450   |  |   | 5,142   |   |  |   | 4,534    
|Communications and marketing information                     |  |                           | 852     |                          |      |   | 913     |  |   | 2,539   |   |  |   | 2,586    
|Interest                                                     |  |                           | 1,601   |                          |      |   | 1,540   |  |   | 4,335   |   |  |   | 2,895    
|Travel and related                                           |  |                           | 719     |                          |      |   | 614     |  |   | 2,244   |   |  |   | 1,698    
|Depreciation                                                 |  |                           | 424     |                          |      |   | 390     |  |   | 1,214   |   |  |   | 1,147    
|Bad debt expense                                             |  |                           | 1,304   |                          |      |   | 133     |  |   | 1,709   |   |  |   | 1,163    
|Other operating expenses                                     |  |                           | 2,409   |                          |      |   | 1,943   |  |   | 6,899   |   |  |   | 5,365    
|                                                             |  |                           |         |                          |      |   |         |  |   |         |   |  |   |          
|Total costs and expenses                                     |  |                           | 352,775 |                          |      |   | 311,818 |  |   | 959,718 |   |  |   | 1,098,603
|                                                             |  |                           |         |                          |      |   |         |  |   |         |   |  |   |          
|Income before income tax expense and minority interest       |  |                           | 6,023   |                          |      |   | 3,552   |  |   | 17,950  |   |  |   | 8,346    
|Minority interest                                            |  |                           | (378    | )                        |      |   | 26      |  |   | (370    | ) |  |   | 494      
|                                                             |  |                           |         |                          |      |   |         |  |   |         |   |  |   |          
|Income after minority interest and before income tax expense |  |                           | 6,401   |                          |      |   | 3,526   |  |   | 18,320  |   |  |   | 7,852    
|Income tax expense                                           |  |                           | 2,350   |                          |      |   | 1,300   |  |   | 6,950   |   |  |   | 2,950    
|                                                             |  |                           |         |                          |      |   |         |  |   |         |   |  |   |          
|Net income                                                   |  | $                         | 4,051   |                          |      | $ | 2,226   |  | $ | 11,370  |   |  | $ | 4,902    
|                                                             |  |                           |         |                          |      |   |         |  |   |         |   |  |   |          
|Basic and diluted shares outstanding (note 4)                |  |                           | 4,830   |                          |      |   | 4,323   |  |   | 4,829   |   |  |   | 4,315    
|                                                             |  |                           |         |                         
|Basic and diluted earnings per share                         |  | $                         | 0.84    |                          |      | $ | 0.51    |  | $ | 2.35    |   |  | $ | 1.14     

See notes to consolidated financial statements.



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FCSTONE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)



|                                                                                                          |  |                          |         |   |      |   |        |  
|--------------------------------------------------------------------------------------------------------- |  | ------------------------ | ------- | - | ---- | - | ------ | -
|                                                                                                          |  | Nine months ended May 31 |        
|                                                                                                          |  | 2006                     |         |   | 2005 |  
|Cash flows from operating activities:                                                                     |  |                          |         |   |      |   |        |  
|Net income                                                                                                |  | $                        | 11,370  |   |      | $ | 4,902  |  
|Depreciation                                                                                              |  |                          | 1,214   |   |      |   | 1,147  |  
|Minority interest, net of distributions                                                                   |  |                          | (1,292  | ) |      |   | 261    |  
|Equity in earnings of affiliates                                                                          |  |                          | 18      |   |      |   |       |  
|Change in commodity accounts receivable/payable, marketable securities and customer segregated funds, net |  |                          | (25,826 | ) |      |   | (3,592 | )
|(Increase) decrease in accounts receivable and advances on grain                                          |  |                          | (59,217 | ) |      |   | 10,289 |  
|Increase in inventories  grain, fertilizer, and fuel                                                     |  |                          | (19,507 | ) |      |   | (8,782 | )
|Increase in other assets                                                                                  |  |                          | (3,867  | ) |      |   | (3,454 | )
|Increase in accounts payable and advances                                                                 |  |                          | 90,252  |   |      |   | 25,627 |  
|Increase (decrease) in accrued expenses                                                                   |  |                          | 5,737   |   |      |   | (287   | )
|                                                                                                          |  |                          |         |   |      |   |        |  
|Net cash (used in) provided by operating activities                                                       |  |                          | (1,118  | ) |      |   | 26,111 |  
|                                                                                                          |  |                          |         |   |      |   |        |  
|Cash flows from investing activities:                                                                     |  |                          |         |   |      |   |        |  
|Purchase of furniture, equipment, and improvements                                                        |  |                          | (921    | ) |      |   | (766   | )
|Issuance of notes receivable, net                                                                         |  |                          | (19,268 | ) |      |   | (5,133 | )
|Purchase of exchange memberships and stock                                                                |  |                          | (4,945  | ) |      |   | (925   | )
|Proceeds from the sale of exchange memberships and stock                                                  |  |                          | 613     |   |      |   |       |  
|Distributions from affiliates                                                                             |  |                          | 6       |   |      |   |       |  
|                                                                                                          |  |                          |         |   |      |   |        |  
|Net cash used in investing activities                                                                     |  |                          | (24,515 | ) |      |   | (6,824 | )
|                                                                                                          |  |                          |         |   |      |   |        |  
|Cash flows from financing activities:                                                                     |  |                          |         |   |      |   |        |  
|Increase (decrease) in checks written in excess of bank balance                                           |  |                          | 236     |   |      |   | (4,386 | )
|Proceeds from notes payable, net                                                                          |  |                          | 46,492  |   |      |   | 9,442  |  
|Proceeds from issuance of common stock                                                                    |  |                          |        |   |      |   | 735    |  
|Proceeds from issuance of redeemable common stock held by ESOP                                            |  |                          | 223     |   |      |   |       |  
|Payment for redemption of stock                                                                           |  |                          |        |   |      |   | (8     | )
|Dividends paid                                                                                            |  |                          | (2,898  | ) |      |   |       |  
|Payment of prior year patronage                                                                           |  |                          |        |   |      |   | (1,869 | )
|Payments under capital lease                                                                              |  |                          | (412    | ) |      |   | (412   | )
|Monies deposited in escrow                                                                                |  |                          | (44     | ) |      |   |       |  
|Proceeds from subordinated debt                                                                           |  |                          | 4,500   |   |      |   | 2,000  |  
|Payments on subordinated debt                                                                             |  |                          | (3,000  | ) |      |   | (2,250 | )
|                                                                                                          |  |                          |         |   |      |   |        |  
|Net cash provided by financing activities                                                                 |  |                          | 45,097  |   |      |   | 3,252  |  
|                                                                                                          |  |                          |         |   |      |   |        |  
|                                                                                                          |  |                         
|Net increase in cash and cash equivalents  unrestricted                                                  |  |                          | 19,464  |   |      |   | 22,539 |  
|Cash and cash equivalents  unrestricted  beginning of period                                            |  |                          | 25,145  |   |      |   | 7,943  |  
|                                                                                                          |  |                          |         |   |      |   |        |  
|Cash and cash equivalents  unrestricted  end of period                                                  |  | $                        | 44,609  |   |      | $ | 30,482 |  
|                                                                                                          |  |                          |         |   |      |   |        |  
|Supplemental disclosures of cash flow information:                                                        |  |                          |         |   |      |   |        |  
|Interest paid                                                                                             |  | $                        | 3,995   |   |      | $ | 2,794  |  
|                                                                                                          |  |                          |         |   |      |   |        |  
|Income taxes paid                                                                                         |  | $                        | 7,596   |   |      | $ | 2,971  |  
|                                                                                                          |  |                          |         |   |      |   |        |  
|Non-cash financing activities:                                                                            |  |                          |         |   |      |   |        |  
|Increase in maximum cash obligation related to ESOP shares                                                |  | $                        | 1,368   |   |      | $ |       |  
|                                                                                                          |  |                          |         |   |      |   |        |  

See notes to consolidated financial statements.



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FCSTONE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES AND RELATED MATTERS

BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

The consolidated financial statements of FCStone Group, Inc. and subsidiaries (the Company) included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission, and represent the consolidation of all companies in which the Company has a controlling interest. The Company also has minority holdings in three other entities, all of which are accounted for under the equity method. Certain
information and disclosures normally included in comprehensive financial statements, prepared in accordance with U.S. generally accepted accounting principles (US GAAP), have been condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the information presented not misleading. In the opinion of management, the financial statements reflect all adjustments, which are of a normal recurring nature, necessary to present
fairly the Companys consolidated financial position, results of operations and cash flows for the periods presented. These interim financial statements should be read in conjunction with the audited consolidated financial statements and notes
thereto included in the Companys amended annual report on Form 10-K/A for the Companys fiscal year ended August 31, 2005, as filed with the Securities and Exchange Commission on May 26, 2006.

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.

RECENTLY ISSUED ACCOUNTING
STANDARDS

In December 2004, the Financial Accounting Standards Board issued Statement on Financial Accounting Standards No. 123R, Share-Based
Payment, which addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services, with a primary focus on transactions in which an entity obtains employee services in share-based transactions.
This statement is a revision to Statement on Financial Accounting Standards No. 123 and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees,and its related implementation guidance. This statement will require
measurement of the cost of employee services received in exchange for stock compensation based on the grant-date fair value of the employee stock options. Incremental compensation costs arising from subsequent modifications of awards after the grant
date must be recognized. The Company will adopt this Statement prospectively on September 1, 2006. The Company will recognize compensation costs for new grants of share-based awards, awards modified after the effective date, and the remaining
portion of the fair value of unvested awards at the adoption date. The adoption of this statement will not have a significant effect on the Companys financial statements.

