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<SEC-DOCUMENT>/in/edgar/work/0000914317-00-000760/0000914317-00-000760.txt : 20001114
<SEC-HEADER>0000914317-00-000760.hdr.sgml : 20001114
ACCESSION NUMBER:		0000914317-00-000760
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		3
CONFORMED PERIOD OF REPORT:	20000930
FILED AS OF DATE:		20001113

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			BALCHEM CORP
		CENTRAL INDEX KEY:			0000009326
		STANDARD INDUSTRIAL CLASSIFICATION:	 [2800
]		IRS NUMBER:				132578432
		STATE OF INCORPORATION:			MD
		FISCAL YEAR END:			1231
</COMPANY-DATA>

		FILING VALUES:
			FORM TYPE:		10-Q
			SEC ACT:		
			SEC FILE NUMBER:	001-13648
			FILM NUMBER:		760768
</FILING-VALUES>

			BUSINESS ADDRESS:	
				STREET 1:		P O BOX 175
				CITY:			SLATE HILL
				STATE:			NY
				ZIP:			10973
				BUSINESS PHONE:		9143555345
</BUSINESS-ADDRESS>

				MAIL ADDRESS:	
					STREET 1:		P O BOX 175
					CITY:			SLATE HILL
					STATE:			NY
					ZIP:			10973
</MAIL-ADDRESS>
</FILER>
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>0001.txt
<DESCRIPTION>10-Q FOR BALCHEM CORP.
<TEXT>


                                    FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549



  (Mark One)     Quarterly Report Pursuant to Section 13 or 15 (d) of
     [ X ]             The Securities Exchange Act of 1934


                  For The Quarterly Period Ended September 30, 2000

                                       or

     [   ]       Transition Report Pursuant to Section 13 or 15(d) of

                       the Securities Exchange Act of 1934

           For the transition period from ____________ to ____________

                         Commission File Number 1-13648

                               BALCHEM CORPORATION

             (Exact name of registrant as specified in its charter)

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


P.O. Box 175 Slate Hill, New York                             10973
- ------------------------------------                        --------
(Address of principal executive offices)                    (Zip Code)

                                  845-355-5300
                                  ------------
               Registrant's telephone number, including area code:

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

 Yes [X]       No  [_]


As of November 2, 2000 the registrant had 4,613,712  shares of its Common Stock,
$.06 2/3 par value, outstanding.




<PAGE>
 Part I. Financial Information
 Item 1. Financial Statements

                               BALCHEM CORPORATION

                      Condensed Consolidated Balance Sheets
                 (In thousands, except share and per share data)


                                              September 30,       December 31,
                                                  2000               1999
                                               Unaudited
                                              -----------         -----------
Current assets:

Cash and cash equivalents                       $ 1,512             $ 1,699
Accounts receivable                               4,389               3,981
Inventories                                       2,232               2,748
Prepaid expenses                                    240                 501
Deferred income taxes                               188                 188
                                                -------             -------
Total current assets                              8,561               9,117
                                                -------             -------

Property, plant and equipment, net                7,724               7,786

Investments in intangibles and other
 assets, net                                      4,382               5,127
                                                -------             -------
Total assets                                    $20,667             $22,030
                                                =======             =======

                                                                     (continued)


                                        2

<PAGE>





                               BALCHEM CORPORATION

                Condensed Consolidated Balance Sheets, continued
                 (In thousands, except share and per share data)
<TABLE>
<CAPTION>


                                                                                           September 30,    December 31,
    Liabilities and Stockholders' Equity                                                       2000             1999
   -------------------------------------                                                    Unaudited
                                                                                            ---------        --------
<S>                                                                                          <C>             <C>
Current liabilities:
Trade accounts payable                                                                       $    436        $    565
Accrued compensation and other benefits                                                           620             829
Other accrued expenses                                                                            516             429
Dividends payable                                                                                  --             245
Income taxes payable                                                                                9             131
Current portion of  long-term debt                                                                 --             600
Current portion of other long-term obligations                                                     36              36
                                                                                             --------        --------
Total current liabilities                                                                       1,617           2,835
                                                                                             --------        --------

Long-term debt                                                                                     --             650
Deferred income taxes                                                                             258             381
Other long-term obligations                                                                       158             225

                                                                                             --------        --------
Total liabilities                                                                               2,033           4,091
                                                                                             --------        --------

Stockholders' equity:

Preferred stock, $25 par value. Authorized 2,000,000
shares; none issued and outstanding                                                                --              --
Common stock, $.06 2/3 par value. Authorized 10,000,000
shares; 4,903,238 shares issued and 4,604,310 shares outstanding at September 30, 2000
and 4,903,238 shares issued and 4,781,358 shares outstanding at December 31, 1999                 327             327
Additional paid-in capital                                                                      3,028           2,994
Retained earnings                                                                              18,156          15,516
Treasury stock, at cost: 298,928 and 121,880 shares, respectively                              (2,877)           (898)
                                                                                             --------        --------
Total stockholders' equity                                                                     18,634          17,939
                                                                                             --------        --------

                                                                                             --------        --------
Total liabilities and stockholders' equity                                                   $ 20,667        $ 22,030
                                                                                             ========        ========
</TABLE>


See accompanying notes to consolidated financial statements


                                       3

<PAGE>

                               BALCHEM CORPORATION

                  Condensed Consolidated Statements of Earnings

                      (In thousands, except per share data)
<TABLE>
<CAPTION>


                                                Three Months Ended            Nine Months Ended
                                                   September 30,                September 30,
                                                    Unaudited                     Unaudited
                                                    ---------                     ---------
                                              2000            1999            2000           1999
                                            --------        --------       --------        --------
<S>                                         <C>             <C>            <C>             <C>
Net sales                                   $  8,450        $  7,229       $ 24,050        $ 21,545

Cost of sales                                  4,876           4,235         14,106          12,771
                                            --------        --------       --------        --------

Gross margin                                   3,574           2,994          9,944           8,774

Operating expenses:

Selling expenses                               1,097             869          2,859           2,160
Research and development expenses                266             343            766             992
General and administrative expenses              707             698          2,156           2,130
                                            --------        --------       --------        --------
                                               2,070           1,910          5,781           5,282

                                            --------        --------       --------        --------
Earnings from operations                       1,504           1,084          4,163           3,492

Interest (income) expense - net                  (13)             21            (26)             91

                                            --------        --------       --------        --------
Earnings before income tax expense             1,517           1,063          4,189           3,401

Income tax expense                               533             402          1,549           1,235
                                            --------        --------       --------        --------

Net earnings                                $    984        $    661       $  2,640        $  2,166
                                            ========        ========       ========        ========

Basic net earnings per common share         $   0.21        $   0.14       $   0.56        $   0.44
                                            ========        ========       ========        ========

Diluted net earnings per common share       $   0.21        $   0.14       $   0.55        $   0.44
                                            ========        ========       ========        ========
</TABLE>

See accompanying notes to consolidated financial statements

                                      4

<PAGE>
                               BALCHEM CORPORATION

                 Condensed Consolidated Statements of Cash Flows

                                 (In thousands)
<TABLE>
<CAPTION>


                                                                                         Nine Months Ended
                                                                                           September 30,
                                                                                             Unaudited
                                                                                             ----------
                                                                                        2000            1999
                                                                                      --------        --------
<S>                                                                                    <C>            <C>
Cash flows from operating activities:
  Net earnings                                                                         $ 2,640        $ 2,166

