FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

(Mark One)      Quarterly Report Pursuant to Section 13 or 15(d) of
   |X|                 the Securities Exchange Act of 1934

                  For The Quarterly Period Ended March 31, 2007

                                       or

   |_|         Transition Report Pursuant to Section 13 or 15(d) of
                       the Securities Exchange Act of 1934

           For the transition period from ____________ to ____________

                         Commission File Number 1-13648

                               BALCHEM CORPORATION
             (Exact name of registrant as specified in its charter)

           Maryland                                      13-2578432
------------------------------------     ---------------------------------------
(State or other jurisdiction of          (I.R.S. Employer Identification Number)
incorporation or organization)

P.O. Box 600 New Hampton, New York                         10958
------------------------------------     ---------------------------------------
(Address of principal executive offices)                 (Zip Code)

                                  845-326-5600
                         -------------------------------
               Registrant's telephone number, including area code:

Indicate  by a check  mark  whether  the  registrant  (1) has filed all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant  was  required  to file such  reports),  and (2) has been  subject to
filing requirements for the past 90 days.

                          Yes |X|                No |_|

Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated  filer, or a  non-accelerated  filer. See definition of "accelerated
filer and large  accelerated  filer" in Rule 12b-2 of the Exchange  Act.  (Check
one):

Large accelerated filer |_|   Accelerated filer |X|    Non-accelerated filer |_|

Indicate by check mark whether the  Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
                                                                  Yes |_| No |X|

As of May 3, 2007 the registrant had 17,838,764 shares of its Common Stock, $.06
2/3 par value, outstanding.

<page>

Part 1 - Financial Information
Item 1.  Financial Statements

<table>
<caption>
                                                 BALCHEM CORPORATION
                                        Condensed Consolidated Balance Sheets
                                    (Dollars in thousands, except per share data)
                                                      Unaudited

                                                                                            March 31,     December 31,
                                         Assets                                               2007           2006
                                         ------                                           ------------   ------------

                                                                                              <c>            <c>

Current assets:
        Cash and cash equivalents                                                         $      3,690   $      5,189
        Accounts receivable                                                                     15,672         11,578
        Inventories                                                                             12,451          9,918
        Prepaid expenses                                                                         1,574          1,754
        Deferred income taxes                                                                      470            416
                                                                                          ------------   ------------
                Total current assets                                                            33,857         28,855

 Property, plant and equipment, net                                                             31,184         31,313

 Goodwill                                                                                       25,244         25,253
 Intangible assets with finite lives, net                                                       36,128          6,912
                                                                                          ------------   ------------
                Total assets                                                              $    126,413   $     92,333
                                                                                          ============   ============


                          Liabilities and Stockholders' Equity
                          ------------------------------------

Current liabilities:
        Trade accounts payable                                                            $      3,138   $      3,010
        Accrued expenses                                                                         2,590          1,827
        Accrued compensation and other benefits                                                    939          1,869
        Customer deposits and other deferred revenue                                               743          1,072
        Current portion of long-term debt                                                        5,800             --
        Dividends payable                                                                           --          1,596
        Income tax payable                                                                       1,759            186
        Other short-term obligations                                                               870             --
                                                                                          ------------   ------------
                Total current liabilities                                                       15,839          9,560

 Long-term debt                                                                                 23,200             --
 Deferred income taxes                                                                           6,513          6,627
 Other long-term obligations                                                                     1,091            784
                                                                                          ------------   ------------
                        Total liabilities                                                       46,643         16,971
                                                                                          ------------   ------------

 Stockholders' equity:
  Preferred stock, $25 par value. Authorized 2,000,000
    shares; none issued and outstanding                                                             --             --
  Common stock, $.0667 par value. Authorized 25,000,000 shares; 17,832,883 shares issued
    and outstanding at March 31, 2007 and 17,733,849 shares issued and outstanding at
    December 31, 2006                                                                              795            788
  Additional paid-in capital                                                                    11,647         10,393
  Retained earnings                                                                             67,138         63,988
  Accumulated other comprehensive income                                                           190            193
                                                                                          ------------   ------------
        Total stockholders' equity                                                              79,770         75,362

                                                                                          ------------   ------------
                        Total liabilities and stockholders' equity                        $    126,413   $     92,333
                                                                                          ============   ============

See accompanying notes to condensed consolidated financial statements.

                                                          2
</table>
<page>

                               BALCHEM CORPORATION
                  Condensed Consolidated Statements of Earnings
                  (Dollars in thousands, except per share data)
                                   (unaudited)

                                                 Three Months Ended
                                                    March 31,
                                               2007            2006
                                           ------------    ------------

Net sales                                  $     27,599    $     24,597

Cost of sales                                    17,858          16,375
                                           ------------    ------------

Gross profit                                      9,741           8,222

Operating expenses:
     Selling expenses                             2,128           1,669
     Research and development expenses              569             526
     General and administrative expenses          1,702           1,558
                                           ------------    ------------
                                                  4,399           3,753

                                           ------------    ------------
Earnings from operations                          5,342           4,469

Other expenses (income):
     Interest (income)                              (45)            (62)
     Interest expense                                84              86
     Other, net                                     (11)             --
                                           ------------    ------------

Earnings before income tax expense                5,314           4,445

     Income tax expense                           1,873           1,587
                                           ------------    ------------

Net earnings                               $      3,441    $      2,858
                                           ============    ============

Net earnings per common share - basic      $       0.19    $       0.16
                                           ============    ============

Net earnings per common share - diluted    $       0.19    $       0.16
                                           ============    ============

See accompanying notes to condensed consolidated financial statements.

                                       3
<page>
<table>
<caption>

                                             BALCHEM CORPORATION
                               Condensed Consolidated Statements of Cash Flows
                                           (Dollars in thousands)
                                                 (unaudited)

                                                                                    Three Months Ended
                                                                                         March 31,
                                                                                   2007            2006
                                                                               ------------    ------------

                                                                                     <c>             <c>

Cash flows from operating activities:
        Net earnings                                                           $      3,441    $      2,858

        Adjustments to reconcile net earnings to
        net cash provided by operating activities:

          Depreciation and amortization                                                 952             787
          Shares issued under employee benefit plans                                    130             117
          Deferred income taxes                                                        (168)             (8)
          Stock compensation expense                                                    392             262
          Gain on sale of equipment                                                     (11)             --
            Changes in assets and liabilities net of effects of acquisition:
               Accounts receivable                                                   (2,244)           (148)
               Inventories                                                             (692)            289
               Prepaid expenses and other current assets                                180             379
               Income taxes                                                           1,573           1,498
               Customer deposits and other deferred revenue                            (329)           (286)
               Accounts payable and accrued expenses                                    (40)         (1,566)
               Other long-term obligations                                               13              17
                                                                               ------------    ------------
                   Net cash provided by operating activities                          3,197           4,199
                                                                               ------------    ------------

Cash flows from investing activities:

          Capital expenditures                                                         (649)           (263)
          Proceeds from sale of property, plant & equipment                              11              --
          Cash paid for intangible assets acquired                                     (116)            (32)
          Acquisition of assets                                                     (32,085)        (17,058)
                                                                               ------------    ------------
                   Net cash used in investing activities                            (32,839)        (17,353)
                                                                               ------------    ------------

Cash flows from financing activities:

          Proceeds from long-term borrowings                                         29,000          10,000
          Principal payments on long-term debt                                           --          (2,750)
          Proceeds from stock options exercised                                         353             206
          Excess tax benefits from stock compensation                                   386              96
          Dividends paid                                                             (1,596)         (1,045)
          Other financing activities                                                     --              (3)
                                                                               ------------    ------------
                   Net cash provided by financing activities                         28,143           6,504
                                                                               ------------    ------------

Decrease in cash and cash equivalents                                                (1,499)         (6,650)

Cash and cash equivalents beginning of period                                         5,189          12,996
                                                                               ------------    ------------
Cash and cash equivalents end of period                                        $      3,690    $      6,346
                                                                               ============    ============

See accompanying notes to condensed consolidated financial statements.

                                                     4
</table>
<page>
<table>
<caption>

                                             BALCHEM CORPORATION
                          Condensed Consolidated Statements of Comprehensive Income
                                           (Dollars in thousands)
                                                 (unaudited)

                                                                                   Three Months Ended
                                                                                       March 31,
                                                                                  2007            2006
                                                                              ------------    ------------

                                                                           <c>             <c>
Net Earnings                                                                  $      3,441    $      2,858

Other comprehensive income, net of tax:

        Unfunded post retirement benefit plan - prior service cost and gain
          amortized during period                                                       (3)             --
                                                                              ------------    ------------

Comprehensive income                                                          $      3,438    $      2,858
                                                                              ============    ============


See accompanying notes to condensed consolidated financial statements.