RECLASSIFICATIONS

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

2. 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



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##### Table of Contents

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 nine month periods ended May 31, 2006 and 2005 for the defined benefit plans consists of the
following components:



|                                    |  |                            |         |                           |   |         |  |      |           |  |   |          
|----------------------------------- |  | -------------------------- | ------- | ------------------------- | - | ------- |  | ---- | --------- |  | - | ---------
|                                    |  | Three months ended May 31, |         | Nine months ended May 31,
|                                    |  | 2006                       |         | 2005                      |   | 2006    |  | 2005
|Service cost                        |  | $                          | 510,882 |                           | $ | 427,232 |  | $    | 1,532,646 |  | $ | 1,281,696
|Interest cost                       |  |                            | 328,755 |                           |   | 285,950 |  |      | 986,265   |  |   | 857,850  
|Less expected return on plan assets |  |                            | 306,231 |                           |   | 243,076 |  |      | 918,693   |  |   | 729,228  
|Net amortization and deferral       |  |                            | 229,776 |                           |   | 109,733 |  |      | 689,328   |  |   | 329,199  
|                                    |  |                            |         |                           |   |         |  |      |           |  |   |          
|Net periodic pension expense        |  | $                          | 763,182 |                           | $ | 579,839 |  | $    | 2,289,546 |  | $ | 1,739,517
|                                    |  |                            |         |                           |   |         |  |      |           |  |   |          

3. 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 away from handling physical fuels, and now periodically participates, as a principal, only in back-to-back ethanol purchases and sales; as a result the Company held no fuel inventory at May 31, 2006, and does not intend to do
so in the future.

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



|           |  |              |            |                 |   |           
|---------- |  | ------------ | ---------- | --------------- | - | ----------
|           |  | May 31, 2006 |            | August 31, 2005
|Grain      |  | $            | 32,448,710 |                 | $ | 13,507,493
|Fertilizer |  |              | 1,663,457  |                 |   | 633,293   
|Fuel       |  |              |           |                 |   | 464,315   
|           |  |              |            |                 |   |           
|           |  | $            | 34,112,167 |                 | $ | 14,605,101
|           |  |              |            |                 |   |           

4. EARNINGS PER SHARE

Earnings per share has been presented in the accompanying Consolidated Statement of Operations. Basic earnings per shares excludes dilution and is computed by dividing the applicable net earnings by the weighted average number of common
shares outstanding for the period. Diluted earnings per share is calculated based on the weighted average shares of common stock as adjusted for the potential dilutive effect of stock options. Stock-based compensation arrangements, including
options, are considered to be outstanding as of the grant date for purposes of computing diluted earnings per share. For the nine-month period ended May 31, 2006 computation, 400,000 stock options (see Notes 8 and 9) were excluded from the
calculation of weighted average shares for diluted EPS because they were not outstanding as of the date of the Consolidated Statement of Financial Condition. The calculation of the basic and diluted shares outstanding for the three-month and
nine-month periods ended May 31, 2005, assumes the shares issued as a result of the restructuring (see Note 7) had been issued and outstanding for the full year.

5. 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



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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.

The following table presents the significant items by operating segment for the results of operations for the three
and nine month periods ended May 31, 2006 and 2005, respectively, and the Statement of Financial Condition data as of those dates (in thousands):



|                                                        |  |                                      |         |                               |   |                     |  |   |                    |   |  |                   |        |   |                     |   |        |       |  |   |         |   |  |   |          
|------------------------------------------------------- |  | ------------------------------------ | ------- | ----------------------------- | - | ------------------- |  | - | ------------------ | - |  | ----------------- | ------ | - | ------------------- | - | ------ | ----- |  | - | ------- | - |  | - | ---------
|                                                        |  | Commodity & Risk Management Services |         | Clearing & Execution Services |   | Grain Merchandising |  |   | Financial Services |   |  | Corporate & Other |        |   | Reconciling Amounts |   |        | Total
|Three Months Ended May 31,
2006                         |  |                                      |         |                               |   |                     |  |   |                    |   |  |                   |        |   |                     |   |        |       |  |   |         |   |  |   |          
|                                                        |  |                                      |         |                               |   |                     | 
|Total revenues                                          |  | $                                    | 21,541  |                               | $ | 21,505              |  | $ | 300,675            |   |  | $                 | 15,587 |   |                     | $ | 116    |       |  | $ | (626    | ) |  | $ | 358,798  
|Interest revenue                                        |  |                                      | 2,744   |                               |   | 2,508               |  |   | 192                |   |  |                   | 865    |   |                     |   | 80     |       |  |   | (356    | ) |  |   | 6,033    
|Interest expense                                        |  |                                      | 50      |                               |   | 97                  |  |   | 961                |   |  |                   | 720    |   |                     |   | 129    |       |  |   | (356    | ) |  |   | 1,601    
|Income (loss) before minority interest and income taxes |  |                                      | 6,056   |                               |   | 3,281               |  |   | (1,193             | ) |  |                   | (1     | ) |                     |   | (2,120 | )     |  |   |        |   |  |   | 6,023    
|Total assets                                            |  |                                      | 517,554 |                               |   | 560,735             |  |   | 86,979             |   |  |                   | 51,678 |   |                     |   | 13,333 |       |  |   | (66,717 | ) |  |   | 1,163,562
|                                                        |  |                                      |         |                               |   |                     | 
|May 31, 2005                                            |  |                                      |         |                               |   |                     |  |   |                    |   |  |                   |        |   |                     |   |        |       |  |   |         |   |  |   |          
|                                                        |  |                                      |         |                               |   |                     | 
|Total revenues                                          |  | $                                    | 22,846  |                               | $ | 14,513              |  | $ | 272,624            |   |  | $                 | 5,813  |   |                     | $ | 25     |       |  | $ | (451    | ) |  | $ | 315,370  
|Interest revenue                                        |  |                                      | 959     |                               |   | 1,128               |  |   | 24                 |   |  |                   | 377    |   |                     |   | 24     |       |  |   | (170    | ) |  |   | 2,342    
|Interest expense                                        |  |                                      | 20      |                               |   | 87                  |  |   | 1,212              |   |  |                   | 320    |   |                     |   | 71     |       |  |   | (170    | ) |  |   | 1,540    
|Income (loss) before minority interest and income taxes |  |                                      | 2,451   |                               |   | 2,062               |  |   | 196                |   |  |                   | (12    | ) |                     |   | (1,145 | )     |  |   |        |   |  |   | 3,552    
|Total assets                                            |  |                                      | 227,645 |                               |   | 293,670             |  |   | 92,349             |   |  |                   | 16,234 |   |                     |   | 7,923  |       |  |   | (25,267 | ) |  |   | 612,554  
|                                                        |  |                                      |         |                               |   |                     | 
|Nine Months Ended May 31,
2006                          |  |                                      |         |                               |   |                     |  |   |                    |   |  |                   |        |   |                     |   |        |       |  |   |         |   |  |   |          
|                                                        |  |                                      |         |                               |   |                     | 
|Total revenues                                          |  | $                                    | 61,270  |                               | $ | 57,385              |  | $ | 832,987            |   |  | $                 | 27,990 |   |                     | $ | 141    |       |  | $ | (2,105  | ) |  | $ | 977,668  
|Interest revenue                                        |  |                                      | 6,087   |                               |   | 7,234               |  |   | 425                |   |  |                   | 2,652  |   |                     |   | 160    |       |  |   | (1,281  | ) |  |   | 15,277   
|Interest expense                                        |  |                                      | 87      |                               |   | 251                 |  |   | 2,758              |   |  |                   | 2,229  |   |                     |   | 291    |       |  |   | (1,281  | ) |  |   | 4,335    
|Income (loss) before minority interest and income taxes |  |                                      | 15,731  |                               |   | 8,483               |  |   | (911               | ) |  |                   | (102   | ) |                     |   | (5,251 | )     |  |   |        |   |  |   | 17,950   
|Total assets                                            |  |                                      | 517,554 |                               |   | 560,735             |  |   | 86,979             |   |  |                   | 51,678 |   |                     |   | 13,333 |       |  |   | (66,717 | ) |  |   | 1,163,562
|                                                        |  |                                      |         |                               |   |                     | 
|May 31, 2005                                            |  |                                      |         |                               |   |                     |  |   |                    |   |  |                   |        |   |                     |   |        |       |  |   |         |   |  |   |          
|                                                        |  |                                      |         |                               |   |                     | 
|Total revenues                                          |  | $                                    | 61,343  |                               | $ | 38,268              |  | $ | 984,501            |   |  | $                 | 24,001 |   |                     | $ | 67     |       |  | $ | (1,231  | ) |  | $ | 1,106,949
|Interest revenue                                        |  |                                      | 1,902   |                               |   | 2,717               |  |   | 103                |   |  |                   | 843    |   |                     |   | 64     |       |  |   | (360    | ) |  |   | 5,269    
|Interest expense                                        |  |                                      | 44      |                               |   | 218                 |  |   | 2,141              |   |  |                   | 690    |   |                     |   | 162    |       |  |   | (360    | ) |  |   | 2,895    
|Income (loss) before minority interest and income taxes |  |                                      | 6,067   |                               |   | 3,787               |  |   | 1,253              |   |  |                   | 552    |   |                     |   | (3,313 | )     |  |   |        |   |  |   | 8,346    
|Total assets                                            |  |                                      | 227,645 |                               |   | 293,670             |  |   | 92,349             |   |  |                   | 16,234 |   |                     |   | 7,923  |       |  |   | (25,267 | ) |  |   | 612,554  



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

In September 2004, Nantong Baogang Oils and Fats Development Co Ltd (Nantong Baogang) filed a claim in arbitration under the arbitration facility established by the Federation of Oils, Seeds, and Fats Association Ltd.
of Hong Kong (FOSFA) requiring FGDI to return a refundable deposit of $603,741, which was paid by Nantong Baogang, plus interest and costs. FGDI does not dispute that Nantong Baogang is entitled to refund of the deposit, rather that the deposit be
subject to FGDIs right to set off against sums payable by Nantong Baogang to FGDI under a second arbitration. FGDI filed a claim in arbitration under the arbitration facility established by the FOSFA seeking to recover demurrage of $480,783
plus interest and costs. FGDI subsequently tendered to Nantong Baogang the net balance. On February 28, 2006, the first arbitration panel issued an award, ordering FGDI to repay the deposits plus an amount for interest and legal costs. On May 8,
2006, FGDI filed a notice of appeal against the award, and asked the appeal board to set aside the award pending the second arbitration panels decision on the demurrage claim filed by FGDI, that as of June 27, 2006 had been drafted and is
expected to be available shortly. FGDI expects that the two claims will substantially offset each other, and that the resolution of these matters will not have a material effect on FGDI and its financial condition.

