AMERICAN VANGUARD CORP - Quarter Report: 2009 June (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2009

FOR THE TRANSITION PERIOD FROM                      TO                     

Commission file number 001-13795

AMERICAN VANGUARD CORPORATION

(949) 260-1200

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ 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):

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, $.10 Par Value—27,104,545 shares as of August 1, 2009.

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AMERICAN VANGUARD CORPORATION

INDEX

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PART I. FINANCIAL INFORMATION

AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands except per share amounts), (Unaudited)

See notes to consolidated financial statements.

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AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)

ASSETS (note 7)

(Continued)

See notes to consolidated financial statements.

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AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands except numbers of shares)

LIABILITIES AND STOCKHOLDERS’ EQUITY

Note: The balance sheet at December 31, 2008 has been derived from the audited financial statements at that date. See notes to consolidated financial statements.

See notes to consolidated financial statements

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AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

(Dollars in thousands, except share data)

For The Three Months Ended March 31, 2009 and June 30, 2009, (Unaudited)

See notes to consolidated financial statements

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AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

For The Six Months Ended June 30, 2009 and 2008

(Unaudited)

Supplemental schedule of non-cash investing and financial activities:

During the six months ended June 30, 2008, the Company completed the purchase of certain assets which totaled $2,350, of which $600 was paid in cash during the period. During the six months ended June 30, 2009, the Company paid $400 associated with scheduled payments against the transactions referenced in the period to June 30, 2008. There were no additional comparable purchases to report for the period to June 30, 2009.

See notes to consolidated financial statements.

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AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Columnar Numbers in thousands except for Note 10 and share data)

(Unaudited)

1. The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation, have been included. Operating results for the three and six months ended June 30, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

2. Property, plant and equipment at June 30, 2009 and December 31, 2008 consists of the following:

3. Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method. The components of inventories consist of the following:

4. Based on similar economic and operational characteristics, the Company’s business is aggregated into one reportable segment. Selective enterprise information is as follows:

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AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

5. On March 9, 2009, the Company announced that the Board of Directors declared a cash dividend of $0.05 per share. The dividend was distributed on April 15, 2009, to stockholders of record at the close of business on March 31, 2009. Cash dividends paid April 15, 2009 totaled approximately $1,341.

On March 10, 2008, the Board of Directors declared a cash dividend of $0.05 per share. The dividend was distributed on April 15, 2008, to stockholders of record at the close of business on March 31, 2008. Cash dividends paid April 15, 2008 totaled approximately $1,323.

6. Statement of Financial Accounting Standards (“SFAS”) No. 128, Earnings Per Share (“EPS”) requires dual presentation of basic EPS and diluted EPS on the face of all income statements. Basic EPS is computed as net income divided by the weighted average number of shares of common stock outstanding during the period. Diluted EPS reflects potential dilution that could occur if securities or other contracts, which, for the Company, consists of options to purchase shares of the Company’s common stock are exercised.

The components of basic and diluted earnings per share were as follows:

The assumed exercise of 631 stock options has been excluded from fully diluted earnings per share for the three months to the end of June 30, 2009 because to do so would be anti-dilutive.

7. Substantially all of the Company’s assets are pledged as collateral with its banks.

The Company has various different loans in place that together constitute the short-term and long-term loan balances shown in the balance sheet at June 30, 2009 and December 31, 2008. These are summarized in the following table:

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AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

The Company has four key covenants to its credit facility with its banking syndicate. The covenants are as follows: (1) the Company must maintain its borrowings below a certain consolidated funded debt ratio, (2) the Company must limit its annual spending on the acquisition of fixed asset capital additions, (3) the Company must maintain a certain consolidated fixed charge coverage ratio and (4) the Company must maintain a certain modified current ratio. As of June 30, 2009 the Company met all the covenants listed above. This was also the position as of December 31, 2008. At June 30, 2009 total indebtedness was $97,301 as compared to $82,404 at December 31, 2008.

