Ag Growth International Inc.
TSX : AFN

Ag Growth International Inc.

August 12, 2011 08:00 ET

Ag Growth Announces Second Quarter 2011 Results; Declares Dividends

WINNIPEG, MANITOBA--(Marketwire - Aug. 12, 2011) - Ag Growth International Inc. (TSX:AFN) today announced financial results for the second quarter and first half of 2011 and declared dividends for the next three months.

Overview of Results

Ag Growth achieved record second quarter and first half sales in 2011 as revenues from divisions acquired in 2010 and strength in commercial grain handling more than offset the impact of a stronger Canadian dollar and weather-related weakness in western Canada. EBITDA for the three and six months ended June 30, 2011 was $20.4 million and $33.7 million, respectively (2010 - $20.5 million and $32.2 million) and adjusted EBITDA was $18.2 million and $30.0 million (2010 - $19.5 million and $29.4 million) for the periods then ended. Diluted earnings per share for the three and six months ended June 30, 2011 were $0.91 per share and $1.34 per share, respectively, representing increases of 5.8% and 9.8% compared to the same periods in the prior year.

"The record second quarter trade sales are attributable to strength in commercial grain handling and acquisitions in 2010" said Gary Anderson, President and Chief Executive Officer. "The main reason for the decrease in second quarter adjusted EBITDA is the continued strength of the Canadian dollar compared to the US dollar. We also have experienced some ongoing start up challenges at our Twister plant which have been identified and are being resolved. We expect these issues to be behind us by the end of the year."

"Looking ahead, we remain very positive about growth for 2012 and beyond. This view is based on agricultural fundamentals, including increased emphasis on agricultural infrastructure around the world. This is particularly true in developing countries where we are establishing overseas sales."


Summary of Second Quarter and First Half 2011 Results

                              Three Months Ended        Six Months Ended
millions except per share           June 30                 June 30
                                 2011    2010            2011    2010
Trade sales (1)               $  86.1   $74.4  15.7%  $ 152.1  $126.0  20.7%
Profit                        $  12.0   $11.6   3.4%  $  16.7   $16.0   4.4%
Average shares
 outstanding (basic)             12.3    12.9  (4.7)%    12.4    13.0   4.6%
EPS (diluted)                 $  0.91   $0.86   5.8%  $  1.34   $1.22   9.8%
EBITDA (1)                    $  20.4   $20.5  (0.5)% $  33.7   $32.2   1.6%
Adjusted EBITDA(1)            $  18.2   $19.5  (6.7)% $  30.0   $29.4   2.0%
Dividends declared per
 share                        $  0.60   $0.51  17.6%  $  1.20   $1.02  17.6%
Total dividends paid          $   7.5    $6.6  13.5%  $  15.1   $13.3  12.9%

(1) Trade sales, EBITDA and adjusted EBITDA are non-IFRS measures (See note
    on "Non- IFRS Measures" at the end of this news release).

Outlook

The primary demand driver for portable grain handling equipment is the volume of grains grown, and based on current conditions management anticipates that a large US crop will be supportive of demand. Prospects for a large US crop are good, based on 2011 planting by US farmers of approximately 92 million acres of corn, up 4.5% from 88 million acres in 2010. In addition, positive agricultural macro-economic factors continue to drive demand for commercial grain handling equipment both domestically and overseas.

Our commercial divisions continue to deliver strong growth in North America and internationally due in part to increasing capital expenditures by the major multinational grain handlers. We have recently won projects in Russia, Eastern Europe, Southeast Asia and Latin America and are in the process of establishing a sales office in South America in hopes of further capitalizing on growth potential in this market in 2012 and beyond.

We are, however, anticipating a number of challenges in the second half of 2011. In addition to a continuing strong Canadian dollar and resolution of the start-up issues at our Twister plant, adverse market conditions have also negatively impacted our Mepu division as market excess inventories, the result of a regional 2010 drought, are leading to extremely aggressive pricing in the marketplace in a period of higher than historical steel costs.

Demand in the second half of 2011 will be influenced by crop conditions. Due to a prolonged heat wave in the US, there is a risk of crop deterioration. Demand may also be impacted by changes in global macro-economic factors.

We remain positive about growth for 2012 in North America and overseas. We are still at the front end of our international development, and we are confident that we will continue to gain traction there with the quality of our products, the strength of our brands, the breadth of our catalogue and the talent of our sales team. We expect start-up challenges at our new Alberta bin plant to be fully resolved by the end of 2011, and we retain a very positive outlook for contributions from this plant in 2012 and beyond. We are confident that the combination of lean manufacturing practices and growing demand for storage bins, particularly in overseas markets, will pay off handsomely in the long term.

Dividends

Ag Growth today announced the declaration of cash dividends of $0.20 per common share for the months of September 2011, October 2011, and November 2011. The dividends are eligible dividends for Canadian income tax purposes. Ag Growth's current annualized cash dividend rate is $2.40 per share.


The table below sets forth the scheduled payable and record dates:

Monthly dividend                      Payable date              Record date
September 2011                    October 28, 2011       September 30, 2011
October 2011                     November 30, 2011         October 31, 2011
November 2011                    December 30, 2011        November 30, 2011

MD&A and Financial Statements

Ag Growth's financial statements and MD&A will be available electronically from SEDAR (www.sedar.com) or from Ag Growth's website (www.aggrowth.com).

Conference Call

Ag Growth will hold a conference call at 1:00 p.m. EST today to discuss its financial results. The call will begin with a short address by Gary Anderson, President and Chief Executive Officer, followed by a question and answer period for investment analysts, investors, and other interested parties.

To participate in the conference call, please dial 1-888-340-9642 or for local access dial 416-340-8530. An audio replay of the call will be available for seven days. To access the audio replay, please dial 1-800-408-3053 or for local access dial 905-694-9451. Please quote confirmation code 4624435.

Company Profile

Ag Growth International Inc. is a leading manufacturer of portable and stationary grain handling, storage and conditioning equipment, including augers, belt conveyors, grain storage bins, grain handling accessories, grain aeration equipment and grain drying systems. Ag Growth has eleven manufacturing facilities in Canada, the United States, the United Kingdom and Finland, and its sales, marketing, and distribution system distributes product in 48 states, nine provinces, and internationally.

Non-IFRS Measures

References to "EBITDA" are to profit before income taxes, finance costs, depreciation and amortization. References to "Adjusted EBITDA" are to EBITDA before the Company's gain or loss on foreign exchange, gains or losses on the sale of property, plant & equipment and other operating expenses. References to "trade sales" are to sales excluding the gain on foreign exchange. Management believes that, in addition to sales, profit or loss and cash flows from operating, investing, and financing activities, trade sales, EBITDA and Adjusted EBITDA are useful supplemental measures in evaluating the Company's performance. Trade sales, EBITDA and Adjusted EBITDA are not financial measures recognized by IFRS and do not have a standardized meaning prescribed by IFRS. Management cautions investors that trade sales, EBITDA and Adjusted EBITDA should not replace sales or profit or loss as indicators of performance, or cash flows from operating, investing, and financing activities as a measure of the Company's liquidity and cash flows. Ag Growth's method of calculating trade sales, EBITDA and Adjusted EBITDA may differ from the methods used by other issuers.

Forward-Looking Statements

This press release contains forward-looking statements that reflect our expectations regarding the future growth, results of operations, performance, business prospects, and opportunities of the Company. Forward-looking statements may contain such words as "anticipate", "believe", "continue", "could", "expects", "intend", "plans", "will" or similar expressions suggesting future conditions or events. In particular, the forward looking statements in this press release include statements relating to the benefits of acquisitions, our business and strategy, including our outlook for our financial and operating performance through the balance of 2011 and in future years, growth in sales to developing markets, the resolution of start-up issues at our Twister bin plant and the future contribution of that plant to our operating and financial performance, the impact of crop conditions in our market areas, the impact of current economic conditions on the demand for our products, and the payment of dividends. Such forward-looking statements reflect our current beliefs and are based on information currently available to us, including certain key expectations and assumptions concerning anticipated financial performance, business prospects, strategies, product pricing, regulatory developments, tax laws, the sufficiency of budgeted capital expenditures in carrying out planned activities, foreign exchange rates and the cost of materials, labour and services. Forward-looking statements involve significant risks and uncertainties. A number of factors could cause actual results to differ materially from results discussed in the forward-looking statements, including changes in international, national and local business conditions, crop yields, crop conditions, seasonality, industry cyclicality, volatility of production costs, commodity prices, foreign exchange rates, and competition. In addition, actual results may be materially impacted by the pace of recovery from the global economic crisis in certain areas, including the cost and availability of capital. These risks and uncertainties are described under "Risks and Uncertainties" in our MD&A and in our most recently filed Annual Information Form. We cannot assure readers that actual results will be consistent with these forward-looking statements and we undertake no obligation to update such statements except as expressly required by law.

AG GROWTH INTERNATIONAL INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS, SECOND QUARTER 2011

Dated: August 12, 2011

This Management's Discussion and Analysis ("MD&A") should be read in conjunction with the audited consolidated financial statements and accompanying notes of Ag Growth International Inc. ("Ag Growth", the "Company", "we", "our" or "us") for the year ended December 31, 2010, which were prepared in accordance with previous Canadian generally accepted accounting principles ("CGAAP"), the unaudited interim consolidated financial statements of the Company for the three month period ended March 31, 2011, which were prepared in accordance with International Financial Reporting Standards ("IFRS") and the unaudited interim condensed consolidated financial statements of the Company for the three month and six month periods ended June 30, 2011, which were prepared in accordance with IAS 34, Interim Financial Reporting.

Results are reported in Canadian dollars unless otherwise stated. As at June 30, 2011, the closing value of the US dollar in Canadian dollars was $0.9645, down 9.4% from $1.0646 as at June 30, 2010, according to the Bank of Canada.

Throughout this MD&A references are made to "trade sales", "EBITDA", "adjusted EBITDA", "gross margin", "funds from operations" and "payout ratio". A description of these measures and their limitations are discussed below under "Non-IFRS Measures".

This MD&A contains forward-looking statements. Please refer to the cautionary language under the heading "Risks and Uncertainties" and "Forward-Looking Statements" in this MD&A, and in our most recently filed Annual Information Form.

SUMMARY OF RESULTS FOR THE SECOND QUARTER AND FIRST HALF OF 2011

We achieved record second quarter and first half sales in 2011 as revenues from divisions acquired in 2010 and strength in commercial grain handling more than offset the negative impact of foreign exchange and weather-related weakness in western Canada. Adjusted EBITDA declined in the second quarter of 2011 compared to 2010 as a result of foreign exchange rate fluctuations, high steel costs, and significant normal course of business start-up challenges at a new storage bin manufacturing facility in Alberta. Diluted earnings per share for the three and six months ended June 30, 2011 were $0.91 per share and $1.34 per share, respectively, representing increases of 5.8% and 9.8% compared to the same periods in the prior year. The following table sets forth a summary of our results for the second quarter and first half of 2011 compared with a year earlier.


                               Q2      Q2                H1       H1
millions except per share    2011    2010 Change       2011     2010 Change
Trade sales (1)           $  86.1 $  74.4   15.7%   $ 152.1  $ 126.0   20.7%
Net profit                $  12.0 $  11.6    3.4%   $  16.7  $  16.0    4.4%
Average shares
 outstanding (basic)         12.3    12.9   (4.7)%     12.4     13.0    4.6%
EPS (diluted)             $  0.91 $  0.86    5.8%   $  1.34  $  1.22    9.8%
EBITDA (2)                $  20.4 $  20.5   (0.5)%  $  33.7  $  32.2    1.6%
Adjusted EBITDA(2)        $  18.2 $  19.5   (6.7)%  $  30.0  $  29.4    2.0%
Dividends declared per
 share (3)                $  0.60 $  0.51   17.6%   $  1.20  $  1.02   17.6%
Total dividends paid (3)  $   7.5 $   6.6   13.5%   $  15.1  $  13.3   12.9%

(1) Sales excluding gains or losses on foreign exchange contracts (See
    "Non-IFRS Measures").
(2) The EBITDA Reconciliation table later in this MD&A shows the difference
    between EBITDA and adjusted EBITDA (See also "Non-IFRS Measures").
(3) The Company's dividend policy is described in the "Dividends" section of
    this MD&A.

CORPORATE OVERVIEW

We are a manufacturer of agricultural equipment with a focus on grain handling, storage and conditioning products. Our business is affected by regional and global trends in grain volumes, on-farm and commercial grain storage and handling practices, and crop prices. Our business is seasonal, with higher sales occurring in the second and third calendar quarters compared with the first and fourth quarters.

We sell portable versions of our products primarily to individual farmers, mainly through a network of independent dealers and distributors. We sell larger, commercial (sometimes referred to as stationary) versions of our products primarily to corporate customers, mainly by bidding for contracts.

We manufacture in Canada, the US and Europe and we sell products globally, with most of our sales in the US. The following table sets forth our geographic concentration of sales for the first half of 2011 compared with a year earlier.


Trade Sales by geographic region (1)                 H1 2011        H1 2010
Canada                                                  23.1%          26.5%
US                                                      60.0%          62.7%
Overseas                                                16.9%          10.8%
Total                                                  100.0%         100.0%

(1) Sales excluding gains or losses on foreign exchange contracts (See
    "Non-IFRS Measures")

Our business is sensitive to fluctuations in the value of the Canadian and US dollars as a result of our exports from Canada to the US and as a result of earnings derived from our US based divisions. Fluctuations in currency impact our results even though we engage in currency hedging with the objective of partially mitigating our exposure to these fluctuations.

Our business is also sensitive to fluctuations in input costs, especially steel, a principal raw material in our products. Steel represented approximately 29% of production costs in fiscal 2010. Short-term fluctuations in the price of steel impact our financial results even though we strive to partially mitigate our exposure to such fluctuations through the use of long-term purchase contracts, bidding commercial projects based on current input costs, and passing input costs on to customers through sales price increases.

Acquisitions in Fiscal 2010

The inclusion of the assets, liabilities and operating results of a number of previously announced acquisitions significantly impact comparisons with 2010. As such, the acquisitions made in fiscal 2010 are summarized briefly below.

Mepu Oy - Ag Growth acquired 100% of the outstanding shares of Mepu Oy ("Mepu"), on April 29, 2010, for cash consideration of $11.3 million, plus costs related to the acquisition of $0.6 million and the assumption of a $1.0 million operating line. The acquisition was funded from cash on hand. Mepu is a Finland based manufacturer of grain drying systems and other agricultural equipment. The acquisition of Mepu provided the Company with a complementary product line, distribution in a region where the Company previously had only limited representation and a corporate footprint near the growth markets of Russia and Eastern Europe. Mepu had average sales and EBITDA of approximately 14 million Euros (CAD $19 million) and 1.5 million Euros (CAD $2 million), respectively, in the three fiscal years prior to acquisition. The nature of Mepu's business is very seasonal with a heavy weighting towards the second and third quarters.

Franklin Enterprises - Ag Growth acquired the assets of Winnipeg-based Franklin Enterprises Ltd ("Franklin") effective October 1, 2010 for cash consideration of $7.1 million, plus costs related to the acquisition of $0.4 million and a working capital adjustment of $1.7 million. The acquisition was funded from cash on hand. Franklin enhances Ag Growth's manufacturing capabilities and can increase production capacity in periods of high in-season demand. Franklin has played an integral role in the development of the new storage bin product line. Franklin's custom manufacturing business is expected to generate monthly sales of approximately $1 million and to roughly break-even on an EBITDA basis.

Tramco, Inc. - Ag Growth acquired 100% of the outstanding shares of Wichita, Kansas-based Tramco, Inc. ("Tramco"), on December 20, 2010, for cash consideration of $21.5 million, less a working capital adjustment of $1.4 million. Costs related to the acquisition were $0.6 million. The acquisition was funded from cash on hand. Tramco is a manufacturer of heavy duty chain conveyors and related handling products, primarily for the grain processing sector. Tramco is an industry leader with a premier brand name and strong market share and as such provides the Company with an excellent entry point into a new segment of the food supply chain. Tramco had average sales and EBITDA of approximately $30 million and $4 million, respectively, in the two fiscal years prior to acquisition. Demand in the processing sector in 2011 remains strong, particularly in overseas markets. Tramco manufactures in Wichita, Kansas, and in Hull, England. It has a sales office in the Netherlands.

OUTLOOK

The primary demand driver for portable grain handling equipment is the volume of grains grown, and based on current conditions management anticipates that a large US crop will be supportive of demand. Prospects for a large US crop are good, based on 2011 planting by US farmers of approximately 92 million acres of corn, up 4.5% from 88 million acres in 2010. In addition, positive agricultural macro-economic factors continue to drive demand for commercial grain handling equipment both domestically and overseas.

Our commercial divisions continue to deliver strong growth in North America and internationally due in part to increasing capital expenditures by the major multinational grain handlers. We have recently won projects in Russia, Eastern Europe, Southeast Asia and Latin America and are in the process of establishing a sales office in South America in hopes of further capitalizing on growth potential in this market in 2012 and beyond.

We are, however, anticipating certain challenges in the second half of 2011. The delivery and final commissioning of our new storage bin manufacturing equipment occurred later than originally anticipated, which delayed the ambitious ramp up of our greenfield facility and magnified the start up bottleneck in prototyping, pre-production and design documentation and the implementation of new manufacturing processes. While these matters are being resolved, we are temporarily incurring higher costs to meet the needs of our customers and have missed certain international opportunities that we had previously expected to win for 2011. Gross margin pressures are expected to continue in the second half of 2011 due to high steel costs and less than optimal operating efficiencies as we address our start-up challenges. The new bins have been well received, based on feedback from early customers.

Our Mepu division has experienced adverse market conditions in Scandinavia and Russia, the result of extremely aggressive pricing by competitors with excess inventories due to 2010 drought conditions, combined with rising steel input costs that can't be passed on to customers in current market conditions. We have also experienced a deteriorating situation in Belarus, which is experiencing significant inflation, currency devaluation, hard currency and credit restrictions and political protests. These factors have significantly weakened demand for Mepu's products compared with 2010.

The continued strength of the Canadian dollar versus the US dollar may negatively impact 2011 financial results compared to the prior year. Demand in the second half of 2011 will be influenced by crop conditions. Due to a prolonged heat wave in the US, there is a risk of crop deterioration. Demand may also be impacted by changes in global macro-economic factors.

We remain very positive about growth for 2012 and beyond based on positive agricultural fundamentals, including increased emphasis on agricultural infrastructure around the world, especially in developing countries where we are establishing overseas sales. We are still at the front end of our international development, and we are very confident that we will continue to gain traction there with the quality of our products, the strength of our brands, the breadth of our catalogue and the talent of our sales team. We expect start-up challenges at our new Alberta bin plant to be fully resolved by the end of 2011, and we retain a very positive outlook for contributions from this plant in 2012 and beyond. We are confident that the combination of lean manufacturing practices and growing demand for storage bins, particularly in overseas markets, will pay off handsomely in the long term.


DETAILED OPERATING RESULTS

                                     Three Months Ended    Six Months Ended
 (thousands of dollars)                      Jun 30             Jun 30
                                         2011      2010      2011      2010

Trade sales (1)                      $ 86,124  $ 74,377  $152,130  $126,016
Gain on foreign exchange (2)            1,987     2,350     3,046     3,139
                                   -----------------------------------------
Sales                                  88,111    76,727   155,176   129,155

Cost of inventories                    56,026    44,567    98,709    75,912
Depreciation & amortization             1,288       842     2,704     1,520
                                   -----------------------------------------
Total cost of sales                    57,314    45,409   101,413    77,432
                                   -----------------------------------------

Gross profit                           30,797    31,318    53,763    51,723
                                   -----------------------------------------

Gross margin (1)                         34.9%     40.0%     35.1%     39.8%
                                   -----------------------------------------

General and administrative             11,971    10,535    23,710    21,126
Depreciation & amortization               959       825     1,816     1,632
Other operating income                    (42)     (174)      (61)     (204)
Other operating expenses                   (4)      276       134        27
                                   -----------------------------------------

Operating Profit                       17,913    19,856    28,164    29,142

Finance costs                           3,114     3,107     6,232     6,236
Finance income                           (193)    1,059      (987)      126
                                   -----------------------------------------
Profit before income taxes             14,992    15,690    22,919    22,780
Current income taxes                    2,333     1,626     2,874     1,721
Deferred income taxes                     665     2,434     3,345     5,078
                                   -----------------------------------------
Profit for the period                $ 11,994  $ 11,630  $ 16,700  $ 15,981
                                   -----------------------------------------
                                   -----------------------------------------
Net profit per share
 Basic                               $   0.97  $   0.90  $   1.35  $  1.23
                                   -----------------------------------------
                                   -----------------------------------------
 Diluted                             $   0.91  $   0.86  $   1.34  $  1.22
                                   -----------------------------------------
                                   -----------------------------------------

(1) See "Non-IFRS Measures".
(2) Primarily related to gains on foreign exchange contracts.


EBITDA RECONCILIATION

                                     Three Months Ended    Six Months Ended
(thousands of dollars)                      June 30            June 30
                                         2011      2010      2011      2010
Profit before income taxes           $ 14,992  $ 15,690  $ 22,919  $ 22,780
Finance costs                           3,114     3,107     6,232     6,236
Amortization in cost of sales           1,288       842     2,704     1,520
Amortization in G&A expenses              959       825     1,816     1,632
                                   -----------------------------------------
EBITDA (1)                             20,353    20,464    33,671    32,168
Gain on foreign exchange in
 sales (2)                             (1,987)   (2,350)   (3,046)   (3,139)
Loss (gain) on foreign exchange in
 finance income                          (188)    1,125      (758)      350
Gain on sale of property, plant &
 equipment                                 16       (23)       (2)      (43)
Other operating expense                    (4)      276       134        27
                                   -----------------------------------------
Adjusted EBITDA (1)                  $ 18,190  $ 19,492  $ 29,999  $ 29,363
                                   -----------------------------------------
                                   -----------------------------------------

(1) See "Non-IFRS Measures".
(2) Primarily related to gains on foreign exchange contracts.


ASSETS AND LIABILITIES                               June 30        June 30
(thousands of dollars)                                  2011           2010
Total assets                                      $  390,737     $  391,419
Total liabilities                                 $  182,871     $  172,282


EXPLANATION OF OPERATING RESULTS

Trade sales

Trade Sales(1)by geographic region(2)
(thousands of dollars)
                      Three Months Ended              Six Months Ended
                            June 30                        June 30
                   2011        2010    Change      2011      2010    Change
Canada          $ 19,247   $ 19,107       0.7% $ 35,173  $ 33,347       5.5%
US                 52,489    46,693      12.4%   91,274    79,099      15.3%
Overseas           14,388     8,577      67.8%   25,683    13,570      89.3%
Total           $ 86,124   $ 74,377      15.8% $152,130  $126,016      20.7%

(1) Trade sales, which exclude gains or losses on foreign exchange
    contracts, are defined under Non-IFRS measures.
(2) The revenue information above is based on the location of the customer.

