The following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read together with our consolidated financial statements, including the notes thereto, set forth herein. This discussion contains forward-looking statements that reflect our current views with respect to future events and financial performance. Actual results may differ materially from those anticipated in these forward-looking statements. See "Forward Looking Information" below for additional discussion regarding risks associated with forward-looking statements.

Results of Operations

In General

FutureFuel Chemical Company's historical revenues have been generated through the sale of specialty chemicals. FutureFuel Chemical Company breaks its chemicals business into two main product groups: custom manufacturing and performance chemicals. Major products in the custom manufacturing group include:
(i) nonanoyloxybenzenesulfonate, a bleach activator manufactured exclusively for The Procter & Gamble Company for use in a household detergent; (ii) a proprietary herbicide (and intermediates) manufactured exclusively for Arysta LifeScience North America Corporation, a major life sciences company; (iii) two product lines (CPOs and DIPBs) produced under conversion contracts for Eastman Chemical Company; and (iv) an industrial intermediate manufactured for a customer for use in the antimicrobial industry. The major product line in the performance chemicals group is SSIPA/LiSIPA, a polymer modifier that aids the properties of nylon manufactured for a broad customer base. There are a number of additional small volume custom and performance chemical products that FutureFuel Chemical Company groups into "other products". In late 2005, FutureFuel Chemical Company began producing biodiesel. Beginning in 2006, revenues and cost of goods sold for biofuels were treated as a separate business segment.

Revenues generated from the bleach activator are based on a supply agreement with the customer. The supply agreement stipulates selling price per kilogram based on volume sold, with price moving up as volumes move down, and vice-versa. The current contract expires in March 2013. FutureFuel Chemical Company pays for raw materials required to produce the bleach activator. The contract with the customer provides that the price received by FutureFuel Chemical Company for the bleach activator is indexed to changes in certain items, enabling FutureFuel Chemical Company to pass along most inflationary increases in production costs to the customer.

FutureFuel Chemical Company has been the exclusive manufacturer for its customer of a proprietary herbicide and certain intermediates. These products are beginning to face some generic competition, and no assurances can be given that FutureFuel Chemical Company will remain the exclusive manufacturer for this product line. The contracts automatically renew for successive one-year periods, subject to the right of either party to terminate the contract not later than 270 days prior to the end of the then current term for the herbicide and not later than 18 months prior to the then current term for the intermediates. No assurances can be given that these contracts will not be terminated. The customer supplies most of the key raw materials for production of the proprietary herbicide. There is no pricing mechanism or specific protection against cost changes for raw materials or conversion costs that FutureFuel Chemical Company is responsible for purchasing and/or providing.

CPOs are chemical intermediates that promote adhesion for plastic coatings and DIPBs are intermediates for production of Eastman Chemical Company products used as general purpose inhibitors, intermediates or antioxidants. As part of our acquisition of FutureFuel Chemical Company, FutureFuel Chemical Company entered into conversion agreements with Eastman Chemical Company that effectively provide a conversion fee to FutureFuel Chemical Company for CPOs and DIPBs based on volume manufactured, with a minimum annual fee for both products. In addition, the conversion agreements provide for revenue adjustments for the actual price of raw materials purchased by FutureFuel Chemical Company at standard usages. Eastman Chemical Company provides key raw materials at no cost. For the key raw materials, usage over standard is owed Eastman Chemical Company; likewise, any improvement over standard is owed to FutureFuel Chemical Company at the actual price Eastman Chemical Company incurred for the key raw material.

In 2008 FutureFuel Chemical Company entered into a contract with a new customer for the toll manufacture of an industrial intermediate utilized in the antimicrobial industry. FutureFuel Chemical Company invested approximately $10 million in capital expenditures to modify and expand its plant to produce

this industrial intermediate. The customer reimbursed these expenditures, which reimbursements have been classified as deferred revenue on our balance sheet and will be earned into income over the expected life of the product. The contract stipulates a price curve based on volumes sold. The current contract expires in December 2013. The contract with the customer has an inflationary pricing provision, whereby FutureFuel Chemical Company passes along most inflationary changes in production costs to the customer.

SSIPA/LiSIPA revenues are generated from a diverse customer base of nylon fiber manufacturers. Contract sales are indexed to key raw materials for inflation; otherwise, there is no pricing mechanism or specific protection against raw material or conversion cost changes.