For further information, refer to the consolidated financial statements and footnotes thereto (specifically note 2) included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

8. Foreign Exchange Price and Interest Rates—The Company is exposed to certain risks relating to its ongoing business operations. The primary risks managed by using derivative instruments are foreign exchange price risk and interest rate risk. Forward contracts are entered into to manage the price risk associated with forecasted purchases of materials used in the company’s manufacturing process. Interest rate swaps are entered into to manage interest rate risk associated with the Company’s fixed-rate borrowings.

SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, requires companies to recognize all derivative instruments as either assets or liabilities at fair value in the statement of financial position. In accordance with SFAS No. 133, the Company designates foreign exchange forward contracts as cash flow hedges of forecasted purchases of materials and interest rate swaps as fair value hedges of variable-rate borrowings.

Cash Flow Hedges

For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings.

As of December 31, 2008, the Company had a foreign exchange contract to purchase €5,783,904. The fair value of the contract as of December 31, 2008 was $713,194. The Company does not have any outstanding contacts as of June 30, 2009 and recognized a loss of $61,757 in interest expense upon settling in March 2009. As of December 31, 2008, the Company recorded unrealized losses in other comprehensive income of $539,390. The Company reclassified from other comprehensive income to interest expense $173,803 due to ineffectiveness as of December 31, 2008.

Fair Value Hedges

For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.

As of June 30, 2009 and December 31, 2008, the Company has two perfectly effective interest rate swap contracts. The fair value at June 30, 2009 and December 31, 2008, was $1,492,286 and $1,980,937, respectively, and is recorded in accounts payable. The total notional amount of the Company’s receive-variable/pay-fixed interest rate swaps is $28,163,466. As of June 30, 2009 there was a gain of $488,714 and at December 31, 2008, the Company recorded an unrealized loss of $1,980,937 in other comprehensive income.

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AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

9. Reclassification—Certain items may have been reclassified (if appropriate), in the prior period consolidated financial statements to conform with the June 30, 2009 presentation.

10. Total comprehensive income includes, in addition to net income, changes in equity that are excluded from the consolidated statements of operations and are recorded directly into a separate section of stockholders’ equity on the consolidated balance sheets.

Comprehensive income and its components consist of the following:

11. Stock Based Compensation Expense—The Company accounts for stock-based awards to employees and directors in accordance with Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment,” (“SFAS 123(R)”) which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including shares of common stock granted for services, employee stock options, and employee stock purchases related to the Employee Stock Purchase Plan (“employee stock purchases”) based on estimated fair values.

Stock Options—During the six months ended June 30, 2008, the Company granted a 10-year option to an employee to acquire 6,779 shares of common stock at an exercise price of $14.75. The option vests one-third on the first anniversary of the grant and one-third on each anniversary thereafter (three equal installments). The option was valued using the Black-Scholes option-pricing model at $7.11 per share. Assumptions used to value the option were: expected term of 5 years, expected volatility of 50%, expected annual dividends of 0.5%, and a risk-free interest rate of 2.45%. No options were granted during the six months ended June 30, 2009.

During the six months ended June 30, 2008, employees and non-executive directors exercised options to acquire 129,027 shares of common stock. Cash received upon exercise was $431,733 or $3.35 per share. At the time of exercise, total intrinsic value of the options exercised was approximately $1,561,202 (or $12.10 per share). No options were exercised during the six months ended June 30, 2009.

There were options to acquire 9,400 shares that were forfeited during the six months ended June 30, 2008, which had an exercise price of $14.74. The shares were vested when terminated. There were no options forfeited during the six months ended June 30, 2009.

During the six months ended June 30, 2008 and 2009, the Company recognized stock-based compensation expense related to stock options of $46,000 and $5,000, respectively.

As of June 30, 2009, the Company had approximately $27,000 of unamortized stock-based compensation expenses related to unvested stock options outstanding. This amount will be recognized over the weighted-average period of 1.7 years. This projected expense will change if any stock options are granted or cancelled prior to the respective reporting periods or if there are any changes required to be made for estimated forfeitures.