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, but has not at this time. FGDI intends to vigorously defend this claim.

On
April 19, 2006, the Company was informed that a grain merchandising customer located in Montgomery, Alabama, with whom we have outstanding receivables of approximately $1.1 million, filed Chapter 11 bankruptcy on April 18, 2006. The
Company is reviewing its legal alternatives and position in the bankruptcy proceedings. During the current three-month period ended May 31, 2006, the Company has charged $1.1 million to bad debt expense related to this customer.

On May 23, 2006, a former customer, Watseka Farmers Grain Cooperative Company, filed an action in the United States District Court, Central District of Illinois
seeking actual damages, interest, punitive damages and general relief relating to losses on allegedly improper speculative trades ordered by the former general manager of the customer in a commodity futures account at FCStone, LLC. The customer was
placed under supervision by Illinois state authorities in May 2004, after examination revealed deficiencies in its financial reporting and condition, and its assets were subsequently sold. The Company 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 and the accounts receivable charged to bad debt expense, 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. The Company
intends to vigorously defend these claims and will continue to monitor the results of arbitration and assess the need for future accruals.



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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.

7. 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 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. The Company has accrued $0.4 million of retirement expense related to these matching contributions for the nine-month period ended May 31, 2006. 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. The ESOP purchased 1,400 shares in
the quarter ending February 28, 2006 and additionally, purchased 16,057 shares in the quarter ending May 31, 2006, related to the reinvestment of dividends.

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
temporary equity. The Company and the ESOP obtain an annual valuation in connection with the administration of the ESOP. The valuation of the Companys Common Stock for ESOP purposes is subject to applicable federal tax regulations and
significantly differs from the valuation performed in connection with the grant of stock options, which does not include a significant liquidity discount (see Note 9). 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. 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.



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As of May 31, 2006, the shares held by the ESOP, fair value and maximum cash obligation were as follows:



|                        |  |   |          
|----------------------- |  | - | ---------
|Shares held by the ESOP |  |   | 466,149  
|Fair value per share    |  | $ | 13.04    
|Maximum cash obligation |  | $ | 6,078,583

8. STOCK AWARD PLAN

On May 2, 2006, FCStone Group, Inc.s Board of Directors approved the FCStone Group, Inc. 2006 Equity Incentive Plan (the Plan). The Plan permits the issuance of up to 750,000 shares of the Companys common stock
to key employees and non-employee directors, pursuant to awards granted under the Plan, such as stock options, restricted stock awards, restricted stock units and performance share awards, as well as other stock-based awards.

9. SUBSEQUENT EVENTS

On June 13, 2006, FCStone Group, Inc.
received a valuation, from an independent valuation firm, of the fair value of the Companys Common Stock for purposes of issuing stock options pursuant to the Companys 2006 Equity Incentive Plan, valuing the Common Stock at $24.76 per
share. In reliance upon such valuation and pursuant to the Plan, on June 13, 2006 the Compensation Committee of the Board of Directors of the Company granted nonqualified stock options to purchase a total of 320,000 shares of Common Stock to
executive officers and management employees of the Company and 80,000 shares of Common Stock to the non-employee directors of the Company. The exercise price for the stock options was set by the Compensation Committee at $24.76 per share, based on
the third party valuation noted above. The options are 100% vested on the grant date and expire on June 13, 2016. During the fourth quarter of the fiscal year ending August 31, 2006, the Company is currently evaluating the fair value and
accounting of the stock options, and will reflect their issuance in the fourth quarter.

On June 28, 2006, FGDI amended its Revolving Credit, Term
Loan and Security Agreement (the Credit Agreement) with CoBank, ACB (as lender and agent) (CoBank). The amendment pertains to certain financial covenants applicable as of May 31, 2006, and allows FGDI to incur
indebtedness from FCStone Group, Inc., subject to a subordination agreement. The Credit Agreements financial covenants were amended so that FGDI must maintain, at all times, (i) net worth in an amount of not less than $8.6 million through
June 28, 2006, $9.8 million from June 29, 2006 through July 31, 2006, and $10.0 million thereafter; (ii) adjusted working capital in an amount not less than $5.3 million through June 28, 2006 and $6.5 million thereafter. As
a requirement of the amendment, on June 28, 2006, FGDI entered into a subordinated agreement with FCStone Group, Inc, and borrowed $1.0 million under a subordinated note, which has been eliminated for purposes of consolidated financial
statement presentation. The subordinated note bears a variable interest rate equal to the prime rate established by Citibank from time to time.

Effective
June 30, 2006, FCStone Group, Inc. entered into an agreement to purchase an equity investment in Green Diesel, LLC for $2.4 million. Green Diesel, LLC is a limited liability company formed to construct, own, and operate a biodiesel plant. In
exchange for its capital contribution of $2.4 million, which was funded on July 3, 2006, the Company received a capital interest of 25% and a profit interest of 25% represented by 2.4 million units out of 9.6 million units
outstanding.

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



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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.

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, fertilizer, 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. 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 fiscal year 2001 to $566 million at May 31, 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 fiscal year 2005 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.

Although the expansion of our services to other industries and to foreign markets does require additional personnel and related expenses, it has, in the past, not required any significant capital expenditures. Our primary capital concern is
meeting CFTC regulatory requirements arising from our anticipated increased business. We expect that our new business structure will provide a platform to alleviate most of these concerns. With the ESOP in place, we expect to raise an additional $1
million annually in temporary equity capital from ESOP common stock purchases. We also 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. 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 through operations, we anticipate meeting our expected capital needs for the next several years.



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Prior to April 1, 2006, Sowood Commodity Partners Fund LP (Sowood) owned a minority interest in FCStone Merchants
Services, LLC (Merchants). On March 9, 2006, Merchants sent a redemption notice to Sowood, informing them of its intention to redeem their minority ownership interest in Merchants, in accordance with the Limited Liability Company Agreement. The
redemption was completed on the close of business on March 31, 2006, with a redemption payment of $0.9 million.

Results of Operations

Three Months Ended May 31, 2006 Compared to Three Months Ended May 31, 2005

Revenues

Revenues totaled $358.8 million for the three month
period ended May 31, 2006 compared to $315.4 million for the three-month period ended May 31, 2005, an increase of $43.4 million or 13.8%. This increase included higher grain sales of $28.3 million. Although the $28.3 million increase in
grain sales is a significant amount when compared to total revenues, the cost of grain sold increased $28.7 million. The increased grain sales and cost of sales results from higher commodity prices, and had little effect on net income, as the gross
profit from grain merchandising remained relatively consistent. The Company has moved away from handling physical fuels, and now periodically participates, as a principal, only in back-to-back ethanol purchases and sales. As a result, related
physical fuel sales were down $9.3 million as the Company sold 6.0 million fewer gallons than in the prior comparative period. Transactional commodity revenues in our Financial Services segment increased $9.3 million, as a result of the
increase in the number of transactions financed. Commissions were up $5.3 million due to higher overall trade volume, and clearing and transaction fees were up $3.5 million on higher trade volume in the clearing and execution services segment.
Service, consulting and brokerage fees were $4.0 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 $3.7 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 $311.2 million for the three month period ended May 31, 2006
compared to $282.4 million for the three month period ended May 31, 2005, an increase of $28.8 million or 10.2%. This increase was primarily a result of higher commodity prices, despite 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 $11.0
million for the three month period ended May 31, 2006 compared to $8.0 million for the three month period ended May 31, 2005, an increase of $3.0 million or 37.5%. 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 $8.5 million for the three month period ended May 31, 2005 to
$12.6 million for the three month period ending May 31, 2006 is consistent with increased commissions and clearing and transaction fee revenues, due to an increase of trading volumes up from 26.5 million contracts in 2005 compared to
34.5 million contracts in 2006.

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 $3.7 million for the three month period ended May 31, 2005 to $6.4 million for the three month period ended May 31, 2006,
consistent with the 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 May 31, 2006 from $1.5 million for the three month period ending May 31, 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.



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##### Table of Contents

Other Operating Expenses. Other operating expenses were $10.0 million for the three month period ended
May 31, 2006 compared to $7.6 million for the three month period ended May 31, 2005, an increase of $2.4 million. This increase was primarily a result of increases in the Companys employee benefits and payroll taxes of $0.5 million,
office, equipment, and facilities rent and expenses of $0.2 million, travel expense of $0.1 million, professional fees of $0.1 million, and insurance costs of $0.2 million. Additionally, there was a $1.2 million increase in bad debt expense,
primarily related to the bankruptcy of a grain merchandising customer.

