FORM
10-Q





SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





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


For The
Quarterly Period Ended June 30, 2008


or


o
            Transition
      Report Pursuant to Section 13 or 15(d) ofthe
      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)




845-326-5600Registrant’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  þ                                 No  o





Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.





Large
      accelerated filer o
            Accelerated
      filer þNon-accelerated
      filer o
            Smaller
      reporting companyo





Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


Yes o No þ





As of
August 1, 2008 the registrant had 18,175,909 shares of its Common Stock, $.06
2/3 par value, outstanding.













Part
      1 - Financial InformationItem
      1.  Financial StatementsBALCHEM
      CORPORATIONCondensed
      Consolidated Balance Sheets(Dollars
      in thousands, except per share data)Unaudited
  Assets
              
              June
      30, 2008
              
              
              December
      31, 2007Current
      assets:Cash
      and cash equivalents
              
              $
              2,642
              
              
              $
              2,307Accounts
      receivable, net
              
              
              35,500
              
              
              
              29,640Inventories
              
              
              19,398
              
              
              
              15,680Prepaid
      expenses
              
              
              1,465
              
              
              
              2,456Deferred
      income taxes
              
              
              548
              
              
              
              515Other
      current assets
              
              
              1,779
              
              
              
              1,871Total
      current assets
              
              
              61,332
              
              
              
              52,469Property,
      plant and equipment, net
              
              
              43,630
              
              
              
              42,080Goodwill
              
              
              26,398
              
              
              
              26,363Intangible
      assets with finite lives, net
              
              
              31,710
              
              
              
              33,451Other
      assets
              
              
              66
              
              
              
              61Total
      assets
              
              $
              163,136
              
              
              $
              154,424Liabilities and
      Stockholders' EquityCurrent
      liabilities:Trade
      accounts payable
              
              $
              13,439
              
              
              $
              11,190Accrued
      expenses
              
              
              10,949
              
              
              
              10,516Customer
      deposits and other deferred revenue
              
              
              -
              
              
              
              42Current
      portion of long-term debt
              
              
              7,493
              
              
              
              7,379Dividends
      payable
              
              
              -
              
              
              
              1,975Income
      taxes payable
              
              
              1,799
              
              
              
              2,019Revolver
      borrowings
              
              
              4,770
              
              
              
              3,209Total
      current liabilities
              
              
              38,450
              
              
              
              36,330Long-term
      debt
              
              
              11,773
              
              
              
              17,398Deferred
      income taxes
              
              
              5,879
              
              
              
              6,087Other
      long-term obligations
              
              
              1,579
              
              
              
              1,529Total
      liabilities
              
              
              57,681
              
              
              
              61,344Commitments
      and contingencies (note 13)Stockholders'
      equity:Preferred
      stock, $25 par value. Authorized 2,000,000shares;
      none issued and outstanding
              
              
              -
              
              
              
              -Common
      stock, $.0667 par value. Authorized 60,000,000 shares; 18,165,868 shares
      issuedand
      outstanding at June 30, 2008 and 17,979,353 shares issued and outstanding
      atDecember
      31, 2007
              
              
              817
              
              
              
              804Additional
      paid-in capital
              
              
              17,265
              
              
              
              14,286Retained
      earnings
              
              
              87,205
              
              
              
              77,840Accumulated
      other comprehensive income
              
              
              168
              
              
              
              150Total
      stockholders' equity
              
              
              105,455
              
              
              
              93,080Total
      liabilities and stockholders' equity
              
              $
              163,136
              
              
              $
              154,424
  See
      accompanying notes to condensed consolidated financial
      statements.






2




BALCHEM
      CORPORATIONCondensed
      Consolidated Statements of Earnings(Dollars
      in thousands, except per share data)(unaudited)
  Three
      Months Ended
              
              
              Six
      Months EndedJune
      30,
              
              
              June
      30,2008
              
              
              2007
              
              
              2008
              
              
              2007Net
      sales
              
              $
              62,901
              
              
              $
              44,371
              
              
              $
              119,762
              
              
              $
              71,970Cost
      of sales
              
              
              49,950
              
              
              
              32,189
              
              
              
              93,328
              
              
              
              50,047Gross
      margin
              
              
              12,951
              
              
              
              12,182
              
              
              
              26,434
              
              
              
              21,923Operating
      expenses:Selling
      expenses
              
              
              3,068
              
              
              
              3,194
              
              
              
              6,387
              
              
              
              5,322Research
      and development expenses
              
              
              701
              
              
              
              615
              
              
              
              1,483
              
              
              
              1,184General
      and administrative expenses
              
              
              1,942
              
              
              
              1,584
              
              
              
              3,920
              
              
              
              3,2865,711
              
              
              
              5,393
              
              
              
              11,790
              
              
              
              9,792Earnings
      from operations
              
              
              7,240
              
              
              
              6,789
              
              
              
              14,644
              
              
              
              12,131Other
      expenses (income):Interest
      income
              
              
              (24
              )
              
              
              (29
              )
              
              
              (49
              )
              
              
              (74
              )Interest
      expense
              
              
              247
              
              
              
              527
              
              
              
              570
              
              
              
              611Other,
      net
              
              
              16
              
              
              
              (76
              )
              
              
              (69
              )
              
              
              (87
              )Earnings
      before income tax expense
              
              
              7,001
              
              
              
              6,367
              
              
              
              14,192
              
              
              
              11,681Income
      tax expense
              
              
              2,277
              
              
              
              2,302
              
              
              
              4,827
              
              
              
              4,175Net
      earnings
              
              $
              4,724
              
              
              $
              4,065
              
              
              $
              9,365
              
              
              $
              7,506Net
      earnings per common share - basic
              
              $
              0.26
              
              
              $
              0.23
              
              
              $
              0.52
              
              
              $
              0.42Net
      earnings per common share - diluted
              
              $
              0.25
              
              
              $
              0.22
              
              
              $
              0.50
              
              
              $
              0.41


See
accompanying notes to condensed consolidated financial
statements.




3




BALCHEM
      CORPORATIONCondensed
      Consolidated Statements of Cash Flows(Dollars
      in thousands)(unaudited)
  Six
      Months EndedJune
      30,2008
              
              
              2007Cash
      flows from operating activities:Net
      earnings
              
              $
              9,365
              
              
              $
              7,506Adjustments
      to reconcile net earnings tonet
      cash provided by operating activities:Depreciation
      and amortization
              
              
              3,832
              
              
              
              2,761Shares
      issued under employee benefit plans
              
              
              252
              
              
              
              235Deferred
      income taxes
              
              
              (230
              )
              
              
              (164
              )Foreign
      currency transaction (gain) loss
              
              
              (81
              )
              
              
              -Stock
      compensation expense
              
              
              1,244
              
              
              
              784Gain
      on sale of equipment
              
              
              -
              
              
              
              (11
              )Other
              
              
              -
              
              
              
              10Changes
      in assets and liabilities net of effects of acquisition:Accounts
      receivable
              
              
              (5,198
              )
              
              
              (10,174
              )Inventories
              
              
              (3,458
              )
              
              
              (702
              )Prepaid
      expenses and other current assets
              
              
              1,218
              
              
              
              218Income
      taxes
              
              
              (278
              )
              
              
              458Customer
      deposits and other deferred revenue
              
              
              (42
              )
              
              
              (590
              )Accounts
      payable and accrued expenses
              
              
              1,884
              
              
              
              1,475Other
      long-term obligations
              
              
              31
              
              
              
              436Net
      cash provided by operating activities
              
              
              8,539
              
              
              
              2,242Cash
      flows from investing activities:Capital
      expenditures
              
              
              (2,845
              )
              
              
              (1,807
              )Proceeds
      from sale of property, plant and equipment
              
              
              -
              
              
              
              11Intangible
      assets acquired
              
              
              (74
              )
              
              
              (84
              )Acquisition
      of assets
              
              
              (39
              )
              
