UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                 ---------------
                                    FORM 10-K
                                 ---------------

         (Mark One)

|X|   ANNUAL REPORT PURSUANT TO SECTION 13 OR SECTION 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 2008
                                       OR

|_|   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

                For the transition period from _______ to _____ .

                         Commission file number: 1-13648

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

                               Balchem Corporation
             (Exact name of Registrant as specified in its charter)

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

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

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

           Securities registered pursuant to Section 12(b) of the Act:

<TABLE>
<CAPTION>
         Title of each class                            Name of each exchange on which registered
<S>                                                     <C>
         Common Stock, par value $.06-2/3 per share     Nasdaq Global Market
</TABLE>

        Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the Registrant is a well-known  seasoned  issuer,
as defined in Rule 405 of the Securities Act. Yes |_| No |X|

Indicate by check mark  whether the  Registrant  is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes |_| No |X|

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the Registrant was required
to file such reports),  and (2) has been subject to such filing requirements for
the past 90 days. Yes |X| No |_|

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|

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.

(Check one):  Large accelerated filer |_|         Accelerated filer |X|
              Non-accelerated filer |_|           Smaller reporting company |_|

<PAGE>

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

The aggregate  market value of the common stock issued and  outstanding and held
by non-affiliates of the Registrant, based upon the closing price for the common
stock  on  the  NASDAQ  Global  Market  on  June  30,  2008  was   approximately
$412,781,000. For purposes of this calculation, shares of the Registrant held by
directors   and  officers  of  the   Registrant   and  under  the   Registrant's
401(k)/profit sharing plan have been excluded.

The number of shares outstanding of the Registrant's common stock was 18,293,631
as of March 3, 2009.

                       DOCUMENTS INCORPORATED BY REFERENCE

Selected  portions  of the  Registrant's  proxy  statement  for its 2009  Annual
Meeting  of  Stockholders  (the  "2009  Proxy  Statement")  to be filed with the
Securities  and Exchange  Commission  pursuant to Regulation 14A within 120 days
after  Registrant's  fiscal  year-end of December 31, 2008 are  incorporated  by
reference in Part III of this Report.

<PAGE>

            Cautionary Statement Regarding Forward-Looking Statements
            ---------------------------------------------------------

      This  Annual  Report on Form 10-K  contains  "forward-looking  statements"
within the meaning of Section 21E of the  Securities  Exchange  Act of 1934,  as
amended.  Forward-looking statements are not statements of historical facts, but
rather reflect our current  expectations or beliefs concerning future events and
results. We generally use the words "believes,"  "expects,"  "intends," "plans,"
"anticipates,"   "likely,"   "will"  and   similar   expressions   to   identify
forward-looking  statements.  Such forward-looking  statements,  including those
concerning our  expectations,  involve risks,  uncertainties  and other factors,
some of which are  beyond  our  control,  which may  cause our  actual  results,
performance or achievements,  or industry  results,  to be materially  different
from any future  results,  performance or  achievements  expressed or implied by
such forward-looking statements. The risks, uncertainties and factors that could
cause our  results  to  differ  materially  from our  expectations  and  beliefs
include,  but are not limited to, those  factors set forth in this Annual Report
on Form 10-K under "Item 1A. - Risk Factors" below, including the following:

            o     changes in laws or regulations affecting our operations;

            o     changes in our business tactics or strategies;

            o     acquisitions of new or complementary operations;

            o     sales of any of our existing operations;

            o     changing market forces or contingencies  that necessitate,  in
                  our judgment, changes in our plans, strategy or tactics; and

            o     fluctuations  in the  investment  markets or  interest  rates,
                  which might  materially  affect our  operations  or  financial
                  condition.

      We cannot assure you that the  expectations or beliefs  reflected in these
forward-looking  statements  will prove  correct.  We undertake no obligation to
publicly update or revise any forward-looking statements, whether as a result of
new  information,  future events or  otherwise.  You are cautioned not to unduly
rely  on  such  forward-looking   statements  when  evaluating  the  information
presented in this Annual Report on Form 10-K and all subsequent written and oral
forward-looking  statements  made by us or  persons  acting  on our  behalf  are
expressly  qualified in their  entirety by the cautionary  statements  contained
herein.

                                     Part I

Item 1. Business

General:

      Balchem Corporation ("Balchem," the "Company," "we" or "us"), incorporated
in the State of Maryland in 1967, is engaged in the development, manufacture and
marketing  of  specialty  performance  ingredients  and  products  for the food,
nutritional,   feed,   pharmaceutical  and  medical  sterilization   industries.
Effective with the quarter ending March 31, 2008, we have realigned our business
segment reporting structure to appropriately  reflect the internal management of
the  businesses,  largely  due to the impact of  acquisitions  in 2007.  We 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.

      The Company  sells its products  through its own sales force,  independent
distributors and sales agents.  Financial  information  concerning the Company's
business,  business segments and geographic


                                       1
<PAGE>

information  appears  in the  Notes  to our  Consolidated  Financial  Statements
included  under  Item 8 below,  which  information  is  incorporated  herein  by
reference.

      The  Company  operates  four  domestic  subsidiaries,  all  of  which  are
wholly-owned:  BCP  Ingredients,  Inc.  ("BCP"),  Balchem  Minerals  Corporation
("BMC"),  BCP  Saint  Gabriel,  Inc.  ("BCP  St.  Gabriel"),   each  a  Delaware
corporation,  and Chelated Minerals Corporation ("CMC"), a Utah corporation.  We
also operate three wholly-owned  subsidiaries in Europe:  Balchem BV and Balchem
Trading BV, both Dutch limited liability  companies,  and Balchem Italia Srl, an
Italian limited liability company.  Unless otherwise stated to the contrary,  or
unless the context otherwise requires,  references to the Company in this report
includes Balchem Corporation and its subsidiaries.

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 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.

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

      Our Specialty  Products  segment operates as ARC Specialty  Products.  The
Specialty  Products segment  repackages and distributes the following  specialty
gases:  ethylene  oxide,  blends of ethylene  oxide,  propylene oxide and methyl
chloride.

      We sell ethylene oxide,  at the 100% level, 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 or appearance of the device being
sterilized.  We distribute our 100% ethylene oxide product 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.  The
Company's  inventory of these custom built drums, along with the Company's three
filling  facilities,   represent  a  significant  capital  investment.  Contract
sterilizers,  medical device manufacturers, and medical gas distributors are our
principal  customers for this product.  In addition,  ethylene  oxide blends are
highly  effective  as a fumigant,  in killing  bacteria,  fungi,  and insects in
spices and other seasoning materials. In addition, the Company also sells small,
uniquely designed single use canisters of 100% ethylene oxide for use in medical
device sterilization.

      We  sell  two  other  products,   propylene  oxide  and  methyl  chloride,
principally  to customers  seeking  smaller (as opposed to bulk)  quantities and
whose requirements include timely delivery and safe handling. Propylene oxide is
used for  fumigation  in  spice  treatment  and in  various  chemical  synthesis
applications. It is also utilized in industrial 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  and
pharmaceuticals, as well as in malt and wine preservers.

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


                                       2
<PAGE>

chloride.  Commercial  sales of REASHURE(R)  Choline,  an  encapsulated  choline
product,  NITROSHURETM,  an encapsulated  urea supplement,  and NIASHURETM,  our
microencapsulated  niacin  product  for  dairy  cows,  boosts  health  and  milk
production  in  transition  and  lactating  dairy  cows,   delivering   nutrient
supplements  that survive the rumen and are  biologically  available,  providing
required nutritional levels. We also market chelated mineral supplements for use
in animal feed  throughout the world, as our  proprietary  chelation  technology
provides  enhanced  nutrient  absorption  for various  species of production and
companion animals.  In October 2008, we introduced a rumen-protected  lysine for
use in dairy  rations,  AMINOSHURETM-L,  which  gives  nutritionists  and  dairy
producers a precise and consistent source of rumen-protected  lysine.  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.  Choline  deficiency  can result in reduced  growth and
perosis in  poultry;  fatty  liver,  kidney  necrosis  and  general  poor health
condition  in  swine.   Certain   derivatives  of  choline   chloride  are  also
manufactured  and sold  into  industrial  applications.  The AN&H  segment  also
includes the manufacture and sale of  methylamines.  Methylamines  are a primary
building block for the  manufacture  of choline  products and are also used in a
wide range of industrial applications.

Raw Materials:
--------------

      The raw  materials  utilized  by the  Company  in the  manufacture  of its
products are generally available from a number of commercial  sources.  Such raw
materials include materials derived from  petrochemicals,  minerals,  metals and
other readily available commodities and are subject to price fluctuations due to
market conditions.  The Company is not experiencing any current  difficulties in
procuring such materials and does not anticipate any such problems; however, the
Company cannot assure that will always be the case.

Intellectual Property:
----------------------

      The Company  currently  holds 17 patents in the United States and overseas
and uses  certain  trade-names  and  trademarks.  It also uses  know-how,  trade
secrets,  formulae,  and  manufacturing  techniques  that assist in  maintaining
competitive  positions of certain of its products.  Formulae and know-how are of
particular  importance in the manufacture of a number of the Company's products.
The  Company  believes  that  certain  of its  patents,  in the  aggregate,  are
advantageous to its business.  However,  it is believed that no single patent or
related  group of patents is  currently  so  material  to the  Company  that the
expiration  or  termination  of any  single  patent  or group of  patents  would
materially  affect  its  business.  The  Company  believes  that its  sales  and
competitive  position are dependent  primarily upon the quality of its products,
its  technical  sales efforts and market  conditions,  rather than on any patent
protection.

Seasonality:
------------

      In  general,  the  businesses  of our  segments  are not  seasonal  to any
material extent.

Backlog:
--------

      At  December  31,  2008,  the Company  had a total  backlog of  $6,384,000
(including $4,434,000 for the AN&H segment;  $1,280,000 for the FP&N segment and
$670,000 for  Specialty  Products  segment),  as compared to a total  backlog of
$7,303,000  at December 31, 2007  (including  $5,226,000  for the AN&H  segment;
$1,723,000 for the FP&N segment and $354,000 for Specialty Products segment). It
has generally been the Company's policy and practice to maintain an inventory of
finished  products and/or  component  materials for its segments to enable it to
ship products within two months after receipt of a product order.  All orders in
the current backlog are expected to be filled in the 2009 fiscal year.


                                       3
<PAGE>

Competition:
------------

      The Company's competitors include many large and small companies,  some of
which have greater  financial,  research and  development,  production and other
resources than the Company.  Competition in the encapsulation  markets served by
the  Company  is based  primarily  on  product  performance,  customer  support,
quality,  service and price.  The  development  of new and improved  products is
important  to the  Company's  success.  This  competitive  environment  requires
substantial  investments  in product  and  manufacturing  process  research  and
development.  In addition,  the winning and retention of customer  acceptance of
the Company's food and nutrition products involve  substantial  expenditures for
application  testing  and  sales  efforts.  The  Company  also  engages  various
universities to assist in research and provide independent third-party analysis.
In  the  specialty  products  business,   the  Company  faces  competition  from
alternative  sterilizing  technologies  and products.  Competition in the animal
feed markets served by the Company is based primarily on service and price.

Research & Development:
-----------------------

      During the years  ended  December  31,  2008,  2007 and 2006,  the Company
incurred research and development  expense of approximately  $2.9 million,  $2.5
million  and $2.0  million,  respectively,  on  Company-sponsored  research  and
development  for  new  products  and  improvements  to  existing   products  and
manufacturing processes,  principally in the FP&N and AN&H segments.  During the
year ended  December 31, 2008, an average of 21 employees were devoted full time
to research and development activities.  The Company has historically funded its
research and development  programs with funds available from current  operations
with the intent of recovering those costs from profits derived from future sales
of products resulting from, or enhanced by, the research and development effort.

      The Company prioritizes its product development activities in an effort to
allocate its resources to those  product  candidates  that the Company  believes
have the greatest  commercial  potential.  Factors  considered by the Company in
determining the products to pursue include projected  markets and needs,  status
of its proprietary  rights,  technical  feasibility,  expected and known product
attributes, and estimated costs to bring the product to market.

Acquisitions, Dispositions, and Capital Projects:
-------------------------------------------------

      In 2007, we made two significant acquisitions.

      In April 2007,  pursuant to an asset  purchase  agreement  dated March 30,
2007,  we  acquired  the  methylamines   and  choline   chloride   business  and
manufacturing  facilities  of Akzo  Nobel  Chemicals  S.p.A.,  located in Marano
Ticino,  Italy,  through  our  affiliate,  Balchem BV.  Balchem BV  subsequently
assigned this asset purchase agreement to its wholly-owned  subsidiary,  Balchem
Italia Srl. In this Annual Report on Form 10-K, we refer to this  acquisition as
the "Akzo Nobel Acquisition".

      In March 2007, BCP acquired  certain choline  chloride  business assets of
Chinook Global Limited  ("Chinook"),  a privately held Ontario  corporation.  In
this Annual  Report on Form 10-K, we refer to this  acquisition  as the "Chinook
Acquisition".

      In February 2006, we acquired all of the outstanding capital stock of CMC,
which was then  privately  held. CMC is a  manufacturer  and global  marketer of
chelated mineral nutritional supplements for livestock,  pet and swine feeds. In
this  Annual  Report  on Form  10-K,  we refer to this  acquisition  as the "CMC
Acquisition."

      Excluding  acquisitions,  capital  expenditures  were  approximately  $5.1
million for 2008, as compared to $4.9 million in 2007. Capital  expenditures are
projected to be approximately $5.0 million for 2009.


                                       4
<PAGE>

Environmental / Regulatory Matters:
-----------------------------------

      The  Federal  Insecticide,  Fungicide  and  Rodenticide  Act,  as  amended
("FIFRA"),  a health and safety statute,  requires that certain  products within
our specialty  products segment must be registered with the EPA because they are
considered pesticides. In order to obtain a registration, an applicant typically
must  demonstrate,  through extensive test data, that its product will not cause
unreasonable  adverse effects on the  environment.  We hold an EPA  registration
permitting us to sell  ethylene  oxide as a medical  device  sterilant and spice
fumigant.

      We are in the process of  reregistering  this  product's use in compliance
with FIFRA re-registration  requirements for pesticide products. With respect to
the treatment of spices,  the EPA  prohibited the use of ethylene oxide to treat
basil, effective August 1, 2007, but allows the continuing use of ethylene oxide
to treat  all  other  spices,  provided  a  mandated  treatment  method  is used
beginning August 1, 2008.

      Another area of the EPA's re-registration effort resulted in the April 16,
2008  issuance of the RED  (Re-registration  Eligibility  Decision) for ethylene
oxide which permits the continued use of ethylene oxide "to sterilize medical or
laboratory  equipment,  pharmaceuticals,  and  aseptic  packaging,  or to reduce
microbial load on musical  instruments,  cosmetics,  whole and ground spices and
other seasoning materials and artifacts,  archival material or library objects."
Given that "the database to support re-registration is substantially  complete,"
our  re-registration  effort is similarly  substantially  completed,  which will
continue to  authorize  our  ethylene  oxide  product  sales for medical  device
sterilization. While the EPA may request additional testing, we believe that the
use of ethylene oxide will continue to be permitted. The product, when used as a
sterilant  for  certain  medical  devices,   has  no  known  equally   effective
substitute.  Management  believes  absence of availability of this product could
not be easily tolerated by various medical device  manufacturers  and the health
care industry due to the resultant infection potential.

      The  State  of  California  lists  100%  ethylene  oxide,  when  used as a
sterilant or fumigant, as a carcinogen and reproductive toxin under California's
Proposition  65 (Safe Drinking Water and Toxic  Enforcement  Act of 1986).  As a
result, the Company is required to provide a prescribed warning to any person in
California  who may be exposed to this product.  Failure to provide such warning
would result in liability of up to $2,500 per day per person exposed.

      The Company's facility in Verona,  Missouri,  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 for  contamination  for certain organic  chemicals.  No ground
water or surface water  treatment has been required.  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
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 executed the above-described Superfund remedy.

      In connection with normal operations at its plant facilities,  the Company
is  required  to  maintain  environmental  and other  permits,  including  those
relating to the ethylene oxide operations.

      The Company  believes it is in  compliance  in all material  respects with
federal,  state,  local and  international  provisions that have been enacted or
adopted  regulating the discharge of materials into the


                                       5
<PAGE>

environment  or otherwise  relating to the protection of the  environment.  Such
compliance  includes the  maintenance  of required  permits  under air pollution
regulations and compliance  with  requirements  of the  Occupational  Safety and
Health Administration. The cost of such compliance has not had a material effect
upon the results of operations or financial  condition of the Company.  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 remediated the
area and  removed  soil from the drum  burial  site.  This  proceeding  has been
substantially completed (see Item 3).

      The  Channahon,  Illinois  manufacturing  facility  manufactures a calcium
carbonate line of pharmaceutical grade ingredients.  This facility is registered
with  the  United  States  Food  and  Drug  Administration  ("FDA")  as  a  drug
manufacturing  facility.  These products must be manufactured in conformity with
current Good  Manufacturing  Practice  (cGMP)  regulations  as  interpreted  and
enforced by the FDA.  Modifications,  enhancements  or changes in  manufacturing
facilities  or  procedures   of  our   pharmaceutical   products  are,  in  many
circumstances,  subject  to FDA  approval,  which  may be  subject  to a lengthy
application process or which we may be unable to obtain. The Channahon, Illinois
facility,  as well as those of any third-party  cGMP  manufacturers  that we may
use, are  periodically  subject to inspection by the FDA and other  governmental
agencies,  and operations at these  facilities could be interrupted or halted if
the results of these inspections are unsatisfactory.

Employees:
----------

      As of March 1, 2009,  the  Company  employed  approximately  332  persons.
Approximately 73 employees at our Marano,  Ticino, Italy facility are covered by
a national collective bargaining agreement, which expires in 2010. Approximately
55  employees  at the  Company's  Verona,  Missouri  facility  are  covered by a
collective bargaining agreement, which expires in 2012.

Available Information:
----------------------

      The Company's  headquarters  is located at 52 Sunrise Park Road,  P.O. Box
600, New Hampton, NY 10958. The Company's telephone number is (845) 326-5600 and
its Internet  website  address is  www.balchem.com.  The Company makes available
through its website,  free of charge, its Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q and Current  Reports on Form 8-K,  and  amendments  to such
reports,  as soon as reasonably  practicable after they have been electronically
filed with the  Securities and Exchange  Commission.  Such reports are available
via a link from the Investor Information page on the Company's website to a list
of the  Company's  reports on the  Securities  and Exchange  Commission's  EDGAR
website.

Item 1A. Risk Factors

      Our business involves a high degree of risk and uncertainty, including the
following risks and uncertainties:

      Our  operating  results  may  be  adversely   impacted  by  macro-economic
uncertainties and fears.

      Recently,   general  worldwide  economic  conditions  have  experienced  a
significant  downturn due to the credit  conditions  impacted by factors such as
the  subprime-mortgage   turmoil,  slower  economic  activity,   concerns  about
inflation and deflation,  increased energy costs, decreased consumer confidence,
reduced corporate profits and capital spending,  adverse business conditions and
liquidity  and  the  impact  of  natural  disasters.  These  conditions  make it
extremely difficult for our customers, our vendors and us to accurately forecast
and plan  future  business  activities,  and they could  cause U.S.  and foreign
businesses to slow spending on our products  which would reduce our revenues and
profitability.  Furthermore, during challenging economic times our customers may
face issues gaining timely access to sufficient credit, which


                                       6
<PAGE>

could result in an impairment of their ability to make timely payments to us. If
that were to occur,  we may be required to increase our  allowance  for doubtful
accounts and our days sales outstanding would be negatively impacted.  We cannot
predict the timing,  depth or duration of any  economic  slowdown or  subsequent
economic recovery, worldwide, or in the markets in which we operate.

      Increased competition could hurt our business and financial results.

      We face  competition  in our  markets  from a number  of large  and  small
companies,  some of which have  greater  financial,  research  and  development,
production  and other  resources than we do. Our  competitive  position is based
principally on  performance,  quality,  customer  support,  service,  breadth of
product line,  manufacturing  or packaging  technology and the selling prices of
our  products.  Our  competitors  might be  expected  to improve  the design and
performance  of their  products and to introduce new products  with  competitive
price and performance characteristics.  We expect to do the same to maintain our
current competitive position and market share.

