(Dollars in thousands, except per-share amounts)

RESULTS OF OPERATIONS

General

Reference is made to Management's Discussion and Analysis of Financial Condition and Results of Operations-General, incorporated by reference to Item 7 of our Annual Report on Form 10-K for the fiscal year ended June 30, 2008 for certain general information about our principal products and costs.

As described below, we have made significant changes to our operations since June 30, 2008. In order to improve our operations, we have refocused our business on the production of value added ingredients and distillery products. We have realigned our production efforts and taken steps to reduce excess inventories. We have closed our flour mill in Atchison, ceased commodity starch and gluten production at our Pekin plant and taken steps to exit the fuel alcohol and personal care markets. We also have temporarily ceased production of food grade alcohol at our Pekin plant and have agreed with the lenders under our Credit Agreement that by June 15, 2009 we will either enter a commitment letter or an agreement to sell this facility by July 17, 2009 or obtain a commitment letter or agreement from a bank or other lender to provide a loan in the amount of $25,000 by July 17, 2009. As a result of these actions, we will only produce minimal quantities of fuel grade alcohol as a by-product and will no longer sell mill feeds, we expect our production of distiller's grain to decline and we generally anticipate that revenues in future periods will be lower than historic levels. We expect to see improved profitability because of these steps. However, they also produce a current cost. During the year-to-date period ended March 31, 2009, we have incurred significant impairment and restructuring costs, aggregating $17,460. We also recognized $7,553 in cost of sales for natural gas that we do not expect to use under a contract we entered with respect to our Pekin plant.

Critical Accounting Policies and Estimates

Reference is made to Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies, incorporated by reference to Item 7 of our Annual Report on Form 10-K for the fiscal year ended June 30, 2008, for a discussion of our critical accounting policies and the use of certain judgments and estimates in the preparation of our financial statements. As stated therein, the Company tests its long-lived assets for impairment whenever events or conditions and circumstances indicate a carrying amount of an asset may not be recoverable. During the third quarter of our fiscal year, declines in overall equity values, including our common stock value, and changes in our operations triggered impairment evaluations. Updated forecasts that reflect recent changes made to our business were used in this analysis. The use of forecasts requires considerable management judgment. Management believes the judgments used in these analyses are reasonable. The testing and analysis identified no impairment losses at March 31, 2009. See Note 8 of Notes to Condensed Consolidated Financial Statements included elsewhere herein for a discussion of impairment losses incurred during the year-to-date period ended March 31, 2009.

CHANGES IN SEGMENT REPORTING

For the quarter and year-to-date ended March 31, 2009, the Company refined its methodology for assessing identifiable earnings (losses) before income taxes for all segments whereby only direct selling,

general and administrative costs are allocated to operating segments. Previously, the Company had allocated substantially all selling, general and administrative expenses to each operating segment based upon numerous factors and attributes. All selling, general and administrative expenses not directly attributable to operating segments have been restated within Corporate income
(loss) before taxes for the quarter and year-to-date ended March 31, 2008. Accordingly, amounts previously disclosed as earnings (loss) before income taxes for the quarter and year-to-date ended March 31, 2008 have been adjusted to reflect these changes.

DEVELOPMENTS IN THE INGREDIENT SOLUTIONS SEGMENT

In order to become more efficient and effective and to improve our results, we have refocused our business on the production of our value-added products. Management believes the steps it has taken will help enable the Company to return to profitability, be more competitive, and allow the Company to obtain financing that will enable the Company to maintain operations.

Among the more important reasons for the decision to re-focus our ingredients solutions business are the following:

† We had underutilized ingredients solutions segment facilities at both of our Pekin, Illinois and Atchison, Kansas production facilities, and our commodity ingredients business had experienced continuing losses.

† We could no longer produce flour for our own use at costs that were competitive with those of third party producers.

We have substantially exited the commodity wheat gluten business and have curtailed our commodity starch production. By closing protein and starch production at Pekin, we have reduced the volume of our ingredient solutions business by approximately 20 percent, in terms of pounds, substantially all of which relates to our lower margin commodity starch and protein products. We continue to focus our manufacturing efforts on improving our consistency and capabilities for producing our specialty product lines. For the quarter ended March 31, 2009, we have improved our starch recovery percentage in our Atchison facility from approximately 44 percent to 49 percent which should result in improved margins on both commodity and specialty starches in future periods.