              
              (40,672
              )Net
      cash used in investing activities
              
              
              (2,958
              )
              
              
              (42,552
              )Cash
      flows from financing activities:Proceeds
      from long-term borrowings
              
              
              -
              
              
              
              38,946Proceeds
      from short-term borrowings
              
              
              -
              
              
              
              3,554Revolver
      borrowings
              
              
              2,345
              
              
              
              -Revolver
      repayments
              
              
              (1,000
              )
              
              
              -Principal
      payments on long-term debt
              
              
              (6,220
              )
              
              
              (1,450
              )Proceeds
      from stock options exercised
              
              
              915
              
              
              
              485Excess
      tax benefits from stock compensation
              
              
              581
              
              
              
              500Dividends
      paid
              
              
              (1,975
              )
              
              
              (1,596
              )Net
      cash (used in) provided by financing activities
              
              
              (5,354
              )
              
              
              40,439Effect
      of exchange rate changes on cash
              
              
              108
              
              
              
              (6
              )Increase
      in cash and cash equivalents
              
              
              335
              
              
              
              123Cash
      and cash equivalents beginning of period
              
              
              2,307
              
              
              
              5,189Cash
      and cash equivalents end of period
              
              $
              2,642
              
              
              $
              5,312




See
accompanying notes to condensed consolidated financial statements.






4




BALCHEM
      CORPORATIONCondensed
      Consolidated Statements of Comprehensive Income(Dollars
      in thousands)(unaudited)
  Three
      Months Ended
              
              
              Six
      Months EndedJune
      30,
              
              
              June
      30,2008
              
              
              2007
              
              
              2008
              
              
              2007Net
      earnings
              
              $
              4,724
              
              
              $
              4,065
              
              
              
              9,365
              
              
              $
              7,506Other
      comprehensive income, net of tax:Unfunded
      postretirement benefit plan - prior service cost and gainamortized
      during period
              
              
              -
              
              
              
              (3
              )
              
              
              (4
              )
              
              
              (7
              )Other
              
              
              13
              
              
              
              8
              
              
              
              22
              
              
              
              8Comprehensive
      income
              
              $
              4,737
              
              
              $
              4,070
              
              
              
              9,383
              
              
              $
              7,507




See
accompanying notes to condensed consolidated financial statements.






5





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, 2007 consolidated financial statements, and should be read in
conjunction with the consolidated financial statements and notes, which appear
in the Annual Report on Form 10-K for the year ended December 31, 2007.
References in this report to the “Company” mean either Balchem Corporation or
Balchem Corporation and its subsidiaries, including BCP Ingredients, Inc.,
Balchem Minerals Corporation, and Balchem B.V., on a consolidated basis, 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. Certainprioryearamountshavebeen
reclassified toconformto current year
presentation. The results of operations for the six months ended June 30, 2008
are not necessarily indicative of the operating results expected for the full
year or any interim period.





NOTE 2 - STOCKHOLDERS’
EQUITY





STOCK-BASED
COMPENSATION





The
Company records stock-based compensation in accordance with the provisions of
Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004),
“Share Based Payment” (“SFAS 123R”). The Company’s results for the three and six
months ended June 30, 2008 and 2007 reflected the following stock-based
compensation cost, and such compensation cost had the following effects on net
earnings and basic and diluted earnings per share:





Three Months
              Ended
              June
      30, 2008
            
            
            Three Months
              Ended
              June
      30, 2007Cost
      of sales
            
            $
            66
            
            
            $
            44Operating
      expenses
            
            
            556
            
            
            
            348Net
      earnings
            
            
            (410
            )
            
            
            (265
            )Basic
      earnings per common share
            
            
            (0.02
            )
            
            
            (0.01
            )Diluted
      earnings per common share
            
            $
            (0.02
            )
            
            $
            (0.01
            )








6








Six Months
              Ended
              June
      30, 2008
            
            
            Six Months
              Ended
              June
      30, 2007Cost
      of sales
            
            $
            132
            
            
            $
            87Operating
      expenses
            
            
            1,112
            
            
            
            697Net
      earnings
            
            
            (822
            )
            
            
            (534
            )Basic
      earnings per common share
            
            
            (0.05
            )
            
            
            (0.03
            )Diluted
      earnings per common share
            
            $
            (0.04
            )
            
            $
            (0.03
            )








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 SFAS123R, 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 $364 and $581
for the three and six months ended June 30, 2008 respectively, and by $114 and
$500 for the three and six months ended June 30, 2007,
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 Company has approved and reserved a number of
shares to be issued upon exercise of the outstanding options that is adequate to
cover all exercises. As of June 30, 2008, the plans had 4,000,000 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 four to 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.











7








Option activity for the six months
ended June 30, 2008 and 2007 is summarized below:





For
      the six months ended
              June
      30, 2008
            
            Shares
      (000s)
            
            
            Weighted
              Average
              Exercise
              Price
            
            
            Aggregate
              Intrinsic
              Value
              ($000s)
            
            
            Weighted
              Average
              Remaining
              Contractual
              TermOutstanding
      as of December 31, 2007
            
            
            1,944
            
            
            $
            10.66
            
            
            $
            22,786Granted
            
            
            307
            
            
            
            20.41Exercised
            
            
            (112
            )
            
            
            8.14Expired
            
            
            -
            
            
            
            -Forfeited
            
            
            -
            
            
            
            -Outstanding
      as of
              June
      30, 2008
            
            
            2,139
            
            
            $
            12.19
            
            
            $
            23,402
            
            
            
            6.7Exercisable
      as of
              June
      30, 2008
            
            
            1,414
            
            
            $
            9.25
            
            
            $
            19,624
            
            
            
            5.7








For
      the six months ended
              June
      30, 2007
            
            Shares
      (000s)
            
            
            Weighted
              Average
              Exercise
              Price
            
            
            Aggregate
              Intrinsic
              Value
              ($000s)
            
            
            Weighted
              Average
              Remaining
              Contractual
              TermOutstanding
      as of December 31, 2006
            
            
            2,170
            
            
            $
            10.13
            
            
            $
            15,168Granted
            
            
            3
            
            
            
            17.86Exercised
            
            
            (125
            )
            
            
            3.87Expired
            
            
            -
            
            
            
            -Forfeited
            
            
            (13
            )
            
            
            14.01Outstanding
      as of
              June
      30, 2007
            
            
            2,035
            
            
            $
            10.51
            
            
            $
            15,595
            
            
            
            7.1Exercisable
      as of
              June
      30, 2007
            
            
            1,206
            
            
            $
            7.91
            
            
            $
            12,380
            
            
            
            6.2





SFAS 123R
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 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 0.4% and 0.3%; expected volatilities of 33% and
27%; risk-free interest rates of 3.7% and 4.1%; and expected lives of 3.4 and
3.7, in each case for the six months ended June 30, 2008 and 2007,
respectively.





The
Company used a projected expected life for each award granted based on
historical experience of employees’ exercise behavior. Expected volatility is
based on the Company’s historical volatility levels. 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





Other
information pertaining to option activity during the three and six months ended
June 30, 2008 and 2007 was as follows:





Three
      Months Ended
              June
      30,
            
            
            Six
      Months Ended
              June
      30,2008
            
            
            2007
            
            
            2008
            
            
            2007Weighted-average
      fair value of options granted
            
            $
            N/A
            
            
            $
            6.47
            
            
            $
            6.38
            
            
            $
            6.47Total
      intrinsic value of stock options exercised ($000s)
            
            $
            1,048
            
            
            $
            312
            
            
            $
            1,658
            
            
            $
            1,513





There
were no options granted for the three months ended June 30, 2008.