Trade sales for the second quarter of 2011 were $86.1, up 15.8% from $74.4 million a year earlier. Trade sales for the first half of 2011 were $152.1 million, up 20.7% from $126.0 million a year earlier. The gains in both periods were largely the result of sales from companies acquired in 2010 and strong demand for commercial equipment, partially offset by the negative effect of a stronger Canadian dollar and less than optimal crop production conditions in western Canada.

Excluding the impact of acquisitions, trade sales were $69.4 million for the second quarter of 2011 (2010 - $71.0 million) and $122.7 million for the first half of 2011 (2010 - $122.6 million). Sales would have been higher in the 2011 periods but for the delayed start up of the storage bin production plant and the impact of the stronger Canadian dollar.

The Canadian dollar was stronger in the second quarter of 2011 (average rate of $0.97) compared to 2010 (average rate of $1.04) which resulted in lower sales for financial reporting purposes. To illustrate, in 2010 a $100,000 sale denominated in U.S. dollars (whether imported from Canada or manufactured in the US) would have been reported as CAD $104,000, while the same sale would have been reported as CAD $97,000 in 2011.

If the Canada/US exchange rates in 2011 had been the same as 2010, sales in the second quarter of 2011 (on a net of acquisitions basis) would have been approximately $75 million, representing a new record and a 5.6% increase from $71.0 million in the second quarter of 2010. Similarly, sales in the first half of 2011 would have been approximately $129 million, also a new record and a 5% increase from $122.6 million in the first half of 2010.

- Trade sales in the US market, denominated in US dollars and net of sales attributable to acquisitions completed in 2010, totalled US $47.9 million in the second quarter of 2011, up 3% from US $46.7 million a year earlier, and US $82.2 million in the first half of 2011, up 5% from US $78.1 million a year earlier. The significant increase is primarily the result of strong sales of commercial equipment as positive agricultural fundamentals continued to stimulate demand.

- Canadian trade sales, net of sales attributable to acquisitions completed in 2010, totalled $17.2 million in the second quarter of 2011, down 9% from $19.1 a year earlier. The decrease is the result of lower sales of portable grain handling equipment as the negative impact of excessive moisture in Western Canada affected all of the second quarter of 2011 but only the latter part of the second quarter of 2010. For the first half of 2011, Canadian trade sales, net of sales attributable to acquisitions completed in 2010, totalled $31.5 million, down 5.4% from $33.3 million, a year earlier. Canadian trade sales in the first half of 2011 benefited from stronger sales of commercial equipment and, excluding these, our sales of on-farm portable grain handling, storage and aeration equipment in the second quarter and first half of 2011 decreased 14% and 9%, respectively, compared to 2010.

- International trade sales in the second quarter of 2011 were $14.4 million, up 67% from $8.6 million a year earlier, mainly due to our 2010 acquisitions of Mepu and Tramco (see "Acquisitions in fiscal 2010" above) and commercial projects in Eastern Europe, South America and the Middle East. Excluding acquisitions, international sales were $5.7 million in the second quarter of 2011, up 10% from $5.2 million a year earlier. Similarly, international sales excluding acquisitions were $11.2 in the first half of 2011, up 10% from $10.2 in the first half of 2010. Our international footprint continues to grow as a result of additions to the international sales and marketing team and the acquisitions. International sales activity in the second quarter included sales to Russia, South America, the Middle East and Southeast Asia.


Gross Profit and Gross Margin

                                  Three Months Ended       Six Months Ended
                                          June 30                June 30
                                  2011     2010          2011     2010
Gross Profit (1) ($ millions)  $  30.1    $29.8  1.0% $  53.4    $50.1  6.6%
Gross Margin (2) (as a % of
 trade sales)                     34.9%    40.1%         35.1%    39.8%
Gross Margin (3) (excluding
 acquisitions)                    37.5%    40.0%         38.1%    39.7%

(1) Trade sales less cost of sales excluding depreciation and amortization.
(2) Trade sales less cost of inventories, net of the depreciation and
    amortization included in cost of sales, as defined under non-IFRS
    measures.
(3) Gross margin without taking into effect the divisions acquired in 2010
    so as to provide a comparison based only on the results of divisions
    that were operating in both periods.

Gross margin declined in the second quarter of 2011, compared with a year earlier, mainly due to the 2010 acquisitions. As expected the consolidated gross margin was negatively impacted by the inclusion of Mepu, Franklin and Tramco as the gross margins of these newly acquired businesses are lower than Ag Growth's historical gross margin percentage.

Gross margin excluding acquisitions declined in the second quarter of 2011 compared with a year earlier due to:

- The adverse effect of the strong Canadian dollar;

- The higher cost of steel inputs, which mainly affected certain products for which costs could not be passed on, including products produced by the Mepu division and the new storage bin plant in Alberta; and

- Start-up issues at the new storage bin plant in Alberta, including the inefficiency of labour during commissioning and debugging of equipment and inefficiencies in the manufacture of the new product during the learning period.

For the first half of 2011, the increase in gross profit would have been greater but for factors described above.

The factors noted above were partially offset by the continued benefits of high throughput and production efficiencies that resulted from the implementation of lean manufacturing practices at several of the Company's divisions.

For the first half of 2011, the factors affecting the gross margin were similar to those affecting the second quarter.


General and Administrative Expenses 

                               Three Months Ended          Six Months Ended
                                   June 30                   June 30
                            2011     2010  Change     2011     2010  Change
G&A ($ millions)(1)       $ 12.0   $ 10.5    14.3%  $ 23.7   $ 21.1    12.3%
G&A (as a % of trade
 sales)                     13.9%    14.1%            15.6%    16.7%

(1) G&A excluding depreciation and amortization.

For the second quarter of 2011 G&A expressed as a percentage of trade sales was consistent with the year earlier period but increased by 14.3% expressed in dollars. The main reason for the increase was the 2010 acquisitions. Most of the remainder of the increase consisted of non-recurring professional fees related to the transition to IFRS. Partially offsetting these factors was lower stock-based compensation that resulted from a reduced number of share awards outstanding and a lower expense related to the LTIP. For the first half of 2011, the factors affecting the increase in G&A, expressed in dollars, were similar to those affecting the second quarter.


EBITDA and Adjusted EBITDA

                                 Three Months Ended        Six Months Ended
($ millions)                          June 30                 June 30
                                2011    2010 Change     2011    2010 Change
EBITDA (1)                    $ 20.4  $ 20.5   (0.5)% $ 33.7  $ 32.2    4.7%
Adjusted EBITDA (1)           $ 18.2  $ 19.5   (7.2)% $ 30.0  $ 29.4    2.0%

(1) See the EBITDA reconciliation table above and "Non-IFRS Measures" later
    in this MD&A.

The adjusted EBITDA decline in the second quarter of 2011 compared with a year earlier is largely due to the stronger Canadian dollar, start-up challenges at the Company's new storage bin facility, weather related weakness in western Canada and factors affecting Mepu, as described above under "Outlook". The acquisitions made in 2010 did not contribute significantly to adjusted EBITDA.

The EBITDA decline for the second quarter of 2011 compared with a year earlier is due to the factors affecting adjusted EBITDA offset by a larger gain on foreign exchange derivative contracts.

For the first half of 2011, the increases in adjusted EBITDA and EBITDA were largely attributable to strength in commercial handling, partially offset by the factors that negatively impacted the second quarter of 2011.

Finance Costs

The Company's bank indebtedness as at June 30, 2011 was $2.2 million (2010 - $nil) and its outstanding long-term debt including the current portion was $23.7 million (2010 - $26.2 million). Long-term debt at June 30, 2011 is comprised of US $25.0 million aggregate principal amount of non-amortizing secured notes that bear interest at 6.80% and mature October 29, 2016 and $0.1 million of 0% GMAC financing, net of all deferred financing costs of $0.4 million. The Company is also party to a credit facility with three Canadian chartered banks that includes CAD $10.0 million and US $2.0 million available for working capital purposes and provides for non-amortizing long-term debt of up to CAD $38.0 million and US $20.5 million. The facilities bear interest at rates of prime plus 0.50 % to prime plus 1.50% based on performance calculations and matures on October 29, 2012. See "Financial Instruments".

Obligations under capital lease of $0.3 million include a number of equipment leases with an average interest rate of 6.5%. The lease end dates are in 2011 and 2012.

Finance costs for the three and six month periods ended June 30, 2011 were $3.1 million and $6.2 million, respectively (2010 - $3.1 million and $6.2 million). At June 30, 2011 the Company had outstanding $114.9 million aggregate principal amount of convertible unsecured subordinated debentures (2010 - $115.0 million). The Debentures bear interest at an annual rate of 7.0% and mature December 31, 2014. See "Capital Resources". Finance costs are comprised of the 7.0% coupon interest on the Debentures, non-cash interest related to debenture accretion, the amortization of deferred finance costs, stand-by fees and other sundry cash interest.

Finance Income

Finance income is comprised of interest earned on the Company's surplus cash balances and gains or losses on translation of the Company's U.S. dollar denominated long-term debt.

Depreciation and amortization

Under IFRS the depreciation of property, plant and equipment and the amortization of intangible assets are categorized on the income statement in accordance with the function to which the underlying asset is related.


                                     Three Months Ended    Six Months Ended
                                            June 30             June 30
                                         2011      2010      2011      2010
Depreciation in cost of sales         $ 1,227   $   695   $ 2,335   $ 1,357
Depreciation in G&A                       130        97       245       186
                                    ----------------------------------------
Total Depreciation                    $ 1,357   $   792   $ 2,580   $ 1,543
                                    ----------------------------------------
                                    ----------------------------------------


                                     Three Months Ended    Six Months Ended
                                            June 30             June 30
                                         2011      2011      2011      2010
Amortization in cost of sales         $    61   $   147   $   369   $   163
Amortization in G&A                       829       728     1,571     1,446
                                    ----------------------------------------
Total Amortization                    $   890   $   875   $ 1,940   $ 1,609
                                    ----------------------------------------
                                    ----------------------------------------

Current income tax expense

For the three and six months ended June 30, 2011, the Company recorded current tax expense of $2.3 million and $2.9 million, respectively (2010 - $1.6 million and $1.7 million). Current tax expense relates primarily to certain subsidiary corporations of Ag Growth, including its U.S. and Finland based divisions.

Deferred income tax expense

For the three and six months ended June 30, 2011, the Company recorded future tax expense of $0.7 million and $3.3 million, respectively (2010 - $2.4 million and $5.1 million). The deferred tax expense in 2011 relates to the utilization of deferred tax assets plus a decrease in deferred tax liabilities that related to the application of corporate tax rates to reversals of temporary differences between the accounting and tax treatment of depreciable assets, intangibles, reserves, deferred compensation plans and deferred financing fees.

Profit and profit per share

For the three and six months ended June 30, 2011, the Company reported net profit of $12.0 million and $16.7 million, respectively (2010 - $11.6 million and $16.0 million), basic net profit per share of $0.97 and $1.35 (2010 - $0.90 and $1.23), and fully diluted net profit per share of $0.91 and $1.34 (2010 - $0.86 and $1.22).


QUARTERLY FINANCIAL INFORMATION (thousands of dollars):

                                            2011
                 Average                                Basic       Diluted
                 USD/CAD                  Profit       Profit        Profit
           Exchange Rate     Sales         (Loss)   per Share     per Share

Q1              $   0.99  $ 67,065      $  4,706     $   0.38      $   0.38
Q2              $   0.96  $ 88,111      $ 11,994     $   0.97      $   0.91
Q3
Q4
Fiscal 2011     $   0.97  $155,176      $ 16,700     $   1.35      $   1.34


                                         2010 (1)
                 Average                                Basic       Diluted
                 USD/CAD                 Profit        Profit        Profit
           Exchange Rate     Sales        (Loss)    per Share     per Share

Q1              $   1.05  $ 52,430      $  4,351     $   0.33      $   0.33
Q2              $   1.03    76,727        11,626     $   0.90      $   0.85
Q3              $   1.05    88,703        15,164     $   1.23      $   1.12
Q4              $   1.02    50,970          (817)    $  (0.07)     $  (0.07)
Fiscal 2010     $   1.04  $268,830      $ 30,324     $   2.39      $   2.36


                                         2009 (1)
                 Average                                Basic       Diluted
                 USD/CAD                 Profit        Profit        Profit
           Exchange Rate     Sales        (Loss)    per Share     per Share

Q1              $   1.25  $ 55,289     $ 10,127      $   0.79      $   0.79
Q2              $   1.18    66,840       16,431      $   1.29          1.27
Q3              $   1.11    68,316       15,126      $   1.17          1.16
Q4              $   1.07    46,849        3,619      $   0.28          0.27
Fiscal 2009     $   1.15  $237,294     $ 45,303      $   3.53      $   3.45

(1) Quarterly results for 2010 have been restated in accordance with IFRS.
    The Company was not required to apply IFRS to periods prior to 2010 and
    accordingly 2009 comparative data is presented in accordance with
    CGAAP.

Interim period sales and profit historically reflect seasonality. The third quarter is typically the strongest primarily due to the timing of construction of commercial projects and high in-season demand at the farm level. Due to the seasonality of Ag Growth's working capital movements, cash provided by operations will typically be highest in the fourth quarter.

The following factors impact the comparison between periods in the table above:

- Sales, gain (loss) on foreign exchange, profit, and profit per share in all periods are significantly impacted by the rate of exchange between the Canadian and U.S. dollars.

- Sales, net profit and profit per share are significantly impacted by the acquisitions of Mepu (April 29, 2010), Franklin (October 1, 2010) and Tramco (December 20, 2010).

- Profit and profit per share in the first and second quarters of 2009 benefited from non-recurring deferred income tax recoveries related to Ag Growth's conversion to a corporation (the "Conversion") and a change in effective tax rates.

- Profit and profit per share subsequent to October 27, 2009 are impacted by interest expense related to the Debentures (see "Capital Resources").


CASH FLOW AND LIQUIDITY

                                       Six Months Ended  Three Months Ended
(thousands of dollars)                      June 30             June 30
                                         2011      2010      2011      2010
Profit before income taxes for
 the period                          $ 14,992  $ 15,690  $ 22,919  $ 22,780
Add charges (deduct credits) to
 operations not requiring a
 current cash payment:
 Depreciation and amortization          2,247     1,667     4,520     3,152
 Translation loss (gain) on
  foreign exchange                       (636)    2,568    (2,075)    1,158
 Non-cash interest expense                600       558     1,189     1,127
 Stock based compensation                 440     1,171     1,118     2,695
 Loss (gain) on sale of assets             16       (23)       (2)      (43)
                                    ----------------------------------------
                                       17,659    21,631    27,669    30,869
                                    ----------------------------------------
Net change in non-cash working
 capital balances related to
 operations:

 Accounts receivable                  (17,130)  (15,766)  (22,539)  (25,512)
 Inventory                             (6,154)   (2,018)   (9,939)   (5,201)
 Prepaid expenses and other assets       (123)      (77)    2,399      (344)
 Accounts payable and accruals          5,321     3,908     4,952     5,208
 Customer deposits                        222       (84)      893    (1,260)
 Provisions                               (54)      200       (13)      341
                                    ----------------------------------------
                                      (17,918)  (13,837)  (24,247)  (26,768)
                                    ----------------------------------------

Settlement of SAIP obligation               0         0    (1,998)        0
Income tax (paid)                      (1,182)     (735)   (2,889)     (680)
                                    ----------------------------------------

Cash provided by (used in)
 operations                          $ (1,441) $  7,059  $ (1,465) $  3,421
                                    ----------------------------------------
                                    ----------------------------------------

For the three and six months ended June 30, 2011, cash used in operations was $1.4 million and $1.5 million, respectively (2010 - cash provided of $7.1 million and $3.4 million, respectively). The increased use of cash compared to 2010 is primarily the result of increased working capital requirements which resulted from inventory purchases related to the Company's new storage bin operation and the timing of receipt of accounts receivable. Ag Growth's working capital requirements in 2011 will be impacted by sales demand as well as certain risk factors including foreign exchange rates and fluctuations in input costs.

Working Capital Requirements

Interim period working capital requirements typically reflect the seasonality of the business. Ag Growth's collections of accounts receivable are weighted towards the third and fourth quarters. This collection pattern, combined with historically high sales in the third quarter that result from seasonality, typically lead to accounts receivable levels increasing throughout the year and peaking in the third quarter. Inventory levels typically increase in the first and second quarters and then begin to decline in the third or fourth quarter as sales levels exceed production. As a result of these working capital movements, historically, Ag Growth begins to draw on its operating lines in the first or second quarter. The operating line balance typically peaks in the second or third quarter and normally begins to decline later in the third quarter as collections of accounts receivable increase. Ag Growth has typically fully repaid its operating line balance by early in the fourth quarter.

Results in 2011 are generally expected to approximate historical patterns, however due to a larger than typical opening cash balance the Company may not draw on its operating lines to the same extent as in prior years. Acquisitions completed in 2010 will have a minor effect on seasonal working capital requirements in 2011 as sales and EBITDA at Mepu and Tramco have historically been weighted to the second and third quarters.

Capital Expenditures

Ag Growth had maintenance capital expenditures of $1.5 million and $2.1 million in the three and six months ended June 30, 2011 (2010 - $1.0 and $2.1), representing 1.7% of and 1.4% of sales, respectively (2010 - 1.4% and 1.7%). Maintenance capital expenditures in 2011 relate primarily to purchases of manufacturing equipment, trucks, trailers, and forklifts and were funded through cash on hand, cash from operations and bank indebtedness. Maintenance capital expenditures in 2011 are expected to increase slightly over 2010 levels, largely due to the addition of three new divisions in 2010, and are expected to be funded through cash on hand, cash from operations and bank indebtedness.

Ag Growth defines maintenance capital expenditures as cash outlays required to maintain plant and equipment at current operating capacity and efficiency levels. Non-maintenance capital expenditures encompass other investments, including cash outlays required to increase operating capacity or improve operating efficiency. Ag Growth had non-maintenance capital expenditures in the three and six months ended June 30, 2011 of $2.1 million and $3.9 million, respectively (2010 - $5.9 million and $10.8 million). As expected, non-maintenance capital expenditures in 2011 have decreased significantly from 2010. Non-maintenance capital expenditures in 2011, excluding approximately $3.2 million to complete the storage bin capacity project as discussed below, are expected to return to 2009 levels and are expected to be financed through cash on hand, cash from operations and bank indebtedness. The following capital expenditures were classified as non-maintenance in 2011:

i. Grain storage bin capacity - in 2010 the Company invested $15.9 million towards a grain storage bin manufacturing facility and automated storage bin production equipment. The investment is expected to allow the Company to capitalize on international sales opportunities and to increase sales in North America. In 2011 the Company invested an additional $3.1 million to complete the project. No additional significant expenditures are anticipated.

ii. Manufacturing equipment - the Company invested $0.7 million to upgrade certain equipment to allow for increased capacity, primarily at Hi Roller and Union Iron.

Cash Balance

For the three and six month periods ended June 30, 2011, the Company's cash balance decreased $10.8 million and $35.0 million, respectively (2010 - $33.6 million and $54.3 million). The decrease in the cash balance in 2010 and 2011 resulted from payments related to acquisitions, strategic capital expenditures and seasonality.


CONTRACTUAL OBLIGATIONS (thousands of dollars)

                        Total    2011    2012    2013       2014      2015+
Debentures          $ 114,885  $    0  $    0  $    0  $ 114,885  $       0
Long-term debt         24,124       8      14       0          0     24,102
Capital leases            315     251      64       0          0          0
Operating leases        1,935     449     508     311        246        421
Total obligations   $ 141,259  $  708  $  586  $  311  $ 115,131  $  24,523

Debentures relate to the aggregate principal amount of debentures issued by the Company in October 2009 (see "Convertible Debentures"). Long-term debt at June 30, 2011 is comprised of US $25.0 million aggregate principal amount of secured notes issued through a note purchase and private shelf agreement, net of deferred financing costs, and GMAC financed vehicle loans. Capital lease obligations relate to a number of leases for equipment. The operating leases relate primarily to vehicle, equipment, warehousing, and facility leases and were entered into in the normal course of business.

As at August 12, 2011, the Company had no outstanding commitments in relation to capital expenditures for building and equipment.

CAPITAL RESOURCES

Cash

The Company had bank indebtedness of $2.2 million as at June 30, 2011 (2010 - cash of $54.8 million). The Company's cash balance at June 30, 2010 was higher than is typical because it included a portion of the net proceeds received from an October 2009 debenture offering (see "Convertible Debentures"). The remainder of the debenture proceeds was deployed later in fiscal 2010.

Long-term debt

On October 29, 2009, the Company authorized the issue and sale of US $25.0 million aggregate principal amount of secured notes through a note purchase and private shelf agreement. The notes are non-amortizing and bear interest at 6.80% and mature October 29, 2016. The agreement also provides for a possible future issuance and sale of notes of up to an additional US $75.0 million aggregate principal amount, with maturity dates no longer than ten years from the date of issuance. Ag Growth is subject to certain financial covenants, including a maximum leverage ratio and a minimum debt service ratio. The Company is in compliance with all financial covenants.

On October 29, 2009, the Company also entered a credit facility with three Canadian chartered banks that includes CAD $10.0 million and US $2.0 million available for working capital purposes, and provides for non-amortizing long-term debt of up to CAD $38.0 million and US $20.5 million. No amounts were drawn under these facilities as at June 30, 2011. The facilities bear interest at rates of prime plus 0.50 % to prime plus 1.50% based on performance calculations and matures on October 29, 2012. Ag Growth is subject to certain financial covenants, including a maximum leverage ratio and a minimum debt service ratio, and is in compliance with all financial covenants.

Obligation under capital leases

In conjunction with the Franklin acquisition the Company assumed a number of capital leases for manufacturing equipment. The leases bear interest at rates averaging 6.5% and mature in 2011 and 2012. The Company expects to exercise the buyout option upon maturity of the equipment leases.

Convertible Debentures

In the fourth quarter of 2009, the Company issued $115 million aggregate principal amount of convertible unsecured subordinated debentures (the "Debentures") at a price of $1,000 per Debenture. The Debentures bear interest at an annual rate of 7.0% payable semi-annually on June 30 and December 31. Each Debenture is convertible into common shares of the Company at the option of the holder at a conversion price of $44.98 per common share. The maturity date of the Debentures is December 31, 2014.

Net proceeds of the offering of approximately $109.9 million were used by Ag Growth for general corporate purposes and to repay existing indebtedness of approximately US $37.6 million and CAD $11.9 million under the Company's credit facility. In 2010, the Company used proceeds from the Debentures to fund the acquisitions of Mepu, Franklin and Tramco (see "Acquisitions in Fiscal 2010") and to finance the expansion of the Company's storage bin product line (see "capital expenditures").

The Debentures are not redeemable before December 31, 2012. On and after December 31, 2012 and prior to December 31, 2013, the Debentures may be redeemed, in whole or in part, at the option of the Company at a price equal to their principal amount plus accrued and unpaid interest, provided that the volume weighted average trading price of the common shares during the 20 consecutive trading days ending on the fifth trading day preceding the date on which the notice of redemption is given is not less than 125% of the conversion price. On and after December 31, 2013, the Debentures may be redeemed, in whole or in part, at the option of the Company at a price equal to their principal amount plus accrued and unpaid interest.

