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):



                                      2009       2008      Change
                    Net sales:
                    Crop            $ 37,400   $ 47,384   $  (9,984 )
                    Non-crop          10,085     10,524        (439 )

                                    $ 47,485   $ 57,908   $ (10,423 )

                    Gross profit:
                    Crop            $ 12,010   $ 19,233   $  (7,223 )
                    Non-crop           4,409      4,379          30

                                    $ 16,419   $ 23,612   $  (7,193 )

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

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:

                                                      2009       2008     Change
     Selling                                        $  5,246   $  4,812   $   434
     General and administrative                        4,489      4,550       (61 )
     Research, product development and regulatory      2,506      1,995       511
     Freight, delivery and warehousing                 3,296      4,079      (783 )

                                                    $ 15,537   $ 15,436   $   101

• Selling expenses increased by $434 to end at $5,246 for the three months ended June 30, 2009, as compared to the same period of 2008. Included in this change, advertising spending in support of key product lines were up $412, program related expenses were up $338 on product lines where timing is different from the same period of 2008. Offsetting these increases, our product stewardship costs in the field were down $220 mainly as a result of timing following high costs in the prior quarter as compared to 2008.

• General and administrative expenses decreased by $61 to end at $4,489 for the three months ended June 30, 2009 as compared to the same period of 2008. This decrease was primarily driven by a reduction in accrual for bonuses reflecting the year to date financial performance. The offset was increased resources applied to managing the business. Other costs remained relatively in line with the prior year.

• Research, product development costs and regulatory expenses increased by $511 to $2,506 for the three months ending June 30, 2009, as compared to the same period of 2008. This increase includes additional product development costs incurred on one of our key product lines. Finally, we have incurred some additional product defense costs associated with recently acquired products.

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



                                                Q2 2009                                  Q2 2008
                                   Average    Interest       Interest      Average     Interest       Interest
                                    Debt       Expense         Rate          Debt      Expense          Rate
Term Loan                         $  50,989   $     557           4.4 %    $ 54,989   $      710           5.2 %
Real Estate                           2,119          31           5.9 %       2,226           32           5.8 %
Working Capital Revolver             57,088         323           2.3 %      39,093          490           5.0 %

Average                             110,196         911           3.3 %      96,308        1,232           5.1 %

Other notes payable                   3,675          -             -          2,950           -             -
Interest Income                          -           -             -             -           (75 )          -
Capitalized Interest                     -           (5 )          -             -           (58 )          -

Adjusted Average indebtedness     $ 113,871   $     906           3.2 %    $ 99,258   $    1,099           4.4 %

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):



                                      2009       2008      Change
                    Net sales:
                    Crop            $ 73,505   $ 82,495   $ (8,990 )
                    Non-crop          18,617     16,347      2,270

                                    $ 92,122   $ 98,842   $ (6,720 )

                    Gross profit:
                    Crop            $ 27,377   $ 34,680   $ (7,303 )
                    Non-crop           7,598      6,668        930

                                    $ 34,975   $ 41,348   $ (6,373 )

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:

                                                      2009       2008      Change
     Selling                                        $ 10,552   $  9,616   $    936
     General and administrative                       10,323      8,368      1,955
     Research, product development and regulatory      5,117      3,834      1,283
     Freight, delivery and warehousing                 6,108      7,564     (1,456 )

                                                    $ 32,100   $ 29,382   $  2,718

• Selling expenses for the period ended June 30, 2009 increased by $936 to $10,552 as compared to $9,616 for the same period of 2008. Included in this change, advertising and promotional spending in support of our key product lines were up $169, program related expenses were up $350, and our field stewardship costs were up $600. As an offset, expenses related to our proprietary delivery systems were down $250 related to one time costs incurred last year.

• General and administrative expenses increased by $1,955 to end at $10,323 for the six month period ended June 30, 2009. This includes spending, reported last quarter, related to a major potential acquisition. This cost was offset by reduced bonus accruals reflecting the financial performance for the six months to June 30, 2009. Intangible amortization cost increased as did costs invested in strengthening the management team.

• Research, product development costs and regulatory registration expenses increased by $1,283 to $5,117 as compared to $3,834 in the same period of 2008. The main drivers were increased product defense costs related to costs associated with recently acquired product lines.

• Freight, delivery and warehousing costs decreased by $1,456 to $6,108 or 6.7% of sales as compared to $7,564 or 7.7% of sales for the same period of 2008. This reduction as a percentage of sales, reflects continued effort to control these expenses by careful distribution in the supply chain and savings related to urgent shipments. Furthermore, as noted above, our sales were down in the six months to June 30, 2009 as compared to the same period of the prior year.