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AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Restricted Shares—During the six months ended June 30, 2009, the Company granted employees a total of 101,188 shares of common stock. The shares will cliff vest after three years of service. The shares were valued at $11.75 per share (or $1,189,022 in total), which was the publicly traded share price as of the date of grant, and the company will recognize a corresponding expense over the required service period of three years. During the six months ended June 30, 2008, no restricted shares were granted.

During the six months ended June 30, 2008 and 2009, the Company recognized stock-based compensation expense related to restricted shares of $395,000 and $480,000, respectively.

As of June 30, 2009, the Company had approximately $2,227,000 of unamortized stock-based compensation expenses related to unvested restricted shares. This amount will be recognized over the weighted-average period of 2.2 years. This projected expense will change if any restricted shares are granted or cancelled prior to the respective reporting periods or if there are any changes required to be made for estimated forfeitures.

Stock Grants—During the six months ended June 30, 2009, the Company granted non-executive board members a total of 33,845 shares of common stock. The shares were immediately vested on the date of grant. The shares were valued at $10.34 per share, which was the publicly traded share price as of the date of grant, and the company will recognize a corresponding expense of $350,000 over the service period which is the non-executive board member’s term of office.

During the six months ended June 30, 2008, the Company granted non-executive board members a total of 23,580 shares of common stock. The shares were immediately vested on the date of grant. The shares were valued at $13.09 per share, which was the publicly traded share price as of the date of grant, and the company recognized a corresponding expense of $300,000 over the service period which is the non-executive’s term of office.

12. Legal Proceedings—Summarized below are litigation matters in which there has been material activity or developments since the filing of the Company’s Form 10-Q for the period ended March 31, 2009.

A. DBCP Cases

Introductory Notes. A number of suits have been filed against AMVAC, alleging injury from exposure to the agricultural chemical 1,2-dibromo-3-chloropropane (“DBCP”). DBCP was manufactured by several chemical companies, including Dow Chemical Company and Shell Oil Company and was approved by the U.S. EPA to control nematodes. DBCP was also applied on banana farms in Latin America. The U.S. EPA suspended registrations of DBCP in October 1979, except for use on pineapples in Hawaii. The EPA suspension was partially based on 1977 studies by other manufacturers that indicated a link between male sterility and exposure to DBCP among their factory production workers producing the product.

Nicaraguan Cases. Thus far there are approximately 100 lawsuits, foreign and domestic, filed by former banana workers in which AMVAC has been named as a party. Fifteen of these suits have been filed in the United States (with prayers for unspecified damages) and the remainder have been filed in Nicaragua. Three of these domestic suits were brought by citizens of Nicaragua while the other domestic suits have been brought by citizens of other countries. These claims are all in various stages and allege injury from exposure to DBCP, including claims for sterility. All but two of the suits filed in Nicaragua are unserved. All but one of the suits in Nicaragua have been filed pursuant to Public Law 364, an October 2000 Nicaraguan statute that contains substantive and procedural provisions that Nicaragua’s Attorney General previously expressed as unconstitutional. Each of the Nicaraguan plaintiffs claims $1 million in compensatory damages and $5 million in punitive damages. In all of these cases, AMVAC is a joint defendant with Dow Chemical and Dole Food

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AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Company, Inc. In the two cases pending before Nicaraguan courts in which AMVAC has been served, the court has denied AMVAC’s objection to jurisdiction, which is being appealed. In light of the Los Angeles Superior Court’s finding of pervasive fraud (particularly with respect to local counsel, plaintiffs and the court system in Nicaragua) in Mejia and Rivera as described in the Company’s Form 10-Q for the period ended March 31, 2009, AMVAC believes that its exposure to liability in Nicaragua cases is significantly diminished. In other words, with respect to the Nicaraguan cases, the Company does not believe that a loss is probable nor that any such loss is reasonably estimable and, accordingly, has not accrued a loss contingency therefor.