On redemption or at maturity, the Company may, at its option, subject to regulatory approval and provided that no event of default has occurred, elect to satisfy its obligation to pay the principal amount of the Debentures, in whole or in part, by issuing and delivering for each $100 due that number of freely tradeable common shares obtained by dividing $100 by 95% of the volume weighted average trading price of the common shares on the Toronto Stock Exchange ("TSX") for the 20 consecutive trading days ending on the fifth trading day preceding the date fixed for redemption or the maturity date, as the case may be. Any accrued and unpaid interest thereon will be paid in cash. The Company may also elect, subject to any required regulatory approval and provided that no event of default has occurred, to satisfy all or part of its obligation to pay interest on the Debentures by delivering sufficient freely tradeable common shares to satisfy its interest obligation.

The Debentures trade on the TSX under the symbol AFN.DB.

COMMON SHARES

The following common shares were issued and outstanding and participated pro rata in dividends during the periods indicated:


                                                            # Common Shares

December 31, 2009                                                13,078,040
Normal course issuer bid                                           (674,600)
Share award incentive plan issuance                                 140,000
                                                           -----------------
December 31, 2010                                                12,543,440
Conversion of subordinated debentures                                 2,556
                                                           -----------------
June 30, 2011 and August 12, 2011                                12,545,996
                                                           -----------------
                                                           -----------------

On December 10, 2009, Ag Growth commenced a normal course issuer bid for up to 1,272,423 common shares, representing 10% of the Company's public float at that time. In the year ended December 31, 2010, the Company purchased 674,600 common shares for $23.4 million under the normal course issuer bid. The normal course issuer bid terminated on December 9, 2010.

During the six month period ended June 30, 2011, 2,556 common shares were issued on conversion of $115,000 principal amount of Debentures. Ag Growth has reserved 2,554,136 common shares for issuance upon conversion of the Debentures as at June 30, 2011.

Ag Growth has granted 220,000 share awards under its share award incentive plan. Effective January 1, 2010, a total of 73,333 awards vested and the equivalent number of common shares were issued to the participants. On October 15, 2010, an additional 66,667 share awards vested and the equivalent number of common shares were issued to the participant. Effective January 1, 2011, 40,000 share awards vested however no common shares were issued as the participants were compensated in cash rather than common shares. As at August 12, 2011, 40,000 share awards remain outstanding and subject to vesting and payment of the exercise price are each exercisable for one common share.

The administrator of the LTIP has acquired 317,304 common shares to satisfy its obligations with respect to awards under the LTIP for fiscal 2007, 2008, 2009 and 2010. These common shares are not cancelled but rather are held by the administrator until such time as they vest to the LTIP participants. As at June 30, 2011, a total of 165,929 common shares related to the LTIP had vested to the participants.

A total of 16,961 deferred grants of common shares are outstanding under the Company's Director's Deferred Compensation Plan.

Ag Growth's common shares trade on the TSX under the symbol AFN.

DIVIDENDS

In the three and six month periods ended June 30, 2011, Ag Growth declared dividends to security holders of $7.5 million and $15.0 million, respectively (2010 - $6.6 million and $13.3 million). Ag Growth increased its dividend rate from $0.17 per common share to $0.20 per common share in November 2010. Ag Growth's policy is to pay monthly dividends. The Company's Board of Directors reviews financial performance and other factors when assessing dividend levels. An adjustment to dividend levels may be made at such time as the Board determines an adjustment to be in the best interest of the Company and its shareholders.

FUNDS FROM OPERATIONS

Funds from operations, defined under "Non-IFRS Measures" is cash flow from operating activities before the net change in non-cash working capital balances related to operations and stock-based compensation, less maintenance capital expenditures and adjusted for the gain or loss on the sale of property, plant & equipment. The objective of presenting this measure is to provide a measure of free cash flow. The definition excludes changes in working capital as they are necessary to drive organic growth and have historically been financed by the Company's operating facility (See "Capital Resources"). Funds from operations should not be construed as an alternative to cash flows from operating, investing, and financing activities as a measure of the Company's liquidity and cash flows.


                                     Three Months ended    Six months ended
(thousands of dollars)                      June 30             June 30
                                         2011      2010      2011      2010

EBITDA                               $ 20,353  $ 20,464  $ 33,671  $ 32,168
Stock based compensation                  440     1,171     1,118     2,695
Non-cash interest expense                 600       558     1,189     1,127
Translation loss (gain) on foreign
 exchange                                (636)    2,568    (2,075)    1,158
Interest expense                       (3,114)   (3,107)   (6,232)   (6,236)
Income taxes paid                      (1,182)     (735)   (2,889)     (680)
Maintenance capital expenditures       (1,487)   (1,002)   (2,130)   (2,079)
                                    ----------------------------------------
Funds from operations (1)            $ 14,974  $ 19,917  $ 22,652  $ 28,153
                                    ----------------------------------------
                                    ----------------------------------------


Funds from operations can be reconciled to cash provided by operating
activities as follows:

                                 Three Months ended        Six months ended
(thousands of dollars)                 June 30                 June 30
                                   2011        2010        2011        2010
Cash provided by (used in)
 operating activities          $ (1,441)   $  7,059    $ (1,465)   $  3,421
Change in non-cash working
 capital                         17,918      13,837      24,247      26,768
Settlement of SAIP option             0           0       1,998           0
Maintenance capital
 expenditures                    (1,487)     (1,002)     (2,130)     (2,079)
Gain (loss) on sale of
 assets                             (16)         23           2          43
                            ------------------------------------------------
Funds from operations (1)      $ 14,974    $ 19,917    $ 22,652    $ 28,153
                            ------------------------------------------------
                            ------------------------------------------------
Shares outstanding (2)       12,500,058  13,076,800  12,499,339  13,109,843
Dividends declared per share   $   0.60    $   0.51    $   1.20    $   1.02
Funds from operations per
 share (1)                     $   1.20    $   1.52    $   1.81    $   2.15
Payout ratio (1)                     50%         34%         66%         47%

(1) See "Non-IFRS Measures".
(2) Fully diluted weighted average, excluding the potential dilution of the
    convertible debentures as the calculation includes the interest expense
    related to the convertible debentures.

Dividends in a fiscal year are typically funded entirely through cash from operations, although due to seasonality dividends may be funded on a short-term basis by the Company's operating lines. Dividends in the first half of 2011 were funded through cash on hand, cash from operations and bank indebtedness. The Company expects dividends in the remainder of 2011 will be funded through bank indebtedness and cash from operations.

Ag Growth's Board of Directors reviews financial performance and other factors when assessing dividend levels. An adjustment to dividend levels may be made at such time as the Board determines an adjustment to be in the best interest of the Company and its shareholders. The Company increased its dividend from $2.04 per annum to $2.40 per annum in November 2010.

FINANCIAL INSTRUMENTS

Foreign exchange contracts

Risk from foreign exchange arises as a result of variations in exchange rates between the Canadian and the U.S. dollar. Ag Growth has entered into foreign exchange contracts with two Canadian chartered banks to partially hedge its foreign currency exposure on anticipated U.S. dollar sales transactions and as at August 12, 2011, had outstanding the following foreign exchange contracts:


                          Forward Foreign Exchange Contracts
Settlement Dates                  Face Amount    Average Rate    CAD Amount
                                   USD (000's)            CAD        (000's)
Jul - Nov 2011                        $25,000           $1.08       $27,000
Jan - Dec 2012                        $24,000           $0.99       $23,760

The fair value of the outstanding forward foreign exchange contracts in place as at June 30, 2011 was a gain of $3.1 million. Consistent with prior periods, the Company has elected to apply hedge accounting for these contracts and the unrealized gain has been recognized in other comprehensive income for the period ended June 30, 2011.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the period. By their nature, these estimates are subject to a degree of uncertainty and are based on historical experience and trends in the industry. Management reviews these estimates on an ongoing basis. While management has applied judgment based on assumptions believed to be reasonable in the circumstances, actual results can vary from these assumptions. It is possible that materially different results would be reported using different assumptions.

Ag Growth believes the accounting policies that are critical to its business relate to the use of estimates regarding the recoverability of accounts receivable and the valuation of inventory, intangibles, goodwill, convertible debentures and deferred income taxes. Ag Growth's accounting policies are described in Note 3 to the unaudited financial statements for the three month period ended March 31, 2011.

Allowance for Doubtful Accounts

Due to the nature of Ag Growth's business and the credit terms it provides to its customers, estimates and judgments are inherent in the on-going assessment of the recoverability of accounts receivable. Ag Growth maintains an allowance for doubtful accounts to reflect expected credit losses. A considerable amount of judgment is required to assess the ultimate realization of accounts receivable and these judgments must be continuously evaluated and updated. Ag Growth is not able to predict changes in the financial conditions of its customers, and the Company's judgment related to the recoverability of accounts receivable may be materially impacted if the financial condition of the Company's customers deteriorates.

Valuation of Inventory

Assessments and judgments are inherent in the determination of the net realizable value of inventories. The cost of inventories may not be fully recoverable if they are slow moving, damaged, obsolete, or if the selling price of the inventory is less than its cost. Ag Growth regularly reviews its inventory quantities and reduces the cost attributed to inventory no longer deemed to be fully recoverable. Judgment related to the determination of net realizable value may be impacted by a number of factors including market conditions.

Goodwill and Intangible Assets

Assessments and judgments are inherent in the determination of the fair value of goodwill and intangible assets. Goodwill and indefinite life intangible assets are recorded at cost and finite life intangibles are recorded at cost less accumulated amortization. Goodwill and intangible assets are tested for impairment at least annually. Assessing goodwill and intangible assets for impairment requires considerable judgment and is based in part on current expectations regarding future performance. Changes in circumstances including market conditions may materially impact the assessment of the fair value of goodwill and intangible assets.

Deferred Income Taxes

Deferred income taxes are calculated based on assumptions related to the future interpretation of tax legislation, future income tax rates, and future operating results, acquisitions and dispositions of assets and liabilities. Ag Growth periodically reviews and adjusts its estimates and assumptions of income tax assets and liabilities as circumstances warrant. A significant change in any of the Company's assumptions could materially affect Ag Growth's estimate of deferred tax assets and liabilities.

Future Benefit of Tax-loss Carryforwards

Ag Growth should only recognize the future benefit of tax-loss carryforwards where it is more likely than not that sufficient future taxable income can be generated in order to fully utilize such losses and deductions. We are required to make significant estimates and assumptions regarding future revenues and profit, and our ability to implement certain tax planning strategies, in order to assess the likelihood of utilizing such losses and deductions. These estimates and assumptions are subject to significant uncertainty and if changed could materially affect our assessment of the ability to fully realize the benefit of the deferred income tax assets. Deferred tax asset balances would be reduced and additional income tax expense recorded in the applicable accounting period in the event that circumstances change and we, based on revised estimates and assumptions, determined that it was no longer more likely than not that those deferred tax assets would be fully realized.

RISKS AND UNCERTAINTIES

The risks and uncertainties described below are not the only risks and uncertainties we face. Additional risks and uncertainties not currently known to us or that we currently consider immaterial also may impair operations. If any of the following risks actually occur, our business, results of operations and financial condition, and the amount of cash available for dividends could be materially adversely affected.

Industry Cyclicality and General Economic Conditions

The performance of the agricultural industry is cyclical. To the extent that the agricultural sector declines or experiences a downturn, this is likely to have a negative impact on the grain handling, storage and conditioning industry, and the business of Ag Growth. Among other things, the agricultural sector has benefited from the expansion of the ethanol industry, and to the extent the ethanol industry declines or experiences a downturn, this is likely to have a negative impact on the grain handling, storage and conditioning industry, and the business of Ag Growth.

Future developments in the domestic and global economies may negatively impact the demand for our products. Management cannot estimate the level of growth or contraction of the economy as a whole or of the economy of any particular region or market that we serve. Adverse changes in our financial condition and results of operations may occur as a result of negative economic conditions, declines in stock markets, contraction of credit availability or other factors affecting economic conditions generally.

Risk of Decreased Crop Yields

Decreased crop yields due to poor weather conditions and other factors are a significant risk affecting Ag Growth. Both reduced crop volumes and the accompanying decline in farm incomes can negatively affect demand for grain handling, storage and conditioning equipment.

Potential Volatility of Production Costs

Various materials and components are purchased in connection with Ag Growth's manufacturing process, some or all of which may be subject to wide price variation. Consistent with past and current practices within the industry, Ag Growth seeks to manage its exposure to material and component price volatility by planning and negotiating significant purchases on an annual basis, and endeavours to pass through to customers, most, if not all, of the price volatility. There can be no assurance that industry dynamics will allow Ag Growth to continue to reduce its exposure to volatility of production costs by passing through price increases to its customers.

Foreign Exchange Risk

Ag Growth generates the majority of its sales in U.S. dollars, but a materially smaller proportion of its expenses are denominated in U.S. dollars. In addition, Ag Growth may denominate its long term borrowings in U.S. dollars. Accordingly, fluctuations in the rate of exchange between the Canadian dollar and the U.S. dollar may significantly impact the Company's financial results. Management has implemented a foreign currency hedging strategy and the Company has entered into a series of hedging arrangements to partially mitigate the potential effect of fluctuating exchange rates. To the extent that Ag Growth does not adequately hedge its foreign exchange risk, changes in the exchange rate between the Canadian dollar and the U.S. dollar may have a material adverse effect on Ag Growth's results of operations, business, prospects and financial condition.

Acquisition and Expansion Risk

Ag Growth may expand its operations by increasing the scope of operations at existing facilities or by acquiring additional businesses, products or technologies. There can be no assurance that the Company will be able to identify, acquire, or profitably manage additional businesses, or successfully integrate any acquired business, products, or technologies into the business, or increase the scope of operations at existing facilities without substantial expenses, delays or other operational or financial difficulties. The Company's ability to increase its scope of operations or acquire additional businesses may be impacted by its cost of capital and access to credit. Acquisitions and expansions may involve a number of special risks including diversion of management's attention, failure to retain key personnel, unanticipated events or circumstances, and legal liabilities, some or all of which could have a material adverse effect on Ag Growth's performance. In addition, there can be no assurance that an increase in the scope of operations at existing facilities or that acquired businesses, products, or technologies will achieve anticipated revenues and income. The failure of the Company to manage its acquisition or expansion strategy successfully could have a material adverse effect on Ag Growth's results of operations and financial condition.

Commodity Prices, International Trade and Political Uncertainty

Prices of commodities are influenced by a variety of unpredictable factors that are beyond the control of Ag Growth, including weather, government (Canadian, United States and other) farm programs and policies, and changes in global demand or other economic factors. A decrease in commodity prices could negatively impact the agricultural sector, and the business of Ag Growth. New legislation or amendments to existing legislation, including the Energy Independence and Security Act in the U.S., may ultimately impact demand for the Company's products. The world grain market is subject to numerous risks and uncertainties, including risks and uncertainties related to international trade and global political conditions.

Competition

Ag Growth experiences competition in the markets in which it operates. Certain of Ag Growth's competitors have greater financial and capital resources than Ag Growth. Ag Growth could face increased competition from newly formed or emerging entities, as well as from established entities that choose to focus (or increase their existing focus) on Ag Growth's primary markets. As the grain handling, storage and conditioning equipment sector is fragmented, there is also a risk that a larger, formidable competitor may be created through a combination of one or more smaller competitors. Ag Growth may also face potential competition from the emergence of new products or technology.

Seasonality of Business

The seasonality of the demand for Ag Growth's products results in lower cash flow in the first three quarters of each calendar year and may impact the ability of the Company to make cash dividends to shareholders, or the quantum of such dividends, if any. No assurance can be given that Ag Growth's credit facility will be sufficient to offset the seasonal variations in Ag Growth's cash flow.

Business Interruption

The operation of Ag Growth's manufacturing facilities are subject to a number of business interruption risks, including delays in obtaining production materials, plant shutdowns, labour disruptions and weather conditions/natural disasters. Ag Growth may suffer damages associated with such events that it cannot insure against or which it may elect not to insure against because of high premium costs or other reasons. For instance, Ag Growth's Rosenort facility is located in an area that is often subject to widespread flooding, and insurance coverage for this type of business interruption is limited. Ag Growth is not able to predict the occurrence of business interruptions.

Litigation

In the ordinary course of its business, Ag Growth may be party to various legal actions, the outcome of which cannot be predicted with certainty. One category of potential legal actions is product liability claims. Farming is an inherently dangerous occupation. Grain handling, storage and conditioning equipment used on farms or in commercial applications may result in product liability claims that require insuring of risk and management of the legal process.

Dependence on Key Personnel

Ag Growth's future business, financial condition, and operating results depend on the continued contributions of certain of Ag Growth's executive officers and other key management and personnel, certain of whom would be difficult to replace.

Labour Costs and Shortages and Labour Relations

The success of Ag Growth's business depends on a large number of both hourly and salaried employees. Changes in the general conditions of the employment market could affect the ability of Ag Growth to hire or retain staff at current wage levels. The occurrence of either of these events could have an adverse effect on the Company's results of operations. There is no assurance that some or all of the employees of Ag Growth will not unionize in the future. If successful, such an occurrence could increase labour costs and thereby have an adverse affect on Ag Growth's results of operations.

Distribution, Sales Representative and Supply Contracts

Ag Growth typically does not enter into written agreements with its dealers, distributors or suppliers. As a result, such parties may, without notice or penalty, terminate their relationship with Ag Growth at any time. In addition, even if such parties should decide to continue their relationship with Ag Growth, there can be no guarantee that the consideration or other terms of such contracts will continue on the same basis.

Availability of Credit

Ag Growth's credit facility expires October 29, 2012, and is renewable at the option of the lenders. There can be no guarantee the Company will be able to obtain alternate financing and no guarantee that future credit facilities will have the same terms and conditions as the existing facility. This may have an adverse effect on the Company, its ability to pay dividends and the market value of its common shares. In addition, the business of the Company may be adversely impacted in the event that the Company's customer base does not have access to sufficient financing. Sales related to the construction of commercial grain handling facilities, sales to developing markets, and sales to North American farmers may be impacted.

Interest Rates

Ag Growth's term and operating credit facilities bear interest at rates that are in part dependant on performance based financial ratios. The Company's cost of borrowing may be impacted to the extent that the ratio calculation results in an increase in the performance based component of the interest rate. To the extent that the Company has term and operating loans where the fluctuations in the cost of borrowing are not mitigated by interest rate swaps, the Company's cost of borrowing may be impacted by fluctuations in market interest rates.

Uninsured and Underinsured Losses

Ag Growth uses its discretion in determining amounts, coverage limits and deductibility provisions of insurance, with a view to maintaining appropriate insurance coverage on its assets and operations at a commercially reasonable cost and on suitable terms. This may result in insurance coverage that, in the event of a substantial loss, would not be sufficient to pay the full current market value or current replacement cost of its assets or cover the cost of a particular claim.

Cash Dividends are not Guaranteed

Future dividend payments by Ag Growth and the level thereof is uncertain, as Ag Growth's dividend policy and the funds available for the payment of dividends from time to time are dependent upon, among other things, operating cash flow generated by Ag Growth and its subsidiaries, financial requirements for Ag Growth's operations and the execution of its growth strategy, fluctuations in working capital and the timing and amount of capital expenditures, debt service requirements and other factors beyond Ag Growth's control.

Income Tax Matters

Income tax provisions, including current and deferred income tax assets and liabilities, and income tax filing positions require estimates and interpretations of federal and provincial income tax rules and regulations, and judgments as to their interpretation and application to Ag Growth's specific situation. The amount and timing of reversals of temporary differences will also depend on Ag Growth's future operating results, acquisitions and dispositions of assets and liabilities. The business and operations of Ag Growth are complex and Ag Growth has executed a number of significant financings, acquisitions, reorganizations and business combinations over the course of its history including the Conversion. The computation of income taxes payable as a result of these transactions involves many complex factors as well as Ag Growth's interpretation of and compliance with relevant tax legislation and regulations. While Ag Growth believes that its existing and proposed tax filing positions are more likely than not to be sustained, there are a number of existing and proposed tax filing positions including in respect of the Conversion that are or may be the subject of review by taxation authorities. Therefore, it is possible that additional taxes could be payable by Ag Growth and the ultimate value of Ag Growth's income tax assets and liabilities could change in the future and that changes to these amounts could have a material effect on Ag Growth's consolidated financial statements and financial position.

Ag Growth May Issue Additional Common Shares Diluting Existing Shareholders' Interests

The Company is authorized to issue an unlimited number of common shares for such consideration and on such terms and conditions as shall be established by the Directors without the approval of any shareholders, except as required by the TSX. In addition, the Company may, at its option, satisfy its obligations with respect to the interest payable on the Debentures and the repayment of the face value of the Debentures through the issuance of common shares.

Leverage, Restrictive Covenants

The degree to which Ag Growth is leveraged could have important consequences to the shareholders, including: (i) the ability to obtain additional financing for working capital, capital expenditures or acquisitions in the future may be limited; (ii) a material portion of Ag Growth's cash flow from operations may need to be dedicated to payment of the principal of and interest on indebtedness, thereby reducing funds available for future operations and to pay dividends; (iii) certain of the borrowings under the Company's credit facility may be at variable rates of interest, which exposes Ag Growth to the risk of increased interest rates; and (iv) Ag Growth may be more vulnerable to economic downturns and be limited in its ability to withstand competitive pressures. Ag Growth's ability to make scheduled payments of principal and interest on, or to refinance, its indebtedness will depend on its future operating performance and cash flow, which are subject to prevailing economic conditions, prevailing interest rate levels, and financial, competitive, business and other factors, many of which are beyond its control.

The ability of Ag Growth to make dividends or make other payments or advances will be subject to applicable laws and contractual restrictions contained in the instruments governing its indebtedness, including the Company's credit facility and note purchase agreement. Ag Growth's credit facility and note purchase agreement contain restrictive covenants customary for agreements of this nature, including covenants that limit the discretion of management with respect to certain business matters. These covenants place restrictions on, among other things, the ability of Ag Growth to incur additional indebtedness, to pay dividends or make certain other payments and to sell or otherwise dispose of material assets. In addition, the credit facility and note purchase agreement contain a number of financial covenants that will require Ag Growth to meet certain financial ratios and financial tests. A failure to comply with these obligations could result in an event of default which, if not cured or waived, could permit acceleration of the relevant indebtedness and trigger financial penalties including a make-whole provision in the note purchase agreement. If the indebtedness under the credit facility and note purchase agreement were to be accelerated, there can be no assurance that the assets of Ag Growth would be sufficient to repay in full that indebtedness. There can also be no assurance that the credit facility or any other credit facility will be able to be refinanced.

International Sales and Operations

A portion of Ag Growth's sales are generated in overseas markets and Ag Growth anticipates increasing its offshore sales and operations in the future. Sales and operations outside of North America, particularly in emerging markets, are subject to various risks, including: currency exchange rate fluctuations; foreign economic conditions; trade barriers; competition with domestic and international manufacturers and suppliers; exchange controls; national and regional labour strikes; political risks and risks of increases in duties; taxes and changes in tax laws; expropriation of property, cancellation or modification of contract rights, unfavourable legal climate for the collection of unpaid accounts; changes in laws and policies governing operations of foreign-based companies, as well as risks of loss due to civil strife and acts of war. There is no guarantee that one or more of these factors will not materially adversely affect Ag Growth's offshore sales and operations in the future.