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

Depreciation and amortization                                                            1,522          1,524
Non-employee stock compensation                                                             --             60
Income tax benefit from stock options exercised                                             33             --
Shares issued under employee benefit plans                                                 143            122
Deferred income tax benefit                                                               (123)          (107)
Changes in assets and liabilities:
Accounts receivable                                                                       (408)          (311)
Inventories                                                                                516            324
Prepaid expenses                                                                           261            253
Accounts payable and accrued expenses                                                     (251)          (208)
Income taxes payable                                                                      (122)           128
Other long-term obligations                                                                (13)           (23)
                                                                                       -------        -------
Net cash flows provided by operating activities                                          4,198          3,928
                                                                                       -------        -------

Cash  flows from investing activities:

Capital expenditures                                                                      (625)          (429)
Investments in intangibles and other assets                                                (90)           (71)
                                                                                       -------        -------
Net cash flows used in investing activities                                               (715)          (500)
                                                                                       -------        -------

Cash  flows from  financing  activities:

Principal payments on long-term debt                                                    (1,250)        (2,000)
Proceeds from stock options and warrants exercised                                         115              6
Dividends paid                                                                            (245)          (160)
Purchase of treasury stock                                                              (2,236)          (409)
Other financing activities                                                                 (54)           (53)
                                                                                       -------        -------
Net cash flows used in financing activities                                             (3,670)        (2,616)

Net (decrease) increase in cash and cash equivalents                                      (187)           812

Cash and cash equivalents, beginning of year                                             1,699          1,348
                                                                                       -------        -------
Cash and cash equivalents, end of period                                               $ 1,512        $ 2,160
                                                                                       =======        =======
</TABLE>

See accompanying notes to consolidated financial statements

                                       5

<PAGE>


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The  condensed  consolidated  financial  statements  presented  herein have been
prepared by the Company in accordance with the accounting  policies described in
its  December  31,  1999  Annual  Report  on Form  10-K,  and  should be read in
conjunction with the consolidated  financial  statements and notes, which appear
in that report.

In the opinion of management,  the unaudited  condensed  consolidated  financial
statements  furnished in this Form 10-Q include all adjustments  necessary for a
fair  presentation  of the financial  position,  results of operations  and cash
flows for the interim periods  presented.  All such  adjustments are of a normal
recurring  nature.  The condensed  consolidated  financial  statements have been
prepared in accordance  with the  instructions to Form 10-Q and therefore do not
include some  information and notes  necessary to conform with annual  reporting
requirements.  The results of  operations  for the three and nine  months  ended
September  30, 2000 are not  necessarily  indicative  of the  operating  results
expected for the full year.

NOTE 2 - INVENTORIES

Inventories  at  September  30,  2000  and  December  31,  1999  consist  of the
following:

- --------------------------------------------------------------------------------
                                                September 30,      December 31,
                                                    2000             1999
- --------------------------------------------------------------------------------

Raw materials                                $      1,047      $      1,340
Finished goods                                      1,185             1,408
- --------------------------------------------------------------------------------
         Total inventories                   $      2,232      $      2,748
- --------------------------------------------------------------------------------

NOTE 3 - NET EARNINGS PER SHARE

Net earnings per share are calculated in accordance  with Statement of Financial
Accounting  Standards  No.128,  "Earnings Per Share." The  following  presents a
reconciliation  of the earnings and shares used in calculating basic and diluted
net earnings per share:

<TABLE>
<CAPTION>

- ----------------------------------------------------------------------------------------------
                                                                  Number of
                                                    Income          Shares          Per Share
Three months ended September 30, 2000            (Numerator)     (Denominator)        Amount
- ----------------------------------------------------------------------------------------------
<S>                                                   <C>           <C>                <C>
Basic EPS - Net earnings and weighted
average common  shares outstanding                    $984          4,622,636          $.21

Effect of dilutive securities - stock options                         100,728
                                                                    ---------

Diluted EPS - Net earnings and weighted
average common shares  outstanding  and
effect of stock options

                                                      $984          4,723,364          $.21
- ----------------------------------------------------------------------------------------------
</TABLE>



                                       6
<PAGE>


<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
                                                                              Number of
                                                             Income            Shares            Per Share
Three months ended September 30, 1999                     (Numerator)       (Denominator)          Amount
- -----------------------------------------------------------------------------------------------------------
<S>                                                          <C>             <C>                    <C>
Basic EPS - Net earnings and weighted average common
shares outstanding                                           $661            4,845,164              $.14

Effect of dilutive securities - stock options                                   29,973


Diluted EPS - Net earnings and weighted
average common shares  outstanding  and
effect of stock options

                                                             $661            4,875,137              $.14
- -----------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>

- -----------------------------------------------------------------------------------------------------------
                                                                              Number of
                                                             Income            Shares            Per Share
Nine months ended September 30, 2000                      (Numerator)       (Denominator)          Amount
- -----------------------------------------------------------------------------------------------------------
<S>                                                          <C>             <C>                    <C>
Basic EPS - Net earnings and weighted average common
shares outstanding                                         $2,640            4,706,107              $.56

Effect of dilutive securities - stock options                                   79,607
                                                                             ---------
Diluted EPS - Net earnings and weighted
average common shares  outstanding  and
effect of stock options                                    $2,640            4,785,714              $.55
- -----------------------------------------------------------------------------------------------------------
</TABLE>


<TABLE>
<CAPTION>

- -----------------------------------------------------------------------------------------------------------
                                                                              Number of
                                                             Income            Shares            Per Share
Nine months ended September 30, 1999                      (Numerator)       (Denominator)         Amount
- -----------------------------------------------------------------------------------------------------------
<S>                                                          <C>             <C>                    <C>
Basic EPS - Net earnings and weighted average common
shares outstanding                                         $2,166            4,872,204              $.44

Effect of dilutive securities - stock options                                   24,219
                                                                             ---------


Diluted EPS - Net earnings and weighted  average common shares  outstanding  and
effect of stock options

                                                           $2,166            4,896,423              $.44
- -----------------------------------------------------------------------------------------------------------
</TABLE>


NOTE 4 - SEGMENT INFORMATION

The Company's  reportable segments are strategic businesses that offer different
products  and  services.  Presently,  the Company has two  reportable  segments,
specialty products and encapsulated products.