                                                     5
</table>
<page>

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(All dollar amounts in thousands, except per share data)

NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------

The  condensed  consolidated  financial  statements  presented  herein have been
prepared by the Company in accordance with the accounting  policies described in
its December 31, 2006 consolidated  financial statements,  and should be read in
conjunction with the consolidated  financial  statements and notes, which appear
in our  Annual  Report  on Form  10-K  for the year  ended  December  31,  2006.
References in this report to the "Company" mean Balchem  Corporation  and/or its
subsidiaries, including BCP Ingredients, Inc., Balchem Minerals Corporation, and
Balchem B.V., as the context requires.

In the opinion of management,  the unaudited  condensed  consolidated  financial
statements  furnished in this Form 10-Q include all adjustments  necessary for a
fair  presentation  of the financial  position,  results of operations  and cash
flows for the interim periods  presented.  All such  adjustments are of a normal
recurring  nature.  The condensed  consolidated  financial  statements have been
prepared  in  accordance  with U.S.  generally  accepted  accounting  principles
governing  interim  financial  statements and the  instructions to Form 10-Q and
Article  10 of  Regulation  S-X under the  Securities  Exchange  Act of 1934 and
therefore  do not include  some  information  and notes  necessary to conform to
annual  reporting  requirements.  The results of operations for the three months
ended March 31, 2007 are not  necessarily  indicative of the  operating  results
expected for the full year or any interim period.

NOTE 2 - STOCKHOLDERS' EQUITY
-----------------------------

STOCK-BASED COMPENSATION

On January 1, 2006,  the  Company  adopted  Statement  of  Financial  Accounting
Standards ("SFAS") No. 123 (revised 2004),  "Share Based Payment" ("SFAS 123R"),
which requires all share-based  payments,  including grants of stock options, to
be  recognized in the  statement of earnings as an operating  expense,  based on
their fair values.  SFAS 123R  establishes  the accounting for  transactions  in
which an entity pays for employee services in share-based payment  transactions.
SFAS 123R  eliminates  the  ability  to  account  for  share-based  compensation
transactions  using the intrinsic value method and requires companies to measure
the cost of  employee  services  received  in  exchange  for an award of  equity
instruments  based on the grant-date fair value of the award.  The fair value of
employee share options and similar instruments is estimated using option-pricing
models that take into account the unique  characteristics  of those instruments.
That cost is recognized  over the period during which an employee is required to
provide  service  in  exchange  for the award.  The  Company  adopted  SFAS 123R
effective  January 1, 2006, using the modified  prospective  transition  method.
Under this method,  compensation  cost is recognized  for awards granted and for
awards  modified,  repurchased  or  cancelled  in  the  period  after  adoption.
Compensation  cost is also recognized for the unvested portion of awards granted
prior to adoption over the remaining  requisite  service  period.  The Company's
results  for the  three  months  ended  March 31,  2007 and 2006,  respectively,
reflected the following  compensation cost as a result of adopting SFAS 123R and
such

                                       6
<page>

compensation  cost had the  following  effects  on net  earnings  and  basic and
diluted earnings per share:

--------------------------------------------------------------------------------
                                                 Three Months      Three Months
                                                    Ended             Ended
                                                March 31, 2007    March 31, 2006
--------------------------------------------------------------------------------
Cost of sales                                   $           44    $          27
Operating expenses                                         348              235
Net earnings                                              (269)            (254)
Basic earnings per common share                          (0.02)           (0.01)
Diluted earnings per common share               $        (0.01)   $       (0.01)
--------------------------------------------------------------------------------

As  required  by SFAS  123R,  the  Company  has  made an  estimate  of  expected
forfeitures, based on its historical experience, and is recognizing compensation
cost only for those stock-based compensation awards expected to vest.

Additionally,  since adoption of SFAS 123R, excess tax benefits related to stock
compensation  are  presented as a cash inflow from  financing  activities.  This
change had the effect of decreasing  cash flows from  operating  activities  and
increasing  cash flows from  financing  activities by $386 and $96 for the three
months ended March 31, 2007 and March 31, 2006, respectively.

The Company's stock  incentive plans allow for the granting of restricted  stock
awards and options to purchase  common stock.  Both incentive  stock options and
nonqualified  stock  options can be awarded  under the plans.  No option will be
exercisable for longer than ten years after the date of grant.  The shares to be
issued upon exercise of the outstanding options have been approved, reserved and
are adequate to cover all exercises. As of March 31, 2007, the plans had 725,853
shares available for future awards.  Compensation  expense for stock options and
restricted stock awards is recognized on a straight-line  basis over the vesting
period,  generally  three  years  for stock  options,  four  years for  employee
restricted stock awards,  and seven years for non-employee  director  restricted
stock  awards.  Certain  awards  provide for  accelerated  vesting if there is a
change in control (as defined in the plans) or other qualifying events.

Option activity for the three months ended March 31, 2007 and 2006 is summarized
below:

                                       7
<page>

--------------------------------------------------------------------------------

                                                                      Weighted
                                         Weighted       Aggregate      Average
                                          Average       Intrinsic     Remaining
For the three months                     Exercise         Value      Contractual
ended March 31, 2007     Shares (000s)     Price         ($000s)         Term
--------------------------------------------------------------------------------
Outstanding as of
December 31, 2006              2,170    $      10.13   $     15,168
  Granted                         --              --
  Exercised                     (101)           3.49
  Expired                         --              --
  Forfeited                       (4)          13.65
--------------------------------------------------------------------------------
Outstanding as of              2,065
March 31, 2007                          $      10.45   $     14,920        7.3
================================================================================
Exercisable as of
March 31, 2007                 1,187    $       7.77   $     11,770        6.3
================================================================================


--------------------------------------------------------------------------------

                                                                      Weighted
                                         Weighted       Aggregate      Average
                                          Average       Intrinsic     Remaining
For the three months                     Exercise         Value      Contractual
ended March 31, 2006     Shares (000s)     Price         ($000s)         Term
--------------------------------------------------------------------------------
Outstanding as of
December 31, 2005              2,153    $       8.38   $     10,479
  Granted                         15           15.06
  Exercised                      (37)           5.58
  Expired                         --              --
  Forfeited                       (4)           9.24
--------------------------------------------------------------------------------
Outstanding as of
March 31, 2006                 2,127    $       8.48   $     14,700        7.2
================================================================================
Exercisable as of
March 31, 2006                 1,136    $       6.12   $     10,544        5.8
================================================================================

The fair value of each option  grant is estimated on the date of the grant using
the  Black-Scholes  option-pricing  model with the  following  weighted  average
assumptions:  dividend yields of 0.3% and 0.4%; expected volatilities of 27% and
26%;  risk-free  interest  rates of 4.1% and 3.8%; and expected lives of 3.7 and
4.5 for the three months ended March 31, 2007 and 2006, respectively.

For the three months ended March 31, 2007 and 2006, the Company used a projected
expected  life  for  each  award  granted  based  on  historical  experience  of
employees'  exercise  behavior.  For the three  months  ended March 31, 2007 and
2006,  expected  volatility  is based  on the  Company's  historical  volatility
levels. For the three months ended March 31, 2007 and 2006,  dividend yields are
based on the Company's historical dividend yields.  Risk-free interest rates are
based on the implied  yields  currently  available on U.S.  Treasury zero coupon
issues with a remaining term equal to the expected life.

                                       8
<page>

Other  information  pertaining to option  activity during the three months ended
March 31, 2007 and 2006 was as follows:

--------------------------------------------------------------------------------
                                                             Three Months Ended
                                                                  March 31,
                                                              2007        2006
--------------------------------------------------------------------------------
Weighted-average fair value of options granted              $    N/A    $   3.49
Total intrinsic value of stock options exercised ($000s)    $  1,201    $    320
--------------------------------------------------------------------------------

Non-vested  restricted  stock activity for the three months ended March 31, 2007
and 2006 is summarized below:

--------------------------------------------------------------------------------
                                                                     Weighted
                                                                   Average Grant
                                                                    Date Fair
Three Months ended March 31, 2007                Shares (000s)         Value
--------------------------------------------------------------------------------
Non-vested balance as of December 31, 2006                113       $      16.40
Granted                                                    --                 --
Vested                                                     --                 --
Forfeited                                                  --                 --
Non-vested balance as of March 31, 2007                   113       $      16.40
--------------------------------------------------------------------------------


--------------------------------------------------------------------------------
                                                                     Weighted
                                                                   Average Grant
                                                                    Date Fair
Three Months ended March 31, 2006                Shares (000s)         Value
--------------------------------------------------------------------------------
Non-vested balance as of December 31, 2005                 34      $       13.22
Granted                                                    --                 --
Vested                                                     --                 --
Forfeited                                                  --                 --
Non-vested balance as of March 31, 2006                    34      $       13.22
--------------------------------------------------------------------------------

As of March 31,  2007 and 2006,  there was $3,619 and $2,159,  respectively,  of
total   unrecognized   compensation  cost  related  to  non-vested   share-based
compensation  arrangements  granted under the plans.  As of March 31, 2007,  the
unrecognized   compensation   cost  is   expected  to  be   recognized   over  a
weighted-average  period of 2 years. We estimate that  share-based  compensation
expense for 2007 will be approximately $1,568.