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.

Average Indebtedness and Interest Expense



                                       Six Months ended June 30, 2009                Six months ended June 30, 2008
                                    Average        Interest       Interest        Average       Interest        Interest
                                      Debt         Expense          Rate           Debt          Expense          Rate
Term Loan                         $     51,486    $    1,200           4.7 %    $    55,489    $     1,507           5.5 %
Real Estate                              2,133            61           5.8 %          2,239             63           5.7 %
Working Capital Revolver                46,928           536           2.3 %         28,258            677           4.8 %

Average                                100,547         1,797           3.6 %         85,986          2,247           5.2 %

Other notes payable                      3,675            -             -             2,475             -             -
Interest Income                             -             -             -                -             (75 )          -
Capitalized Interest                        -            (26 )          -                -            (108 )          -

Adjusted Average indebtedness     $    104,222    $    1,771           3.4 %    $    88,461    $     2,064           4.7 %

The Company's average overall debt for the six months ended June 30, 2009 was $104,222 as compared to $88,461 for the six months ended June 30, 2008. During the six month period, scheduled payments were made on the term loan and, in line with our normal seasonal cycle, our revolver debt increased through the first four months and then started to reduce. Our results have been favorably impacted by movement in the LIBOR rate in comparison to the rate during the same period of 2008. As can be seen from the table above, our effective interest rate during the period was 3.4% as compared to 4.7% for 2008.

The Company's income tax expense was $3,827 and $409 for the six months ending June 30, 2008 and 2009, respectively. The Company's effective rate has decreased to 37% mainly due to its financial performance year to date. As noted above, the Company is undergoing an audit with the IRS for the 2006 and 2007 tax years, however, no adjustments have been made to date.

Overall our net income for the first six months of 2009 is down at $695 as compared to $6,075 for the same period of 2008. This change is mainly driven by the reduced sales and manufacturing activity levels in the last three months of the period ended June 30, 2009.

LIQUIDITY AND CAPITAL RESOURCES

The Company used $12,191 of cash in operating activities during the six months ended June 30, 2009. This compared to utilizing $9,929 in the same period of last year. Net income of $695, non-cash depreciation and amortization of $6,818 and stock based compensation expense of $580 provided a net cash inflow $8,093 compared to $12,164 for the same period last year.

The main driver for the reduction in cash generated from operational activities is the sales shortfall primarily affecting the second quarter of 2009. This industry-wide, "buy-only-as-needed", restocking reluctance has contributed to the performance declines of many suppliers of crop protection chemicals. The current shrinkage of the distribution inventory pipeline is the major contributing factor to our year-over-year quarterly revenue decline. As an offset, our receivables are down, though is substantially driven by our second quarter sales performance.

We have established goals that are aimed at reducing inventory for the financial year to below the level achieved in December 2008, followed by further reductions in the following financial year. We had anticipated a small reduction during the second quarter of 2009, however as a result of the sales shortfall, this did not materialize and inventories have remained flat. As part of our actions we have deliberately slowed manufacturing activities with the consequence of short term under-absorbed factory costs, as detailed above. There are several important drivers contributing to our high inventory levels. We are increasingly sourcing raw materials globally, driving longer lead times and higher safety stocks. In addition, we have taken inventory purchasing opportunities, both domestically and internationally, during the first quarter of 2009, where we have seen attractive prices.

The Company used $2,249 in investing activities during the six months ended June 30, 2009. The business is focused on achieving a lower level of capital spending this year after making some heavy investments last year.

Financing activities provided $14,344 during the six months ending June 30, 2009, as compared to $25,517 in the same period of the prior year. Net borrowings under the Company's fully-secured revolving line of credit increased by $17,500 during the period, ending at $42,000. The Company received $238 from the sale of common stock under its ESPP plan. Furthermore, the Company made scheduled payments amounting to $2,053 on it's term loans and $1,341 in dividend payments.

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:

Indebtedness                                June 30, 2009                         December 31, 2008
$000's                           Long-term     Short-term     Total      Long-term     Short-term     Total
Term Loan                       $    44,000   $      6,000   $ 50,000   $    48,000   $      4,000   $ 52,000
Real estate                           1,995            106      2,101         2,048            106      2,154
Working Capital Revolver             42,000             -      42,000        24,500             -      24,500
Other notes payable                     800          2,400      3,200         1,200          2,550      3,750

Total Indebtedness              $    88,795   $      8,506   $ 97,301   $    75,748   $      6,656   $ 82,404

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, (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 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. At June 30, 2009, based on its performance against the covenants listed above, the Company had the capacity to increase its' borrowings by up to $5,127 under the credit facility agreement.

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 . . .