Income Tax Expense. Our provision for income taxes for the
three-month period ended May 31, 2006 increased over 2005, due to higher income before income tax expense in the three month period ended May 31, 2006. The effective tax rate was 36.7% in 2006 and 36.9% in 2005.

Operations by Segment

Three months Ended May 31, 2006
Compared to Three months Ended May 31, 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.



14



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##### Table of Contents

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 May 31, 2006 and 2005 (in thousands):



|                                                        |  |                                      |        |                               |   |                     |  |   |                    |   |  |                   |        |   |                     |   |        |       |  |   |      |   |  |   |         |  
|------------------------------------------------------- |  | ------------------------------------ | ------ | ----------------------------- | - | ------------------- |  | - | ------------------ | - |  | ----------------- | ------ | - | ------------------- | - | ------ | ----- |  | - | ---- | - |  | - | ------- | -
|                                                        |  | Commodity & Risk Management Services |        | Clearing & Execution Services |   | Grain Merchandising |  |   | Financial Services |   |  | Corporate & Other |        |   | Reconciling Amounts |   |        | Total | 
|Three Months Ended May 31,
2006                         |  |                                      |        |                               |   |                     |  |   |                    |   |  |                   |        |   |                     |   |        |       |  |   |      |   |  |   |         |  
|Revenues:                                               |  |                                      |        |                               |   |                     |  |   |                    |   |  |                   |        |   |                     |   |        |       |  |   |      |   |  |   |         |  
|Commissions                                             |  | $                                    | 8,916  |                               | $ | 9,210               |  | $ |                   |   |  | $                 |       |   |                     | $ |       |       |  | $ | (118 | ) |  | $ | 18,008  |  
|Service, consulting and brokerage fees                  |  |                                      | 9,320  |                               |   |                    |  |   |                   |   |  |                   |       |   |                     |   |       |       |  |   | (150 | ) |  |   | 9,170   |  
|Clearing and transaction fees                           |  |                                      |       |                               |   | 9,787               |  |   |                   |   |  |                   |       |   |                     |   |       |       |  |   |     |   |  |   | 9,787   |  
|Interest                                                |  |                                      | 2,744  |                               |   | 2,508               |  |   | 192                |   |  |                   | 865    |   |                     |   | 80     |       |  |   | (356 | ) |  |   | 6,033   |  
|Other                                                   |  |                                      | 19     |                               |   |                    |  |   | 852                |   |  |                   | 409    |   |                     |   | 36     |       |  |   | (2   | ) |  |   | 1,314   |  
|Sales of commodities                                    |  |                                      | 542    |                               |   |                    |  |   | 299,631            |   |  |                   | 14,313 |   |                     |   |       |       |  |   |     |   |  |   | 314,486 |  
|                                                        |  |                                      |        |                               |   |                     |  |   |                    |   |  |                   |        |   |                     |   |        |       |  |   |      |   |  |   |         |  
|Total revenues                                          |  |                                      | 21,541 |                               |   | 21,505              |  |   | 300,675            |   |  |                   | 15,587 |   |                     |   | 116    |       |  |   | (626 | ) |  |   | 358,798 |  
|                                                        |  |                                      |        |                               |   |                     |  |   |                    |   |  |                   |        |   |                     |   |        |       |  |   |      |   |  |   |         |  
|Costs and expenses:                                     |  |                                      |        |                               |   |                     |  |   |                    |   |  |                   |        |   |                     |   |        |       |  |   |      |   |  |   |         |  
|Cost of commodities sold                                |  |                                      | 541    |                               |   |                    |  |   | 296,548            |   |  |                   | 14,233 |   |                     |   |       |       |  |   | (128 | ) |  |   | 311,194 |  
|Expenses (excluding interest expense)                   |  |                                      | 14,894 |                               |   | 18,127              |  |   | 4,359              |   |  |                   | 635    |   |                     |   | 2,107  |       |  |   | (142 | ) |  |   | 39,980  |  
|Interest                                                |  |                                      | 50     |                               |   | 97                  |  |   | 961                |   |  |                   | 720    |   |                     |   | 129    |       |  |   | (356 | ) |  |   | 1,601   |  
|                                                        |  |                                      |        |                               |   |                     |  |   |                    |   |  |                   |        |   |                     |   |        |       |  |   |      |   |  |   |         |  
|Total costs and expenses                                |  |                                      | 15,485 |                               |   | 18,224              |  |   | 301,868            |   |  |                   | 15,588 |   |                     |   | 2,236  |       |  |   | (626 | ) |  |   | 352,775 |  
|                                                        |  |                                      |        |                               |   |                     |  |   |                    |   |  |                   |        |   |                     |   |        |       |  |   |      |   |  |   |         |  
|Income (loss) before minority interest and income taxes |  |                                      | 6,056  |                               |   | 3,281               |  |   | (1,193             | ) |  |                   | (1     | ) |                     |   | (2,120 | )     |  |   |     |   |  |   | 6,023   |  
|Minority interest                                       |  |                                      |       |                               |   |                    |  |   | (358               | ) |  |                   | (20    | ) |                     |   |       |       |  |   |     |   |  |   | (378    | )
|                                                        |  |                                      |        |                               |   |                     |  |   |                    |   |  |                   |        |   |                     |   |        |       |  |   |      |   |  |   |         |  
|Income (loss) before income taxes                       |  | $                                    | 6,056  |                               | $ | 3,281               |  | $ | (835               | ) |  | $                 | 19     |   |                     | $ | (2,120 | )     |  | $ |     |   |  | $ | 6,401   |  
|                                                        |  |                                      |        |                               |   |                     |  |   |                    |   |  |                   |        |   |                     |   |        |       |  |   |      |   |  |   |         |  
|Grain bushels sold                                      |  |                                      |        |                               |   |                     |  |   | 56,004             |   |  |                   |        |   |                     |   |        |       |  |   |      |   |  |   |         |  
|Gross profits on grain sales                            |  |                                      |        |                               |   |                     |  | $ | 3,083              |   |  |                   |        |   |                     |   |        |       |  |   |      |   |  |   |         |  
|                                                        |  |                                      |        |                               |   |                     | 
|May 31, 2005                                            |  |                                      |        |                               |   |                     |  |   |                    |   |  |                   |        |   |                     |   |        |       |  |   |      |   |  |   |         |  
|Revenues:                                               |  |                                      |        |                               |   |                     |  |   |                    |   |  |                   |        |   |                     |   |        |       |  |   |      |   |  |   |         |  
|Commissions                                             |  | $                                    | 6,563  |                               | $ | 6,222               |  | $ |                   |   |  | $                 |       |   |                     | $ |       |       |  | $ | (114 | ) |  | $ | 12,671  |  
|Service, consulting and brokerage fees                  |  |                                      | 5,382  |                               |   |                    |  |   |                   |   |  |                   |       |   |                     |   |       |       |  |   | (167 | ) |  |   | 5,215   |  
|Clearing and transaction fees                           |  |                                      |       |                               |   | 6,243               |  |   |                   |   |  |                   |       |   |                     |   |       |       |  |   |     |   |  |   | 6,243   |  
|Interest                                                |  |                                      | 959    |                               |   | 1,128               |  |   | 24                 |   |  |                   | 377    |   |                     |   | 24     |       |  |   | (170 | ) |  |   | 2,342   |  
|Other                                                   |  |                                      | 149    |                               |   | 920                 |  |   | 1,237              |   |  |                   | 388    |   |                     |   | 1      |       |  |   |     |   |  |   | 2,695   |  
|Sales of commodities                                    |  |                                      | 9,793  |                               |   |                    |  |   | 271,363            |   |  |                   | 5,048  |   |                     |   |       |       |  |   |     |   |  |   | 286,204 |  
|                                                        |  |                                      |        |                               |   |                     |  |   |                    |   |  |                   |        |   |                     |   |        |       |  |   |      |   |  |   |         |  
|Total revenues                                          |  |                                      | 22,846 |                               |   | 14,513              |  |   | 272,624            |   |  |                   | 5,813  |   |                     |   | 25     |       |  |   | (451 | ) |  |   | 315,370 |  
|                                                        |  |                                      |        |                               |   |                     |  |   |                    |   |  |                   |        |   |                     |   |        |       |  |   |      |   |  |   |         |  
|Costs and expenses:                                     |  |                                      |        |                               |   |                     |  |   |                    |   |  |                   |        |   |                     |   |        |       |  |   |      |   |  |   |         |  
|Cost of commodities sold                                |  |                                      | 9,720  |                               |   |                    |  |   | 267,811            |   |  |                   | 5,018  |   |                     |   |       |       |  |   | (131 | ) |  |   | 282,418 |  
|Expenses (excluding interest expense)                   |  |                                      | 10,655 |                               |   | 12,364              |  |   | 3,405              |   |  |                   | 487    |   |                     |   | 1,099  |       |  |   | (150 | ) |  |   | 27,860  |  
|Interest                                                |  |                                      | 20     |                               |   | 87                  |  |   | 1,212              |   |  |                   | 320    |   |                     |   | 71     |       |  |   | (170 | ) |  |   | 1,540   |  
|                                                        |  |                                      |        |                               |   |                     |  |   |                    |   |  |                   |        |   |                     |   |        |       |  |   |      |   |  |   |         |  
|Total costs and expenses                                |  |                                      | 20,395 |                               |   | 12,451              |  |   | 272,428            |   |  |                   | 5,825  |   |                     |   | 1,170  |       |  |   | (451 | ) |  |   | 311,818 |  
|                                                        |  |                                      |        |                               |   |                     |  |   |                    |   |  |                   |        |   |                     |   |        |       |  |   |      |   |  |   |         |  
|Income (loss) before minority interest and income taxes |  |                                      | 2,451  |                               |   | 2,062               |  |   | 196                |   |  |                   | (12    | ) |                     |   | (1,145 | )     |  |   |     |   |  |   | 3,552   |  
|Minority interest                                       |  |                                      |       |                               |   |                    |  |   | 59                 |   |  |                   | (33    | ) |                     |   |       |       |  |   |     |   |  |   | 26      |  
|                                                        |  |                                      |        |                               |   |                     |  |   |                    |   |  |                   |        |   |                     |   |        |       |  |   |      |   |  |   |         |  
|Income (loss) before income taxes                       |  | $                                    | 2,451  |                               | $ | 2,062               |  | $ | 137                |   |  | $                 | 21     |   |                     | $ | (1,145 | )     |  | $ |     |   |  | $ | 3,526   |  
|                                                        |  |                                      |        |                               |   |                     |  |   |                    |   |  |                   |        |   |                     |   |        |       |  |   |      |   |  |   |         |  
|Grain bushels sold                                      |  |                                      |        |                               |   |                     |  |   | 58,763             |   |  |                   |        |   |                     |   |        |       |  |   |      |   |  |   |         |  
|Gross profit on grain sales                             |  |                                      |        |                               |   |                     |  | $ | 3,552              |   |  |                   |        |   |                     |   |        |       |  |   |      |   |  |   |         |  