RECENT ACCOUNTING CHANGES

For all periods up to and including the year ended December 31, 2010, Ag Growth presented its consolidated financial statements in accordance with CGAAP. The Company's financial statements for the three-month period ended March 31, 2011 and the three and six month periods ended June 30, 2011, and this MD&A, have been prepared in accordance with IFRS.

Transition to IFRS

For the majority of accounting policy choices, the Company did not change the accounting policies it applied under CGAAP if it was not required to do so under IFRS. In preparing its consolidated financial statements in accordance with IFRS 1 First-time Adoption of International Financial Reporting Standards ("IFRS 1"), the Company availed itself of certain of the optional exemptions from full retrospective application of IFRS. A comprehensive summary of the optional exemptions applied by the Company is included in Note 23 in the Company's June 30, 2011 unaudited interim condensed consolidated financial statements.

The transition to IFRS did result in a number of changes to the Company's Statements of Financial Position as at January 1, 2010, its IFRS transition date, and to its Statements of Income, Comprehensive Income, Cash Flows and Equity for its 2010 reporting periods. A comprehensive summary of all of the significant changes including the various reconciliations of CGAAP financial statements to those prepared under IFRS is included in Note 23 in the Company's March 31, 2011 unaudited interim consolidated financial statements. Although the adoption of IFRS resulted in adjustments to the Company's financial statements, it did not materially impact the underlying cash flows or profitability trends of the Company.

INCOME STATEMENT PRESENTATION

The Company has elected to categorize its income and expenses by their function which is one of the two alternatives available under IFRS. Under this methodology revenues and expenses are categorized according to their underlying activity or asset. Accordingly, amortization and foreign-exchange gains (losses), which were previously disclosed separately under CGAAP, have now been allocated to sales, cost of sales or general and administrative expenses. The most significant presentation differences compared to the Company's income statement presentation under CGAAP for the three and six month periods ended June 30, 2010 and year ended December 31, 2010 are as follows:


1. Sales

                                 Three Months     Six Months     Year Ended
                                        Ended          Ended    December 31,
                                June 30, 2010  June 30, 2010           2010
Trade sales per CGAAP                $ 72,358       $123,997       $262,077
Reclassify - gain on foreign
 exchange                               2,349          3,139          6,691
Adoption of IFRS - revenue
 recognition                            2,018          2,018            183
                               ---------------------------------------------
Sales per IFRS                       $ 76,725       $129,154       $268,951
                               ---------------------------------------------
                               ---------------------------------------------


2. Cost of sales

                                 Three Months     Six Months     Year Ended
                                        Ended          Ended    December 31,
                                June 30, 2010  June 30, 2010           2010
Cost of sales per CGAAP              $ 43,638       $ 74,984       $160,504
Adoption of IFRS - inventory
 overhead                                 (10)           (11)            (8)
Adoption of IFRS - revenue
 recognition                              939            939             85
Reclassify - depreciation and
 amortization                             842          1,520          3,377
                               ---------------------------------------------
Cost of sales per IFRS               $ 45,409       $ 77,432       $163,958
                               ---------------------------------------------
                               ---------------------------------------------


3. General and administrative expenses

                                 Three Months     Six Months     Year Ended
                                        Ended          Ended    December 31,
                                June 30, 2010  June 30, 2010           2010
General and administrative per
 CGAAP                               $  8,674       $ 17,106       $ 35,505
Reclassify - stock based
 compensation                           1,115          2,611          6,394
Reclassify - research &
 development                              323            665          1,444
Adoption of IFRS - acquisition
 costs (C)                                402            693          1,696
Adoption of IFRS - other                   21             51            117
Reclassify - depreciation and
 amortization                             825          1,632          3,353
                               ---------------------------------------------
Total general and
 administrative                      $ 11,360       $ 22,758       $ 48,509
                               ---------------------------------------------
                               ---------------------------------------------

NEW ACCOUNTING PRONOUNCEMENTS

Presentation of Financial Statements (amendments to IAS 1)

On June 16, 2011, the IASB issued amendments to IAS 1, Presentation of Financial Statements. The amendments enhance the presentation of other comprehensive income ("OCI") in the financial statements, primarily by requiring the components of OCI to be presented separately for items that may be reclassified to the statement of earnings from those that remain in equity. The amendments are effective for annual periods beginning on or after July 1, 2012. The Company is currently assessing the impact of the amendments on its consolidated financial statements.

Financial Instruments: Classification and Measurement ("IFRS 9")

IFRS 9 as issued reflects the first phase of the International Accounting Standards Board's ("IASB") work on the replacement of the existing standard for financial instruments ("IAS 39") and applies to classification and measurement of financial assets as defined in IAS 39. The standard is effective for annual periods beginning on or after January 1, 2013. In subsequent phases, the IASB will address classification and measurement of hedge accounting. The adoption of the first phase of IFRS 9 will have an effect on the classification and measurement of Ag Growth's financial assets. The Company will quantify the effect in conjunction with the other phases, when issued, to present a comprehensive picture.

Employee Benefits ("IAS 19)

On June 16, 2011, the IASB revised IAS 19, Employee Benefits. The revisions include the elimination of the option to defer the recognition of gains and losses, enhancing the guidance around measurement of plan assets and defined benefit obligations, streamlining the presentation of changes in assets and liabilities arising from defined benefit plans and introduction of enhanced disclosures for defined benefit plans. The amendments are effective for annual periods beginning on or after January 1, 2013. The Company is currently assessing the impact of the amendments on its consolidated financial statements.

IFRS 10 Consolidated Financial Statements

IFRS 10 replaces the portion of IAS 27 Consolidated and Separate Financial Statements that addresses the accounting for consolidated financial statements. It also includes the issues raised in SIC-12 Consolidation - Special Purpose Entities. What remains in IAS 27 is limited to accounting for subsidiaries, jointly controlled entities, and associates in separate financial statements. IFRS 10 establishes a single control model that applies to all entities (including 'special purpose entities,' or 'structured entity' as they are now referred to in the new standards, or 'variable interest entities' as they are referred to in US GAAP). The changes introduced by IFRS 10 will require management to exercise significant judgment to determine which entities are controlled, and therefore are required to be consolidated by a parent, compared with the requirements that were in IAS 27. Under IFRS 10, an investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. This principle applies to all investees, including structured entities.

IFRS 10 is effective for annual periods commencing on or after January 1, 2013. The Company is currently in the process of evaluating the implications of this new standard, if any.

IFRS 11 Joint Arrangements

IFRS 11 replaces IAS 31 Interests in Joint Ventures and SIC-13 Jointly-controlled Entities - Non-monetary Contributions by Venturers. IFRS 11 uses some of the terms that were used by IAS 31, but with different meanings. Whereas IAS 31 identified three forms of joint ventures (i.e., jointly controlled operations, jointly controlled assets and jointly controlled entities), IFRS 11 addresses only two forms of joint arrangements (joint operations and joint ventures) where there is joint control. IFRS 11 defines joint control as the contractually agreed sharing of control of an arrangement which exists only when the decisions about the relevant activities require the unanimous consent of the parties sharing control.

Because IFRS 11 uses the principle of control in IFRS 10 to define joint control, the determination of whether joint control exists may change. In addition, IFRS 11 removes the option to account for jointly controlled entities ("JCEs") using proportionate consolidation. Instead, JCEs that meet the definition of a joint venture must be accounted for using the equity method. For joint operations (which includes former jointly controlled operations, jointly controlled assets, and potentially some former JCEs), an entity recognizes its assets, liabilities, revenues and expenses, and/or its relative share of those items, if any. In addition, when specifying the appropriate accounting, IAS 31 focused on the legal form of the entity, whereas IFRS 11 focuses on the nature of the rights and obligations arising from the arrangement.

IFRS 11 is effective for annual periods commencing on or after January 1, 2013. The Company is currently in the process of evaluating the implications of this new standard, if any.

IFRS 12 Disclosure of Interests in Other Entities

IFRS 12 includes all of the disclosures that were previously in IAS 27 related to consolidated financial statements, as well as all of the disclosures that were previously included in IAS 31 and IAS 28 Investment in Associates. These disclosures relate to an entity's interests in subsidiaries, joint arrangements, associates and structured entities. A number of new disclosures are also required. One of the most significant changes introduced by IFRS 12 is that an entity is now required to disclose the judgments made to determine whether it controls another entity.

IFRS 12 is effective for annual periods commencing on or after January 1, 2013. The Company is currently in the process of evaluating the implications of this new standard, which will be limited to disclosure requirements for the financial statements.

IFRS 13 Fair Value Measurement

IFRS 13 does not change when an entity is required to use fair value, but rather, provides guidance on how to measure the fair value of financial and non-financial assets and liabilities when required or permitted by IFRS. While many of the concepts in IFRS 13 are consistent with current practice, certain principles, such as the prohibition on blockage discounts for all fair value measurements, could have a significant effect. The disclosure requirements are substantial and could present additional challenges.

IFRS 13 is effective for annual periods commencing on or after January 1, 2013 and will be applied prospectively. The Company is currently in the process of evaluating the implications of this new standard.

Deferred Tax: Recovery of Underlying Assets (amendments to IAS 12)

On December 20, 2010, the IASB issued Deferred Tax: Recovery of Underlying Assets (amendments to IAS 12) concerning the determination of deferred tax on investment property measured at fair value. The amendments incorporate SIC-21 Income Taxes - Recovery of Revalued Non-Depreciable Assets into IAS 12 for non-depreciable assets measured using the revaluation model in IAS 16 Property, Plant and Equipment. The aim of the amendments is to provide a practical solution for jurisdictions where entities currently find it difficult and subjective to determine the expected manner of recovery for investment property that is measured using the fair value model in IAS 40 Investment Property. IAS 12 has been updated to include:

- A rebuttable presumption that deferred tax on investment property measured using the fair value model in IAS 40 should be determined on the basis that its carrying amount will be recovered through sale; and

- A requirement that deferred tax on non-depreciable assets, measured using the revaluation model in IAS 16, should always be measured on a sale basis.

The amendments are mandatory for annual periods beginning on or after January 1, 2012, but earlier application is permitted. This amendment is not expected to have an impact on the Company.

DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS

The Company acquired the assets of Franklin and the shares of Tramco in fiscal 2010 (see "Acquisitions"). Management has not fully completed its review of internal controls over financial reporting or disclosure controls and procedures for these newly acquired operations. Since the acquisitions occurred within the 365 days of the end of the reporting period, management has limited the scope of design, and subsequent evaluation, of disclosure controls and procedures and internal controls over financial reporting to exclude controls, policies and procedures of these two 2010 acquisitions, as permitted under Section 3.3 of National Instrument 52-109, Certification of Disclosure in Issuer's Annual and Interim Filings. For the period covered by this MD&A, management has undertaken specific procedures to satisfy itself with respect to the accuracy and completeness of the acquired operations' financial information. The following is the summary financial information pertaining to the acquisitions that were included in Ag Growth's consolidated financial statements for the six months ended June 30, 2011:


(thousands of dollars)                            Franklin(1)      Tramco(1)

Revenue                                             $  7,298       $ 15,548
Profit                                              $   (242)      $  1,365
Current assets(2)                                   $  2,616       $ 11,830
Non-current assets(2)                               $  8,386       $ 21,358
Current liabilities(2)                              $ 11,460       $ 28,879
Non-current liabilities(2)                          $    127       $  4,082

1 Results from January 1, 2011 to June 30, 2011 
2 Balance sheets as at June 30, 2011

There have been no material changes in Ag Growth's internal controls over financial reporting that occurred in the three month period ended June 30, 2011, that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting.

NON-IFRS MEASURES

In analyzing our results, we supplement our use of financial measures that are calculated and presented in accordance with IFRS, with a number of non-IFRS financial measures including "EBITDA", "adjusted EBITDA", "gross margin", "funds from operations", "payout ratio" and "trade sales". A non-IFRS financial measure is a numerical measure of a company's historical performance, financial position or cash flow that excludes (includes) amounts, or is subject to adjustments that have the effect of excluding (including) amounts, that are included (excluded) in most directly comparable measures calculated and presented in accordance with IFRS. Non-IFRS financial measures are not standardized; therefore, it may not be possible to compare these financial measures with other companies' non-IFRS financial measures having the same or similar businesses. We strongly encourage investors to review our consolidated financial statements and publicly filed reports in their entirety and not to rely on any single financial measure.

We use these non-IFRS financial measures in addition to, and in conjunction with, results presented in accordance with IFRS. These non-IFRS financial measures reflect an additional way of viewing aspects of our operations that, when viewed with our IFRS results and the accompanying reconciliations to corresponding IFRS financial measures, may provide a more complete understanding of factors and trends affecting our business.

In the MD&A, we discuss the non-IFRS financial measures, including the reasons that we believe that these measures provide useful information regarding our financial condition, results of operations, cash flows and financial position, as applicable and, to the extent material, the additional purposes, if any, for which these measures are used. Reconciliations of non-IFRS financial measures to the most directly comparable IFRS financial measures are contained in the MD&A.

Management believes that the Company's financial results may provide a more complete understanding of factors and trends affecting our business and be more meaningful to management, investors, analysts and other interested parties when certain aspects of our financial results are adjusted for the gain (loss) on foreign exchange and other operating expenses and income. This measurement is a non-IFRS measurement. Management uses the non-IFRS adjusted financial results and non-IFRS financial measures to measure and evaluate the performance of the business and when discussing results with the board of directors, analysts, investors, banks and other interested parties.

References to "EBITDA" are to profit before income taxes, finance costs, amortization and depreciation. References to "Adjusted EBITDA" are to EBITDA before the gain (loss) on foreign exchange, gains or losses on the sale of property, plant & equipment and other operating expenses. Management believes that, in addition to profit or loss, EBITDA and Adjusted EBITDA are useful supplemental measures in evaluating the Company's performance. Management cautions investors that EBITDA and Adjusted EBITDA should not replace profit or loss as indicators of performance, or cash flows from operating, investing, and financing activities as a measure of the Company's liquidity and cash flows.

References to "trade sales" are to sales net of the gain or loss on foreign exchange. References to "gross margin" are to trade sales less cost of inventories net of the depreciation and amortization included in cost of sales. Management cautions investors that trade sales should not replace sales as an indicator of performance.

References to "funds from operations" are to cash flow from operating activities before the net change in non-cash working capital balances related to operations and stock-based compensation, less maintenance capital expenditures and adjusted for the gain or loss on the sale of property, plant & equipment. Management believes that, in addition to cash provided by (used in) operating activities, funds from operations provide a useful supplemental measure in evaluating its performance.

References to "payout ratio" are to dividends declared as a percentage of funds from operations.

FORWARD-LOOKING STATEMENTS

This MD&A contains forward-looking statements that reflect our expectations regarding the future growth, results of operations, performance, business prospects, and opportunities of the Company. Forward-looking statements may contain such words as "anticipate", "believe", "continue", "could", "expects", "intend", "plans", "will" or similar expressions suggesting future conditions or events. In particular, the forward looking statements in this MD&A include statements relating to the benefits of the acquisitions of Mepu, Franklin and Tramco (see "Acquisitions"), our business and strategy, including our outlook for our financial and operating performance through the balance of 2011 and in future years, growth in sales to developing markets, the benefits of the expansion of the Company's grain storage product line including the anticipated resolution of start up issues at our Twister bin plant and the future contribution of that plant to our operating and financial performance, the effect of crop conditions in our market areas, the effect of current economic conditions and macroeconomic trends on the demand for our products, expectations regarding pricing for agricultural commodities, our working capital and capital expenditure requirements, capital resources and the payment of dividends. Such forward-looking statements reflect our current beliefs and are based on information currently available to us, including certain key expectations and assumptions concerning anticipated financial performance, business prospects, strategies, product pricing, regulatory developments, tax laws, the sufficiency of budgeted capital expenditures in carrying out planned activities, foreign exchange rates and the cost of materials, labour and services. Forward-looking statements involve significant risks and uncertainties. A number of factors could cause actual results to differ materially from results discussed in the forward-looking statements, including changes in international, national and local business conditions, crop yields, crop conditions, seasonality, industry cyclicality, volatility of production costs, commodity prices, foreign exchange rates, and competition. In addition, actual results may be materially affected by the pace of recovery from the global economic crisis in 2008-2009, including the cost and availability of capital. These risks and uncertainties are described under "Risks and Uncertainties" in this MD&A and in our most recently filed Annual Information Form. We cannot assure readers that actual results will be consistent with these forward-looking statements and we undertake no obligation to update such statements except as expressly required by law.

ADDITIONAL INFORMATION

Additional information relating to Ag Growth, including Ag Growth's most recent Annual Information Form, is available on SEDAR (www.sedar.com).


Ag Growth International Inc.                                                

                  UNAUDITED INTERIM CONDENSED CONSOLIDATED                  
                      STATEMENTS OF FINANCIAL POSITION                      
                     (in thousands of Canadian dollars)                     

                                                            As at           
                                                 As at   December      As at
                                              June 30,        31, January 1,
                                                  2011       2010       2010
                                                     $          $          $
                                           ---------------------------------
ASSETS (note 14)                                                            
Current assets                                                              
Cash and cash equivalents                            -     34,981    109,094
Cash held in trust (note 6)                      1,214      1,817          -
Restricted cash                                    839        865          -
Accounts receivable (notes 11 and 17)           61,074     38,535     25,072
Inventory                                       62,513     52,574     39,621
Prepaid expenses and other assets (note 6)       5,229      7,628      1,772
Income taxes recoverable                           123          -        598
Derivative instruments (note 17)                 3,001      4,200      7,652
                                           ---------------------------------
                                               133,993    140,600    183,809
                                           ---------------------------------
Non-current assets                                                          
Property, plant and equipment, net              80,735     79,022     37,873
Goodwill (note 9)                               61,941     62,355     52,187
Intangible assets, net (note 8)                 71,108     72,345     68,441
Available-for-sale investment                    2,800      2,000      2,000
Derivative instruments (note 17)                    87          -      1,848
Deferred tax asset (note 16)                    38,972     42,063     47,356
                                           ---------------------------------
                                               255,643    257,785    209,705
                                           ---------------------------------
Assets held for sale                             1,101          -          -
                                           ---------------------------------
Total assets                                   390,737    398,385    393,514
                                           ---------------------------------
                                           ---------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY                                        
Current liabilities                                                         
Bank indebtedness (note 14)                      2,174          -          -
Accounts payable and accrued liabilities        27,575     22,623     12,736
Customer deposits                                7,466      6,573      8,340
Dividends payable (note 12(e))                   2,509      2,509      2,224
Acquisition price, transaction and                                          
 financing costs payable                         1,214     11,994      1,028
Income taxes payable                                 -         56          -
Current portion of long-term debt (note 14)         16        128         16
Current portion of obligations under                                        
 finance leases (note 14)                          188        432          -
Current portion of share award incentive                                    
 plan (note 13(e))                               1,632      2,003          -
Provisions                                       1,929      1,942      1,194
                                           ---------------------------------
                                                44,703     48,260     25,538
                                           ---------------------------------
Non-current liabilities                                                     
Long-term debt (note 14)                        23,679     24,518     25,403
Obligations under finance leases (note 14)         127        138          -
Convertible unsecured subordinated                                          
 debentures (note 15)                          106,092    105,140    103,107
Deferred tax liability (note 16)                 8,270      8,464      2,214
Share award incentive plan (note 13(e))              -      1,571      5,857
                                           ---------------------------------
                                               138,168    139,831    136,581
                                           ---------------------------------
Total liabilities                              182,871    188,091    162,119
                                           ---------------------------------
Shareholders' equity (note 12)                                              
Common shares                                  150,202    151,376    157,279
Accumulated other comprehensive income                                      
 (loss)                                         (2,048)        (6)     5,590
Equity component of convertible debentures       5,105      5,105      5,105
Contributed surplus                              5,264      6,121      3,859
Retained earnings                               49,343     47,698     59,562
                                           ---------------------------------
Total shareholders' equity                     207,866    210,294    231,395
                                           ---------------------------------
Total liabilities and shareholders' equity     390,737    398,385    393,514
                                           ---------------------------------
Commitments and contingencies (note 21)                                     

See accompanying notes                                                      

On behalf of the Board of Directors:                                        
                                           -----------          ------------
                                                                    (signed)
                                              (signed)               John R.
                                                  Bill               Brodie,
                                               Lambert                   FCA
                                              Director              Director


Ag Growth International Inc.

      UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME
      (in thousands of Canadian dollars, except per share amounts)


                                        Three-month          Six-month      
                                        period ended        period ended    
                                    ----------------------------------------
                                     June 30,  June 30,  June 30,  June 30, 
                                         2011      2010      2011      2010 
                                            $         $         $         $ 
                                    ----------------------------------------

Sales                                  88,111    76,727   155,176   129,155 
Cost of goods sold (note 7(e))         57,314    45,409   101,413    77,432 
                                    ----------------------------------------
Gross margin                           30,797    31,318    53,763    51,723 
                                    ----------------------------------------

Expenses                                                                    
Selling, general and administrative                                         
 (note 7(f))                           12,930    11,360    25,526    22,758 
Other operating income (note 7(a))        (42)     (174)      (61)     (204)
Other operating expenses (income)                                           
 (note 7(b))                               (4)      276       134        27 
                                    ----------------------------------------
                                       12,884    11,462    25,599    22,581 
                                    ----------------------------------------
Operating profit                       17,913    19,856    28,164    29,142 
Finance costs (note 7(d))               3,114     3,107     6,232     6,236 
Finance income (loss) (note 7(c))         193    (1,059)      987      (126)
                                    ----------------------------------------
Profit before income taxes             14,992    15,690    22,919    22,780 
                                    ----------------------------------------
Income tax expense (note 16)                                                
 Current                                2,333     1,626     2,874     1,721 
 Deferred                                 665     2,434     3,345     5,078 
                                    ----------------------------------------
                                        2,998     4,060     6,219     6,799 
                                    ----------------------------------------
Profit for the period                  11,994    11,630    16,700    15,981 
                                    ----------------------------------------
                                    ----------------------------------------

Profit per share - basic (note 19)       0.97      0.90      1.35      1.23 
Profit per share - diluted (note 19)     0.91      0.86      1.34      1.22 
                                    ----------------------------------------
                                    ----------------------------------------

See accompanying notes                                                      


Ag Growth International Inc.

      UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
                            SHAREHOLDERS' EQUITY                            
                     (in thousands of Canadian dollars)                     

Six-month period ended June 30, 2011                                        



                                               Equity                       
                                         component of                       
                                  Common  convertible Contributed  Retained 
                                  shares   debentures     surplus  earnings 
                                       $            $           $         $ 
                                  ------------------------------------------

As at January 1, 2011            151,376        5,105       6,121    47,698 
Profit for the period                  -            -           -    16,700 
Other comprehensive income (loss)      -            -           -         - 
                                  ------------------------------------------
Total comprehensive income       151,376        5,105       6,121    64,398 
Conversion of subordinated                                                  
 debentures (note 12)                115            -           -         - 
Share-based payment transactions                                            
 (note 12)                        (1,289)           -        (857)        - 
Dividends to shareholders (note                                             
 12)                                   -            -           -   (15,055)
                                  ------------------------------------------
As at June 30, 2011              150,202        5,105       5,264    49,343 
                                  ------------------------------------------
                                  ------------------------------------------

See accompanying notes                                                      




                                      Cash flow                             
                                      hedge and                             
                                        foreign                             
                                       currency Available-for-              
                                        reserve   sale reserve Total equity 
                                              $              $            $ 
                                  ------------------------------------------

As at January 1, 2011                        (6)             -      210,294 
Profit for the period                         -              -       16,700 
Other comprehensive income (loss)        (2,630)           588       (2,042)
                                  ------------------------------------------
Total comprehensive income               (2,636)           588      224,952 
Conversion of subordinated                                                  
 debentures (note 12)                         -              -          115 
Share-based payment transactions                                            
 (note 12)                                    -              -       (2,146)
Dividends to shareholders (note                                             
 12)                                          -              -      (15,055)
                                  ------------------------------------------
As at June 30, 2011                      (2,636)           588      207,866 
                                  ------------------------------------------
                                  ------------------------------------------

See accompanying notes                                                      


Ag Growth International Inc.

       UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN 
                           SHAREHOLDERS' EQUITY
                     (in thousands of Canadian dollars)                     

Six-month period ended June 30, 2010                                        



                                                        Equity              
                                                  component of              
                                         Common    convertible   Contributed
                                         shares     debentures       surplus
                                              $              $             $
                                  ------------------------------------------

As at January 1, 2010                   157,279          5,105         3,859
Profit for the period                         -              -             -
Other comprehensive loss                      -              -             -
                                  ------------------------------------------
Total comprehensive income              157,279          5,105         3,859
Share-based payment transactions                                            
 (note 12)                               (2,628)             -         1,206
Common shares purchased under                                               
 normal course issuer                                                       
 bid (note 12)                           (4,603)             -             -
Dividends to shareholders (note                                             
 12)                                          -              -             -
                                  ------------------------------------------
As at June 30, 2010 (note 23)           150,048          5,105         5,065
                                  ------------------------------------------
                                  ------------------------------------------

See accompanying notes                                                      



                                                    Cash flow               
                                                    hedge and               
                                                      foreign               
                                       Retained      currency               
                                       earnings       reserve  Total equity 
                                              $             $             $ 
                                  ------------------------------------------

As at January 1, 2010                    59,562         5,590       231,395 
Profit for the period                    15,981             -        15,981 
Other comprehensive loss                      -        (1,785)       (1,785)
                                  ------------------------------------------
Total comprehensive income               75,543         3,805       245,591 
Share-based payment transactions                                            
 (note 12)                                    -             -        (1,422)
Common shares purchased under                                               
 normal course                                                              
  issuer bid (note 12)                   (7,097)            -       (11,700)
Dividends to shareholders (note                                             
 12)                                    (13,332)            -       (13,332)
                                  ------------------------------------------
As at June 30, 2010 (note 23)            55,114         3,805       219,137 
                                  ------------------------------------------
                                  ------------------------------------------

See accompanying notes                                                      


Ag Growth International Inc.

      UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
                          SHAREHOLDERS' EQUITY
                     (in thousands of Canadian dollars)                     

Year ended December 31, 2010                                                



                                                        Equity              
                                                  component of              
                                         Common    convertible   Contributed
                                         shares     debentures       surplus
                                              $              $             $
                                  ------------------------------------------

As at January 1, 2010                   157,279          5,105         3,859
Profit for the year                           -              -             -
Other comprehensive loss                      -              -             -
                                  ------------------------------------------
Total comprehensive income              157,279          5,105         3,859
Share-based payment transactions                                            
 (note 12)                                2,154              -         2,262
Common shares purchased under                                               
 normal course issuer                                                       
 bid (note 12)                           (8,057)             -             -
Dividends to shareholders (note                                             
 12)                                          -              -             -
                                  ------------------------------------------
As at December 31, 2010                 151,376          5,105         6,121
                                  ------------------------------------------
                                  ------------------------------------------

See accompanying notes                                                      




                                                    Cash flow               
                                                    hedge and               
                                                      foreign               
                                       Retained      currency               
                                       earnings       reserve  Total equity 
                                              $             $             $ 
                                  ------------------------------------------

As at January 1, 2010                    59,562         5,590       231,395 
Profit for the year                      30,324             -        30,324 
Other comprehensive loss                      -        (5,596)       (5,596)
                                  ------------------------------------------
Total comprehensive income               89,886            (6)      256,123 
Share-based payment transactions                                            
 (note 12)                                    -             -         4,416 
Common shares purchased under                                               
 normal                                                                     
  course issuer bid (note 12)           (15,334)            -       (23,391)
Dividends to shareholders (note                                             
 12)                                    (26,854)            -       (26,854)
                                  ------------------------------------------
As at December 31, 2010                  47,698            (6)      210,294 
                                  ------------------------------------------
                                  ------------------------------------------

See accompanying notes                                                      


Ag Growth International Inc.

                  UNAUDITED INTERIM CONDENSED CONSOLIDATED 
                     STATEMENTS OF COMPREHENSIVE INCOME
                     (in thousands of Canadian dollars)


                                          Three-month             Six-month 
                                         period ended          period ended 
                                --------------------------------------------
                                  June 30,   June 30,   June 30,   June 30, 
                                      2011       2010       2011       2010 
                                         $          $          $          $ 
                                --------------------------------------------

Profit for the period               11,994     11,630     16,700     15,981 
                                --------------------------------------------
Other comprehensive income                                                  
 (loss)                                                                     
  Change in fair value of                                                   
   derivatives designated                                                   
   as cash flow hedges                 382     (3,361)     1,425       (462)
  Income tax effect on cash flow                                            
   hedges                              355      1,793        327      1,347 
  Gain on derivatives designated                                            
   as cash flow hedges 
   recognized in net earnings 
   in the current period            (1,736)    (2,869)    (2,534)    (3,833)
  Exchange differences on                                                   
   translation of foreign 
   operations                         (296)     2,707     (1,848)     1,163 
  Gain on available-for-sale                                                
   financial assets                      -          -        800          - 
  Income tax effect on                                                      
   available-for-sale                                                       
   financial assets                      -          -       (212)         - 
                                --------------------------------------------
Other comprehensive loss for the                                            
 period                             (1,295)    (1,730)    (2,042)    (1,785)
                                --------------------------------------------
Total comprehensive income for                                              
 the period                         10,699      9,900     14,658     14,196 
                                --------------------------------------------
                                  ------------------------------------------

See accompanying notes                                                      



Ag Growth International Inc.

                 UNAUDITED INTERIM CONDENSED CONSOLIDATED 
                        STATEMENTS OF CASH FLOWS
                   (in thousands of Canadian dollars)


                                          Three-month             Six-month 
                                         period ended          period ended 
                                --------------------------------------------
                                  June 30,   June 30,   June 30,   June 30, 
                                      2011       2010       2011       2010 
                                         $          $          $          $ 
                                --------------------------------------------
OPERATING ACTIVITIES                                                        
Profit before income taxes          14,992     15,690     22,919     22,780 
Add (deduct) items not affecting                                            
 cash                                                                       
  Depreciation and impairment of                                            
   property, plant and equipment     1,357        792      2,580      1,543 
  Amortization and impairment of                                            
   intangible assets                   890        875      1,940      1,609 
  Translation (gain) loss on                                                
   foreign exchange                   (636)     2,568     (2,075)     1,158 
  Non-cash component of interest                                            
   expense                             600        558      1,189      1,127 
  Stock-based compensation (note                                            
   13(e))                              440      1,171      1,118      2,695 
  Loss (gain) on sale of                                                    
   property, plant and 
   equipment                            16        (23)        (2)       (43)
Net change in non-cash working                                              
 capital balances related to
 operations (note 10)              (17,918)   (13,837)   (24,247)   (26,768)
Settlement of SAIP obligation                                               
 (note 13(b))                            -          -     (1,998)         - 
Income taxes paid                   (1,182)      (735)    (2,889)      (680)
                                --------------------------------------------
Cash provided by (used in)                                                  
 operating activities               (1,441)     7,059     (1,465)     3,421 
                                --------------------------------------------
INVESTING ACTIVITIES                                                        
Acquisition of property, plant                                              
 and equipment                      (3,612)    (6,873)    (6,015)   (12,888)
Acquisition of shares of Tramco,                                            
 Inc., net of cash acquired 
 (note 6)                                -          -     (9,946)         - 
Acquisition of shares of Mepu                                               
 Oy, net of bank indebtedness 
 (note 6)                                -    (12,947)         -    (12,947)
Transfer from (to) cash held in                                             
 trust                                 592       (651)       592       (651)
Proceeds from sale of property,                                             
 plant and equipment                   265         48        294         96 
Development of intangible assets      (503)         -       (811)         - 
Transaction costs paid                (700)       591       (834)       (12)
                                --------------------------------------------
Cash used in investing                                                      
 activities                         (3,958)   (19,832)   (16,720)   (26,402)
                                --------------------------------------------
FINANCING ACTIVITIES                                                        
Increase in bank indebtedness        2,174          -      2,174          - 
Repayment of long-term debt             (4)       (19)      (316)       (23)
Repayment of obligations under                                              
 finance leases                        (49)         -       (253)         - 
Dividends paid                      (7,528)    (6,685)   (15,055)   (13,374)
Decrease in financing costs                                                 
 payable                                 -          -          -       (150)
Purchase of common shares under                                             
 the normal course issuer bid            -    (11,700)         -    (11,700)
Purchase of shares in the market                                            
 under the long-term incentive 
 plan (note 13(e))                       -     (2,424)    (3,346)    (6,032)
                                --------------------------------------------
Cash used in financing                                                      
 activities                         (5,407)   (20,828)   (16,796)   (31,279)
                                --------------------------------------------

Net decrease in cash and cash                                               
 equivalents during the period     (10,806)   (33,601)   (34,981)   (54,260)
Cash and cash equivalents,                                                  
 beginning of period                10,806     88,435     34,981    109,094 
                                --------------------------------------------
Cash and cash equivalents, end                                              
 of period                               -     54,834          -     54,834 
                                --------------------------------------------
                                --------------------------------------------


See accompanying notes

Unaudited Interim Condensed Consolidated Financial Statements

Ag Growth International Inc.

June 30, 2011

Ag Growth International Inc.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of Canadian dollars, except where otherwise noted and per share data)

1. ORGANIZATION

The interim condensed consolidated financial statements of Ag Growth International Inc. ("Ag Growth Inc.") for the three-month and six-month periods ended June 30, 2011 were authorized for issuance in accordance with a resolution of the directors on August 11, 2011. Ag Growth International Inc. is a listed company incorporated and domiciled in Canada whose shares are publicly traded at the Toronto Stock Exchange. The registered office is located at 1301 Kenaston Blvd., Winnipeg, Manitoba, Canada.

2. OPERATIONS

Ag Growth conducts business in the grain handling, storage and conditioning markets.

Included in these interim condensed consolidated financial statements are the accounts of Ag Growth Inc. and all of its subsidiary partnerships and incorporated companies; together, Ag Growth Inc. and its subsidiaries are referred to as "Ag Growth" or the "Company".

3. BASIS OF PREPARATION AND STATEMENT OF COMPLIANCE

The interim condensed consolidated financial statements for the three- and six-month periods ended June 30, 2011 were prepared in accordance with IAS 34, Interim Financial Reporting. The same accounting policies and methods of computation were followed in the preparation of these interim condensed consolidated financial statements as were followed in the preparation of the interim consolidated financial statements for the three-month period ended March 31, 2011. In addition, the interim consolidated financial statements for the three-month period ended March 31, 2011 contain certain incremental annual IFRS disclosures not included in the annual consolidated financial statements for the year ended December 31, 2010 prepared in accordance with previous Canadian generally accepted accounting principles ("GAAP"). Accordingly, these interim condensed consolidated financial statements for the three- and six-month periods ended June 30, 2011 should be read together with the annual consolidated financial statements for the year ended December 31, 2010 prepared in accordance with previous Canadian GAAP as well as the interim consolidated financial statements for the three-month period ended March 31, 2011.

Accounting measurements at interim dates inherently involve a greater reliance on estimates than at year end. In the opinion of management, the unaudited interim condensed consolidated financial statements include all adjustments of a normal recurring nature to present fairly the consolidated financial position of the Company as at June 30, 2011.

4. SEASONALITY OF BUSINESS

Interim period sales and earnings historically reflect some seasonality. The third quarter is typically the strongest primarily due to high in-season demand at the farm level. Ag Growth's collections of accounts receivable are weighted towards the third and fourth quarters. This collection pattern, combined with seasonally high sales in the third quarter, result in accounts receivable levels increasing throughout the year and normally peaking in the third quarter. As a result of these working capital movements, historically, Ag Growth's use of its bank revolver is typically highest in the first and second quarters, begins to decline in the third quarter as collections of accounts receivable increase, and is repaid in the third or fourth quarter of each year.

5. STANDARDS ISSUED BUT NOT YET EFFECTIVE

Standards issued but not yet effective up to the date of issuance of the Company's financial statements are listed below. This listing is of standards and interpretations issued which the Company reasonably expects to be applicable at a future date. The Company intends to adopt those standards when they become effective.

Presentation of Financial Statements (amendments to IAS 1)

On June 16, 2011, the IASB issued amendments to IAS 1, Presentation of Financial Statements. The amendments enhance the presentation of other comprehensive income ("OCI") in the financial statements, primarily by requiring the components of OCI to be presented separately for items that may be reclassified to the statement of earnings from those that remain in equity. The amendments are effective for annual periods beginning on or after July 1, 2012. The Company is currently assessing the impact of the amendments on its consolidated financial statements.

Financial Instruments: Classification and Measurement ("IFRS 9")

IFRS 9 as issued reflects the first phase of the International Accounting Standards Board's ("IASB") work on the replacement of the existing standard for financial instruments ("IAS 39") and applies to classification and measurement of financial assets as defined in IAS 39. The standard is effective for annual periods beginning on or after January 1, 2013. In subsequent phases, the IASB will address classification and measurement of hedge accounting. The adoption of the first phase of IFRS 9 will have an effect on the classification and measurement of Ag Growth's financial assets. The Company will quantify the effect in conjunction with the other phases, when issued, to present a comprehensive picture.

Employee Benefits ("IAS 19")

On June 16, 2011, the IASB revised IAS 19, Employee Benefits. The revisions include the elimination of the option to defer the recognition of gains and losses, enhancing the guidance around measurement of plan assets and defined benefit obligations, streamlining the presentation of changes in assets and liabilities arising from defined benefit plans and introduction of enhanced disclosures for defined benefit plans. The amendments are effective for annual periods beginning on or after January 1, 2013. The Company is currently assessing the impact of the amendments on its consolidated financial statements.

IFRS 10 Consolidated Financial Statements

IFRS 10 replaces the portion of IAS 27 Consolidated and Separate Financial Statements that addresses the accounting for consolidated financial statements. It also includes the issues raised in SIC-12 Consolidation - Special Purpose Entities. What remains in IAS 27 is limited to accounting for subsidiaries, jointly controlled entities, and associates in separate financial statements. IFRS 10 establishes a single control model that applies to all entities (including 'special purpose entities,' or 'structured entity' as they are now referred to in the new standards, or 'variable interest entities' as they are referred to in US GAAP). The changes introduced by IFRS 10 will require management to exercise significant judgment to determine which entities are controlled, and therefore are required to be consolidated by a parent, compared with the requirements that were in IAS 27. Under IFRS 10, an investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. This principle applies to all investees, including structured entities.

IFRS 10 is effective for annual periods commencing on or after January 1, 2013. The Company is currently in the process of evaluating the implications of this new standard, if any.

IFRS 11 Joint Arrangements

IFRS 11 replaces IAS 31 Interests in Joint Ventures and SIC-13 Jointly-controlled Entities - Non-monetary Contributions by Venturers. IFRS 11 uses some of the terms that were used by IAS 31, but with different meanings. Whereas IAS 31 identified three forms of joint ventures (i.e., jointly controlled operations, jointly controlled assets and jointly controlled entities), IFRS 11 addresses only two forms of joint arrangements (joint operations and joint ventures) where there is joint control. IFRS 11 defines joint control as the contractually agreed sharing of control of an arrangement which exists only when the decisions about the relevant activities require the unanimous consent of the parties sharing control.

Because IFRS 11 uses the principle of control in IFRS 10 to define joint control, the determination of whether joint control exists may change. In addition, IFRS 11 removes the option to account for jointly controlled entities ("JCEs") using proportionate consolidation. Instead, JCEs that meet the definition of a joint venture must be accounted for using the equity method. For joint operations (which includes former jointly controlled operations, jointly controlled assets, and potentially some former JCEs), an entity recognizes its assets, liabilities, revenues and expenses, and/or its relative share of those items, if any. In addition, when specifying the appropriate accounting, IAS 31 focused on the legal form of the entity, whereas IFRS 11 focuses on the nature of the rights and obligations arising from the arrangement.

IFRS 11 is effective for annual periods commencing on or after January 1, 2013. The Company is currently in the process of evaluating the implications of this new standard, if any.

IFRS 12 Disclosure of Interests in Other Entities

IFRS 12 includes all of the disclosures that were previously in IAS 27 related to consolidated financial statements, as well as all of the disclosures that were previously included in IAS 31 and IAS 28 Investment in Associates. These disclosures relate to an entity's interests in subsidiaries, joint arrangements, associates and structured entities. A number of new disclosures are also required. One of the most significant changes introduced by IFRS 12 is that an entity is now required to disclose the judgments made to determine whether it controls another entity.

IFRS 12 is effective for annual periods commencing on or after January 1, 2013. The Company is currently in the process of evaluating the implications of this new standard, which will be limited to disclosure requirements for the financial statements.

IFRS 13 Fair Value Measurement

IFRS 13 does not change when an entity is required to use fair value, but rather, provides guidance on how to measure the fair value of financial and non-financial assets and liabilities when required or permitted by IFRS. While many of the concepts in IFRS 13 are consistent with current practice, certain principles, such as the prohibition on blockage discounts for all fair value measurements, could have a significant effect. The disclosure requirements are substantial and could present additional challenges.

IFRS 13 is effective for annual periods commencing on or after January 1, 2013 and will be applied prospectively. The Company is currently in the process of evaluating the implications of this new standard.

Deferred Tax: Recovery of Underlying Assets (amendments to IAS 12)

On December 20, 2010, the IASB issued Deferred Tax: Recovery of Underlying Assets (amendments to IAS 12) concerning the determination of deferred tax on investment property measured at fair value. The amendments incorporate SIC-21 Income Taxes - Recovery of Revalued Non-Depreciable Assets into IAS 12 for non-depreciable assets measured using the revaluation model in IAS 16 Property, Plant and Equipment. The aim of the amendments is to provide a practical solution for jurisdictions where entities currently find it difficult and subjective to determine the expected manner of recovery for investment property that is measured using the fair value model in IAS 40 Investment Property. IAS 12 has been updated to include:


--  A rebuttable presumption that deferred tax on investment property
    measured using the fair value model in IAS 40 should be determined on
    the basis that its carrying amount will be recovered through sale; and 
--  A requirement that deferred tax on non-depreciable assets, measured
    using the revaluation model in IAS 16, should always be measured on a
    sale basis. 

The amendments are mandatory for annual periods beginning on or after January 1, 2012, but earlier application is permitted. This amendment is not expected to have an impact on the Company.

6. BUSINESS COMBINATIONS

Acquisitions in 2010

(a) Mepu Oy ("Mepu")

Effective April 29, 2010, the Company acquired 100% of the outstanding shares of Mepu, a manufacturer of grain drying systems. The acquisition of Mepu provides the Company with a complementary product line, distribution in a region where the Company previously had only limited representation and a corporate footprint near the growth markets of Russia and Eastern Europe.

The purchase has been accounted for by the acquisition method with the results of Mepu's operations included in the Company's net earnings from the date of acquisition. The assets and liabilities of Mepu as at the date of acquisition have been recorded in the interim condensed consolidated financial statements at their fair values as follows:


                                                                          $ 
                                                               -------------

Accounts receivable                                                   1,208 
Inventory                                                             4,465 
Prepaid expenses and other                                              396 
Deferred tax asset                                                      330 
Property, plant and equipment                                         4,084 
Intangible assets                                                           
  Distribution network                                                1,562 
  Brand name                                                            743 
  Order backlog                                                         363 
Goodwill                                                              3,614 
Bank indebtedness                                                    (1,035)
Long-term debt                                                         (382)
Accounts payable and accrued liabilities                             (2,752)
Customer deposits                                                      (134)
Deferred tax liability                                               (1,188)
                                                               -------------
Purchase consideration transferred                                   11,274 
                                                               -------------
                                                               -------------

The goodwill of $3,614 comprises the value of expected synergies arising from the acquisition and the values included in the workforce of the new subsidiary. The goodwill balance is allocated to Mepu and certain North American divisions' CGUs because management is expecting sales synergies from a wider product line and complementary distribution networks. None of the goodwill recognized is expected to be deductible for income tax purposes.

From the date of acquisition, Mepu has contributed to the 2010 results $11,089 of revenue and $850 to the net profit before tax of the Company. If the combination had taken place as at January 1, 2010, revenue from continuing operations in 2010 would have increased by $2,378 and the profit from continuing operations for the Company in 2010 would decrease by $1,631.

The purchase consideration in the amount of $11,274 was paid in cash. The impacts on the cash flow on the acquisition of Mepu are as follows:


                                                                           $
                                                            ----------------

Transaction costs of the acquisition                                     643
Purchase consideration transferred                                    11,274
                                                            ----------------
Net cash flow on acquisition                                          11,917
                                                            ----------------
                                                            ----------------

Transaction costs of the acquisition are included in cash flows from investing activities. In the three-month period ended June 30, 2011, the conditions related to the cash holdback were met and the Company transferred $592 from cash held in trust to the vendors. As at June 30, 2011, there are no remaining funds held in trust.

(b) Franklin Enterprises Ltd. ("Franklin")

Effective October 1, 2010, the Company acquired substantially all of the operating assets of Franklin, a custom manufacturer. The Company acquired Franklin to enhance its manufacturing capabilities and to increase production capacity in periods of high in-season demand. The acquisition has been accounted for by the acquisition method with the results of Franklin's operations included in the Company's net earnings from the date of acquisition. As at June 30, 2011, the Company had cash held in trust of $250 relating to the acquisition of Franklin.

(c) Tramco, Inc. ("Tramco")

Effective December 20, 2010, the Company acquired 100% of the outstanding shares of Tramco, a manufacturer of chain conveyors. Tramco is an industry leader and provides the Company with an entry point into the grain processing sector of the food supply chain.