Other developments during the quarter ended March 31, 2009 included the following:

† We exited the personal care line of products after fulfilling all obligations with respect to our personal care customers, completing all production and liquidating all remaining inventory during the quarter ended March 31, 2009.

† We have implemented an on-line Customer Relationship Management ("CRM") solution to improve our ability to develop new sales of our product lines. Our commercialization functions are focused on increasing sales growth of our specialty products at the largest and most innovative food companies in the U.S.

DEVELOPMENTS IN THE DISTILLERY PRODUCTS SEGMENT

As previously mentioned in Developments in the Ingredient Solutions Segment, in order to become more efficient and effective and to improve our results, we have decided to refocus our business on the production of our value added products. With respect to our Distillery Products Segment, among the more important reasons for the decision to re-focus the business are the following:

† Market economics for fuel grade alcohol have continued to erode, and recent prices have been at or below production cost.

† Incremental ethanol production decisions have been made difficult by continued volatility in corn and ethanol prices.

† With current ethanol industry capacity in excess of federal mandates, it does not seem likely that there will be a return to equilibrium in the ethanol markets in the short term.

We determined to exit the production of fuel alcohol except as a by-product of food grade alcohol production and determined to temporarily shut down food grade production at our Pekin plant for 90 days to utilize existing inventories at that location. On March 31, 2009, we agreed with our Credit Agreement bank that by June 15, 2009 we would either procure a commitment letter or agreement from a buyer for the Pekin plant or procure a commitment letter or agreement for $25,000 in new financing from another bank or lender, one of which must close by July 17, 2009, and announced that we were considering our strategic options, including the sale of the Pekin plant. We do not expect the shutdown of Pekin to affect our food grade alcohol customers as we are continuing to optimize food grade alcohol production capabilities at Atchison. During fiscal 2008 and the year-to-date period ended March 31, 2009, we estimate that our ethanol sales accounted for approximately 46.1 percent and 29.0 percent of our distillery segment revenues. Historically, we have produced substantially all of our food grade alcohol at Atchison and substantially all of our fuel grade alcohol at Pekin.

DEVELOPMENTS IN THE OTHER SEGMENT

For the quarter ended March 31, 2009, sales of our plant-based biopolymers decreased substantially with a 43.4 percent decrease in unit sales compared to the quarter ended March 31, 2008 which was exceptionally strong due to significant purchases from a single customer. Additionally, for the quarter ended March 31, 2009, sales of our plant-based biopolymer products have decreased as the price of plastic products (against which our plant-based biopolymer products compete) has decreased with the price of oil. Our plant-based biopolymers products continue to undergo further research and development as we explore additional enhancements to expand their functionality and use capabilities.

As previously reported, at the end of the third quarter of fiscal 2008 we concluded that our pet business assets in the other segment and certain of our ingredient solutions segment assets in a mixed use facility in Kansas City, Kansas at which the Company's pet treat resins are made were impaired. At that time, we recorded an impairment charge of $8,100. At the end of the fiscal year ended June 30, 2008, the Company's management evaluated strategic alternatives with respect to the mixed use facility and committed to a plan to sell the assets at this facility. Buildings and equipment with an adjusted cost basis of $5,600 were reported as current assets as "Assets held for sale" on the Company's consolidated balance sheet as of June 30, 2008 and subsequently as of September 30, 2008. During the quarter ended December 31, 2008, the Company's management, after evaluating new strategic alternatives with respect to our Kansas City Kansas facility, concluded that the building and related land could be used for other manufacturing and storage purposes consistent with our updated business plan. Accordingly, assets consisting of a building with a net book value of $1,067, land with a book value of $506 and equipment with a book value of $679, for a total net book value of approximately $2,252 previously reported as current assets in "Assets held for sale", were reclassified to non-current assets as "Property and equipment, at cost" and "Less: accumulated depreciation."

We continue to evaluate the strategic alternatives for the equipment at our Kansas City facility, and are pursuing the sale of these assets. At March 31, 2009, these equipment assets remain presented as

an asset held for sale. The related debt is presented as Liabilities Related to Assets Held for Sale on the balance sheet.

During the quarter ended December 31, 2008, based on a recent appraisal, we performed another test for impairment on this equipment resulting in a further charge of $811 which is only reflected in the year-to-date results.

Segment Results

The following is a summary of revenues and pre-tax profits / (loss) allocated to each reportable operating segment for the quarterly and year-to-date periods ended March 31, 2009 and 2008. For additional information regarding our operating segments, see Note 6-Operating Segments included under Part 1, Item 1, Financial Statements of this Form 10-Q and incorporated herein by reference.

