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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 November 30, 2005



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 December 31, 2005, the registrant had 4,829,679 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  November 30, 2005 and August 31, 2005        |  | 3   
|Consolidated Statements of Operations  Three Months Ended November 30, 2005 and 2004         |  | 4   
|Consolidated Statements of Cash Flows  Three Months Ended November 30, 2005 and 2004         |  | 5   
|Notes to Consolidated Financial Statements                                                    |  | 6   
|Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 9   
|Item 3.
Quantitative and Qualitative Disclosures About Market Risk                            |  | 17  
|Item 4.
Controls and Procedures                                                               |  | 18  
|                                                                                              | 
|PART II 
OTHER INFORMATION                                                                   |  |     
|Item 1.
Legal Proceedings                                                                     |  | 19  
|Item 6.
Exhibits                                                                              |  | 20  
|SIGNATURES                                                                                    |  | 21  



2



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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)



|                                                                                                                                                  |  |                  |         |   |                |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ------- | - | -------------- | - | ------- | -
|                                                                                                                                                  |  | November 30,2005 |         |   | August 31,2005 |  
|                                                                                                                                                  |  | (Unaudited)      |         |   |                |  
|ASSETS                                                                                                                                            |  |                  |         |   |                |   |         |  
|Cash and cash equivalents:                                                                                                                        |  |                  |         |   |                |   |         |  
|Unrestricted                                                                                                                                      |  | $                | 31,610  |   |                | $ | 25,145  |  
|Restricted                                                                                                                                        |  |                  | 1,410   |   |                |   | 1,410   |  
|Segregated                                                                                                                                        |  |                  | 8,514   |   |                |   | 10,509  |  
|Commodity accounts receivable:                                                                                                                    |  |                  |         |   |                |   |         |  
|Commodity exchanges and clearing organizations  customer segregated, including United States treasury bills and notes                            |  |                  | 372,073 |   |                |   | 396,446 |  
|Proprietary commodity accounts                                                                                                                    |  |                  | 21,914  |   |                |   | 18,028  |  
|Customer regulated accounts in deficit secured by U.S. treasury bills and notes                                                                   |  |                  | 5,618   |   |                |   | 6,351   |  
|                                                                                                                                                  |  |                  |         |   |                |   |         |  
|Total commodity deposits and accounts receivable                                                                                                  |  |                  | 399,605 |   |                |   | 420,825 |  
|                                                                                                                                                  |  |                 
|Marketable securities, at fair value  customer segregated and other                                                                              |  |                  | 200,370 |   |                |   | 192,328 |  
|Accounts receivable and advances on grain                                                                                                         |  |                  | 99,682  |   |                |   | 110,246 |  
|Notes receivable                                                                                                                                  |  |                  | 31,724  |   |                |   | 9,632   |  
|Inventories  grain and fuel                                                                                                                      |  |                  | 28,187  |   |                |   | 14,605  |  
|Exchange memberships, at cost                                                                                                                     |  |                  | 1,730   |   |                |   | 1,730   |  
|Furniture, equipment, and improvements, net                                                                                                       |  |                  | 8,111   |   |                |   | 8,206   |  
|Deferred income taxes                                                                                                                             |  |                  | 4,203   |   |                |   | 4,013   |  
|Investments in affiliates and others                                                                                                              |  |                  | 1,721   |   |                |   | 1,726   |  
|Investments in cooperatives                                                                                                                       |  |                  | 1,843   |   |                |   | 1,843   |  
|Other assets                                                                                                                                      |  |                  | 3,433   |   |                |   | 3,304   |  
|                                                                                                                                                  |  |                  |         |   |                |   |         |  
|Total Assets                                                                                                                                      |  | $                | 822,143 |   |                | $ | 805,522 |  
|                                                                                                                                                  |  |                  |         |   |                |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                              |  |                  |         |   |                |   |         |  
|Liabilities:                                                                                                                                      |  |                  |         |   |                |   |         |  
|Checks written in excess of bank balance                                                                                                          |  | $                | 5,077   |   |                | $ | 4,880   |  
|Commodity and customer regulated accounts payable                                                                                                 |  |                  | 546,507 |   |                |   | 549,200 |  
|Trade accounts payable and advances                                                                                                               |  |                  | 109,733 |   |                |   | 129,715 |  
|Accrued expenses                                                                                                                                  |  |                  | 22,357  |   |                |   | 20,764  |  
|Notes payable                                                                                                                                     |  |                  | 73,224  |   |                |   | 36,911  |  
|Subordinated debt                                                                                                                                 |  |                  | 3,500   |   |                |   | 5,500   |  
|Obligations under capital leases                                                                                                                  |  |                  | 3,987   |   |                |   | 4,125   |  
|                                                                                                                                                  |  |                  |         |   |                |   |         |  
|Total liabilities                                                                                                                                 |  |                  | 764,385 |   |                |   | 751,095 |  
|                                                                                                                                                  |  |                  |         |   |                |   |         |  
|                                                                                                                                                  |  |                 
|Minority interest                                                                                                                                 |  |                  | 4,703   |   |                |   | 4,755   |  
|                                                                                                                                                  |  |                 
|Stockholders equity:                                                                                                                             |  |                  |         |   |                |   |         |  
|Common stock, no par value, authorized 20,000,000; issued and outstanding 4,828,279 shares at November 30, 2005 and August 31, 2005,
respectively |  |                  | 21,524  |   |                |   | 21,524  |  
|Accumulated other comprehensive loss                                                                                                              |  |                  | (4,555  | ) |                |   | (4,555  | )
|Retained earnings                                                                                                                                 |  |                  | 36,086  |   |                |   | 32,703  |  
|                                                                                                                                                  |  |                  |         |   |                |   |         |  
|Total stockholders equity                                                                                                                        |  |                  | 53,055  |   |                |   | 49,672  |  
|                                                                                                                                                  |  |                  |         |   |                |   |         |  
|Commitments and contingencies                                                                                                                     |  |                  |         |   |                |   |         |  
|                                                                                                                                                  |  |                 
|Total liabilities and stockholders equity                                                                                                        |  | $                | 822,143 |   |                | $ | 805,522 |  
|                                                                                                                                                  |  |                  |         |   |                |   |         |  



See notes to unaudited consolidated
financial statements.