      The loss of governmental  permits and approvals would materially harm some
of our businesses.

      Pursuant to applicable  environmental and safety laws and regulations,  we
are required to obtain and maintain certain  governmental permits and approvals,
including an EPA  registration  for our ethylene  oxide  sterilant  product.  We
maintain an EPA registration of ethylene oxide as a medical device sterilant and
fumicide.  We are in the process of  re-registering  this product in  accordance
with FIFRA. The EPA may not allow re-registration of ethylene oxide for the uses
mentioned  above.  The failure of the EPA to allow  re-registration  of ethylene
oxide  would  have a  material  adverse  effect on our  business  and  financial
results.

      The Channahon,  Illinois facility manufactures a calcium carbonate line of
pharmaceutical  ingredients.  This facility is registered with the FDA as a drug
manufacturing  facility.  These products must be manufactured in conformity with
current Good  Manufacturing  Practice  (cGMP)  regulations  as  interpreted  and
enforced by the FDA.  Modifications,  enhancements  or changes in  manufacturing
facilities  or  procedures   of  our   pharmaceutical   products  are,  in  many
circumstances,  subject  to FDA  approval,  which  may be  subject  to a lengthy
application process or which we may be unable to obtain. Our Channahon, Illinois
facility,  as well as those of any third-party  cGMP  manufacturers  that we may
use, are  periodically  subject to inspection by the FDA and other  governmental
agencies,  and operations at these  facilities could be interrupted or halted if
the results of these inspections are unsatisfactory.  Failure to comply with the
FDA or  other  governmental  regulations  can  result  in  fines,  unanticipated
compliance  expenditures,  recall  or  seizure  of  products,  total or  partial
suspension  of  production,   enforcement  actions,   injunctions  and  criminal
prosecution,  which could have a material  adverse  effect on our  business  and
financial results.

      Permits and approvals may be subject to revocation, modification or denial
under certain circumstances.  Our operations or activities (including the status
of  compliance  by the  prior  owner  of the  Verona,  Missouri  facility  under
Superfund  remediation)  could  result in  administrative  or  private  actions,
revocation  of required  permits or  licenses,  or fines,  penalties or damages,
which could have an adverse  effect on us. In  addition,  we can not predict the
extent to which any  legislation  or  regulation  may  affect the market for our
products or our cost of doing business.

      Raw  material  shortages or price  increases  could  adversely  affect our
business and financial results.

      The principal raw materials that we use in the manufacture of our products
can be  subject  to  price  fluctuations  due to  market  conditions.  Such  raw
materials include materials derived from  petrochemicals,  minerals,  metals and
other commodities.  While the selling prices of our products tend to increase or
decrease over time with the cost of raw  materials,  these changes may not occur
simultaneously  or to the  same  degree.  At  times,  we may be  unable  to pass
increases  in raw  material  costs  through  to  our  customers  due to  certain
contractual  obligations.  Such increases in the price of raw materials,  if not
offset by product price  increases,  or substitute raw materials,  would have an
adverse  impact on our  profitability.  We believe we have  reliable  sources of
supply for our raw materials under normal market conditions. We cannot,


                                       7
<PAGE>

however,  predict the likelihood or impact of any future raw material shortages.
Any shortages could have a material adverse impact on our results of operations.

      Our financial  success  depends in part on the reliability and sufficiency
of our manufacturing facilities.

      Our  revenues  depend on the  effective  operation  of our  manufacturing,
packaging,  and processing facilities.  The operation of our facilities involves
risks,  including  the  breakdown,   failure,  or  substandard   performance  of
equipment,  power outages, the improper  installation or operation of equipment,
explosions,  fires, natural disasters,  failure to achieve or maintain safety or
quality standards, work stoppages, supply or logistical outages, and the need to
comply with  environmental  and other directives of governmental  agencies.  The
occurrence of material operational problems,  including, but not limited to, the
above events, could adversely affect our profitability during the period of such
operational difficulties.

      Our failure or inability to protect our  intellectual  property could harm
our business and financial results.

      We hold 17 patents in the United States and overseas.  Third parties could
seek to challenge,  invalidate or circumvent our patents.  Moreover, there could
be  successful  claims  against us alleging  that we infringe  the  intellectual
property rights of others.  If we are unable to protect all of our  intellectual
property rights,  or if we are found to be infringing the intellectual  property
rights of others, there could be an adverse effect on our business and financial
results.  Our competitive  position also depends on our use of unpatented  trade
secrets.   Competitors  could  independently  develop  substantially  equivalent
proprietary information, which could hurt our business and financial results.

      We face risks  associated  with our sales to customers  and  manufacturing
operations outside the United States.

      For the year ended December 31, 2008,  approximately  37% of our net sales
consisted of sales outside the United States, predominately to Europe, Japan and
China. In addition, we conduct a portion of our manufacturing outside the United
States.  International  sales are subject to inherent risks. The majority of our
foreign sales occur through our foreign sales  subsidiaries and the remainder of
our foreign  sales result from exports to foreign  distributors,  resellers  and
customers.  Our foreign sales and  operations  are subject to a number of risks,
including:   longer  accounts  receivable  collection  periods;  the  impact  of
recessions and other economic conditions in economies outside the United States;
export  duties  and  quotas;  unexpected  changes  in  regulatory  requirements;
certification  requirements;  environmental regulations;  reduced protection for
intellectual  property  rights  in  some  countries;   potentially  adverse  tax
consequences;  political and economic  instability;  and  preference for locally
produced  products.  These factors could have a material  adverse  impact on our
ability to increase or maintain our international sales.

      We may, from time to time, experience problems in our labor relations.

      In North America, approximately 55 employees, or 22% of our North American
workforce,  as of December 31, 2008,  are  represented by a union under a single
collective  bargaining  agreement.  This  agreement  expires in 2012. In Europe,
approximately  73 employees  are covered by a collective  bargaining  agreement.
This agreement expires in 2010. We believe that our present labor relations with
all of our unionized employees are satisfactory,  however,  our failure to renew
these  agreements  on  reasonable  terms could result in labor  disruptions  and
increased labor costs,  which could adversely affect our financial  performance.
Similarly,  if our relations with the unionized  portion of our workforce do not
remain  positive,  such  employees  could  initiate a strike,  work  stoppage or
slowdown  in the future.  In the event of such an action,  we may not be able to
adequately meet the needs of our customers using our remaining workforce and our
operations and financial condition could be adversely affected.


                                       8
<PAGE>

      Our international  operations subject us to currency  translation risk and
currency transaction risk which could cause our results to fluctuate from period
to period.

      The  financial   condition  and  results  of  operations  of  our  foreign
subsidiaries  are reported in Euros and then translated into U.S. dollars at the
applicable  currency  exchange rate for inclusion in our consolidated  financial
statements.  Exchange  rates  between  these  currencies  in recent  years  have
fluctuated  significantly  and may do so in the future.  In the past year,  as a
result of the strength of the Euro  compared to the U.S.  dollar,  our operating
results in U.S. dollars were positively affected upon translation.  The positive
impact of a  strengthening  Euro may not  continue  in the  future  and may even
reverse if the Euro declines in value compared to the U.S. dollar.  Furthermore,
we incur currency transaction risk whenever we enter into either a purchase or a
sales transaction using a currency different than the functional currency. Given
the volatility of exchange rates,  we may not be able to effectively  manage our
currency transactions and/or translation risks.  Volatility in currency exchange
rates could impact our business and financial results.

      Our success depends in large part on our key personnel.

      Our operations significantly depend on the continued efforts of our senior
executives.  The loss of the  services  of certain  executives  for an  extended
period  of time  could  have a  material  adverse  effect  on our  business  and
financial results.

      Litigation  could be costly  and can  adversely  affect our  business  and
financial results.

      We, like all companies involved in the food and pharmaceutical industries,
are subject to potential claims for product liability  relating to our products.
Such claims,  irrespective of their outcomes or merits,  could be time-consuming
and expensive to defend,  and could result in the  diversion of management  time
and attention.  Any of these  situations could have a material adverse effect on
our business and financial results.

Item 1B. Unresolved Staff Comments

      None.

Item 2. Properties

      In  February  2002,  the  Company  entered  into a ten (10) year lease for
approximately  20,000 square feet of office space in New Hampton,  New York. The
office  space is serving as the  Company's  general  offices  and as  laboratory
facilities for the Company's encapsulated / nutritional products business.

      Manufacturing  facilities  owned  by  the  Company  for  its  encapsulated
products  business  and a  blending,  drumming  and  terminal  facility  for the
Company's  ethylene  oxide  business,  are presently  housed in three  buildings
located in Slate  Hill,  New York  comprising  a total of  approximately  51,000
square feet. The Company owns a total of  approximately  16 acres of land on two
parcels in this community.

      The Company owns a facility  located on an approximately 24 acre parcel of
land in Green Pond, South Carolina.  The site consists of a drumming facility, a
canister  filling  facility,  a  maintenance  building  and an  office  building
comprising a total of  approximately  34,000 square feet.  The Company uses this
site for repackaging products in its specialty products segment.

      The Company's Verona, Missouri site, which is located on approximately 100
acres,  consists  of  manufacturing  facilities  relating  to animal  feed grade
choline, human choline nutrients, a drumming facility for the Company's ethylene
oxide business,  together with buildings utilized for warehousing such products.
The Verona operation buildings comprise a total of approximately  151,000 square
feet. The facility,  while under prior ownership, was designated by the EPA as a
Superfund site (see Item 1 - "Business - Environmental / Regulatory Matters").


                                       9
<PAGE>

      The Company leases production and warehouse space in Channahon,  Illinois.
The Company uses this facility for production  related to the Company's  calcium
carbonate line of business.  The initial term of the lease is effective  through
September 30, 2010,  subject to earlier  termination  by Balchem upon sixty days
notice, or by the landlord upon sixty days notice. The Company's leased space in
Channahon, Illinois totals approximately 26,000 square feet.

      The Company,  through CMC, owns a  manufacturing  facility and  warehouse,
comprising approximately 16,500 square feet, located on approximately 5 acres of
land in Salt Lake City,  Utah.  The Company  manufactures  and  distributes  its
chelated mineral nutrients for animal feed products at this location.

      The  Company,  through BCP,  owns a  manufacturing  facility  located upon
approximately 11 acres of leased realty in St. Gabriel,  Louisiana.  The Company
manufactures  and  distributes  animal  feed  grade  choline  chloride  at  this
location.

      The Company,  through its European subsidiary,  Balchem Italia Srl, owns a
facility  located on an  approximately  30 acre parcel of land in Marano Ticino,
Italy. The Company manufactures and distributes methylamines,  animal feed grade
choline and human choline nutrients at this location.

Item 3. Legal Proceedings

      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
remediated  the area and removed  soil from the drum burial  site.  Clean-up was
completed  in 1996,  and NYDEC  required the Company to monitor the site through
1999. The Company continues to be involved in discussions with NYDEC to evaluate
monitoring  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 recently been less than
$5,000 per year.

      The Company is also involved in other legal proceedings through the normal
course of business.  Management believes that any unfavorable outcome related to
these  proceedings  will not have a material  effect on the Company's  financial
position, results of operations or liquidity.

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

      None.


                                       10
<PAGE>

      PART II

Item 5. Market for the Registrant's  Common Equity,  Related Stockholder Matters
        and Issuer Purchases of Equity Securities

      (a) Market Information.

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

      On December  15, 2005,  the Board of  Directors of the Company  approved a
three-for-two  split of the Company's common stock to be effected in the form of
a stock  dividend to  shareholders  of record on December 30,  2005.  Such stock
dividend  was made on  January  20,  2006.  The stock  split was  recognized  by
reclassifying  the par value of the additional  shares resulting from the split,
from additional paid-in capital to common stock.

      Since  December 22,  2006,  the  Company's  common stock has traded on the
Nasdaq Global Market under the trading  symbol BCPC.  Prior to that,  our common
stock traded on the American  Stock  Exchange  under the trading symbol BCP. The
high and low closing  prices for the common stock as recorded for each quarterly
period during the years ended December 31, 2008 and 2007 were as follows:

===============================================================
Quarterly Period                         High           Low
---------------------------------------------------------------
Ended March 31, 2008                 $    23.34     $     19.05
Ended June 30, 2008                       26.44           22.16
Ended September 30, 2008                  29.50           24.17
Ended December 31, 2008                   26.86           21.16
===============================================================

===============================================================
Quarterly Period                         High           Low
---------------------------------------------------------------
Ended March 31, 2007                 $    18.56     $     14.09
Ended June 30, 2007                       19.17           17.15
Ended September 30, 2007                  21.25           15.60
Ended December 31, 2007                   24.00           20.16
===============================================================

      On March 3, 2009 the  closing  price for the  common  stock on the  Nasdaq
Global Market was $19.25.

      (b) Record Holders.

      As of March 3, 2009,  the  approximate  number of holders of record of the
Company's  common stock was 192. Such number does not include  stockholders  who
hold their stock in street name.  The total number of  beneficial  owners of the
Company's common stock is estimated to be approximately 12,399.

      (c) Dividends.

      The Company declared cash dividends of $0.11 per share on its common stock
during its fiscal years ended December 31, 2008 and 2007.

      For information concerning prior stockholder approval of and other matters
relating to our equity  incentive  plans,  see Item 12 in this Annual  Report on
Form 10-K.


                                       11
<PAGE>

      (d) Performance Graph.

      The graph below sets forth the cumulative total stockholder  return on the
Company's  Common Stock  (referred to in the table as "BCPC") for the five years
ended  December 31, 2008, the overall stock market return during such period for
shares comprising the Russell 2000(R) Index (which the Company believes includes
companies with market  capitalization  similar to that of the Company),  and the
overall  stock  market  return  during  such  period for shares  comprising  the
Standard & Poor's  500 Food  Group  Index,  in each case  assuming a  comparable
initial investment of $100 on December 31, 2003 and the subsequent  reinvestment
of dividends.  The Russell  2000(R) Index measures the performance of the shares
of the 2000 smallest  companies  included in the Russell 3000(R) Index. In light
of the Company's industry segments,  the Company does not believe that published
industry-specific indices are necessarily representative of stocks comparable to
the Company.  Nevertheless, the Company considers the Standard & Poor's 500 Food
Group Index to be  potentially  useful as a peer group index with respect to the
Company  in  light  of the  Company's  Food,  Pharma &  Nutrition  segment.  The
performance of the Company's Common Stock shown on the graph below is historical
only and not indicative of future performance.

                                              Russell          S&P Food
                                 BCPC      2000(R) Index     Group Index
                            -----------------------------------------------
         12/31/03              $100.00        $100.00          $100.00
         12/31/04              $152.15        $118.33          $116.18
         12/31/05              $196.12        $123.72          $104.03
         12/31/06              $253.42        $146.44          $118.11
         12/31/07              $331.28        $145.23          $117.68
         12/31/08              $368.73        $ 95.44          $ 99.90

                                Stock
                                Price         Value            Value
                            -----------------------------------------------
         12/31/03               $ 6.76      $2,273.20         213.9892
         12/31/04               $10.28      $2,689.86         248.6118
         12/31/05               $13.25      $2,812.35         222.6220
         12/31/06               $17.12      $3,328.90         252.7360
         12/31/07               $22.38      $3,301.28         251.8328
         12/31/08               $24.91      $2,169.65         213.7655

Item 6. Selected Financial Data

The selected  statements of operations  data set forth below for the three years
in the period ended December 31, 2008 and the selected  balance sheet data as of
December  31, 2008 and 2007 have been derived  from our  Consolidated  Financial
Statements included elsewhere herein. The selected financial data as of December
31, 2006,  2005 and 2004 and for the years ended December 31, 2005 and 2004 have
been derived from audited Consolidated Financial Statements not included herein,
but which were previously filed with the SEC. The following  information  should
be read in conjunction with Item 7 --  "Management's  Discussion and Analysis of
Financial  Condition and Results of Operations" and the  Consolidated  Financial
Statements and notes thereto included elsewhere herein.

Earnings per share and dividend amounts have been adjusted for the December 2006
and 2005 three-for-two stock splits (effected by means of stock dividends).


                                       12
<PAGE>

(In thousands, except per share data)

<TABLE>
<CAPTION>
=====================================================================================================================
Year ended December 31,                 2008              2007              2006            2005             2004
                                     (1)(2)(3)(4)     (1)(2)(3)(4)         (1)(2)            (1)
---------------------------------------------------------------------------------------------------------------------
<S>                                  <C>              <C>              <C>              <C>              <C>
Statement of Operations Data
----------------------------
Net sales                            $    232,050     $    176,201     $    100,905     $     83,095     $     67,406
Earnings before income
     tax expense                           28,431           24,829           19,101           17,191           12,715
Income tax expense                          9,381            8,711            6,823            6,237            4,689
Net earnings                               19,050           16,118           12,278           10,954            8,026
Basic net earnings per
     common share                    $       1.06     $        .91     $        .70     $        .63     $        .48
Diluted net earnings per
     common share                    $       1.00     $        .87     $        .67     $        .61     $        .46

<CAPTION>
======================================================================================================================
At December 31,                                 2008           2007            2006           2005            2004
---------------------------------------------------------------------------------------------------------------------
<S>                                  <C>              <C>              <C>              <C>              <C>
Balance Sheet Data
------------------
Total assets                         $    154,474     $    154,424     $     92,333     $     75,141     $     60,405
Long-term debt                              6,671           17,398               --               --               --
Other long-term
    obligations                             1,609            1,529              784            1,043            1,003
Total stockholders' equity                114,506           93,080           75,362           60,933           50,234
Dividends per common share           $        .11     $        .11     $        .09     $        .06     $        .04
---------------------------------------------------------------------------------------------------------------------
</TABLE>

      (1)   Includes the operating  results,  cash flows, and assets relating to
            the Loders Croklaan  Acquisition from the date of acquisition  (July
            1, 2005) forward.

      (2)   Includes the operating  results,  cash flows, and assets relating to
            the CMC Acquisition from the date of acquisition  (February 8, 2006)
            forward.

      (3)   Includes the operating  results,  cash flows, and assets relating to
            the  Chinook  Acquisition  from the date of  acquisition  (March 19,
            2007) forward.

      (4)   Includes the operating  results,  cash flows, and assets relating to
            the Akzo  Nobel  Acquisition  from the date of  acquisition  (May 1,
            2007) forward.

Item 7. Management's  Discussion and Analysis of Financial Condition and Results
of Operations

      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.

      The  following  discussion  and analysis of our  financial  condition  and
results of  operations  should be read in  conjunction  with Item 6 -- "Selected
Financial Data" and our Consolidated  Financial Statements and the related notes
included in this report.  Those statements in the following  discussion that are
not


                                       13
<PAGE>

historical in nature should be considered to be forward-looking  statements that
are inherently uncertain.  See "Cautionary  Statement Regarding  Forward-Looking
Statements".

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

      The specialty  products  segment  repackages and distributes the following
specialty gases:  ethylene oxide, blends of ethylene oxide,  propylene oxide and
methyl chloride.

      Ethylene oxide,  at the 100% level,  is sold as a chemical  sterilant gas,
primarily  for use in the health care  industry to  sterilize  medical  devices.
Contract sterilizers,  medical device manufacturers and medical gas distributors
are the Company's principal customers for this product. Blends of ethylene oxide
are sold as fumigants and are highly effective in killing  bacteria,  fungi, and
insects in spices and other seasoning type materials. Propylene oxide and methyl
chloride are also sold,  principally to customers seeking smaller (as opposed to
bulk) quantities.

      Management  believes  that  future  success  in  this  segment  is  highly
dependent  on the  Company's  ability  to  maintain  its strong  reputation  for
excellent quality, safety and customer service.

      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.

      Management  believes this  segment's  key  strengths  are its  proprietary
technology  and  end-product  application  capabilities.   The  success  of  the
Company's efforts to increase revenue in this segment is highly dependent on the
timing of marketing  launches of new products in the U.S. and international food
and nutrition  markets by the Company's  customers and  prospects.  The Company,
through  its  innovative  proprietary  technology  and  applications  expertise,
continues  to develop  new  products  designed  to solve and respond to customer
problems and innovative needs.