                              Quarter Ended            Year-to-Date Ended
                         March 31,     March 31,     March 31,     March 31,
(in thousands)             2009          2008          2009          2008

Ingredient solutions
Net Sales               $    16,266   $    25,960   $    64,618   $    73,212
Pre-Tax Income (Loss)         1,415        (2,593 )      (8,128 )         373
Distillery products
Net Sales                    37,263        79,064       158,378       210,945
Pre-Tax Income (Loss)            41         5,474       (28,282 )      11,011
Other
Net Sales                     1,033         1,670         3,828         4,509
Pre-Tax Income (Loss)          (162 )        (508 )          74        (2,796 )

GENERAL

Consolidated losses for the third quarter of fiscal 2009 decreased compared to the same period in fiscal 2008 with a net loss of $6,248 on consolidated sales of $54,562 versus a net loss of $6,629 on consolidated sales of $106,694 during the same quarter of fiscal 2008. This decrease in net loss was primarily the result of restructuring efforts we made during the first and second quarters of the current fiscal year whereby our focus has shifted to the production and sale of value added products. As discussed previously, we have substantially exited the commodity wheat gluten business, curtailed our commodity starch production and have exited the production of fuel alcohol (except as a by-product of food-grade alcohol production). For the quarter ended March 31, 2009, reduced unit sales and lower corn and flour costs partially offset by higher natural gas costs (primarily for the distillery products segment) served to reduce cost of sales. Additionally, for the quarter ended March 31, 2008, we recognized an $8,100 charge related to the impairment of long lived assets at our Kansas City facility. No such charge was recorded in the quarter ended March 31, 2009.

Consolidated net losses for the year-to-date period ended March 31, 2009 increased compared to the year-to-date period ended March 31, 2008 with a net loss of $66,207 on consolidated sales of $226,824 versus a net loss of $1,753 on consolidated sales of $288,666 for the year-to-date period ended March 31, 2008. Restructuring costs related to the impairment of long lived assets, severance and other restructuring of $8,931, $3,288 and $5,241, respectively, were incurred. Additionally, we incurred $7,553 in unrealized losses on a natural gas contract for our Pekin, Illinois production facility. Cost of sales was impacted primarily by the positive impact of the discontinuation of production of certain commodity ingredient

products at our Pekin plant as well as the discontinuation of the production of fuel grade alcohol due to unfavorable market conditions, partially offset by higher grain costs. During the year-to-date period ended March 31, 2008, we realized a gain on the settlement of litigation, net of related expenses of $7,046. No such gain was realized during fiscal 2009,

INGREDIENT SOLUTIONS

Total ingredient solutions sales revenue for the quarter ended March 31, 2009 decreased by $9,694, or 37.3 percent, compared to the quarter ended March 31, 2008. Revenues for specialty ingredients, consisting of specialty proteins and specialty starches, decreased during the quarter ended March 31, 2009 compared to the quarter ended March 31, 2008 by $1,857, or 11.7 percent. Revenues for specialty proteins decreased as a result of lower unit sales partially offset by increased per unit prices. Revenues for specialty starches decreased as a result of lower unit sales partially offset by improved pricing. Revenues for commodity vital wheat gluten for the quarter ended March 31, 2009 decreased by $5,927, or 82.4 percent, primarily as a result of reduced sales volume resulting from our decision to focus on value-added specialty protein and starch products rather than commodity protein and starch products. However, revenues for commodity starch did increase $147 or 17.3 percent, as a result of improved sales volume. Margins continued to be significantly impacted by increased cost of sales related to higher wheat prices compared to a year ago. As noted above in Developments in the Ingredient Solutions Segment, beginning in the quarter ended December 31, 2008, we entered into a supply contract for flour with ConAgra Mills whereby they are supplying our wheat flour requirements for use in the production of protein and starch ingredients. As a result, we no longer purchase wheat directly. However, the price we pay ConAgra for flour is a function of the per-bushel cost of wheat and, accordingly, wheat prices continue to directly impact the cost of raw materials for our ingredient solutions segment.