Non-vested
restricted stock activity for the six months ended June 30, 2008 and 2007 is
summarized below:





Six
      months ended June 30, 2008
            
            Shares
      (000s)
            
            
            Weighted
      Average Grant Date FairValueNon-vested
      balance as of December 31, 2007
            
            
            118
            
            
            $
            16.49Granted
            
            
            73
            
            
            
            20.77Vested
            
            
            -
            
            
            
            -Forfeited
            
            
            -
            
            
            
            -Non-vested
      balance as of June 30, 2008
            
            
            191
            
            
            $
            18.10





Six
      months ended June 30, 2007
            
            Shares
      (000s)
            
            
            Weighted
      Average GrantDate Fair ValueNon-vested
      balance as of December 31, 2006
            
            
            113
            
            
            $
            16.40Granted
            
            
            5
            
            
            
            18.61Vested
            
            
            -
            
            
            
            -Forfeited
            
            
            -
            
            
            
            -Non-vested
      balance as of June 30, 2007
            
            
            118
            
            
            $
            16.49





As of
June 30, 2008 and 2007, there was $4,729 and $3,299, respectively, of total
unrecognized compensation cost related to non-vested share-based compensation
arrangements granted under the plans. As of June 30, 2008, the unrecognized
compensation cost is expected to be recognized over a weighted-average period of
2 years. The Company estimates that share-based compensation expense for the
year ended December 31, 2008 will be approximately $2,343.





REPURCHASE
OF COMMON STOCK





In June
2005, the board of directors approved an extension of and an increased
authorization to the Company’s stock repurchase program. The total authorization
under this program is 2,508,692 shares. Since the inception of the program, a
total of 1,307,867 shares have been purchased, none of which remained in
treasury at June 30, 2008 or 2007.  During the six months ended June 30,
2008, 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.





9








NOTE 3 –
ACQUISITIONS





Akzo Nobel
Acquisition





Effective
April 30, 2007, pursuant to an asset purchase agreement dated March 30, 2007
(the “Akzo Nobel Asset Purchase Agreement”), 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 (the “Akzo Nobel Acquisition”) for a
purchase price, including acquisition costs, of approximately $7,800.





The Akzo
Nobel 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
allocation of the total purchase price, including acquisition costs, was based
on the estimated fair values as of April 30, 2007. The purchase price has been
allocated as follows:





Fair
      Value Recorded
              in
      Purchase AccountingProperty
      plant & equipment
            
            $
            7,994Short-term
      receivable
            
            
            2,462Inventories
            
            
            4,323Goodwill
            
            
            1,123Other
            
            
            83Accounts
      payable and accrued expenses
            
            
            (8,213
            )Total
            
            $
            7,772





Chinook
Acquisition





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,
including acquisition costs, of approximately $33,000.  The
acquisition closed effective the same date.




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 allocation of the total purchase price, including acquisition
costs, was based on the estimated fair values as of March 16, 2007. The purchase
price has been allocated as follows:








10











Fair
      Value Recorded
              in
      Purchase
              AccountingCustomer
      list
            
            $
            29,262Inventory
            
            
            1,840Short-term
      receivable
            
            
            1,850Other
            
            
            73Total
            
            $
            33,025





The
short-term receivable was included in other current assets.





Pro
Forma Summary of Operations





The
following unaudited pro forma information has been prepared as if the Chinook
Acquisition had occurred on January 1, 2007 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 Chinook Acquisition had occurred
at the beginning of the period presented and is not intended to be a projection
of future results.





Pro
      Forma
              Six
      Months EndedJune
      30,2007Net
      sales
            
            $
            80,957Net
      earnings
            
            
            7,978Basic
      EPS
            
            
            .45Diluted
      EPS
            
            
            .43





NOTE 4 -
INVENTORIES





Inventories
at June 30, 2008 and December 31, 2007 consisted of the following:





June
      30,
              2008
            
            
            December
      31,
              2007Raw
      materials
            
            $
            9,106
            
            
            $
            6,522Work
      in progress
            
            
            407
            
            
            
            818Finished
      goods
            
            
            9,885
            
            
            
            8,340Total
      inventories
            
            $
            19,398
            
            
            $
            15,680





NOTE 5 - PROPERTY, PLANT AND
EQUIPMENT





Property,
plant and equipment at June 30, 2008 and December 31, 2007 are summarized as
follows:





11














June
      30,
              2008
            
            
            December
      31,
              2007Land
            
            $
            2,261
            
            
            $
            2,152Building
            
            
            15,849
            
            
            
            15,520Equipment
            
            
            47,277
            
            
            
            45,599Construction
      in progress
            
            
            4,542
            
            
            
            3,06769,929
            
            
            
            66,338Less:
      accumulated depreciation
            
            
            26,299
            
            
            
            24,258Net
      property, plant and equipment
            
            $
            43,630
            
            
            $
            42,080





NOTE 6 – INTANGIBLE
ASSETS





The
Company had goodwill in the amount of $26,398 and $26,363 at June 30, 2008 and
December 31, 2007, respectively, subject to the provisions of SFAS Nos. 141 and
142.





As of
June 30, 2008 and December 31, 2007, the Company had identifiable intangible
assets with finite lives with a gross carrying value of approximately $37,324
and $37,248, respectively, less accumulated amortization of $5,614 and $3,797,
respectively.  For the six months ended June 30, 2008, the increase in
the gross carrying amount is primarily attributable to patent, regulatory
re-registration and trademark costs.





Identifiable
intangible assets with finite lives at June 30, 2008 and December 31, 2007 are
summarized as follows:





Amortization
              Period
              (in
      years)
            
            
            Gross
              Carrying
              Amount
      at
              6/30/08
            
            
            Accumulated
              Amortization
              at
      6/30/08
            
            
            Gross
              Carrying
              Amount
      at
              12/31/07
            
            
            Accumulated
              Amortization
              at
      12/31/07Customer
      lists
            
            
            10
            
            
            $
            34,150
            
            
            $
            4,884
            
            
            $
            34,150
            
            
            $
            3,178Regulatory
      re-registration costs
            
            
            10
            
            
            
            57
            
            
            
            1
            
            
            
            28
            
            
            
            -Patents
      & trade secrets
            
            
            15-17
            
            
            
            1,658
            
            
            
            358
            
            
            
            1,621
            
            
            
            311Trademarks
      & trade names
            
            
            17
            
            
            
            892
            
            
            
            172
            
            
            
            884
            
            
            
            146Other
            
            
            5
            
            
            
            567
            
            
            
            199
            
            
            
            565
            
            
            
            162$
            37,324
            
            
            $
            5,614
            
            
            $
            37,248
            
            
            $
            3,797





Amortization
of identifiable intangible assets was $1,818 for the first six months of 2008.
Assuming no change in the gross carrying value of identifiable intangible
assets, the estimated amortization expense for the remainder of 2008 is $1,831
and approximately $3,600 per annum for 2009 through 2013. At June 30, 2008,
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 condensed
consolidated balance sheets. There were no changes to the useful lives of
intangible assets subject to amortization during the six months ended June 30,
2008.