Other products include agricultural intermediates and additives, imaging chemicals, fiber additives and various specialty pharmaceutical intermediates that FutureFuel Chemical Company has in full commercial production or in development. These products are currently sold in small quantities to a large customer base. Pricing for these products is negotiated directly with the customer (in the case of custom manufacturing) or is established based upon competitive market conditions (in the case of performance chemicals). In general, these products have no pricing mechanism or specific protection against raw material or conversion cost changes.

The year ended December 31, 2006 was the first full year that FutureFuel Chemical Company sold biodiesel. Capacity was initially 3 million gallons per year, increasing to 24 million gallons per year by the end of 2007 through a dedicated continuous processing line and, to a lesser extent, batch processing. FutureFuel Chemical Company procures all of its own feedstock and only sells biodiesel for its own account. In rare instances, FutureFuel Chemical Company purchases biodiesel from other producers for resale. FutureFuel Chemical Company has the capability to process multiple types of vegetable oils and animal fats, it can receive feedstock by rail or truck, and it has completed the construction of substantial storage capacity to acquire feedstock at advantaged prices when market conditions permit. We have recently completed a project to increase FutureFuel Chemical Company's production capacity to 59 million gallons of biodiesel per year through the addition of a new continuous processing line. We are in the process of bringing this new continuous processing line into commercial production and have encountered only normal start-up issues. We expect this new continuous processing line to be fully operational and to have demonstrated its nameplate capacity by the end of the second quarter of 2009. We believe we have successfully demonstrated our ability to keep our existing continuous processing line at or near capacity for sustained periods of time as well as our ability to both procure and logistically handle large quantities of feedstock. Uncertainty related to our future biodiesel production relates to changes in feedstock prices relative to biodiesel prices and also the $1 per gallon federal blenders credit, which was extended to the end of 2009.

The majority of our and FutureFuel Chemical Company's expenses are cost of goods sold. Cost of goods sold reflects raw material costs as well as both fixed and variable conversion costs, conversion costs being those expenses that are directly or indirectly related to the operation of FutureFuel Chemical Company's plant. Significant conversion costs include labor, benefits, energy, supplies and maintenance and repair. In addition to raw material and conversion costs, cost of goods sold includes environmental reserves and costs related to idle capacity. Finally, cost of goods sold includes hedging gains and losses recognized by us. Cost of goods sold is allocated to the chemical and biofuels business segments based on equipment and resource usage for most conversion costs and based on revenues for most other costs.

Operating costs include selling, general and administrative and research and development expenses. These expense categories include expenses that were directly incurred by us and FutureFuel Chemical Company.

The discussion of results of operations that follows is based on revenues and expenses in total and for individual product lines and does not differentiate related party transactions.

Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008

Revenues: Revenues for the quarter ended March 31, 2009 were $39,737,000 as compared to revenues for the quarter ended March 31, 2008 of $43,220,000, a decrease of 8%. Revenues from biofuels decreased 14% and accounted for 10% of total revenues in both 2009 and 2008. Revenues from chemicals decreased 7% and accounted for 90% of total revenues in both 2009 and 2008. Within the chemicals segment, revenues for the first quarter of 2009 changed as follows as compared to the first quarter of 2008: revenues from the bleach activator decreased 25%; revenues from the proprietary herbicide and

intermediates increased 61%; revenues from CPOs decreased 100%; revenues from DIPBs increased 63%; and revenues from other products decreased 39%.

The decrease in revenue from the bleach activator was primarily attributable to lower volumes. Sales volumes during the quarter ended March 31, 2009 were down approximately 32% from the quarter ended March 31, 2008 and were below expectations. Our contract with our customer provides for increased prices as volumes decline. However, in an effort to better serve the needs of our customer, we agreed to waive this protection via a contract amendment that sets the volume-based price at a certain level equivalent to anticipated average annual production in 2009 and 2010, in exchange for a volume-based adjustment at the end of 2010.

Revenues from the bleach activator and the proprietary herbicide and intermediates are together the most significant components of FutureFuel Chemical Company's revenue base, accounting for 69% of revenues in the quarter ended March 31, 2009 as compared to 65% in the quarter ended March 31, 2008. The future volume of and revenues from the bleach activator depend on both consumer demand for the product containing the bleach activator and the manufacturing, sales and marketing priorities of our customer. We are unable to predict with certainty the revenues we will receive from this product in the future. We believe our customer for the proprietary herbicide has been able to maintain its volume in light of generic competition by being more price competitive, changing its North American distribution system and developing new applications. In addition, our customer has benefited from the general increase in planted acreage in the markets it serves.