      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(R)  Choline,  an  encapsulated  choline  product,  NITROSHURETM,  an
encapsulated  urea  supplement,  and NIASHURETM,  our  microencapsulated  niacin
product for dairy cows,  boosts health and milk  production  in  transition  and
lactating dairy cows, delivering nutrient supplements that survive the rumen and
are biologically  available,  providing  required  nutritional  levels.  We also
market chelated mineral supplements for use in animal feed throughout the world,
as our proprietary  chelation  technology  provides enhanced nutrient absorption
for various  species of production  and companion  animals.  In October 2008, we
introduced  the first proven  rumen-protected  lysine for use in dairy  rations,
AMINOSHURETM-L,  which  gives  nutritionists  and dairy  producers a precise and
consistent source of rumen-protected lysine. 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. Choline
deficiency  can result in reduced  growth and perosis in poultry;  fatty  liver,
kidney necrosis and general poor


                                       14
<PAGE>

health  condition in swine.  Certain  derivatives  of choline  chloride are also
manufactured  and sold  into  industrial  applications.  The AN&H  segment  also
includes the manufacture and sale of  methylamines.  Methylamines  are a primary
building block for the  manufacture  of choline  products and are also used in a
wide range of industrial applications.

      Sales of specialty  products for the animal  nutrition and health industry
are highly  dependent on dairy industry  economics as well as the ability of the
Company to leverage the results of existing  successful  university  research on
the animal health benefits of the Company's  products.  Management believes that
success in the  commodity-oriented  basic choline chloride marketplace is highly
dependent  on the  Company's  ability  to  maintain  its strong  reputation  for
excellent  product quality and customer service.  In addition,  the Company must
continue to increase  production  efficiencies in order to maintain its low-cost
position to effectively compete in a highly competitive global marketplace.

      The Company sells  products for all three  segments  through its 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 years ended December 31,
2008, 2007 and 2006 (in thousands):

<TABLE>
<CAPTION>
Business Segment Net Sales:
========================================================================================================
                                                     2008                  2007                  2006
--------------------------------------------------------------------------------------------------------
<S>                                              <C>                   <C>                   <C>
Specialty Products                               $    35,835           $    33,057           $    32,026
Food, Pharma & Nutrition                              35,702                32,052                28,702
Animal Nutrition & Health                            160,513               111,092                40,177
--------------------------------------------------------------------------------------------------------
Total                                            $   232,050           $   176,201           $   100,905
========================================================================================================

<CAPTION>
Business Segment Earnings From Operations:
========================================================================================================
                                                     2008                  2007                  2006
--------------------------------------------------------------------------------------------------------
<S>                                              <C>                   <C>                   <C>
Specialty Products                               $    12,545           $    11,824           $    11,315
Food, Pharma & Nutrition                               5,469                 4,144                 2,162
Animal Nutrition & Health                             11,334                 9,938                 5,685
--------------------------------------------------------------------------------------------------------
Total                                            $    29,348           $    25,906           $    19,162
========================================================================================================
</TABLE>

Fiscal Year 2008 compared to Fiscal Year 2007
(All amounts in thousands, except share and per share data)

      Net Sales
      ---------

      Net sales for 2008 were  $232,050,  as compared with $176,201 for 2007, an
increase of $55,849 or 31.7%. Net sales for the specialty  products segment were
$35,835 for 2008,  as compared  with $33,057 for 2007,  an increase of $2,778 or
8.4%.  This  increase was due  principally  to greater sales volumes of ethylene
oxide  for  medical  device   sterilization   and  propylene  oxide  for  starch
modification  as well as a modest price  increase  adopted to help offset rising
raw  material  costs  during  2008.  Net sales for the Food,  Pharma & Nutrition
segment were $35,702 for 2008, as compared with $32,052 for 2007, an increase of
$3,650 or 11.4%.  This  result  was driven  principally  by  increased  sales of
calcium and nutritional products, as well as increased product sales in both the
domestic and international food markets.  Net sales of $160,513 were realized in
2008 for the Animal  Nutrition & Health  segment,  as compared with $111,092 for
2007, an increase of $49,421 or 44.5%. This result reflects incremental sales of
approximately  $40,000  from the  customer  list  acquisition  of Chinook  Group
Limited ("Chinook") and from the Akzo Nobel Acquisition, as described in Note 5.
For the twelve months ending  December 31, 2008,  sales of our specialty  animal
nutrition  and health  products,  targeted for ruminant  production  animals and
companion  animals,  increased  32.9% or  approximately  12% of the overall AN&H
growth.


                                       15
<PAGE>

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

      Operating expenses for 2008 were $23,230, as compared to $21,024 for 2007,
an increase  of $2,206 or 10.5%.  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. With these increases, operating expenses were 10.0% of
sales or 1.9 percentage points less than the operating  expenses as a percent of
sales  incurred in 2007.  During 2008 and 2007,  the  Company  spent  $2,877 and
$2,514,  respectively,  on research and development,  substantially all of which
pertained  to the  Food,  Pharma,  Nutrition,  and  Animal  Nutrition  &  Health
segments.

      Business Segment Earnings From Operations
      -----------------------------------------

      Earnings from operations for 2008 increased to $29,348 compared to $25,906
for  2007,  an  increase  of $3,442 or 13.3%,  due  largely  to the  above-noted
increase in sales. Earnings from operations as a percentage of sales ("operating
margin") for 2008 decreased to 12.6%  compared to 14.7% for 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 year.  We did begin to see a reduction in certain raw material  costs
late  in the  third  quarter  2008.  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.  Earnings  from  operations  for the  Specialty  Products  segment were
$12,545,  an increase of $721 or 6.1%, a result of increases in sales volume and
modest  sales  price  increases  offset by  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  $5,469,  an  increase  of $1,325 or 32.0%,  due
largely to increased  sales of calcium and nutritional  products.  Earnings from
operations  for Animal  Nutrition & Health,  while  unfavorably  impacted by the
noted  petro-chemical  raw  material  cost  increases,  improved to $11,334,  an
increase of $1,396 or 14.0%,  and were favorably  affected by organic growth and
the previously-noted increased sales volumes derived from the acquisitions.

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

      Interest  income  for 2008  totaled  $107 as  compared  to $166 for  2007.
Interest  expense,  net of capitalized  interest,  was $963 for 2008 compared to
$1,562 for 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.  Other  expense  of $61 for 2008 is
primarily the result of unfavorable  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  2008 and 2007 was  33.0%  and  35.1%,
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 $19,050 for
2008, as compared with $16,118 for 2007, an increase of 18.2%.


                                       16
<PAGE>

Fiscal Year 2007 compared to Fiscal Year 2006
(All amounts in thousands, except share and per share data)

      Net Sales
      ---------

      Net sales for 2007 were  $176,201,  as compared with $100,905 for 2006, an
increase of $75,296 or 74.6%. Net sales for the specialty  products segment were
$33,057 for 2007,  as compared  with $32,026 for 2006,  an increase of $1,031 or
3.2%. This increase was  principally  due to an increase in sales volume,  along
with modest  price  increases  for products in this  segment.  Net sales for the
Food, Pharma & Nutrition segment were $32,052 for 2007, as compared with $28,702
for 2006, an increase of $3,350 or 11.7%. This result was driven  principally by
increased global sales of human nutritional and choline  products,  and includes
growth of  $1,952  relating  to the Akzo  Nobel  Acquisition.  Net sales for the
Animal  Nutrition  & Health  segment  were  $111,092 in 2007,  as compared  with
$40,177 for 2006, an increase of $70,915 or 176.5%.  This result  reflects sales
from the  Chinook  Acquisition  and the Akzo Nobel  Acquisition  in 2007,  which
contributed  in the  aggregate  approximately  $62,495  of the  revenue  in this
segment.  The remaining  increase was due to increased  volumes sold in the core
dry and aqueous  choline,  as well as the specialty  industrial  product  lines.
Sales of  REASHURE(R),  Niashure and chelated  minerals,  our  specialty  animal
nutrition and health products  targeted for ruminant  animals,  and increases in
the companion animal market also contributed to this growth.

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

      Operating expenses for 2007 increased to $21,024 from $14,844 for 2006, an
increase  of $6,180 or  41.6%.  This  increase  was due  primarily  to $2,300 of
additional  amortization  expense,  plus sales and technical  personnel  expense
associated  with the  Chinook  and Akzo  Nobel  acquisitions.  We also  incurred
approximately   $1,224   of   commercial   development   expenses   toward   our
pharmaceutical  market  initiatives  in 2007.  With these  increases,  operating
expenses  were 11.9% of sales or 2.8  percentage  points less than the operating
expenses  as a percent of sales  incurred  in 2006.  During  2007 and 2006,  the
Company  spent  $2,514 and $2,019  respectively,  on research  and  development,
substantially all of which pertained to the Company's encapsulated / nutritional
products for both human and animal health.

      Business Segment Earnings From Operations
      -----------------------------------------

      As a result  of the  foregoing,  earnings  from  operations  for 2007 were
$25,906 as compared to $19,162 for 2006,  reflecting a 35.2%  increase from year
to year.  Earnings from operations for the specialty  products segment increased
to  $11,824 in 2007 from  $11,315  in 2006,  an  increase  of $509 or 4.5%,  due
largely to increases in sales  volume and modest  sales price  increases.  These
increases  were  partially  offset by higher raw material  costs.  Earnings from
operations for the Food,  Pharma & Nutrition segment increased to $4,144 in 2007
from  $2,162 in 2006,  an  increase  of $1,981 or  91.6%,  as this  segment  was
favorably  affected by the Akzo Nobel  Acquisition  and  increased  volumes sold
principally  in the human  choline  markets.  Earnings from  operations  for the
Animal  Nutrition & Health  segment,  increased to $9,938 in 2007 from $5,684 in
2006,  an  increase  of  $4,254 or 74.8%,  as a result of the  previously  noted
increased sales volumes and improved  productivity,  partially offset by certain
petro-chemical raw material cost increases.

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

      Interest  income for 2007 totaled $166, as compared to $128 for 2006. This
increase is  attributable  to an increase in the Company's  average cash balance
during 2007. Interest expense, net of capitalized interest, was $1,562 for 2007,
as compared to $189 for 2006.  This increase is  attributable to the increase in
average  current and long-term debt resulting from the Chinook  Acquisition  and
Akzo Nobel Acquisition. Other income of $319 for 2007 is the result of favorable
fluctuations  in foreign  currency  exchange rates between the U.S.  dollar (the
reporting currency) and functional foreign currencies.


                                       17
<PAGE>

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

      The  Company's  effective  tax rate for 2007 and 2006 was 35.1% and 35.7%,
respectively.  This decrease in the effective tax rate is primarily attributable
to a domestic manufacturer's deduction and to a change in allocation relating to
state income  taxes.  The adoption of  Interpretation  No. 48, " Accounting  for
Uncertainty in Income Taxes " ("FIN 48") adversely  affected the 2007 income tax
expense by $220 and the effective tax rate by 0.9%.

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

      Primarily as a result of the above-noted  increase in sales,  net earnings
were $16,118 for 2007, as compared with $12,278 for 2006, an increase of 31.3%.

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

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

      The Company's  contractual  obligations  and debt  obligations,  excluding
revolver borrowings, as of December 31, 2008, are summarized in the table below:

<TABLE>
<CAPTION>
===========================================================================================================
                                                              Payments due by period
                                           ---------------------------------------------------------------
                                                    Less than                                    More than
    Contractual Obligations             Total         1 year       1-3 years      3-5 years       5 years
----------------------------------------------------------------------------------------------------------
<S>                                  <C>            <C>            <C>            <C>            <C>
Long-term debt obligations           $   9,531      $   2,860      $   6,671      $      --      $      --
Operating lease obligations (1)          2,590          1,128            894            347            221
Purchase obligations (2)                 8,048          8,048             --             --             --
===========================================================================================================
Total                                $  20,169      $  12,036      $   7,565      $     347      $     221
===========================================================================================================
</TABLE>

(1)   Principally   includes   obligations   associated   with  future   minimum
      non-cancelable  operating lease  obligations  (including the  headquarters
      office space entered into in 2002).

(2)   Principally  includes open purchase  orders with vendors for inventory not
      yet received or recorded on our balance sheet.

      The table above  excludes a $581  liability for  uncertain tax  positions,
including the related  interest and penalties,  recorded in accordance  with the
Financial  Accounting  Standards Board's  Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes -- an interpretation of FAS Statement No. 109" ("FIN
48") as we are unable to reasonably  estimate the timing of settlement (see Note
8 for a further discussion on FIN 48).

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

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

      Acquisitions and Dispositions
      -----------------------------

      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.,


                                       18
<PAGE>

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 $8,000.

      On March  16,  2007,  the  Company,  through  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 Chinook Acquisition closed effective the same date.

      On February 8, 2006,  the  Company,  through its wholly  owned  subsidiary
Balchem Minerals  Corporation,  acquired all of the outstanding capital stock of
CMC,  for a  purchase  price,  including  acquisition  costs,  of  approximately
$17,900.  CMC  is  a  manufacturer  and  global  marketer  of  chelated  mineral
nutritional supplements for livestock, pet and swine feeds.

      Cash
      ----

      Cash and cash  equivalents  increased  to $3,422 at December 31, 2008 from
$2,307 at December 31, 2007 primarily  resulting from the  information  detailed
below.  Working capital  amounted to $29,566 at December 31, 2008 as compared to
$16,139 at December 31, 2007, an increase of $13,427.

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

      Cash flows from operating activities provided $22,897 for 2008 compared to
$15,637 for 2007.  The  increase  in cash flows from  operating  activities  was
primarily due to an increase in net earnings, depreciation and amortization, and
stock  compensation.  The  aforementioned  increase in cash flows was  partially
offset by an increase in  inventories,  accounts  receivable  and a reduction in
accounts payable and accrued expenses.

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

      Capital  expenditures  were  $5,080 for 2008  compared to $4,858 for 2007.
Assets acquired in 2007 totaled  $40,744,  which was principally  related to the
Chinook Acquisition and the Akzo Nobel Acquisition (see Note 5).

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

      The  Company  has  an  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 December 31, 2008 or 2007. During 2008, no additional shares were
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.

      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 (euro)7,500,  translated to  approximately  $10,573 of December 31, 2008 (the
"European  Term  Loan"),  the proceeds of which were used to fund the Akzo Nobel
Acquisition (see Note 5) 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 December  31,  2008,  this
interest  rate was 4.61%.  At December 31, 2008,  the European  Term Loan had an
outstanding  balance of  (euro)5,804  translated  to $8,181.  The European  Loan
Agreement also initially provided for a short-term  revolving credit facility of
(euro)2,000 (the "European Revolving Facility"). The European Revolving Facility
has been  renewed  for a period of one year as of May


                                       19
<PAGE>

1, 2008.  As part of this renewal,  the European  Loan  Agreement was amended to
increase the European Revolving Facility to (euro)3,000, translated to $4,229 as
of December 31, 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  (euro)1,450,  or $2,044 as  translated  at
December 31, 2008, of the European Revolving Facility as of December 31, 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 5). 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  December  31,  2008,  this
interest  rate was 2.20%.  As of  December  31,  2008,  the  Company has prepaid
$17,500 of the Term Loan. At December 31, 2008, the Term Loan had an outstanding
balance of $1,350.  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.  No amounts are outstanding on the Revolving  Facility as of
the date hereof.  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.

      Indebtedness  under the Company's loan agreements are secured by assets of
the Company.

      Proceeds from stock options  exercised  totaled $1,050 and $1,217 for 2008
and 2007,  respectively.  Dividend  payments were $1,975 and $1,596 for 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 December 31, 2008 for this  obligation is
$801. The postretirement plan is not funded. Historical cash payments made under
such plan have approximated $50 per year.

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

      Management  of the  Company is  required  to make  certain  estimates  and
assumptions  during the  preparation  of  consolidated  financial  statements in
accordance with accounting principles generally accepted in the United States of
America.  These estimates and  assumptions  impact the reported amount of assets
and liabilities  and disclosures of contingent  assets and liabilities as of the
date of the  consolidated  financial  statements.  Estimates and assumptions are
reviewed  periodically  and  the  effects  of  revisions  are  reflected  in the
consolidated  financial  statements  in the  period  they are  determined  to be
necessary. Actual results could differ from those estimates.

      The  Company's  "critical  accounting  policies"  are those  that  require
application of  management's  most difficult,  subjective or complex  judgments,
often as a result of the need to make estimates about the effect of matters that
are inherently  uncertain and that may change in subsequent periods.  Management
considers the following accounting policies to be critical.

      Revenue Recognition
      -------------------

      Revenue is recognized upon product shipment,  passage of title and risk of
loss, and when  collection is reasonably  assured.  The Company  reports amounts
billed to  customers  related to shipping  and  handling as revenue and includes
costs incurred for shipping and handling in cost of sales.  Amounts received for
unshipped  merchandise are principally not recognized as revenue but rather they
are recorded as customer  deposits and are included in current  liabilities.  In
addition,  the Company  follows the  provisions


                                       20
<PAGE>

of the  Securities and Exchange  Commission's  (SEC) Staff  Accounting  Bulletin
(SAB) No. 104, "Revenue  Recognition," which sets forth guidelines on the timing
of  revenue   recognition   based  upon   factors  such  as  passage  of  title,
installation, payments and customer acceptance.

      Inventories
      -----------

      Inventories  are  valued  at the  lower of cost  (first  in,  first out or
average) or market  value and have been  reduced by an  allowance  for excess or
obsolete  inventories.  Inventory  reserves  are  generally  recorded  when  the
inventory for a product  exceeds twelve months of demand for that product and/or
when individual  products have been in inventory for greater than six months. In
November  2004, the Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standard No. 151,  "Inventory  Costs." The new  statement
amends Accounting Research Bulletin No. 43, Chapter 4, "Inventory  Pricing",  to
clarify the accounting for abnormal amounts of idle facility  expense,  freight,
handling costs, and wasted material. This statement requires that those items be
recognized  as current  period  charges and requires  that  allocation  of fixed
production  overheads to the cost of conversion be based on the normal  capacity
of the  production  facilities.  The  provisions of this  statement were applied
prospectively  for inventory  costs incurred  beginning in our fiscal year 2006.
The adoption of this statement did not have a material  impact on our results of
operations, financial position or cash flow.

      Long-lived assets
      -----------------

      Long-lived assets,  such as property,  plant, and equipment and intangible
assets with finite lives, are reviewed for impairment whenever events or changes
in  circumstances  indicate  that the  carrying  amount  of an asset  may not be
recoverable.  Recoverability  of  assets  to be held and used is  measured  by a
comparison of the carrying amount of an asset to estimated  undiscounted  future
cash flows expected to be generated by the asset.  If the carrying  amount of an
asset  exceeds  its  estimated  future  cash  flows,  an  impairment  charge  is
recognized  by the amount by which the carrying  amount of the asset exceeds the
fair value of the asset, which is generally based on discounted cash flows.

      Goodwill,  which is not subject to  amortization,  is tested  annually for
impairment,  and more frequently if events and  circumstances  indicate that the
asset might be  impaired.  If an  indicator of  impairment  exists,  the Company
determines  the amount of  impairment  based on a comparison of the implied fair
value of its goodwill to its carrying value.

      Accounts Receivable
      -------------------

      We market our products to a diverse customer base,  principally throughout
the United States,  Europe, China and Japan. We grant credit terms in the normal
course of business to our customers.  We perform on-going credit  evaluations of
our  customers  and adjust  credit  limits  based upon  payment  history and the
customer's  current  credit  worthiness,  as determined  through review of their
current credit  information.  We continuously  monitor  collections and payments
from  customers  and maintain  allowances  for doubtful  accounts for  estimated
losses resulting from the inability of our customers to make required  payments.
Estimated  losses are based on historical  experience and any specific  customer
collection issues identified.  If the financial  condition of our customers were
to  deteriorate  resulting in an impairment  of their ability to make  payments,
additional allowances and related bad debt expense may be required.


                                       21
<PAGE>

      Post-employment Benefits
      ------------------------

      The Company  provides life insurance and health care benefits for eligible
retirees and health care benefits for retirees'  eligible  survivors.  The costs
and obligations  related to these benefits reflect the Company's  assumptions as
to  general  economic  conditions  and  health  care  cost  trends.  The cost of
providing  plan  benefits  also  depends on  demographic  assumptions  including
retirements,  mortality, turnover, and plan participation.  If actual experience
differs from these  assumptions,  the cost of  providing  these  benefits  could
increase or decrease.