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FCSTONE GROUP, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF OPERATIONS



(Unaudited)



(in thousands except per share
amounts)



|                                                             |  |                                |         |   |      |   |        
|------------------------------------------------------------ |  | ------------------------------ | ------- | - | ---- | - | -------
|                                                             |  | Three months endedNovember 30,
|                                                             |  | 2005                           |         |   | 2004
|Revenues:                                                    |  |                                |         |   |      |   |        
|Commissions  commodity futures and options                  |  | $                              | 15,477  |   |      | $ | 13,519 
|Service, consulting and brokerage fees                       |  |                                | 6,984   |   |      |   | 2,934  
|Clearing and transaction fees                                |  |                                | 6,921   |   |      |   | 4,871  
|Interest                                                     |  |                                | 4,257   |   |      |   | 1,243  
|Other                                                        |  |                                | 495     |   |      |   | 716    
|Sales of commodities                                         |  |                                | 315,215 |   |      |   | 422,005
|                                                             |  |                                |         |   |      |   |        
|Total revenues                                               |  |                                | 349,349 |   |      |   | 445,288
|                                                             |  |                                |         |   |      |   |        
|Costs and expenses:                                          |  |                                |         |   |      |   |        
|Cost of commodities sold                                     |  |                                | 310,615 |   |      |   | 417,452
|Employee compensation and broker commissions                 |  |                                | 9,666   |   |      |   | 7,754  
|Pit brokerage and clearing fees                              |  |                                | 10,006  |   |      |   | 7,704  
|Introducing broker commissions                               |  |                                | 3,980   |   |      |   | 3,039  
|Employee benefits and payroll taxes                          |  |                                | 2,201   |   |      |   | 1,733  
|Office, equipment and facilities rent and expenses           |  |                                | 1,755   |   |      |   | 1,636  
|Communications and marketing information                     |  |                                | 829     |   |      |   | 812    
|Interest                                                     |  |                                | 1,168   |   |      |   | 600    
|Travel and related                                           |  |                                | 806     |   |      |   | 498    
|Depreciation and amortization                                |  |                                | 392     |   |      |   | 388    
|Bad debt expense                                             |  |                                | 255     |   |      |   | 713    
|Other operating expenses                                     |  |                                | 2,305   |   |      |   | 1,387  
|                                                             |  |                                |         |   |      |   |        
|Total costs and expenses                                     |  |                                | 343,978 |   |      |   | 443,716
|                                                             |  |                                |         |   |      |   |        
|Income before income tax expense and minority interest       |  |                                | 5,371   |   |      |   | 1,572  
|Minority interest                                            |  |                                | (52     | ) |      |   | 52     
|                                                             |  |                                |         |   |      |   |        
|Income after minority interest and before income tax expense |  |                                | 5,423   |   |      |   | 1,520  
|Income tax expense                                           |  |                                | 2,040   |   |      |   | 590    
|                                                             |  |                                |         |   |      |   |        
|Net income                                                   |  | $                              | 3,383   |   |      | $ | 930    
|                                                             |  |                                |         |   |      |   |        
|Basic and diluted shares outstanding (note 4)                |  |                                | 4,828   |   |      |   | 4,309  
|                                                             |  |                               
|Basic and diluted earnings per share                         |  | $                              | 0.70    |   |      | $ | 0.22   



See notes to unaudited consolidated
financial statements.



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FCSTONE GROUP, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS



(Unaudited)



(in thousands)



|                                                                                                          |  |                                |         |   |      |   |         |  
|--------------------------------------------------------------------------------------------------------- |  | ------------------------------ | ------- | - | ---- | - | ------- | -
|                                                                                                          |  | Three months endedNovember 30, |        
|                                                                                                          |  | 2005                           |         |   | 2004 |  
|Cash flows from operating activities:                                                                     |  |                                |         |   |      |   |         |  
|Net income                                                                                                |  | $                              | 3,383   |   |      | $ | 930     |  
|Depreciation and amortization                                                                             |  |                                | 392     |   |      |   | 388     |  
|Minority interest, net of distributions                                                                   |  |                                | (52     | ) |      |   | 52      |  
|Change in commodity accounts receivable/payable, marketable securities and customer segregated funds, net |  |                                | 12,480  |   |      |   | (3,391  | )
|Decrease (increase) in accounts receivable and advances on grain                                          |  |                                | 10,564  |   |      |   | (5,762  | )
|Increase in inventory  grain and fuel                                                                    |  |                                | (13,582 | ) |      |   | (17,489 | )
|Increase in other assets                                                                                  |  |                                | (319    | ) |      |   | (69     | )
|(Decrease) increase in accounts payable                                                                   |  |                                | (19,982 | ) |      |   | 43,500  |  
|Increase (decrease) in accrued expenses                                                                   |  |                                | 1,593   |   |      |   | (1,512  | )
|                                                                                                          |  |                                |         |   |      |   |         |  
|Net cash (used in) provided by operating activities                                                       |  |                                | (5,523  | ) |      |   | 16,647  |  
|                                                                                                          |  |                                |         |   |      |   |         |  
|Cash flows from investing activities:                                                                     |  |                                |         |   |      |   |         |  
|Purchase of furniture, equipment, and improvements                                                        |  |                                | (297    | ) |      |   | (112    | )
|Issuance of notes receivable, net                                                                         |  |                                | (22,092 | ) |      |   | (6,427  | )
|Distributions from affiliates                                                                             |  |                                | 5       |   |      |   |        |  
|                                                                                                          |  |                                |         |   |      |   |         |  
|Net cash used in investing activities                                                                     |  |                                | (22,384 | ) |      |   | (6,539  | )
|                                                                                                          |  |                                |         |   |      |   |         |  
|Cash flows from financing activities:                                                                     |  |                                |         |   |      |   |         |  
|Increase in checks written in excess of bank balance                                                      |  |                                | 197     |   |      |   | 1,097   |  
|Proceeds from (payments on) note payable, net                                                             |  |                                | 36,313  |   |      |   | (3,684  | )
|Payment for redemption of stock                                                                           |  |                                |        |   |      |   | (8      | )
|Payment of prior year patronage                                                                           |  |                                |        |   |      |   | (404    | )
|Payments under capital lease                                                                              |  |                                | (138    | ) |      |   | (137    | )
|Payments on subordinated debt                                                                             |  |                                | (2,000  | ) |      |   | (2,250  | )
|                                                                                                          |  |                                |         |   |      |   |         |  
|Net cash provided by (used in) financing activities                                                       |  |                                | 34,372  |   |      |   | (5,386  | )
|                                                                                                          |  |                               
|Net increase in cash and cash equivalents  unrestricted                                                  |  |                                | 6,465   |   |      |   | 4,722   |  
|Cash and cash equivalents  unrestricted  beginning of period                                            |  |                                | 25,145  |   |      |   | 7,943   |  
|                                                                                                          |  |                                |         |   |      |   |         |  
|Cash and cash equivalents  unrestricted  end of period                                                  |  | $                              | 31,610  |   |      | $ | 12,665  |  
|                                                                                                          |  |                                |         |   |      |   |         |  
|Supplemental disclosures of cash flow information:                                                        |  |                                |         |   |      |   |         |  
|Interest paid                                                                                             |  | $                              | 847     |   |      | $ | 631     |  
|Income taxes paid                                                                                         |  |                                |        |   |      |   |        |  
|                                                                                                          |  |                                |         |   |      |   |         |  