STOCK SPLITS AND REPURCHASE OF COMMON STOCK

On  December  8,  2006,  the  Board  of  Directors  of the  Company  approved  a
three-for-two  split of the Company's common stock to be effected in the form of
a stock  dividend to  shareholders  of record on December 29,  2006.  Such stock
dividend  was made on  January  19,  2007.  The stock  split was  recognized  by
reclassifying  the par value of the additional  shares resulting from the split,
from additional paid-in capital to common stock.

On  December  15,  2005,  the  Board of  Directors  of the  Company  approved  a
three-for-two  split of the Company's common stock to be effected in the form of
a stock  dividend to  shareholders  of record on December 30,  2005.  Such stock
dividend  was made on  January

                                       9
<page>

20, 2006. The stock split was recognized by  reclassifying  the par value of the
additional shares resulting from the split,  from additional  paid-in capital to
common stock.

All  references to number of common  shares and per share amounts  except shares
authorized  in  the   accompanying   consolidated   financial   statements  were
retroactively  adjusted to reflect the effect of the December  2006 and December
2005 stock splits.

In June 1999, the board of directors  authorized the repurchase of shares of the
Company's  outstanding  common stock over a two-year  period  commencing July 2,
1999. Under this program,  which was subsequently  extended, the Company had, as
of December 31, 2004,  repurchased a total 772,461  shares at an average cost of
$4.11 per share,  none of which  remained in treasury at December 31,  2004.  In
June 2005,  the board of  directors  authorized  another  extension of the stock
repurchase program for up to an additional 900,000 shares,  over and above those
772,461 shares previously repurchased under the program. Under this extension, a
total of 99,450  shares were  purchased  at an average cost of $12.05 per share,
none of which  remained in treasury at March 31,  2007.  During the three months
ended March 31, 2007,  no  additional  shares have been  purchased.  The Company
intends to acquire  shares from time to time at prevailing  market prices if and
to the  extent  it  deems it  advisable  to do so  based  on its  assessment  of
corporate cash flow, market conditions and other factors.

NOTE 3 - ACQUISITION OF CERTAIN ASSETS
--------------------------------------

On March  16,  2007,  the  Company,  through  its  wholly-owned  subsidiary  BCP
Ingredients,  Inc. ("BCP"), entered into an asset purchase agreement (the "Asset
Purchase Agreement") with Chinook Global Limited  ("Chinook"),  a privately held
Ontario corporation, pursuant to which BCP acquired certain of Chinook's choline
chloride  business  assets (the "Chinook  Acquisition")  for a purchase price of
$29,000,   plus  the  value  of  certain   product   inventories   estimated  at
approximately  $1,840.  The acquisition closed effective the same date. On March
16, 2007,  the Company and its principal  bank entered into a new Loan Agreement
(the "New Loan Agreement")  providing for an unsecured term loan of $29,000 (the
"New Term Loan"),  the proceeds of which were used to fund the acquisition.  The
New Term Loan is payable in equal monthly installments of principal,  each equal
to 1/60th of the principal of the New Term Loan, together with accrued interest,
with remaining principal and interest payable at maturity. The New Term Loan has
a maturity  date of March 16,  2010 and is subject  to a monthly  interest  rate
equal to LIBOR plus 1%. At March 31, 2007, this interest rate was 6.32%. The New
Loan Agreement also provides for a short-term  revolving  credit  facility of $6
million (the "New Revolving Facility"). The New Revolving Facility is subject to
a monthly  interest rate equal to LIBOR plus 1%, and accrued interest is payable
monthly. No amounts have been drawn on the New Revolving Facility as of the date
hereof.  The New  Revolving  Facility  has a  maturity  date  of May  31,  2009.
Management  believes  that such facility will be renewed in the normal course of
business.

The Chinook  Acquisition  has been  accounted  for using the purchase  method of
accounting  and the purchase price of the  acquisition  has been assigned to the
net  assets  acquired  based on the fair  value  of such  assets  at the date of
acquisition.  The preliminary  allocation of the total purchase price, including
acquisition  costs, was based on the estimated fair values as of March 16, 2007.
Adjustments  to  these  estimates  will be  included  in the  allocation  of the
purchase price of the Chinook Acquisition upon

                                       10
<page>

settlement of any working capital or other adjustments. The preliminary purchase
price has been allocated as follows (in thousands):

------------------------------------------------------
                                   Fair Value Recorded
                                      in Purchase
                                       Accounting
------------------------------------------------------
Customer list                         $     29,201
Inventory                                    1,840
Short-term receivable                        1,850
Short-term obligation                         (870)
Other                                           73
------------------------------------------------------
         Total                        $     32,094
------------------------------------------------------

NOTE 4 - PRIOR YEAR ACQUISITION OF ASSETS
-----------------------------------------

Effective August 24, 2006,  pursuant to an asset purchase  agreement of the same
date, the Company, through its wholly owned subsidiaries BCP Ingredients and BCP
St. Gabriel, acquired from BioAdditives,  LLC, CMB Additives, LLC and CMB Realty
of Louisiana (the "St.  Gabriel  Sellers") an animal feed grade aqueous  choline
chloride  manufacturing  facility  and related  assets  located in St.  Gabriel,
Louisiana  (the "St.  Gabriel  Acquisition").  The Company also acquired the St.
Gabriel Sellers'  remaining  interest in a land lease  (approximately  21 years)
relating to the realty upon which the acquired  facility and related  assets are
located.  The  acquisition  was funded through the Company's  cash reserves.  In
February 2007, the facility was placed in service.

NOTE 5 - PRIOR YEAR ACQUISITION OF STOCK
----------------------------------------

On February 8, 2006, the Company,  through its wholly owned  subsidiary  Balchem
Minerals Corporation  ("BMC"),  completed an acquisition (the "CMC Acquisition")
of all  of the  outstanding  capital  stock  of  Chelated  Minerals  Corporation
("CMC"),  a privately  held Utah  corporation,  for a purchase price of $17,350,
subject  to  adjustment  based  upon  CMC's  actual  working  capital  and other
adjustments.  On February 6, 2006,  the Company and its  principal  bank entered
into a Loan  Agreement  (the "Loan  Agreement")  providing for an unsecured term
loan of $10,000 (the "Term  Loan"),  the proceeds of which were used to fund the
CMC Acquisition, in part. The remaining balance of the purchase price of the CMC
Acquisition  was funded  through the Company's  cash  reserves.  At December 31,
2006, the Term Loan had been repaid in full.

The CMC  Acquisition  has been  accounted  for  using  the  purchase  method  of
accounting  and the purchase price of the  acquisition  has been assigned to the
net assets  acquired  based on the fair value of such assets and  liabilities at
the date of acquisition. The preliminary allocation of the total purchase price,
including  acquisition  costs,  of CMC's net tangible and intangible  assets was
based on the estimated fair values as of February 8, 2006.  Adjustments to these
estimates  will be included in the  allocation of the purchase price of CMC upon
settlement  of any  working  capital  or other  adjustments.  The  excess of the
purchase  price over the  identifiable  intangible  and net tangible  assets was
allocated to  goodwill.  The  purchase  price has been  allocated as follows (in
thousands):

                                       11
<page>

------------------------------------------------------
                                   Fair Value Recorded
                                      in Purchase
                                       Accounting
------------------------------------------------------
Accounts receivable                   $        884
Inventory                                      552
Property, plant and equipment                1,980
Current liabilities                           (388)
Other long-term liabilities                 (2,368)
Goodwill                                    11,894
Other intangible assets                      5,334
------------------------------------------------------
         Total                        $     17,888
------------------------------------------------------

The consolidated  financial  statements include the results of operations of CMC
from the date of purchase.

Pro Forma Summary of Operations

The following  unaudited pro forma  information  has been prepared as if the CMC
Acquisition  had  occurred on January 1, 2006 and does not include  cost savings
expected  from  the  transaction.  In  addition  to  including  the  results  of
operations,  the pro forma  information  gives  effect  primarily  to changes in
depreciation and  amortization of tangible and intangible  assets resulting from
the acquisition.

The pro forma  information  presented  does not purport to be  indicative of the
results  that  actually  would have been  attained  if the CMC  acquisition  had
occurred at the  beginning of the periods  presented and is not intended to be a
projection of future results.