Revenues from CPOs and DIPBs together decreased 29% during the first quarter of 2009, due entirely to no demand for CPOs during the first quarter of 2009. The end market for CPOs is in the automotive industry and demand for this product has been impacted by both economic conditions affecting that industry and an inventory build by our customer at the end of 2008. This loss was partially offset by a 61% increase in revenues from DIPB. Both of these products are late in their life cycle and both are negatively impacted by the automotive and housing slow down. As a result, future market conditions for both CPOs and DIPBs may be challenging.

Decreased revenues from biodiesel stem entirely from reduced price during the first quarter of 2009 as compared to the first quarter of 2008; volume sold during the first quarter of 2009 increased 95% over the volume sold during the first quarter of 2008. Based on our experience over the last several years, demand and pricing for biodiesel are typically weakest during the winter. We were, however, able to leverage several new customer relationships as well as the increased acceptance of biodiesel in the market to generate the increase in biodiesel volume sold during the first quarter of 2009. We had ample storage capacity, both onsite and through leased tanks offsite, to handle all excess production in the first quarter. Our existing continuous processing line shut down in the second half of March for planned maintenance and to allow our operations team to start up the newly completed 35 million gallon per year continuous line in a controlled environment. We expect to have the new line operational during the second quarter of 2009. We will utilize the new line to meet primary demand and will restart the existing 24 million gallon per year line to the extent feedstock pricing and availability and customer demand so warrant.

Cost of Goods Sold and Distribution: Total cost of goods sold and distribution for the quarter ended March 31, 2009 were $33,382,000 as compared to total cost of goods sold and distribution for the quarter ended March 31, 2008 of $32,638,000, an increase of 2%.

Cost of goods sold and distribution for the quarter ended March 31, 2009 for FutureFuel Chemical Company's chemicals segment were $28,485,000 as compared to cost of goods sold and distribution for the quarter ended March 31, 2008 of $30,276,000. On a percentage basis, the decrease in cost of goods sold and distribution was almost directly in line with revenues.

Cost of goods sold and distribution for the first quarter of 2009 for FutureFuel Chemical Company's biofuels segment were $4,897,000 as compared to cost of goods sold and distribution for the first quarter of 2008 of $2,362,000. The most significant element of this increase in cost of goods sold and distribution was the receipt during the first quarter of 2008 of $2 million of funding under the Arkansas Alternative Fuels Development Program. Under this program, biodiesel producers in the state of Arkansas are eligible to receive $0.20 per gallon for every gallon of biodiesel produced during defined time periods, up to a maximum of $2,000,000 per period, subject to funding by the State of Arkansas. FutureFuel Chemical Company applied for and, in the first quarter of 2008 received, the maximum $2,000,000 funding under this program for biodiesel produced between January 1, 2007 and June 30, 2008. The next eligible application period opened July 1, 2008 and closes June 30, 2009. FutureFuel Chemical Company has applied for the $0.20 per gallon credit for biodiesel

produced during the third and fourth quarters of 2008 and the first quarter of 2009. Due to the uncertainty of funding from this program, we do not recognize a credit to cost of goods sold and distribution until such time as our application is approved and funding is received.

Operating Expenses: Operating expenses increased from $1,735,000 for the quarter ended March 31, 2008 to $2,063,000 for the quarter ended March 31, 2009, or 19%. This increase was primarily attributable to additional labor resources allocated to our sales and marketing team related to efforts to expand our proprietary chemicals business. In addition, legal fees and other costs were higher as a result of issues described below under Other Matters.

Provision for Income Taxes: The effective tax rates for the three months ended March 31, 2009 and 2008 reflect our expected tax rate on reported operating earnings before income taxes. We have determined that we do not believe that we have a more likely than not probability of realizing a portion of our deferred tax assets. As such, we have recorded a valuation allowance of $816,000 at March 31, 2009.