      In September  2006,  the FASB issued FASB  Statement No. 158,  "Employers'
Accounting for Defined  Benefit  Pension and Other  Postretirement  Plans." This
Statement  requires  an employer to  recognize  the over funded or under  funded
status of a defined  benefit post  retirement  plan (other than a  multiemployer
plan) as an asset or liability in its  statement of financial  position,  and to
recognize  changes in that funded  status in the year in which the changes occur
through  comprehensive  income. As a result of adopting SFAS No. 158 on December
31, 2006,  we recorded $300 as a reduction to the benefit  obligation  and $200,
net of tax, as a one-time adjustment to accumulated other  comprehensive  income
in stockholders' equity.

      Intangible Assets with Finite Lives
      -----------------------------------

      The  useful  life  of an  intangible  asset  is  based  on  the  Company's
assumptions  regarding  expected  use  of the  asset;  the  relationship  of the
intangible asset to another asset or group of assets;  any legal,  regulatory or
contractual  provisions  that may  limit  the  useful  life of the asset or that
enable  renewal or extension of the asset's  legal or  contractual  life without
substantial  cost; the effects of  obsolescence,  demand,  competition and other
economic factors; and the level of maintenance  expenditures  required to obtain
the expected  future cash flows from the asset and their  related  impact on the
asset's  useful life.  If events or  circumstances  indicate that the life of an
intangible  asset has  changed,  it could result in higher  future  amortization
charges or recognition of an impairment loss.

      Income Taxes
      ------------

      Income  taxes are  accounted  for under  the asset and  liability  method.
Deferred  tax  assets  and   liabilities  are  recognized  for  the  future  tax
consequences   attributable  to  differences  between  the  financial  statement
carrying  amounts of existing assets and  liabilities  and their  respective tax
bases and operating loss and tax credit  carryforwards.  Deferred tax assets and
liabilities  are measured  using enacted tax rates  expected to apply to taxable
income in the years in which  those  temporary  differences  are  expected to be
recovered  or settled.  The effect on deferred tax assets and  liabilities  of a
change in tax rates is  recognized  in earnings in the period that  includes the
enactment  date.  The  Company  regularly  reviews its  deferred  tax assets for
recoverability  and would  establish a valuation  allowance if it believed  that
such assets may not be recovered, taking into consideration historical operating
results,  expectations  of future  earnings,  changes in its  operations and the
expected timing of the reversals of existing temporary differences.

      Beginning  in fiscal  2007,  we account for  uncertainty  in income  taxes
utilizing the Financial  Accounting  Standards  Board's  Interpretation  No. 48,
"Accounting  for  Uncertainty  in  Income  Taxes  -- an  interpretation  of  FAS
Statement No. 109" ("FIN 48"). This interpretation  clarifies the accounting for
uncertainty in income taxes  recognized in an entity's  financial  statements in
accordance with SFAS 109. It prescribes a recognition  threshold and measurement
attribute for financial statement  disclosure of tax positions taken or expected
to be taken.  This  interpretation  also  provides  guidance  on  derecognition,
classification,  interest and  penalties,  accounting  in interim  periods,  and
disclosures.  The  application  of  FIN  48  requires  judgment  related  to the
uncertainty in income taxes and could impact our effective tax rate.


                                       22
<PAGE>

      Stock-based Compensation

      Beginning  in fiscal  2006,  we account for  stock-based  compensation  in
accordance  with SFAS No. 123R  (revised  2004),  "Share-Based  Payment"  ("SFAS
123R") as interpreted by SEC Staff  Accounting  Bulletin  ("SAB") No. 107. Under
the  fair  value   recognition   provisions  of  this   statement,   share-based
compensation  cost is measured at the grant date based on the value of the award
and is recognized as expense over the vesting period. Determining the fair value
of share-based awards at the grant date requires judgment,  including estimating
our stock  price  volatility,  employee  stock  option  exercise  behaviors  and
employee option forfeiture rates.  Expected volatilities are based on historical
volatility of the Company's  stock. The expected term of the options is based on
the  Company's  historical   experience  of  employees'  exercise  behavior.  As
stock-based  compensation  expense  recognized in the Consolidated  Statement of
Earnings is based on awards  ultimately  expected to vest, the amount of expense
has been reduced for estimated forfeitures. SFAS 123R requires forfeitures to be
estimated at the time of grant and revised, if necessary,  in subsequent periods
if actual  forfeitures  differ from those estimates.  Forfeitures were estimated
based on historical  experience.  As a result of adopting SFAS 123R, we recorded
$900 of  compensation  expense,  net of tax, in 2006.  If factors  change and we
employ  different  assumptions in the application of SFAS 123R, the compensation
expense that we record in future periods may differ  significantly  from what we
have recorded in the current period.  See Note 2 to the  Consolidated  Financial
Statements for additional information.

      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 is effective  November 15, 2008. The adoption of this
statement  was  not   significant  to  the  Company's   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 Company does not expect the
adoption of this  statement  to be  significant  to its  consolidated  financial
statements.

      In March 2008, FASB issued Statement of Financial Accounting Standards No.
161,  "Disclosures  about  Derivative  Instruments and Hedging  Activities -- an
amendment of FASB  Statement No. 133" ("SFAS 161").  SFAS 161 requires  enhanced
disclosures  regarding  derivatives and hedging activities,  including:  (a) the
manner in which an entity uses derivative  instruments;  (b) the manner in which
derivative  instruments  and  related  hedged  items  are  accounted  for  under
Statement of Financial  Accounting Standards No. 133, "Accounting for Derivative
Instruments  and  Hedging   Activities";   and  (c)  the  effect  of  derivative
instruments  and  related  hedged  items  on  an  entity's  financial  position,
financial  performance,  and cash flows.  SFAS 161 is  effective  for  financial
statements  issued for fiscal years and interim periods beginning after November
15, 2008. As SFAS 161 relates  specifically to  disclosures,  the statement will
have no impact on our financial condition, results of operations or cash flows.

      In December 2007, the FASB issued SFAS No.141  (revised  2007),  "Business
Combinations",  or SFAS 141R. The purpose of issuing the statement is to replace
current  guidance in SFAS No.141 to better  represent  the  economic  value of a
business combination transaction. The changes to be effected with SFAS 141R from
the current guidance include, but are not limited to: (1) acquisition costs will
be  recognized


                                       23
<PAGE>

separately from the acquisition; (2) known contractual contingencies at the time
of the acquisition will be considered part of the liabilities  acquired measured
at their fair value;  all other  contingencies  will be part of the  liabilities
acquired  measured  at their fair value only if it is more  likely than not that
they meet the definition of a liability;  (3) contingent  consideration based on
the outcome of future events will be recognized  and measured at the time of the
acquisition;  (4) business  combinations  achieved in stages (step acquisitions)
will need to  recognize  the  identifiable  assets and  liabilities,  as well as
noncontrolling  interests,  in the  acquiree,  at the full amounts of their fair
values;  and (5) a bargain purchase (defined as a business  combination in which
the total  acquisition-date  fair value of the  identifiable net assets acquired
exceeds the fair value of the consideration  transferred plus any noncontrolling
interest in the  acquiree)  will require that excess to be  recognized as a gain
attributable  to the  acquirer.  SFAS 141R will be  effective  for any  business
combinations  that  occur  after  January  1, 2009.  The  Company  is  currently
evaluating  the impact that SFAS 141R will have on its financial  statements and
disclosures.

      In December 2007, the FASB issued SFAS No. 160, "Noncontrolling  Interests
in  Consolidated  Financial  Statements  -- an amendment of ARB No. 51", or SFAS
160.  SFAS  160  was  issued  to  improve  the  relevance,   comparability,  and
transparency  of financial  information  provided to investors by requiring  all
entities to report  noncontrolling  (minority)  interests in subsidiaries in the
same way, that is, as equity in the consolidated financial statements. Moreover,
SFAS 160  eliminates  the diversity  that  currently  exists in  accounting  for
transactions between an entity and noncontrolling interests by requiring they be
treated as equity transactions.  SFAS 160 will be effective January 1, 2009. The
Company does not expect the adoption of this  statement to be significant to 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 adopted the provisions of
EITF  07-3 as of  January  1, 2008 and it has not had 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 Company has adopted the
provisions  of this  statement for its financial  assets and  liabilities  as of
January 1, 2008 and it did not have a material impact on its financial condition
or results of operations.  As permitted by FASB Staff  Position  ("FSP") No. FAS
157-2,  "Effective Date of FASB Statement No. 157", the Company elected to defer
the  adoption  of SFAS No.  157 for all  nonfinancial  assets  and  nonfinancial
liabilities,  except those that are recognized or disclosed at fair value in the
financial  statements on a recurring  basis,  until  January 1, 2009.  Effective
January  1,  2009,  we will  adopt the  provision  for  nonfinancial  assets and
liabilities that are


                                       24
<PAGE>

not  required or  permitted  to be measured at fair value on a recurring  basis,
which  include  those  measured  at fair value in  impairment  testing and those
initially measured at fair value in a business combination. We do not expect the
provisions  of SFAS No. 157 related to these items to have a material  impact on
our  consolidated  financial  statements.  In October 2008,  FASB issued FSP No.
157-3, "Determining the Fair Value of a Financial Asset When the Market for That
Asset is Not Active." FSP No. 157-3 clarifies the application of SFAS No. 157 in
a market  that is not active and  provides an example of key  considerations  in
determining  the fair value of a financial  asset when the market for that asset
is not active. FSP No. 157-3 was effective on October 10, 2008,  including prior
periods for which financial statements have not been issued. Revisions resulting
from a change in the valuation  technique or its application should be accounted
for as a change in accounting  estimate  following the guidance in SFAS No. 154,
"Accounting Changes and Error Corrections." The Company adopted FSP No. 157-3 on
October  10,  2008 and it did not have a  material  effect  on its  consolidated
financial statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

      Cash and cash equivalents are invested primarily in money market accounts.
The money  market  funds in which the Company  invests are  participants  in the
United States Treasury Department's Temporary Guarantee Program for Money Market
Funds.  This program provides coverage for amounts held in money market funds as
of the close of business on September  19, 2008.  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 December  31,  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  December  31,  2008,  would  result in an increase or
decrease in annual interest expense and a corresponding reduction or increase in
cash flow of  approximately  $115.  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.


                                       25
<PAGE>

Item 8.  Financial Statements and Supplementary Data

         Index to Financial Statements and Supplementary Data:           Page

         Report of Independent Registered Public Accounting Firm           27

         Consolidated Balance Sheets as of
         December 31, 2008 and 2007                                        29

         Consolidated Statements of Earnings for the
         years ended December 31, 2008, 2007 and 2006                      30

         Consolidated Statements of Stockholders' Equity
         for the years ended December 31, 2008, 2007 and 2006              31

         Consolidated Statements of Cash Flows
         for the years ended December 31, 2008, 2007 and 2006              32

         Notes to Consolidated Financial Statements                        33

         Schedule II - Valuation and Qualifying
         Accounts for the years ended December 31, 2008, 2007 and 2006     55


                                       26
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders
Balchem Corporation

We  have  audited  the  accompanying  consolidated  balance  sheets  of  Balchem
Corporation  and  Subsidiaries as of December 31, 2008 and 2007, and the related
consolidated  statements of earnings,  stockholders'  equity, and cash flows for
each of the three years in the period ended  December 31, 2008.  Our audits also
included the financial  statement schedule of Balchem  Corporation listed in the
Index at Item 8. We also have audited  Balchem  Corporation's  internal  control
over financial reporting as of December 31, 2008, based on criteria  established
in Internal Control--Integrated  Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.  Balchem  Corporation's  management is
responsible for these financial statements and financial statement schedule, for
maintaining  effective  internal control over financial  reporting,  and for its
assessment of the  effectiveness  of internal  control over financial  reporting
included in the accompanying Management's Annual Report on Internal Control over
Financial  Reporting.  Our  responsibility  is to  express  an  opinion on these
financial  statements  and an opinion on the  Company's  internal  control  over
financial reporting based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and  perform  the  audits to  obtain  reasonable  assurance  about  whether  the
financial  statements are free of material  misstatement  and whether  effective
internal  control  over  financial  reporting  was  maintained  in all  material
respects.  Our audits of the financial statements included examining,  on a test
basis,  evidence  supporting  the  amounts  and  disclosures  in  the  financial
statements,  assessing the accounting  principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
Our audit of internal  control over financial  reporting  included  obtaining an
understanding of internal control over financial  reporting,  assessing the risk
that a material  weakness  exists,  and  testing and  evaluating  the design and
operating  effectiveness  of internal  control based on the assessed  risk.  Our
audits also included performing such other procedures as we considered necessary
in the circumstances.  We believe that our audits provide a reasonable basis for
our opinions.

A company's  internal control over financial  reporting is a process designed to
provide reasonable  assurance  regarding the reliability of financial  reporting
and the preparation of financial  statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial  reporting  includes those policies and procedures that (a) pertain to
the  maintenance  of records that, in reasonable  detail,  accurately and fairly
reflect the  transactions  and  dispositions  of the assets of the company;  (b)
provide  reasonable  assurance  that  transactions  are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting  principles,  and that receipts and  expenditures  of the company are
being made only in accordance with authorizations of management and directors of
the company; and (c) provide reasonable assurance regarding prevention or timely
detection of  unauthorized  acquisition,  use, or  disposition  of the company's
assets that could have a material effect on the financial statements.

Because of its inherent  limitations,  internal control over financial reporting
may not prevent or detect misstatements.  Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate  because of changes in  conditions,  or that the degree of compliance
with the policies or procedures may deteriorate.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of Balchem Corporation
and  Subsidiaries  as of December  31,  2008 and 2007,  and the results of their
operations  and their cash flows for each of the three years in the period ended
December 31, 2008, in conformity with accounting  principles  generally accepted
in the United  States of America.  Also, in our opinion,  the related  financial
statement  schedule,  when  considered  in  relation  to the basic  consolidated
financial statements taken as a whole, presents fairly the information set forth
therein. Also in our opinion,  Balchem Corporation  maintained,  in all material
respects, effective internal


                                       27
<PAGE>

control over  financial  reporting  as of December  31, 2008,  based on criteria
established in Internal Control--Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission.


/s/ McGladrey & Pullen LLP
New York, New York
March 12, 2009


                                       28
<PAGE>

                               BALCHEM CORPORATION
                           Consolidated Balance Sheets
                           December 31, 2008 and 2007
             (Dollars in thousands, except share and per share data)

<TABLE>
<CAPTION>
                                      Assets                                                2008              2007
                                      ------                                             -----------      -----------
<S>                                                                                      <C>              <C>
Current assets:
     Cash and cash equivalents                                                           $     3,422      $     2,307
      Accounts receivable, net of allowance for doubtful accounts of $50 and $50 at
         December 31, 2008 and 2007, respectively                                             30,250           29,640
      Inventories                                                                             16,618           15,680
      Prepaid expenses                                                                         2,581            2,456
      Deferred income taxes                                                                      649              515
      Other current assets                                                                     1,731            1,871
                                                                                         -----------      -----------
           Total current assets                                                               55,251           52,469

 Property, plant and equipment, net                                                           42,513           42,080

 Goodwill                                                                                     26,658           26,363
 Intangible assets with finite lives, net                                                     29,993           33,451
 Other assets                                                                                     59               61
                                                                                         -----------      -----------
               Total assets                                                              $   154,474      $   154,424
                                                                                         ===========      ===========

                         Liabilities and Stockholders' Equity
                         ------------------------------------
Current liabilities:
      Trade accounts payable                                                             $    10,336      $    11,190
      Accrued expenses                                                                         3,948            7,311
      Accrued compensation and other benefits                                                  2,501            3,205
      Customer deposits and other deferred revenue                                                --               42
      Dividends payable                                                                        2,008            1,975
      Income taxes payable                                                                     1,988            2,019
      Current portion of long-term debt                                                        2,860            7,379
      Revolver borrowings                                                                      2,044            3,209
                                                                                         -----------      -----------
           Total current liabilities                                                          25,685           36,330

 Long-term debt                                                                                6,671           17,398
 Deferred income taxes                                                                         6,003            6,087
 Other long-term obligations                                                                   1,609            1,529
                                                                                         -----------      -----------
                Total liabilities                                                             39,968           61,344
                                                                                         -----------      -----------

 Commitments and contingencies (note 11)

 Stockholders' equity:
    Preferred stock, $25 par value. Authorized 2,000,000
      shares; none issued and outstanding                                                         --               --
    Common stock, $.0667 par value. Authorized 60,000,000 shares; 18,249,347
      shares issued and outstanding at December 31, 2008 and 17,979,353 shares
      issued and outstanding at December 31, 2007                                                823              804
    Additional paid-in capital                                                                18,809           14,286
    Retained earnings                                                                         94,882           77,840
    Accumulated other comprehensive income (loss)                                                 (8)             150
                                                                                         -----------      -----------
      Total stockholders' equity                                                             114,506           93,080
                                                                                         -----------      -----------

                                                                                         -----------      -----------
               Total liabilities and stockholders' equity                                $   154,474      $   154,424
                                                                                         ===========      ===========
</TABLE>

See accompanying notes to consolidated financial statements.


                                       29
<PAGE>

                               BALCHEM CORPORATION
                       Consolidated Statements of Earnings
                  Years Ended December 31, 2008, 2007 and 2006
                      (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                          2008                2007                 2006
                                                       -----------         -----------         -----------
<S>                                                    <C>                 <C>                 <C>
Net sales                                              $   232,050         $   176,201         $   100,905

Cost of sales                                              179,472             129,271              66,899
                                                       -----------         -----------         -----------

Gross margin                                                52,578              46,930              34,006

Operating expenses:
     Selling expenses                                       12,560              11,930               6,907
     Research and development expenses                       2,877               2,514               2,019
     General and administrative expenses                     7,793               6,580               5,918
                                                       -----------         -----------         -----------
                                                            23,230              21,024              14,844

                                                       -----------         -----------         -----------
Earnings from operations                                    29,348              25,906              19,162

Other expenses (income):

     Interest income                                          (107)               (166)               (128)
     Interest expense                                          963               1,562                 189
     Other, net                                                 61                (319)                 --

                                                       -----------         -----------         -----------
Earnings before income tax expense                          28,431              24,829              19,101

     Income tax expense                                      9,381               8,711               6,823
                                                       -----------         -----------         -----------

Net earnings                                           $    19,050         $    16,118         $    12,278
                                                       ===========         ===========         ===========

Basic net earnings per common share                    $      1.06         $      0.91         $      0.70
                                                       ===========         ===========         ===========

Diluted net earnings per common share                  $      1.00         $      0.87         $      0.67
                                                       ===========         ===========         ===========
</TABLE>

See accompanying notes to consolidated financial statements.


                                       30
<PAGE>

                               BALCHEM CORPORATION
                 Consolidated Statements of Stockholders' Equity
                  Years Ended December 31, 2008, 2007 and 2006
             (Dollars in thousands, except share and per share data)

<TABLE>
<CAPTION>

                                                                                     Accumulated
                                                              Additional               Other                             Total
                                            Common Stock       Paid-in   Retained   Comprehensive   Treasury Stock     Stockholders'
                                         Shares      Amount    Capital   Earnings      Income      Shares     Amount      Equity
                                        ----------  --------  ---------  ---------  -------------  -------   --------  ------------
<S>                                     <C>         <C>       <C>        <C>          <C>          <C>          <C>        <C>
Balance - December 31, 2005             17,461,447  $    776  $   8,008  $  53,306   $       --   (96,024)  $ (1,157)  $  60,933

Net earnings                                    --        --         --     12,278           --        --         --      12,278
Dividends ($.09 per share)                      --        --         --     (1,596)          --        --         --      (1,596)
Shares issued under employee benefit
  plans and other                            1,079        --         70         --           --    21,933        264         334
Shares and options issued under stock
  option plans and an income tax
   benefit of $878                         271,323        12      2,315         --           --    74,091        893       3,220
Adjustment to initially apply FASB
  Statement No. 158, net of tax                 --        --         --         --          193        --         --         193
                                        ----------------------------------------------------------------------------------------

Balance - December 31, 2006             17,733,849       788     10,393     63,988          193        --         --      75,362

Net earnings                                    --        --         --     16,118           --        --         --      16,118
Dividends ($.11 per share)                      --        --         --     (1,975)          --        --         --      (1,975)
Shares issued under employee benefit
  plans and other                           20,869         1        378         --           --        --         --         379
Shares and options issued under stock
 option plans and an income tax
  benefit of $677                          224,635        15      3,515         --           --        --         --       3,530
Cumulative effect of adjustment from
  adoption of FIN 48                            --        --         --       (291)          --        --         --        (291)
Net change in pension asset/liability,
  net of taxes of $26                           --        --         --         --          (43)       --         --         (43)
                                        ----------------------------------------------------------------------------------------

Balance - December 31, 2007             17,979,353       804     14,286     77,840          150        --         --      93,080

Net earnings                                    --        --         --     19,050           --        --         --      19,050
Dividends ($.11 per share)                      --        --         --     (2,008)          --        --         --      (2,008)
Shares issued under employee benefit
  plans and other                           17,218         1        405         --           --        --         --         406
Shares and options issued under stock
  option plans and an income tax
   benefit of $672                         252,776        18      4,118         --           --        --         --       4,136
Net change in pension asset/liability,
  net of taxes of $8                            --        --         --         --           48        --         --          48
Equity adjustment from translation              --        --         --         --         (206)       --         --        (206)
                                        ----------------------------------------------------------------------------------------
Balance - December 31, 2008             18,249,347  $    823  $  18,809  $  94,882    $      (8)       --   $     --   $ 114,506
                                        ========================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.