-----------------------------------------------------------------
                                         Actual        Pro Forma
                                        March 31,      March 31,
                                          2007           2006
-----------------------------------------------------------------
Net sales                             $     27,599   $     25,331
Net earnings                          $      3,441   $      2,893
Basic EPS                             $        .19   $        .17
Diluted EPS                           $        .19   $        .16
-----------------------------------------------------------------

NOTE 6 - INVENTORIES
--------------------

Inventories at March 31, 2007 and December 31, 2006 consisted of the following:

----------------------------------------------------------------------
                                            March 31,     December 31,
                                              2007            2006
----------------------------------------------------------------------
Raw materials                              $      4,420   $      4,264
Finished goods                                    8,031          5,654
----------------------------------------------------------------------
         Total inventories                 $     12,451   $      9,918
----------------------------------------------------------------------

NOTE 7 - PROPERTY, PLANT AND EQUIPMENT
--------------------------------------

Property,  plant and  equipment  at March 31,  2007 and  December  31,  2006 are
summarized as follows:

                                       12
<page>

--------------------------------------------------------------------------------
                                                       March 31,    December 31,
                                                         2007           2006
--------------------------------------------------------------------------------
Land                                                 $        650   $        650
Building                                                   11,640         11,640
Equipment                                                  38,545         38,545
Construction in Progress                                    1,896          1,247
--------------------------------------------------------------------------------
                                                           52,731         52,082
Less: Accumulated depreciation                             21,547         20,769
--------------------------------------------------------------------------------
   Net property, plant and equipment                 $     31,184   $     31,313
--------------------------------------------------------------------------------

NOTE 8 - INTANGIBLE ASSETS
--------------------------

Goodwill  represents the excess of costs over fair value of assets of businesses
acquired.  The  Company  adopted  the  provisions  of  SFAS  No.  141,  Business
Combinations,  and SFAS No. 142,  Goodwill and Other  Intangible  Assets,  as of
January 1, 2002.  These  standards  require  the use of the  purchase  method of
accounting for a business  combination and define an intangible asset.  Goodwill
and intangible assets acquired in a purchase business combination and determined
to have an indefinite useful life are not amortized,  but are instead tested for
impairment at least annually in accordance  with the provisions of SFAS No. 142.
SFAS No. 142 also requires that intangible assets with estimable useful lives be
amortized  over  their  respective  estimated  useful  lives to their  estimated
residual  values,  and reviewed for impairment in accordance  with SFAS No. 144,
Accounting for Impairment or Disposal of Long-Lived Assets.

As of  December  31,  2006,  the Company  performed  an  impairment  test of its
goodwill  balance.  As of such date, the Company's  reporting units' fair values
exceeded  their carrying  amounts,  and therefore  there was no indication  that
goodwill was impaired.  Accordingly, the Company was not required to perform any
further  impairment  tests. The Company will perform its impairment test next on
December 31, 2007.

The Company had  goodwill in the amount of $25,244 and $25,253 at March 31, 2007
and December 31, 2006, respectively,  subject to the provisions of SFAS Nos. 141
and 142.

As of March 31,  2007 and  December  31,  2006,  the  Company  had  identifiable
intangible assets with finite lives with a gross carrying value of approximately
$37,188 and $7,799,  respectively,  less accumulated  amortization of $1,060 and
$887,  respectively.  At March 31, 2007,  the gross carrying  amount  included a
customer list acquired as part of the Chinook acquisition,  as described in Note
3.

Identifiable  intangible assets with finite lives at March 31, 2007 and December
31, 2006 are summarized as follows:

                                       13
<page>
<table>
<caption>
-----------------------------------------------------------------------------------------------------
                                             Gross                         Gross
                           Amortization    Carrying       Accumulated    Carrying       Accumulated
                              Period       Amount at     Amortization    Amount at    Amortization at
                            (in years)      3/31/07       at 3/31/07      12/31/06       12/31/06
-----------------------------------------------------------------------------------------------------

                                  <c>  <c>            <c>            <c>            <c>
Customer lists                       10   $     34,089   $        619   $      4,888   $        497
Regulatory
re-registration costs                10             28             --             28             --
Patents & trade secrets           15-17          1,567            244          1,550            221
Trademarks & trade names             17            876            107            876             94
Other                                 5            628             90            457             75
-----------------------------------------------------------------------------------------------------
                                          $     37,188   $      1,060   $      7,799   $        887
-----------------------------------------------------------------------------------------------------
</table>

Amortization of identifiable  intangible assets was  approximately  $173 for the
first three months of 2007.  Assuming no change in the gross  carrying  value of
identifiable  intangible  assets,  the  estimated  amortization  expense for the
remainder of 2007 is $2,670,  approximately  $3,545 per annum for 2008 and 2009,
$3,537 per annum for 2010 and 2011 and $3,520 in 2012. At March 31, 2007,  there
were no identifiable  intangible  assets with indefinite useful lives as defined
by SFAS No. 142.  Identifiable  intangible  assets are reflected in  "Intangible
assets with finite lives,  net" in the Company's  consolidated  balance  sheets.
There  were no  changes  to the useful  lives of  intangible  assets  subject to
amortization during the three months ended March 31, 2007.

NOTE 9 - NET EARNINGS PER SHARE
-------------------------------

The following  presents a reconciliation  of the net earnings and shares used in
calculating basic and diluted net earnings per share:

<table>
<caption>
-------------------------------------------------------------------------------------------------
                                                          Net         Number of
                                                        Earnings        Shares        Per Share
Three months ended March 31, 2007                      (Numerator)   (Denominator)      Amount
-------------------------------------------------------------------------------------------------

                                                    <c>              <c>          <c>
Basic EPS - Net earnings and weighted
average common shares outstanding                      $      3,441     17,686,624   $        .19

Effect of dilutive securities - stock options                              697,908
                                                                      ------------

Diluted EPS - Net earnings and weighted
average common shares outstanding and
effect of stock options                                $      3,441     18,384,532   $        .19
-------------------------------------------------------------------------------------------------
</table>

                                       14
<page>

<table>
<caption>
-------------------------------------------------------------------------------------------------
                                                          Net         Number of
                                                        Earnings        Shares        Per Share
Three months ended March 31, 2006                      (Numerator)   (Denominator)      Amount
-------------------------------------------------------------------------------------------------

                                                    <c>              <c>          <c>
Basic EPS - Net earnings and weighted
average common shares outstanding                      $      2,858     17,393,940   $        .16

Effect of dilutive securities - stock options                              843,838
                                                                      ------------

Diluted EPS - Net earnings and weighted
average common shares outstanding and
effect of stock options                                $      2,858     18,237,778   $        .16
-------------------------------------------------------------------------------------------------
</table>

The Company had stock options for 384,525 and 493,575 common shares at March 31,
2007 and 2006,  respectively,  that could potentially  dilute basic earnings per
share in future  periods  that were not  included in diluted  earnings per share
because their effect on the period presented was anti-dilutive.

NOTE 10 - INCOME TAXES
----------------------

Effective  January 1, 2007,  the Company  adopted the  provisions  of  Financial
Accounting  Standards  Board ("FASB")  Interpretation  No. 48,  "Accounting  for
Uncertainty  in Income  Taxes"  ("FIN  48").  This  interpretation,  among other
things,  creates a two-step  approach for  evaluating  uncertain tax  positions.
Recognition (step one) occurs when an enterprise  concludes that a tax position,
based solely on its technical  merits, is  more-likely-than-not  to be sustained
upon  examination.  Measurement (step two) determines the amount of benefit that
more-likely-than-not  will be realized upon settlement.  De-recognition of a tax
position that was previously  recognized would occur when a company subsequently
determines  that  a  tax  position  no  longer  meets  the  more-likely-than-not
threshold  of  being  sustained.  FIN 48  specifically  prohibits  the  use of a
valuation allowance as a substitute for de-recognition of tax positions,  and it
has expanded disclosure  requirements.  The adoption of FIN 48 resulted in, as a
cumulative  effect,  a non-cash  charge,  net of federal tax benefits,  of $291,
recorded  as a reduction  to  beginning  retained  earnings.  The charge  before
federal tax benefits was $411. The Company  includes  interest expense or income
as well as potential  penalties on unrecognized  tax positions as a component of
income tax expense in the consolidated statement of operations. The total amount
of accrued interest and penalties  related to uncertain tax positions at January
1,  2007 was $89 and is  included  in other  long-term  obligations.  All of our
unrecognized  tax benefits,  if recognized in future  periods,  would impact the
Company's  effective tax rate. The Company  remains open for  examination by the
IRS for 2003 through 2006. For most of its other  significant tax  jurisdictions
(U.S.  states),  the Company's  income tax returns are also open for examination
for 2003 through 2006. There was not a significant change in our liabilities for
unrecognized  tax benefits  during the three  months ended March 31, 2007.  With
each year our tax exposure  rolls forward with  incremental  increases  expected
based on continued growth and no changes are foreseen to this trend at present.

NOTE 11 - SEGMENT INFORMATION
-----------------------------

The Company's  reportable segments are strategic  businesses that offer products
and services to different  markets.  Presently,  the Company has three segments:
specialty

                                       15
<page>

products,   encapsulated  /  nutritional  products  and  BCP  Ingredients,   its
unencapsulated feed supplements segment.