Critical Accounting Estimates

Revenue Recognition: For most product sales, revenue is recognized when product is shipped from our facilities and risk of loss and title have passed to the customer, which is in accordance with our customer contracts and the stated shipping terms. Nearly all custom manufactured products are manufactured under written contracts. Performance chemicals and biodiesel are sold pursuant to the terms of written purchase orders. In general, customers do not have any rights of return, except for quality disputes. However, all of our products are tested for quality before shipment, and historically returns have been inconsequential. We do not offer volume discounts, rebates or warranties.

Revenue from bill and hold transactions in which a performance obligation exists is recognized when the total performance obligation has been met. Bill and hold transactions for three specialty chemical customers in 2008 and 2009 related to revenue that was recognized in accordance with contractual agreements based on product produced and ready for use. These sales were subject to written monthly purchase orders with agreement that production was reasonable. The inventory was custom manufactured and stored at the customer's request and could not be sold to another buyer. Credit and payment terms for bill and hold customers are similar to other specialty chemical customers. Sales revenue under bill and hold arrangements were $14,172 and $10,917 for the three months ended March 31, 2009 and 2008, respectively.

Liquidity and Capital Resources

Our consolidated net cash provided by (used in) operating activities, investing
activities and financing activities for the three months ended March 31, 2009
and 2008 are set forth in the following chart.

                             (Dollars in thousands)

                                                       March 31,      March 31,
                                                         2009            2008
Net cash provided by operating activities             $     2,648     $    5,310
Net cash provided by (used in) investing activities   $    27,171     $  (25,656 )
Net cash provided by (used in) financing activities   $         -     $        -

Operating Activities: Cash provided by operating activities decreased from $5,310,000 during the first quarter of 2008 to $2,648,000 during the first quarter of 2009. Cash generated from (used in) the change in accounts receivable increased from $(3,446,000) in the first quarter of 2008 to $1,128,000 in 2009. The increase is a result of reduced trade receivables from a major customer during the first quarter of 2009 as compared to a small increase in trade receivables during the first quarter of 2008. The increase is also a result of an increase in receivables from the federal government during the first quarter of 2008 related to biodiesel blender credits, which itself stems from very low sales of biodiesel during the last quarter of 2007. Cash used in changes in inventory decreased from $4,363,000 in the first quarter of 2008 to $3,251,000 in 2009. The decrease is a result of a reduction in the LIFO inventory reserve during the first quarter of 2009. Cash generated from (used in) changes in accounts payable decreased from $2,656,000 in the first quarter of 2008 to $(2,066,000) in 2009. The decrease is primarily attributable to the change in accounts payables related to raw materials. Cash generated from (used in)

accrued expenses and other current liabilities increased from $(450,000) in the first quarter of 2008 to $647,000 in 2009. The increase is the result of higher service accruals for capital expansion work during the first quarter of 2009 as compared to the first quarter of 2008. Finally, cash generated from (used in) deferred revenue decreased from $1,882,000 in the first quarter of 2008 to $(135,000) in 2009. The decrease is the result of our completion of the capital project to modify and expand our plant to produce the new industrial intermediate used in the antimicrobial industry.

Investing Activities: Cash provided by (used in) investing activities increased from $(25,656,000) in the first quarter of 2008 to $27,171,000 in 2009. This increase is primarily attributable to net cash flows provided by short term investments. Cash used in the purchase of marketable securities increased from $(31,882,000) in the first quarter of 2008 to $- in 2009. Cash provided by proceeds from the sale of marketable securities increased from $10,000,000 in the first quarter of 2008 to $16,965,000 in 2009. Finally, cash provided by proceeds from the sale of commercial paper increased from $- in the first quarter of 2008 to $14,432,000 in 2009. The investing activities which spurred these changes are further described below under "Capital Management".

Financing Activities: There was no cash provided by (used in) financing activities in either the first quarter of 2008 or 2009.

Credit Facility

FutureFuel Chemical Company entered into a $50 million credit agreement with a commercial bank in March 2007. The loan is a revolving facility the proceeds of which may be used for working capital, capital expenditures and general corporate purposes of FutureFuel Chemical Company. The facility terminates in March 2010. Advances are made pursuant to a borrowing base. Advances are secured by a perfected first priority security interest in accounts receivable and inventory. The interest rate floats at certain margins over LIBOR or base rate based upon certain leverage ratio from time to time.

There is an unused commitment fee. The ratio of EBITDA to fixed charges may not be less than 3:1. We have guaranteed FutureFuel Chemical Company's obligations under this credit agreement.