See notes to unaudited consolidated
financial statements.



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##### Table of Contents

FCSTONE GROUP, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



(Unaudited)



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
AND RELATED MATTERS



BASIS OF PRESENTATION AND PRINCIPLES OF
CONSOLIDATION



The consolidated financial statements of FCStone Group,
Inc. and subsidiaries (the Company) included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission, and represent the consolidation of all companies in which the
Company has a controlling interest. The Company also has minority holdings in three other entities, all of which are carried under the equity method. Certain information and disclosures normally included in comprehensive financial statements,
prepared in accordance with U.S. generally accepted accounting principles (US GAAP), have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information
presented not misleading. In the opinion of management, the financial statements reflect all adjustments, which are of a normal recurring nature, necessary to present fairly the Companys consolidated financial position, results of operations
and cash flows for the periods presented. These interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Companys latest annual report on Form 10-K as filed
with the Securities and Exchange Commission on November 29, 2005.



USE
OF ESTIMATES



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



RECLASSIFICATIONS



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



2. PENSION PLANS



The Company has a noncontributory retirement plan, which is a defined benefit plan that covers substantially all employees. 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 month periods ended November 30, 2005 and 2004 for the defined benefit
plans consists of the following components:



|                                    |  |                                |         |      |   |        
|----------------------------------- |  | ------------------------------ | ------- | ---- | - | -------
|                                    |  | Three months endedNovember 30,
|                                    |  | 2005                           |         | 2004
|Service cost                        |  | $                              | 510,882 |      | $ | 427,232
|Interest cost                       |  |                                | 328,755 |      |   | 285,950
|Less expected return on plan assets |  |                                | 306,231 |      |   | 243,076
|Net amortization and deferral       |  |                                | 229,776 |      |   | 109,733
|                                    |  |                                |         |      |   |        
|Net periodic pension expense        |  | $                              | 763,182 |      | $ | 579,839
|                                    |  |                                |         |      |   |        



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.



Fuel inventory is recorded at the
lower of cost or market using the weighted average method.



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##### Table of Contents

A summary of inventories as of November 30, 2005 and August 31, 2005 are as follows:



|      |  |                   |            |                 |   |           
|----- |  | ----------------- | ---------- | --------------- | - | ----------
|      |  | November 30, 2005 |            | August 31, 2005
|Grain |  | $                 | 28,187,477 |                 | $ | 14,140,786
|Fuel  |  |                   |           |                 |   | 464,315   
|      |  |                   |            |                 |   |           
|      |  | $                 | 28,187,477 |                 | $ | 14,605,101
|      |  |                   |            |                 |   |           



4. EARNINGS PER SHARE



Earnings per share has been presented in the accompanying Consolidated
Statement of Operations. The calculation of the basic and diluted shares outstanding for the three-month period ended November 30, 2004, 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 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 month periods ended
November 30, 2005 and 2004, respectively:



|                                                        |  |                                   |         |                             |   |                    |  |   |                   |   |  |                   |        |   |                    |   |        |       |  |   |         |   |  |   |        
|------------------------------------------------------- |  | --------------------------------- | ------- | --------------------------- | - | ------------------ |  | - | ----------------- | - |  | ----------------- | ------ | - | ------------------ | - | ------ | ----- |  | - | ------- | - |  | - | -------
|                                                        |  | Commodity& RiskManagementServices |         | Clearing &ExecutionServices |   | GrainMerchandising |  |   | FinancialServices |   |  | Corporate & Other |        |   | ReconcilingAmounts |   |        | Total
|                                                        |  | (in thousands)                   
|November 30, 2005                                       |  |                                   |         |                             |   |                    |  |   |                   |   |  |                   |        |   |                    |   |        |       |  |   |         |   |  |   |        
|                                                        |  |                                   |         |                             |   |                    | 
|Total revenues                                          |  | $                                 | 19,177  |                             | $ | 17,250             |  | $ | 308,960           |   |  | $                 | 4,551  |   |                    | $ | 37     |       |  | $ | (626    | ) |  | $ | 349,349
|Interest revenue                                        |  |                                   | 1,667   |                             |   | 2,225              |  |   | 21                |   |  |                   | 650    |   |                    |   | 37     |       |  |   | (343    | ) |  |   | 4,257  
|Interest expense                                        |  |                                   | 17      |                             |   | 81                 |  |   | 777               |   |  |                   | 563    |   |                    |   | 73     |       |  |   | (343    | ) |  |   | 1,168  
|Income (loss) before minority interest and income taxes |  |                                   | 4,422   |                             |   | 2,380              |  |   | (2                | ) |  |                   | (104   | ) |                    |   | (1,325 | )     |  |   |        |   |  |   | 5,371  
|Total assets                                            |  |                                   | 247,266 |                             |   | 449,990            |  |   | 98,356            |   |  |                   | 60,199 |   |                    |   | 8,958  |       |  |   | (42,626 | ) |  |   | 822,143
|                                                        |  |                                   |         |                             |   |                    | 
|November 30, 2004                                       |  |                                   |         |                             |   |                    |  |   |                   |   |  |                   |        |   |                    |   |        |       |  |   |         |   |  |   |        
|                                                        |  |                                   |         |                             |   |                    | 
|Total revenues                                          |  | $                                 | 22,795  |                             | $ | 11,863             |  | $ | 402,851           |   |  | $                 | 8,093  |   |                    | $ | 19     |       |  | $ | (333    | ) |  | $ | 445,288
|Interest revenue                                        |  |                                   | 412     |                             |   | 720                |  |   | 50                |   |  |                   | 72     |   |                    |   | 19     |       |  |   | (30     | ) |  |   | 1,243  
|Interest expense                                        |  |                                   | 16      |                             |   | 86                 |  |   | 413               |   |  |                   | 75     |   |                    |   | 40     |       |  |   | (30     | ) |  |   | 600    
|Income (loss) before minority interest and income taxes |  |                                   | 1,559   |                             |   | 856                |  |   | 250               |   |  |                   | (65    | ) |                    |   | (1,028 | )     |  |   |        |   |  |   | 1,572  
|Total assets                                            |  | $                                 | 187,950 |                             | $ | 296,064            |  | $ | 131,983           |   |  | $                 | 15,965 |   |                    | $ | 6,020  |       |  |   | (19,135 | ) |  | $ | 618,847



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##### Table of Contents

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 contact, and making an award to claimant of approximately $175,000 which has been accrued for during the current three-month period ending November 30, 2005. The award bears interest and a partial award of
attorneys fees and costs was also made in an amount not yet quantified. The arbitration award is subject to appeal, but it is not known if claimant will appeal, and FGDI has not yet decided if it will appeal.



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, to which Xiamen has replied with a modified claim. FGDI intends to vigorously defend this claim.



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



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 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 $1.7 million of equity raised.



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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. Under the plan, employees were allowed to convert up to 33% of funds held under their 401(k) plan into shares of the newly formed common stock class. The initial ESOP stock sale was consummated as of
August 26, 2005, with the ESOP purchasing 448,692 shares of common stock from the Company at a purchase price of $10.00 per share, for an aggregate of $4.5 million of equity raised.



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



Overview



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



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



Recent Developments, Market Trends and Capital



Prior to our conversion from a cooperative, we realized a significant increase in our
nonmember business revenues, especially over the five years prior to the conversion. This increase is a result of the Company expanding our risk management services into other commodities in addition to our traditional grain marketing
base. We expect this trend to continue at an accelerated rate, 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, and we believe this trend will continue.



Customer deposits and accounts receivable related to our Commodity and Risk Management Services and Clearing and Execution Services segments have grown from $127 million
at the beginning of FY 2001 to $400 million at November 30, 2005. As these segments continue to grow, we anticipate needing additional regulatory capital to meet Commodity Futures Trading Commission (CFTC) requirements. Because of the need to
finance our continued growth, in FY2005 we restructured our company to no longer operate on a cooperative basis (as described in the Registration on Form S-4 filed with the Commission on August 18, 2004, as amended). We exchanged new common
stock for the then outstanding common and preferred stock and patronage-based rights of our members. The Company then commenced a subscription rights offering on April 15, 2005, and the offering continued until June 29, 2005, with
approximately 174,000 shares sold and $1.7 million of equity raised. In June 2005, the Company formed an employee stock ownership plan (ESOP) in order to provide employee incentives and an additional capital infusion to the Company. The initial ESOP
stock sale was consummated in August 2005, raising approximately $4.5 million in new capital. As a result of the exercise of member subscription rights and the initial ESOP investment, the Company raised approximately $6.2 million of new capital.



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Although the expansion of our services to other industries and to foreign markets does require additional personnel and
related expenses, it does not generally require any significant capital expenditures. Our primary capital concern is meeting CFTC regulatory requirements arising from our anticipated increased business. We expect our new business structure to
alleviate most of these concerns. In addition, with the ESOP in place, we also expect to raise an additional $1 million annually in equity capital from ESOP common stock purchases. This amount, plus our ability to better control annual dividends
based upon net earnings, should provide the Company with significant annual additions to capital resources. With the additional capital from sources noted above and the expected capital resources generated annually through the ESOP and operations,
we anticipate meeting our expected growth capital needs for the next several years.



With our new structure in place, we have the flexibility to raise capital in a more timely manner through a stock or debt offering to our current stockholders or others approved by our board of directors. Although we have no current plans
for such an offering, management believes that the availability of such capital raising mechanisms will allow the Company to be more flexible and competitive in the future.



Results of Operations



Three Months Ended November 30, 2005 Compared to Three Months Ended November 30, 2004



Revenues



Revenues totaled $349.3 million for the three month period ended November 30, 2005 compared to $445.3 million for the three-month
period ended November 30, 2004, a decrease of $96.0 million or 21.6%. This decrease was primarily a result of an 11.6 million or 14.8% decrease in grain bushels handled, which accounted for a revenue decrease of $93.6 million. Although the
$93.6 million decrease in grain sales was a significant amount when compared to total revenues, the cost of grain sold also decreased $93.4 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 grain gross profit remained relatively consistent. Fuel sales were down $9.0 million as the Company sold 4.6 million fewer gallons than in the prior comparative period and transactional commodity revenues in
our Financial Services segment were down $4.2 million. Commissions were up $2.0 million due to higher trade volume, and clearing and transaction fees were up $2.0 million on higher trade volume in the clearing and execution services segment.
Service, consulting and brokerage fees were $4.1 million higher due to increased volume from both new and existing customers. Interest income was up $3.0 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 $310.6 million for the three month period ended November 30, 2005 compared to $417.5 million for the three month period ended November 30, 2004, a decrease of $106.9 million or 25.6%. This decrease was primarily
a result of lower grain and fuel volumes sold.