The purchase has been accounted for by the acquisition method with the results of Tramco's operations included in the Company's net earnings from the date of acquisition. The assets and liabilities of Tramco on the date of acquisition have been recorded in the interim condensed consolidated financial statements at their estimated fair values as follows:


                                                                          $ 
                                                            ----------------

Accounts receivable                                                   4,216 
Inventory                                                             4,162 
Prepaid expenses and other                                              208 
Deferred tax asset                                                      340 
Property, plant and equipment                                         8,495 
Intangible assets                                                           
  Distribution network                                                1,701 
  Brand name                                                          2,361 
  Software                                                            1,118 
  Order backlog                                                         272 
Goodwill                                                              7,327 
Accounts payable and accrued liabilities                             (4,423)
Customer deposits                                                      (967)
Income taxes payable                                                   (143)
Deferred tax liability                                               (4,550)
                                                            ----------------
Purchase consideration transferred                                   20,117 
                                                            ----------------
                                                            ----------------

The allocation of the consideration transferred to acquired assets and liabilities and the calculation of the working capital adjustment are preliminary, utilizing information available at the time the interim condensed consolidated financial statements were prepared. The allocation of the consideration transferred is preliminary. The final allocation of the consideration transferred and the working capital adjustment may change when more information becomes available.

Included in prepaid expenses and other assets in the interim condensed consolidated statement of financial position as at June 30, 2011, is $1,446 (December 31, 2010 - $1,403) related to the working capital adjustment owing from the vendor.

The goodwill of $7,327 comprises the value of expected synergies arising from the acquisition and the values included in the workforce of the new subsidiary. The goodwill balance is expected to be allocated to Tramco as a CGU and certain other North American CGUs because management expects sales synergies to result from complementary product lines and an enhanced distribution network. The allocation has not been finalized as of the current reporting date. Under IFRS, a one-year window is available subsequent to the acquisition date to finalize the allocation.

Goodwill at the time of the transaction is not deductible for tax purposes.

From the date of acquisition of December 20, 2010, Tramco contributed $184 of revenue and a net loss before income taxes of $78 to the 2010 results of the Company. Tramco has operations in the U.S. and the U.K. and their results were not consolidated on a regular basis. As a result, the Company is not able to quantify the impact Tramco would have had on the Company's financial results if the acquisition had been made on January 1, 2010.

The impacts on the cash flow on acquisition of Tramco are as follows:


                                                                           $
                                                            ----------------

Transaction costs of the acquisition paid in 2010                        339
Transaction costs of the acquisition paid in 2011                        164
Purchase consideration paid in 2010                                    9,168
Purchase consideration paid in 2011                                    9,946
Transferred to cash held in trust                                        995
                                                            ----------------
Net cash flow on acquisition                                          20,612
                                                            ----------------
                                                            ----------------

Transaction costs of the acquisition are included in cash flows from investing activities. At the request of the vendor, the purchase price was paid in two installments. The second installment of $9,946 was paid on January 5, 2011. As at June 30, 2011, the Company had cash held in trust of $964 relating to the acquisition of Tramco.

7. OTHER INCOME (EXPENSES)


                                        Three-month          Six-month      
                                        period ended        period ended    
                                    ----------------------------------------
                                      June 30,  June 30,  June 30,  June 30,
                                         2011      2010      2011      2010 
                                            $         $         $         $ 
                                    ----------------------------------------

(a) Other operating income                                                  
    Net gain (loss) on disposal of                                        
     property, plant and equipment        (16)       23         2        43
    Other                                  58       151        59       161 
                                    ----------------------------------------
                                           42       174        61       204 
                                    ----------------------------------------
                                    ----------------------------------------

(b) Other operating expenses                                                
    (income)                                                                
    Cash flow hedging                      (4)      276       134        27 
                                    ----------------------------------------
                                           (4)      276       134        27 
                                    ----------------------------------------
                                    ----------------------------------------

(c) Finance income (loss)                                                   
    Interest income from banks              5        66       229       224 
    Gain (loss) on foreign exchange       188    (1,125)      758      (350)
                                    ----------------------------------------
                                          193    (1,059)      987      (126)
                                    ----------------------------------------
                                    ----------------------------------------

(d) Finance costs                                                           
    Interest on overdrafts and other                                        
     finance costs                         10         -        22        24 
    Interest, including non-cash                                            
     interest, on debts and                                                 
     borrowings                           549       597     1,110     1,179 
    Interest, including non-cash                                            
     interest, on convertible                                               
     debentures (note 15)               2,549     2,510     5,087     5,033 
    Finance charges payable under                                           
     finance lease contracts                6         -        13         - 
                                    ----------------------------------------
                                        3,114     3,107     6,232     6,236 
                                    ----------------------------------------
                                    ----------------------------------------

(e) Cost of goods sold                                                      
    Depreciation                        1,227       695     2,335     1,357 
    Amortization of intangible                                              
     assets                                61       147       369       163 
    Warranty provision                      3       181       (54)      342 
    Cost of inventories recognized                                          
     as an expense                     56,023    44,386    98,763    75,570 
                                    ----------------------------------------
                                       57,314    45,409   101,413    77,432 
                                    ----------------------------------------
                                    ----------------------------------------
(f) Selling, general and                                                    
     administrative expenses                                                
    Selling, general and                                                    
     administrative                    11,752    10,192    23,236    20,432 
    Amortization of intangible                                              
     assets                               829       728     1,571     1,446 
    Depreciation                          130        97       245       186 
    Minimum lease payments                                                  
     recognized as an operating                                             
     lease expense                        219       343       474       694 
                                    ----------------------------------------
                                       12,930    11,360    25,526    22,758 
                                    ----------------------------------------
                                    ----------------------------------------
(g) Employee benefits expense                                               
    Wages and salaries                 17,623    14,194    35,734    26,952 
    Share-based payment transaction                                         
     expense                              440     1,171     1,118     2,695 
    Pension costs                         441       263       926       554 
                                    ----------------------------------------
                                       18,504    15,628    37,778    30,201 
                                    ----------------------------------------
                                    ----------------------------------------

    Included in cost of goods sold     13,155    10,386    26,241    19,435 
    Included in general and                                                 
     administrative expenses            5,349     5,242    11,537    10,766 
                                    ----------------------------------------
                                       18,504    15,628    37,778    30,201 
                                    ----------------------------------------
                                    ----------------------------------------

8. INTANGIBLE ASSETS


                                                                          $ 
                                                            ----------------

Balance, January 1, 2010                                             68,441 
Amortization for the six-month period ended                          (1,609)
Effect of foreign exchange rates                                        (59)
Acquisition - acquisitions of subsidiaries                            2,668 
                                                            ----------------
Balance, June 30, 2010                                               69,441 
Amortization for the six-month period ended                          (1,808)
Effect of foreign currency exchange rates                              (782)
Acquisition - acquisitions of subsidiaries                            5,494 
                                                            ----------------
Balance, December 31, 2010                                           72,345 
Amortization for the six-month period ended                          (1,940)
Effect of foreign currency exchange rates                              (429)
Additions of internally developed intangible assets                   1,132 
                                                            ----------------
Balance, June 30, 2011                                               71,108 
                                                            ----------------
                                                            ----------------

9. GOODWILL


                                                    June 30,   December 31, 
                                                        2011           2010 
                                                           $              $ 
                                              ------------------------------

COST                                                                        
Balance, beginning of period                          62,355         52,187 
Additions - acquisition of subsidiary                     80         11,073 
Exchange differences                                    (494)          (905)
                                              ------------------------------
Balance, end of period                                61,941         62,355 
                                              ------------------------------
                                              ------------------------------

10. CHANGES IN NON-CASH WORKING CAPITAL

The changes in the non-cash working capital balances are calculated as follows:


                                        Three-month          Six-month      
                                        period ended        period ended    
                                    ----------------------------------------
                                     June 30,  June 30,  June 30,  June 30, 
                                         2011      2010      2011      2010 
                                            $         $         $         $ 
                                    ----------------------------------------

Accounts receivable                   (17,130)  (15,766)  (22,539)  (25,512)
Inventory                              (6,154)   (2,018)   (9,939)   (5,201)
Prepaid expenses and other assets        (123)      (77)    2,399      (344)
Accounts payable and accrued                                                
 liabilities                            5,321     3,908     4,952     5,208 
Customer deposits                         222       (84)      893    (1,260)
Provisions                                (54)      200       (13)      341 
                                    ----------------------------------------
                                      (17,918)  (13,837)  (24,247)  (26,768)
                                    ----------------------------------------
                                    ----------------------------------------

11. ACCOUNTS RECEIVABLE

As is typical in the agriculture sector, Ag Growth may offer extended terms on its accounts receivable to match the cash flow cycle of its customer. The following table sets forth details of the age of trade accounts receivable that are not overdue as well as an analysis of overdue amounts and the related allowance for doubtful accounts:


                                                       December             
                                           June 30,         31,  January 1, 
                                               2011        2010        2010 
                                                  $           $           $ 
                                        ------------------------------------

Total accounts receivable                    61,557      39,019      25,571 
Less allowance for doubtful accounts           (483)       (484)       (499)
                                        ------------------------------------
Total accounts receivable, net               61,074      38,535      25,072 
                                        ------------------------------------
                                        ------------------------------------

Of which                                                                    
Neither impaired nor past due                45,138      17,661      17,552 
Not impaired and past the due date as                                       
 follows:                                                                   
  Within 30 days                             11,405       7,231       3,457 
  31 to 60 days                               1,467       7,044         927 
  61 to 90 days                                 952       3,295         795 
  Over 90 days                                2,595       3,788       2,840 
Less allowance for doubtful accounts           (483)       (484)       (499)
                                        ------------------------------------
Total accounts receivable, net               61,074      38,535      25,072 
                                        ------------------------------------
                                        ------------------------------------

12. SHAREHOLDERS' EQUITY

(a) Common shares

Authorized

Unlimited voting common shares without par value

Issued

12,394,621 common shares


                                                         Number      Amount 
                                                              #           $ 
                                                    ------------------------

Balance, January 1, 2010                             13,020,099     157,279 
Purchase of common shares under LTIP                   (167,900)     (6,032)
Purchase of common shares under normal course issuer                        
 bid                                                   (341,600)     (4,603)
Settlement of LTIP obligation - vested shares            27,136         818 
Settlement of SAIP obligation - vested shares            73,333       2,586 
                                                    ------------------------
Balance, June 30, 2010                               12,611,068     150,048 
Purchase of common shares under normal course issuer                        
 bid                                                   (333,000)     (3,454)
Settlement of LTIP obligation                            54,815       1,919 
Settlement of SAIP obligation                            66,667       2,863 
                                                    ------------------------
Balance, December 31, 2010                           12,399,550     151,376 
Purchase of common shares under LTIP (note 13(a))       (67,996)     (3,346)
Conversion of subordinated debentures (note 15)           2,556         115 
Settlement of LTIP obligation - vested shares            60,511       2,057 
                                                    ------------------------
Balance, June 30, 2011                               12,394,621     150,202 
                                                    ------------------------
                                                    ------------------------

The 12,394,621 common shares at June 30, 2011 are net of 151,375 common shares with a stated value of $6,264 that are being held by the Company under the terms of the LTIP until vesting conditions are met.

(b) Normal course issuer bid

On December 10, 2009, Ag Growth commenced a normal course issuer bid for up to 1,272,423 common shares, representing 10% of the Company's public float at that time. The normal course issuer bid terminated on December 9, 2010. In the year ended December 31, 2010, Ag Growth purchased and cancelled 674,600 common shares under the normal course issuer bid for $23,391.

(c) Contributed surplus


                                          Six-month   Six-month             
                                             period      period  Year ended 
                                              ended       ended    December 
                                           June 30,    June 30,         31, 
                                               2011        2010        2010 
                                                  $           $           $ 
                                        ------------------------------------

Balance, beginning of period                  6,121       3,859       3,859 
Equity-settled director compensation            208         106         227 
Obligation under LTIP                           902       1,919       4,279 
Exercise price on vested SAIP awards              -           -          18 
Settlement of LTIP obligation - vested                                      
 shares                                      (1,967)       (819)     (2,262)
                                        ------------------------------------
Balance, end of period                        5,264       5,065       6,121 
                                        ------------------------------------
                                        ------------------------------------

(d) Accumulated other comprehensive income

Accumulated other comprehensive income is comprised of the following:

Cash flow hedge reserve

The cash flow hedge reserve contains the effective portion of the cash flow hedge relationships incurred as at the reporting date.

Foreign currency translation reserve

The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries. It is also used to record the effect of hedging net investments in foreign operations.

Available-for-sale reserve

The available-for-sale reserve contains the cumulative change in the fair value of available-for-sale investments. Gains and losses are reclassified to the interim consolidated statements of income when the available-for-sale investments are impaired or derecognized.

(e) Dividends paid and proposed

In the three-month period ended June 30, 2011, the Company declared dividends of $7,528 or $0.60 per common share (2010 - $6,534 or $0.51 per common share). In the six-month period ended June 30, 2011, the Company declared dividends of $15,055 or $1.20 per common share (2010 - $13,332 or $1.02 per common share). Ag Growth's dividend policy is to pay cash dividends on or about the 30th of each month to shareholders of record on the last business day of the previous month and the Company's current monthly dividend rate is $0.20 per common share. Subsequent to June 30, 2011, the Company declared dividends of $0.20 per common share to shareholders of record on July 29, 2011. Total dividends declared in the year ended December 31, 2010 were $26,854 or $2.12 per common share.

(f) Shareholder protection rights plan

On December 20, 2010, the Company's Board of Directors adopted a Shareholders' Protection Rights Plan (the "Rights Plan"). Specifically, the Board of Directors has implemented the Rights Plan by authorizing the issuance of one right (a "Right") in respect of each common share (the "Common Shares") of the Company outstanding at the close of business on December 20, 2010 (the "Record Time"). In addition, the Board of Directors authorized the issuance of one Right in respect of each additional Common Share issued from treasury after the Record Time.

If a person, or a Company acting jointly or in concert, acquires (other than pursuant to an exemption available under the Rights Plan) beneficial ownership of 20 percent or more of the Common Shares, Rights (other than those held by such acquiring person which will become void) will separate from the Common Shares and permit the holder thereof to purchase that number of Common Shares having an aggregate market price (as determined in accordance with the Rights Plan) on the date of consummation or occurrence of such acquisition of Common Shares equal to four times the exercise price of the Rights for an amount in cash equal to the exercise price. The exercise price of the Rights pursuant to the Rights Plan is $150.00 per Right.

13. SHARE-BASED COMPENSATION PLANS

(a) Long-term incentive plan ("LTIP")

The LTIP is a compensation plan that awards common shares to key management based on the Company's operating performance. Pursuant to the LTIP, the Company establishes the amount to be allocated to management based upon the amount by which distributable cash, as defined in the LTIP, exceeds a predetermined threshold. The service period commences January 1st of the year the award is generated and ends at the end of the fiscal year. The award vests on a graded scale over an additional three-year period from the end of the respective performance year. The LTIP provides for immediate vesting in the event of retirement, death, termination without cause or in the event the participant becomes disabled. The cash awarded under the plan formula is used to purchase Ag Growth common shares at market prices. All vested awards are settled with participants in common shares purchased by the administrator of the plan and there is no cash settlement alternative.

The amount owing to participants is recorded as an equity award in contributed surplus as the award is settled with participants with treasury shares purchased in the open market. The expense is recorded in the interim condensed consolidated statement of income items by function depending on the role of the respective management member. During the three- and six-month periods ended June 30, 2011, $250 and $902 (2010 - $973 and $1,873) was expensed in the LTIP plan.

During the six-month period ended June 30, 2011, the administrator purchased 67,996 common shares (2010 - 167,900 common shares) in the market for $3,346 (2010 - $6,032). The fair value of this share-based payment equals the share price as of the respective measurement date as dividends related to the shares in the administrated fund are paid annually to the LTIP participants.

(b) Share award incentive plan ("SAIP")

The Company has a SAIP plan which authorizes the Directors to grant awards ("Share Awards") to employees or officers of Ag Growth or any affiliates of the Company or consultants or other service providers to the Company and its affiliates ("Service Providers"). Share Awards may not be granted to non-management Directors.

Under the terms of the SAIP, any Service Provider may be granted Share Awards. Each Share Award will entitle the holder to be issued the number of common shares designated in the Share Award, upon payment of an exercise price of $0.10 per common share and the common shares will vest and may be issued as to one-third on each of January 1, 2010, January 1, 2011 and January 1, 2012 or such earlier or later dates as may be determined by the Directors. In lieu of receiving common shares, the holder, with the consent of Ag Growth, may elect to be paid cash for the market value of the common shares in excess of the exercise price of the common shares. The SAIP provides for immediate vesting of the Share Awards in the event of retirement, death, termination without cause or in the event the Service Provider becomes disabled.

The shareholders reserved for issuance 220,000 common shares, subject to adjustment in lieu of dividends, if applicable, and no additional awards may be granted without shareholder approval. The aggregate number of Share Awards granted to any single Service Provider shall not exceed 5% of the issued and outstanding common shares of Ag Growth.

In addition:

(i) The number of common shares issuable to insiders at any time, under all security-based compensation arrangements of the Company, shall not exceed 10% of the issued and outstanding common shares of Ag Growth; and

(ii) The number of common shares issued to insiders, within any one-year period, under all security-based compensation arrangements of the Company, shall not exceed 10% of the issued and outstanding common shares of Ag Growth.

As at June 30, 2011, 220,000 (December 31, 2010 - 220,000) Share Awards have been granted and 40,000 (December 31, 2010 - 80,000) remain outstanding. During the six-month period ended June 30, 2011, 40,000 Share Awards vested and were exercised, at which time the participants received a cash payment of $1,998. On January 1, 2010, 73,333 Share Awards vested and were exercised, at which time common shares of the Company were issued for $2,586. On October 15, 2010, the Company announced the passing of its Chief Executive Officer. Upon his passing, 66,667 Share Awards vested and were exercised, at which time common shares of the Company were issued for $2,863 of which $2,411 had been expensed prior to October 15, 2010 and included in the SAIP liability. For the three- and six-month periods ended June 30, 2011, Ag Growth recorded an expense of $104 and $61 (2010 - $114 and 687) for the Share Awards, respectively.

(c) Directors' Deferred Compensation Plan ("DDCP")

On May 8, 2008, the shareholders of Ag Growth approved the adoption by the Company of the DDCP, which provides that a minimum of 20% of the remuneration of non-management Directors be payable in common shares of the Company. The principal purpose of the DDCP is to encourage non-management Director ownership of common shares. According to the DDCP, every Director receives a fixed base retainer fee, an attendance fee for meetings and a committee chair fee, if applicable, and a minimum of 20% of the total compensation must be taken in common shares. A Director will not be entitled to receive the common shares he or she has been granted until a period of three years has passed since the date of grant or until the Director ceases to be a Director, whichever is earlier. The Directors' common shares are fixed based on the fees eligible to him for the respective period and his decision to elect for cash payments for dividends related to the common shares; therefore, the Director's remuneration under the DDCP vests directly in the respective service period. The three-year period (or any shorter period until a Director ceases to be a Director) qualifies only as a waiting period to receive the vested common shares.

For the periods ended June 30, 2011 and 2010, the Directors elected to receive the majority of their remuneration in common shares. For the three- and six-month periods ended June 30, 2011, an expense of $86 and $155 (2010 - $84 and $135) was recorded for the share grants, and a corresponding amount has been recorded to contributed surplus. The share grants were measured with the contractual agreed amount of service fees for the respective period.

The total number of common shares issuable pursuant to the DDCP shall not exceed 35,000, subject to adjustment in lieu of dividends, if applicable. For the three- and six-month periods ended June 30, 2011, 2,978 common shares were granted under the DDCP and as at June 30, 2011, a total of 16,961 common shares had been granted under the DDCP and no common shares had been issued.

(d) Stock option plan

On June 3, 2009, the shareholders of Ag Growth approved a stock option plan (the "Option Plan") under which options may be granted to officers, employees and other eligible service providers in order to provide an opportunity for these individuals to increase their proprietary interest in Ag Growth's long-term success.

The Company's Board of Directors or a Committee thereof shall administer the Option Plan and designate the individuals to whom options may be granted and the number of common shares to be optioned to each. The maximum number of common shares issuable on exercise of outstanding options at any time may not exceed 7.5% of the aggregate number of issued and outstanding common shares, less the number of common shares issuable pursuant to all other security-based compensation agreements. The number of common shares reserved for issuance to any one individual may not exceed 5% of the issued and outstanding common shares.

Options will vest and be exercisable as to one-third of the total number of common shares subject to the options on each of the first, second and third anniversaries of the date of the grant. The exercise price of the options shall be fixed by the Board of Directors or a Committee thereof on the date of the grant and may not be less than the market price of the common shares on the date of the grant. The options must be exercised within five years of the date of the grant.

As at June 30, 2011, a total of 935,325 options (December 31, 2010 - 970,319) are available for grant. No options have been granted as at June 30, 2011.

(e) Summary of expenses recognized under share-based payment plans

For the three- and six-month periods ended June 30, 2011, an expense of $440 and $1,118 (2010 - $1,171 and $2,695) was recognized for employee and Director services rendered.

The total carrying amount of the liability for the SAIP as at June 30, 2011 was $1,632 (December 31, 2010 - $3,574). There have been no cancellations or modifications to any of the plans during the six-month period ended June 30, 2011 or the year ended December 31, 2010.

A summary of the status of the options under the SAIP is presented below:


                                                   Six-month     Year ended 
                                                period ended   December 31, 
                                               June 30, 2011           2010 
                                              ------------------------------
                                                      Shares         Shares 
                                                           #              # 
                                              ------------------------------

Outstanding, beginning of period                      80,000        220,000 
Exercised                                            (40,000)      (140,000)
                                              ------------------------------
Outstanding, end of period                            40,000         80,000 
                                              ------------------------------
                                              ------------------------------

The exercise price on all SAIP awards is $0.10 per common share. All outstanding options under the SAIP as at June 30, 2011 have a remaining contractual life until January 1, 2012.