                                       7

<PAGE>




Business Segment Net Revenues:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
                                             Three Months Ended                         Nine Months Ended
                                                September 30,                             September 30,
                                           2000               1999                   2000                1999
- ---------------------------------------------------------------------------------------------------------------
<S>                                  <C>               <C>                    <C>                 <C>
Specialty Products                   $     4,912       $      4,954           $     15,092        $     14,793
Encapsulated Products                      3,538              2,275                  8,958               6,752
- ---------------------------------------------------------------------------------------------------------------
Total                                $     8,450       $      7,229           $     24,050        $     21,545
- ---------------------------------------------------------------------------------------------------------------
</TABLE>

Business Segment Profit (Loss):
<TABLE>
<CAPTION>

- ---------------------------------------------------------------------------------------------------------------
                                              Three Months Ended                        Nine Months Ended
                                                 September 30,                             September 30,
                                           2000               1999                   2000                1999
- ---------------------------------------------------------------------------------------------------------------
<S>                                  <C>                <C>                   <C>                 <C>
Specialty Products                   $     1,298        $     1,349           $      4,235        $     4,083
Encapsulated Products                        206               (265)                   (72)              (591)
Interest (income) expense - net              (13)                21                    (26)                91
- ---------------------------------------------------------------------------------------------------------------
Earnings before income taxes
                                     $     1,517        $     1,063           $      4,189        $     3,401
- ---------------------------------------------------------------------------------------------------------------
</TABLE>



NOTE 5 - SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid during the nine months  ended  September  30, 2000 and 1999 for income
taxes and interest is as follows:

- ----------------------------------------------------------------
                                    Nine Months Ended
                                       September 30,
                            2000                      1999
- ----------------------------------------------------------------

Income taxes           $       1,760             $      1,172
Interest               $          26             $        134

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


NOTE 6 - COMMON STOCK

In June  1999,  the  board  of  directors  authorized  the  repurchase  of up to
1,000,000  shares of the  Company's  outstanding  common  stock  over a two-year
period  commencing  July 2, 1999.  Through  September 30, 2000,  the Company has
repurchased 343,316 shares at an average cost of $9.26 per share.


<PAGE>



Item 2 - Management's Discussion and Analysis of Financial Condition and Results
         of Operations

         This Report contains forward-looking statements,  within the meaning of
Section 21E of the  Securities  Exchange Act of 1934, as amended,  which reflect
the Company's  expectation or belief concerning future events that involve risks
and  uncertainties.  The actions and  performance  of the Company  could  differ
materially from what is contemplated by the forward-looking statements contained
in this Report.  Factors that might cause  differences from the  forward-looking
statements  include  those  referred to or identified in Item 1 of the Company's
Annual  Report  on Form  10-K for the year  ended  December  31,  1999 and other
factors that may be  identified  elsewhere in this Report.  Reference  should be
made to such factors and all  forward-looking  statements are qualified in their
entirety by the above cautionary statements.

         Balchem  Corporation  is engaged in the  development,  manufacture  and
marketing of specialty  performance  ingredients and products for the food, feed
and  medical  sterilization  industries.  The Company  operates in two  business
segments, the  micro-encapsulation of performance ingredients (the "encapsulated
products"  segment) and the repackaging and marketing of high quality  specialty
gases (the "specialty products" segment).

                        (All dollar amounts in thousands)

Results of Operations:

Three  months  ended  September  30, 2000 as compared  with three  months  ended
September 30, 1999

            Net sales for the three months ended  September 30, 2000 were $8,450
as compared  with $7,229 for the three  months  ended  September  30,  1999,  an
increase of $1,221 or 17%.  Net sales for the  specialty  products  segment were
$4,912 for the three months ended September 30, 2000 as compared with $4,954 for
the three months  ended  September  30,  1999,  a slight  decrease of $42 or 1%.
Volumes sold of ethylene oxide products  declined slightly in the quarter as the
business  continues to see minor seasonal  fluctuations in the third quarter due
to fewer  surgical  operations  in the summer  months,  requiring  slightly less
sterilized medical devices. Net sales for the encapsulated products segment were
$3,538 for the three months ended September 30, 2000 as compared with $2,275 for
the three months ended  September  30, 1999,  an increase of $1,263 or 56%. This
increase  was due  principally  to  greater  sales to the animal  nutrition  and
domestic food markets.  These  increases were  partially  offset by a decline in
sales to the specialty  industrial  markets in the current quarter,  a result of
the timing of shipments  made  throughout  the year.  The growth in sales to the
food market is the result of increased  volumes sold of higher  margin  products
which  can be  attributed  principally  to new  products  and new  applications,
combined  with  additional  sales  representation.  In late 1999,  the Company's
animal  nutrition  staff launched  Reashure(TM),  its  encapsulated  choline for
ruminant  animals  having  successfully  completed  university and field trials.
Commercial   sales  are  currently   targeted  to  the  dairy   industry   where
Reashure(TM),   delivers  nutrient  supplements  through  the  rumen  delivering
required  levels to dairy cows during  certain  weeks  preceding  and  following


                                       9
<PAGE>


calving, commonly referred to as the "transition period" of the animal. Sales of
Reashure(TM)  continued to strengthen in the third quarter  through  growth from
existing customers and from the addition of new customers  primarily in the East
and Midwest.  Sales of  Reashure(TM)  are beginning to favorably  impact overall
sales of the encapsulated products segment.

         Cost of  sales  as a  percent  of  sales  for the  three  months  ended
September 30, 2000 improved by  approximately 1% as compared to the three months
ended  September  30,  1999.  Margins for the  specialty  products  segment were
favorably  affected  primarily by improved  production  efficiencies  of blended
ethylene oxide products,  a result of the Company's selling  additional  blended
products for non-medical  sterilization.  Margins  improved in the  encapsulated
products division,  a result of efficiencies  realized from increased production
and the mix of products sold during the three months ended September 30, 2000.

         Operating  expenses  for the three  months  ended  September  30,  2000
increased to $2,070 from $1,910 for the three months ended  September  30, 1999,
an increase of $160 or 8%. The increase in operating  expenses was primarily the
result of increased  advertising  expense and increased  payroll  expense in the
area  of  sales  and  marketing  for  the  encapsulated   products  segment.  In
particular,  additional  sales  personnel  have been added to support the animal
nutrition  business.  During the three months ended  September  30, 2000 and the
three  months  ended  September  30,  1999,  the  Company  spent  $266 and $343,
respectively,   on   Company-sponsored   research  and   development   programs,
substantially  all of which  pertained to the  Company's  encapsulated  products
segment  for both  food and  animal  feed  applications.  The  decline  in these
research and development expenses is a result of the Company having completed in
1999 the gathering of data for Reashure(TM) from university studies,  commercial
field trials and veterinarians.

         Income from  operations  for the three months ended  September 30, 2000
was $1,504 as compared  with $1,084 for the three  months  ended  September  30,
1999.  Income from operations for the specialty  products  segment for the three
months ended September 30, 2000 was $1,298 as compared with $1,349 for the three
months ended  September 30, 1999.  Income from  operations for the  encapsulated
products  segment  was $206 for the three  months  ended  September  30, 2000 as
compared with a loss of $265 for the three months ended September 30, 1999. This
improvement  was  primarily  a result of  increased  sales  partially  offset by
increased selling and marketing costs as described above.

         Interest  (income)  expense - net for the three months ended  September
30,  2000  totaled  income of $13 as  compared  to  expense of $21 for the three
months ended September 30, 1999.  Long-term debt, including the current portion,
was eliminated during the quarter ended June 30, 2000.

         Net earnings were $984 for the three months ended September 30, 2000 as
compared with $661 for the three months ended September 30, 1999.