Business Segment Net Sales:

---------------------------------------------------------------
                                        Three Months Ended
                                             March 31
                                        2007            2006
---------------------------------------------------------------
Specialty Products                  $      8,061   $      7,951
Encapsulated/Nutritional Products         11,500          9,789
BCP Ingredients                            8,038          6,857
---------------------------------------------------------------
Total                               $     27,599   $     24,597
---------------------------------------------------------------


Business Segment Earnings:

---------------------------------------------------------------
                                        Three Months Ended
                                             March 31
                                        2007            2006
---------------------------------------------------------------
Specialty Products                 $      2,903    $      2,772
Encapsulated/Nutritional
Products                                  1,243           1,039
BCP Ingredients                           1,196             658
Interest and other expense                  (28)            (24)
---------------------------------------------------------------
Earnings before income
taxes                              $      5,314    $      4,445
---------------------------------------------------------------

NOTE 12- SUPPLEMENTAL CASH FLOW INFORMATION
-------------------------------------------

Cash paid during the three months ended March 31, 2007 and 2006 for income taxes
and interest is as follows:

---------------------------------------------------------------
                                        Three Months Ended
                                             March 31
                                        2007            2006
---------------------------------------------------------------

Income taxes                        $         82   $          2
Interest                            $         84   $         86
---------------------------------------------------------------

NOTE 13 - LONG TERM DEBT AND CREDIT AGREEMENTS
----------------------------------------------

On March 16, 2007,  the Company and its  principal  bank entered into a new Loan
Agreement  (the "New Loan  Agreement")  providing for an unsecured  term loan of
$29,000  (the "New Term  Loan"),  the  proceeds  of which  were used to fund the
Chinook  acquisition (the  "Acquisition"),  as described in Note 3. The New Term
Loan is payable in equal monthly installments of principal, each equal to 1/60th
of the  principal of the New Term Loan,  together  with accrued  interest,  with
remaining  principal and interest  payable at maturity.  The New Term Loan has a
maturity date of March 16, 2010 and is subject to a monthly  interest rate equal
to LIBOR plus 1%. At March 31, 2007, this interest rate was 6.32%.  The New Loan
Agreement also provides for a short-term

                                       16
<page>

revolving credit facility of $6 million (the "New Revolving Facility").  The New
Revolving Facility is subject to a monthly interest rate equal to LIBOR plus 1%,
and accrued interest is payable  monthly.  No amounts have been drawn on the New
Revolving  Facility as of the date  hereof.  The New  Revolving  Facility  has a
maturity date of May 1, 2008.

NOTE 14 - EMPLOYEE BENEFIT PLANS
--------------------------------

The Company  sponsors a 401(k)  savings  and profit  sharing  plan for  eligible
employees.  The plan allows  participants to make pretax  contributions  and the
Company matches certain percentages of those pretax contributions with shares of
the  Company's  common  stock.  The  profit  sharing  portion  of  the  plan  is
discretionary  and  non-contributory.  All amounts  contributed  to the plan are
deposited into a trust fund administered by independent trustees.

The Company also currently  provides  postretirement  benefits in the form of an
unfunded  retirement  medical  plan  under  a  collective  bargaining  agreement
covering eligible retired employees of its Verona, Missouri facility.

Net periodic benefit cost for such retirement  medical plan for the three months
ended March 31, 2007 and March 31, 2006 was as follows:

------------------------------------------------------------------
                                               2007         2006
------------------------------------------------------------------
Service Cost                                $       7   $       8
Interest Cost                                      10          13
Expected return on plan assets                     --          --
Amortization of transition obligation              --          --
Amortization of prior service cost                 (5)         (5)
Amortization of (gain) or loss                     (1)          1
------------------------------------------------------------------
Net periodic benefit cost                   $      11   $      17
------------------------------------------------------------------

The plan is unfunded and approved claims are paid from Company funds. Historical
cash payments made under such plan approximated $50 per year.

NOTE 15 - LICENSE AGREEMENT
---------------------------

On November 7, 2005, the Company entered into a license  agreement (the "License
Agreement")  with Project  Management  and  Development  Co.,  Ltd.  ("PMD"),  a
corporation  organized  under the laws of Great Britain.  The License  Agreement
gives  PMD  the  right  to  utilize   the   Company's   proprietary   continuous
manufacturing   technology  for  the  production  of  aqueous  choline  chloride
("Company Technology") in connection with PMD's construction and operation of an
aqueous choline chloride  production  facility at PMD's Al-JuBail,  Saudi Arabia
petrochemical facility, currently scheduled for completion in late 2009.

The  License  Agreement  provides  PMD with the  exclusive  right to use Company
Technology in certain countries,  as well as the non-exclusive  right to market,
sell and use the products derived from Company Technology on a world-wide basis.
The License  Agreement further provides that the Company will be PMD's exclusive
North American  distributor  for said products during the term of the agreement.
The License Agreement

                                       17
<page>

terminates either 10 years from the start-up of the PMD's production facility or
December 31, 2020, whichever is earlier.

Pursuant  to the  License  Agreement,  PMD will pay the Company a license fee of
$1,400 and fees of $840 for the  delivery by the Company of certain  preliminary
drawings,   specifications,   process  design   documents   containing   Company
Technology,  and additional training.  These fees are to be paid in installments
upon  achievement  of certain  performance  milestones  set forth in the License
Agreement.

The Company will provide certain performance  guarantees associated with Company
Technology.  In the  event  that the PMD  manufacturing  facility,  if  properly
designed  and  constructed,   fails  to  attain  said  performance   guarantees,
liquidated damages may be assessed, but not exceeding 70% of the license fee.

The Company is using the  percentage of completion  method to recognize  revenue
and expenses related to the License  Agreement and the  efforts-expended  method
for measuring the progress to completion.  As of March 31, 2007, the Company has
recognized  $1,000 of income and $515 in  expenses  since the  inception  of the
agreement.

NOTE 16 - NEW ACCOUNTING PRONOUNCEMENTS
---------------------------------------

In  February,  2007 the FASB  issued SFAS No.  159,  "The Fair Value  Option for
Financial  Assets and  Financial  Liabilities",  including  an amendment of FASB
Statement No. 115.  This  statement  permits  entities to choose to measure many
financial instruments and certain other items at fair value. The objective is to
improve  financial  reporting  by providing  entities  with the  opportunity  to
mitigate  volatility in reported earnings caused by measuring related assets and
liabilities  differently  without  having  to  apply  complex  hedge  accounting
provisions.  This  statement  is expected to expand the use of fair market value
measurement,  which is consistent  with  long-term  measurement  objectives  for
accounting for financial  instruments.  This statement is effective beginning in
January 2008.  The Company does not expect the adoption of this  statement to be
significant to its consolidated financial statements.

In September  2006, the FASB issued SFAS 157, "Fair Value  Measurements,"  which
defines  fair value,  establishes  a framework  for  measuring  fair value under
generally accepted  accounting  principles,  and expands  disclosures about fair
value  measurements.  SFAS 157 does not require any new fair value measurements,
but  provides  guidance on how to measure  fair value by  providing a fair value
hierarchy  used to classify  the source of the  information.  This  statement is
effective  beginning in January 2008. The Company is evaluating whether adoption
of this statement will result in a change to its fair value measurements.

NOTE 17 - SUBSEQUENT EVENTS
---------------------------

On April 30, 2007, the Company,  through its European subsidiary,  Balchem B.V.,
completed an acquisition of the methylamines  and choline chloride  business and
manufacturing  facilities  of Akzo  Nobel  Chemicals  S.p.A.,  located in Marano
Ticino,  Italy for a provisional  purchase price of approximately  $6,281.  Such
amount is subject to  adjustment  after the closing  based upon actual  finished
goods  and  raw  materials  inventory  as  of  the  closing  date,  as  well  as
reconciliation of the other estimated  constituents of the provisional  purchase
price.  The parties  believe the final  purchase  price will be fully settled no
later than 90 days after closing.

                                       18
<page>

Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations (All dollar amounts in thousands)

This Report contains forward-looking  statements,  within the meaning of Section
21E of the  Securities  Exchange  Act of 1934,  as  amended,  which  reflect our
expectation  or  belief   concerning   future  events  that  involve  risks  and
uncertainties.  Our actions and performance could differ materially from what is
contemplated by the forward-looking statements contained in this Report. Factors
that might cause differences from the  forward-looking  statements include those
referred to or  identified  in Item 1 of our Annual  Report on Form 10-K for the
year ended December 31, 2006 and other factors that may be identified  elsewhere
in this Report. Reference should be made to such factors and all forward-looking
statements are qualified in their entirety by the above cautionary statements.

Overview
--------

We develop, manufacture, distribute and market specialty performance ingredients
and  products  for the food,  nutritional,  pharmaceutical,  animal  health  and
medical device sterilization  industries.  Our reportable segments are strategic
businesses that offer products and services to different  markets.  We presently
have three reportable segments:  specialty products;  encapsulated / nutritional
products; and BCP Ingredients.

Specialty Products
------------------

Our specialty products segment operates as ARC Specialty Products.