NOTE 7 – 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:








12








Three
      months ended June 30, 2008
            
            Net
              Earnings
              (Numerator)
            
            
            Number
      of
              Shares
              (Denominator)
            
            
            Per
      Share
              AmountBasic
      EPS – Net earnings and weighted average common shares
      outstanding
            
            $
            4,724
            
            
            
            17,957,938
            
            
            $
            .26Effect
      of dilutive securities – stock options and restricted
stock
            
            
            
            
            
            
            1,036,788Diluted
      EPS – Net earnings and weighted average common shares outstanding and
      effect of stock options and restricted stock
            
            $
            4,724
            
            
            
            18,994,726
            
            
            $
            .25





Three
      months ended June 30, 2007
            
            Net
              Earnings
              (Numerator)
            
            
            Number
      of
              Shares
              (Denominator)
            
            
            Per
      Share
              AmountBasic
      EPS – Net earnings and weighted average common shares
      outstanding
            
            $
            4,065
            
            
            
            17,752,226
            
            
            $
            .23Effect
      of dilutive securities – stock options and restricted
stock
            
            
            
            
            
            
            826,959Diluted
      EPS – Net earnings and weighted average common shares outstanding and
      effect of stock options and restricted stock
            
            $
            4,065
            
            
            
            18,579,185
            
            
            $
            .22











Six
      months ended June 30, 2008
            
            Net
              Earnings
              (Numerator)
            
            
            Number
      of
              Shares
              (Denominator)
            
            
            Per
      Share
              AmountBasic
      EPS – Net earnings and weighted average common shares
      outstanding
            
            $
            9,365
            
            
            
            17,921,505
            
            
            $
            .52Effect
      of dilutive securities – stock options and restricted
stock
            
            
            
            
            
            
            994,264Diluted
      EPS – Net earnings and weighted average common shares outstanding and
      effect of stock options and restricted stock
            
            $
            9,365
            
            
            
            18,915,769
            
            
            $
            .50








Six
      months ended June 30, 2007
            
            Net
              Earnings
              (Numerator)
            
            
            Number
      of
              Shares
              (Denominator)
            
            
            Per
      Share
              AmountBasic
      EPS – Net earnings and weighted average common shares
      outstanding
            
            $
            7,506
            
            
            
            17,724,581
            
            
            $
            .42Effect
      of dilutive securities – stock options and restricted
stock
            
            
            
            
            
            
            762,434Diluted
      EPS – Net earnings and weighted average common shares outstanding and
      effect of stock options and restricted stock
            
            $
            7,506
            
            
            
            18,487,015
            
            
            $
            .41








13








The
Company had stock options covering 307,500 and 286,900 shares at June 30, 2008
and 2007, 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 8 – INCOME
TAXES





The
Company adopted the provisions of FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes”, or FIN 48, on January 1, 2007.  FIN 48
clarifies whether or not to recognize assets or liabilities for tax positions
taken that may be challenged by a tax authority.  Upon adoption of FIN
48, the Company recognized approximately a $291 decrease in its retained
earnings balance.  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 statements of earnings. The total amount of accrued interest and
penalties related to uncertain tax positions at June 30, 2008 was approximately
$130 and is included in other long-term obligations. All of the unrecognized tax
benefits, if recognized in future periods, would impact the Company’s effective
tax rate. The Company files income tax returns in the U.S. and in various states
and foreign countries. In the major jurisdictions where the Company operates, it
is generally no longer subject to income tax examinations by tax authorities for
years before 2004. There was not a significant change in the liabilities for
unrecognized tax benefits during the six months ended June 30,
2008.





NOTE 9 - SEGMENT
INFORMATION





Effective
with the quarter ending March 31, 2008, the Company realigned its business
segment reporting structure to more appropriately reflect the internal
management of the businesses, largely due to the impact of the recent
acquisitions of 2007. The Company will continue to report three segments:
Specialty Products; Food, Pharma & Nutrition; and Animal Nutrition &
Health. Changes to the reporting segments are as follows: chelated minerals and
specialty nutritional products for the animal health industry, formerly reported
as a part of the encapsulated/nutritional products segment, are now combined
with the choline business (formerly BCP Ingredients) into a consolidated Animal
Nutrition & Health segment. The encapsulated/nutritional products segment
has been renamed Food, Pharma & Nutrition, focusing on human health. There
are no changes to the Specialty Products segment. Net sales and earnings before
income taxes have been reclassified for all periods presented to reflect the
segment changes.





Business
Segment Net Sales:








Three
      Months Ended
            
            
            Six
      Months EndedJune
      30,
            
            
            June
      30,2008
            
            
            2007
            
            
            2008
            
            
            2007Specialty
      Products
            
            $
            8,816
            
            
            $
            8,367
            
            
            $
            17,266
            
            
            $
            16,428Food,
      Pharma & Nutrition
            
            
            9,471
            
            
            
            7,922
            
            
            
            18,760
            
            
            
            15,134Animal
      Nutrition & Health
            
            
            44,614
            
            
            
            28,082
            
            
            
            83,736
            
            
            
            40,408Total
            
            $
            62,901
            
            
            $
            44,371
            
            
            $
            119,762
            
            
            $
            71,970








14








Business
Segment Earnings Before Income Taxes:





Three
      Months Ended
            
            
            Six
      Months EndedJune
      30,
            
            
            June
      30,2008
            
            
            2007
            
            
            2008
            
            
            2007Specialty
      Products
            
            $
            2,720
            
            
            $
            3,053
            
            
            $
            5,318
            
            
            $
            5,956Food,
      Pharma & Nutrition
            
            
            1,670
            
            
            
            714
            
            
            
            3,198
            
            
            
            1,040Animal
      Nutrition & Health
            
            
            2,850
            
            
            
            3,022
            
            
            
            6,128
            
            
            
            5,135Interest
      and other expense
            
            
            (239
            )
            
            
            (422
            )
            
            
            (452
            )
            
            
            (450
            )Total
            
            $
            7,001
            
            
            $
            6,367
            
            
            $
            14,192
            
            
            $
            11,681





The
following table summarizes domestic (U.S.) and foreign sales for the three and
six months ended June 30, 2008 and June 30, 2007:





Three
      Months Ended
            
            
            Six
      Months EndedJune
      30,
            
            
            June
      30,2008
            
            
            2007
            
            
            2008
            
            
            2007Domestic
            
            $
            35,771
            
            
            $
            31,348
            
            
            $
            70,799
            
            
            $
            55,475Foreign
            
            
            27,130
            
            
            
            13,023
            
            
            
            48,963
            
            
            
            16,495Total
            
            $
            62,901
            
            
            $
            44,371
            
            
            $
            119,762
            
            
            $
            71,970





NOTE 10 – SUPPLEMENTAL CASH
FLOW INFORMATION





Cash paid
during the six months ended June 30, 2008 and 2007 for income taxes and
interest, net of capitalized interest is as follows:





Six
      months endedJune
      30,2008
            
            
            2007Income
      taxes
            
            $
            4,965
            
            
            $
            3,295Interest,
      net of capitalized interest
            
            $
            524
            
            
            $
            557





Other
supplemental non-cash transactions resulting from acquisitions are described in
Notes 3 and 11, as well as per the table below for the Akzo Nobel
Acquisition.





Cash Paid
for the Akzo Nobel Acquisition:





Fair
      value of assets acquired
            
            $
            15,985Less
      liabilities assumed
            
            
            (8,213
            )Total
      cash paid
            
            $
            7,772





NOTE 11 – LONG-TERM DEBT AND
CREDIT AGREEMENTS





On April
30, 2007, the Company, and its principal bank entered into a Loan Agreement (the
“European Loan Agreement”) providing for an unsecured term loan of €7,500,
translated to approximately $11,850 as of June 30, 2008 (the “European Term
Loan”), the proceeds of which were used to fund the Akzo Nobel Acquisition (see
Note 3) and initial





15





working
capital requirements. The European Term Loan is payable in equal monthly
installments of principal, each equal to 1/84th of the principal of the European
Term Loan, together with accrued interest, with remaining principal and interest
payable at maturity. The European Term Loan has a maturity date of May 1, 2010
and is subject to a monthly interest rate equal to EURIBOR plus 1%. At June 30,
2008, this interest rate was 5.46%. At June 30, 2008, the European Term
Loan had an outstanding balance of €6,339, translated to $10,015. The
European Loan Agreement also initially provided for a short-term revolving
credit facility of €2,000 (the "European Revolving Facility"). The European
Revolving Facility has been renewed for a period of one year as of May 1,
2008.  As part of this renewal, the European Loan Agreement was
amended to increase the European Revolving Facility to €3,000, translated to
$4,740 as of June 30, 2008. The European Revolving Facility is subject to a
monthly interest rate equal to EURIBOR plus 1.25%, and accrued interest is
payable monthly. The Company has drawn down €2,000, or $3,160 as translated
at June 30, 2008, of the European Revolving Facility as of June 30,
2008.