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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 $21.5 million for
the three-month period ended May 31, 2006 compared to $22.8 million for the three month period ended May 31, 2005, a decrease of $1.3 million or 5.7%. This decrease was a result of lower fuel sales of approximately $9.3 million as the
Company has moved away from handling physical fuels, and now periodically participates, as a principal, only in back-to-back ethanol purchases and sales. Service, consulting and brokerage fees were up $3.9 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 $2.4 million as a result of increased contract volumes up from 0.4 million in 2005 as compared to
0.6 million in 2006, 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 $1.8 million due to higher short term interest rates and higher customer
margin deposits over the prior year period.

Costs and expenses totaled $15.5 million for the three month period ended May 31, 2006 compared to $20.4
million for the three month period ended May 31, 2005, a decrease of $4.9 million. The reduced volume of fuel sold of 6.0 million gallons caused a $9.2 million decrease. This was offset by increases in employee compensation and broker
commissions and related benefits of $2.1 million due primarily to higher broker commissions on increased futures commissions and service, consulting and brokerage fees. Pit brokerage and clearing fees were up $0.7 million due to increased futures
commissions and introducing broker commissions also increased $0.8 million due to higher commission revenue from such introducing brokers customers.

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 $21.5 million for the three month period ended May 31, 2006 compared to $14.5 million for the three month period ended May 31, 2005, an
increase of $7.0 million or 48.3%. This increase was primarily due to higher commissions of $3.0 million and higher transaction fees of $3.5 million due to volume increases as a result of volatility in the energy related commodities. Trade volume
increased from 9.4 million contracts in 2005 to 11.8 million contracts in 2006. Interest income also increased $1.4 million due to higher short term interest rates and much higher customer margin deposits for this segment. Offsetting these
increases was a reduction in other income, as the prior year comparative period included $0.9 million from the close out of a customer shared profit agreement.

Costs and expenses were higher at $18.2 million for the three month period ended May 31, 2006 compared to $12.5 million for the three month period ended May 31, 2005, an increase of $5.7 million. The increase was primarily a
result of volume related additional pit brokerage and clearing fees of $3.6 million and introducing broker commissions of $1.7 million, and increased salaries, wages and related benefits of $0.5 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. 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 $3.1 million and $3.6 million for the three-month periods ended May 31, 2006 and 2005, respectively. The gross profit was lower, primarily due to
the decrease in bushels merchandised from 58.8 million for the three month period ended May 31, 2005 to 56.0 million for the three-month period ended May 31, 2006.

Expenses, excluding the costs of commodities sold, were $5.3 million for the three month period ended May 31, 2006 and $4.6 million for the three month period ended May 31, 2005, an increase of $0.7 million.
The increase in operating expenses was primarily a result of an increase in the Companys bad debt expense of $1.0 million, related to a grain merchandising customer located in Montgomery, AL who filed for bankruptcy on April 18, 2006.
Offsetting this increase, is a decrease in interest expense of $0.3 million, due to a reduction in the average borrowings.



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##### 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 a 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 $15.6 million for the three month period ended May 31, 2006 compared to $5.8 million for the three
month period ended May 31, 2005, an increase of $9.8 million. This is primarily the result of a $9.3 million increase in revenue from financing arrangements the Company offers through Merchants, initiating transactional commodity financing
arrangements in energy, grain and other commodities. Although this increase in revenue from financing arrangements was significant amount when compared to total revenues, the cost of commodities sold increased $9.2 million, resulting in a minimal
effect on net income. Additionally, Merchants had a $0.1 million decrease in revenue from commodity profit sharing transactions during the three month period ended May 31, 2006. Offsetting this decrease was a $0.5 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.

Expenses,
excluding the costs of commodities sold, totaled $1.4 million for the three month period ended May 31, 2006 compared to $0.8 million for the three month period ended May 31, 2005, an increase of $0.6 million. This increase is primarily the
result of a $0.4 million increase in interest expense from increased activity in the grain inventory financing program, and a $0.1 million increase in railcar lease expense.

Corporate and Other. The Corporate and Other segment generated insignificant amounts of revenue, comprised of interest income for the three month period ended May 31, 2006 and 2005. Expenses
increased $1.1 million for the three month period ended May 31, 2006 over the three months ended May 31, 2005 primarily due to higher employee incentive compensation and additional staff and related benefits.

Nine Months Ended May 31, 2006 Compared to Nine Months Ended May 31, 2005

Revenues

Revenues totaled $977.7 million for the nine-month period ended May 31, 2006 compared to
$1,106.9 million for the nine-month period ended May 31, 2005, a decrease of $129.2 million or 11.7%. This decrease was primarily a result of a 20.6 million or 10.3% decrease in grain bushels handled, which accounted for a revenue decrease
of $151.2 million. Although the $151.2 million decrease in grain sales was a significant amount when compared to total revenues, the cost of grain sold decreased $149.9 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. The Company has moved away from handling physical fuels, and now periodically participates, as a principal, only in
back-to-back ethanol purchases and sales. As a result, related physical fuel sales were down $19.7 million as the Company sold 12.7 million fewer gallons than in the prior comparative period. Additionally, transactional commodity revenues in
our Financial Services segment increased $2.7 million, as result of the increase in the number of transactions financed. Commissions were up $11.1 million due to higher trade volume, and clearing and transaction fees were up $8.7 million on higher
trade volume in the clearing and execution services segment. Service, consulting and brokerage fees were $11.4 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 $10.0 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 $848.5 million for the nine month period ended May 31, 2006 compared to $1,015.4 million for the nine month period ended May 31, 2005, a decrease of $166.9 million or 16.4%. This decrease was primarily a
result of lower grain and fuel volumes sold as noted above, and had minimal effect on net income.



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##### Table of Contents

Employee Compensation and Broker Commissions. Employee compensation and broker commissions were $30.7
million for the nine month period ended May 31, 2006 compared to $24.0 million for the nine month period ended May 31, 2005, an increase of $6.7 million or 27.9%. This increase was primarily a result of volume related increases consistent
with the higher revenues at both the Companys commodity and risk management services and clearing and execution services segments, additional personnel, and higher incentive compensation due to higher net income.

Pit Brokerage and Clearing Fees. The increase of pit brokerage and clearing fees from $23.9 million for the nine month period ended May 31, 2005 to
$33.6 million for the nine month period ending May 31, 2006 is directly related and consistent with the 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 $9.9 million for the nine month period ended May 31, 2005 to $15.6 million for the nine month period ended May 31, 2006 consistent with the increased commissions from IB customers in the clearing and execution
services segment.

Interest. Interest expense increased to $4.3 million for the nine month period ended May 31, 2006 from $2.9 million
for the nine month period ending May 31, 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 $27.0 million for the nine month period ended May 31, 2006 compared to $22.5
million for the nine month period ended May 31, 2005, an increase of $4.5 million. This increase was primarily a result of increases in the Companys employee benefits and payroll taxes of $1.3 million, office, equipment and facilities
rent and expenses of $0.6 million, travel and related expenses of $0.5 million, advertising and promotion costs of $0.5 million, insurance costs of $0.4 million, railcar lease costs of $0.3 million, professional fees of $0.2 million, and bad debt
expense of $0.5 million.

Income Tax Expense. Our provision for income taxes for the nine-month period ended May 31, 2006 increased over
2005, due to higher income before income tax expense in the nine month period ended May 31, 2006. The effective tax rate was 37.9% in 2006 and 37.6% in 2005.