Patrickson. In October 1997, AMVAC was served with a Complaint(s) in which it was named as a defendant. The matter was filed in the Circuit Court, First Circuit, State of Hawaii and in the Circuit Court of the Second Circuit, State of Hawaii (two identical suits) entitled Patrickson, et. al. v. Dole Food Co., et. al., and alleges damages sustained from sterility and other injuries caused by exposure of plaintiffs (banana workers) to DBCP while applying the product in their native countries from 1959 through at least 1997. The ten named plaintiffs are citizens of four countries— Guatemala, Costa Rica, Panama, and Ecuador. Punitive damages are sought against each defendant. The matter was eventually transferred to state court in Oahu. On June 9, 2009, that court granted defendants’ motion for summary judgment and dismissed the action with prejudice as to six of the plaintiffs, finding that these plaintiffs were barred from making their claims under the applicable statute of limitations. Voluntary dismissals without prejudice are pending for the claims of the remaining four plaintiffs.

B. Other Matters

On July 19, 2006, AMVAC’s registered agent was served with a putative class action complaint entitled Latrice McLendon, et al. v. Philip Service Corporation etc. et al (including AMVAC), which was filed in the Superior State Court of Fulton County, State of Georgia No. 2006CN119863 and subsequently removed to the United States District Court for the Northern District of Georgia No. 1:06-CV-1770-CAP, in which a class of Georgia plaintiffs seek damages, including punitive damages, in an unspecified amount for personal injuries and diminution in property value allegedly arising from the airborne release of propyl mercaptan and ethoprop from a waste treatment facility operated by PSC Recovery Services (“PSC”) in Fairburn, Georgia. Plaintiffs, residents living in the vicinity of the PSC plant, allege trespass, nuisance and negligence on behalf of defendants in handling, storing and treating waste which was generated by AMVAC’s Axis, Alabama facility. The parties engaged in mediation on September 19, 2007 before a neutral mediator. Working in conjunction with their insurance carriers at the mediation, defendants AMVAC and PSC have agreed to settle the matter with a settlement class of approximately 2,000 households for payment of cash consideration of $4 million, which amount shall be divided evenly between co-defendants and paid by their respective insurance carriers. The cost of claims administration, class notice, plaintiffs’ attorneys’ fees, and class relief will be paid out of the $4 million settlement fund. On July 2, 2009 the court entered an order giving its final approval of the class settlement, and the effective date of that final approval was July 3, 2009 pursuant to the terms of the settlement agreement. The Company is in the process of making payment to claimants who submitted complete claim forms as per the settlement agreement. In light of the fact that the settlement is being paid through insurance, the settlement will not have an adverse effect upon the Company’s financial performance. Further, the Company does not believe that a loss to the Company is probable and has not set up a loss contingency therefor. However, the settlement does not include mutual releases between co-defendants, and each co-defendant’s insurance carrier has reserved all rights under applicable insurance policies, including rights to subrogation and contribution.

On June 3, 2008 an action styled John B. Abernathy, Jr. and Delores Abernathy v. Philip Services Corporation etc. et al. [including AMVAC Chemical Corporation], Civ. No. 2008-EV-004787J, was filed in the State Court of Fulton County, State of Georgia. Plaintiffs assert personal injury (including kidney failure) and property damage claims based on the same alleged airborne chemical release from the same PSC facility at issue in the McLendon litigation. Plaintiffs seek compensatory and punitive damages in unspecified amounts and assert

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AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

causes of action for negligence, negligence per se, trespass, and nuisance. The Company does not believe that the claims have any merit. The parties held a mediation on July 30, 2009 but did not reach a settlement. Discovery is ongoing, and at this point in the litigation, the Company does not believe that a loss in this matter is probable nor can it reasonably estimate such loss and, accordingly, has not accrued a loss contingency for this matter.

13. Recently Issued Accounting Guidance—In June 2009, the Financial Accounting Standards Board (“FASB”) issued FAS 168 “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles”. This statement replaces FASB statement 162. This new statement identifies the source of accounting principles and the framework for selecting principles used in the preparation of financial statements for nongovernmental entities that are presented in conformity with US GAAP. The pronouncement is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Company has reviewed the details of the statement and concluded that changes in codification structure will have no effect on the financial reporting of the Company. The Company will adopt the pronouncement for the quarter ended September 30, 2009 and the 10-Q filing will reflect citations as stated under the codification.