On March
16, 2007, the Company and its principal bank entered into a Loan Agreement (the
“Loan Agreement”) providing for an unsecured term loan of $29,000 (the “Term
Loan”), the proceeds of which were used to fund the Chinook Acquisition (see
Note 3). The Term Loan is payable in equal monthly installments of principal,
each equal to 1/60th of the principal of the Term Loan, together with accrued
interest, with remaining principal and interest payable at maturity. The Term
Loan has a maturity date of March 16, 2010 and is subject to a monthly interest
rate equal to LIBOR plus 1%. At June 30, 2008, this interest rate was 3.47%. As
of June 30, 2008, the Company has prepaid $12,500 of the Term Loan. At June 30,
2008, the Term Loan had an outstanding balance of $9,250. The Loan Agreement
also provides for a short-term revolving credit facility of $6,000 (the
"Revolving Facility"). The Revolving Facility is subject to a monthly interest
rate equal to LIBOR plus 1%, and accrued interest is payable monthly. The
Company has drawn down $1,610 of the Revolving Facility as of June 30, 2008. The
Revolving Facility has a maturity date of May 31, 2009.  Management
believes that such facility will be renewed in the normal course of
business.









NOTE 12 - EMPLOYEE BENEFIT
PLAN





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.





Net
periodic benefit cost for such retirement medical plan for the six months ended
June 30, 2008 and June 30, 2007 was as follows:











16








2008
            
            
            2007Service
      cost
            
            $
            14
            
            
            $
            15Interest
      cost
            
            
            20
            
            
            
            20Expected
      return on plan assets
            
            
            -
            
            
            
            -Amortization
      of transition obligation
            
            
            -
            
            
            
            -Amortization
      of prior service cost
            
            
            (9
            )
            
            
            (9
            )Amortization
      of gain
            
            
            (3
            )
            
            
            (2
            )Net
      periodic benefit cost
            
            $
            22
            
            
            $
            24





The
amount recorded on the Company’s balance sheet as of June 30, 2008 for this
obligation is $839. The plan is unfunded and approved claims are paid from
Company funds. Historical cash payments made under such plan approximated $50
per year.





NOTE 13 – COMMITMENTS AND
CONTINGENCIES





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 Company entered into a lease agreement with Loders under which the
Company leases a portion of Loders’ Channahon, Illinois facility where it
principally conducted the manufacturing portion of the acquired business and
utilized certain warehouse space. The initial term of the lease commenced in
February, 2006 and runs through September 30, 2010, subject to earlier
termination.





In
February 2002, the Company entered into a ten (10) year lease which is
cancelable in 2009 for approximately 20,000 square feet of office space. The
office space is now serving as the Company’s general offices and as a laboratory
facility. The Company leases most of its vehicles and office equipment under
non-cancelable operating leases, which expire at various times through 2013.
Rent expense charged to operations under such lease agreements for the six
months ended June 30, 2008 and 2007 aggregated approximately $584 and $380,
respectively. Aggregate future minimum rental payments required under
non-cancelable operating leases at June 30, 2008 are as follows:





YearJuly
      1, 2008 to December 31, 2008
            
            $
            5722009
            
            
            9732010
            
            
            4682011
            
            
            2832012
            
            
            178Thereafter
            
            
            329Total
      minimum lease payments
            
            $
            2,803





In 1982,
the Company discovered and thereafter removed a number of buried drums
containing unidentified waste material from the Company’s site in Slate Hill,
New York. The Company thereafter entered into a Consent Decree to evaluate the
drum site with the New York Department of Environmental Conservation (“NYDEC”)
and performed a Remedial Investigation/Feasibility Study that was approved by
NYDEC in February 1994. Based on NYDEC requirements, the Company cleaned the
area and removed additional soil from the drum burial site, which was completed
in 1996. The Company continues to be involved in discussions with NYDEC to
evaluate test results and determine what, if any, additional actions will be
required on the part of the Company to close out the remediation of this site.
Additional actions, if any, would likely require the Company to continue
monitoring the site. The cost of such monitoring has been less than $5 per year
for the period 2003 – 2007.





17





The
Company’s Verona, Missouri facility, while held by a prior owner, was designated
by the EPA as a Superfund site and placed on the National Priorities List in
1983, because of dioxin contamination on portions of the site. Remediation
conducted by the prior owner under the oversight of the EPA and the Missouri
Department of Natural Resources (“MDNR”) included removal of dioxin contaminated
soil and equipment, capping of areas of residual contamination in four
relatively small areas of the site separate from the manufacturing facilities,
and the installation of wells to monitor groundwater and surface water
contamination by organic chemicals. No ground water or surface water treatment
was required.  The Company believes that remediation of the site is
complete.  In 1998, the EPA certified the work on the contaminated
soils to be complete. In February 2000, after the conclusion of two years of
monitoring groundwater and surface water, the former owner submitted a draft
third party risk assessment report to the EPA and MDNR recommending no further
action. The prior owner is awaiting the response of the EPA and MDNR to the
draft risk assessment.





While the
Company must maintain the integrity of the capped areas in the remediation areas
on the site, the prior owner is responsible for completion of any further
Superfund remedy.  The Company is indemnified by the sellers under its
May 2001 asset purchase agreement covering its acquisition of the Verona,
Missouri facility for potential liabilities associated with the Superfund site
and one of the sellers, in turn, has the benefit of certain contractual
indemnification by the prior owner that is implementing the above-described
Superfund remedy.





From time
to time, the Company is a party to various litigation, claims and
assessments.  Management believes that the ultimate outcome of such
matters will not have a material effect on the Company’s consolidated financial
position, results of operations, or liquidity.





NOTE 14 – NEW ACCOUNTING
PRONOUNCEMENTS





In May
2008, FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting
Principles” (“SFAS 162”). SFAS 162 is intended to improve financial reporting by
identifying a consistent framework, or hierarchy, for selecting accounting
principles to be used in preparing financial statements that are presented in
conformity with U.S. generally accepted accounting principles (“GAAP”) for
nongovernmental entities. Prior to the issuance of SFAS No. 162, the GAAP
hierarchy was defined in the American Institute of Certified Public Accountants'
(AICPA) Statement on Auditing Standards (SAS) No. 69, “The Meaning of Present
Fairly in Conformity With Generally Accepted Accounting Principles.” SFAS No.
162 will be effective 60 days following the SEC's approval of the Public Company
Accounting Oversight Board (“PCAOB”) amendments to AU Section 411, “The Meaning
of Present Fairly in Conformity With Generally Accepted Accounting Principles.”
The Company does not expect the adoption of this statement to be significant to
its consolidated financial statements.





In April
2008, FASB issued FSP 142-3, “Determining the Useful Life of Intangible Assets”
("FSP 142-3"). FSP 142-3 amends the factors to be considered in determining the
useful life of intangible assets. Its intent is to improve the consistency
between the useful life of an intangible asset and the period of expected cash
flows used to measure its fair value. FSP 142-3 is effective for fiscal years
beginning after December 15, 2008. The







18





Company
is currently assessing the impact of FSP 142-3 on its consolidated financial
statements.







In June
2007, FASB ratified the consensus reached by the EITF on EITF Issue No. 07-3,
"Accounting for Nonrefundable Advance Payments for Goods or Services to Be Used
in Future Research and Development Activities" ("EITF 07-3"). EITF 07-3
addresses the diversity that exists with respect to the accounting for the
non-refundable portion of a payment made by a research and development entity
for future research and development activities. Under EITF 07-3, an entity would
defer and capitalize non-refundable advance payments made for research and
development activities until the related goods are delivered or the related
services are performed. The Company has reviewed the provisions of EITF 07-3 and
does not believe it will have a material impact on its financial condition or
results of operations.