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##### Table of Contents

Operations by Segment

Nine months Ended May 31, 2006 Compared to Nine months Ended May 31, 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 nine month period ending May 31, 2006 with the nine month period ended May 31, 2005 (in thousands):



|                                                        |  |                                      |        |                               |   |                     |  |   |                    |   |  |                   |        |   |                     |   |        |       |  |   |        |   |  |   |           |  
|------------------------------------------------------- |  | ------------------------------------ | ------ | ----------------------------- | - | ------------------- |  | - | ------------------ | - |  | ----------------- | ------ | - | ------------------- | - | ------ | ----- |  | - | ------ | - |  | - | --------- | -
|                                                        |  | Commodity & Risk Management Services |        | Clearing & Execution Services |   | Grain Merchandising |  |   | Financial Services |   |  | Corporate & Other |        |   | Reconciling Amounts |   |        | Total | 
|Nine Months Ended May 31,
2006                          |  |                                      |        |                               |   |                     |  |   |                    |   |  |                   |        |   |                     |   |        |       |  |   |        |   |  |   |           |  
|Revenues:                                               |  |                                      |        |                               |   |                     |  |   |                    |   |  |                   |        |   |                     |   |        |       |  |   |        |   |  |   |           |  
|Commissions                                             |  | $                                    | 24,852 |                               | $ | 24,921              |  | $ |                   |   |  | $                 |       |   |                     | $ |       |       |  | $ | (368   | ) |  | $ | 49,405    |  
|Service, consulting and brokerage fees                  |  |                                      | 25,051 |                               |   |                    |  |   |                   |   |  |                   |       |   |                     |   |       |       |  |   | (453   | ) |  |   | 24,598    |  
|Clearing and transaction fees                           |  |                                      |       |                               |   | 25,230              |  |   |                   |   |  |                   |       |   |                     |   |       |       |  |   |       |   |  |   | 25,230    |  
|Interest                                                |  |                                      | 6,087  |                               |   | 7,234               |  |   | 425                |   |  |                   | 2,652  |   |                     |   | 160    |       |  |   | (1,281 | ) |  |   | 15,277    |  
|Other                                                   |  |                                      | 83     |                               |   |                    |  |   | 1,310              |   |  |                   | 1,109  |   |                     |   | (19    | )     |  |   | (3     | ) |  |   | 2,480     |  
|Sales of commodities                                    |  |                                      | 5,197  |                               |   |                    |  |   | 831,252            |   |  |                   | 24,229 |   |                     |   |       |       |  |   |       |   |  |   | 860,678   |  
|                                                        |  |                                      |        |                               |   |                     |  |   |                    |   |  |                   |        |   |                     |   |        |       |  |   |        |   |  |   |           |  
|Total revenues                                          |  |                                      | 61,270 |                               |   | 57,385              |  |   | 832,987            |   |  |                   | 27,990 |   |                     |   | 141    |       |  |   | (2,105 | ) |  |   | 977,668   |  
|                                                        |  |                                      |        |                               |   |                     |  |   |                    |   |  |                   |        |   |                     |   |        |       |  |   |        |   |  |   |           |  
|Costs and expenses:                                     |  |                                      |        |                               |   |                     |  |   |                    |   |  |                   |        |   |                     |   |        |       |  |   |        |   |  |   |           |  
|Cost of commodities sold                                |  |                                      | 5,113  |                               |   |                    |  |   | 819,673            |   |  |                   | 24,103 |   |                     |   |       |       |  |   | (409   | ) |  |   | 848,480   |  
|Expenses (excluding interest expense)                   |  |                                      | 40,339 |                               |   | 48,651              |  |   | 11,467             |   |  |                   | 1,760  |   |                     |   | 5,101  |       |  |   | (415   | ) |  |   | 106,903   |  
|Interest                                                |  |                                      | 87     |                               |   | 251                 |  |   | 2,758              |   |  |                   | 2,229  |   |                     |   | 291    |       |  |   | (1,281 | ) |  |   | 4,335     |  
|                                                        |  |                                      |        |                               |   |                     |  |   |                    |   |  |                   |        |   |                     |   |        |       |  |   |        |   |  |   |           |  
|Total costs and expenses                                |  |                                      | 45,539 |                               |   | 48,902              |  |   | 833,898            |   |  |                   | 28,092 |   |                     |   | 5,392  |       |  |   | (2,105 | ) |  |   | 959,718   |  
|                                                        |  |                                      |        |                               |   |                     |  |   |                    |   |  |                   |        |   |                     |   |        |       |  |   |        |   |  |   |           |  
|Income (loss) before minority interest and income taxes |  |                                      | 15,731 |                               |   | 8,483               |  |   | (911               | ) |  |                   | (102   | ) |                     |   | (5,251 | )     |  |   |       |   |  |   | 17,950    |  
|Minority interest                                       |  |                                      |       |                               |   |                    |  |   | (273               | ) |  |                   | (97    | ) |                     |   |       |       |  |   |       |   |  |   | (370      | )
|                                                        |  |                                      |        |                               |   |                     |  |   |                    |   |  |                   |        |   |                     |   |        |       |  |   |        |   |  |   |           |  
|Income (loss) before income taxes                       |  | $                                    | 15,731 |                               | $ | 8,483               |  | $ | (638               | ) |  | $                 | (5     | ) |                     | $ | (5,251 | )     |  | $ |       |   |  | $ | 18,320    |  
|                                                        |  |                                      |        |                               |   |                     |  |   |                    |   |  |                   |        |   |                     |   |        |       |  |   |        |   |  |   |           |  
|Grain bushels sold                                      |  |                                      |        |                               |   |                     |  |   | 180,609            |   |  |                   |        |   |                     |   |        |       |  |   |        |   |  |   |           |  
|Gross profits on grain sales                            |  |                                      |        |                               |   |                     |  | $ | 11,579             |   |  |                   |        |   |                     |   |        |       |  |   |        |   |  |   |           |  
|                                                        |  |                                      |        |                               |   |                     | 
|May 31, 2005                                            |  |                                      |        |                               |   |                     |  |   |                    |   |  |                   |        |   |                     |   |        |       |  |   |        |   |  |   |           |  
|Revenues:                                               |  |                                      |        |                               |   |                     |  |   |                    |   |  |                   |        |   |                     |   |        |       |  |   |        |   |  |   |           |  
|Commissions                                             |  | $                                    | 20,606 |                               | $ | 18,123              |  | $ |                   |   |  | $                 |       |   |                     | $ |       |       |  | $ | (396   | ) |  | $ | 38,333    |  
|Service, consulting and brokerage fees                  |  |                                      | 13,719 |                               |   |                    |  |   |                   |   |  |                   |       |   |                     |   |       |       |  |   | (475   | ) |  |   | 13,244    |  
|Clearing and transaction fees                           |  |                                      |       |                               |   | 16,507              |  |   |                   |   |  |                   |       |   |                     |   |       |       |  |   |       |   |  |   | 16,507    |  
|Interest                                                |  |                                      | 1,902  |                               |   | 2,717               |  |   | 103                |   |  |                   | 843    |   |                     |   | 64     |       |  |   | (360   | ) |  |   | 5,269     |  
|Other                                                   |  |                                      | 244    |                               |   | 921                 |  |   | 1,958              |   |  |                   | 1,594  |   |                     |   | 3      |       |  |   |       |   |  |   | 4,720     |  
|Sales of commodities                                    |  |                                      | 24,872 |                               |   |                    |  |   | 982,440            |   |  |                   | 21,564 |   |                     |   |       |       |  |   |       |   |  |   | 1,028,876 |  
|                                                        |  |                                      |        |                               |   |                     |  |   |                    |   |  |                   |        |   |                     |   |        |       |  |   |        |   |  |   |           |  
|Total revenues                                          |  |                                      | 61,343 |                               |   | 38,268              |  |   | 984,501            |   |  |                   | 24,001 |   |                     |   | 67     |       |  |   | (1,231 | ) |  |   | 1,106,949 |  
|                                                        |  |                                      |        |                               |   |                     |  |   |                    |   |  |                   |        |   |                     |   |        |       |  |   |        |   |  |   |           |  
|Costs and expenses:                                     |  |                                      |        |                               |   |                     |  |   |                    |   |  |                   |        |   |                     |   |        |       |  |   |        |   |  |   |           |  
|Cost of commodities sold                                |  |                                      | 24,906 |                               |   |                    |  |   | 969,614            |   |  |                   | 21,383 |   |                     |   |       |       |  |   | (468   | ) |  |   | 1,015,435 |  
|Expenses (excluding interest expense)                   |  |                                      | 30,326 |                               |   | 34,263              |  |   | 11,493             |   |  |                   | 1,376  |   |                     |   | 3,218  |       |  |   | (403   | ) |  |   | 80,273    |  
|Interest                                                |  |                                      | 44     |                               |   | 218                 |  |   | 2,141              |   |  |                   | 690    |   |                     |   | 162    |       |  |   | (360   | ) |  |   | 2,895     |  
|                                                        |  |                                      |        |                               |   |                     |  |   |                    |   |  |                   |        |   |                     |   |        |       |  |   |        |   |  |   |           |  
|Total costs and expenses                                |  |                                      | 55,276 |                               |   | 34,481              |  |   | 983,248            |   |  |                   | 23,449 |   |                     |   | 3,380  |       |  |   | (1,231 | ) |  |   | 1,098,603 |  
|                                                        |  |                                      |        |                               |   |                     |  |   |                    |   |  |                   |        |   |                     |   |        |       |  |   |        |   |  |   |           |  
|Income (loss) before minority interest and income taxes |  |                                      | 6,067  |                               |   | 3,787               |  |   | 1,253              |   |  |                   | 552    |   |                     |   | (3,313 | )     |  |   |       |   |  |   | (8,346    | )
|Minority interest                                       |  |                                      |       |                               |   |                    |  |   | 376                |   |  |                   | 118    |   |                     |   |       |       |  |   |       |   |  |   | 494       |  
|                                                        |  |                                      |        |                               |   |                     |  |   |                    |   |  |                   |        |   |                     |   |        |       |  |   |        |   |  |   |           |  
|Income (loss) before income taxes                       |  | $                                    | 6,067  |                               | $ | 3,787               |  | $ | 877                |   |  | $                 | 434    |   |                     | $ | (3,313 | )     |  | $ |       |   |  | $ | 7,852     |  
|                                                        |  |                                      |        |                               |   |                     |  |   |                    |   |  |                   |        |   |                     |   |        |       |  |   |        |   |  |   |           |  
|Grain bushels sold                                      |  |                                      |        |                               |   |                     |  |   | 201,251            |   |  |                   |        |   |                     |   |        |       |  |   |        |   |  |   |           |  
|Gross profit on grain sales                             |  |                                      |        |                               |   |                     |  | $ | 12,826             |   |  |                   |        |   |                     |   |        |       |  |   |        |   |  |   |           |  