Employee Compensation and
Broker Commissions. Employee compensation and broker commissions were $9.7 million for the three month period ended November 30, 2005 compared to $7.8 million for the three month period ended November 30, 2004, an
increase of $1.9 million or 24.4%. This increase was primarily a result of increased broker commissions due to the higher revenues at both the Companys commodity and risk management services and clearing and execution services segments.



Pit Brokerage and Clearing Fees. The increase of
pit brokerage and clearing fees from $7.7 million for the three month period ended November 30, 2004 to $10.0 million for the three month period ending November 30, 2005 is entirely related to increased commissions and clearing and
transaction fee revenues.



Introducing Broker
Commissions. Introducing Broker (IB) commissions expenses are directly related to the commission income generated by the introducing broker customers of the Company. Such expenses increased from $3.0 million for the three
month period ended November 30, 2004 to $4.0 million for the three month period ended November 30, 2005 due primarily to increased commissions from IB customers in the clearing and execution services segment.



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Interest. Interest expense increased to $1.2 million for the three month period ended
November 30, 2005 from $0.6 million for the three month period ending November 30, 2004 due primarily to higher short term interest rates and higher borrowings as a result of increased activity in the grain inventory financing program.



Other Operating Expenses. Other operating expenses
were $8.5 million for the three month period ended November 30, 2005 compared to $7.2 million for the three month period ended November 30, 2004, an increase of $1.3 million. This increase was primarily a result of an increase in the
Companys advertising and promotion costs of $0.5 million, employee benefits and payroll taxes of $0.5 million, travel expense of $0.3 million, and professional fees of $0.3 million. Offsetting these increases was a $0.5 million decrease in bad
debt expense.



Income Tax Expense. Our provision
for income taxes for the three-month period ended November 30, 2005 increased over 2004, due to higher income before income tax expense in the three month period ended November 30, 2005. The effective tax rate was 37.6% in 2005 and 38.8%
in 2004.



Operations by Segment



Three months Ended November 30, 2005 Compared to Three months Ended
November 30, 2004.



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 amount segments differently than we would for stand-alone financial information
prepared in accordance with U.S. generally accepted accounting principles (GAAP). Segment income before income taxes may not be consistent with measures used by other companies. The accounting policies of our operating segments are the
same as those applied in the consolidated financial statements.



Reconciling
Amounts represent the elimination of interest income and expense, and commission income and expense between segments. Such transactions are conducted at market prices to more accurately evaluate the profitability of the individual business segments.



The following table and discussion provides a summary of each segments
revenues, costs and expenses, and income before taxes; and compares the operating results for the three-months ended November 30, 2005 and 2004:



|                                                        |  |                                   |        |                             |   |                    |  |   |                   |   |  |                  |       |   |                     |   |        |       |  |   |      |   |  |   |         |  
|------------------------------------------------------- |  | --------------------------------- | ------ | --------------------------- | - | ------------------ |  | - | ----------------- | - |  | ---------------- | ----- | - | ------------------- | - | ------ | ----- |  | - | ---- | - |  | - | ------- | -
|Three months ended:                                     |  | Commodity& RiskManagementServices |        | Clearing &ExecutionServices |   | GrainMerchandising |  |   | FinancialServices |   |  | Corporate& Other |       |   | Reconciling Amounts |   |        | Total | 
|                                                        |  | (in thousands)                    |       
|November 30, 2005                                       |  |                                   |        |                             |   |                    |  |   |                   |   |  |                  |       |   |                     |   |        |       |  |   |      |   |  |   |         |  
|                                                        |  |                                   |        |                             |   |                    | 
|Revenues                                                |  | $                                 | 19,177 |                             | $ | 17,250             |  | $ | 308,960           |   |  | $                | 4,551 |   |                     | $ | 37     |       |  | $ | (626 | ) |  | $ | 349,349 |  
|Costs and expenses                                      |  |                                   | 14,755 |                             |   | 14,870             |  |   | 308,962           |   |  |                  | 4,655 |   |                     |   | 1,362  |       |  |   | (626 | ) |  |   | 343,978 |  
|Income (loss) before minority interest and income taxes |  |                                   | 4,422  |                             |   | 2,380              |  |   | (2                | ) |  |                  | (104  | ) |                     |   | (1,325 | )     |  |   |     |   |  |   | 5,371   |  
|Minority interest                                       |  |                                   |       |                             |   |                   |  |   |                  |   |  |                  | (52   | ) |                     |   |       |       |  |   |     |   |  |   | (52     | )
|Income (loss) before income taxes                       |  |                                   | 4,422  |                             |   | 2,380              |  |   | (2                | ) |  |                  | (52   | ) |                     |   | (1,325 | )     |  |   |     |   |  |   | 5,423   |  
|                                                        |  |                                   |        |                             |   |                    | 
|Grain bushels                                           |  |                                   |        |                             |   |                    |  |   | 66,655            |   |  |                  |       |   |                     |   |        |       |  |   |      |   |  |   |         |  
|Gross profit on grain sales                             |  |                                   |        |                             |   |                    |  |   | 4,266             |   |  |                  |       |   |                     |   |        |       |  |   |      |   |  |   |         |  
|                                                        |  |                                   |        |                             |   |                    | 
|November 30, 2004                                       |  |                                   |        |                             |   |                    |  |   |                   |   |  |                  |       |   |                     |   |        |       |  |   |      |   |  |   |         |  
|                                                        |  |                                   |        |                             |   |                    | 
|Revenues                                                |  | $                                 | 22,795 |                             | $ | 11,863             |  | $ | 402,851           |   |  | $                | 8,093 |   |                     | $ | 19     |       |  | $ | (333 | ) |  | $ | 445,288 |  
|Costs and expenses                                      |  |                                   | 21,236 |                             |   | 11,007             |  |   | 402,601           |   |  |                  | 8,158 |   |                     |   | 1,047  |       |  |   | (333 | ) |  |   | 443,716 |  
|Income (loss) before minority interest and income taxes |  |                                   | 1,559  |                             |   | 856                |  |   | 250               |   |  |                  | (65   | ) |                     |   | (1,028 | )     |  |   |     |   |  |   | 1,572   |  
|Minority interest                                       |  |                                   |       |                             |   |                   |  |   | 75                |   |  |                  | (23   | ) |                     |   |       |       |  |   |     |   |  |   | 52      |  
|Income (loss) before income taxes                       |  |                                   | 1,559  |                             |   | 856                |  |   | 175               |   |  |                  | (42   | ) |                     |   | (1,028 | )     |  |   |     |   |  |   | 1,520   |  
|                                                        |  |                                   |        |                             |   |                    | 
|Grain bushels                                           |  |                                   |        |                             |   |                    |  |   | 78,267            |   |  |                  |       |   |                     |   |        |       |  |   |      |   |  |   |         |  
|Gross profit on grain sales                             |  |                                   |        |                             |   |                    |  |   | 4,381             |   |  |                  |       |   |                     |   |        |       |  |   |      |   |  |   |         |  