In February 2007, FASB issued
SFAS No. 159, “The Fair Value Option for Financial Assets and
Financial Liabilities - Including an amendment of FASB Statement No. 115”
(“SFAS 159”). SFAS 159 permits an entity to measure certain financial
assets and financial liabilities at fair value. Entities electing the fair value
option will report unrealized gains and losses in earnings as of each subsequent
reporting date. The fair value option may be elected on an
instrument-by-instrument basis with few exceptions, as long as it is applied to
the instrument in its entirety. SFAS 159 establishes presentation and
disclosure requirements to help financial statement users understand the effect
of an entity’s election on its earnings. SFAS 159 requires prospective
application. If an entity elects the fair value option for items existing as of
the date of adoption, the difference between their carrying amount and fair
value should be included in a cumulative-effect adjustment to the opening
balance of retained earnings.   The provisions of SFAS 159
are effective for fiscal years beginning after November 15, 2007.  The
Company has adopted the provisions of this statement as of January 1, 2008 and
it did not have a material impact on its financial condition or results of
operations.





In
September 2006, FASB issued SFAS No. 157, "Fair Value Measurements"
("SFAS 157"). SFAS 157 defines fair value, establishes a framework for
measuring fair value in accordance with generally accepted accounting principles
and expands disclosures about fair value measurements. The provisions of
SFAS 157 are effective for fiscal years beginning after November 15,
2007. The Company has adopted the provisions of this statement as of January 1,
2008 and it did not have a material impact on its financial condition or results
of operations.








19





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 1A of our Annual Report on Form 10-K for the year ended
December 31, 2007 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. Effective with
the quarter ending March 31, 2008, the Company has realigned its business
segment reporting structure to more appropriately reflect the internal
management of the businesses, largely due to the impact of acquisitions in 2007.
The Company will continue to report three segments: Specialty Products; Food,
Pharma & Nutrition; and Animal Nutrition & Health. Changes to the
reporting segments are as follows: chelated minerals and specialty nutritional
products for the animal health industry, formerly reported as a part of the
encapsulated/nutritional products segment, are now combined with the choline
business (formerly BCP Ingredients) into a consolidated Animal Nutrition &
Health segment. The encapsulated/nutritional products segment has been renamed
Food, Pharma & Nutrition, focusing on human health. There are no changes to
the Specialty Products segment. Business segment net sales and earnings from
operations have been reclassified for all periods presented to reflect the
segment changes.





Specialty
Products





Our
Specialty Products segment operates in industry 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.





20








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 uses can include
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.





Food, Pharma &
Nutrition





The Food,
Pharma & Nutrition (“FP&N”) 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, and packaging applications and shelf-life.
 Major product applications are baked goods, refrigerated and frozen dough
systems, processed meats, seasoning blends, confections, and nutritional
supplements. We also market human grade choline nutrient products through this
segment for wellness applications. Choline is recognized to play a key role in
the development and structural integrity of brain cell membranes in infants,
processing dietary fat, reproductive development and neural functions, such as
memory and muscle function. The FP&N portfolio also includes granulated
calcium carbonate products, 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.





Animal Nutrition &
Health





Our
Animal Nutrition & Health (“AN&H”) segment provides the animal nutrition
market with nutritional products derived from our encapsulation and chelation
technologies in addition to basic choline chloride.  Commercial sales
of REASHURE®Choline,
an encapsulated choline product that boosts health and milk production in
transition and early lactation dairy cows, 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, 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 delivering niacin more
efficiently and helping to fight heat stress, and chelated mineral supplements
for use in animal feed throughout the world. Our proprietary chelation
technology provides enhanced nutrient absorption for various species of domestic
and companion animals.  AN&H also manufactures and supplies basic
choline chloride, an essential nutrient for animal health, predominantly to the
poultry and swine industries. Choline, which is manufactured and sold on both
dry and aqueous forms, 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 condition in swine. Certain derivatives
of choline chloride are also manufactured and sold into industrial applications.
AN&H also manufactures and sells methylamines.  Methylamines are a
primary building block for the manufacture of choline products and are also used
in a wide range of industrial applications.





21











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 from operations for the three and six months ended June 30,
2008 and June 30, 2007:





Business
Segment Net Sales:





Three
      Months Ended
            
            
            Six
      Months EndedJune
      30,
            
            
            June
      30,2008
            
            
            2007
            
            
            2008
            
            
            2007Specialty
      Products
            
            $
            8,816
            
            
            $
            8,367
            
            
            $
            17,266
            
            
            $
            16,428Food,
      Pharma & Nutrition
            
            
            9,471
            
            
            
            7,922
            
            
            
            18,760
            
            
            
            15,134Animal
      Nutrition & Health
            
            
            44,614
            
            
            
            28,082
            
            
            
            83,736
            
            
            
            40,408Total
            
            $
            62,901
            
            
            $
            44,371
            
            
            $
            119,762
            
            
            $
            71,970





Business
Segment Earnings From Operations:





Three
      Months Ended
            
            
            Six
      Months EndedJune
      30,
            
            
            June
      30,2008
            
            
            2007
            
            
            2008
            
            
            2007Specialty
      Products
            
            $
            2,720
            
            
            $
            3,053
            
            
            $
            5,318
            
            
            $
            5,956Food,
      Pharma & Nutrition
            
            
            1,670
            
            
            
            714
            
            
            
            3,198
            
            
            
            1,040Animal
      Nutrition & Health
            
            
            2,850
            
            
            
            3,022
            
            
            
            6,128
            
            
            
            5,135Total
            
            $
            7,240
            
            
            $
            6,789
            
            
            
            14,644
            
            
            
            12,131























22








RESULTS OF
OPERATIONS





Three
months ended June 30, 2008 compared to three months ended June 30,
2007





Net
Sales





Net sales
for the three months ended June 30, 2008 were $62,901, as compared with $44,371
for the three months ended June 30, 2007, an increase of $18,530 or 41.8%. Net
sales for the Specialty Products segment were $8,816 for the three months ended
June 30, 2008, as compared with $8,367 for the three months ended June 30, 2007,
an increase of $449 or 5.4%. This increase was principally due to an increase in
sales volume, along with price increases for products in this segment. Net sales
for the Food, Pharma & Nutrition segment were $9,471 for the three months
ended June 30, 2008 compared with $7,922 for the three months ended June 30,
2007, an increase of $1,549 or 19.6%.  This result was driven
principally by increased sales of nutritional products and pharmaceutical-grade
calcium.  Net sales of $44,614 were realized for the three months
ended June 30, 2008 for the Animal Nutrition & Health segment, as compared
with $28,082 for the prior year comparable quarter, an increase of $16,532 or
58.9%.  This result reflects incremental sales of approximately $8,000
from the Akzo Nobel Acquisition, as described in Note 3. Sales of our specialty
animal nutrition and health products, targeted for ruminant production animals
and companion animals, increased 68% in this period or equal to 16% of the
overall AN&H growth.





Operating
Expenses





Operating
expenses for the three months ended June 30, 2008 were $5,711, as compared to
$5,393 for the three months ended June 30, 2007, an increase of $318 or
5.9%.  This increase was due primarily to higher expenses relating to
accounting, tax services, and non-cash stock-based compensation recognition. We
also incurred approximately $156 of commercial development expenses toward our
pharmaceutical market initiatives in the quarter.  With these
increases, operating expenses were 9.1% of sales or 3.1 percentage points less
than the operating expenses as a percent of sales incurred in last year's
comparable quarter.  During the three months ended June 30, 2008 and
2007, the Company spent $701 and $615 respectively, on research and development
programs, substantially all of which pertained to the Company’s Food, Pharma
& Nutrition and Animal Nutrition & Health segments.





