We manufacture, formulate and distribute specialty chemicals globally. We operate businesses engaged in industrial wood preservation, animal health pesticides and electronic chemicals. Our wood preserving chemicals, penta and creosote, are used by our industrial customers primarily to extend the useful life of utility poles and railroad crossties. Our animal health pesticides are used on cattle, swine and poultry to protect these animals from flies and other pests. Our electronic chemicals are used in the manufacturing of semiconductors.

Results of Operations

Three and Six Month Periods Ended January 31, 2009 compared with Three and Six Month Periods Ended January 31, 2008

Segment Data



Segment data is presented for our five reportable segments for the three and six
month periods ended January 31, 2009 and 2008.



                                         Three Months Ended       Six Months Ended
                                            January 31,             January 31,
                                          2009         2008       2009        2008
                                                  (Amounts in thousands)
Sales
Electronic Chemicals - North America   $    17,513   $  6,888   $  38,743   $  6,888
Electronic Chemicals - International         4,104      1,721       9,068      1,721
Penta                                        5,842      6,642      12,969     13,929
Creosote                                    14,507     13,252      32,038     25,796
Animal Health                                2,241      2,949       3,622      4,441
Total sales for reportable segments    $    44,207   $ 31,452   $  96,440   $ 52,775

The segment data should be read with our consolidated financial statements and related notes thereto included elsewhere in this report.

Net Sales

Net sales increased $12.8 million, or 40.6%, in the second quarter of fiscal year 2009 as compared with the same period of the prior year. Of that increase, $10.6 million, or 83.3%, came from the electronic chemicals segment in North America and $2.4 million, or 18.7%, came from that business internationally. For the six month comparison, net sales increased in fiscal year 2009 by $43.7 million to $96.4 million, as compared with $52.8 million in fiscal year 2008. The electronic chemicals business in North America comprised $31.9 million of the increase, or 73.0%, and the electronic chemicals business internationally was $7.3 million, or 16.8%, of the increase. We acquired the electronic chemicals business late in the second quarter of fiscal year 2008. Creosote net sales increased $1.3 million in the second quarter of fiscal year 2009 as compared with the prior year period, and increased $6.2 million in the six months' comparison. Penta and animal health net sales declined somewhat in both the second quarter of fiscal year 2009 and in the six month period compared with fiscal year 2008.

In the second quarter of fiscal year 2009, the electronic chemicals North America segment had net sales of $17.5 million and the international segment had net sales of $4.1 million, increases of $10.6 million, or 154.3%, and $2.4 million, or 138.5%, respectively, over the prior year period. For the six month period in fiscal year 2009, electronic chemicals North America had net sales of $38.7 million and the international segment had net sales of $9.1 million, increases of $31.9 million, or 462.5%, and $7.3 million, or 426.9%, over the same period in fiscal year 2008. While our results in the electronic chemicals segments, a business we did not acquire until December 31, 2007, represent significant increases in net sales over the prior year periods, demand softened in both segments late in the second quarter as the effects of the worst economic downturn in recent memory began to impact the semiconductor industry. In the first quarter of fiscal year 2009, the two electronic chemicals segments were on track to generate approximately $105.0 million of annual net sales, but second quarter results imply annualized sales of $86.0 million. We expect challenging market conditions in our two electronic chemicals segments at least through the balance of the fiscal year.

Penta net sales declined $800,000, or 12.0%, to $5.8 million in the second quarter of fiscal year 2009 as compared to the prior year period, and for the full six month period the decline was $960,000, or 6.9%. Constrained spending by utilities for maintenance and for installation of poles for their distribution network, caused penta solutions volume to decline as compared with the

prior year period. Creosote net sales increased in the second quarter of fiscal year 2009, as compared with the prior year period, by $1.3 million, or 9.5%, to $14.5 million. For the full six months of fiscal year 2009, creosote net sales were up $6.2 million, or 24.2%, to $32.0 million. Higher prices partially offset a volume decline in the second quarter, but the full six months volume was nearly flat as compared with prior year period. Demand by railroads for crossties treated with creosote held steady in the first six months near the top of the historical range, despite the current economic uncertainty. Railroads generally react to lessened rail traffic by slowing maintenance programs, and we expect some reduction in creosote sales in the second half of the fiscal year, but we continue to believe that sales will be relatively healthy in the period.