                                       31
<PAGE>

                               BALCHEM CORPORATION
                      Consolidated Statements of Cash Flows
                  Years Ended December 31, 2008, 2007 and 2006
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                     2008             2007            2006
                                                                                 -----------      -----------      -----------
<S>                                                                              <C>              <C>              <C>
Cash flows from operating activities:
     Net earnings                                                                $    19,050      $    16,118      $    12,278

     Adjustments to reconcile net earnings to net cash provided by operating
     activities:
        Depreciation and amortization                                                  7,786            6,376            3,445
        Stock compensation expense                                                     2,414            1,636            1,097
        Shares issued under employee benefit plans                                       406              379              343
        Deferred income tax expense                                                     (238)            (617)             104
        Foreign currency transaction (gain) loss                                          31             (195)              --
        Other                                                                             --               15               --
             Changes in assets and liabilities
               Accounts receivable                                                    (1,058)         (15,409)             (57)
               Inventories                                                              (974)             481             (827)
               Prepaid expenses                                                          (17)          (2,218)              36
               Accounts payable and accrued expenses                                  (4,593)           7,634             (212)
               Income taxes                                                                6            1,803              218
               Customer deposits and other deferred revenue                              (42)          (1,030)            (101)
               Other long-term obligations                                               126              664               46
                                                                                 -----------      -----------      -----------
                    Net cash provided by operating activities                         22,897           15,637           16,370
                                                                                 -----------      -----------      -----------

Cash flows from investing activities:
        Capital expenditures                                                          (5,080)          (4,858)          (2,279)
        Intangible assets acquired                                                      (182)            (172)             (81)
        Acquisition of assets                                                           (296)         (40,744)         (22,872)
                                                                                 -----------      -----------      -----------
                    Net cash used in investing activities                             (5,558)         (45,774)         (25,232)
                                                                                 -----------      -----------      -----------

Cash flows from financing activities:
        Proceeds from long-term debt                                                      --           38,946           10,000
        Principal payments on long-term debt                                         (14,876)         (15,106)         (10,000)
        Proceeds from short-term obligations                                           3,516            3,684               --
        Repayments of short-term obligations                                          (4,507)            (733)              --
        Proceeds from stock options exercised                                          1,050            1,217            1,239
        Excess tax benefits from stock compensation                                      672              677              878
        Dividends paid                                                                (1,975)          (1,596)          (1,045)
        Other financing activities                                                        --               --              (17)
                                                                                 -----------      -----------      -----------
                    Net cash provided by (used in) financing activities              (16,120)          27,089            1,055
                                                                                 -----------      -----------      -----------

        Effect of exchange rate changes on cash                                         (104)             166               --
                                                                                 -----------      -----------      -----------

Increase (decrease) in cash and cash equivalents                                       1,115           (2,882)          (7,807)

Cash and cash equivalents beginning of year                                            2,307            5,189           12,996
                                                                                 -----------      -----------      -----------
Cash and cash equivalents end of year                                            $     3,422      $     2,307      $     5,189
                                                                                 ===========      ===========      ===========
</TABLE>

See accompanying notes to consolidated financial statements.


                                       32
<PAGE>

BALCHEM CORPORATION
Notes to Consolidated Financial Statements
(All amounts in thousands, except share and per share data)

NOTE 1 - BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
----------------------------------------------------------------------------

Business Description
--------------------

Balchem  Corporation  (including,  unless the context  otherwise  requires,  its
wholly-owned subsidiaries,  BCP Ingredients, Inc., Balchem Minerals Corporation,
BCP St.  Gabriel,  Inc.,  Chelated  Minerals  Corporation,  Balchem BV,  Balchem
Trading BV, and Balchem Italia Srl ("Balchem" or the  "Company")),  incorporated
in the State of Maryland in 1967, is engaged in the development, manufacture and
marketing  of  specialty  performance  ingredients  and  products  for the food,
nutritional, feed, pharmaceutical and medical sterilization industries.

Principles of Consolidation
---------------------------

The consolidated  financial  statements include the financial  statements of the
Company  and  its  subsidiaries.   All  significant  intercompany  balances  and
transactions have been eliminated in consolidation.

Revenue Recognition
-------------------

Revenue is recognized upon product shipment,  passage of title and risk of loss,
and when collection is reasonably assured. The Company reports amounts billed to
customers  related to  shipping  and  handling  as revenue  and  includes  costs
incurred  for  shipping  and  handling in cost of sales.  Amounts  received  for
unshipped  merchandise are principally not recognized as revenue but rather they
are recorded as customer  deposits and are included in current  liabilities.  In
addition,  the Company  follows the  provisions of the  Securities  and Exchange
Commission's   (SEC)  Staff   Accounting   Bulletin  (SAB)  No.  104,   "Revenue
Recognition,"  which sets forth guidelines on the timing of revenue  recognition
based upon factors such as passage of title, installation, payments and customer
acceptance.

Cash and Cash Equivalents
-------------------------

The Company  considers  all highly liquid  investments  with a maturity of three
months or less to be cash equivalents.

Inventories
-----------

Inventories  are  stated at the  lower of cost or  market,  with cost  generally
determined on a first-in, first-out basis, and have been reduced by an allowance
for excess or obsolete  inventories.  Cost elements include material,  labor and
manufacturing  overhead.  In November 2004, the Financial  Accounting  Standards
Board  issued  Statement  of Financial  Accounting  Standards  ("SFAS") No. 151,
"Inventory Costs." The new statement amends Accounting Research Bulletin No. 43,
Chapter 4, "Inventory  Pricing," to clarify the accounting for abnormal  amounts
of idle facility  expense,  freight,  handling costs, and wasted material.  This
statement  requires that those items be recognized as current period charges and
requires that allocation of fixed production overheads to the cost of conversion
be based on the normal capacity of the production facilities.  The provisions of
this statement were applied prospectively for inventory costs incurred beginning
in fiscal  year 2006.  The  adoption of this  statement  did not have a material
impact on the Company's results of operations, financial position or cash flow.

Property, Plant and Equipment and Depreciation
----------------------------------------------

Property,  plant and  equipment  are stated at cost.  Depreciation  of plant and
equipment is calculated using the straight-line method over the estimated useful
lives of the assets as follows:

         Buildings                          15-25 years
         Equipment                           3-12 years


                                       33
<PAGE>

Expenditures for repairs and maintenance are charged to expense. Alterations and
major  overhauls  that extend the lives or increase the capacity of plant assets
are capitalized.  When assets are retired or otherwise  disposed of, the cost of
the  assets  and the  related  accumulated  depreciation  are  removed  from the
accounts and any  resultant  gain or loss is included in  earnings.  The Company
capitalized  interest  costs of $158,  $150  and  $-0- in 2008,  2007 and  2006,
respectively.

Business Concentrations

Financial  instruments that subject the Company to credit risk consist primarily
of  investments  and  accounts   receivable.   Investments  are  managed  within
established  guidelines  to  mitigate  risks.  Accounts  receivable  subject the
Company to credit risk  partially due to the  concentration  of amounts due from
customers.  The Company extends credit to its customers based upon an evaluation
of the customers' financial condition and credit histories.  The majority of the
Company's customers are major national or international  corporations.  In 2008,
2007 and 2006, no customer accounted for more than 10% of total net sales.

Goodwill and Acquired Intangible Assets

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

As required by SFAS No. 142,  the Company  performed  an  assessment  of whether
there was an indication  that goodwill was impaired at the date of adoption.  In
connection  therewith,  the Company determined that its operations  consisted of
three  reporting  units and  determined  each  reporting  units'  fair value and
compared it to the reporting unit's net book value. Since the fair value of each
reporting  unit  exceeded  its  carrying  amount,  there  was no  indication  of
impairment and no further  transitional  impairment testing was required.  As of
December 31, 2008 and 2007, the Company also performed an impairment test of its
goodwill  balance.  As of such dates the Company's  reporting  units' fair value
exceeded  their carrying  amounts,  and therefore  there was no indication  that
goodwill was impaired.  Accordingly, the Company was not required to perform any
further impairment tests. The Company performs its impairment test each December
31.

The Company had  unamortized  goodwill in the amount of $26,658 at December  31,
2008 and $26,363 at December 31, 2007,  subject to the  provisions  of SFAS Nos.
141 and 142.  Unamortized  goodwill is  allocated  to the  Company's  reportable
segments as follows:

====================================================================
                                             2008             2007
--------------------------------------------------------------------
Specialty Products                       $    5,089        $   5,089
Food, Pharma and Nutrition                    8,607            8,533
Animal Nutrition and Health                  12,962           12,741
--------------------------------------------------------------------
Total                                    $   26,658        $  26,363
====================================================================


                                       34
<PAGE>

The following intangible assets with finite lives are stated at cost and are
amortized on a straight-line basis over the following estimated useful lives:

------------------------------------------------
                                   Amortization
                                      period
                                    (in years)
Customer lists                           10
Regulatory re-registration costs         10
Patents & trade secrets                15 - 17
Trademarks & trade names                 17
Other                                   5 - 10
------------------------------------------------

Income Taxes
------------

Income taxes are accounted for under the asset and  liability  method.  Deferred
tax assets  and  liabilities  are  recognized  for the  future tax  consequences
attributable to differences  between the financial statement carrying amounts of
existing  assets and  liabilities  and their  respective tax bases and operating
loss and tax credit  carry-forwards.  Deferred  tax assets and  liabilities  are
measured  using  enacted tax rates  expected  to apply to taxable  income in the
years in which those  temporary  differences  are  expected to be  recovered  or
settled.  The effect on deferred tax assets and  liabilities  of a change in tax
rates is recognized in income in the period that includes the enactment date.

Use of Estimates
----------------

Management of the Company is required to make certain  estimates and assumptions
during the preparation of consolidated  financial  statements in accordance with
accounting principles generally accepted in the United States of America.  These
estimates and  assumptions  impact the reported amount of assets and liabilities
and  disclosures  of  contingent  assets and  liabilities  as of the date of the
consolidated financial statements and revenues and expenses during the reporting
period.  Estimates and assumptions are reviewed  periodically and the effects of
revisions are reflected in the consolidated  financial  statements in the period
they are  determined  to be  necessary.  Actual  results could differ from those
estimates.

Fair Value of Financial Instruments
-----------------------------------

The Company has a number of  financial  instruments,  none of which are held for
trading  purposes.  The Company  estimates  that the fair value of all financial
instruments  at December 31, 2008 and 2007 does not differ  materially  from the
aggregate  carrying  values  of  its  financial   instruments  recorded  in  the
accompanying  consolidated balance sheets. The estimated fair value amounts have
been  determined  by  the  Company  using  available   market   information  and
appropriate  valuation  methodologies.   Considerable  judgment  is  necessarily
required in  interpreting  market data to develop the  estimates  of fair value,
and,  accordingly,  the estimates are not necessarily  indicative of the amounts
that the Company  could  realize in a current  market  exchange.  The  Company's
financial  instruments,   principally  cash  equivalents,  accounts  receivable,
accounts payable and accrued liabilities, are carried at cost which approximates
fair value due to the short-term  maturity of these instruments.  The fair value
of the  Company's  obligations  under its long-term  debt and credit  agreements
approximates  their  carrying  value  as the  stated  interest  rates  of  these
instruments  are  variable  and  reflect  rates  which are  otherwise  currently
available to the Company.

Cost of Sales
-------------

Cost of sales are primarily  comprised of raw materials and supplies consumed in
the manufacture of product, as well as manufacturing  labor,  maintenance labor,
depreciation expense, and direct overhead expense necessary to convert purchased
materials  and  supplies  into  finished  product.  Cost of sales also  includes
inbound  freight  costs,   outbound  freight  costs  for  shipping  products  to
customers, warehousing costs, quality control and obsolescence expense.

Selling, General and Administrative Expenses
--------------------------------------------

Selling  expenses  consist  primarily of compensation  and benefit costs,  trade
promotions,  advertising,  commissions  and other marketing  costs.  General and
administrative   expenses  consist  primarily  of  payroll


                                       35
<PAGE>

and  benefit  costs,   occupancy  and  operating  costs  of  corporate  offices,
depreciation and amortization expense on non-manufacturing  assets,  information
systems costs and other miscellaneous administrative costs.

Research and Development
------------------------

Research and development costs are expensed as incurred.

Net Earnings Per Common Share
-----------------------------

Basic net earnings per common share is  calculated by dividing net income by the
weighted average number of common shares outstanding during the period.  Diluted
net earnings per common share is  calculated in a manner  consistent  with basic
net earnings per common share except that the weighted  average number of common
shares   outstanding   also  includes  the  dilutive  effect  of  stock  options
outstanding and unvested restricted stock (using the treasury stock method).

Stock-based Compensation
------------------------

The Company has stock-based  employee  compensation  plans,  which are described
more fully in Note 2. On January 1, 2006, the Company was required to adopt SFAS
No. 123R (revised 2004), "Share-Based Payment" ("SFAS 123R"), which requires all
share-based payments, including grants of stock options, to be recognized in the
income  statement  as an  operating  expense,  based on their fair  values.  The
Company estimates the fair value of each option award on the date of grant using
a Black-Scholes based option-pricing model.

Prior to adopting SFAS 123R, the Company accounted for stock-based  compensation
under Accounting  Principles Board Opinion No. 25,  "Accounting for Stock Issued
to  Employees",  as  permitted  by SFAS No.  123,  "Accounting  for  Stock-Based
Compensation". The modified prospective method was applied in adopting SFAS 123R
and, accordingly, periods prior to adoption have not been restated.

The  implementation  of SFAS 123R has had no  adverse  effect  on the  Company's
balance  sheet  or  total  cash  flows,  but it  does  impact  cash  flows  from
operations,  cash flows from financing activities,  cost of sales, gross profit,
operating expenses,  net income and earnings per share. Because periods prior to
adoption  have  not  been  restated,  comparability  between  periods  has  been
affected.  Additionally,  estimates of and assumptions  about forfeiture  rates,
terms,  volatility,  interest  rates and  dividend  yields are used to calculate
stock-based  compensation.   A  significant  change  to  these  estimates  could
materially affect the Company's operating results.

Impairment of Long-lived Assets
-------------------------------

Long-lived  assets,  such as  property,  plant,  and  equipment,  and  purchased
intangibles subject to amortization, are reviewed for impairment whenever events
or changes in  circumstances  indicate that the carrying  amount of an asset may
not be recoverable.  Recoverability of assets to be held and used is measured by
a comparison of the carrying amount of an asset to estimated undiscounted future
cash flows expected to be generated by the asset.  If the carrying  amount of an
asset  exceeds  its  estimated  future  cash  flows,  an  impairment  charge  is
recognized  by the amount by which the carrying  amount of the asset exceeds the
fair value of the asset, which is generally based on discounted cash flows.

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 is effective


                                       36
<PAGE>

November 15, 2008.  The adoption of this  statement was not  significant  to the
Company's 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 Company does not expect the
adoption of this  statement  to be  significant  to its  consolidated  financial
statements.

In March 2008, FASB issued Statement of Financial  Accounting Standards No. 161,
"Disclosures about Derivative Instruments and Hedging Activities -- an amendment
of FASB Statement No. 133" ("SFAS 161"). SFAS 161 requires enhanced  disclosures
regarding derivatives and hedging activities, including: (a) the manner in which
an entity  uses  derivative  instruments;  (b) the  manner  in which  derivative
instruments  and related  hedged  items are  accounted  for under  Statement  of
Financial Accounting  Standards No. 133, "Accounting for Derivative  Instruments
and  Hedging  Activities";  and (c) the  effect of  derivative  instruments  and
related hedged items on an entity's financial position,  financial  performance,
and cash flows. SFAS 161 is effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008. As SFAS 161 relates
specifically to disclosures,  the statement will have no impact on our financial
condition, results of operations or cash flows.

In  December  2007,  the FASB  issued  SFAS  No.141  (revised  2007),  "Business
Combinations",  or SFAS 141R. The purpose of issuing the statement is to replace
current  guidance in SFAS No.141 to better  represent  the  economic  value of a
business combination transaction. The changes to be effected with SFAS 141R from
the current guidance include, but are not limited to: (1) acquisition costs will
be  recognized   separately  from  the   acquisition;   (2)  known   contractual
contingencies  at the time of the  acquisition  will be  considered  part of the
liabilities  acquired measured at their fair value; all other contingencies will
be part of the liabilities  acquired  measured at their fair value only if it is
more  likely  than not  that  they  meet  the  definition  of a  liability;  (3)
contingent  consideration  based  on  the  outcome  of  future  events  will  be
recognized  and  measured  at  the  time  of  the   acquisition;   (4)  business
combinations  achieved in stages (step  acquisitions) will need to recognize the
identifiable assets and liabilities, as well as noncontrolling interests, in the
acquiree,  at the full amounts of their fair values;  and (5) a bargain purchase
(defined  as a business  combination  in which the total  acquisition-date  fair
value of the  identifiable  net assets  acquired  exceeds  the fair value of the
consideration transferred plus any noncontrolling interest in the acquiree) will
require that excess to be  recognized  as a gain  attributable  to the acquirer.
SFAS 141R will be  effective  for any  business  combinations  that occur  after
January 1, 2009.  The Company is currently  evaluating the impact that SFAS 141R
will have on its financial statements and disclosures.

In December  2007,  the FASB issued SFAS No. 160,  "Noncontrolling  Interests in
Consolidated  Financial  Statements -- an amendment of ARB No. 51", or SFAS 160.
SFAS 160 was issued to improve the relevance, comparability, and transparency of
financial  information provided to investors by requiring all entities to report
noncontrolling (minority) interests in subsidiaries in the same way, that is, as
equity in the consolidated financial statements.  Moreover,  SFAS 160 eliminates
the diversity that currently  exists in accounting for  transactions  between an
entity  and  noncontrolling  interests  by  requiring  they be treated as equity
transactions.  SFAS 160 will be effective  January 1, 2009. The Company does not
expect the adoption of this  statement  to be  significant  to 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 adopted the provisions of EITF 07-3 as
of  January  1,  2008  and it has not had 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


                                       37
<PAGE>

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  Company  has  adopted  the
provisions  of this  statement for its financial  assets and  liabilities  as of
January 1, 2008 and it did not have a material impact on its financial condition
or results of operations.  As permitted by FASB Staff  Position  ("FSP") No. FAS
157-2,  "Effective Date of FASB Statement No. 157", the Company elected to defer
the  adoption  of SFAS No.  157 for all  nonfinancial  assets  and  nonfinancial
liabilities,  except those that are recognized or disclosed at fair value in the
financial  statements on a recurring  basis,  until  January 1, 2009.  Effective
January  1,  2009,  we will  adopt the  provision  for  nonfinancial  assets and
liabilities that are not required or permitted to be measured at fair value on a
recurring  basis,  which  include  those  measured  at fair value in  impairment
testing and those initially measured at fair value in a business combination. We
do not expect the  provisions  of SFAS No. 157  related to these items to have a
material impact on our consolidated financial statements.  In October 2008, FASB
issued FSP No. 157-3,  "Determining the Fair Value of a Financial Asset When the
Market for That Asset is Not Active." FSP No. 157-3 clarifies the application of
SFAS No.  157 in a market  that is not  active  and  provides  an example of key
considerations  in  determining  the fair  value of a  financial  asset when the
market for that asset is not active.  FSP No. 157-3 was effective on October 10,
2008,  including  prior  periods for which  financial  statements  have not been
issued.  Revisions  resulting  from a change in the  valuation  technique or its
application should be accounted for as a change in accounting estimate following
the guidance in SFAS No. 154,  "Accounting  Changes and Error  Corrections." The
Company adopted FSP No. 157-3 on October 10, 2008 and it did not have a material
effect on its consolidated financial statements.