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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 $19.2 million for the three-month period ended November 30, 2005 compared to $22.8 million for the three month period ended November 30, 2004,
a decrease of $3.6 million or 15.8%. This decrease was primarily a result of the Companys much lower fuel sales of approximately $9.0 million as the Company is moving more towards traditional brokerage services, rather than serving as a
principal in fuel sales. Service, consulting and brokerage fees were up $4.1 million and futures commissions were up $0.5 million as a result of increased volume from both new and existing customers primarily as a result of volatility in the energy
related commodities. Interest income increased by $1.3 million due to higher short term interest rates and higher customer margin deposits over the prior year period.



Operating expenses were lower at $14.8 million for the three month period ended November 30, 2005 compared to $21.2 million for the
three month period ended November 30, 2004, a decrease of $6.4 million. The reduced volume of fuel sold of 4.6 million gallons caused $9.2 million of this decrease. This was partially offset by increases in employee compensation and broker
commissions of $1.5 million due to higher broker commissions on increased futures commissions and service, consulting and brokerage fees.



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 $17.3 million for the three month period ended November 30, 2005 compared to $11.9 million for the three month period ended November 30, 2004, an increase of $5.4 million or 45.4%. This increase was due to higher commissions of
$1.5 million and higher transaction fees of $2.4 million due to volume increases as a result of volatility in the energy related commodities, and increased interest income of $1.5 million due to higher short term interest rates and much higher
customer margin deposits for this segment.



Operating expenses were higher at
$14.9 million for the three month period ended November 30, 2005 compared to $11.0 million for the three month period ended November 30, 2004, an increase of $3.9 million. The increase was primarily a result of volume related additional
pit brokerage and clearing fees of $2.6 million and introducing broker commissions of $0.8 million, and increased salaries, wages and related benefits of $0.2 million.



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



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Gross profit was $4.3 million and $4.4 million for the three-month periods ended November 30, 2005 and 2004,
respectively. The gross profit remained consistent despite the decrease in bushels merchandised from 78.3 million for the three month period ended November 30, 2004 to 66.7 million for the three-month period ended November 30,
2005.



Operating expenses were $4.4 million for the three month period ended
November 30, 2005 and $4.6 million for the three month period ended November 30, 2004 a decrease of $0.2 million. This decrease reflects that no bad debt expense was recorded for the current quarter, compared to the $0.7 million charge
taken in the three-month period ending November 30, 2004. Offsetting this decrease were increases in legal and professional fees and interest expense of $0.2 million and $0.4 million, respectively.



Financial Services. The Financial Services segment offers
financing and facilitation for customers to carry commodities through the use of sale/repurchase agreements whereby we purchase grain evidenced by warehouse receipts subject to a simultaneous agreement to resell such grain to the seller at a later
date. Additionally, we offer clients specialized financing through transactional commodity finance arrangements and processing and tolling arrangements. Historically, this segment was primarily entering into sale/repurchase agreements whereby it
purchased grain evidenced by warehouse receipts. In late 2004, this segment, through the recently formed subsidiary FCStone Merchant Services, LLC, 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 $4.6 million for the three month period ended November 30, 2005 compared to $8.1 million for the three month period ended November 30, 2004, a decrease of $3.5 million. This decrease is
primarily the result of a $4.2 million decrease in revenue from financing arrangements the Company offers through FCStone Merchant Services, LLC, initiating transactional commodity financing arrangements in energy, grain and other commodities.
Offsetting this decrease was a $0.6 million increase in interest revenue from increased activity in the grain inventory financing program.



Operating expenses totaled $4.7 million for the three month period ended November 30, 2005 compared to $8.2 million for the three month period ended
November 30, 2004, a decrease of $3.5 million. This decrease is primarily the result of a $4.1 million decrease in expenses from the commodity financing arrangements the Company offers through FCStone Merchant Services, LLC, offset by a $0.5
million increase in interest expense from increased activity in the grain financing program.



Corporate and Other. The Corporate and Other segment generated insignificant amounts of revenue, comprised of interest income for the three month period ended November 30, 2005 and
2004. Operating expenses increased $0.3 million for the three month period ended November 30, 2005 over the three months ended November 30, 2004 primarily due to higher employee compensation and related benefits.