Total ingredient solutions sales revenue for the year-to-date period ended March 31, 2009 decreased by $8,593, or 11.7 percent, compared to the year-to-date period ended March 31, 2008. Revenues for specialty ingredients increased during this period $2,824, or 6.6 percent. Revenues for specialty starches increased as a result of improved pricing as well as improved unit sales, which offset decreased revenues for specialty proteins resulting from lower unit sales partially offset by improved per unit prices. Revenues for commodity vital wheat gluten for the year-to-date period ended March 31, 2009 decreased by $9,854, or 41.9 percent, primarily as a result of reduced sales volume resulting from our decision to focus on value-added specialty products rather than commodity products. Revenues for commodity starch increased $1,753, or 75.5 percent, as a result of improved sales volume as well as improved pricing. Margins continued to be significantly impacted by increased cost of sales related to increased wheat prices. Also, for the year-to-date period ended March 31, 2009, the price we paid ConAgra for flour was a function of the per-bushel cost of wheat.

DISTILLERY PRODUCTS

Total distillery products sales revenue for the quarter ended March 31, 2009 decreased $41,801, or 52.9 percent, compared to the quarter ended March 31, 2008. This decrease was due to reduced revenues related to fuel grade alcohol of $33,745, or 87.6 percent, as a result of our decision to exit production and sale of fuel grade alcohol related to poor market conditions. Distillery products revenue was also impacted by decreased revenue for food grade alcohol attributable to reduced volumes partially offset by improved per unit pricing. Margins were positively impacted by the impact of reduced corn prices compared to the quarter ended March 31, 2008. For the quarter ended March 31, 2009, the per-bushel cost of corn, before adjustments for the impact of our hedging practices, averaged nearly 17.6 percent lower than the quarter ended March 31, 2008. This reduction in corn cost improved margins on distillery products for the quarter.

Total distillery products sales revenue for the year-to-date period ended March 31, 2009 decreased $52,567, or 24.9 percent, compared to the year-to-date period ended March 31, 2008. This decrease was due primarily to reduced revenues for fuel grade alcohol of $53,141, or 53.6 percent, as a result of our planned reduction of fuel grade alcohol related to poor market conditions. As noted above, we have decided to exit production and sale of fuel grade alcohol. This decrease in distillery products revenue was partially offset by increased revenues related to food grade alcohol of $6,725, or 8.1 percent, over the year-to-date period ended March 31, 2008. Increases in revenue for food grade alcohol were attributable to both increased volume as well as improved per unit pricing. For the year-to-date period, margins were significantly impacted by increased cost of sales related to increased corn prices compared to the year-to-date period ended March 31, 2008. For the year-to-date period ended March 31, 2009, the per-bushel cost of corn, before adjustments for the impact of our hedging practices, averaged nearly 22 percent higher than the year-to-date period ended March 31, 2008.

OTHER PRODUCTS

For the quarter ended March 31, 2009, revenues for other products, consisting primarily of pet products and plant-based biopolymers, decreased $637, or 38.2 percent compared to the quarter ended March 31, 2008 as revenues for both pet products and plant-based biopolymers declined primarily as a result of lower unit sales and, to a lesser degree, reduced per unit pricing. As noted previously under Developments in the Other Segment, sales of our plant-based biopolymer products have decreased as the price of plastic products (against which our plant-based biopolymer products compete) has decreased with the price of oil.

For the year-to-date period ended March 31, 2009, revenues for other products decreased $681 or 15.1 percent as a result of reduced revenues for pet products related to reduced unit sales. Revenues for plant-based biopolymer products for the year-to-date period ended March 31, 2009 increased $194 as a result of both increased unit sales as well as improved per unit pricing.

SALES

Net sales for the quarter and year-to-date periods ended March 31, 2009 decreased $52,132, or 48.9 percent, and $61,842, or 21.4 percent, respectively, compared to the quarter and year-to-date periods ended March 31, 2008. These decreases were the result of decreased sales in all segments during the quarter and year-to-date periods ended March 31, 2009.

For the quarter ended March 31, 2009, decreased sales in the ingredient solutions segment were related to decreased unit sales for commodity vital wheat gluten primarily related to planned reductions of sales following our decision to cease gluten and starch production at Pekin and to focus on the production of value-added ingredient products, and secondarily to reduced per unit pricing. Specialty protein revenues declined due to reduced volume sales partially offset by improved per unit pricing. Specialty starch revenues declined as a result of reduced volumes. This decline was partially offset by revenue increases as a result of improvements in per unit pricing. Further adding to the reduction of revenues in the ingredient solutions segment were the cessation of sales of mill feeds as a result of the discontinuation of flour mill operations in Atchison. For the quarter ended March 31, 2008, revenues related to mill feeds were $2,057. No such sales were recorded in the quarter ended March 31, 2009. Decreased sales in the distillery products segment were driven primarily by the planned reductions in production and sales of fuel grade alcohol, with sales declining by $41,801. As noted above, we have decided to exit the fuel grade business.