Nine  months  ended  September  30,  2000 as  compared  with nine  months  ended
September 30, 1999

         Net sales for the nine months ended  September 30, 2000 were $24,050 as
compared with $21,545 for the nine months ended  September 30, 1999, an increase
of $2,505 or 12%. Net sales for the specialty  products segment were $15,092 for

                                       10

<PAGE>

the nine months ended  September  30, 2000 as compared with $14,793 for the nine
months ended  September  30, 1999,  an increase of $299 or 2%. This increase was
attributable  primarily to  increased  volumes  sold of ethylene  oxide  related
products.  Net sales for the  encapsulated  products segment were $8,958 for the
nine months ended September 30, 2000 as compared with $6,752 for the nine months
ended  September  30, 1999 an increase of $2,206 or 33%.  This  increase was due
principally to greater sales to the animal nutrition,  specialty  industrial and
domestic food  markets.  The growth in sales to the food market is the result of
increased  volumes  sold of  higher  margin  products  which  can be  attributed
principally to new products and new applications, combined with additional sales
representation. As described above, in late 1999, the Company's animal nutrition
staff launched  Reashure(TM),  its  encapsulated  choline for ruminant  animals.
Sales of  Reashure(TM)  have  continued to develop  through growth from existing
customers  and with the  addition  of new  customers  primarily  in the East and
Midwest.  Sales of Reashure(TM)  are beginning to favorably impact overall sales
of the encapsulated products segment.

         Cost of sales as a percent of sales for the nine months ended September
30, 2000 improved  slightly as compared with the nine months ended September 30,
1999.  Margins  for the  specialty  products  segment  were  favorably  affected
primarily by increased  volumes sold and  improved  production  efficiencies  of
blended ethylene oxide products where the Company now sells  additional  blended
products for non-medical  sterilization.  Margins  improved in the  encapsulated
products division,  a result of efficiencies  realized from increased production
and the mix of products sold during the nine months ended September 30, 2000.

         Operating  expenses  for the  nine  months  ended  September  30,  2000
increased to $5,781 from $5,282 for the nine months ended September 30, 1999, an
increase of $499 or 9%. The increase in operating  expenses  was  primarily  the
result of  increased  advertising  expense  and travel  expenses  and  increased
payroll expense in the area of sales and marketing for the encapsulated products
segment.  In particular,  additional  sales personnel have been added to support
the animal nutrition  business.  During the nine months ended September 30, 2000
and the nine months ended  September  30, 1999,  the Company  expended  $766 and
$992,  respectively,  on  Company-sponsored  research and development  programs,
substantially  all of which  pertained to the  Company's  encapsulated  products
segment  for both  food and  animal  feed  applications.  The  decline  in these
research and development expenses is a result of the Company having completed in
1999 the gathering of data for Reashure(TM) from university studies,  commercial
field trials and veterinarians.

         Income from operations for the nine months ended September 30, 2000 was
$4,163 as compared  with $3,492 for the nine months  ended  September  30, 1999.
Income from  operations for the specialty  products  segment for the nine months
ended  September 30, 2000 was $4,235 as compared with $4,083 for the nine months
ended  September 30, 1999. Loss from  operations for the  encapsulated  products
segment declined to $72 for the nine months ended September 30, 2000 as compared
with a loss of $591 for the nine months ended  September  30, 1999,  primarily a
result of increased  sales partially  offset by increased  selling and marketing
costs, as described above.

                                       11
<PAGE>


         Interest (income) expense - net for the nine months ended September 30,
2000  totaled  income of $26 as  compared  to expense of $91 for the nine months
ended September 30, 1999, due to a reduction in the amount of debt outstanding.

         The  Company's  effective  income tax rate was 38% for the nine  months
ended  September  30,  2000 as  compared  with  36% for the  nine  months  ended
September 30, 1999 due  principally to the effects of the Company's  utilization
of net operating loss carry-forwards for state income tax purposes in the second
quarter of 1999.

         Net earnings  were $2,640 for the nine months ended  September 30, 2000
as compared with $2,166 for the nine months ended September 30, 1999.

Liquidity and Capital Resources

         Cash  flows  from  operating  activities  provided  $4,198 for the nine
months  ended  September  30, 2000 as  compared  with $3,928 for the nine months
ended  September 30, 1999. The increase in cash flows from operating  activities
was due primarily to increased net earnings,  reduced inventory levels partially
offset by a  reduction  in  accounts  payable,  income  taxes  payable and other
accrued expense balances in 2000, a result of timing of payments made to vendors
and other service providers and an increase in accounts receivable.

         Capital  expenditures were $625 for the nine months ended September 30,
2000.  Capital  expenditures  are budgeted to be  approximately  $840 for all of
calendar year 2000.

         In June 1999, the board of directors authorized the repurchase of up to
1,000,000  shares of the  Company's  outstanding  common  stock  over a two-year
period  commencing  July 2, 1999. As of September 30, 2000,  343,316  shares had
been  repurchased  under the  program at a total cost of $3,179 of which  44,388
shares have been issued by the Company under employee  benefit plans and for the
exercise of stock  options.  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 among other  factors on its  assessment  of corporate  cash flow and
market conditions.

         During the nine months ended  September 30, 2000,  the Company paid off
$1,250 in long term debt.  There was no long-term debt  outstanding at September
30, 2000.

         The Company  knows of no current or pending  demands on or  commitments
for its liquid assets that will  materially  affect its  liquidity.  The Company
currently  has  approval  for a $2,000 line of credit from its  principal  bank.
There were no outstanding  borrowings under this line of credit on September 30,
2000.

Impact of Recent Accounting Standards

         In June 1998, the Financial Accounting Standards Board issued Statement
No.  133,  as  amended,  "Accounting  for  Derivative  Instruments  and  Hedging
Activities."  It requires  that an entity  recognize all  derivatives  as either
assets or liabilities  in the statement of financial  position and measure those
instruments at fair value.  This statement is effective for all fiscal  quarters

                                       12
<PAGE>

of fiscal years beginning after June 15, 2000. Adoption of this statement is not
expected  to have a  material  effect on the  Company's  financial  position  or
results of operations in the year of adoption.

         In March 2000,  the Financial  Accounting  Standards  Board issued FASB
Interpretation  No. 44,  "Accounting  for Certain  Transactions  Involving Stock
Compensation," an  interpretation  of APB Opinion No. 25. The  Interpretation is
generally  effective  for new stock  awards or  transactions  entered into on or
after July 1, 2000. The Company does not anticipate that the adoption of the new
Interpretation  will have a  significant  effect on  earnings  or the  financial
position of the Company.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

         In the normal  course of  operations,  the Company is exposed to market
risks arising from adverse changes in interest rates. Market risk is defined for
these  purposes as the  potential  change in the fair value of debt  instruments
resulting from an adverse movement in interest rates.  The Company's  short-term
working capital  borrowings have historically  borne interest based on the prime
rate. The Company believes that its exposure to market risk relating to interest
rate risk is not material.

         The Company  has no  derivative  financial  instruments  or  derivative
commodity  instruments,  nor does the  Company  have any  financial  instruments
entered into for trading or hedging purposes. Foreign sales are generally billed
in U.S.  dollars.  The Company  believes  that its business  operations  are not
exposed in any  material  respect to market risk  relating  to foreign  currency
exchange risk or commodity price risk.



                                       13
<PAGE>





Part II. Other Information

Item 6.           Exhibits and Reports on Form 8-K

                  27    Financial Data Schedule.

         (b)      Reports on Form 8-K

                  No  Reports on Form 8-K were filed  during the  quarter  ended
                  September 30, 2000.