Liquidity and Capital Resources



The following table presents a summary of unrestricted cash flows for the three months ended
November 30, 2005 compared to the three months ended November 30, 2004.



|                                                         |  |                                |         |   |      |   |        |  
|-------------------------------------------------------- |  | ------------------------------ | ------- | - | ---- | - | ------ | -
|                                                         |  | Three months endedNovember 30, |        
|                                                         |  | 2005                           |         |   | 2004 |  
|                                                         |  | (dollars in thousands)         |        
|Cash Flows provided by (used in):                        |  |                                |         |   |      |   |        |  
|Operating Activities                                     |  | $                              | (5,523  | ) |      | $ | 16,647 |  
|Investing Activities                                     |  |                                | (22,384 | ) |      |   | (6,539 | )
|Financing Activities                                     |  |                                | 34,372  |   |      |   | (5,386 | )
|                                                         |  |                                |         |   |      |   |        |  
|Net Increase in cash and cash equivalents - unrestricted |  | $                              | 6,465   |   |      | $ | 4,722  |  
|                                                         |  |                                |         |   |      |   |        |  



Our principal sources of liquidity are
from internally generated funds from operations and from borrowings under various credit facilities. We expect that cash on hand, internally generated cash flow, and available credit from third-party financing agreements will provide sufficient
funds for operating and recurring cash needs (including working capital, capital expenditures and debt repayments) into the foreseeable future. We have approximately $377 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.



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Cash and cash equivalents increased $6.5 million in the three months ended November 30, 2005 and $4.7 million in the
three months ended November 30, 2004.



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 $5.5 million for the three months ended November 30, 2005, as compared to generating cash of $16.6 million from operations for the three months ended November 30,
2004, primarily due to changes in the following:



| |  | Commodity accounts receivable/payable and marketable securities for customer segregated funds and other decreased by $12.5 million during the three-month period ended
November 30, 2005, primarily due to slightly reduced customer margin deposits with the company as a a result of lower margin requirements on grain commodities by the exchanges.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Accounts payable decreased by $20.0 million during the three-month period ended November 30, 2005, primarily due to a decrease in customer deposits on OTC transactions, offset
by an increase in payables related to grain merchandising, primarily due to the timing of inventory purchases and related freight costs. Accounts payable increased by $43.5 million during the three-month period ended November 30, 2004,
primarily due to the timing of payments for inventory purchases and freight costs;
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Accounts receivable and advances on grain decreased by $10.6 million during the three-month period ended November 30, 2005 primarily due to a decrease in receivables on our OTC
transactions, offset by an increase in receivables in our grain merchandising segment. Accounts receivable and advances on grain increased by $5.8 million during the three-month period ended November 30, 2004, primarily due to the increase in
receivables in our grain merchandising segment.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Inventories of grain and fuel increased by $13.6 million during the three-month period ended November 30, 2005. Inventories of grain and fuel increased by $17.5 million during
the three-month period ended November 30, 2004. The variance is primarily due to the increase in grain bushels held in inventory. During the three months ended November 30, 2005, grain inventory bushels increased by 3.4 million to
7.2 million bushels. During the three months ended November 30, 2004, grain inventory bushels increased by 3.5 million to 6.4 million bushels.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Cash Flows from Investing Activities



The Company used in its investing activities, cash of $22.4 million and $6.5 million for the three-month periods ended November 30, 2005 and 2004, respectively,
primarily due to the issuance of notes receivable associated with our financial services segment.



Cash Flows from Financing Activities



The Company had cash provided by financing activities of $34.4 million for the three-month period ended November 30, 2005 primarily due to drawing down on our lines of credit available within our grain merchandising and financing
services segments. The Company used cash of $5.4 million in its financing activities for the three-month period ended November 30, 2004 primarily due to partial repayment on our lines of credit and subordinated debt.



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 which
the Company believes is sufficient to fund significant growth for the next several years. Such capital is 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 is also expected to enable us to increase our lines of credit above current levels.



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



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



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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                                                                     |  | AmountAvailable       |       | AmountOutstanding atNovember 30,2005
|                                                         |  |                              |  |                                                                         |  | (dollars in millions)
|Deere Credit, Inc.                                       |  | March 1, 2006                |  | Margin Calls                                                            |  | $                     | 40.8  |                                      | $ | -0- 
|Deere Credit, Inc.                                       |  | March 1, 2006                |  | Repurchase Agreements                                                   |  |                       | 46.0  |                                      |   | 40.2
|Deere Credit, Inc.                                       |  | December 1, 2006             |  | Subordinated Debt for Regulatory Capital                                |  |                       | 7.0   |                                      |   | 2.0 
|Deere Credit, Inc.                                       |  | October 1, 2006              |  | General Corporate                                                       |  |                       | 6.2   |                                      |   | 4.2 
|                                                         |  |                              |  |                                                                         |  |                       |       |                                      |   |     
|Total Deere                                              |  |                              |  |                                                                         |  | $                     | 100.0 |                                      | $ | 46.4
|CoBank, ACB                                              |  | January 31, 2006             |  | Grain Merchandising                                                     |  | $                     | 68.0  |                                      | $ | 10.8
|CoBank, ACB                                              |  | January 31, 2007             |  | Grain Merchandising                                                     |  |                       | 8.0   |                                      |   | -0- 
|CoBank, ACB                                              |  | June 30, 2006                |  | OTC & Fuel Operations                                                   |  |                       | 15.0  |                                      |   | -0- 
|CoBank, ACB                                              |  | May 1, 2006                  |  | Repurchase Agreements                                                   |  |                       | 75.0  |                                      |   | 8.8 
|                                                         |  |                              |  |                                                                         |  |                       |       |                                      |   |     
|Total CoBank                                             |  |                              |  |                                                                         |  | $                     | 166.0 |                                      | $ | 19.6
|Harris Bank                                              |  | March 10, 2006               |  | Margin Calls                                                            |  | $                     | 15.0  |                                      | $ | -0- 
|AFG Trust Finance Limited                                |  | May 25, 2006                 |  | Grain Merchandising                                                     |  | $                     | 20.0  |                                      | $ | 3.4 
|Industrial Revenue Bonds (Capitalized Lease Obligations) |  | Annual payments to 2013      |  | Mobile, Alabama facility additional storage                             |  | $                     | 5.5   |                                      | $ | 4.0 
|Sowood Commodity Partners Fund, LP.                      |  | March 4, 2006                |  | Junior, secured revolving credit facilityFinancial Services operations |  | $                     | 30.0  |                                      | $ | -0- 
|Fortis Capital Corp.                                     |  | Demand                       |  | Financial Services operations                                           |  | $                     | 20.0  |                                      | $ | -0- 
|RZB Finance, LLC                                         |  | Demand                       |  | Financial Services operations                                           |  | $                     | 8.0   |                                      | $ | 5.4 
|UFJ Bank Limited                                         |  | Demand                       |  | Financial Services operations                                           |  | $                     | 10.0  |                                      | $ | -0- 
|Subordinated Debt                                        |  | June 30, 2006                |  | Regulatory Capital                                                      |  | $                     | 1.8   |                                      | $ | 1.5 
|Long-term Note                                           |  | Monthly payments for 8 years |  | NYMEX seat                                                              |  | $                     | 0.5   |                                      | $ | 0.4 