Business Segment Earnings
From Operations





Earnings
from operations for the three months ended June 30, 2008 increased to $7,240
compared to $6,789 for the three months ended June 30, 2007, an increase of $451
or 6.6%, due largely to the above-noted increase in sales. Earnings from
operations for the Specialty Products segment were $2,720, a decrease of $333 or
10.9%, as increases in sales volume and modest sales price increases were offset
by even higher raw material costs and the previously-noted increased expenses
relating to accounting, tax services, and non-cash stock-based compensation
recognition.  Earnings from operations for Food, Pharma &
Nutrition were $1,670, an increase of $956 or 133.9%, due largely to increased
sales of nutritional products and pharmaceutical-grade calcium. The improvement
in pharmaceutical-grade calcium sales resulted in approximately $600 of the
earnings improvement in this segment. Earnings from operations for Animal
Nutrition & Health,





23





while
favorably impacted by previously-noted increased sales volumes, decreased to
$2,850, a reduction of $172 or 5.7%, and were unfavorably affected by certain
petro-chemical raw material cost increases.





Earnings
from operations as a percentage of sales (“operating margin”) for the three
months ended June 30, 2008 decreased to 11.5% compared to 15.3% for the three
months ended June 30, 2007, principally a result of the previously-noted
acquisition-related sales which carry a lower profit margin than the Company’s
other business segments. In addition, despite the implementation of price
increases, we were not able to fully recover cost increases in certain
petro-chemical raw materials, which continued or trended up within the quarter.
The current raw material environment remains unpredictable. The Company is
continuing to focus on implementing price increases, productivity improvements,
and, most importantly, growth through new product development which should
result in improved operating margins in this segment.





Other Expenses
(Income)





Interest
income for the three months ended June 30, 2008 totaled $24 as compared to $29
for the three months ended June 30, 2007.  Interest expense was $247
for the three months ended June 30, 2008 compared to $527 for the three months
ended June 30, 2007.  This decrease is primarily attributable to the
decrease in average current and long-term debt resulting from both normal
recurring principal payments as well as accelerated payments of the term loan
used to fund the Chinook Acquisition (see Notes 3 and 11).  Other
expense of $16 for the three months ended June 30, 2008 is primarily the result
ofunfavorable
fluctuations in foreign currency exchange rates between the U.S. dollar (the
reporting currency) and functional foreign currencies.





Income Tax
Expense





The
Company’s effective tax rate for the three months ended June 30, 2008 and 2007
was 32.5% and 36.2%, respectively.  This decrease in the effective tax
rate is primarily attributable to a change in apportionment factors relating to
state income taxes, as well as a change in the income proportion towards
jurisdictions with lower tax rates.





Net
Earnings





Primarily
as a result of the above-noted increase in sales and lower effective tax rate,
partially offset by the noted raw material and operating expense increases, net
earnings were $4,724 for the three months ended June 30, 2008, as compared with
$4,065 for the three months ended June 30, 2007, an increase of
16.2%.





Six
months ended June 30, 2008 compared to six months ended June 30,
2007





Net
Sales





Net sales
for the six months ended June 30, 2008 were $119,762, as compared with $71,970
for the six months ended June 30, 2007, an increase of $47,792 or 66.4%. Net
sales for the Specialty Products segment were $17,266 for the six months ended
June 30, 2008, as compared with $16,428 for the six months ended June 30, 2007,
an increase of $838 or 5.1%. This increase was principally due to an increase in
sales volume, along with price increases for products in this
segment.  Net sales for the Food, Pharma &





24





Nutrition
segment were $18,760 for the six months ended June 30, 2008 compared with
$15,134 for the six months ended June 30, 2007, an increase of $3,626 or
24.0%.  This result was driven principally by increased sales of
pharmaceutical-grade calcium and nutritional products, as well as increased
product sales in both the domestic and international food
markets.  Net sales of $83,736 were realized for the six months ended
June 30, 2008 for the Animal Nutrition & Health segment, as compared with
$40,408 for the six months ended June 30, 2007, an increase of $43,328 or
107.2%.  This result reflects incremental sales of approximately
$38,000 from the customer list acquisition of Chinook Group Limited (“Chinook”)
and from the Akzo Nobel Acquisition, as described in Note 3.  For the
six months ending June 30, 2008, sales of our specialty animal nutrition and
health products, targeted for ruminant production animals and companion animals,
increased 49% or equal to 9% of the overall AN&H growth.





Operating
Expenses





Operating
expenses for the six months ended June 30, 2008 were $11,790, as compared to
$9,792 for the six months ended June 30, 2007, an increase of $1,998 or
20.4%.  This increase was due primarily to $736 of additional
amortization expense, plus sales and technical personnel expense associated with
the Chinook and Akzo Nobel acquisitions, as well as higher expenses relating to
accounting, tax services, and non-cash stock-based compensation recognition. We
also incurred approximately $320 of commercial development expenses toward our
pharmaceutical market initiatives in the six months ending June 30,
2008.  With these increases, operating expenses were 9.8% of sales or
3.8 percentage points less than the operating expenses as a percent of sales
incurred in the six months ending June 30, 2007.  During the six
months ended June 30, 2008 and 2007, the Company spent $1,483 and $1,184,
respectively, on research and development programs, substantially all of which
pertained to the Company’s Food, Pharma & Nutrition and Animal Nutrition
& Health segments.





Business Segment Earnings
From Operations





Earnings
from operations for the six months ended June 30, 2008 increased to $14,644
compared to $12,131 for the comparative six months ended June 30, 2007, an
increase of $2,513 or 20.7%, due largely to the above-noted increase in sales.
Earnings from operations for the Specialty Products segment were $5,318, a
decrease of $638 or 10.7%, as increases in sales volume and modest sales price
increases were offset by even higher raw material costs and the previously-noted
increased expenses relating to accounting, tax services, and non-cash
stock-based compensation recognition.  Earnings from operations for
Food, Pharma & Nutrition were $3,198, an increase of $2,158 or 207.5%, due
largely to increased sales of pharmaceutical-grade calcium and nutritional
products, as well as increased volumes sold in both the domestic and
international food markets.  Earnings from operations for Animal
Nutrition & Health, while unfavorably impacted by certain petro-chemical raw
material cost increases, improved to $6,128, an increase of $993 or 19.3%, and
were favorably affected by the previously-noted increased sales
volumes.





Earnings
from operations as a percentage of sales (“operating margin”) for the six months
ended June 30, 2008 decreased to 12.2% compared to 16.9% for the six months
ended June 30, 2007, principally a result of the previously-noted
acquisition-related sales which carry a lower profit margin than the Company’s
other business segments. In addition, despite the implementation of price
increases, we were not able to fully recover cost





25





increases
in certain petro-chemical raw materials, which continued or trended up within
the year. The current raw material environment remains unpredictable. The
Company is continuing to focus on implementing price increases, productivity
improvements, and, most importantly, growth through new product development
which should result in improved operating margins in this segment.





Other Expenses
(Income)





Interest
income for the six months ended June 30, 2008 totaled $49 as compared to $74 for
the six months ended June 30, 2007.  Interest expense was $570 for the
six months ended June 30, 2008 compared to $611 for the six months ended June
30, 2007.  This decrease is primarily attributable to lower interest
rates and the decrease in average current and long-term debt resulting from both
normal recurring principal payments as well as accelerated payments of the term
loan used to fund the Chinook Acquisition (see Notes 3 and 11).  Other
income of $69 for the six months ended June 30, 2008 is primarily the result
offavorable
fluctuations in foreign currency exchange rates between the U.S. dollar (the
reporting currency) and functional foreign currencies.





Income Tax
Expense





The
Company’s effective tax rate for the six months ended June 30, 2008 and 2007 was
34.0% and 35.7%, respectively.  This decrease in the effective tax
rate is primarily attributable to a change in apportionment factors relating to
state income taxes, as well as a change in the income proportion towards
jurisdictions with lower tax rates.





Net
Earnings





Primarily
as a result of the above-noted increase in sales and the noted raw material and
operating expense increases, net earnings were $9,365 for the six months ended
June 30, 2008, as compared with $7,506 for the six months ended June 30, 2007,
an increase of 24.8%.





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, if and when
paid, will be recorded as an additional cost of the acquired product
lines.  No such contingent consideration has been paid in
2008.





26





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),
long-term debt obligations and purchase obligations principally related to open
purchase orders for inventory not yet received or recorded on our balance
sheet.