A summary of the status of the shares under the LTIP is presented below:


                                                   Six-month                
                                                period ended     Year ended 
                                                    June 30,   December 31, 
                                                        2011           2010 
                                                           #              # 
                                              ------------------------------

Outstanding, beginning of period                     143,890         57,941 
Vested                                               (60,511)       (81,951)
Granted                                               67,996        167,900 
                                              ------------------------------
Outstanding, end of period                           151,375        143,890 
                                              ------------------------------
                                              ------------------------------

14. LONG-TERM DEBT AND OBLIGATIONS UNDER FINANCE LEASES


                        Interest            June 30, December 31, January 1,
                            rate  Maturity     2011         2010       2010 
                               %                   $            $          $
                      ------------------------------------------------------

Current portion of                                                          
 interest-bearing                                                           
 loans and borrowings                                                       
Obligations under                   2011 -                                  
 finance leases              6.5      2012       188          432         --
Nordea equipment loan                                                       
 (Euro denominated)          2.0      2013         -          112         --
                                  2011 and                                  
GMAC loans                   0.0      2014        16           16         16
                                          ----------------------------------
Total current portion                                                       
 of interest-bearing                                                        
 loans and borrowings                            204          560         16
                                          ----------------------------------

Non current interest-                                                       
 bearing loans and                                                          
 borrowings                                                                 
Series A secured notes                                                      
 (U.S. dollar                                                               
 denominated)                6.8      2016    24,108       24,865     26,165
Nordea equipment loan                                                       
 (Euro denominated)          2.0      2013         -          196         --
                                  2011 and                                  
GMAC loans                   0.0      2014         6           15         31
Obligations under                   2011 -                                  
 finance leases              6.5      2012       127          138         --
                                          ----------------------------------
Total non-current                                                           
 interest-bearing                                                           
 loans and borrowings                         24,241       25,214     26,196
                                          ----------------------------------

                                              24,445       25,774     26,212
Less deferred                                                               
 financing costs                                 435          558        793
                                          ----------------------------------
Total interest-bearing                                                      
 loans and borrowings                         24,010       25,216     25,419
                                          ----------------------------------
                                          ----------------------------------

(a) Bank indebtedness

Ag Growth has operating facilities of $10 million and U.S. $2.0 million. The facilities bear interest at a rate of prime plus 0.5% to prime plus 1.5% per annum based on performance calculations. The effective interest rate during the six-month period ended June 30, 2011 on Ag Growth's Canadian dollar operating facility was 3.5% (2010 - 2.8%), and on its U.S. dollar operating facility was 3.8% (2010 - 3.3%). As at June 30, 2011, there was $2,174 (2010 - nil) outstanding under these facilities. The facilities mature October 29, 2012.

Collateral for the operating facilities rank pari passu with the Series A secured notes and include a general security agreement over all assets, first position collateral mortgages on land and buildings, assignments of rents and leases and security agreements for patents and trademarks.

(b) Long-term debt

The Series A secured notes were issued on October 29, 2009. The non-amortizing notes bear interest at 6.8% payable quarterly and mature on October 29, 2016. The Series A secured notes are denominated in U.S. dollars. Collateral for the Series A secured notes and term loans rank pari passu and include a general security agreement over all assets, first position collateral mortgages on land and buildings, assignments of rents and leases and security agreements for patents and trademarks.

Ag Growth's credit facility provides for term loans of up to $38,000 and U.S. $20,500 and matures October 29, 2012. Term loans bear interest at rates of prime plus 0.5% to prime plus 1.5% based on performance calculations. There were no term loans outstanding at June 30, 2011 and December 31, 2010.

The Nordea equipment loan is denominated in Euros, bears interest at 2% and was fully repaid during the three month period ended March 31, 2011.

GMAC loans bear interest at 0% and mature in 2011 and 2014. The vehicles financed are pledged as collateral.

(c) Covenants

Ag Growth is subject to certain financial covenants in its credit facility agreements which must be maintained to avoid acceleration of the termination of the agreement. The financial covenants require Ag Growth to maintain a debt to earnings before interest, taxes, depreciation and amortization ("EBITDA") ratio of less than 2.0 and to provide debt service coverage of a minimum of 1.0. As at June 30, 2011 and December 31, 2010, Ag Growth was in compliance with all financial covenants.

15. CONVERTIBLE UNSECURED SUBORDINATED DEBENTURES


                                                    June 30,   December 31, 
                                                        2011           2010 
                                                           $              $ 
                                              ------------------------------

Principal amount                                     114,885        115,000 
Equity component                                      (7,475)        (7,475)
Accretion                                              2,091          1,438 
Financing fees, net of amortization                   (3,409)        (3,823)
                                              ------------------------------
Convertible unsecured subordinated debentures        106,092        105,140 
                                              ------------------------------
                                              ------------------------------

On October 27, 2009, the Company issued convertible unsecured subordinated debentures in the aggregate principal amount of $100 million, and on November 6, 2009, the underwriters exercised in full their over-allotment option and the Company issued an additional $15 million of debentures (the "Debentures"). The net proceeds of the offering, after payment of the underwriters' fee of $4.6 million and expenses of the offering of $0.5 million, were approximately $109.9 million. The Debentures were issued at a price of $1,000 per Debenture and bear interest at an annual rate of 7.0%, payable semi-annually on June 30 and December 31 in each year commencing June 30, 2010. The maturity date of the Debentures is December 31, 2014.

Each Debenture is convertible into common shares of the Company at the option of the holder at any time on the earlier of the maturity date and the date of redemption of the Debenture, at a conversion price of $44.98 per common share, being a conversion rate of approximately 22.2321 common shares per $1,000 principal amount of Debentures. During the six-month period ended June 30, 2011, holders of 115 Debentures exercised the conversion option and were issued 2,556 common shares. As at June 30, 2011, Ag Growth has reserved 2,554,136 common shares for issuance upon conversion of the Debentures.

The Debentures are not redeemable before December 31, 2012. On and after December 31, 2012 and prior to December 31, 2013, the Debentures may be redeemed, in whole or in part, at the option of the Company at a price equal to their principal amount plus accrued and unpaid interest, provided that the volume weighted average trading price of the common shares during the 20 consecutive trading days ending on the fifth trading day preceding the date on which the notice of redemption is given is not less than 125% of the conversion price. On and after December 31, 2013, the Debentures may be redeemed, in whole or in part, at the option of the Company at a price equal to their principal amount plus accrued and unpaid interest.

On redemption or at maturity, the Company may, at its option, elect to satisfy its obligation to pay the principal amount of the Debentures by issuing and delivering common shares. The Company may also elect to satisfy its obligations to pay interest on the Debentures by delivering common shares. The Company does not expect to exercise the option to satisfy its obligations to pay interest by delivering common shares and as a result the potentially dilutive impact has been excluded from the calculation of fully diluted earnings per share (note 19). The number of any shares issued will be determined based on market prices at the time of issuance.

The Company presents and discloses its financial instruments in accordance with the substance of its contractual arrangement. Accordingly, upon issuance of the Debentures, the Company recorded a liability of $107,525, less related offering costs of $4,735. The liability component has been accreted using the effective interest rate method, and during the six-month period ended June 30, 2011, the Company recorded an accretion of $648 (2010 - $626), non-cash interest expense related to financing costs of $414 (2010 - $382) and interest expense on the 7% coupon of $4,025 (2010 - $4,025). The estimated fair value of the holder's option to convert Debentures to common shares in the amount of $7,475 has been separated from the fair value of the liability and is included in shareholders' equity, net of its pro rata share of financing costs of $329.

16. INCOME TAXES

The major components of income tax expense for the six-month periods ended June 30, 2011 and June 30, 2010 are as follows:

Interim condensed consolidated statements of income


                                                              2011      2010
                                                                 $         $
                                                        --------------------

Current tax expense                                                         
Current income tax charge                                    2,874     1,721

Deferred tax expense                                                        
Origination and reversal of temporary differences            3,345     5,078
                                                        --------------------
Income tax expense reported in the interim                                  
 condensed consolidated statement of income                  6,219     6,799
                                                        --------------------
                                                        --------------------

Interim condensed consolidated statements of comprehensive income


                                                             2011      2010 
                                                                $         $ 
                                                        --------------------

Deferred tax related to items charged or credited                           
 directly to other comprehensive income during the                          
 period                                                                     
Unrealized gain on derivatives and 
 available-for-sale investment             (355)   (1,347)
Exchange differences on translation of foreign                              
 operations                                                  (237)      (33)
                                                        --------------------
Income tax charged directly to other comprehensive                          
 income                                                      (592)   (1,380)
                                                        --------------------
                                                        --------------------

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:


                                         Consolidated statement of          
                                            financial position              
                               ---------------------------------------------
                                        As at          As at          As at 
                                     June 30,   December 31,     January 1, 
                                         2011           2010           2010 
                                            $              $              $ 
                               ---------------------------------------------


Gross temporary differences                                                 
Inventories                                 -           (192)          (120)
Property, plant and equipment                                               
 and other assets                      19,108         20,045         22,400 
Intangible assets                     (12,734)       (13,044)       (10,154)
Deferred financing costs                  228             21            165 
Accruals and long-term                                                      
 provisions                               593            748            452 
Tax loss carryforwards expiring                                             
 between 2026 to 2029                  19,352         21,871         29,736 
Investment tax credit                                                       
 carryforward expiring between                                              
 2025 and 2029                          4,763          4,763          4,710 
Capitalized development                                                     
 expenditures                            (300)            --             -- 
Convertible debentures                 (1,459)        (1,628)        (1,984)
Liability SAIP plan                       445            977          1,690 
Equity impact LTIP plan                 1,572          1,253            989 
Construction contracts and lay                                              
 away sales                                 -             --             -- 
Foreign exchange gains                      -              6           (487)
Other comprehensive income               (866)        (1,221)        (2,255)
                               ---------------------------------------------
Net deferred tax assets                                                     
 (liabilities)                         30,702         33,599         45,142 
                               ---------------------------------------------
                               ---------------------------------------------

Reflected in the consolidated
 statement of  financial
 position as follows                                               
Deferred tax assets                    38,972         42,063         47,356 
Deferred tax liabilities               (8,270)        (8,464)        (2,214)
                               ---------------------------------------------
Deferred tax assets, net               30,702         33,599         45,142 
                               ---------------------------------------------
                               ---------------------------------------------

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which these temporary differences, loss carryforwards and investment tax credits become deductible. Based on the analysis of taxable temporary differences and future taxable income, the management of the Company is of the opinion that there is convincing evidence available for the probable realization of all deductible temporary differences of the Company's tax entities. Accordingly, the Company has recorded a deferred tax asset for all deductible temporary differences as of the reporting date and as at December 31, 2010.

The Company offsets tax assets and liabilities if and only if it has a legally enforceable right to offset current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same tax authority.

At June 30, 2011, there was no recognized deferred tax liability (December 31, 2010 - nil; January 1, 2010 - nil) for taxes that would be payable on the unremitted earnings of certain of the Company's subsidiaries. The Company has determined that undistributed profits of its subsidiaries will not be distributed in the foreseeable future. The temporary differences associated with investments in subsidiaries for which a deferred tax liability has not been recognized, aggregate to $622 (December 31, 2010 - $622; January 1, 2010 - nil).

Income tax provisions, including current and future income tax assets and liabilities, and income tax filing positions require estimates and interpretations of federal and provincial income tax rules and regulations, and judgments as to their interpretation and application to Ag Growth's specific situation. The amount and timing of reversals of temporary differences will also depend on Ag Growth's future operating results, acquisitions and dispositions of assets and liabilities. The business and operations of Ag Growth are complex and Ag Growth has executed a number of significant financings, acquisitions, reorganizations and business combinations over the course of its history including the conversion to a corporate entity. The computation of income taxes payable as a result of these transactions involves many complex factors as well as Ag Growth's interpretation of and compliance with relevant tax legislation and regulations. While Ag Growth believes that its existing and proposed tax filing positions are more likely than not to be sustained, there are a number of existing and proposed tax filing positions including in respect of the conversion to a corporate entity that may be the subject of review by taxation authorities. Therefore, it is possible that additional taxes could be payable by Ag Growth and the ultimate value of Ag Growth's income tax assets and liabilities could change in the future and that changes to these amounts could have a material effect on these consolidated financial statements.

There are no income tax consequences attached to the payment of dividends in either 2011 or 2010 by the Company to its shareholders.

17. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT

(a) Management of risks arising from financial instruments

Ag Growth's principal financial liabilities, other than derivatives, comprise loans and borrowings and trade and other payables. The main purpose of these financial liabilities is to finance the Company's operations and to provide guarantees to support its operations. The Company has deposits, trade and other receivables and cash and short-term deposits that are derived directly from its operations. The Company also holds an available-for-sale investment and enters into derivative transactions.

The Company's activities expose it to a variety of financial risks: market risk (including foreign exchange and interest rate), credit risk and liquidity risk. The Company's overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Company's financial performance. The Company uses derivative financial instruments to mitigate certain risk exposures. The Company does not purchase any derivative financial instruments for speculative purposes. Risk management is the responsibility of the corporate finance function, which has the appropriate skills, experience and supervision. The Company's domestic and foreign operations along with the corporate finance function identify, evaluate and, where appropriate, mitigate financial risks. Material risks are monitored and are regularly discussed with the Audit Committee of the Board of Directors. The Audit Committee reviews and monitors the Company's financial risk-taking activities and the policies and procedures that were implemented to ensure that financial risks are identified, measured and managed in accordance with Company policies.

The risks associated with the Company's financial instruments are as follows:

Market risk

Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Components of market risk to which Ag Growth is exposed are discussed below. Financial instruments affected by market risk include trade accounts receivable and payable, available-for-sale investment and derivative financial instruments.

The sensitivity analyses in the following sections relate to the position as at June 30, 2011, December 31, 2010 and January 1, 2010.

The sensitivity analyses have been prepared on the basis that the amount of net debt, the ratio of fixed to floating interest rates of the debt and derivatives and the proportion of financial instruments in foreign currencies are all constant. The analyses exclude the impact of movements in market variables on the carrying value of provisions and on the non-financial assets and liabilities of foreign operations.

The following assumptions have been made in calculating the sensitivity analyses:


--  The interim condensed consolidated statements of financial position
    sensitivity relate to derivatives. 
--  The sensitivity of the relevant interim condensed consolidated
    statements of income item is the effect of the assumed changes in
    respective market risks. This is based on the financial assets and
    financial liabilities held at June 30, 2011 and December 31, 2010,
    including the effect of hedge accounting. 
--  The sensitivity of equity is calculated by considering the effect of any
    associated cash flow hedges at June 30, 2011 for the effects of the
    assumed underlying changes. 

Foreign currency risk

The objective of the Company's foreign exchange risk management activities is to minimize transaction exposures and the resulting volatility of the Company's earnings, subject to liquidity restrictions, by entering into foreign exchange forward contracts. Foreign currency risk is created by fluctuations in the fair value or cash flows of financial instruments due to changes in foreign exchange rates and exposure.

A significant part of the Company's sales are transacted in U.S. dollars and as a result fluctuations in the rate of exchange between the U.S. and Canadian dollar can have a significant effect on the Company's cash flows and reported results. To mitigate exposure to the fluctuating rate of exchange, Ag Growth enters into foreign exchange forward contracts and denominates a portion of its debt in U.S. dollars. As at June 30, 2011, Ag Growth's U.S. dollar denominated debt totalled U.S. $25.0 million (2010 - $25.0 million) and the Company has entered into the following foreign exchange forward contracts to sell U.S. dollars in order to hedge its foreign exchange risk:


Settlement dates                                   Face value   Average rate
                                                       U.S. $         Cdn. $
                                              ------------------------------

July - November 2011                                   25,000          $1.08
January - December 2012                                12,000          $0.99
                                              ------------------------------
                                              ------------------------------

The Company enters into foreign exchange forward contracts to mitigate foreign currency risk relating to certain cash flow exposures. The hedged transactions are expected to occur within a maximum 24-month period. The Company's foreign exchange forward contracts reduce the Company's risk from exchange movements because gains and losses on such contracts offset losses and gains on transactions being hedged. The Company's exposure to foreign currency changes for all other currencies is not material.

Ag Growth's sales denominated in U.S. dollars for the six-month period ended June 30, 2011 were U.S. $105.6 million, and the total of its cost of goods sold and its selling, general and administrative expenses denominated in that currency were U.S. $63.8 million. Accordingly, a 10% increase or decrease in the value of the U.S. dollar relative to its Canadian counterpart would result in a $10.6 million increase or decrease in sales and a total increase or decrease of $6.4 million in its cost of goods sold and its selling, general and administrative expenses. In relation to Ag Growth's foreign exchange hedging contracts, a 10% increase or decrease in the value of the U.S. dollar relative to its Canadian counterpart would result in an increase or decrease in the foreign exchange gain of $1.9 million and an increase or decrease to other comprehensive income of $3.6 million.

The counterparty to the contracts is a multinational commercial bank and therefore credit risk of counterparty non-performance is remote. Realized gains or losses are included in net income for the period and for the three-month and six-month periods ended June 30, 2011 the Company realized a gain on its foreign exchange contracts of $1,736 and $2,534 (2010 - $2,869 and $3,833).

The open foreign exchange forward contracts as at June 30, 2011 are as follows:



    Notional amount of                                                      
         currency sold   Contract amount   Cdn $ equivalent  Unrealized gain
                U.S. $                 $                  $                $
----------------------------------------------------------------------------
                37,000            1.0531             38,965            3,088
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The terms of the foreign exchange forward contracts have been negotiated to match the terms of the commitments. There were no highly probable transactions for which hedge accounting has been claimed that have not occurred and no significant element of hedge ineffectiveness requiring recognition in the unaudited interim condensed consolidated statements of income.

The cash flow hedges of the expected future sales were assessed to be highly effective and a net unrealized gain of $3,088, with a deferred tax liability of $863 relating to the hedging instruments, is included in other comprehensive income.

Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Furthermore, as Ag Growth regularly reviews the denomination of its borrowings, the Company is subject to changes in interest rates that are linked to the currency of denomination of the debt. Ag Growth's Series A secured notes and convertible unsecured subordinated debentures outstanding at June 30, 2011, December 31, 2010 and January 1, 2010 are at a fixed rate of interest. As such, the Company is not currently exposed to interest rate risk.

Credit risk

Credit risk is the risk that a customer will fail to perform an obligation or fail to pay amounts due, causing a financial loss. A substantial portion of Ag Growth's accounts receivable are with customers in the agriculture industry and are subject to normal industry credit risks. This credit exposure is mitigated through the use of credit practices that limit transactions according to the customer's credit quality and due to the accounts receivable being spread over a large number of customers. Ag Growth establishes a reasonable allowance for non-collectible amounts with this allowance netted against the accounts receivable on the interim condensed consolidated statements of financial position.

Accounts receivable and long-term receivables are subject to credit risk exposure and the carrying values reflect management's assessment of the associated maximum exposure to such credit risk. The Company regularly monitors customers for changes in credit risk. Trade receivables from international customers are often insured for events of non-payment through third-party export insurance. In cases where the credit quality of a customer does not meet the Company's requirements, a cash deposit is received before goods are shipped.

At June 30, 2011, the Company had four customers (December 31, 2010 - two customers, January 1, 2010 - four customers) that accounted for approximately 26% (December 31, 2010 - 30%, January 1, 2010 - 32%) of all receivables owing. The requirement for an impairment is analyzed at each reporting date on an individual basis for major customers. Additionally, a large number of minor receivables are grouped into homogeneous groups and assessed for impairment collectively. The calculation is based on actual incurred historical data. The Company does not hold collateral as security.

The Company does not believe that any single customer group represents a significant concentration of credit risk.

Liquidity risk

Liquidity risk is the risk that Ag Growth will encounter difficulties in meeting its financial liability obligations. Ag Growth manages its liquidity risk through cash and debt management. In managing liquidity risk, Ag Growth has access to committed short and long-term debt facilities as well as to equity markets, the availability of which is dependent on market conditions. Ag Growth believes it has sufficient funding through the use of these facilities to meet foreseeable borrowing requirements.

The table below summarizes the undiscounted contractual payments of the Company's financial liabilities as at June 30, 2011 and December 31, 2010:


                                 0 to 6   6 - 12  12 - 24     2 - 4  After 4
June 30, 2011            Total   months   months   months     years    years
                             $        $        $        $         $        $
                    --------------------------------------------------------

Bank debt (includes                                                         
 interest)              32,874      828      827    1,647     3,279   26,293
Trade and other                                                             
 payables               29,709   29,709        -        -         -        -
Finance lease                                                               
 obligations               315      251       64        -         -        -
Dividend payable         2,509    2,509        -        -         -        -
Convertible                                                                 
 unsecured                                                                  
 subordinated                                                               
 debentures                                                                 
 (includes interest)   143,032    4,021    4,021    8,042   126,948        -
Acquisition price,                                                          
 transaction and                                                            
 financing costs                                                            
 payable                 1,214    1,214        -        -         -        -
Bank indebtedness        2,174    2,174        -        -         -        -
                    --------------------------------------------------------
Total financial                                                             
 liability payments    211,827   40,706    4,912    9,689   130,227   26,293
                    --------------------------------------------------------
                    --------------------------------------------------------

(b) Fair value

Set out below is a comparison by class of the carrying amounts and fair values of the Company's financial instruments that are carried in the interim condensed consolidated financial statements:


                         June 30, 2011   December 31, 2010  January 1, 2010 
                      ------------------------------------------------------
                       Carrying     Fair Carrying     Fair Carrying     Fair
                         amount    value   amount    value   amount    value
                              $        $        $        $        $        $
                      ------------------------------------------------------

Financial assets                                                            
Held-for-trading                                                            
    Cash and cash                                                           
     equivalents              -        -   34,981   34,981  109,094  109,094
    Cash held in trust    1,214    1,214    1,817    1,817        -        -
    Restricted cash         839      839      865      865        -        -
    Derivative                                                              
     instruments          3,088    3,088    4,200    4,200    9,500    9,500
Available-for-sale                                                          
 equity investments       2,800    2,800    2,000    2,000    2,000    2,000
Loans and receivables                                                       
    Accounts                                                                
     receivable          61,074   61,074   38,535   38,535   25,072   25,072

Financial liabilities                                                       
Bank indebtedness         2,174    2,174        -        -        -        -
Other financial                                                             
 liabilities                                                                
    Interest-bearing                                                        
     loans and 
     borrowings          24,130   27,386   25,204   28,171   26,212   26,338
    Trade and other                                                         
     payables            29,709   29,709   24,565   24,565   13,930   13,930
    Finance lease                                                           
     obligations            315      315      570      570        -        -
    Dividends payable     2,509    2,509    2,509    2,509    2,224    2,224
Acquisition price,                                                          
 transaction and                                                            
 financing costs                                                            
 payable                  1,214    1,214   11,994   11,994    1,028    1,028
Convertible unsecured                                                       
 subordinated                                                               
 debentures             106,092  116,205  105,140  116,231  103,107  106,400
                      ------------------------------------------------------
                      ------------------------------------------------------

The fair values of the financial assets and financial liabilities are included at the amounts at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.

The following methods and assumptions were used to estimate the fair values:


--  Cash and cash equivalents, cash held in trust, restricted cash, accounts
    receivable, accounts payable and other current liabilities approximate
    their carrying amounts largely due to the short-term maturities of these
    financial instruments. 

--  Fair value of quoted notes and bonds is based on price quotations at the
    reporting date. The fair value of unquoted instruments, loans from banks
    and other financial liabilities, obligations under finance leases, as
    well as other non-current financial liabilities is estimated by
    discounting future cash flows using rates currently available for debt
    on similar terms, credit risk and remaining maturities. 

--  The fair value of the available-for-sale financial assets was estimated
    using the common share price from recently traded market transactions. 

--  The Company enters into derivative financial instruments with financial
    institutions with investment grade credit ratings. Derivatives valued
    using valuation techniques with market observable inputs are mainly
    foreign exchange forward contracts and one option embedded in a
    convertible debt agreement. The most frequently applied valuation
    techniques include forward pricing, using present value calculations.
    The models incorporate various inputs including the credit quality of
    counterparties and foreign exchange spot and forward rates. 

(c) Fair value ("FV") hierarchy

Ag Growth uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

Level 1

The fair value measurements are classified as Level 1 in the FV hierarchy if the fair value is determined using quoted, unadjusted market prices for identical assets or liabilities.