Reclassifications
-----------------

Certain   reclassifications  have  been  made  to  the  prior  years'  financial
statements to conform to the current year's  presentation  with no impact on net
earnings or stockholders' equity.

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

STOCK-BASED COMPENSATION

On  January  1,  2006,  the  Company  adopted  SFAS  123R,  which  requires  all
share-based payments, including grants of stock options, to be recognized in the
income statement as an operating expense, based on their fair values.

Prior to adopting SFAS 123R, the Company accounted for stock-based  compensation
under Accounting  Principles Board Opinion No. 25,  "Accounting for Stock Issued
to  Employees"  ("Opinion  25"), as permitted by SFAS No. 123,  "Accounting  for
Stock-Based  Compensation,"  ("SFAS 123").  The Company has applied the modified
prospective method in adopting SFAS 123R. Accordingly, periods prior to adoption
have not been restated. Under the modified prospective method, compensation cost
recognized  in the years ended  December  31,  2008,  2007 and 2006  include (a)
compensation  cost for all  share-based  payments  granted prior to, but not yet
vested as of January 1, 2006,  based on the grant date fair value  estimated  in
accordance with the original  provisions of SFAS 123, and (b) compensation  cost
for all share-based payments granted subsequent to January 1, 2006, based on the
grant-date fair value estimated in accordance with the provisions of SFAS 123R.


                                       38
<PAGE>

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

Additionally,  since adoption of SFAS 123R, excess tax benefits related to stock
compensation  are  presented as a cash inflow from  financing  activities.  This
change had the effect of decreasing  cash flows from  operating  activities  and
increasing  cash flows from financing  activities by $672, $677 and $878 for the
years ended December 31, 2008, 2007 and 2006, respectively.

The  Company's  results for the years ended  December  31,  2008,  2007 and 2006
reflected the following  compensation cost as a result of adopting SFAS 123R and
such  compensation  cost had the following effects on net earnings and basic and
diluted earnings per share:

================================================================================
                                                       Year Ended
                                                      December 31,
                                            2008          2007          2006
--------------------------------------------------------------------------------
Cost of sales                            $      273     $     187     $    115
Operating expenses                            2,141         1,449          982
Net earnings                                  1,614         1,118          888
Basic EPS                                       .09           .06          .05
Diluted EPS                              $      .08     $     .06     $    .05
================================================================================

On December 31, 2008, the Company had one share-based  compensation  plan, which
is described below (the "1999 Stock Plan").

In June 1999, the Company  adopted the Balchem  Corporation  1999 Stock Plan for
officers, directors,  directors emeritus and employees of and consultants to the
Company  and its  subsidiaries.  The  1999  Stock  Plan is  administered  by the
Compensation Committee of the Board of Directors of the Company. Under the plan,
options and rights to purchase shares of the Company's  common stock are granted
at prices  established  at the time of grant.  Option  grants  generally  become
exercisable  20% after 1 year, 60% after 2 years and 100% after 3 years from the
date of grant for employees and are fully  exercisable  on the date of grant for
directors. Other option grants are either fully exercisable on the date of grant
or become  exercisable  thereafter  in such  installments  as the  Committee may
specify.  Options  granted  under the 1999 Stock Plan  expire ten years from the
date of the grant.  The 1999 Stock  Plan  initially  reserved  an  aggregate  of
600,000  shares  (unadjusted  for the stock splits) of common stock for issuance
under the Plan. In April 2003, the Board of Directors of the Company adopted and
stockholders  subsequently  approved,  the Amended and Restated  1999 Stock Plan
(the "Amended  Plan") which amended the 1999 Stock Plan by: (i)  increasing  the
number of shares of common stock reserved for issuance under the 1999 Stock Plan
by 600,000 shares  (unadjusted  for the stock  splits),  to a total of 1,200,000
shares  (unadjusted  for the stock splits) of common stock;  and (ii) confirming
the right of the Company to grant awards of common stock  ("Awards") in addition
to the other Stock Rights  available  under the 1999 Stock Plan,  and  providing
certain  language changes  relating  thereto.  The Amended Plan was scheduled to
expire in April,  2009.  In April,  2008,  the Board of Directors of the Company
adopted and stockholders subsequently approved, the adoption of an amendment and
restatement of the Amended Plan  (collectively  to be referred to as the "Second
Amended Plan"),  which provides as follows:  (i) for a termination date of April
9, 2018; (ii) to authorize 4,000,000 shares reserved for future grants under the
Second  Amended  Plan;  (iii) for the  making  of  grants of stock  appreciation
rights, restricted stock and performance awards; (iv) for immediate acceleration
of vesting of awards  issued  under the plan in the event of a change in control
of the Company;  and (v) for compliance  with the  requirements of Sections 409A
and 162(m) of the  Internal  Revenue  Code of 1986,  as amended  (the  "Internal
Revenue  Code" or the  "Code").  The 1999  Stock  Plan  replaced  the  Company's
incentive stock option plan (the "ISO Plan") and its non-qualified  stock option
plan  (the  "Non-Qualified  Plan"),  both of which  expired  on June  24,  1999.
Unexercised  options granted under the ISO Plan and the Non-Qualified Plan prior
to such termination remain  exercisable in accordance with their terms.  Options
granted under the ISO Plan generally  become  exercisable  20% after 1 year, 60%
after 2 years and 100%  after 3 years  from the date of grant,  and  expire  ten
years  from the date of grant.  Options  granted


                                       39
<PAGE>

under the  Non-Qualified  Plan generally vested on the date of grant, and expire
ten years from the date of grant.

The shares to be issued  upon  exercise  of the  outstanding  options  have been
approved,  reserved and are adequate to cover all exercises.  As of December 31,
2008, the plans had 3,664,350 shares available for future awards.

The Company has Restricted Stock Purchase Agreements (the "RSP Agreements") with
its non-employee  directors and certain employees of the Company to purchase the
Company's  common stock pursuant to the Company's 1999 Stock Plan. Under the RSP
Agreements,  certain  shares have been  purchased,  ranging from 1,000 shares to
13,500  shares,  of the Company's  common stock at purchase  prices ranging from
approximately  $.03 per share to $.07 per share.  The purchased stock is subject
to a repurchase  option in favor of the Company and to  restrictions on transfer
until it vests in accordance with the provisions of the Agreements.

The fair  value of each  option  award  issued  under  the  1999  Stock  Plan is
estimated on the date of grant using a Black-Scholes based  option-pricing model
that uses the assumptions  noted in the following table.  Expected  volatilities
are based on historical  volatility of the Company's stock. The expected term of
the  options  is based on the  Company's  historical  experience  of  employees'
exercise  behavior.  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.

--------------------------------------------------------------------------------
                                                     Year Ended
--------------------------------------------------------------------------------
                                       December 31,   December 31,  December 31,
  Weighted Average Assumptions:           2008            2007          2006
--------------------------------------------------------------------------------
Expected Volatility                        32.8%          27.0%         26.4%
Expected Term (in years)                    3.4            3.7           4.5
Risk-Free Interest Rate                     3.7%           4.1%          3.8%
Dividend Yield                              0.4%           0.3%          0.4%
--------------------------------------------------------------------------------

The value of the restricted  shares is based on the intrinsic value of the award
at the date of grant.

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.

A summary of stock option plan activity for 2008,  2007,  and 2006 for all plans
is as follows:

=========================================================================
                                        # of
                                       Shares            Weighted Average
             2008                      (000s)             Exercise Price
-------------------------------------------------------------------------
Outstanding at beginning of year        1,944                $ 10.66
Granted                                   584                  23.02
Exercised                                (131)                  7.97
Cancelled                                  (1)                 20.41
-------------------------------------------------------------------------
Outstanding at end of year              2,396                $ 13.82
-------------------------------------------------------------------------
Exercisable at end of year              1,687                $ 10.34
=========================================================================


                                       40
<PAGE>

=========================================================================
                                        # of
                                       Shares            Weighted Average
             2007                      (000s)             Exercise Price
-------------------------------------------------------------------------
Outstanding at beginning of year        2,170                $ 10.13
Granted                                    10                  18.00
Exercised                                (220)                  5.54
Cancelled                                 (16)                 14.34
-------------------------------------------------------------------------
Outstanding at end of year              1,944                $ 10.66
-------------------------------------------------------------------------
Exercisable at end of year              1,488                $  9.09
=========================================================================

=========================================================================
                                        # of
                                       Shares            Weighted Average
             2006                      (000s)             Exercise Price
-------------------------------------------------------------------------
Outstanding at beginning of year        2,153                $  8.38
Granted                                   305                  17.67
Exercised                                (267)                  4.64
Cancelled                                 (21)                  9.64
-------------------------------------------------------------------------
Outstanding at end of year              2,170                $ 10.13
-------------------------------------------------------------------------
Exercisable at end of year              1,277                $  7.40
=========================================================================

The aggregate intrinsic value for outstanding stock options was $26,873, $22,786
and $15,357 at December 31, 2008, 2007 and 2006,  respectively,  with a weighted
average  remaining   contractual  term  of  6.7  years  at  December  31,  2008.
Exercisable stock options at December 31, 2008 had an aggregate  intrinsic value
of $24,581 with a weighted average remaining contractual term of 5.6 years.

Other information  pertaining to option activity during the years ended December
31, 2008, 2007 and 2006 was as follows:

<TABLE>
<CAPTION>
=========================================================================================================
                                                                                 Year Ended
                                                                                December 31,
                                                                       2008          2007         2006
=========================================================================================================
<S>                                                                  <C>          <C>          <C>
Weighted-average fair value of options granted                       $      7.48  $      6.44  $     4.91
Total intrinsic value of stock options exercised ($000s)             $     2,023  $     2,721  $    2,929
=========================================================================================================
</TABLE>

Additional information related to stock options outstanding under all plans at
December 31, 2008 is as follows:

<TABLE>
<CAPTION>
======================================================================================================
                                               Options Outstanding               Options Exercisable
                                          ---------------------------       --------------------------
                                           Weighted
                                            Average          Weighted                         Weighted
                          Shares           Remaining         Average          Number           Average
Range of Exercise       Outstanding       Contractual        Exercise       Exercisable       Exercise
     Prices               (000s)             Term             Price           (000s)            Price
------------------------------------------------------------------------------------------------------
<S>                         <C>            <C>                <C>               <C>            <C>
$ 1.88  - $8.89               929          4.5 years          $ 7.16              929          $  7.16
  9.87  - 17.81               880          7.0 years           14.71              757            14.22
 18.17  - 25.92               587          9.4 years           23.00                1            18.75
------------------------------------------------------------------------------------------------------
                            2,396          6.7 years          $13.82            1,687          $ 10.34
======================================================================================================
</TABLE>


                                       41
<PAGE>

Non-vested restricted stock activity for the years ended December 31, 2008, 2007
and 2006 is summarized below:

================================================================================
                                                                      Weighted
                                                                   Average Grant
                                                                     Date Fair
                                              Shares (000s)            Value
================================================================================
Non-vested balance as of December 31, 2007             118          $     16.49
Granted                                                132                22.94
Vested                                                 (18)               17.04
Forfeited                                               --                   --
--------------------------------------------------------------------------------
Non-vested balance as of December 31, 2008             232          $     20.08
================================================================================

================================================================================
                                                                      Weighted
                                                                   Average Grant
                                                                     Date Fair
                                              Shares (000s)            Value
================================================================================
Non-vested balance as of December 31, 2006             113          $     16.40
Granted                                                  5                18.61
Vested                                                  --                   --
Forfeited                                               --                   --
--------------------------------------------------------------------------------
Non-vested balance as of December 31, 2007             118          $     16.49
================================================================================

================================================================================
                                                                      Weighted
                                                                   Average Grant
                                                                     Date Fair
                                              Shares (000s)            Value
================================================================================
Non-vested balance as of December 31, 2005              34          $     13.22
Granted                                                 79                17.76
Vested                                                  --                   --
Forfeited                                               --                   --
--------------------------------------------------------------------------------
Non-vested balance as of December 31, 2006             113          $     16.40
================================================================================

As of December 31,  2008,  2007 and 2006,  there was $7,248,  $2,586 and $4,036,
respectively,  of total  unrecognized  compensation  cost related to  non-vested
share-based  compensation  arrangements  granted under the plans. As of December
31, 2008, the unrecognized compensation cost is expected to be recognized over a
weighted-average  period of 2 years. We estimate that  share-based  compensation
expense for the year ended December 31, 2009 will be approximately $3,200.

STOCK SPLITS AND REPURCHASE OF COMMON STOCK

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

On  December  15,  2005,  the  Board of  Directors  of the  Company  approved  a
three-for-two  split of the Company's common stock to be effected in the form of
a stock  dividend to  shareholders  of record on December 30,  2005.  Such stock
dividend  was made on  January  20,  2006.  The stock  split was  recognized  by
reclassifying  the par value of the additional  shares resulting from the split,
from additional paid-in capital to common stock.

In June 1999, the board of directors  authorized the repurchase of shares of the
Company's  outstanding  common stock over a two-year  period  commencing July 2,
1999. Under this program,  which was subsequently  extended, the Company had, as
of December 31, 2004, repurchased a total 1,158,692 shares at


                                       42
<PAGE>

an average  cost of $2.74 per  share,  none of which  remained  in  treasury  at
December  31, 2004.  In June 2005,  the board of  directors  authorized  another
extension  of the stock  repurchase  program for up to an  additional  1,350,000
shares,  over and above those 1,158,692 shares previously  repurchased under the
program.  Under this extension, a total of 149,175 shares were purchased in 2005
at an average  cost of $8.03 per share,  none of which  remained  in treasury at
December  31, 2008 or 2007.  During  2008 and 2007,  no  additional  shares were
purchased. The Company intends to acquire shares from time to time at prevailing
market  prices if and to the extent it deems it  advisable to do so based on its
assessment of corporate cash flow, market conditions and other factors.

NOTE 3 - INVENTORIES
--------------------

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

===========================================================
                                   2008            2007
-----------------------------------------------------------
Raw materials                 $     5,931     $      6,522
Work in progress                      540              818
Finished goods                     10,147            8,340
-----------------------------------------------------------
  Total inventories           $    16,618     $     15,680
===========================================================

On a regular  basis,  the Company  evaluates its  inventory  balances for excess
quantities and obsolescence by analyzing demand, inventory on hand, sales levels
and  other  information.  Based on these  evaluations,  inventory  balances  are
reduced,  if  necessary.  The reserve for inventory was $94 and $174 at December
31, 2008 and 2007, respectively.

NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
--------------------------------------

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

================================================================================
                                                        2008            2007
--------------------------------------------------------------------------------
Land                                               $     2,088     $      2,152
Building                                                15,426           15,520
Equipment                                               50,719           45,599
Construction in progress                                 2,654            3,067
--------------------------------------------------------------------------------
                                                        70,887           66,338
Less: Accumulated depreciation                          28,374           24,258
--------------------------------------------------------------------------------
   Property, plant and equipment, net              $    42,513     $     42,080
================================================================================

Depreciation expense was $4,144,  $3,466 and $2,842 for the years ended December
31, 2008, 2007 and 2006, respectively.

NOTE 5 - ACQUISITIONS
---------------------

Akzo Nobel Acquisition
----------------------

Effective  April 30, 2007,  pursuant to an asset purchase  agreement dated March
30, 2007, the Company, through its European subsidiary,  Balchem B.V., completed
an  acquisition  of  the  methylamines   and  choline   chloride   business  and
manufacturing  facilities  of Akzo  Nobel  Chemicals  S.p.A.,  located in Marano
Ticino,  Italy (the "Akzo Nobel  Acquisition")  for a purchase price,  including
acquisition  costs,  of  approximately  $8,000.  The  intent  of the Akzo  Nobel
Acquisition was to provide a direct platform for the Company to meet the growing
market  needs of  methylamines,  choline  chloride and  derivative  products for
customers  via improved  global  sourcing,  regulatory  support,  marketing  and
distribution capabilities.

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 including certain working capital acquired has been allocated as follows:

                                       43
<PAGE>

================================================================================
                                                        Fair Value Recorded
                                                        in Purchase Accounting
--------------------------------------------------------------------------------
Property plant & equipment                              $            7,994
Short-term receivable                                                2,462
Inventories                                                          4,323
Goodwill                                                             1,383
Other                                                                   83
Accounts payable and accrued expenses                               (8,213)
--------------------------------------------------------------------------------
Total                                                   $            8,032
================================================================================

The consolidated  financial  statements include the results of operations of the
Akzo Nobel  Acquisition  from the date of  purchase.  Pro forma  results for the
years ended  December 31, 2007 and 2006 are not  materially  different  from the
results reported herein.

Chinook Acquisition
-------------------

On March  16,  2007,  the  Company,  through  its  wholly-owned  subsidiary  BCP
Ingredients, Inc. ("BCP"), entered into an 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
intent of the Chinook  Acquisition was to gain scale in order for the Company to
more  effectively  and  economically  produce and  distribute  choline  chloride
worldwide.

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:

====================================================================
                                           Fair Value Recorded
                                           in Purchase Accounting
--------------------------------------------------------------------
Customer list                              $                  29,262
Inventory                                                      1,840
Short-term receivable                                          1,850
Other                                                             73
--------------------------------------------------------------------
Total                                      $                  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 periods  presented and is not intended to be a
projection of future results.


                                       44
<PAGE>

=========================================================
                                           Pro Forma
                                           Year Ended
                                          December 31,
                                              2007
---------------------------------------------------------
Net sales                               $       185,188
Net earnings                                     16,595
Basic EPS                                           .93
Diluted EPS                             $           .89
=========================================================

CMC Acquisition
---------------

On February 8, 2006, the Company,  through its wholly owned  subsidiary  Balchem
Minerals Corporation  ("BMC"),  completed an acquisition (the "CMC Acquisition")
of all  of the  outstanding  capital  stock  of  Chelated  Minerals  Corporation
("CMC"),  a privately held Utah  corporation,  for a purchase  price,  including
acquisition costs, of approximately  $17,900.  The intent of the CMC Acquisition
was to provide  synergies  in animal  markets via the addition of a key nutrient
delivery technology,  chelation,  to our existing encapsulation  technology,  as
well as a complementary portfolio of products.