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





During
the six months ended June 30, 2008, there were no material changes outside the
ordinary course of business in the specified contractualobligations set forth in our Annual Report on Form 10-K for the
year ended December 31, 2007.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 increased to $2,642 at June 30, 2008 from $2,307 at December
31, 2007 primarily resulting from the information detailed
below.  Working capital amounted to $22,882 at June 30, 2008 as
compared to $16,139 at December 31, 2007, an increase of $6,743.





Operating
Activities





Cash
flows from operating activities provided $8,539 for the six months ended June
30, 2008 compared to $2,242 for the six months ended June 30,
2007.  The increase in cash flows from operating activities was
primarily due to an increase in net earnings, accounts receivable collections,
depreciation and amortization, and stock compensation expense combined with a
decrease in prepaid expenses. The aforementioned increase in cash flows was
partially offset by an increase in inventories.





Investing
Activities





Capital
expenditures were $2,845 for the six months ended June 30, 2008 compared to
$1,807 for the six months ended June 30, 2007. Assets acquired during the six
months ended June 30, 2007 totaled $40,672, which was principally related to the
Chinook Acquisition and the Akzo Nobel Acquisition, as described in Note
3.





Financing
Activities





The
Company has a board of directors approved stock repurchase program. The total
authorization under this program is 2,508,692 shares. Since the inception of the
program, a total of 1,307,867 shares have been purchased, none of which remained
in treasury at June 30, 2008 or 2007.  During the six months ended June 30,
2008, no additional shares have been purchased. The Company intends to acquire
shares from time to time at





27





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 April
30, 2007, the Company, and its principal bank entered into a Loan Agreement (the
“European Loan Agreement”) providing for an unsecured term loan of €7,500,
translated to approximately $11,850 as of June 30, 2008 (the “European Term
Loan”), the proceeds of which were used to fund the Akzo Nobel Acquisition (see
Note 3) and initial working capital requirements. The European Term Loan is
payable in equal monthly installments of principal, each equal to 1/84th of the
principal of the European Term Loan, together with accrued interest, with
remaining principal and interest payable at maturity. The European Term Loan has
a maturity date of May 1, 2010 and is subject to a monthly interest rate equal
to EURIBOR plus 1%. At June 30, 2008, this interest rate was
5.46%.  At June 30, 2008, the European Term Loan had an outstanding
balance of €6,339, translated to $10,015. The European Loan Agreement also
initially provided for a short-term revolving credit facility of €2,000 (the
"European Revolving Facility"). The European Revolving Facility has been renewed
for a period of one year as of May 1, 2008.  As part of this renewal,
the European Loan Agreement was amended to increase the European Revolving
Facility to €3,000, translated to $4,740 as of June 30, 2008. The European
Revolving Facility is subject to a monthly interest rate equal to EURIBOR plus
1.25%, and accrued interest is payable monthly.  The Company has drawn
down €2,000, or $3,160 as translated at June 30, 2008, of the European Revolving
Facility as of June 30, 2008.





On March
16, 2007, the Company and its principal bank entered into a Loan Agreement (the
“Loan Agreement”) providing for an unsecured term loan of $29,000 (the “Term
Loan”), the proceeds of which were used to fund the Chinook Acquisition (see
Note 3). The Term Loan is payable in equal monthly installments of principal,
each equal to 1/60th of the principal of the Term Loan, together with accrued
interest, with remaining principal and interest payable at maturity. The Term
Loan has a maturity date of March 16, 2010 and is subject to a monthly interest
rate equal to LIBOR plus 1%. At June 30, 2008, this interest rate was 3.47%. As
of June 30, 2008, the Company has prepaid $12,500 of the Term Loan. At June 30,
2008, the Term Loan had an outstanding balance of $9,250. The Loan Agreement
also provides for a short-term revolving credit facility of $6,000 (the
"Revolving Facility"). The Revolving Facility is subject to a monthly interest
rate equal to LIBOR plus 1%, and accrued interest is payable monthly. The
Company has drawn down $1,610 of the Revolving Facility as of June 30, 2008. The
Revolving Facility has a maturity date of May 31, 2009.  Management
believes that such facility will be renewed in the normal course of
business.




Proceeds
from stock options exercised totaled $915 and $485 for the six months ended June
30, 2008 and 2007, respectively. Dividend payments were $1,975 and $1,596 for
the six months ended June 30, 2008 and 2007, respectively.









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 June 30, 2008 for this obligation is $839. The
postretirement plan is not funded. Historical cash payments made under such plan
have approximated $50 per year.





28








Critical Accounting
Policies





There
were no changes to the Company’s Critical Accounting Policies, as described in
its December 31, 2007 Annual Report on Form 10-K, during the six months ended
June 30, 2008.





Related Party
Transactions





The
Company was not engaged in related party transactions during the six months
ended June 30, 2008 and all transactions of the Company during such period were
at arms length.




















29








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.  As of June 30, 2008, the Company’s borrowings were under a
bank term loan bearing interest at LIBOR plus 1.00%, a second bank term loan
bearing interest at EURIBOR plus 1.00%, a revolving line of credit bearing
interest at LIBOR plus 1.00% and a second revolving line of credit bearing
interest at EURIBOR plus 1.25%.  A 100 basis point increase or
decrease in interest rates, applied to the Company’s borrowings at June 30,
2008, would result in an increase or decrease in annual interest expense and a
corresponding reduction or increase in cash flow of approximately $240. The
Company is exposed to market risks for changes in foreign currency rates and has
exposure to commodity price risks, including prices of our primary raw
materials. Our objective is to seek a reduction in the potential negative
earnings impact of changes in foreign exchange rates and raw material pricing
arising in our business activities. The Company manages these financial
exposures, where possible, through pricing and operational means. Our practices
may change as economic conditions change.










30





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.




















31








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, 2007.





Item
4.                   
   Submission of Matters to a Vote of Security
Holders.





On June
12, 2007, the Company held its Annual Meeting of stockholders.  The
following actions were voted upon at the meeting:





1.           The
following individuals were elected Class 3 directors to serve until the annual
meeting of stockholders in 2011 and until the election and qualification of
their respective successors.  A total of 16,387,785 shares were
represented in person or by proxy at the Annual Meeting. The numbers of shares
that were voted for, and that were withheld from, each of the director nominees
are as follows:





Director
            For
            Votes
      WithheldPerry W. Premdas
            15,968,359
            419,426Dr. John Y. Televantos
            15,731,671
            656,114





The terms
of our other directors, Mr. Edward L. McMillan, Mr. Kenneth P. Mitchell, Mr.
Dino A. Rossi and Dr. Elaine R. Wedral continued after the Annual
Meeting.





2.           The
stockholders approved an amendment to the Company’s Restated Articles of
Incorporation which increases the total number of shares of common stock the
Corporation has authority to issue from ten twenty-five million (25,000,000)
shares of common stock to sixty million (60,000,000) shares.




The
number of shares voted “for” approval, “against” approval and abstentions
are as follows:




For
            
            
            Against
            
            
            
            Abstain13,413,529
            
            
            2,960,253
            
            
            
            14,003





3.             The
stockholders approved the Second Amended and Restated 1999 Stock Plan as
follows:




For
            
            
            Against
            
            
            
            Abstain
            
            
            Broker
      Non-Vote8,946,500
            
            
            4,104,604
            
            
            
            841,851
            
            
            2,494,
      830








4.            
The shareholders approved the appointment of McGladrey & Pullen, LLP as the
Company’s independent registered public accounting firm for the 2008 fiscal year
by a vote of 16,248,037 in favor, and 131,360 against, and 8,388 stockholders
abstained.











32








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.





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
      CORPORATIONBy: /s/ Dino A.
      RossiDino
      A. Rossi, Chairman, President andChief
      Executive Officer








Date: August 5, 2008








33





Exhibit
Index





Exhibit
      No.
            DescriptionExhibit
      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.








34