                  3.2   Composite By-laws of the Company.



                                       14
<PAGE>




                                   SIGNATURES

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


         BALCHEM CORPORATION

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

                           Date: November 10, 2000



                                       15
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3
<SEQUENCE>2
<FILENAME>0002.txt
<DESCRIPTION>BALCHEM CORP. BYLAWS
<TEXT>

101894.3

                               BALCHEM CORPORATION

                                     BY-LAWS

                                    ARTICLE I

                                     OFFICES

         Section 1. PRINCIPAL OFFICE. The principal office of the corporation in
the State of  Maryland  shall be located  at the 20th  Floor,  10 Light  Street,
Baltimore, Maryland 21202.

         Section 2. OTHER  OFFICES.  The  corporation  may have  offices at such
other  places  within or without the State of Maryland as the Board of Directors
may from time to time determine or the business of the corporation may require.

                                   ARTICLE II

                            MEETINGS OF SHAREHOLDERS

         Section 1. PLACE.  All  meetings of  shareholders  shall Be held at the
principal  office of the  corporation,  or at such other place within the United
States as shall be stated in the notice of the meeting.

         Section 2. ANNUAL MEETING. The annual meeting of the shareholders shall
be held on such day in June in each year as the Board of  Directors  may fix for
the purpose of electing directors and for the transaction of such other business
as may come before the meeting. If the day fixed for the annual meeting shall be
a legal  holiday,  such  meeting  shall  be held at the  same  time on the  next
succeeding business day.

         Section 3. SPECIAL  MEETING.  The  president or Board of Directors  may
call special  meetings of the  shareholders  during the interval  between annual
meetings. Special meetings of shareholders shall also be called by the secretary
upon the written request of the holders of shares entitled to cast not less than
25% of all of the votes entitled to be cast at such meeting.  Such request shall
state the  purpose or purposes  of such  meeting and the matters  proposed to be
acted on  thereat.  The  secretary  shall  inform the  shareholders  making such
request of the reasonably estimated cost of preparing and mailing such notice of

                                        1
<PAGE>

the  meeting,  and  upon  payment  to  the  corporation  of  such  costs  by the
shareholders, the secretary shall give notice stating the purpose or purposes of
the meeting to all  shareholders  entitled to vote at such  meeting.  No special
meeting  need be called upon the  request of the  holders of shares  entitled to
cast less than a majority of all votes  entitled to be cast at such meeting,  to
consider any matter which is, in the opinion of the Board of Directors or of the
Executive  Committee,  if there  is one in  being,  substantially  the same as a
matter  voted upon at any special  meeting of the  shareholders  held during the
preceding twelve months.

         Section 4.  NOTICE.  Not less than ten (10) nor more than  ninety  (90)
days before the date of every shareholders  meeting, the secretary shall give to
each  shareholder  who may be  entitled  to vote  at such  meeting,  and to each
shareholder  not entitled to vote who is entitled by statute to notice,  written
or printed notice stating the time and place of the meeting, and, in the case of
a special  meeting,  or as otherwise may be required by statute,  the purpose or
purposes for which the meeting is called  either by mail or by  presenting it to
him personally or by leaving it at his residence or usual place of business.  If
mailed,  such notice  shall be deemed to be given when  deposited  in the United
States  mail  addressed  to the  shareholder  at his post  office  address as it
appears on the records of the corporation, with postage thereon prepaid.

         Section 5. SCOPE OF NOTICE.  No  business  shall be  transacted  at any
special  meeting of  shareholders  except that  specifically  designated  in the
notice.  Any business of the corporation may be transacted at the annual meeting
without being specifically  designated in the notice, except such business as is
required by statute to be stated in such notice.


         Section 6.  QUORUM.  At any  meeting of  shareholders  the  presence in
person or by proxy of  shareholders  entitled  to cast a  majority  of the votes
thereat  shall  constitute  a quorum;  but this  section  shall not  affect  any
statutory or charter  requirement for the vote necessary for the adoption of any
measure.  If,  however,  such quorum shall not be present at any such meeting of
shareholders, the shareholders entitled to vote thereat, present in person or by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting,  until such quorum shall be present.  At
such adjourned meeting at which a quorum shall been present, any business may be
transacted  which  might  have been  transacted  at the  meeting  as  originally

                                       2
<PAGE>

notified.  The shareholders  present at a meeting which has been duly called and
convened may continue to transact  business until  adjournment,  notwithstanding
the withdrawal of enough shareholders to leave less than a quorum.

         Section  7.  VOTING.  A  majority  of the votes  cast at a  meeting  of
shareholders  duly called and at which a quorum is present,  shall be sufficient
to take or authorize  action upon any matter which may properly  come before the
meeting,  unless  another method or number of votes is required by statute or by
the charter of the corporation. Unless otherwise provided in these By-Laws or in
the charter of the corporation,  each outstanding voting share shall be entitled
to one vote upon each matter submitted to vote at a meeting of shareholders.

                        Section 8.  PROXIES.  At all meetings of shareholders
a shareholder may vote by proxy executed in writing by the shareholder or by his
duly authorized  attorney-in-fact.  Such proxy shall be filed with the secretary
of the corporation before or at the time of the meeting. No proxy shall be valid
after eleven months from the date of its execution, unless otherwise provided in
the proxy.

         Section 9. VOTING OF SHARES BY CERTAIN HOLDERS.  Shares standing in the
name of another corporation, domestic or foreign, when entitled to be voted, may
be  voted by the  president  or vice  president  or by  proxy  appointed  by the
president  or a vice  president  of such other  corporation,  unless  some other
person who has been  appointed  to vote such  shares  pursuant  to a by-law or a
resolution  of the Board of  Directors  of such  other  corporation  presents  a
certified copy of such by-law or resolution,  in which case such person may vote
such  shares.  Any  fiduciary  may  vote  shares  standing  in his  name as such
fiduciary, either in person or by proxy.

         Shares  of its own stock  belonging  to this  corporation  shall not be
voted,  directly  or  indirectly,  at any  meeting  and shall not be  counted in
determining the total number of outstanding shares at any given time, but shares
of its own stock held by it in a fiduciary  capacity may be voted by a committee
consisting of all the directors of the corporation who shall vote all the shares
in proportion to the vote of the directors,  except in an election of directors,
when all such  shares  shall be  divided  into an equal  number of parts,  which
number of parts shall correspond to the number of directors being elected, and a
part shall be voted for each director proposed by immediate past management, and
shall be counted in determining  the total number of  outstanding  shares at any
given time.


                                       3
<PAGE>



         Section 10. INSPECTORS.  At any meeting of shareholders the chairman of
the meeting may, or upon request of any shareholder  shall,  appoint one or more
persons as inspectors  for such meeting.  Such  inspectors  shall  ascertain and
report  the  number of shares  represented  at the  meeting,  based  upon  their
determination of the validity and effect of proxies,  count all votes and report
the  results and do such other acts as are proper to conduct  the  election  and
voting with impartiality and fairness to all the shareholders.

            Each report of an inspector shall be in writing and signed by him or
by a  majority  of them if  there  be more  than one  inspector  acting  at such
meeting. If there is more than one inspector,  the report of a majority shall be
the report of the  inspectors.  The report of the inspector or inspectors on the
number of shares  represented at the meeting and the results of the voting shall
be prima facie evidence thereof.