For the year-to-date period ended March 31, 2009, decreased revenues in the Ingredient solutions segment were related to reduced revenues for vital wheat gluten and, to a lesser degree, specialty proteins.

Vital wheat gluten revenues declined as a result of our planned reduction referred to above. Both commodity starch and specialty starch revenues increased as a result of increased sales volumes as well as improved per unit pricing. Decreased revenues for mill feeds of $3,317 resulted from the cessation of sales of mill feeds as a result of the discontinuation of flour mill operations in Atchison. Decreased sales in the distillery products segment were primarily related to reductions in sales and production of fuel grade alcohol of $53,141 partially offset by increased sales of both beverage and food grade industrial alcohol. Revenues for industrial alcohol increased as a result of both increased sales volume as well as improved per unit pricing, while revenues for beverage alcohol increased as a result of improved per unit pricing offset by reduced unit sales.

COST OF SALES

For the quarter ended March 31, 2009, cost of sales declined $48,483, or 47.1 percent, while sales decreased 48.9 percent compared to the quarter ended March 31, 2008. This decrease in cost of sales was primarily the result of the reduced production and sales of fuel grade alcohol and commodity vital wheat gluten. Also contributing to a reduction in cost of sales for the quarter were certain reduced input costs. For the quarter ended March 31, 2009, the per bushel cost for corn, excluding the impact of our hedging policy, averaged nearly 17.6 percent lower than the quarter ended March 31, 2008. These factors, which served to reduce cost of sales, were partially offset by higher natural gas costs as well as increased costs of other inputs used in the manufacturing process. Our higher natural gas costs were directly the result of higher natural gas prices experienced during the quarter ended March 31, 2009 compared to quarter ended March 31, 2008. For the quarter ended March 31, 2009, the per million cubic feet ("mcf") cost of natural gas averaged nearly 11.6 percent higher than the quarter ended March 31, 2008 and excludes unrealized loss on a natural gas contract as discussed below. Beginning in the quarter ended December 31, 2008, we ceased purchasing and processing wheat into flour in favor of directly purchasing flour at a lower cost than for what we could manufacture.

For the year-to-date period ended March 31, 2009, cost of sales decreased $8,802, or 3.2 percent, while sales decreased 21.4 percent compared to the year-to-date period ended March 31, 2008. Consistent with the quarter ended March 31, 2009, this decrease in cost of sales was primarily the result of the reduced production and sales of fuel grade alcohol and vital wheat gluten. These factors, which served to reduce cost of sales overall, were partially offset by the impact of higher corn and natural gas costs as well as increased costs of other inputs used in the manufacturing process. Our higher corn costs were directly the result of higher corn prices experienced during the year-to-date period ended March 31, 2009. For the year-to-date period ended March 31, 2009, before adjustment for the impact of our hedging practices, the per-bushel cost of corn averaged nearly 22.0 percent higher than the year-to-date period ended March 31, 2008. For the year-to-date period ended March 31, 2009, the per mcf cost of natural gas averaged nearly 31.7 percent higher than the year-to-date period ended March 31, 2008.

As discussed in Note 4 - Derivative Instrumentsincluded under Part 1, Item 1, Financial Statementsof this Form 10-Q and incorporated herein by reference, effective April 1, 2008, we elected to discontinue the use of hedge accounting for all commodity derivative positions. Accordingly, changes in the value of derivatives subsequent to March 31, 2008 are recorded in cost of sales in the Company's Consolidated Statements of Income. As of March 31, 2008, the cumulative mark-to-market adjustment of $4,195 net of tax of $2,819 included in accumulated other comprehensive income was related to derivative instruments that had previously been designated for hedge accounting under the framework of SFAS 133. Gains related to those derivative instruments have remained in accumulated other comprehensive income until the forecasted transactions to which the specific hedged positions relate impact earnings. During the quarter ended December 31, 2008, the remaining $1,109 in deferred gains on previously designated derivative instruments was recognized in earnings. There remain no further deferred gains as of March 31, 2009.

Our production process involves the use of natural gas which we purchase under . . .