All of our credit facilities include
financial covenants and the failure to comply with any such covenants could result in the debt becoming payable on demand. The Company was in compliance with all debt covenants at November 30, 2005 and expects to remain in compliance in the
future.



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



Our Grain Merchandising segment has a $76.0
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.



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##### Table of Contents

Our Financial Services segment has a $46.0 million line of credit with Deere Credit, Inc. and a $75.0 million line of
credit with CoBank, ACB available to finance its grain inventory repurchasing program. This programs demand tends to fluctuate, therefore, these lines of credit are utilized to a great extent.



Seasonality and Fluctuations in Operating Results



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



Other
Matters



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



Item 3. Quantitative and Qualitative Disclosures about Market Risk



Commodity Price Risk



As part of
our trading activity, we utilize futures and option contracts offered through regulated commodity exchanges to reduce risk. The Company follows the policy of hedging its grain transactions and physical fuel through the use of cash and futures
contracts in order to minimize risk due to market fluctuations. The commodity price risk associated with physical fuel is not material and is for the account of our customers. 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
November 30, 2005:



|                   |  |                        |   |  |          |   |  |        |   |  |               |  
|------------------ |  | ---------------------- | - |  | -------- | - |  | ------ | - |  | ------------- | -
|                   |  | Bushels (in thousands) |  
|                   |  | Corn                   |   |  | Soybeans |   |  | Wheat  |   |  | Oats & Barley |  
|Inventory          |  | 2,008                  |   |  | 2,071    |   |  | 3,065  |   |  | 59            |  
|Purchase Contracts |  | 23,929                 |   |  | 4,602    |   |  | 6,660  |   |  | 734           |  
|Sale Contracts     |  | (6,941                 | ) |  | (7,819   | ) |  | (1,535 | ) |  | (900          | )
|Futures Long       |  |                       |   |  | 2,872    |   |  |       |   |  | 320           |  
|Futures Short      |  | (19,083                | ) |  | (1,725   | ) |  | (7,700 | ) |  |              |  
|Net Open Position  |  | (87                    | ) |  | 1        |   |  | 490    |   |  | 213           |  



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 November 30, 2005 level of $2.02 per bushel would result in a gain (or loss) to future earnings of $(18,000).



A hypothetical 10% increase (or decrease) in the market price of soybeans from the November 30, 2005 level of $5.58 per bushel would
result in a gain (or loss) to future earnings of $1,000.



A hypothetical 10%
increase (or decrease) in the market price of wheat from the November 30, 2005 level of $3.21 per bushel would result in a gain (or loss) to future earnings of $157,000.



A hypothetical 10% increase (or decrease) in the market price of oats and barley from the November 30, 2005 level of $1.81 per bushel
would result in a gain (or loss) to future earnings of $39,000.



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##### Table of Contents

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 November 30, 2005 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 $4.0 million is not material to the financial statements. We believe the risk associated with these borrowings will not have an adverse effect on our financial position, results of operations or cash flows.



Foreign Currency Risk



The Company conducts most of its business in U.S. dollars but does have minor risk regarding
foreign currency fluctuations. The Company hedges foreign currency risk using futures contracts on U.S. exchanges to the extent practicable on those transactions involving foreign currency. Foreign currency fluctuations do, however, impact the
ability of foreign buyers to purchase U.S. agricultural products and the competitiveness of U.S. agricultural products compared to the same products offered by alternative sources of world supply.



Item 4. Controls and Procedures



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



Changes in internal control over financial reporting. As of the end of the period
covered by this Quarterly Report on Form 10-Q, there were no changes in the Companys internal control over financial reporting that occurred during the three months ended November 30, 2005 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 2007 fiscal year. We believe, however, that any deficiencies uncovered by our 404 compliance process will not affect the accuracy of our financial statements included in this report.



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##### Table of Contents

Part II. Other Information



Item 1. Legal Proceedings



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



On December 13, 2003, Liaoyang Edible Oils filed a claim in arbitration under the arbitration facility established by the Federation of Oils, Seeds and Fats Associations Ltd. of Hong Kong alleging a breach of a sales contract by FGDI
and seeking to recover damages of $1,125,000, of which $55,475 was not disputed as due under the contract. Liaoyang Edible Oils alleged that these damages arose out of disputes related to the final pricing of the contract. On December 15, 2005
the arbitration panel rendered a decision, dismissing the claim for pricing damages, but also doing its own accounting under the contact, and making an award to claimant of approximately $175,000 which has been accrued for during the current
three-month period ending November 30, 2005. The award bears interest and a partial award of attorneys fees and costs was also made in an amount not yet quantified. The arbitration award is subject to appeal, but it is not known if claimant
will appeal, and FGDI has not yet decided if it will appeal.



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, to which Xiamen has replied with a modified claim. FGDI intends to vigorously defend this claim.



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



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



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



Not applicable



Item 5. Other Information



None



Item 6. Exhibits



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



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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         
|                 |  |                    
|January 13, 2006 |  | By:                 |  | /s/ Paul G. Anderson   
|                 |  |                     |  | Paul G. Anderson       
|                 |  |                     |  | Chief Executive Officer
|                 |  |                    
|January 13, 2006 |  | By:                 |  | /s/ Robert V. Johnson  
|                 |  |                     |  | Robert V. Johnson      
|                 |  |                     |  | Chief Financial Officer



21