         Section 11. INFORMAL ACTION BY SHAREHOLDERS.  Any action required to be
taken at a meeting of the  shareholders,  or any other action which may be taken
at a meeting of the shareholders, may be taken without a meeting if a consent in
writing  setting  forth  the  action  to be taken  shall be signed by all of the
shareholders entitled to vote with respect to the subject matter thereof.

         Section 12. VOTING BY BALLOT. Voting on any question or in any election
may be viva voce unless the  presiding  officer  shall order or any  shareholder
shall demand that voting be by ballot.


                                   ARTICLE III

                                    DIRECTORS

         Section 1. GENERAL POWERS.  The business and affairs of the corporation
shall be managed by its Board of Directors.

         Section  2.  NUMBER,  CLASSIFICATION,  TENURE AND  QUALIFICATIONS.  The
number of directors of the Corporation shall be seven (7),
effective  immediately  prior to election of  directors  at the Year 2000 annual
meeting of  shareholders,  and prior  thereto  shall be eight (8).  The Board of
Directors are divided into three classes, Class 1, Class 2 and Class 3, who have
staggered three year terms. Class 2, effective  immediately prior to election of
directors at said Year 2000 annual meeting of shareholders, shall consist of two
directors, and prior thereto shall consist of three (3) directors, Class 1 shall

                                       4
<PAGE>

consist of two directors, and Class 3 shall consist of three directors. The term
of office of each class of directors shall expire at the third succeeding annual
meeting of shareholders following their election.


         Section 3. ANNUAL AND REGULAR MEETINGS. The annual meeting of the Board
of Directors shall be held immediately after and at the same place as the annual
meeting of shareholders,  no notice other than this by-law being necessary.  The
Board of Directors may provide, by resolution, the time and place, either within
or without the State of  Maryland,  for the  holding of regular  meetings of the
Board of Directors without other notice than such resolution.

         Section 4. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by or at the  request of the  president  or by a  majority  of the
directors  then in  office.  The person or persons  authorized  to call  special
meetings of the Board of Directors  may fix any place,  either within or without
the State of Maryland, as the place for holding any special meeting of the Board
of Directors called by them.

         Section 5.  NOTICE.  Notice of any  special  meeting  shall be given by
written notice delivered  personally,  telegraphed or mailed to each director at
his  business or residence  address.  Personally  delivered or telegram  notices
shall be given at least two (2) days prior to the meeting.  Notice by mail shall
be given at least five (5) days prior the meeting.  If mailed, such notice shall
be deemed to be  delivered  when  deposited in the United  States mail  properly
addressed,  with postage thereon prepaid.  If notice be given by telegram,  such
notice  shall be deemed to be  delivered  when the  telegram is delivered to the
telegraph company. Neither the business to be transacted at, nor the purpose of,
any  annual,  regular  or  special  meeting  of the Board of  Directors  need be
specified in the notice, unless specifically required by statute.

         Section  6.  QUORUM.  A  majority  of  directors  then in office  shall
constitute a quorum for  transaction  of business at any meeting of the Board of
Directors,  but in no event should less than one-third of the entire  authorized
Board of Directors or less than two directors be considered a quorum.

         Section 7. VOTING.  The act of a majority of the directors present at a
duly constituted meeting shall be the act of the Board of Directors.


                                       5
<PAGE>




         Section 8. VACANCIES.  Any vacancy  occurring in the Board of Directors
by reason of the death,  disability or resignation of any director may be filled
by a majority of the remaining  members of the Board of Directors  although such
majority is less than a quorum,  as provided in the charter.  A director elected
by the Board of  Directors  to fill a vacancy  shall be elected  to hold  office
until the next Annual Meeting of  Stockholders or until his successor is elected
and qualifies.

         Section 9.  INFORMAL  ACTION BY  DIRECTORS.  Any action  required to be
taken at a meeting of the Board of  Directors,  or any other action which may be
taken at a meeting of the Board of Directors,  may be taken without a meeting if
a consent in writing,  setting forth the action so taken, shall be signed by all
of the directors.

         Section 10.  COMPENSATION.  By  resolution  of the Board of Directors a
fixed annual  stipend may be paid to each  director,  or in lieu thereof a fixed
annual  sum may be allowed  to  directors  for the  attendance  at such  annual,
regular  and  special  meetings  of the  Board  of  Directors  or any  executive
committee meeting thereof, and in addition expenses, if any, shall be allowed to
directors  for  attendance at such annual,  regular and special  meetings of the
Board of Directors,  or of any executive  committee thereof;  but nothing herein
contained  shall  be  construed  to  preclude  any  director  from  serving  the
corporation in any other capacity and receiving compensation therefor.

         Section  11.  REMOVAL OF  DIRECTORS.  A director  or  directors  may be
removed from office with or without cause by an  affirmative  vote of a majority
of all of the votes of  shareholders  entitled  to be cast for the  election  of
directors  and any  resulting  vacancy  for the  unexpired  term of the  removed
director shall be filled by action of the shareholders.

         Section 12.  DIRECTOR  EMERITUS.  The Board of Directors  may, with the
consent of the person designated,  designate a person who has theretofore served
as a director for at least ten years, as a director emeritus, to hold such title
at the pleasure of the Board of Directors.  A director  emeritus  shall have the
right, while holding such designation, to be present at meetings of the Board of
Directors,  but without any right of vote or consent, and shall be paid expenses
of attendance and an attendance fee equal to that which is paid to a director.


                                       6
<PAGE>


                                   ARTICLE IV

                                   COMMITTEES



         NUMBER,  TENURE AND QUALIFICATIONS.  The Board of Directors may appoint
from among its members an Executive  Committee and other committees  composed of
three or more  directors;  such committee or committees to serve at the pleasure
of the Board of Directors.

                                    ARTICLE V

                                    OFFICERS

         Section 1. POWERS AND DUTIES.  The officers of the corporation shall be
elected  annually by the Board of Directors at the first meeting of the Board of
Directors  held after each annual  meeting of  shareholders.  If the election of
officers shall not be held at such meeting,  such election shall be held as soon
thereafter  as may be  convenient.  Each  officer  shall hold  office  until his
successor  shall have been duly  elected and shall have  qualified  or until his
death or until  he  shall  resign  or shall  have  been  removed  in the  manner
hereinafter  provided.  Election or appointment of an officer or agent shall not
of itself create  contract  rights between the  corporation  and such officer or
agent.

         Section 2.  REMOVAL.  Any officer or agent  elected or appointed by the
Board of  Directors  may be removed by the Board of  Directors  whenever  in its
judgment the best interest of the corporation would be served thereby,  but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed.

         Section  3.  VACANCIES.  A  vacancy  in any  office  because  of death,
resignation, removal,  disqualification,  creation of a new office or otherwise,
may be filled by the Board of Directors for the unexpired portion of the term.

         Section 4.  CHAIRMAN  OF THE BOARD OF  DIRECTORS.  The  Chairman of the
Board of Directors  shall be selected from among the directors and shall preside
at all meetings of the Board of Directors.