The CMC  Acquisition  has been  accounted  for  using  the  purchase  method  of
accounting  and the purchase price of the  acquisition  has been assigned to the
net assets  acquired  based on the fair value of such assets and  liabilities at
the date of acquisition.  The allocation of the total purchase price,  including
acquisition  costs, of CMC's net tangible and intangible assets was based on the
estimated  fair values as of February 8, 2006.  The excess of the purchase price
over the  identifiable  intangible  and net  tangible  assets was  allocated  to
goodwill. The purchase price has been allocated as follows:

=================================================================
                                           Fair Value Recorded
                                           in Purchase Accounting
-----------------------------------------------------------------
Accounts receivable                          $      884
Inventory                                           552
Property, plant and equipment                     1,980
Current liabilities                                (388)
Other long-term liabilities                      (2,368)
Goodwill                                         11,925
Other intangible assets                           5,334
-----------------------------------------------------------------
         Total                               $   17,919
=================================================================

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

Pro Forma Summary of Operations

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

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


                                       45
<PAGE>

=========================================================
                                            Pro Forma
                                            Year Ended
                                           December 31,
                                               2006
---------------------------------------------------------
Net sales                               $        101,639
Net earnings                                      12,284
Basic EPS                                            .70
Diluted EPS                             $            .67
=========================================================

NOTE 6 - INTANGIBLE ASSETS WITH FINITE LIVES
--------------------------------------------

As of December 31, 2008 and 2007, the Company had identifiable intangible assets
as follows:

<TABLE>
<CAPTION>
=================================================================================================================
                                                       2008                             2007
                                 Amortization          Gross           2008             Gross            2007
                                    Period           Carrying      Accumulated        Carrying       Accumulated
                                  (In years)          Amount      Amortization         Amount       Amortization
-----------------------------------------------------------------------------------------------------------------
<S>                                  <C>             <C>             <C>              <C>              <C>
Customer lists                          10            $34,150        $ 6,595           $34,150         $ 3,178
Regulatory re-registration
costs                                   10                 85              3                28              --
Patents & trade secrets              15-17              1,673            406             1,621             311
Trademarks & trade names                17                904            198               884             146
Other                                 5-10                619            236               565             162
-----------------------------------------------------------------------------------------------------------------
                                                     $ 37,431        $ 7,438          $ 37,248         $ 3,797
=================================================================================================================
</TABLE>

Amortization of identifiable  intangible assets was approximately $3,642, $2,910
and $603 for 2008, 2007 and 2006, respectively.  Assuming no change in the gross
carrying value of identifiable  intangible  assets,  the estimated  amortization
expense is approximately $3,600 per annum for 2009 through 2013. At December 31,
2008 and 2007,  there were no  identifiable  intangible  assets with  indefinite
useful  lives as defined by SFAS No.  142.  Identifiable  intangible  assets are
reflected in the Company's  consolidated balance sheets under Intangible assets,
net.  There were no changes to the useful lives of intangible  assets subject to
amortization in 2008 and 2007.

At  December  31,  2007,  the gross  carrying  amount  included a customer  list
acquired as part of the Chinook  Acquisition,  a customer  list,  trade name and
trade  secrets  acquired as part of the CMC  Acquisition,  as well as a customer
list and patent acquired as part of the Loders Croklaan Acquisition.

The Federal Insecticide,  Fungicide and Rodenticide Act, as amended ("FIFRA"), a
health and safety statute,  requires that certain  products within our specialty
products  segment  must be  registered  with the U.S.  Environmental  Protection
Agency  ("EPA")   because  they  are  considered   pesticides.   Costs  of  such
registration  are  included  as  regulatory  re-registration  costs in the table
above.

NOTE 7 - LONG-TERM DEBT & 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 (euro)7,500, translated to approximately $10,573 as of December 31, 2008 (the
"European  Term  Loan"),  the proceeds of which were used to fund the Akzo Nobel
Acquisition (see Note 5) 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 December  31,  2008,  this
interest  rate was 4.61%.  At December 31, 2008,  the European  Term Loan had an
outstanding  balance of  (euro)5,804  translated  to $8,181.  The European  Loan
Agreement also initially provided for a short-term  revolving credit facility of
(euro)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 (euro)3,000, translated to $4,229 as of December 31, 2008.
The European  Revolving


                                       46
<PAGE>

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 (euro)1,450,  or
$2,044 as translated at December 31, 2008, of the European Revolving Facility as
of December 31, 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 5). 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  December  31,  2008,  this
interest  rate was 2.20%.  As of  December  31,  2008,  the  Company has prepaid
$17,500 of the Term Loan. At December 31, 2008, the Term Loan had an outstanding
balance of $1,350.  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.  No amounts are outstanding on the Revolving  Facility as of
the date hereof.  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.

At December 31, 2008, we had a total of $11,575 of debt outstanding, as compared
to a total of $27,986 debt outstanding at December 31, 2007.  Indebtedness under
the Company's loan agreements are secured by assets of the Company.

The Company's debt obligations,  excluding revolver  borrowings,  as of December
31, 2008, are summarized in the table below:

================================================================================
                                                    Payments due by period
                                          --------------------------------------

                                              Total        Year 1       Year 2
--------------------------------------------------------------------------------
Long-term debt obligations                   $  9,531      $ 2,860      $ 6,671
================================================================================

NOTE 8 - INCOME TAXES
---------------------

Income tax expense consists of the following:

================================================================================
                                      2008                2007            2006
--------------------------------------------------------------------------------
Current:
     Federal                    $    9,757         $   7,983         $  6,295
     State                             107             1,299              534
Deferred:
     Federal                          (442)             (420)              (1)
     State                            ( 41)             (151)              (5)
--------------------------------------------------------------------------------
Total income tax provision      $    9,381         $   8,711         $  6,823
================================================================================

The provision for income taxes differs from the amount  computed by applying the
Federal  statutory rate of 35% to earnings  before income tax expense due to the
following:

================================================================================
                                              2008          2007          2006
--------------------------------------------------------------------------------
Income tax at Federal
     statutory rate                         $ 9,951       $ 8,690       $ 6,685
State income taxes, net of
     Federal income tax benefit                  --           603           344
Other                                          (570)         (582)         (206)
--------------------------------------------------------------------------------
Total income tax provision                  $ 9,381       $ 8,711       $ 6,823
================================================================================


                                       47
<PAGE>

The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 2008 and
2007 were as follows:

================================================================================
                                                           2008           2007
--------------------------------------------------------------------------------
Deferred tax assets:
     Inventories                                         $     474     $     388
     Restricted stock and stock options                      1,429           702
     Other                                                     505           389
--------------------------------------------------------------------------------
          Total deferred tax assets                          2,408         1,479
--------------------------------------------------------------------------------
Deferred tax liabilities:
     Customer list and goodwill amortization             $   1,851     $   1,782
     Depreciation                                            4,430         3,886
     Prepaid expense                                           765           525
     Trade names and trademarks                                199           239
     Technology and trade secrets                              224           269
     Other                                                     293           350
--------------------------------------------------------------------------------
          Total deferred tax liabilities                     7,762         7,051
--------------------------------------------------------------------------------
          Net deferred tax liability                     $   5,354     $   5,572
================================================================================

There is no valuation allowance for deferred tax assets at December 31, 2008 and
2007.  In  assessing  the  realizability  of  deferred  tax  assets,  management
considers  whether it is more  likely  than not that some  portion or all of the
deferred tax assets will not be realized.  The ultimate  realization of deferred
tax assets is dependent  upon the generation of future taxable income during the
periods in which  those  temporary  differences  become  deductible.  Management
considers the scheduled  reversal of deferred tax liabilities,  projected future
taxable income and tax planning strategies in making this assessment. Based upon
the level of historical taxable income and projections for future taxable income
over the periods in which the  deferred  tax assets are  deductible,  management
believes it is more likely than not the  Company  will  realize the  benefits of
these  deductible  differences.  The amount of  deferred  tax asset  realizable,
however,  could change if management's  estimate of future taxable income should
change.

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. A reconciliation of the beginning and ending amount of unrecognized tax
benefits is as follows:

================================================================================
                                                Liability for Unrecognized
                                                     Tax Benefits
--------------------------------------------------------------------------------
                                                   2008                2007
--------------------------------------------------------------------------------
Balance at beginning of period                 $       733       $       411
Increases for tax positions of prior years              --               320
Decreases for tax positions of prior years            (151)             (225)
Increases  for tax  positions  related to the
current year                                           231               227
--------------------------------------------------------------------------------
Balance at end of period                       $       813       $       733
================================================================================

All of the Company's unrecognized tax benefits, if recognized in future periods,
would impact the Company's effective tax rate in such future periods.

The Company  recognizes  both  interest and  penalties as part of the income tax
provision.  During the years  ended  December  31,  2008 and 2007,  the  Company
recognized approximately $22 and $52 in interest and penalties, respectively. As
of December  31, 2008 and 2007,  accrued  interest and  penalties  were $152 and
$130, respectively.

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


                                       48
<PAGE>

tax  authorities  for years before 2005.  The Company  does not  anticipate  any
material change in the total amount of unrecognized tax benefits to occur within
the next twelve months.

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

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

<TABLE>
<CAPTION>
==========================================================================================================
                                                           Earnings        Number of Shares      Per Share
                  2008                                    (Numerator)        (Denominator)         Amount
----------------------------------------------------------------------------------------------------------
<S>                                                       <C>                  <C>                  <C>
Basic EPS - Net earnings and weighted average
common shares outstanding                                 $   19,050           17,966,833           $1.06

Effect of dilutive securities - stock options and
restricted stock                                                                1,047,324
                                                                              -----------
Diluted EPS - Net earnings and weighted average
common shares outstanding and effect of stock options
and restricted stock                                      $   19,050           19,014,157           $1.00
==========================================================================================================

<CAPTION>
==========================================================================================================
                                                           Earnings        Number of Shares      Per Share
                  2007                                    (Numerator)        (Denominator)         Amount
----------------------------------------------------------------------------------------------------------
<S>                                                       <C>                  <C>                  <C>
Basic EPS - Net earnings and weighted average
common shares outstanding                                 $   16,118           17,771,521            $.91

Effect of dilutive securities - stock options and
restricted stock                                                                  839,011
                                                                              -----------
Diluted EPS - Net earnings and weighted average
common shares outstanding and effect of stock options
and restricted stock                                      $   16,118           18,610,532            $.87
==========================================================================================================

<CAPTION>
==========================================================================================================
                                                           Earnings        Number of Shares      Per Share
                  2006                                    (Numerator)        (Denominator)         Amount
----------------------------------------------------------------------------------------------------------
<S>                                                       <C>                  <C>                   <C>
Basic EPS - Net earnings and weighted average
common shares outstanding                                 $   12,278           17,427,857            $.70

Effect of dilutive securities - stock options and
restricted stock                                                                  819,384
                                                                              -----------
Diluted EPS - Net earnings and weighted average
common shares outstanding and effect of stock options
and restricted stock                                      $   12,278           18,247,241            $.67
==========================================================================================================
</TABLE>

The Company had 276,900, 9,100 and 307,875 stock options outstanding at December
31,  2008,  2007 and 2006,  respectively  that could  potentially  dilute  basic
earnings per share in future periods that were not included in diluted  earnings
per share because their effect on the period presented was anti-dilutive.

NOTE 10- EMPLOYEE BENEFIT PLANS
-------------------------------

The Company  sponsors a 401(k)  savings  plan for eligible  employees.  The plan
allows participants to make pretax contributions and the Company matches certain
percentages of those pretax  contributions  with shares of the Company's  common
stock.   The  profit  sharing   portion  of  the  plan  is   discretionary   and
non-contributory. All amounts contributed to the plan are deposited into a trust
fund  administered  by  independent  trustees.  The Company  provided for profit
sharing contributions and matching 401(k) savings plan contributions of $624 and
$406 in 2008, $503 and $379 in 2007 and $395 and $343 in 2006,


                                       49
<PAGE>

respectively.

The Company also currently  provides  postretirement  benefits in the form of an
unfunded  retirement  medical  plan  under  a  collective  bargaining  agreement
covering eligible retired  employees of the Verona facility.  The Company uses a
December 31 measurement date for its postretirement  medical plan. In accordance
with SFAS No. 158, the Company is required to recognize the over funded or under
funded  status  of  a  defined  benefit  post  retirement  plan  (other  than  a
multiemployer  plan) as an asset or  liability  in its  statement  of  financial
position,  and to recognize  changes in that funded  status in the year in which
the changes  occur  through  comprehensive  income.  On December 31, 2006,  as a
result of  adopting  SFAS No.  158,  the  Company  recorded  $0.3  million  as a
reduction to the benefit obligation and $0.2 million,  net of tax, as a one-time
adjustment  to  its  stockholders'  equity,  recorded  under  accumulated  other
comprehensive income.

The actuarial recorded liabilities for such unfunded  postretirement  benefit is
as follows:

<TABLE>
<CAPTION>
Change in benefit obligation:
=======================================================================================
                                                              2008             2007
---------------------------------------------------------------------------------------
<S>                                                       <C>              <C>
Benefit obligation at beginning of year                   $       805      $       729
         Service cost with interest to end of year                 28               29
         Interest cost                                             40               41
         Participant contributions                                 13               12
         Benefits paid                                            (30)             (57)
         Actuarial (gain) or loss                                 (55)              51
---------------------------------------------------------------------------------------
Benefit obligation at end of year                         $       801      $       805
=======================================================================================

<CAPTION>
Change in plan assets:
=======================================================================================
                                                                 2008             2007
---------------------------------------------------------------------------------------
<S>                                                       <C>              <C>
Fair value of plan assets at beginning of year            $        --      $        --
         Employer contributions                                    17               45
         Participant contributions                                 13               12
         Benefits paid                                            (30)             (57)
---------------------------------------------------------------------------------------
Fair value of plan assets at end of year                  $        --      $        --
=======================================================================================

<CAPTION>
Amounts recognized in consolidated balance sheet:
=======================================================================================
                                                                 2008             2007
---------------------------------------------------------------------------------------
<S>                                                       <C>              <C>
Accumulated postretirement benefit obligation             $      (801)     $      (805)
Fair value of plan assets                                          --               --
Funded status                                                    (801)            (805)
Unrecognized prior service cost                                   N/A              N/A
Unrecognized net (gain)/loss                                      N/A              N/A
---------------------------------------------------------------------------------------
Net amount recognized in consolidated balance
sheet (after SFAS 158)
(included in other long-term obligations)                 $       801      $       805
---------------------------------------------------------------------------------------
Accrued postretirement benefit cost
(included in other long-term obligations)                 $       N/A      $       N/A
=======================================================================================

<CAPTION>
Components of net periodic benefit cost:
========================================================================================================
                                                              2008            2007              2006
--------------------------------------------------------------------------------------------------------
<S>                                                       <C>              <C>              <C>
Service cost with interest to end of year                 $        28      $        29      $        28
Interest cost                                                      40               41               39
Amortization of prior service cost                                (18)             (18)             (18)
Amortization of gain                                               (6)              (3)              (3)
--------------------------------------------------------------------------------------------------------
Total net periodic benefit cost                           $        44      $        49      $        46
========================================================================================================
</TABLE>


                                       50
<PAGE>

Estimated future employer contributions and benefit payments are as follows:

=========================================
              Year
-----------------------------------------
2009                              $   42
2010                                  38
2011                                  49
2012                                  40
2013                                  24
Years 2014-2018                      266
=========================================

Assumed  health  care  cost  trend  rates  have been  used in the  valuation  of
postretirement  health insurance benefits.  The trend rate is 10 percent in 2009
declining to 5 percent in 2014 and thereafter.  A one percentage  point increase
in health  care cost trend  rates in each year would  increase  the  accumulated
postretirement  benefit  obligation  as of December  31, 2008 by $97 and the net
periodic  postretirement  benefit  cost for 2008 by $9. A one  percentage  point
decrease  in  health  care cost  trend  rates in each year  would  decrease  the
accumulated postretirement benefit obligation as of December 31, 2008 by $84 and
the net  periodic  postretirement  benefit  cost  for 2008 by $8.  The  weighted
average discount rate used in determining the accumulated postretirement benefit
obligation was 5.50% in 2008 and 5.75% in 2007.

NOTE 11 - COMMITMENTS AND CONTINGENCIES
---------------------------------------

In February 2006,  the Company  entered into a lease  agreement  under which the
Company  leases a portion of a Channahon,  Illinois  facility  where it conducts
manufacturing  and utilizes certain  warehouse space. The term of the lease 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 primarily expire at various times through
2013. Rent expense charged to operations  under such lease  agreements for 2008,
2007 and 2006 aggregated  approximately $1,284,  $1,047 and $595,  respectively.
Aggregate future minimum rental payments required under non-cancelable operating
leases at December 31, 2008 are as follows:

=================================================
                Year
-------------------------------------------------
2009                                     $ 1,128
2010                                         543
2011                                         351
2012                                         241
2013                                         106
Thereafter                                   221
-------------------------------------------------
Total minimum lease payments             $ 2,590
=================================================

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 2004 - 2008.

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


                                       51
<PAGE>

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 12 - SEGMENT INFORMATION
-----------------------------

The Company's  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.

The Specialty Products segment consists of three specialty  chemicals:  ethylene
oxide,  propylene oxide and methyl chloride.  Human choline  nutrient  products,
pharmaceutical  products  and  encapsulated  products  are reported in the Food,
Pharma  &  Nutrition   segment.   This  segment   provides   microencapsulation,
granulation  and  agglomeration  solutions to a variety of applications in food,
pharmaceutical and nutritional ingredients to enhance performance of nutritional
fortification,  processing,  mixing, packaging applications and shelf-life.  The
Animal  Nutrition  & Health  segment is in the  business  of  manufacturing  and
supplying  choline  chloride,  an essential  nutrient for animal health,  to the
poultry  and swine  industries.  In  addition,  certain  derivatives  of choline
chloride are also  manufactured  and sold into industrial  applications  and are
included in this segment.  Chelated minerals and specialty  nutritional products
for the animal health  industry are also  reported in this segment.  The Company
sells  products  for all  segments  through  its own  sales  force,  independent
distributors,  and sales agents. The accounting policies of the segments are the
same as those described in the summary of significant accounting policies.

Business Segment Net Sales:
================================================================================
                                         2008            2007            2006
--------------------------------------------------------------------------------
Specialty Products                   $    35,835     $    33,057     $    32,026
Food, Pharma and Nutrition                35,702          32,052          28,702
Animal Nutrition and Health              160,513         111,092          40,177
--------------------------------------------------------------------------------
Total                                $   232,050     $   176,201     $   100,905
================================================================================


                                       52
<PAGE>

Business Segment Earnings Before Income Taxes:
================================================================================
                                             2008          2007          2006
--------------------------------------------------------------------------------
Specialty Products                        $  12,545     $  11,824     $  11,315
Food, Pharma and Nutrition                    5,469         4,144         2,162
Animal Nutrition and Health                  11,334         9,938         5,685
Interest and other income (expense)            (917)       (1,077)          (61)
--------------------------------------------------------------------------------
Total                                     $  28,431     $  24,829     $  19,101
================================================================================

Depreciation/Amortization:
================================================================================
                                               2008          2007          2006
--------------------------------------------------------------------------------
Specialty Products                        $     913     $     876     $     941
Food, Pharma and Nutrition                    1,316         1,206         1,171
Animal Nutrition and Health                   5,557         4,294         1,333
--------------------------------------------------------------------------------
Total                                     $   7,786     $   6,376     $   3,445
================================================================================

Business Segment Assets:
================================================================================
                                               2008          2007          2006
--------------------------------------------------------------------------------
Specialty Products                        $  21,394     $  18,583     $  18,446
Food, Pharma and Nutrition                   22,081        22,426        20,780
Animal Nutrition and Health                 105,296       108,125        45,524
Other Unallocated                             5,703         5,290         7,583
--------------------------------------------------------------------------------
Total                                     $ 154,474     $ 154,424     $  92,333
================================================================================

Other unallocated assets consist of certain cash, receivables, prepaid expenses,
equipment and  leasehold  improvements,  net of  accumulated  depreciation,  and
deferred  income  taxes,  which the Company does not allocate to its  individual
business segments.