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Commodity and Risk Management Services. Revenues decreased $0.1 million between the comparative periods,
despite the companys much lower fuel sales of $19.7 million, as the Company has moved away from handling physical fuels, and now periodically participates, as a principal, only in back-to-back ethanol purchases and sales. Although fuel sales
declined $19.7 million from 2005, the margin on such fuel sales increased $0.1 million. Service, consulting and brokerage fees were up $11.3 million due to increased energy, ethanol, and grain risk management brokerage and additional customers on
our fee based risk management program. Commission revenues increased $4.2 million as higher grain commodity prices and a larger fall 2005 grain crop resulted in increased volume in 2006 of 1.6 million contracts as compared to 1.2 million
contracts in 2005. As a result of higher short-term interest rates and customer margin deposits, interest income increased $4.2 million in 2006.

Costs and
expenses decreased $9.7 million between the comparative periods. As noted above, much lower fuel volume accounted for $19.8 million of such decreased costs and expenses, offset by a $7.3 million increase in employee compensation and broker
commissions and related benefits, consistent with the volume related increased commission revenues and service, consulting, and brokerage fee revenues. Also consistent with higher commission revenue, pit brokerage and clearing fees increased $1.4
million and introducing broker commissions increased $1.1 million.

Clearing and Execution Services. Revenues increased $19.1 million between
comparative periods. Commission revenues were up $6.8 million and transaction fees were $8.7 million higher on increased volume due primarily to energy commodities price volatility. Trade volume increased from 25.4 million contracts in 2005 to
32.9 million contracts in 2006. Interest income increased by $4.5 million as a result of higher short-term interest rates and increased customer margin deposits. Offsetting these increases was a reduction in other income, as the prior year
period included $0.9 million from the close out of a customer shared profit agreement.

Costs and expenses increased $14.4 million between comparative
periods. This increase was primarily due to volume-related clearing fees of $9.0 million, pit brokerage of $0.5 million, introducing broker commissions of $3.8 million, and related increased employee compensation of $0.8 million.

Grain Merchandising. Grain sales decreased $151.2 million, primarily as a result of a 10.3% decrease in the volume of grain bushels sold during the first
nine months of fiscal 2006. Additionally, the lower volumes resulted in a decrease in gross profit on the sales of $1.2 million. Directly related to the decrease in the volume of bushels sold, the cost of grain sales decreased $149.9 million

Expenses, excluding the cost of commodities sold, were $14.2 million for the nine month period ended May 31, 2006 compared to $13.6 million for the
nine month period ended May 31, 2005, an increase of $0.6 million. This increase was primarily due to a $0.6 million increase in interest costs, as a result of the increasing variable rates on the lines of credit.

Financial Services. Revenues totaled $28.0 million for the nine month period ended May 31, 2006 compared to $24.0 million for the nine month period
ended May 31, 2005, an increase of $4.0 million. The increase is primarily the result of a $2.7 million increase in revenue from purchase and sales financing arrangements, the Company offers through FCStone Merchant Services, LLC, in energy and
other commodities. Although this increase in revenue from financing arrangements was a significant amount when compared to total revenues, the cost of commodities sold also increased $2.7 million, resulting in a minimal effect on net income.
Additionally, there was a $0.8 million decrease in revenues earned as a profit-share in financing arrangements. These decreases in revenues were offset by increased interest income of $1.8 million, resulting from increased activity in the grain
inventory warehouse receipts program and higher short term interest rates.

Costs and expenses also increased between the comparative periods by $4.6
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 $1.5 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 $0.3 million.



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Corporate and Other. The Corporate and Other segment generated insignificant amounts of revenue, comprised
of interest income for the nine month periods ended May 31, 2006 and 2005. Expenses were $5.4 million for the nine month period ended May 31, 2006 and $3.4 million for the comparable nine month period ended May 31, 2005, an increase
of $2.0 million primarily a result of increased employee incentive plan accruals due to the higher net income and additional staff and related benefits.

Liquidity and Capital Resources

The following table presents a summary of unrestricted cash flows for the nine months ended May 31,
2006 compared to the nine months ended May 31, 2005.



|                                                         |  |                           |         |   |      |   |        |  
|-------------------------------------------------------- |  | ------------------------- | ------- | - | ---- | - | ------ | -
|                                                         |  | Nine months ended May 31, |        
|                                                         |  | 2006                      |         |   | 2005 |  
|                                                         |  | (dollars in thousands)    |        
|Cash Flows provided by (used in):                        |  |                           |         |   |      |   |        |  
|Operating Activities                                     |  | $                         | (1,118  | ) |      | $ | 26,111 |  
|Investing Activities                                     |  |                           | (24,515 | ) |      |   | (6,824 | )
|Financing Activities                                     |  |                           | 45,097  |   |      |   | 3,252  |  
|                                                         |  |                           |         |   |      |   |        |  
|Net Increase in cash and cash equivalents - unrestricted |  | $                         | 19,464  |   |      | $ | 22,539 |  
|                                                         |  |                           |         |   |      |   |        |  

Our principal sources of liquidity are primarily 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 $404 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.

Cash and cash equivalents increased $19.5 million in the nine months ended May 31,
2006 and $22.5 million in the nine months ended May 31, 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 $1.1 million for the nine-month period ended May 31, 2006, as compared to generating cash of $26.1
million from operations for the nine-month period ended May 31, 2005, primarily due to the combined changes in the following:



| |  | Commodity accounts receivable/payable and marketable securities for customer segregated funds and other increased by $25.8 million during the nine-month period ended May 31,
2006, primarily due to increased customer margin deposits with the Company, as a result of the significant increase in our open position and higher margin requirements on grain commodities by the exchanges. Comparatively, commodity accounts
receivable/payable and marketable securities for customer segregated funds and other increased by $3.6 million during the nine-month period ended May 31, 2005.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Accounts receivable and advances on grain increased by $59.2 million during the nine-month period ended May 31, 2006 primarily due to increases in receivables on our OTC
transactions and receivables in our transactional commodity finance arrangements. Offsetting these increases was a reduction in the trade receivables of the grain merchandising segment. Comparatively, accounts receivable and advances on grain
decreased by $10.3 million during the nine-month period ended May 31, 2005, also primarily due to a reduction in the trade receivables of the grain merchandising segment, offset by increases in receivables on our OTC transactions.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  | Inventories of grain, fertilizer, and fuel increased by $19.5 million during the nine-month period ended May 31, 2006. Inventories of grain, fertilizer, and fuel increased by
$8.8 million during the nine-month period ended May 31, 2005. The variance is primarily due to the increase in grain bushels held in inventory. During the nine-month period ended May 31, 2006, grain inventory bushels increased by
2.4 million to 6.2 million bushels. During the nine-month period ended May 31, 2005, grain inventory bushels increased by 1.1 million to 4.0 million bushels. Additionally, fertilizer inventory increased by $1.0 million to
$1.7 million during the nine-month period ended May 31, 2006, whereas fertilizer inventory was minimal in the prior comparative period. The Company held no fuel inventory at May 31, 2006, as it has moved towards offering traditional
brokerage services, rather than serving as a principal in fuel sales, compared to fuel inventory of $1.2 million at May 31, 2005.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Accounts payable increased by $90.3 million during the nine-month period ended May 31, 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 $25.6 million during the nine-month period ended May 31, 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 $24.5 million and $6.8 million for the nine-month periods ended May 31, 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. Additionally, the Company purchased $4.9 million and $0.9 million of exchange membership seats and stock during the nine-month periods ended May 31, 2006 and 2005, respectively. The
Exchange membership seats and stock provide the Company with the right to do business on the various exchanges. The Company has moved towards owning its own exchange seats and stock, rather than relying on memberships from affiliated individuals.

Cash Flows from Financing Activities

The Company had
cash provided by financing activities of $45.1 million for the nine-month period ended May 31, 2006 primarily due to drawing down on our lines of credit available within our grain merchandising and financing services segments and also including
a $1.5 million increase in subordinated debt. These borrowing increases have been offset by dividend payments of $2.9 million for the nine months ended May 31, 2006. Comparatively, the Company had cash provided by financing activities of $3.3
million for the nine-month period ended May 31, 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



22



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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 bins. 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.