         Section 4 A. PRESIDENT.  The president shall be the principal executive
officer of the corporation and shall in general supervise and control all of the
business and affairs of the  corporation  to the extent  actually  authorized by
resolution  of the Board of  Directors.  He shall preside at all meetings of the

                                       7
<PAGE>

shareholders.  The president shall be selected from among the directors.  He may
sign,  with  the  secretary  or any  other  proper  officer  of the  corporation
thereunto  authorized by the Board of Directors  pursuant to these By-Laws,  any
deeds,  mortgages,  bonds,  contracts,  or other  instruments which the Board of
Directors has  authorized to be executed,  except in cases where the signing and
execution  thereof shall be expressly  delegated by the Board of Directors or by
these  By-laws to some other  officer or agent of the  corporation,  or shall be
required by law to be otherwise signed or executed; and in general shall perform
all duties  incident to the office of president  and such other duties as may be
prescribed by the Board of Directors from time to time.  The president  shall be
ex  officio  a  member  of all  committees  that  may,  from  time to  time,  be
constituted by the Board of Directors.

         Section 5. VICE  PRESIDENTS.  In the absence of the president or in the
event of his death,  inability or refusal to act, the vice  president (or in the
event there be more than one vice  president,  the vice  presidents in the order
designated at the time of their election,  or in the absence of any designation,
then in the order of their  election) shall perform the duties of the president,
and when so  acting  shall  have all the  powers  of and be  subject  to all the
restrictions  upon the  president;  and shall  perform such other duties as from
time to time may be assigned to him by the Board of Directors.

         Section 6. SECRETARY.  The secretary  shall:(a)keep  the minutes of the
shareholders  and Board of Directors  meetings in one or more books provided for
that  purpose;  (b) see that all notices are duly given in  accordance  with the
provisions  of these  By-Laws or as required  by law;  (c) be  custodian  of the
corporate  records and of the seal of the  corporation  and see that the seal of
the  corporation  is affixed to all  certificates  for shares prior to the issue
thereof  and  to  all  documents,  the  execution  of  which  on  behalf  of the
corporation  under its seal is duly authorized in accordance with the provisions
of  these  By-Laws;  (d) keep a  register  of the post  office  address  of each
shareholder which shall be furnished to the Secretary by such  shareholder;  (e)
have  general  charge  of the stock  transfer  books of the  corporation;(f)  in
general  perform  all duties as from time to time may be  assigned to him by the
Board of Directors.

         Section 7. TREASURER. The treasurer shall have custody of the corporate
funds and securities  and shall keep full and accurate  accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable  effects in the name and to the credit of the  corporation in
such depositaries as may be designated by the Board of Directors.


                                       8
<PAGE>


         He shall disburse the funds of the corporation as may be ordered by the
Board,  taking proper vouchers for such  disbursements,  and shall render to the
president and directors,  at the regular meetings of the Board, or whenever they
may  require  it, an account of all his  transactions  as  treasurer  and of the
financial condition of the corporation.

         Section  8.  ASSISTANT  SECRETARIES  AND  ASSISTANT   TREASURERS.   The
assistant  treasurers  shall, if required by the Board of Directors,  give bonds
for the faithful  discharge of their duties in such sums and with such  sureties
as the  Board  of  Directors  shall  determine.  The  assistant  treasurers  and
assistant  secretaries,  in  general,  shall  perform  such  duties  as shall be
assigned  to  them  by  the  treasurer  or  secretary,  respectively,  or by the
president or the Board of Directors.

         Section 9. ANNUAL REPORT.  The president or other executive  officer of
the  corporation  shall  prepare  or cause to be  prepared  annually  a full and
correct  statement of the affairs of the corporation,  including a balance sheet
and a financial  statement of operations  for the preceding  fiscal year,  which
shall be submitted at the annual meeting of shareholders and filed within twenty
(20) days thereafter at the principal  office of the corporation in the State of
Maryland.

         Section 10. SALARIES.  The salaries of the officers shall be fixed from
time to time by the Board of Directors  and no officer  shall be prevented  from
receiving  such  salary by reason of the fact that he is also a director  of the
corporation.

         Section 11. GIVING OF BOND. If required by the Board of Directors,  any
officer or other  party shall give the  corporation  a bond in such sum and with
such surety or sureties as shall be  satisfactory  to the Board of Directors for
the  faithful  performance  of  his  duties  and  for  the  restoration  to  the
corporation,  in case of his death, resignation,  retirement or removal from his
office or other position, all books, papers,  vouchers, money and other property
of  whatever  kind in his  possession  or under  his  control  belonging  to the
corporation.



                                       9
<PAGE>

                                   ARTICLE VI

                      CONTRACTS, LOANS, CHECKS AND DEPOSITS

         Section 1. CONTRACTS.  The Board of Directors may authorize any officer
or  officers,  agent or agents,  to enter into any  contract  or to execute  and
deliver any instrument in the name of and on behalf of the corporation, and such
authority may be general or confined to specific instances.


         Section 2. CHECKS,  DRAFTS, ETC. All checks, drafts or other orders for
the payment of money,  notes or other  evidences of  indebtedness  issued in the
name of the  corporation  shall be signed by such officer or officers,  agent or
agents  of the  corporation  and in such  manner  as shall  from time to time be
determined by resolution of the Board of Directors.

         Section  3.  DEPOSITS.  All  funds  of the  corporation  not  otherwise
employed shall be deposited  from time to time to the credit of the  corporation
in such banks,  trust companies or other  depositaries as the Board of Directors
may select.

                                   ARTICLE VII

                                 SHARES OF STOCK

         Section 1. CERTIFICATES OF STOCK. Each shareholder shall be entitled to
a certificate or  certificates  which shall represent and certify the number and
kind and class of shares owed by him in the corporation.  Each certificate shall
be  signed  by  the  president  or a vice  president  and  countersigned  by the
secretary or an assistant  secretary or the treasurer or an assistant  treasurer
and shall be sealed with the corporate seal. The signatures may be either manual
or  facsimile.   Certificates  shall  be  consecutively  numbered;  and  if  the
corporation shall, from time to time, issue several classes of stock, each class
may  have  its own  number  series.  In case  any  officer  who has  signed  any
certificate ceases to be an officer of the corporation before the certificate is
issued,  the certificate may  nevertheless be issued by the corporation with the
same effect as if the  officer had not ceased to be such  officer as to the date
of its issue. All certificates representing stock which is restricted or limited
as to its  transferability  or voting powers or which is preferred or limited as
to its  dividends,  or as to its share of the  assets  upon  liquidation,  or is
redeemable  at the option of the  corporation,  shall have a  statement  of such
restriction,  limitation,  preference  or  redemption  provision,  or a  summary
thereof, plainly stated on the certificate.

         Section 2. TRANSFERS OF STOCK. Upon surrender to the corporation or the
transfer  agent of the  corporation  of a certificate  of stock duly endorsed or
accompanied  by proper  evidence  of  succession,  assignment  or  authority  to

                                       10
<PAGE>

transfer,  it shall be the duty of the corporation to issue a new certificate to
the  person  entitled  thereto,  cancel  the  old  certificate  and  record  the
transaction upon its books.



         The corporation  shall be entitled to treat the holder of record of any
share or shares of stock as the holder in fact thereof and,

accordingly,  shall not be bound to recognize any equitable or other claim to or
interest in such share on the part of any other person,  whether or not it shall
have express or other notice thereof,  except as otherwise  provided by the laws
of Maryland.