Ethylene oxide, at the 100% level, is sold as a sterilant gas, primarily for use
in the health  care  industry.  It is used to  sterilize a wide range of medical
devices because of its versatility  and  effectiveness  in treating hard or soft
surfaces,  composites,  metals,  tubing and different types of plastics  without
negatively  impacting the performance of the device being  sterilized.  Our 100%
ethylene  oxide  product  is  distributed  in  uniquely   designed,   recyclable
double-walled  stainless steel drums to assure  compliance with safety,  quality
and  environmental  standards as outlined by the U.S.  Environmental  Protection
Agency (the "EPA") and the U.S.  Department of Transportation.  Our inventory of
these specially built drums, along with our two filling facilities, represents a
significant   capital   investment.   Contract   sterilizers,   medical   device
manufacturers, and medical gas distributors are our principal customers for this
product. In addition, we also sell single use canisters with 100% ethylene oxide
for use in medical device  sterilization.  As a fumigant,  ethylene oxide blends
are highly effective in killing bacteria, fungi, and insects in spices and other
seasoning materials.

We sell two other products, propylene oxide and methyl chloride,  principally to
customers seeking smaller (as opposed to bulk) quantities and whose requirements
include  timely  delivery  and  safe  handling.  Propylene  oxide  is  used  for
fumigation in spice treatment, various chemical synthesis applications,  to make
paints  more  durable,  and for  manufacturing  specialty  starches  and textile
coatings.  Methyl  chloride is used as a raw material in  specialty  herbicides,
fertilizers, pharmaceuticals, malt and wine preservers.

                                       19
<page>

Encapsulated / Nutritional Products
-----------------------------------

The encapsulated / nutritional  products  segment  provides  microencapsulation,
granulation  and  agglomeration  solutions to a variety of applications in food,
pharmaceutical and nutritional ingredients to enhance performance of nutritional
fortification,  processing, mixing, packaging applications and shelf-life. Major
product  applications  are baked goods,  refrigerated  and frozen dough systems,
processed meats,  seasoning  blends,  confections,  nutritional  supplements and
animal  nutrition.  We also market human grade choline nutrient products through
this segment for wellness applications. Choline is recognized to play a key role
in  the  structural  integrity  of  cell  membranes,   processing  dietary  fat,
reproductive  development  and  neural  functions,  such as  memory  and  muscle
function.  Our portfolio of granulated  calcium carbonate products are primarily
used  in,  or in  conjunction  with,  novel  over-the-counter  and  prescription
pharmaceuticals for the treatment of osteoporosis, gastric disorders and calcium
deficiencies in the United States.

In the animal health industry,  we market REASHURE(R)  Choline,  an encapsulated
choline  product that boosts health and milk  production in transition and early
lactation cows.  Commercial sales are currently  derived from the dairy industry
where REASHURE(R)  delivers nutrient  supplements that survive the rumen and are
biologically  available,  providing  required  nutritional levels during certain
weeks preceding and following  calving,  commonly referred to as the "transition
period" of the  animal.  Also,  in animal  health,  we market  NITROSHURETM,  an
encapsulated urea supplement for lactating dairy cows that is designed to create
a slow-release  nitrogen source for the rumen,  allowing for greater flexibility
in feed rations for dairy  nutritionists  and  producers,  and  NIASHURETM,  our
microencapsulated  niacin product for dairy cows. In addition, CMC manufactures,
sells and  distributes  chelated  mineral  supplements  for use in  animal  feed
throughout the world. CMC's proprietary  chelation  technology provides enhanced
nutrient absorption for various species of domestic and companion animals.

BCP Ingredients
---------------

This  segment  manufactures  and  supplies  raw choline  chloride,  an essential
nutrient for animal health,  predominantly to the poultry and swine  industries.
Choline  plays  a vital  role in the  metabolism  of fat  and the  building  and
maintaining of cell  structures.  Choline  deficiency can result in, among other
symptoms,  reduced  growth  and  perosis in  poultry,  and fatty  liver,  kidney
necrosis  and general poor health  conditions  in swine.  In  addition,  certain
derivatives of choline  chloride are also  manufactured and sold into industrial
applications.  Choline  chloride is manufactured and sold in both an aqueous and
dry form.

We sell products for all three segments through our own sales force, independent
distributors and sales agents.

The following  tables  summarize  consolidated net sales by segment and business
segment earnings for the three months ended March 31, 2007 and 2006:

                                       20
<page>

Business Segment Net Sales:
------------------------------------------------------------------
                                           Three Months Ended
                                                March 31
                                          2007            2006
------------------------------------------------------------------
Specialty Products                    $      8,061    $      7,951
Encapsulated/Nutritional Products           11,500           9,789
BCP Ingredients                              8,038           6,857
------------------------------------------------------------------
Total                                 $     27,599    $     24,597
------------------------------------------------------------------

Business Segment Earnings:
------------------------------------------------------------------
                                           Three Months Ended
                                                March 31
                                          2007            2006
------------------------------------------------------------------
Specialty Products                    $      2,903    $      2,772
Encapsulated/Nutritional Products            1,243           1,039
BCP Ingredients                              1,196             658
Interest and other expense                     (28)            (24)
------------------------------------------------------------------
Earnings before income taxes          $      5,314    $      4,445
------------------------------------------------------------------

                                       21
<page>

                              RESULTS OF OPERATIONS
                              ---------------------

Three months ended March 31, 2007 compared to three months ended March 31, 2006

Net Sales
---------

Net sales for the three months ended March 31, 2007 were $27,599  compared  with
$24,597  for the three  months  ended March 31,  2006,  an increase of $3,002 or
12.2%.  Net sales for the specialty  products  segment were $8,061 for the three
months  ended March 31, 2007  compared  with $7,951 for the three  months  ended
March 31, 2006, an increase of $110 or 1.4%.  This increase was  principally due
to  an  increase  in  sales  volume  of  ethylene   oxide  for  medical   device
sterilization.  Net sales for the  encapsulated / nutritional  products  segment
were $11,500 for the three months ended March 31, 2007  compared with $9,789 for
the three  months  ended March 31,  2006,  an increase of $1,711 or 17.5%.  This
increase was due  principally  to increased  volumes sold in the human  choline,
animal health and chelated mineral  markets.  This increase was partially offset
by decreased  volumes  sold in the human food and  pharmaceutical  markets.  Net
sales of $8,038 were  realized for the three months ended March 31, 2007 for the
BCP Ingredients (unencapsulated feed supplements) segment, which markets choline
for the poultry and swine  industries as well as industrial  choline  derivative
products,  as compared with $6,857 for the three months ended March 31, 2006, an
increase of $1,181 or 17.2%.  This increase was due to increased volumes sold in
the dry choline,  aqueous choline,  and specialty industrial product lines. This
increase in sales volume was also partially a result of the Chinook acquisition,
as described in Note 3.

Gross Margin
------------

Gross  margin for the three  months  ended  March 31, 2007  increased  to $9,741
compared to $8,222 for the three  months  ended March 31,  2006,  an increase of
$1,519 or 18.5%, due largely to the above-noted  increase in sales. Gross margin
percentage for the three months ended March 31, 2007 was 35.3% compared to 33.4%
for the three  months  ended  March 31,  2006.  This  increase  in gross  margin
percentage was primarily a result of product mix,  increased  production volumes
and lower raw material prices.  Gross margin for the specialty  products segment
increased  6.3%  primarily due to increased  sales  volume.  Gross margin in the
encapsulated  / nutritional  products  segment  increased  18.7% as margins were
favorably affected by product mix as well as sales volumes,  as described above.
Gross margin for BCP Ingredients  increased 81.1% and was favorably  affected by
increased sales volumes of choline chloride and specialty derivative products.

Operating Expenses
------------------

Operating  expenses  for the  three  months  ended  March 31,  2007 were  $4,399
compared to $3,753 for the three  months  ended March 31,  2006,  an increase of
$646 or 17.2%.  This increase was primarily a result of increased  payroll costs
for new hires.  Total operating expenses as a percentage of sales were 15.9% for
the three  months  ended March 31, 2007  compared to 15.3% for the three  months
ended March 31, 2006. During the three months ended March 31, 2007 and 2006, the
Company spent $569 and $526, respectively, on research and development programs,
substantially all of which pertained to the

                                       22
<page>

Company's  encapsulated / nutritional  products segment for both food and animal
feed applications.

Earnings From Operations
------------------------

As a result of the  foregoing,  earnings  from  operations  for the three months
ended March 31,  2007 were  $5,342 as  compared  to $4,469 for the three  months
ended March 31, 2006.

Other Expenses (Income)
-----------------------

Interest  income  for the three  months  ended  March 31,  2007  totaled  $45 as
compared to $62 for the three  months  ended March 31,  2006.  This  decrease is
attributable  to a decrease in the average total cash balance on-hand during the
quarter.  Interest  expense  was $84 for the three  months  ended March 31, 2006
compared to $86 for the three months  ended March 31, 2006.  Other income of $11
for the three months ended March 31, 2007 represents the net gain on the sale of
equipment.

Income Tax Expense
------------------

The  Company's  effective tax rate for the three months ended March 31, 2007 and
2006 was 35.2% and 35.7%, respectively.