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/Expiration Date |  | Use                                         |  | Amount Available |       |    | Amount Outstanding at
May 31 2006
|Deere Credit, Inc.                                      |  | March 1, 2007           |  | Margin Calls                                |  | $                | 38.8  |    |                                   | $ |    
|Deere Credit, Inc.                                      |  | March 1, 2007           |  | Repurchase Agreements                       |  |                  | 96.0  |    |                                   |   | 27.4
|Deere Credit, Inc.                                      |  | December 1, 2006        |  | Subordinated Debt for Regulatory Capital    |  |                  | 7.0   |    |                                   |   | 6.0 
|Deere Credit, Inc.                                      |  | October 1, 2006         |  | General Corporate                           |  |                  | 8.2   |    |                                   |   | 8.2 
|                                                        |  |                         |  |                                             |  |                  |       |    |                                   |   |     
|Total Deere                                             |  |                         |  |                                             |  |                  | 150.0 |    |                                   |   | 41.6
|                                                        |  |                         |  |                                             |  |                  |       |    |                                   |   |     
|CoBank, ACB                                             |  | March 28, 2007          |  | Grain Merchandising                         |  |                  | 68.0  | *  |                                   |   | 26.6
|CoBank, ACB                                             |  | March 28, 2008          |  | Grain Merchandising                         |  |                  | 8.0   | *  |                                   |   |    
|CoBank, ACB                                             |  | December 30, 2006       |  | OTC & Fuel Operations                       |  |                  | 10.0  |    |                                   |   |    
|CoBank, ACB                                             |  | December 30, 2007       |  | OTC & Fuel Operations                       |  |                  | 10.0  |    |                                   |   |    
|CoBank, ACB                                             |  | May 1, 2007             |  | Repurchase Agreements                       |  |                  | 75.0  |    |                                   |   | 2.9 
|                                                        |  |                         |  |                                             |  |                  |       |    |                                   |   |     
|Total CoBank                                            |  |                         |  |                                             |  |                  | 163.0 |    |                                   |   | 29.5
|                                                        |  |                         |  |                                             |  |                  |       |    |                                   |   |     
|Harris Bank                                             |  | January 1, 2007         |  | Margin Calls                                |  |                  | 30.0  | ** |                                   |   |    
|AFG Trust Finance Limited                               |  | May 25, 2007            |  | Grain Merchandising                         |  |                  | 20.0  |    |                                   |   | 4.1 
|Industrial Revenue Bonds(Capitalized Lease Obligations) |  | Annual payments to 2013 |  | Mobile, Alabama facility additional
storage |  |                  |      |    |                                   |   | 3.7 
|Fortis Capital Corp.                                    |  | Demand                  |  | Financial Services operations               |  |                  | 20.0  |    |                                   |   | 5.5 
|RZB Finance, LLC                                        |  | Demand                  |  | Financial Services operations               |  |                  | 8.0   |    |                                   |   |    
|Bank of Tokyo-Mitsubishi UFJ, Ltd.                      |  | Demand                  |  | Financial Services operations               |  |                  | 10.0  |    |                                   |   | 8.5 
|Subordinated Debt                                       |  | December 31, 2006       |  | Regulatory Capital                          |  |                  | 1.8   |    |                                   |   | 1.0 
|Long-term Note                                          |  | December 31, 2012       |  | NYMEX seat                                  |  |                  | 0.5   |    |                                   |   | 0.2 

---

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

|** | Effective June 30, 2006, the amount available to borrow from Harris Bank has been temporarily increased from $15.0 million to $30.0 million for a three month period.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



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All of our credit facilities include financial covenants and the failure to comply with any such covenants could result
in the debt becoming payable on demand. The Company was in compliance with all debt covenants effective May 31, 2006 and expects to remain in compliance in the future. The grain merchandising segment amended its debt covenants to be in
compliance, effective May 31, 2006.

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 for 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.

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 and a $75.0 million line of credit
with CoBank 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

Historically, the Company has experienced seasonality in our
operations with the first quarter typically being the strongest period as a result of the U.S. grain harvest. However, with the recent volatile commodities prices, our futures volumes have not seen a significant drop-off during the second and third
quarters as in the past. 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/A, 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/A.

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 May 31, 2006:



|                   |  |                        |   |  |          |   |  |         |   |  |               |  
|------------------ |  | ---------------------- | - |  | -------- | - |  | ------- | - |  | ------------- | -
|                   |  | Bushels (in thousands) |  
|                   |  | Corn                   |   |  | Soybeans |   |  | Wheat   |   |  | Oats & Barley |  
|Inventory          |  | 3,655                  |   |  | 397      |   |  | 1,924   |   |  |              |  
|Purchase Contracts |  | 28,810                 |   |  | 8,767    |   |  | 13,119  |   |  | 276           |  
|Sale Contracts     |  | (6,203                 | ) |  | (7,717   | ) |  | (1,304  | ) |  | (67           | )
|Futures Long       |  |                       |   |  | 1,581    |   |  | 1,550   |   |  |              |  
|Futures Short      |  | (26,230                | ) |  | (3,038   | ) |  | (15,262 | ) |  | (190          | )
|Net Open Position  |  | 32                     |   |  | (10      | ) |  | 27      |   |  | 19            |  



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Bushel information is used to calculate the net open commodity position, which is sensitive to changes in commodity
prices. Open cash and futures contracts for the purchase and sale of grain are reported at market value; therefore the net open commodity position multiplied by the year-end market price approximates fair value.

A hypothetical 10% increase (or decrease) in the market price of corn from the May 31, 2006 level of $2.51 per bushel would result in a gain (or loss) to future
earnings of approximately $8,000.

A hypothetical 10% increase (or decrease) in the market price of soybeans from the May 31, 2006 level of $5.80 per
bushel would result in a gain (or loss) to future earnings of approximately $(6,000).

A hypothetical 10% increase (or decrease) in the market price of
wheat from the May 31, 2006 level of $3.94 per bushel would result in a gain (or loss) to future earnings of approximately $11,000.

A hypothetical
10% increase (or decrease) in the market price of oats and barley from the May 31, 2006 level of $1.82 per bushel would result in a gain (or loss) to future earnings of approximately $3,000.

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 May 31, 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 $3.7 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.



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Item 4. Controls and Procedures

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

Changes in internal control over
financial reporting. 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 May 31, 2006
that have materially affected or are reasonable likely to materially affect the Companys internal control over financial reporting.

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 2008 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 of charter party agreements
regarding five vessels and seeking to recover damages of $242,655, $230,863, $769,302, $649,031 and $403,167, respectively. Euro-Maritime Chartering alleges that these damages arise from detention and demurrage encountered at China ports with
respect to cargos that FGDI sold to Chinese buyers. FGDI does not dispute the demurrage claims, which are estimated to total approximately $690,000. FGDI claims that, under the sales contracts with the Chinese buyers, any detention and demurrage
charges were for the account of the buyers. FGDI has collected deposits from the Chinese buyers in the total amount of $669,436, which are being held pending resolution of the detention claims. FGDI intends to vigorously defend the detention claims
and believes that it has meritorious defenses. If the claimant prevails on any of the detention claims, or otherwise in amounts above the corresponding deposit, FGDI expects to seek collection of such amounts from the buyers.

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

In September 2004, Nantong Baogang Oils and Fats Development Co Ltd
(Nantong Baogang) filed a claim in arbitration under the arbitration facility established by the Federation of Oils, Seeds, and Fats Association Ltd. of Hong Kong (FOSFA) requiring FGDI to return a refundable deposit of $603,741, which was paid by
Nantong Baogang, plus interest and costs. FGDI does not dispute that Nantong Baogang is entitled to refund of the deposit, rather that the deposit be subject to FGDIs right to set off against sums payable by Nantong Baogang to FGDI under a
second arbitration. FGDI filed a claim in arbitration under the arbitration facility established by the FOSFA seeking to recover demurrage of $480,783 plus interest and costs. FGDI subsequently tendered to Nantong Baogang the net balance. On
February 28, 2006, the first arbitration panel issued an award, ordering FGDI to repay the deposits plus an amount for interest and legal costs. On May 8, 2006, FGDI filed a notice of appeal against the award, and asked the appeal board to set aside
the award pending the second arbitration panels decision on the demurrage claim filed by FGDI, that as of June 27, 2006 had been drafted and is expected to be available shortly. FGDI expects that the two claims will substantially offset each
other, and that the resolution of these matters will not have a material effect on FGDI and its financial condition.



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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, but has not at this time. FGDI intends to vigorously defend this claim.

On April 19, 2006, the Company was informed that a grain merchandising customer located in Montgomery, Alabama, with whom we have outstanding receivables of
approximately $1.1 million, filed Chapter 11 bankruptcy on April 18, 2006. The Company is reviewing its legal alternatives and position in the bankruptcy proceedings. During the current three-month period ended May 31, 2006, the Company has charged
$1.1 million to bad debt expense related to this customer.

On May 23, 2006, a former customer, Watseka Farmers Grain Cooperative Company, filed an
action in the United States District Court, Central District of Illinois seeking actual damages, interest, punitive damages and general relief relating to losses on allegedly improper speculative trades ordered by the former general manager of the
customer in a commodity futures account at FCStone, LLC. The customer was placed under supervision by Illinois state authorities in May 2004, after examination revealed deficiencies in its financial reporting and condition, and its assets were
subsequently sold. The Company 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 and the accounts receivable charged to bad
debt expense, no amounts have been accrued in the financial statements. The Company 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.

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

Not applicable

Item 5. Other Information

None



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Item 6. Exhibits

|     |  |                                                                                                                                    
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------
|     | 
|10.1 |  | First Amendment to Revolving Credit, Term Loan and Security Agreement, dated as of May 31, 2006, between CoBANK, ACB and FGDI, LLC.
|     | 
|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.            



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SIGNATURES

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



|              |  |                     |  |                        
|------------- |  | ------------------- |  | -----------------------
|              |  | FCStone Group, Inc.
|              |  | Registrant         
|              |  |                    
|July 17, 2006 |  | By:                 |  | /s/ Paul G. Anderson   
|              |  |                     |  | Paul G. Anderson       
|              |  |                     |  | Chief Executive Officer
|              |  |                    
|July 17, 2006 |  | By:                 |  | /s/ Robert V. Johnson  
|              |  |                     |  | Robert V. Johnson      
|              |  |                     |  | Chief Financial Officer



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