         Section 3. LOST  CERTIFICATE.  The Board of Directors  may direct a new
certificate to be issued in place of any certificate  theretofore  issued by the
corporation alleged to have been stolen, lost or destroyed upon the making of an
affidavit  of that fact by the person  claiming the  certificate  of stock to be
stolen, lost or destroyed. When authorizing such issue of a new certificate, the
Board of Directors may, in its discretion,  and as a condition  precedent to the
issuance  thereof,   require  the  owner  of  such  stolen,  lost  or  destroyed
certificate or his legal  representative to advertise the same in such manner as
it shall require and/or to give bond, with sufficient surety, to the corporation
to  indemnify  it  against  any loss or claim  which  may arise by reason of the
issuance of a new certificate.

         Section 4.  CLOSING OF  TRANSFER  BOOKS OR FIXING OF RECORD  DATE.  The
Board of  Directors  may fix,  in  advance,  a date as the  record  date for the
purpose of  determining  shareholders  entitled to notice of, or to vote at, any
meeting of  shareholders,  or  shareholders  entitled to receive  payment of any
dividend or the allotment of any rights,  or in order to make a determination of
shareholders for any other proper purpose.  Such date, in any case, shall be not
more than ninety (90) days,  and in case of a meeting of  shareholders  not less
than ten (10) days prior to the date on which the meeting or  particular  action
requiring such determination of shareholders is to be held or taken.

         In lieu of fixing a record  date,  the Board of  Directors  may provide
that the stock  transfer  books  shall be closed for a stated  period but not to
exceed,  in any case,  twenty (20) days. If the stock  transfer books are closed
for the purpose of determining  shareholders entitled to notice of or to vote at
a meeting of shareholders, such books shall be closed for at least ten (10) days
immediately preceding such meeting.


                                       11
<PAGE>


         If no record date is fixed and the stock  transfer books are not closed
for the determination of shareholders: (a) the record date for the determination
of shareholders  entitled to notice of, or to vote at, a meeting of shareholders
shall be at the close of  business  on the day on which the notice of meeting is
mailed, or the thirtieth (30th) day before the meeting,  whichever is the closer
date to the meeting;  (b) the record date for the  determination of shareholders
entitled to receive payment of a dividend or an allotment of any rights shall be
at the closed of  business  on the day on which the  resolution  of the Board of
Directors, declaring the dividend or allotment of rights, is adopted.

         When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this section, such determination shall
apply to any adjournment  thereof,  except where the determination has been made
through the closing of the stock transfer books and the stated period of closing
has expired.

                                  ARTICLE VIII

                                   FISCAL YEAR

         The Board of Directors shall have the power,  from time to time, to fix
the fiscal year of the corporation by a duly adopted

resolution.


                                   ARTICLE IX

                                    DIVIDENDS

         Section  1.  DECLARATION.  Dividends  upon  the  capital  stock  of the
corporation,  subject  to  the  provisions,  if  any,  of  the  charter  of  the
corporation, may be declared by the Board of Directors at any regular or special
meeting,  pursuant to law.  Dividends  may be paid in cash,  in property,  or in
shares of the corporation, subject to the provisions of law and of the charter.

         Section 2. CONTINGENCIES. Before payment of any dividends, there may be
set aside out of any funds of the  corporation  available for dividends such sum
or sums as the  Board of  Directors  may  from  time to  time,  in its  absolute
discretion,  think  proper  as a  reserve  fund  to meet  contingencies,  or for
equalizing  dividends,  or for  repairing  or  maintaining  any  property of the
corporation, or for such other purpose as the Board shall determine to be in the
best  interest  of the  corporation,  and the Board of  Directors  may modify or
abolish any such reserve in the manner in which it was created.


                                       12
<PAGE>

                                    ARTICLE X

                                      SEAL

         The  corporate  seal  shall  have  inscribed  thereon  the  name of the
corporation,  the year of its organization and the words, Incorporated Maryland.
The Board of Directors may authorize one or more duplicate seals and provide for
the custody thereof.

                                   ARTICLE XI

                       INDEMNITY OF OFFICERS AND DIRECTORS

         The corporation shall indemnify and hold harmless each of its directors
and officers against any and all expenses  actually and necessarily  incurred in
connection  with the defense of any  action,  suit or  proceeding  to which such
director or officer is made a party by reason of his being,  or having  been,  a
director  or officer of the  corporation,  except in  relation  to matters as to
which he shall be adjudged in such action,  suit or  proceeding to be liable for
gross negligence or misconduct in the performance of his duties as such director
or officer. In the event of settlement of such action, suit or proceeding in the
absence of such  adjudication,  indemnification  shall include  reimbursement of
amounts paid in settlement  and expenses  actually and  necessarily  incurred by
such director or officer in connection therewith, but such indemnification shall
be  provided  only if this  corporation  is advised by its  counsel  that in his
opinion such  settlement is for the best interests of this  corporation  and the
director or officer to be indemnified has not been guilty of gross negligence or
misconduct in respect of any matter  covered by such  settlement.  Such right of
indemnification  shall not be deemed exclusive of any other right, or rights, to
which such  director  or officer may be entitled  under any  agreement,  vote of
shareholders or otherwise.

                                  ARTICLE XIII

                                WAIVER OF NOTICE


         Whenever  any notice is required to be given  under the  provisions  of
these By-Laws or under the provisions of the charter of the corporation or under
the  provisions of the Maryland  corporation  law, a waiver  thereof in writing,
signed by the person or persons entitled to such notice, whether before or after
the time  stated  therein,  shall be  deemed  equivalent  to the  giving of such
notice. Neither the business to be transacted at, nor the purpose of any meeting
need be set forth in the  waiver of  notice,  unless  specifically  required  by
statute.  The attendance of any person at any meeting shall  constitute a waiver
of notice of such  meeting,  except where such person  attends a meeting for the
express  purpose of objecting to the  transaction of any business on the grounds
that the meeting is not lawfully called or convened.


                                       13
<PAGE>


                                   ARTICLE XIV

                              AMENDMENT OF BY-LAWS

         Section 1. BY DIRECTORS.  The Board of Directors  shall have the power,
at any annual or regular meeting,  or at any special meeting,  if notice thereof
be  included  in the  notice of such  special  meeting,  to alter or repeal  any
By-Laws of the  corporation  and to make new  By-Laws,  except that the Board of
Directors  shall not alter or repeal  this  section or any  By-Laws  made by the
shareholders.

         Section 2. BY  SHAREHOLDERS.  The  shareholders  entitled to vote shall
have the power,  at any annual  meeting,  or at any special  meeting,  if notice
thereof be included in the notice of such  special  meeting,  to alter or repeal
any By-Laws of the corporation and to make new By-Laws.

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<S>                             <C>
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<FISCAL-YEAR-END>                              DEC-31-2000
<PERIOD-END>                                   SEP-30-2000
<CASH>                                              1,512
<SECURITIES>                                            0
<RECEIVABLES>                                       4,389
<ALLOWANCES>                                            0
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<PP&E>                                             15,366
<DEPRECIATION>                                      7,641
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<CURRENT-LIABILITIES>                               1,617
<BONDS>                                                 0
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<COMMON>                                              327
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<TOTAL-LIABILITY-AND-EQUITY>                       20,667
<SALES>                                            24,050
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