Net sales of animal health pesticides decreased by $708,000, or 24.0%, to $2.2 million in the second quarter of fiscal year 2009 as compared with the prior year period. Net sales in that segment decreased $819,000, or 18.4%, to $3.6 million in the first six months of fiscal year 2009 as compared with the prior fiscal year. Seasonal usage of animal health pesticides is dependent on varying seasonal patterns, weather conditions and weather-related pressure from pests, as well as customer marketing programs and requirements. Although energy prices have dropped significantly from recent highs, our farm and livestock customers continue to be impacted by the effect of high costs for feed, fuel, and fertilizer. Additionally, livestock, dairy and poultry markets are under stress from the current economic conditions, and because of that our distributors appear to be reluctant to build inventory of our animal health products in advance of the selling season as they normally would. Our revenue from the animal health pesticides segment is seasonal and weighted to the third and fourth quarters. Revenues from products subject to significant seasonal variations represented less than 10% of our fiscal year 2008 revenues.

Gross Profit

Gross profit increased by $3.6 million, or 35.5%, to $13.7 million in the second quarter of fiscal year 2009 from $10.1 million in the same quarter of the prior year. Gross profit as a percentage of sales declined to 31.1% in the second quarter of fiscal year 2009 from 32.2% in the second quarter of fiscal year 2008. For the first six months of fiscal year 2009, gross profit increased $12.3 million, or 72.7%, to $29.3 million from $16.9 million. As a percentage of sales, gross profit was 30.3% in the six month period in fiscal year 2009 as compared to 32.1% in fiscal year 2008. Gross profit increased in the second quarter and in the first six months of fiscal year 2009 because of the added sales from our electronic chemicals business. Price increases in electronic chemicals were implemented after we acquired the business, and we have seen improved margins in electronic chemicals. Gross profits in each of our wood treating and animal health segments were down in the second quarter of fiscal year 2009 and for the six month period as compared with the same periods of the prior year. The decline in gross profit in the penta segment was due equally to lower sales and higher costs, but in the animal health segment the decline in gross profit was due to reduced net sales. In our creosote segment, gross profit declined because of higher raw material costs. We believe that shift will reverse itself in the second half of the fiscal year. Gross profit as a percentage of net sales declined for the six month period in fiscal year 2009 in each of our wood treating and animal health segments.

With the decline in oil prices and economic activity, some raw material prices have declined. For example, the cost of the solvent used to formulate our penta solutions declined significantly late in the second quarter of fiscal year 2009, and the cost of other raw materials now appear to be declining. We expect to benefit from those cost declines in the balance of the fiscal year. In addition, we also expect to benefit from a creosote raw material cost reduction for product imported under a supply agreement indexed to oil prices in the second half of the year. Other companies may include certain of the costs that we record in cost of sales as selling, general and administrative expenses, and may include certain of the costs that we record in selling, general and administrative expenses as a component of cost of sales, resulting in a lack of comparability between our gross profit and that reported by other companies.

Selling, General and Administrative Expenses

Selling, general, and administrative expenses increased $4.1 million in the second quarter of fiscal year 2009 to $11.2 million, or 25.4% of net sales, from $7.1 million, or 22.7% of net sales, for the same quarter of the prior fiscal year. In the first six months of fiscal year 2009, selling, general and administrative expenses increased by $11.9 million to $23.2 million, or 24.1% of net sales, from $11.4 million, or 21.5% of net sales. Selling, general and administrative expenses associated with our two electronic chemicals segments were approximately $6.5 million in the second quarter, and were approximately $14.1 million for the first six months of fiscal year 2009. Although we discontinued transitional services with Air Products at the end of September 2008, we incurred substantial costs for transitional services until then, along with fees to consultants assisting in the integration of the business. Those fees were approximately $434,000 for the first quarter of fiscal year 2009. We purchased transitional services from Air Products in the first two months of the first quarter of fiscal year 2009, while at the same time we had built and staffed our post-transition infrastructure so we could complete training and testing. We believe that the redundant infrastructure added approximately $600,000 in additional expense in the first six month's period.