In May 2009, FASB issued FAS 165 “Subsequent Events”. The objective of the statement is to provide reporting entities with principles and requirements related to subsequent events. The objective of the standard is to clarify when a Company must disclose details of a subsequent event. Equally, the standard makes clear circumstances when details of a subsequent event need not be included in the Company’s public filings. American Vanguard’s disclosure committee has reviewed the requirements of the standard and notes it is effective for all interim and annual financial statements dated after of June 15, 2009. Accordingly, the 10-Q filing for the period ended June 30, 2009 has been reviewed to ensure that it is in compliance with the standard.

On April 9, 2009, FASB issued FAS 107-1. This position paper amends FASB statement No. 107 “Disclosures about Fair Value of Financial Instruments”. At the same time the FASB issued APB 28-1, which amends APB Opinion No. 28 “Interim Financial Reporting”. Both of these position papers are focused on increasing disclosures related to the fair value of financial instruments for interim reporting periods of publicly traded companies. In the 10-Q for the third quarter of 2008, American Vanguard increased its disclosure related to such Financial Instruments and continued that depth of disclosure in its 10-K statement for the year ended December 31, 2008. We will continue to fully disclose full details of the fair value of our financial instruments in our future published summarized financial information.

On April 9, 2009, FASB issued FSP FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions that are not Orderly”. This is additional clarification and advice on Statement No. 157 which was issued in September 2006. American Vanguard operates in the Chemical Industry. As such an important factor in our business relates to the ownership or usage rights related to intellectual property (Intangible Assets). At each quarter end we assess the fair value of our holdings. This FSP takes effect for reporting periods ending on or after January 15, 2009. We have assessed our assets and liabilities and do not believe that any fall into the scope of this statements. We will continue to regularly assess our portfolio and will make the necessary adjustments and disclosures when we conclude that one or more of our assets fall within the scope of this statement.

On October 10, 2008, FASB issued FSP FAS 157-3. This position paper seeks to clarify the application of FASB 157, “Fair Value Measurements”, in a market that is not active and provides illustrative examples for determining fair value of a financial asset when the market for that financial asset is not active. This statement is effective on issuance or October 10, 2008. Currently, American Vanguard has no financial assets where there is little or no market activity at the measurement date. Accordingly, we believe that this FSP has no applicability for the Company as at March 31, 2009. We will reconsider the applicability of this statement should our business circumstances change.

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AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

On September 12, 2008, FASB issued FSP FAS 133-1. This FSP seeks to clarify the application of FASB 133, “Accounting for Derivative Instruments and Hedging Activities”, to require disclosures by sellers of credit derivatives, including embedded credit derivatives. Furthermore, the FSP amends FASB Interpretation No 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”,, requiring additional disclosures related to payment/risk. Finally, this FSP clarifies the effective date of FAS 161, “Disclosure about Derivative Instruments and Hedging Activities”. Effective for reporting periods (annual or interim) ending after November 15, 2008. We have reviewed the position paper and find that; for FASB 133, we conclude that we do not participate in the market selling any derivatives, for FASB No 45, we have no guarantees related to the debts of others and with regard to the effective date of FASB 161, this statement confirmed our existing understanding. We will reconsider the applicability of this statement should our business circumstances change.

In March 2008, FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities (“SFAS 161”). The new standard is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance and cash flows. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The new standard also improves transparency about the location and amounts of derivative instruments in an entity’s financial statements; how derivative instruments and related hedged items are accounted for under SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities (“SFAS No. 133”); and how derivative instruments and related hedged items affect its financial position, financial performance, and cash flows. The Company has reviewed the standard and believes its current reporting meets the requirements of the standard.

In December 2007, FASB issued SFAS No. 141 (Revised) Business Combinations (“SFAS 141 (R)”). The provisions of this statement are effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning after December 15, 2008. Earlier application is not permitted. SFAS 141 (R) replaces SFAS 141 and provides new guidance for valuing assets and liabilities acquired in a business combination. We adopted SFAS 141 (R) in fiscal year beginning January 1, 2009.