Level 2

Fair value measurements which require inputs other than quoted prices in Level 1, and for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly, are classified as Level 2 in the FV hierarchy.

Level 3

Fair value measurements which require unobservable market data or use statistical techniques to derive forward curves from observable market data and unobservable inputs are classified as Level 3 in the FV hierarchy.

The FV hierarchy of financial instruments measured at fair value on the interim condensed consolidated statements of financial position is as follows:


                             June 30, 2011            December 31, 2010     
                      ------------------------------------------------------
                        Level 1  Level 2  Level 3  Level 1  Level 2  Level 3
                              $        $        $        $        $        $
                      ------------------------------------------------------

Financial assets                                                            
Cash and cash                                                               
 equivalents                  -        -        -   34,981        -        -
Cash held in trust        1,214        -        -    1,817        -        -
Derivative instruments        -    3,088        -        -    4,200        -
Restricted cash             839        -        -      865        -        -
Available-for-sale                                                          
 equity investment            -        -    2,800        -        -    2,000
Bank indebtedness             -    2,174        -        -        -        -
                      ------------------------------------------------------
                      ------------------------------------------------------

During the reporting periods ended June 30, 2011 and December 31, 2010, there were no transfers between Level 1 and Level 2 fair value measurements.

At June 30, 2011, Ag Growth has $839 of restricted cash which is classified as a current asset. The restricted cash represents advances to Ag Growth as collateral for a receivable from an end user of Ag Growth products. The funds will be repaid when the related receivable is collected.

The Company's available for sale equity investment is carried at fair value. The fair value is estimated using the common share price from recently traded market transactions. During the current period, there were no traded market transactions and as such no change in the fair value measurement of the investment was recorded.

Interest from financial instruments is recognized in finance costs and finance income. Foreign currency and impairment and impairment reversal impacts for loans and receivables are reflected in other income (expense).

18. CAPITAL DISCLOSURE AND MANAGEMENT

Ag Growth's capital structure is comprised of shareholders' equity and long-term debt. Ag Growth's objectives when managing its capital structure are to maintain and preserve Ag Growth's access to capital markets, continue its ability to meet its financial obligations, including the payment of dividends, and finance organic growth and acquisitions.

The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. The Company's capital management objectives have remained unchanged from the prior year. The Company is not subject to any externally imposed capital requirements other than financial covenants in its credit facilities and as at June 30, 2011 and December 31, 2010, all of these covenants were complied with.

Ag Growth monitors its capital structure using non-IFRS financial metrics including net debt to EBITDA for the immediately preceding 12-month period and net debt to shareholders' equity. Net debt includes long-term debt plus the liability component of Debentures, cash and cash equivalents and bank indebtedness.

Ag Growth's optimal capital structure targets to maintain its net debt to EBITDA ratio at levels below 2.5, after taking into consideration the impacts of industry cyclicality and acquisitions. The table below calculates the ratio based on EBITDA achieved in the previous 12 months:


                                                 December 31,     January 1,
                                 June 30, 2011           2010           2010
                                             $              $              $
                               ---------------------------------------------

Net debt                               131,945         94,677         19,416
EBITDA                                  67,272         65,763         60,680
Ratio                               1.96 times     1.44 times     0.32 times
                               ---------------------------------------------
                               ---------------------------------------------

Ag Growth's optimal capital structure targets to maintain its net debt to shareholders' equity ratio at levels below 1.0, after taking into consideration the impacts of industry cyclicality and acquisitions:


                                                 December 31,     January 1,
                                 June 30, 2011           2010           2010
                                             $              $              $
                               ---------------------------------------------

Net debt                               131,945         94,677         19,416
Shareholders' equity                   207,866        210,294        231,395
Ratio                               0.63 times     0.45 times     0.08 times
                               ---------------------------------------------
                               ---------------------------------------------

19. EARNINGS PER SHARE

Net earnings per share are based on the consolidated net earnings for the period divided by the weighted average number of shares outstanding during the period. Diluted earnings per share are computed in accordance with the treasury stock method and based on the weighted average number of shares and dilutive share equivalents.

The following reflects the income and share data used in the basic and diluted earnings per share computations:


                                   Three-month              Six-month       
                                  period ended            period ended      
                            ------------------------------------------------
                                June 30,    June 30,    June 30,    June 30,
                                    2011        2010        2011        2010
                                       $           $           $           $
                            ------------------------------------------------

Net profit attributable to                                                  
 shareholders for basic and                                                 
 diluted earnings per share       11,994      11,630      16,700      15,981
Add back: interest expense                                                  
 on convertible debentures         1,766       1,739           -           -
                            ------------------------------------------------
Numerator for diluted                                                       
 earnings per share               13,760      13,369      16,700      15,981
                            ------------------------------------------------
                            ------------------------------------------------

Basic weighted average                                                      
 number of shares             12,334,110  12,884,316  12,364,828  12,991,847
Dilutive effect of DDCP           15,137       9,852      14,579       9,139
Dilutive effect of LTIP          151,375     182,632     119,932     108,857
Dilutive effect of                                                          
 convertible debenture         2,554,136   2,556,692           -           -
                            ------------------------------------------------
Diluted weighted average                                                    
 number of shares             15,054,758  15,633,492  12,499,339  13,109,843
                            ------------------------------------------------
                            ------------------------------------------------

Basic earnings per share            0.97        0.90        1.35        1.23
Diluted earnings per share          0.91        0.86        1.34        1.22
                            ------------------------------------------------
                            ------------------------------------------------

There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of completion of these interim condensed consolidated financial statements.

In the six-month periods ending June 30, 2011 and 2010, the convertible unsecured subordinated debentures were excluded from the calculation of the above diluted net earnings per share because their effect was anti-dilutive.

20. REPORTABLE BUSINESS SEGMENT

The Company is managed as a single business segment that manufactures and distributes grain handling, storage and conditioning equipment. The Company determines and presents business segments based on the information that internally is provided to the CEO, who is Ag Growth's Chief Operating Decision Maker ("CODM"). When making resource allocation decisions, the CODM evaluates the operating results of the consolidated entity.

All segment revenue is derived wholly from external customers and as the Company has a single reportable segment, inter-segment revenue is zero.


                                                       Property, plant and  
                                                     equipment, goodwill and
                             Revenues                   intangible assets   
             ---------------------------------------------------------------
                  Three-month          Six-month                            
                 period ended        period ended         
             ----------------------------------------     As at        As at
             June 30,  June 30,   June 30,   June 30,  June 30, December 31,
                 2011      2010       2011       2010      2011         2010
                    $         $         $           $         $            $
             ---------------------------------------------------------------

Canada         19,247    19,106    35,173      33,347   139,780      146,108
United States  54,475    51,060    94,319      84,257    62,955       57,166
International  14,389     6,561    25,684      11,551    11,049       10,448
             ---------------------------------------------------------------
               88,111    76,727   155,176     129,155   213,784      213,722
             ---------------------------------------------------------------
             ---------------------------------------------------------------

The revenue information above is based on the location of the customer. The Company has no single customer that represents 10% or more of the Company's revenues.

21. COMMITMENTS AND CONTINGENCIES

(a) Letters of credit

As at June 30, 2011, the Company has outstanding letters of credit in the amount of $155 (December 31, 2010 - $642).

(b) Operating leases

The Company leases office and manufacturing equipment, warehouse facilities and vehicles under operating leases with minimum aggregate rent payable in the future as follows:


                                                                           $
                                                            ----------------

Within one year                                                          449
After one year but not more than five years                            1,278
More than five years                                                     208
                                                            ----------------
                                                                       1,935
                                                            ----------------
                                                            ----------------

These leases have a life of between one and six years with no renewal options included in the contracts.

During the three-month period ended June 30, 2011, the Company recognized an expense of $231 (2010 - $351) for leasing contracts. This amount relates only to minimum lease payments.

(c) Legal actions

The Company is involved in various legal matters arising in the ordinary course of business. The resolution of these matters is not expected to have a material adverse effect on the Company's financial position, results of operations or cash flows.

22. COMPARATIVE FIGURES

Certain of the comparative figures have been reclassified to conform to the current period's presentation.

23. EXPLANATION OF TRANSITION TO IFRS

For all periods to December 31, 2010, the Company prepared its consolidated financial statements in accordance with Canadian GAAP. The interim consolidated financial statements for the three-month period ended March 31, 2011 were the first interim consolidated financial statements that complied with IFRS standards in effect as at March 31, 2011. This note explains the principal adjustments made by the Company in restating its previous Canadian GAAP consolidated statement of shareholders' equity as at June 30, 2010 and its previously published Canadian GAAP consolidated income statements and comprehensive income for the three-month and six-month periods ended June 30, 2010.

Elected exemptions from full retrospective application

In preparing the interim consolidated financial statements as at March 31, 2011 in accordance with IFRS 1 and the interim condensed consolidated financial statements in accordance with IAS 34 the Company has applied certain of the optional exemptions from full retrospective application of IFRS. The optional exemptions applied by the Company are described below.

(a) Business combinations

The Company has applied the business combinations exemption in IFRS 1 to not apply IFRS 3 retrospectively to past business combinations. Accordingly, the Company has not restated business combinations that took place prior to the transition date.

(b) Share-based payments

The Company has elected to retrospectively apply the provisions of IFRS 2 Share-based Payments ("IFRS 2") only to (i) equity instruments granted after November 7, 2002 that are unvested at the transition date, and (ii) liability instruments arising from share-based payment transactions that are outstanding at the date of transition.

(c) Foreign exchange

Cumulative currency translation differences for all foreign operations are deemed to be zero as at January 1, 2010.

(d) Borrowing costs

The Company has elected only to capitalize borrowing costs relating to qualifying assets for which the commencement date for capitalization is on or after the date of transition.

Reconciliation of equity as reported under Canadian GAAP and IFRS

The following is a reconciliation of the Company's equity reported in accordance with Canadian GAAP to its equity in accordance with IFRS at June 30, 2010:


                                                           Accumul-
                                                               ated        
                               Equity                         other        
                            component                       compre-        
                    Common         of Contributed Retained  hensive        
                    shares debentures     surplus earnings   income   Total
               Note      $          $           $        $        $       $
               ------------------------------------------------------------

As reported                                                                
 under Canadian                                                            
 GAAP - June 30,                                                           
 2010              150,048          -      11,279    3,716    2,916 167,959
Reclassific-
 ations                                                                    
  Long-term                                                                
   incentive                                                               
   plan                                                                    
   liability      1      -          -         706        -        -     706
  Equity                                                                   
   component of                                                            
   debenture      9      -      7,146      (7,146)       -        -       -
Differences                                                                
 increasing                                                                 
 (decreasing)                                                               
 reported                                                                   
 amounts:                                                                   
 DDCP             1      -          -         226     (226)       -       -
 SAIP             1      -          -           -       11        -      11
 Deferred                                                                 
  income taxes                                                             
  - convertible                                                            
  debentures     6b      -     (2,041)          -      236        -  (1,805)
 Transaction                                                               
  costs           2      -          -           -     (779)       -    (779)
 Translation of                                                            
  foreign                                                                  
  operations      3      -          -           -     (427)     427       -
 Deferred                                                                  
  income taxes                                                             
  - deferred                                                               
  credit         6a      -          -           -   43,904        -  43,904
 Deferred                                                                  
  income taxes                                                             
  - temporary                                                              
  differences     8      -          -           -   (3,160)     (36) (3,196)
 Revenue                                                                   
  recognition     5      -          -           -    1,079        -   1,079
 Hedge                                                                     
  accounting      4      -          -           -     (197)     197       -
Property, plant                                                            
 and equipment    8      -          -           -   10,565      301  10,866
Inventory         7      -          -           -      392        -     392
                   ---------------------------------------------------------
As reported                                                                 
 under IFRS -                                                               
 June 30, 2010     150,048      5,105       5,065   55,114    3,805 219,137
                   ---------------------------------------------------------
                   ---------------------------------------------------------

Notes to the reconciliations:

1. Share-Based Payments

The Company elected to retrospectively apply the provisions of IFRS 2 only to equity-settled awards that were unvested at the transition date and liability awards outstanding at the transition date.

The differences impacting the interim condensed consolidated statement of changes in equity at June 30, 2010:


--  LTIP was classified under Canadian GAAP as a liability plan, whereas
    under IFRS 2 due to the final settlement of the plan with treasury
    shares acquired by the administrator for the benefit of the management
    members, the plan qualifies as an equity-settled plan. Therefore, this
    change resulted in a reclassification of the balances from liability
    into shareholders' equity. As at June 30, 2010, the impact of this
    adjustment was to decrease the long-term incentive plan liability and
    increase contributed surplus by $706. 
--  Awards with graded vesting provisions are treated as a single award for
    both measurement and recognition purposes under Canadian GAAP. IFRS 2
    requires such awards to be treated as a series of individual awards,
    with compensation measured and recognized separately for each tranche of
    options within a grant that has a different vesting date. This impacts
    the LTIP and the SAIP of the Company. As at June 30, 2010, the impact of
    this adjustment was to decrease the share award incentive plan liability
    and increase retained earnings by $11. 
--  For the DDCP, the share-based remuneration vests under IFRS 2 directly
    in the respective service period, whereas under Canadian GAAP the
    expense was allocated over the deferred compensation period of three
    years. As at June 30, 2010, the impact of this adjustment was to
    decrease retained earnings and increase contributed surplus by $226. 

2. Transaction Costs

In accordance with IFRS 3 (revised in 2008) transaction costs incurred in the process of acquiring a business cannot be capitalized, but have to be immediately expensed. Under Canadian GAAP these transaction costs were capitalized by Ag Growth. There is no impact in the first quarter of 2010 on the goodwill balance, as all business combinations in 2010 were completed subsequent to March 31, 2010. Transaction costs related to business combinations in the amount of $779 were recorded as an IFRS adjustment as at June 30, 2010, resulting in a decrease to retained earnings and an offsetting decrease to prepaid expenses of $150 and goodwill of $629.

3. Translation of Foreign Operations

Under Canadian GAAP, until December 31, 2009 the Company had classified all business units as integrated operations and therefore used the Canadian dollar as the functional currency for all foreign entities. As at January 1, 2010, the Company determined that its foreign operations Hi Roller, Union Iron and Applegate had more characteristics of self-sustaining operations than integrated foreign operations. Accordingly, the Company adopted the current rate method of foreign currency translation for these foreign operations, resulting in using the local currency of these foreign operations as their functional currency under Canadian GAAP, applied on a prospective basis. In accordance with IAS 21, for IFRS purposes every entity of the Company has to be individually reviewed for the determination of its functional currency and this has to be performed retrospectively as of the IFRS transition date. Therefore, for IFRS purposes, Hi Roller, Union Iron and Applegate were classified as U.S. dollar functional currency entities as of the transition date of January 1, 2010, whereas under Canadian GAAP they were still Canadian dollar functional currency entities. This change in the functional currency had the following impacts on the Company's assets, liabilities and retained earnings:

(1) Goodwill decrease of balance by $150

(2) Property, plant and equipment increase of balance by $177

(3) Intangible assets decrease of balance by $582

(4) Deferred tax liability decrease of balance by $128

(5) Retained earnings decrease of balance by $427

For the elective exemptions from the retrospective application of IFRS 1 the Company elected to recognize the cumulative translation adjustment existing at the transition date directly into retained earnings. Therefore all the above listed impacts were directly recorded in the Company's retained earnings.

4. Hedge Accounting

Upon the adoption of IFRS, the Company redesignated its foreign currency hedge contracts. The adjustment had no impact as at the transition date. The adjustment resulted in an increase to accumulated other comprehensive income and a decrease to retained earnings on June 30, 2010 of $197.

5. Revenue Recognition

Under Canadian GAAP all product deliveries were recorded when the risk of ownership was transferred. Similarly, for IFRS purposes, the majority of the revenues of Ag Growth are realized at the time of transfer of the risk of ownership. However, the Company has classified certain of its customer contracts as construction contracts resulting in the earlier recognition of revenues and gross margin with the application of the percentage of completion method of accounting.

6. Income Taxes

The accounting for income taxes under IAS 12 resulted in the following differences for the Company:

a. In 2009, the Company converted from an income fund into a corporate entity under a plan of arrangement with a previously unrelated company. As a result of this transaction, the Company received tax attributes for which deferred tax assets in the amount of $69,800 were recorded. The difference between this deferred tax asset and the purchase price of $13,500 for shares of the previously unrelated company was recorded under Canadian GAAP as a deferred credit. This deferred credit had a carrying amount under Canadian GAAP of $43,904 as at June 30, 2010. For IFRS purposes, the difference between the tax benefits and the purchase price cannot be deferred, but the benefit from the higher fair value of the tax benefits has to be retrospectively recorded as of the transition date. The adjustment results in an increase to retained earnings.

b. IFRS requires the bifurcation of convertible debt instruments into a liability and an equity component. IFRS further requires the recognition of a temporary difference based on the difference between the carrying amount of the liability at issuance and its underlying tax basis. All changes in the initial temporary difference for the liability component of the convertible debt are recognized in the statement of income.

Under Canadian GAAP the tax basis of the liability component of the convertible debenture is considered to be the same as its carrying amount, and therefore the recognition of a temporary difference is not required. This difference between IFRS and Canadian GAAP results in a decrease to the equity component of the convertible debenture of $2,041.

7. Inventories

Due to the remeasurement of property, plant and equipment and changes to the depreciation expense, Ag Growth was required to adjust the overhead allocation on the valuation of its inventory by $392.

8. Property, Plant and Equipment

For all items of property, plant and equipment, the provisions of IAS 16 were retrospectively applied. The assessment and annual review criteria of useful lives and depreciation methods are more explicit in IFRS, which required Ag Growth to adjust certain carrying amounts of its assets. Furthermore, the componentization requirements are more explicit in IFRS. Differences relating to the level of componentization, depreciation methods and useful lives resulted in the carrying value of these assets at June 30, 2010 to increase from the recorded amount under Canadian GAAP by $10,866. The related tax impact of the change in temporary differences resulted in additional deferred tax liability of $3,196 at June 30, 2010.

9. Reclassifications

Certain balances have been reclassified between accounts to conform to IFRS.

Reconciliation of profit and loss for the three-month and six-month periods ended June 30, 2010.


                                                 Three-month      Six-month 
                                                period ended   period ended 
                                                    June 30,       June 30, 
                                                        2010           2010 
                                          Note             $              $ 
                                              ------------------------------

Net income reported under Canadian GAAP               12,443         18,868 
  Differences increasing (decreasing) net                                   
   income                                                                   
    Depreciation expense                     1           506            854 
    Cost of sales                            1            46              4 
    Deferred income tax                                                     
      Deferred credit                       2a        (3,224)        (4,002)
      Convertible debentures                2b            96            179 
      Temporary differences                 2c           933            (67)
    Cost of sales                            3            10             13 
    General and administrative               4          (402)          (693)
    General and administrative               5           (28)           (57)
    Gain(loss)on foreign exchange            6           171           (197)
    Revenue recognition                      7         1,079          1,079 
                                              ------------------------------
Net profit recorded under IFRS                        11,630         15,981 
                                              ------------------------------
                                              ------------------------------

1. The componentization of property, plant, equipment and change in useful lives and depreciation methods resulted in a decrease to depreciation expense of $506 and $854, and an increase to the gain on sale of property, plant and equipment of $46 and $4, respectively.

2. a. The Company converted from an income fund into a corporate entity in 2009 under a plan of arrangement that resulted in the Company receiving tax attributes and recording a deferred tax asset of $69,800 and a related deferred credit of $56,300. Under IFRS, deferred credits are generally not recognized, which ultimately results in an increase in the Company's non-cash future tax expense of $3,224 for the three-month and $4,002 for the six-month periods ended June 30, 2010.

b. Under IFRS, a temporary difference is recorded related to the convertible debenture resulting in the recognition of a deferred tax liability on transition. Subsequent adjustment to the deferred tax liability resulted in a decrease to deferred income tax expense of $96 for the three-month and $179 for the six-month periods ended June 30, 2010.

c. The temporary differences arising from changes in carrying values of inventories and property, plant and equipment on transition to IFRS result in a decrease to deferred income tax expense of $933 for the three-month period ended June 30, 2010 and an increase to the deferred income tax expense of $67 for the six-month period ended June 30, 2010.

3. The change in the Company's depreciation method impacted the Company's inventory overhead rate which resulted in a change in inventory values and change in inventories expensed through cost of goods sold.

4. Under IFRS, transaction costs incurred in the process of acquiring a business cannot be capitalized, but instead have to be immediately expensed resulting in an increase to selling, general and administrative expense of $402 for three-month and $693 for the six-month periods ended June 30, 2010.

5. Under IFRS, the calculation of the expense related to equity-settled compensation plans differs to reflect changes in the measurement and recognition of equity-settled awards that were outstanding and unvested at the transition date and those that were granted during the period. The impact of this adjustment was to increase the DDCP expense by $28 for the three-month and $57 for the six-month periods ended June 30, 2010 and to decrease the SAIP expense by $1K for the three-month and $2K for the six-month periods ended June 30, 2010.

6. Upon the adoption of IFRS, the Company redesignated its foreign currency hedge contracts which resulted in a gain on foreign exchange of $171 for the three-month and a loss of $197 for the six-month periods ended June 30, 2010.

7. Under IFRS, the Company has identified a limited number of contracts as construction contracts and has recognized revenue based on the percentage of completion methodology which typically results in earlier recognition of revenues and costs. As a result, certain revenues and costs denominated in foreign currencies were recognized in different periods compared to Canadian GAAP and were translated to Canadian dollars at different rates of foreign exchange.

Reconciliation of comprehensive income as reported under Canadian GAAP and IFRS

The following is a reconciliation of the Company's comprehensive income reported in accordance with Canadian GAAP to its comprehensive income in accordance with IFRS for the three-month and six-month periods ended June 30, 2010.


                                                 Three-month      Six-month 
                                                period ended   period ended 
                                                    June 30,       June 30, 
                                          Note          2010           2010 
                                                           $              $ 
                                              ------------------------------

Comprehensive income as reported under                                      
 Canadian GAAP                                        10,808         16,194 
                                              ------------------------------
Differences (decreasing) increasing                                         
 reported amounts                                                           
  Differences in net income                (i)          (813)        (2,887)
  Change in other comprehensive income                                      
    Foreign currency translation          (ii)           (95)           889 
                                              ------------------------------
                                                        (908)        (1,998)
                                              ------------------------------
Comprehensive income as reported under                                      
 IFRS                                                  9,900         14,196 
                                              ------------------------------
                                              ------------------------------

(i) Differences in net income

Reflects the differences in net income between Canadian GAAP and IFRS as described in note 23.

(ii) Foreign currency translation

Assets and liabilities of foreign operations having a functional currency other than the Canadian dollar are translated at the rate of exchange prevailing at the reporting date and revenues and expenses at average rates during the period. The increase in property, plant and equipment related to measurement at their revalued amounts creates increased foreign currency translation adjustments recorded in other comprehensive income.

Contact Information

  • Ag Growth International Inc.
    Steve Sommerfeld
    Investor Relations
    204-489-1855
    steve@aggrowth.com