Outside of electronic chemicals, selling, general and administrative expense was flat in the second quarter and in the first six months of fiscal year 2009 as compared with the prior year periods. Although we incurred greater expenses over the first six months of fiscal year 2009 to expand our infrastructure supporting the electronic chemicals business, those expenses have been offset by reductions in other areas such as in warehouse costs and the completion of our amortization of certain wood treating intangible assets.

Interest Expense

Interest expense was $785,000 in the second quarter and $1.7 million in the first six months of fiscal year 2009 as compared with $582,000 and $780,000, respectively, in the same periods of fiscal year 2008. The increase was due to interest on the substantially larger indebtedness we incurred to fund the acquisition of the electronic chemicals business in fiscal year 2008.

Income Taxes

Our effective tax rate from continuing operations was 38.7% in the second quarter of both fiscal years 2009 and 2008. For the six month period, our effective tax rate was 38.4% in fiscal year 2009 as compared with 37.5% in the prior year.

Liquidity and Capital Resources

Cash Flows

Net cash used in operating activities was $324,000 for the first six months of fiscal year 2009, while in the prior year period net cash provided by operations was $3.0 million. Net income adjusted for depreciation and amortization increased cash to $6.0 million in the first six months of fiscal year 2009. Although reductions in accounts receivable trade and other contributed $7.3 million to cash, increases in inventories used $10.0 million of cash in the first six months of this fiscal year. Slightly more than half of that increase was from our electronic chemicals business and the balance was split about equally between our creosote and animal health segments. A reduction in accounts payable and accrued liabilities, primarily attributable to our electronic chemicals business, used $4.3 million in cash in the first six months of fiscal year 2009.

Net cash used in investing activities in the first six months of fiscal 2009 was $5.5 million as compared with $70.4 million in the prior year period. We made additions to property, plant and equipment of $2.2 million over the first six months of fiscal year 2009. Of that amount, approximately $1.2 million of the additions was for our electronic chemicals business, primarily for the purchase of software and shipping containers, and $496,000 was for the purchase of additional land adjacent to our facility in Matamoros. We also spent $2.9 million in the period in connection with the acquisition of the electronic chemicals business to purchase inventory and accounts receivable pertaining in Israel that was owned as of the end of September 2008 by Air Products and Chemicals, Inc. as our distributor there.

In the first six months of fiscal year 2009, we made principal payments of $6.8 million on our term loan borrowings, $2.8 million of which went to pay term indebtedness incurred when we purchased the electronic chemicals business. Of the total principal payments in the first six months of fiscal year 2009, $4.0 million was used to pay the principal outstanding on seller-financed indebtedness incurred when we purchased certain penta assets in fiscal year 2006. We prepaid that indebtedness in full in October 2008 from available cash. We had additional net borrowings under our revolving line of $11.8 million in the first six months of fiscal year 2009, and we paid dividends of $443,000. It is our policy to pay dividends from available cash after taking into consideration our profitability, capital requirements, financial condition, growth, business opportunities and other factors which our board of directors may deem relevant.

Working Capital

We have a revolving line of credit under an amended and restated credit agreement. At January 31, 2009, we had borrowed $17.0 million under that revolving facility, and our net borrowing base availability was $15.0 million. Management believes that our current credit facility, combined with cash flows from operations, will adequately provide for our working capital needs for current operations for the next twelve months. We also believe that cash provided by operations in the balance of the fiscal year will allow us to pay off the $17.0 million now borrowed under our revolving credit facility by the end of fiscal year 2009.

Long Term Obligations

To finance the acquisition of the electronic chemicals business, we entered into an amended and restated credit agreement and a note purchase agreement. The new credit agreement replaced and refinanced our existing credit agreement with Wachovia Bank, National Association. The new credit facility included a revolving loan facility of $35.0 million and a term loan facility of $35.0 million. The amended and restated facility was entered into with Wachovia Bank, National Association, Bank of America, N.A., The

Prudential Insurance Company of America, and Pruco Life Insurance Company. Advances under the revolving loan and the term loan mature on December 31, 2012. They each bear interest at varying rate of LIBOR plus a margin based on our funded debt to EBITDA.