14. Under applicable law, namely the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA), it is permissible for a follow-on registrant to cite to data owned by the original data owner in support of a follow-on registration, provided that the follow-on registrant makes an offer to pay (and eventually does pay) data compensation to the original data owner. Thus, in the Agricultural Chemical Industry it is common practice for an original data owner to collect data compensation from one or more follow-on registrants. Included in net sales in the three months ended June 30, 2009 are several amounts totaling $1,400 that constitute data compensation collected by the Company from follow-on registrants for their reliance on the Company’s data studies. There were no such data compensation amounts included in net sales for the three and six months ended June 30, 2008; however, in those periods, the Company did include in net sales approximately $1,400 arising from the settlement of a non-FIFRA claim.

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FORWARD-LOOKING STATEMENTS/RISK FACTORS:

The Company, from time-to-time, may discuss forward-looking statements including assumptions concerning the Company’s operations, future results and prospects. These forward-looking statements are based on current expectations and are subject to a number of risks, uncertainties and other factors. In connection with the Private Securities Litigation Reform Act of 1995, the Company provides the following cautionary statements identifying important factors which, among other things, could cause the actual results and events to differ materially from those set forth in or implied by the forward-looking statements and related assumptions contained in the entire Report. Such factors include, but are not limited to: product demand and market acceptance risks; the effect of economic conditions; weather conditions; changes in regulatory policy; the impact of competitive products and pricing; changes in foreign exchange rates; product development and commercialization difficulties; capacity and supply constraints or difficulties; availability of capital resources; general business regulations, including taxes and other risks as detailed from time-to-time in the Company’s reports and filings filed with the U.S. Securities and Exchange Commission (the “SEC”). It is not possible to foresee or identify all such factors. For more detailed information, refer to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operation, Risk Factors, in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

RESULTS OF OPERATIONS

Quarter Ended June 30 (columnar numbers in thousands):

The Company has experienced a very challenging business environment during the three months ended June 30, 2009. Our net sales for the period are down 18% at $47,485 compared to the same period of 2008. Our crop business is down 21% as compared to the same period of last year. The primary contributors to this shortfall were declines in the sales of our herbicide and insecticide product lines. Sales of our herbicide product were down by approximately 50% as compared to the same period of 2008. While our field data indicates that our herbicide product has been moving from retailer to grower at levels similar to those of the 2008 season (and therefore that on-the-ground usage was about the same for the comparable period) our sales to distribution during the second quarter of 2009 were down, as distribution reduced their inventory to levels far lower than historical averages. While reducing its inventory, distribution adopted a “buy-as-needed” approach to procurement. In addition, weather conditions in the Midwest delayed the corn planting season and affected the use of post-emergent herbicides.

Our leading insecticides were down approximately 40% in the aggregate compared to the same period last year due, primarily to reduced acres in cotton and peanuts, and a decrease in pest pressure on cotton and other crops. Our fungicides product lines have performed well driven by strong sales in one of our long time core products into turf and ornamental applications. Notwithstanding a narrow planting window, sales of our granular soil insecticides were even with those of the comparable period in 2008. Net sales for the three and six month periods ended June 30, 2009, includes $1,400 from the settlement of two claims against follow-on registrants

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from whom the Company collected data compensation. The Company included a similar amount in net sales for the comparable period in 2008 arising from the settlement of non-FIFRA litigation. Finally, our international sales which were slow in the first quarter were up 17% in the second quarter as compared to the same period of 2008.

Our non-crop business continues to perform robustly in this difficult market with sales only 4% down after a very strong first quarter.

Cost of sales for the quarter ended June 30, 2009, ended at $31,066 or 65% of sales compared to $34,296 or 59% of sales for the same period of 2008. When looking purely at our selling activities, sales mix of our products generated a gross profit percentage performance in line with the same period of 2008. The shortfall in volume compared to the prior quarter generated a lower absolute gross profit result. Gross profit ended the period at $16,419 or 35% of sales for the period ended June 30, 2009, as compared to $23,612 or 41% of sales for the same period of 2008. Our pricing has remained in line with prior periods; however, the shortfall in gross profit relates to a loss of sales volume and lower production output. During the quarter we reduced production thru-put in our factories, in order to refrain from building inventories. While we successfully accomplished the goal of not building inventory levels, we inevitably experienced the burden of fixed cost absorption associated with these reduced operating rates.