Capital Expenditures:
================================================================================
                                             2008         2007          2006
--------------------------------------------------------------------------------
Specialty Products                        $     612     $     307     $     195
Food, Pharma and Nutrition                      955           776           485
Animal Nutrition and Health                   3,513         3,786         1,599
--------------------------------------------------------------------------------
Total                                     $   5,080     $   4,869     $   2,279
================================================================================

Geographic Revenue Information:
================================================================================
                                             2008         2007          2006
--------------------------------------------------------------------------------
United States                             $ 146,753     $ 132,632     $  91,042
Foreign Countries                            85,297        43,569         9,863
--------------------------------------------------------------------------------
Total                                     $ 232,050     $ 176,201     $ 100,905
================================================================================

NOTE 13 - SUPPLEMENTAL CASH FLOW INFORMATION
--------------------------------------------

Cash paid during the year for:
================================================================================
                                             2008          2007           2006
--------------------------------------------------------------------------------
Income taxes                              $   9,379     $   6,718     $   5,621
Interest                                  $     958     $   1,466     $     189
================================================================================

Cash paid during the year for acquisition of assets:
================================================================================
                                             2008          2007           2006
--------------------------------------------------------------------------------
Assets acquired                           $     296     $  48,957     $  25,628
Less: liabilities assumed                        --        (8,213)       (2,756)
--------------------------------------------------------------------------------
Cash paid for acquisitions                $     296     $  40,744     $  22,872
================================================================================


                                       53
<PAGE>

Non-cash financing activities:
================================================================================
                                             2008          2007          2006
--------------------------------------------------------------------------------
Dividends payable                         $   2,008     $   1,975     $   1,596
================================================================================

NOTE 14 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
------------------------------------------------------
(In thousands, except per share data)

<TABLE>
<CAPTION>
===================================================================================================================
                                                2008                                        2007
-------------------------------------------------------------------------------------------------------------------
                              First       Second     Third     Fourth      First     Second      Third     Fourth
                             Quarter     Quarter    Quarter    Quarter    Quarter    Quarter    Quarter    Quarter
-------------------------------------------------------------------------------------------------------------------
<S>                           <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Net sales                     $56,861    $62,901    $58,235    $54,053    $27,599    $44,371    $50,498    $53,733
Gross profit                   13,483     12,951     12,712     13,432      9,741     12,182     12,609     12,398
Earnings before
     income taxes               7,191      7,001      6,936      7,303      5,314      6,367      6,772      6,376
Net earnings                    4,641      4,724      4,793      4,892      3,441      4,065      4,457      4,155
Basic net earnings
     per common share         $   .26    $   .26    $   .27    $   .27    $   .19    $   .23    $   .25    $   .23
Diluted net earnings
     per common share         $   .25    $   .25    $   .25    $   .26    $   .19    $   .22    $   .24    $   .22
===================================================================================================================
</TABLE>


                                       54
<PAGE>

                                                                     Schedule II

                               BALCHEM CORPORATION
                        Valuation and Qualifying Accounts
                  Years Ended December 31, 2008, 2007 and 2006
                                 (In thousands)

<TABLE>
<CAPTION>
                                                               Additions
                                                        -------------------------
                                         Balance at      Charges to    Charges to
                                        Beginning of     Costs and       Other                          Balance at
Description                                 Year          Expenses      Accounts        Deductions      End of Year
-----------                             ------------    -----------    ----------       ----------      -----------
<S>                                     <C>             <C>             <C>             <C>              <C>
Year ended December 31, 2008
   Allowance for doubtful accounts      $       50      $       --      $       --      $       --       $       50
   Inventory reserve                           174              58              --            (138)(a)           94

Year ended December 31, 2007
   Allowance for doubtful accounts      $       50      $       --      $       --      $       --       $       50
   Inventory reserve                           147              20               7              --              174

Year ended December 31, 2006
   Allowance for doubtful accounts      $       50      $       --      $       --      $       --       $       50
   Inventory reserve                            56              91              --              --              147
</TABLE>

(a) represents write-offs.


                                       55
<PAGE>

Item  9.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
Financial Disclosure

      None.

Item 9A. Controls and Procedures

Disclosure Controls and Procedures

      The Company's  management,  with the  participation of the Company's Chief
Executive Officer and Chief Financial  Officer,  has evaluated the effectiveness
of the Company's  disclosure controls and procedures (as such term is defined in
Rules  13a-15(e) and  15d-15(e)  under the  Securities  Exchange Act of 1934, as
amended) as of the end of the period covered by this Annual Report on Form 10-K.
Based on such  evaluation,  the  Company's  Chief  Executive  Officer  and Chief
Financial  Officer  have  concluded  that,  as of the  end of such  period,  the
Company's disclosure controls and procedures are effective.

Management's Report on Internal Control Over Financial Reporting

      Management of the Company is responsible for  establishing and maintaining
adequate  internal  control over  financial  reporting.  The Company's  internal
control over financial  reporting is a process designed under the supervision of
the Company's  principal  executive and principal  financial officers to provide
reasonable  assurance  regarding the reliability of financial  reporting and the
preparation  of  the  Company's  financial  statements  for  external  reporting
purposes in accordance with U.S. generally accepted accounting principles.

      As of  December  31,  2008,  management  conducted  an  assessment  of the
effectiveness of the Company's  internal control over financial  reporting based
on the framework  established in Internal Control - Integrated  Framework issued
by the Committee of Sponsoring  Organizations of the Treadway Commission (COSO).
Based on this assessment,  management has determined that the Company's internal
control over financial reporting was effective as of December 31, 2008.

      Our  internal  control  over  financial  reporting  includes  policies and
procedures  that  pertain to the  maintenance  of records  that,  in  reasonable
detail,  accurately and fairly reflect  transactions and dispositions of assets;
provide  reasonable  assurances that  transactions  are recorded as necessary to
permit  preparation of financial  statements in accordance  with U.S.  generally
accepted  accounting  principles,  and that receipts and  expenditures are being
made only in accordance with  authorizations  of management and the directors of
the Company;  and provide reasonable  assurance  regarding  prevention or timely
detection of  unauthorized  acquisition,  use or  disposition  of the  Company's
assets that could have a material effect on our financial statements.

Attestation Report of Registered Public Accounting Firm

      The independent  registered  public accounting firm of McGladrey & Pullen,
LLP, has issued an  attestation  report on the Company's  internal  control over
financial reporting, which is included herein.


                                       56
<PAGE>

Changes in Internal Control Over Financial Reporting

      There has been no change in our internal control over financial  reporting
in our most recent fiscal quarter that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

      None.

                                    PART III

Item  10.  Directors,  Executive  Officers  of  the  Registrant,  and  Corporate
Governance.

(a) Directors of the Company.

      The  required  information  is to be  set  forth  in the  Company's  Proxy
Statement  for  the  2008  Annual  Meeting  of  Stockholders  (the  "2009  Proxy
Statement")  under  the  caption  "Directors  and  Executive   Officers,"  which
information is hereby incorporated herein by reference.

(b) Executive Officers of the Company.

      The required  information  is to be set forth in the 2009 Proxy  Statement
under the caption  "Directors  and Executive  Officers,"  which  information  is
hereby incorporated herein by reference.

(c) Section 16(a) Beneficial Ownership Reporting Compliance.

      The required  information  is to be set forth in the 2009 Proxy  Statement
under the caption "Section 16(a)  Beneficial  Ownership  Reporting  Compliance,"
which information is hereby incorporated herein by reference.

(d) Code of Ethics.

      The  Company has  adopted a Code of Ethics for Senior  Financial  Officers
that applies to its Chief Executive Officer (principal executive officer), Chief
Financial Officer (principal financial officer and principal accounting officer)
and its Treasurer. The Company's Code of Ethics for Senior Financial Officers is
filed as Exhibit 14 to this Annual Report on Form 10-K.

(e) Corporate Governance.

      The required  information  is to be set forth in the 2009 Proxy  Statement
under  the  caption   "Corporate   Governance,"   which  information  is  hereby
incorporated herein by reference.

Item 11. Executive Compensation.

      The information required by this Item is to be set forth in the 2009 Proxy
Statement  under  the  caption   "Directors  and  Executive   Officers,"   which
information is hereby incorporated herein by reference.

Item 12.  Security  Ownership of Certain  Beneficial  Owners and  Management and
Related Stockholder Matters.

      The information required by this Item is to be set forth in the 2009 Proxy
Statement under the caption "Security Ownership of Certain Beneficial Owners and
of Management" and the caption "Equity  Compensation  Plan  Information," all of
which information is hereby incorporated herein by reference.

Item  13.  Certain   Relationships   and  Related   Transactions   and  Director
Independence.

      The  information  required  by this  Item is set  forth in the 2009  Proxy
Statement  under  the  caption   "Directors  and  Executive   Officers,"   which
information is hereby incorporated herein by reference.


                                       57
<PAGE>

Item 14. Principal Accountant Fees and Services.

      The  information  required  by this  Item is set  forth in the 2009  Proxy
Statement  under the caption  "Independent  Auditor Fees," which  information is
hereby incorporated herein by reference.

Item 15. Exhibits and Financial Statement Schedules.

     The following documents are filed as part of this Form 10-K:
                                                                     Form 10-K
      1. Financial Statements                                        Page Number

         Report of Independent Registered Public Accounting Firm             27

         Consolidated Balance Sheets as of December 31, 2008 and 2007        29

         Consolidated Statements of Earnings for the
         years ended December 31, 2008, 2007 and 2006                        30

         Consolidated Statements of Stockholders' Equity
         for the years ended December 31, 2008, 2007 and 2006                31

         Consolidated Statements of Cash Flows
         for the years ended December 31, 2008, 2007 and 2006                32

         Notes to Consolidated Financial Statements                          33

      2. Financial Statement Schedules

         Schedule II - Valuation and Qualifying
         Accounts for the years ended December 31, 2008, 2007 and 2006       55

      3. Exhibits

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

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

         2.3   Stock Purchase  Agreement dated November 2, 2005, between Balchem
               Minerals    Corporation   and   Chelated   Minerals   Corporation
               (incorporated  by  reference  to  Exhibit  10.1 of the  Company's
               Current Report on Form 8-K dated November 7, 2005).

         2.4   First  Amendment to Stock  Purchase  Agreement  dated  January 5,
               2006, between Balchem Minerals  Corporation and Chelated Minerals
               Corporation  (incorporated  by  reference  to Exhibit 10.1 of the
               Company's Current Report on Form 8-K dated January 10, 2006).

         3.1   Composite Articles of Incorporation of the Company  (incorporated
               by reference  to Exhibit 3.1 to the  Company's  Annual  Report on
               Form 10-K dated  March 16, 2006 for the year ended  December  31,
               2005).

         3.2   Balchem  Corporation  Articles  of  Amendment   (incorporated  by
               reference  to  Exhibit  A  to  the  Company's   definitive  proxy
               statement on Schedule 14A filed with the  Commission on April 25,
               2008)

         3.3   Composite  By-laws of the Company  (incorporated  by reference to
               Exhibit  3.2 to the


                                       58
<PAGE>

               Company's Current Report on Form 8-K dated January 2, 2008).

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

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

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

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

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

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

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

         10.8  Loan  Agreement  dated  February 6, 2006 by and  between  Bank of
               America,  N.A.  and Balchem  Corporation,  Promissory  Note dated
               February  6, 2006 from  Balchem  Corporation  to Bank of America,
               N.A., and Amended and Restated Promissory Note (Revolving Line of
               Credit) dated  February 6, 2006 from Balchem  Corporation to Bank
               of America,  N.A.  (incorporated  by reference to Exhibits  10.2,
               10.3 and 10.4 to the Company's  Current  Report on Form 8-K dated
               February 9, 2006).

         10.9  Amended and  Restated  Guaranty  dated  February 6, 2006 from BCP
               Ingredients,  Inc.  to Bank of  America,  N.A.  (incorporated  by
               reference to Exhibit 10.5 to the Company's Current Report on Form
               8-K dated February 9, 2006).

         10.10 Guaranty dated February 6, 2006 from Balchem Minerals Corporation
               to Bank of America,  N.A.  (incorporated  by reference to Exhibit
               10.6 to the Company's  Current  Report on Form 8-K dated February
               9, 2006).

         10.11 Incentive   Stock  Option  Plan  of  the  Company,   as  amended,
               (incorporated   by  reference  to  the   Company's   Registration
               Statement  on Form S-8,  File No.  333-35910,  dated  October 25,
               1996,  and to Proxy  Statement,  dated  April 22,  1998,  for the
               Company's  1998 Annual Meeting of  Stockholders  (the "1998 Proxy
               Statement")).*

         10.12 Stock  Option  Plan for  Directors  of the  Company,  as  amended
               (incorporated   by  reference  to  the   Company's   Registration
               Statement  on Form S-8,  File No.  333-35912,  dated  October 25,
               1996, and to the 1998 Proxy Statement).

         10.13 Balchem   Corporation   Amended  and  Restated  1999  Stock  Plan
               (incorporated  by  reference  to  Exhibit  10.3 to the  Company's
               Quarterly  Report on Form  10-Q for the  quarter  ended  June 30,
               2003).*


                                       59
<PAGE>

         10.14 Balchem  Corporation Second Amended and Restated 1999 Stock Plan,
               (incorporated   by  reference  to  the   Company's   Registration
               Statement on Form S-8, File No.  333-155655,  dated  November 25,
               2008,  and to Proxy  Statement,  dated  April 25,  2008,  for the
               Company's 2008 Annual Meeting of Stockholders.*

         10.15 Balchem Corporation  401(k)/Profit Sharing Plan, dated January 1,
               1998  (incorporated  by reference  to Exhibit 4 to the  Company's
               Registration  Statement on Form S-8, File No.  333-118291,  dated
               August 17, 2004).*

         10.16 Employment  Agreement,  dated as of January 1, 2001,  between the
               Company and Dino A. Rossi  (incorporated  by reference to Exhibit
               10.5 to the  Company's  Annual  Report  on Form 10-K for the year
               ended December 31, 2001 (the "2001 10-K")). *

         10.17 Lease dated as of February 8, 2002  between  Sunrise Park Realty,
               Inc.  and  Balchem  Corporation  (incorporated  by  reference  to
               Exhibit 10.7 to the 2001 10-K).

         10.18 Form  of  Restricted  Stock  Purchase   Agreement  for  Directors
               (incorporated  by  reference  to  Exhibit  10.1 of the  Company's
               Current Report on Form 8-K dated December 30, 2005).

         14.   Code of Ethics for Senior  Financial  Officers  (incorporated  by
               reference to Exhibit 14 to the  Company's  Annual  Report on Form
               10-K dated March 15, 2004 for the year ended December 31, 2003).

         21.   Subsidiaries of Registrant.

         23.1  Consent of McGladrey & Pullen, LLP, Independent Registered Public
               Accounting Firm.

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

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

         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.

         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.

         *  Each  of  the  Exhibits   noted  by  an  asterisk  is  a  management
         compensatory plan or arrangement.


                                       60
<PAGE>

                                   SIGNATURES

      Pursuant  to the  requirements  of Section  13 or 15(d) of the  Securities
Exchange Act of 1934,  the registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

      Date: March 12, 2009               BALCHEM CORPORATION

                                         By:/s/ Dino A. Rossi
                                         ---------------------------------------
                                         Dino A. Rossi, Chairman, President, and
                                         Chief Executive Officer

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following  persons on behalf of the registrant and in the
capacities and on the dates indicated.


    /s/ Dino A. Rossi
    -----------------------------------
    Dino A. Rossi, Chairman, President,
    Chief Executive Officer, and Director (Principal Executive Officer)
    Date: March 12, 2009

    /s/ Francis J. Fitzpatrick
    -----------------------------------
    Francis J. Fitzpatrick, Chief Financial
    Officer and Treasurer (Principal Financial and Principal Accounting Officer)
    Date: March 12, 2009

    /s/ Edward L. McMillan
    -----------------------------------
    Edward L. McMillan, Director
    Date: March 12, 2009

    /s/ Kenneth P. Mitchell
    -----------------------------------
    Kenneth P. Mitchell, Director
    Date: March 12, 2009

    /s/ Perry W. Premdas
    -----------------------------------
    Perry W. Premdas, Director
    Date: March 12, 2009

    /s/ Dr. John Televantos
    -----------------------------------
    Dr. John Televantos, Director
    Date: March 12, 2009

    /s/ Dr. Elaine Wedral
    -----------------------------------
    Dr. Elaine Wedral, Director
    Date: March 12, 2009


                                       61
<PAGE>

                                  EXHIBIT INDEX
    Exhibit
    Number      Description
    ------      -----------

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

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

    2.3         Stock Purchase Agreement dated November 2, 2005, between Balchem
                Minerals   Corporation   and   Chelated   Minerals   Corporation
                (incorporated  by  reference  to Exhibit  10.1 of the  Company's
                Current Report on Form 8-K dated November 7, 2005).

    2.4         First  Amendment to Stock  Purchase  Agreement  dated January 5,
                2006, between Balchem Minerals Corporation and Chelated Minerals
                Corporation  (incorporated  by  reference to Exhibit 10.1 of the
                Company's Current Report on Form 8-K dated January 10, 2006).

    3.1         Composite Articles of Incorporation of the Company (incorporated
                by reference to Exhibit 3.1 to the  Company's  Annual  Report on
                Form 10-K dated March 16, 2006 for the year ended  December  31,
                2005).

    3.2         Balchem  Corporation  Articles  of  Amendment  (incorporated  by
                reference  to  Exhibit  A  to  the  Company's  definitive  proxy
                statement on Schedule 14A filed with the Commission on April 25,
                2008)

    3.3         Composite  By-laws of the Company  (incorporated by reference to
                Exhibit 3.2 to the  Company's  Current  Report on Form 8-K dated
                January 2, 2008).

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

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

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

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

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

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


                                       62
<PAGE>

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

    10.8        Loan  Agreement  dated  February 6, 2006 by and between  Bank of
                America,  N.A. and Balchem  Corporation,  Promissory  Note dated
                February 6, 2006 from  Balchem  Corporation  to Bank of America,
                N.A., and Amended and Restated  Promissory  Note (Revolving Line
                of Credit) dated  February 6, 2006 from Balchem  Corporation  to
                Bank of America,  N.A.  (incorporated  by  reference to Exhibits
                10.2, 10.3 and 10.4 to the Company's  Current Report on Form 8-K
                dated February 9, 2006).

    10.9        Amended and Restated  Guaranty  dated  February 6, 2006 from BCP
                Ingredients,  Inc. to Bank of  America,  N.A.  (incorporated  by
                reference to Exhibit  10.5 to the  Company's  Current  Report on
                Form 8-K dated February 9, 2006).

    10.10       Guaranty   dated   February  6,  2006  from   Balchem   Minerals
                Corporation to Bank of America, N.A.  (incorporated by reference
                to  Exhibit  10.6 to the  Company's  Current  Report on Form 8-K
                dated February 9, 2006).

    10.11       Incentive  Stock  Option  Plan  of  the  Company,   as  amended,
                (incorporated   by  reference  to  the  Company's   Registration
                Statement on Form S-8,  File No.  333-35910,  dated  October 25,
                1996,  and to Proxy  Statement,  dated April 22,  1998,  for the
                Company's 1998 Annual Meeting of  Stockholders  (the "1998 Proxy
                Statement")).*

    10.12       Stock  Option  Plan for  Directors  of the  Company,  as amended
                (incorporated   by  reference  to  the  Company's   Registration
                Statement on Form S-8,  File No.  333-35912,  dated  October 25,
                1996, and to the 1998 Proxy Statement).

    10.13       Balchem   Corporation  Amended  and  Restated  1999  Stock  Plan
                (incorporated  by  reference  to Exhibit  10.3 to the  Company's
                Quarterly  Report on Form 10-Q for the  quarter  ended  June 30,
                2003).*

    10.14       Balchem Corporation Second Amended and Restated 1999 Stock Plan,
                (incorporated   by  reference  to  the  Company's   Registration
                Statement on Form S-8, File No. No.  333-155655,  dated November
                25, 2008, and to Proxy Statement,  dated April 25, 2008, for the
                Company's 2008 Annual Meeting of Stockholders.*

    10.15       Balchem Corporation 401(k)/Profit Sharing Plan, dated January 1,
                1998  (incorporated  by reference to Exhibit 4 to the  Company's
                Registration  Statement on Form S-8, File No. 333-118291,  dated
                August 17, 2004).*

    10.16       Employment  Agreement,  dated as of January 1, 2001, between the
                Company and Dino A. Rossi  (incorporated by reference to Exhibit
                10.5 to the  Company's  Annual  Report on Form 10-K for the year
                ended December 31, 2001 (the "2001 10-K")). *

    10.17       Lease dated as of February 8, 2002 between  Sunrise Park Realty,
                Inc.  and Balchem  Corporation  (incorporated  by  reference  to
                Exhibit 10.7 to the 2001 10-K).

    10.18       Form  of  Restricted  Stock  Purchase  Agreement  for  Directors
                (incorporated  by  reference  to Exhibit  10.1 of the  Company's
                Current Report on Form 8-K dated December 30, 2005).

    14.         Code of Ethics for Senior  Financial  Officers  (incorporated by
                reference to Exhibit 14 to the  Company's  Annual Report on Form
                10-K dated March 15, 2004 for the year ended December 31, 2003).

    21.         Subsidiaries of Registrant.

    23.1        Consent  of  McGladrey  & Pullen,  LLP,  Independent  Registered
                Public Accounting Firm.


                                       63
<PAGE>

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

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

    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.

    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.

    *Each of the Exhibits noted by an asterisk is a management compensatory plan
    or arrangement.


                                       64