Net Earnings
------------

As a result of the  foregoing,  net  earnings  were $3,441 for the three  months
ended March 31, 2007 as compared  with $2,858 for the three  months  ended March
31, 2006, an increase of 20.4%.


                                       23
<page>

                               FINANCIAL CONDITION
                               -------------------

                         LIQUIDITY AND CAPITAL RESOURCES
                         -------------------------------

Contractual Obligations
-----------------------

As part of the June 30,  2005  acquisition  of certain  assets  relating  to the
encapsulation,  agglomeration  and granulation  business of Loders Croklaan USA,
LLC, the asset purchase  agreement  provides for the  contingent  payment by the
Company of additional  consideration  based upon the volume of sales  associated
with one particular product acquired by the Company during the three year period
following the acquisition.  Such contingent consideration will be recorded as an
additional  cost of the acquired  product lines.  As of December 31, 2006,  such
contingent  consideration  of $23 has been earned and paid.  No such  contingent
consideration has been earned and paid in 2007.

The Company's other contractual  obligations and commitments principally include
obligations  associated  with  future  minimum  non-cancelable  operating  lease
obligations (including for the headquarters office space entered into in 2002).

The Company knows of no current or pending  demands on, or commitments  for, its
liquid assets that will materially affect its liquidity.

The Company expects its operations to continue  generating  sufficient cash flow
to fund working capital  requirements  and necessary  capital  investments.  The
Company is actively  pursuing  additional  acquisition  candidates.  The Company
could seek  additional  bank loans or access to  financial  markets to fund such
acquisitions,  its operations, working capital, necessary capital investments or
other cash requirements should it deem it necessary to do so.

Cash
----

Cash and cash  equivalents  decreased to $3,690 at March 31, 2007 from $5,189 at
December 31, 2006. The $1,499 decrease resulted  primarily from net cash used in
investing  activities of $32,839,  principally  for the  acquisition  of certain
choline chloride  business assets of Chinook Global Limited,  offset by net cash
provided by operating activities and financing activities of $3,197 and $28,143,
respectively.  Working capital amounted to $18,018 at March 31, 2007 as compared
to $19,295 at December 31, 2006, a decrease of $1,277.

Operating Activities
--------------------

Cash flows from operating  activities provided $3,197 for the three months ended
March 31, 2007 compared to $4,199 for the three months ended March 31, 2006. The
decrease in cash flows from operating  activities was primarily due to increases
in  accounts  receivable  and  inventories  as well as a  decrease  in  customer
deposits and deferred revenue. This decrease was partially offset by an increase
in net earnings,  depreciation  and  amortization  expense,  stock  compensation
expense and income taxes payable.

                                       24
<page>

Investing Activities
--------------------

Capital  expenditures  were  $649 for the three  months  ended  March  31,  2007
compared to $263 for the three months  ended March 31,  2006.  Cash paid for the
acquisition  of certain  choline  chloride  business  assets of  Chinook  Global
Limited was $32,094. Cash received as part of the working capital adjustment for
the 2006  acquisition of all the outstanding  common stock of Chelated  Minerals
Corporation was $9.

Financing Activities
--------------------

In June 1999, the board of directors  authorized the repurchase of shares of the
Company's  outstanding  common stock over a two-year  period  commencing July 2,
1999. Under this program,  which was subsequently  extended, the Company had, as
of December 31, 2004,  repurchased a total 772,461  shares at an average cost of
$4.11 per share,  none of which  remained in treasury at December 31,  2004.  In
June 2005,  the board of  directors  authorized  another  extension of the stock
repurchase program for up to an additional 900,000 shares,  over and above those
772,461  shares  previously  repurchased  under the  program.  A total of 99,450
shares  were  purchased  at an average  cost of $12.05 per share,  none of which
remained in treasury at March 31, 2007.  The Company  intends to acquire  shares
from time to time at  prevailing  market prices if and to the extent it deems it
advisable  to do so based on its  assessment  of  corporate  cash  flow,  market
conditions and other factors.

On March 16, 2007,  the Company and its  principal  bank entered into a new Loan
Agreement  (the "New Loan  Agreement")  providing for an unsecured  term loan of
$29,000  (the "New Term  Loan"),  the  proceeds  of which  were used to fund the
Chinook  acquisition (the  "Acquisition"),  as described in Note 3. The New Term
Loan is payable in equal monthly installments of principal, each equal to 1/60th
of the  principal of the New Term Loan,  together  with accrued  interest,  with
remaining  principal and interest  payable at maturity.  The New Term Loan has a
maturity date of March 16, 2010 and is subject to a monthly  interest rate equal
to LIBOR plus 1%. At March 31, 2007, this interest rate was 6.32%.  The New Loan
Agreement  also provides for a short-term  revolving  credit  facility of $6,000
(the "New  Revolving  Facility").  The New  Revolving  Facility  is subject to a
monthly  interest  rate equal to LIBOR plus 1%, and accrued  interest in payable
monthly. No amounts have been drawn on the New Revolving Facility as of the date
hereof.  The New  Revolving  Facility  has a  maturity  date  of May  31,  2009.
Management  believes  that such facility will be renewed in the normal course of
business.

On February 6, 2006,  the Company and its  principal  bank  entered  into a Loan
Agreement (the "Loan Agreement") providing for an unsecured term loan of $10,000
(the "Term Loan"),  the proceeds of which were used to fund the CMC  acquisition
(the "CMC Acquisition"),  as described in Note 5, in part. The remaining balance
of the purchase price of the CMC Acquisition  was funded through  Balchem's cash
on hand. The Company repaid in full the $10,000 of principal under the Term Loan
in 2006.

Proceeds from stock options exercised totaled $353 and $206 for the three months
ended March 31, 2007 and 2006,  respectively.  Dividend payments were $1,596 and
$1,045 for the three months ended March 31, 2007 and 2006, respectively.

                                       25
<page>

Other Matters Impacting Liquidity
---------------------------------

The  Company  currently  provides  postretirement  benefits  in  the  form  of a
retirement  medical  plan  under  a  collective  bargaining  agreement  covering
eligible retired employees of its Verona, Missouri facility. The amount recorded
on the Company's balance sheet as of March 31, 2006 for this obligation is $745.
The postretirement plan is not funded.  Historical cash payments made under such
plan have approximated $50 per year.

Critical Accounting Policies
----------------------------

Accounting for Uncertainty in Income Taxes

As discussed above, effective January 1 2007, the Company adopted the provisions
of FASB  Interpretation  No. 48,  "Accounting  for  Uncertainty in Income Taxes"
("FIN 48"). This interpretation, among other things, creates a two-step approach
for evaluating  uncertain tax positions.  Recognition  (step one) occurs when an
enterprise concludes that a tax position,  based solely on its technical merits,
is more-likely-than-not to be sustained upon examination. Measurement (step two)
determines the amount of benefit that more-likely-than-not will be realized upon
settlement.  De-recognition  of a tax position  that was  previously  recognized
would occur when a company subsequently determines that a tax position no longer
meets the more-likely-than-not threshold of being sustained. FIN 48 specifically
prohibits the use of a valuation allowance as a substitute for de-recognition of
tax positions, and it has expanded disclosure requirements.  The adoption of FIN
48 resulted in a non-cash  transition charge of $291, recorded as a reduction to
beginning retained earnings.

Other than the  aforementioned  adoption of FIN 48, there were no changes to the
Company's Critical  Accounting  Policies,  as described in its December 31, 2006
Annual Report on Form 10-K, during the three months ended March 31, 2007.

Related Party Transactions
--------------------------

The  Company  was not  engaged in related  party  transactions  during the three
months  ended March 31,  2007 and all  transactions  of the Company  during such
period were at arms length.


                                       26
<page>

Item 3.   Quantitative and Qualitative Disclosures about Market Risk

Cash and cash  equivalents  are invested  primarily  in money  market  accounts.
Accordingly,  we believe we have limited  exposure to market risk for changes in
interest  rates.  The  Company  has  no  derivative  financial   instruments  or
derivative  commodity  instruments,  nor does  the  Company  have any  financial
instruments  entered  into for trading or hedging  purposes.  Foreign  sales are
generally  billed in U.S.  dollars.  As of March 31, 2007,  the  Company's  only
borrowings  were  under a bank term loan,  which  bears  interest  at LIBOR plus
1.00%. A 100 basis point increase or decrease in interest rates,  applied to the
Company's  borrowings at March 31, 2007, would result in an increase or decrease
in annual  interest  expense and a  corresponding  reduction or increase in cash
flow of approximately  $290. The Company  believes that its business  operations
are not  exposed in any  material  respect to market  risk  relating  to foreign
currency exchange risk or commodity price risk.

Item 4.   Controls and Procedures

  (a) Evaluation of Disclosure Controls and Procedures

      Pursuant  to the  requirements  of the  Sarbanes-Oxley  Act of  2002,  the
      Company's management,  under the supervision and with the participation of
      the Company's Chief Executive  Officer and Chief  Financial  Officer,  has
      evaluated, as of the end of the period covered by this Quarterly Report on
      Form 10-Q,  the  effectiveness  of the Company's  disclosure  controls and
      procedures (including its internal controls and procedures).