Gross profit performance was affected by three main factors during the three months ended June 30, 2009. The shortfall in sales revenue accounted for approximately 65% of the shortfall, while overhead under-absorption, along with some one-time waste disposal expense, accounted for approximately 35% of our year-over-year quarterly decline in net earnings. Gross profit would have been further reduced but for the inclusion of the aforementioned settlement.

It should be noted that, when making comparisons with other companies’ financial statements, the Company reports distribution costs in operating expenses and not as part of cost of sales.

Operating expenses increased by $101 to $15,537 as compared to last year’s expense of $15,436. The differences in operating expenses by department are as follows:

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Interest costs, net of capitalized interest, were $906 in the three months to June 30, 2009 as compared to $1,099 in the same period of 2008. Interest costs are summarized in the following table:

Average Indebtedness and Interest Expense

The Company’s average overall debt for the three months ended June 30, 2009 was $113,871 as compared to $99,258 for the same period in 2008. The Company made a $1,000 scheduled payment of its term debt in both periods. Revolver debt reduced by $17,000 during the three months to June 2009 as compared to a reduction of $13,500 during the same period of 2008. Our results have been favorably impacted by movement in the LIBOR rate during the period to June 30, 2009 as compared to the same period of 2008. As can be seen from the table above, our effective interest rate during the period was 3.2% as compared to 4.4% for 2008.

The Company’s income tax expense was $2,735 and a credit of $20 for the six months ending June 30, 2008 and 2009, respectively. The Company’s effective tax rate was decreased to 37% mainly due to a decrease in its financial performance year to date. In the income statement for the quarter ended June 30, 2009, there is a catch up to this adjusted rate. Furthermore, we are currently undergoing an audit with the IRS for the 2006 and 2007 tax years, however, no adjustments have been made to date.

Overall our net loss for the three months to June 2009 is $4 as compared to net income of $4,342 for the same period of 2008.

Six Months Ended June 30 (columnar numbers in thousands):

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The Company reported sales of $92,122 down 7% as compared to the same period of 2008. Sales in the first quarter performed well, however, demand in the second quarter for our crop products slowed strongly resulting in the 11% reduction for the first six months of the year as compared to the same period of 2008. Our granular soil insecticides started the year strongly following delayed sales from the last quarter of the prior year and have kept on track during the second quarter. Our fungicides and fumigants have been broadly in line with our plan although marginally below last year. Our herbicides and insecticides have slowed significantly in the second quarter due, in the case of herbicides, to more stringent inventory control by distribution coupled with adverse weather conditions and, in the case of insecticides, to reduced acres in cotton and peanuts, reduced use on sugar beets, and reduced pest pressure in cotton and other crops. Our international sales continue to grow despite careful control of credit on accounts receivable transaction. Our non-crop sales continue to perform robustly and are up 14% as compared to last year.

Gross profit performance remained fairly stable reflecting continued stability of our pricing, however, factory activity levels are down resulting in under-absorbed factory costs in the six months ending June 30, 2009 as compared to the same period of 2008. Gross profit ended down at $34,975 or 38% as compared to $41,348 and 42% in the same period of 2008.

Operating expenses increased by $2,718 to end at $32,100 compared to $29,382 last year. The differences in operating expenses by department are as follows:

Interest costs net of capitalized interest, were $1,771 in the six month period ended June 30, 2009 compared to $2,064 in the same period in 2008. The Company’s average overall debt for the six months ended June 30, 2009 was $104,222 and the effective interest rate was 3.4%. This compares to $88,461 and an effective interest rate of 4.7% for the same period in 2008. The reduced effective interest rate is driven by movements in LIBOR in the two periods.

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Average Indebtedness and Interest Expense