Ratio of Funded Debt to EBITDA                                  Margin
Equal to or greater than 3.0 to 1.0                               2.75 %
Equal to or greater than 2.5 to 1.0, but less than 3.0 to 1.0     2.50 %
Equal to or greater than 2.0 to 1.0, but less than 2.5 to 1.0     2.25 %
Equal to or greater than 1.5 to 1.0, but less than 2.0 to 1.0     2.00 %
Less than 1.5 to 1.0                                              1.75 %

Currently advances bear interest at LIBOR plus 2.50% but that rate will increase to LIBOR plus 2.75% based on second quarter-end ratios. Through December 31, 2010 principal payments on the term loan will be $458,333 per month and will then become $666,667 per month for the balance of the term prior to maturity. At January 31, 2009, the amount outstanding on the revolving facility was $17.0 million, and the amount outstanding on the term loan was $29.0 million.

We also entered into a $20.0 million note purchase agreement with the Prudential Insurance Company of America. Advances under the note purchase agreement mature on December 31, 2014, and bear interest at 7.43% per annum. Principal is payable at maturity. At January 31, 2009, $20.0 million was outstanding under the note purchase agreement.

Loans under the amended and restated credit facility and the note purchase agreement are secured by our assets, including inventory, accounts receivable, equipment, intangible assets, and real property. The credit facility and the note purchase agreement have restrictive covenants, including maintaining a fixed charge coverage ratio of 1.25 to 1 through July 31, 2008 and 1.5 to 1.0 thereafter, and a ratio of funded debt to EBITDA, as amended effective January 30, 2009, of 3.5 to 1.0 through January 31, 2009, 3.25 to 1.0 from February 1, 2009 through April 30, 2009, and 3.0 to 1.0 thereafter. We must also maintain a debt to capitalization ratio of not more than 60% through April 30, 2009, 50% from then until April 30, 2010, and 45% thereafter. For purposes of calculating these financial covenant ratios, we use a pro forma EBITDA, but add back extraordinary or non-recurring expense or loss as may be approved by our lenders. Our lenders have approved adding back approximately $1.0 million in integration costs incurred in the first quarter of fiscal year 2009 in connection with our acquisition of the electronic chemicals business. On January 31, 2009, we were in compliance with all our debt covenants.

Our purchase of certain penta assets from Basic Chemical Company in fiscal 2006 was financed in part by a $10.0 million loan from the seller. The indebtedness was payable in five equal annual installments of $2.0 million plus interest at 4% per annum. On October 30, 2008, we prepaid the $4.0 million principal owing on that indebtedness in full.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements, such as financing or unconsolidated variable interest entities.

Recent Accounting Standards

Recent Accounting Standards Not Yet Adopted.

In November 2008, the Financial Accounting Standards Board ("FASB") ratified Emerging Issues Task Force ("EITF") Issue No. 08-7, "Accounting for Defensive Intangible Assets." EITF 08-7 refers to intangible assets acquired in a business combination or asset acquisition that an entity does not intend to actively use but intends to hold as defensive intangible assets to prevent others from obtaining access to them. Historically, these assets have been typically allocated little or no value. EITF 08-7 requires defensive intangible assets to be accounted for as a separate identifiable asset recognized at fair value with an assigned useful life. The effective date of EITF 08-7 is for fiscal years beginning on or after December 15, 2008. The Company will adopt EITF 08-7 on August 1, 2009 and apply the requirements prospectively to intangible assets acquired on or after that date. The impact of adoption on the Company's consolidated financial statements cannot be currently evaluated and will depend on the nature and significance of any future acquisitions.

In April 2008, the FASB issued FASB Staff Position ("FSP") Statement of Financial Accounting Standards ("SFAS") 142-3, "Determination of the Useful Life of Intangible Assets." FSP SFAS 142-3 amends the factors an entity should consider when developing renewal or extension assumptions for determining the useful life of recognized intangible assets under SFAS 142, "Goodwill and Other Intangible Assets." FSP SFAS 142-3 is intended to improve the consistency between the useful life of recognized intangible assets under SFAS 142 and the period of expected cash flows used to measure the fair value of assets under SFAS 141R and other GAAP. The guidance also requires expanded disclosure related to an entity's intangible assets. The guidance for determining the useful life of a recognized intangible asset shall be applied prospectively to intangible assets acquired after the effective date and the disclosure requirements shall be applied prospectively to all intangible assets recognized as of, and subsequent to, the effective date. FSP SFAS 142-3 is effective for fiscal years beginning after December 15, 2008 and interim periods within

those fiscal years and early adoption is prohibited. The Company is currently evaluating the impact, if any, that FSP SFAS 142-3 will have on its consolidated financial statements.