      Based upon  management's  evaluation,  the Chief Executive Officer and the
      Chief Financial Officer have concluded that, as of the end of such period,
      the  Company's  disclosure  controls  and  procedures  were  effective  in
      identifying  the  information  required to be disclosed  in the  Company's
      periodic  reports  filed  with  the  Securities  and  Exchange  Commission
      ("SEC"),  including this Quarterly  Report on Form 10-Q, and ensuring that
      such  information is recorded,  processed,  summarized and reported within
      the time periods specified in the SEC's rules and forms.

  (b) Changes in Internal Controls

      During  the most  recent  fiscal  quarter,  there has been no  significant
      change in the Company's internal control over financial reporting that has
      materially  affected,  or is reasonably likely to materially  affect,  the
      Company's internal control over financial reporting.


                                       27
<page>


Part II.  Other Information

Item 1A.  Risk Factors

There  have been no  material  changes  in the Risk  Factors  identified  in the
Company's Annual Report on Form 10-K for the year ended December 31, 2006.

Item 6.   Exhibits

          Exhibit 31.1              Certification  of  Chief  Executive  Officer
                                    pursuant to Rule 13a-14(a).

          Exhibit 31.2              Certification  of  Chief  Financial  Officer
                                    pursuant to Rule 13a-14(a).

          Exhibit 32.1              Certification  of  Chief  Executive  Officer
                                    pursuant to Rule  13a-14(b) and Section 1350
                                    of  Chapter  63 of  Title  18 of the  United
                                    States Code.

          Exhibit 32.2              Certification  of  Chief  Financial  Officer
                                    pursuant to Rule  13a-14(b) and Section 1350
                                    of  Chapter  63 of  Title  18 of the  United
                                    States Code.

          Exhibit 32.3              Asset  Purchase  Agreement  dated  March 16,
                                    2007, by and between BCP  Ingredients,  Inc.
                                    and Chinook Global Limited  (incorporated by
                                    reference  to Exhibit  2.1 to the  Company's
                                    Current  Report on Form 8-K dated  March 21,
                                    2007).

          Exhibit 32.4              Tolling  Agreement,  dated  March  16,  2007
                                    between BCP  Ingredients,  Inc.  and Chinook
                                    Global Limited (incorporated by reference to
                                    Exhibit 10.1 to the Company's Current Report
                                    on Form 8-K dated March 21, 2007).

          Exhibit 32.5              Non-Competition  Agreement,  dated March 16,
                                    2007  between  BCP  Ingredients,   Inc.  and
                                    Chinook Global  Limited;  Chinook  Services,
                                    LLC;  Chinook,  LLC;  Dean R.  Lacy;  Ronald
                                    Breen, and John N. Kennedy  (incorporated by
                                    reference to Exhibit  10.2 to the  Company's
                                    Current  Report on Form 8-K dated  March 21,
                                    2007).

          Exhibit 32.6              Loan  Agreement  dated March 16, 2007 by and
                                    between  Bank of America,  N.A.  and Balchem
                                    Corporation  (incorporated  by  reference to
                                    Exhibit 10.3 to the Company's Current Report
                                    on Form 8-K dated March 21, 2007).

          Exhibit 32.7              Promissory  Note (Term Loan) dated March 16,
                                    2007  from  Balchem  Corporation  to Bank of
                                    America, N.A.  (incorporated by reference to
                                    Exhibit 10.4 to the Company's Current Report
                                    on Form 8-K dated March 21, 2007).

                                       28
<page>

          Exhibit 32.8              Promissory  Note  (Revolving Line of Credit)
                                    dated   March   16,   2007   from    Balchem
                                    Corporation   to  Bank  of   America,   N.A.
                                    (incorporated  by  reference to Exhibit 10.5
                                    to the Company's  Current Report on Form 8-K
                                    dated March 21, 2007).

          Exhibit 32.9              Guaranty  dated  March  16,  2007  from  BCP
                                    Ingredients,  Inc. to Bank of America,  N.A.
                                    (incorporated  by  reference to Exhibit 10.6
                                    to the Company's  Current Report on Form 8-K
                                    dated March 21, 2007).

          Exhibit 32.10             Guaranty  dated March 16, 2007 from  Balchem
                                    Minerals  Corporation  to Bank  of  America,
                                    N.A.  (incorporated  by reference to Exhibit
                                    10.7 to the Company's Current Report on Form
                                    8-K dated March 21, 2007).

          Exhibit 32.11             Sale and Purchase  Agreement dated March 30,
                                    2007,  by and between  Balchem B.V. and Akzo
                                    Nobel  Chemicals  S.p.A.   (incorporated  by
                                    reference  to Exhibit  2.1 to the  Company's
                                    Current  Report on Form 8-K  dated  April 4,
                                    2007).

                                   SIGNATURES

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
         the  Registrant  has duly caused this report to be signed on its behalf
         by the undersigned thereunto duly authorized.

                                                    BALCHEM CORPORATION
                                                    -------------------

                                                    By: /s/ Dino A. Rossi
                                                    ---------------------

                                                    Dino A. Rossi, President and
                                                    Chief Executive Officer

         Date: May 10, 2007


                                       29
<page>

                                  Exhibit Index

          Exhibit No.               Description
          -----------               -----------

          Exhibit 31.1              Certification  of  Chief  Executive  Officer
                                    pursuant to Rule 13a-14(a).

          Exhibit 31.2              Certification  of  Chief  Financial  Officer
                                    pursuant to Rule 13a-14(a).

          Exhibit 32.1              Certification  of  Chief  Executive  Officer
                                    pursuant to Rule  13a-14(b) and Section 1350
                                    of  Chapter  63 of  Title  18 of the  United
                                    States Code.

          Exhibit 32.2              Certification  of  Chief  Financial  Officer
                                    pursuant to Rule  13a-14(b) and Section 1350
                                    of  Chapter  63 of  Title  18 of the  United
                                    States Code.

          Exhibit 32.3              Asset  Purchase  Agreement  dated  March 16,
                                    2007, by and between BCP  Ingredients,  Inc.
                                    and Chinook Global Limited  (incorporated by
                                    reference  to Exhibit  2.1 to the  Company's
                                    Current  Report on Form 8-K dated  March 21,
                                    2007).

          Exhibit 32.4              Tolling  Agreement,  dated  March  16,  2007
                                    between BCP  Ingredients,  Inc.  and Chinook
                                    Global Limited (incorporated by reference to
                                    Exhibit 10.1 to the Company's Current Report
                                    on Form 8-K dated March 21, 2007).

          Exhibit 32.5              Non-Competition  Agreement,  dated March 16,
                                    2007  between  BCP  Ingredients,   Inc.  and
                                    Chinook Global  Limited;  Chinook  Services,
                                    LLC;  Chinook,  LLC;  Dean R.  Lacy;  Ronald
                                    Breen, and John N. Kennedy  (incorporated by
                                    reference to Exhibit  10.2 to the  Company's
                                    Current  Report on Form 8-K dated  March 21,
                                    2007).

          Exhibit 32.6              Loan  Agreement  dated March 16, 2007 by and
                                    between  Bank of America,  N.A.  and Balchem
                                    Corporation  (incorporated  by  reference to
                                    Exhibit 10.3 to the Company's Current Report
                                    on Form 8-K dated March 21, 2007).

          Exhibit 32.7              Promissory  Note (Term Loan) dated March 16,
                                    2007  from  Balchem  Corporation  to Bank of
                                    America, N.A.  (incorporated by reference to
                                    Exhibit 10.4 to the Company's Current Report
                                    on Form 8-K dated March 21, 2007).

          Exhibit 32.8              Promissory  Note  (Revolving Line of Credit)
                                    dated   March   16,   2007   from    Balchem
                                    Corporation   to  Bank  of   America,   N.A.
                                    (incorporated  by  reference to Exhibit 10.5
                                    to the Company's  Current Report on Form 8-K
                                    dated March 21, 2007).

                                       30
<page>

          Exhibit 32.9              Guaranty  dated  March  16,  2007  from  BCP
                                    Ingredients,  Inc. to Bank of America,  N.A.
                                    (incorporated  by  reference to Exhibit 10.6
                                    to the Company's  Current Report on Form 8-K
                                    dated March 21, 2007).

          Exhibit 32.10             Guaranty  dated March 16, 2007 from  Balchem
                                    Minerals  Corporation  to Bank  of  America,
                                    N.A.  (incorporated  by reference to Exhibit
                                    10.7 to the Company's Current Report on Form
                                    8-K dated March 21, 2007).

          Exhibit 32.11             Sale and Purchase  Agreement dated March 30,
                                    2007,  by and between  Balchem B.V. and Akzo
                                    Nobel  Chemicals  S.p.A.   (incorporated  by
                                    reference  to Exhibit  2.1 to the  Company's
                                    Current  Report on Form 8-K  dated  April 4,
                                    2007).



                                       31