As of March 31, 2009 and December 31, 2008, FutureFuel Chemical Company had no borrowings under this $50 million credit agreement.

We intend to fund future capital requirements for FutureFuel Chemical Company's chemical and biofuels segments from cash flow generated by FutureFuel Chemical Company as well as from existing cash and borrowings under the credit facility. We do not believe there will be a need to issue any securities to fund such capital requirements.

Off-Balance Sheet Arrangements

Our only off-balance sheet arrangements were: (i) the financial assurance trusts established for the benefit of the Arkansas Department of Environmental Quality; and (ii) hedging transactions. The financial assurance trusts were established to provide assurances to the Arkansas Department of Environmental Quality that, in the event the Batesville facility is closed permanently, any reclamation activities necessitated under applicable environmental laws would be completed. The amounts held in trust were included in restricted cash and cash equivalents on our balance sheet. The closure liabilities are included in other noncurrent liabilities, but only on a present value basis. These financial assurance trusts were terminated on August 8, 2008 and were replaced by our guaranty. This guaranty is not expected to have a material adverse effect upon our financial condition.

We engage in two types of hedging transactions. First, we hedge our biodiesel sales through the purchase and sale of futures contracts and options on futures contracts of energy commodities. This activity was captured on our balance sheet at March 31, 2009 and December 31, 2008. Second, we hedge our biodiesel feedstock through the execution of purchase contracts and supply agreements with certain vendors. These hedging transactions are recognized in earnings and were not recorded on our balance sheet at March 31, 2009 or December 31, 2008 as they do not meet the definition of a derivative instrument as defined under accounting principles generally accepted in the U.S. The purchase of biodiesel feedstock generally involves two components: basis and price. Basis covers any refining or processing required as well as transportation. Price covers the purchases of the actual agricultural commodity. Both basis and price fluctuate over time. A supply agreement with a vendor constitutes a hedge when FutureFuel Chemical Company has committed to a certain volume of feedstock in a future period and has fixed the basis for that volume.

Capital Management

As a result of our initial equity offering and the subsequent positive operating results of FutureFuel Chemical Company, we have accumulated excess working capital. We intend to retain all remaining cash to fund infrastructure and capacity expansion at FutureFuel Chemical Company and to pursue complimentary acquisitions in the oil and gas and chemical industries. While in the present state of having excess working capital, we intend to manage these assets in such a way as to generate sufficient returns on these funds. Third parties have not placed significant restrictions on our working capital management decisions.

In the first three months of 2009, the management of these funds largely took the form of investments in auction rate securities, U.S. Treasuries and the holding of cash in money market or similar bank accounts.

We have selectively made investments in certain auction rate securities that we believe offer sufficient yield along with sufficient liquidity. To date, all the auction rate securities in which we have invested have maintained a mechanism for liquidity, meaning that the respective auctions have not failed, the issuers have called the instruments, or a secondary market exists for liquidation of the securities. We have classified these instruments as current assets in the accompanying consolidated balance sheet and carry them at their estimated fair market value. The fair market value of these instruments approximated their par value and, including accrued interest, totaled $13,238,000 at March 31, 2009. Auction rate securities are typically long term bonds issued by an entity for which there is a series of auctions over the life of the bond that serve to reset the interest rate on the bonds to a market rate. These auctions also serve as a mechanism to provide liquidity to the bond holders; as long as there are sufficient purchasers of the auction rate securities, the then owners of the auction rate securities are able to liquidate their investment through a sale to the new purchasers. In the event of an auction failure, a situation when there are more sellers than buyers of a particular issue, the current owners of an auction rate security issue may not be able to liquidate their investment. As a result of an auction failure, a holder may be forced to hold the particular security either until maturity or until a willing buyer is found. Even if a willing buyer is found, however, there is no guarantee that this willing buyer will purchase the security for its carrying value, which would result in a loss being realized on the sale. The liquidity problems currently experienced in the U.S. auction rate securities markets have generally been focused on closed-end fund and student loan auction rate securities, asset classes that we have avoided.

We maintain depository accounts such as checking accounts, money market accounts and other similar accounts at selected financial institutions.

Other Matters

We entered into an agreement with a customer to construct at a fixed price a processing plant and produce a certain chemical for the customer. We engaged a third party to act as general contractor on the construction of this plant for a guaranteed price. That general contractor defaulted on its obligations under its contract with us and abandoned the project. As a result, we undertook the . . .