In December 2007, the FASB issued SFAS 141(R), "Business Combinations." SFAS 141(R) establishes revised principles and requirements for the recognition and measurement of assets and liabilities in a business combination. SFAS 141(R) requires (i) recognition of the fair values of acquired assets and assumed liabilities at the acquisition date, (ii) contingent consideration to be recorded at fair value at acquisition date, (iii) transaction costs to be expenses as incurred, (iv) pre-acquisition contingencies to be accounted for at acquisition date at fair value and (v) costs of a plan to exit an activity or terminate or relocate employees to be accounted for as post-combination costs. SFAS 141(R) is effective for fiscal years beginning after December 15, 2008. The Company will adopt SFAS 141(R) on August 1, 2009 and apply the requirements prospectively to business combinations that occur after the date of adoption. The impact of adoption on the Company's consolidated financial statements cannot be currently evaluated and will depend on the nature and significance of any future acquisitions.

Recently Adopted Accounting Standards.

In February 2007, the FASB issued SFAS 159, "The Fair Value Option for Financial Assets and Financial Liabilities." SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company adopted SFAS 159 on August 1, 2008. The Company did not elect the fair value option for any of its assets and liabilities, and as a result there was no impact on its consolidated financial statements.

In September 2006, the FASB issued SFAS 157, "Accounting for Fair Value Measurements." SFAS 157 defines fair value, and establishes a framework for measuring fair value in GAAP, and expands disclosure about fair value measurements. In February 2008, the FASB issued FSP SFAS 157-2, "Effective Date of FASB Statement 157" to defer the effective date for nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a non-recurring basis until fiscal years beginning after November 15, 2008. In February 2008, the FASB also issued FSP SFAS 157-1, "Application of FASB Statement 157 to FASB Statement 13 and Other Accounting Pronouncements that Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13," which excludes SFAS 13, "Accounting for Leases" ("SFAS 13"), as well as other accounting pronouncements that address fair value measurements on lease classification or measurement under SFAS 13. The provisions of SFAS 157 for financial assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually) were effective for the Company for the fiscal year beginning August 1, 2008. The Company accordingly adopted the provisions of SFAS 157 for these items on August 1, 2008, which did not have an impact on its consolidated financial statements.

The Company elected to apply the deferral under FSP SFAS 157-2, and accordingly, will not apply SFAS 157 to its goodwill, indefinite-lived intangibles and non-financial assets measured at fair value for annual impairment assessment, until fiscal year 2010.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires the use of estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. Our critical accounting policies are described in our Annual Report on Form 10-K for the year ended July 31, 2008.

Disclosure Regarding Forward Looking Statements

We are including the following discussion to inform our existing and potential security holders generally of some of the risks and uncertainties that can affect us and to take advantage of the "safe harbor" protection for forward-looking statements that applicable federal securities law affords. From time to time, our management or persons acting on our behalf make forward-looking statements to inform existing and potential security holders about our company. These forward-looking statements include information about possible or assumed future results of our operations. All statements, other than statements of historical facts, included or incorporated by reference in this report that address activities, events or developments that we expect or anticipate may occur in the future, including such things as future capital expenditures, business strategy, competitive strengths, goals, growth of our business and operations, plans and references to future successes may be considered forward-looking statements. Also, when we use words such as "anticipate," "believe," "estimate," "intend," "plan," "project," "forecast," "may," "should," "budget," "goal," "expect," "probably" or similar expressions, we are making forward-looking statements. Many risks and uncertainties may impact the matters addressed in these forward-looking statements. Our forward-looking statements speak only as of the date made and we will not update forward-looking statements unless the securities laws require us to do so.

Some of the key factors which could cause our future financial results and performance to vary from those expected include:

† the loss of primary customers;

† our ability to implement productivity improvements, cost reduction initiatives or facilities expansions;

† market developments affecting, and other changes in, the demand for our products and the introduction of new competing products;

† availability or increases in the price of our primary raw materials or active ingredients;

† the timing of planned capital expenditures;

† our ability to identify, develop or acquire, and market additional product lines and businesses necessary to implement our business strategy and our ability to finance such acquisitions and development;

. . .