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<SEC-DOCUMENT>0000914317-01-000233.txt : 20010329
<SEC-HEADER>0000914317-01-000233.hdr.sgml : 20010329
ACCESSION NUMBER:		0000914317-01-000233
CONFORMED SUBMISSION TYPE:	10-K
PUBLIC DOCUMENT COUNT:		4
CONFORMED PERIOD OF REPORT:	20001231
FILED AS OF DATE:		20010328

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			BALCHEM CORP
		CENTRAL INDEX KEY:			0000009326
		STANDARD INDUSTRIAL CLASSIFICATION:	CHEMICALS & ALLIED PRODUCTS [2800]
		IRS NUMBER:				132578432
		STATE OF INCORPORATION:			MD
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10-K
		SEC ACT:		
		SEC FILE NUMBER:	001-13648
		FILM NUMBER:		1582581

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

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


                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-K

[X]   Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
      Act of 1934

                   For the fiscal year ended December 31, 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
incorporation or organization)                      Identification No.)

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

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

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

Title of each class                    Name of each exchange on which registered

Common Stock, par value $.06-2/3                 American Stock Exchange
- --------------------------------                 ----------------------

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

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 for 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 [ ]
<PAGE>

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. [ ]


The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant on March 1, 2001 was approximately $52,025,449.*


*        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.


On March 1, 2001 there were 4,620,421 shares of Common Stock outstanding.


                       DOCUMENTS INCORPORATED BY REFERENCE

Part III:  Portions  of the  registrant's  proxy  statement  for its 2001 annual
meeting of stockholders are incorporated by reference in this report.

                                       2
<PAGE>


                                     Part I

Item 1. Business

General:

            Balchem Corporation,  incorporated in the State of Maryland in 1967,
is  engaged  in  the   development,   manufacture  and  marketing  of  specialty
performance ingredients for the food, feed and medical sterilization industries.
The Company has a currently inactive Canadian subsidiary, Balchem, Ltd.

            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).  The Company sells its products through its own
sales force,  independent  distributors and sales agents.  Financial information
concerning  the  Company's   business  and  business  segments  appears  in  the
Consolidated   Financial   Statements  included  under  Item  8  herein,   which
information is incorporated herein by reference.

            Encapsulated Products
            ---------------------

            The   encapsulated   products   segment   encapsulates   performance
ingredients for use throughout the food and animal health  industries to enhance
nutritional  fortification,   processing,  mixing,  packaging  applications  and
shelf-life improvement. Major product applications are baked goods, refrigerated
and frozen dough systems,  processed  meats,  seasoning  blends and confections.
Microencapsulated choline is marketed to the animal health industry offering key
nutrients to ruminant animals.

            This  segment  also  includes  a line  of  endothermic  blowing  and
nucleating agents that are marketed to the foamed plastics industry  exclusively
through a marketing partner.

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

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

            Ethylene oxide is used as a chemical sterilant gas, primarily in the
health care  industry.  It is used to  sterilize  medical  devices  ranging from
syringes and catheters to scalpels,  gauze,  bandages and surgical kits, because
of its versatility 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. As a fumigant,  ethylene oxide blends
are highly effective in killing  bacteria,  fungi, and insects in spice or other
seasoning materials. The Company's 100% ethylene oxide product is distributed by


                                       3
<PAGE>
the Company in reusable  double-walled  shipping 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  specially-built  drums, along
with the  Company's  two filling  facilities,  represent a  significant  capital
investment.  Contract  sterilizers,  medical device  manufacturers,  medical gas
distributors  and  hospitals  are the  Company's  principal  customers  for this
product.


            Propylene  oxide is used for bacteria  reduction in spice  treatment
and in the  chemical  synthesis  market.  It is also  utilized in  manufacturing
operations to make paints more durable, 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.  Propylene  oxide  and  methyl  chloride  are  sold  principally  to
customers  seeking smaller (as opposed to bulk)  quantities  whose  requirements
include timely delivery and safe handling.

            In 1994,  the Company  purchased  certain  tangible  and  intangible
assets for its ethylene  oxide  business for $1,500,000 in cash and, as detailed
in the purchase agreement, the Company was required to pay additional contingent
amounts to compensate the seller for the purchase of the seller's customer list,
in  accordance  with a  formula  based  on  profits  derived  from  sales of the
specialty-packaged  ingredient.  In 1998,  the Company  elected to exercise  the
early payment option under the agreement resulting in the Company making a final
payment of $3,700,000 to the seller.  The Company has no further  purchase price
obligation under the agreement.


            Due  to  consolidation  of  customer   businesses  in  the  contract
sterilizer  industry,  the Company has one customer,  IBA,  which  accounted for
approximately  13% of the Company's net sales in 2000. The loss of such customer
could have a material adverse effect on the Company.


New product status:
- ------------------


            In late 1999, the Company  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 providing required
levels to dairy cows during  certain  weeks  preceding  and  following  calving,
commonly referred to as the "transition period" of the animal.

            The Company has also  introduced  new  products  that are being sold
commercially for enhancement of shelf-life and  fortification in segments of the
food  industry  and has  several  new  products  for  the  food  market  in test
production or test marketing status.


                                       4
<PAGE>


Raw materials:
- -------------


            The raw materials  utilized by the Company in the manufacture of its
products  are  generally  available  from a number of  commercial  sources.  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.


Patents/Licensing:
- -----------------

            The Company  currently  holds a number of patents  and uses  certain
tradenames and trademarks.  It also uses know-how,  trade secrets,  formulae and
manufacturing techniques that assist in maintaining the 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
material  to the Company as a whole and,  accordingly,  that the  expiration  or
termination  thereof  would not  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.

            As  discussed  below under  "Environmental  Matters"  the  Company's
ability to sell ethylene oxide is dependent upon maintaining  registration  with
the EPA as a medical device sterilant and spice fumigant.

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

            In general,  the business of the Company's  segments is not seasonal
to any material extent.

Backlog:
- -------

            At December  31, 2000,  the Company had a total  backlog of $597,000
(including  $226,000 for the encapsulated  products segment and $371,000 for the
specialty  products  segment)  as  compared  to a total  backlog of  $798,000 at
December 31, 1999 (including $420,000 for the encapsulated  products segment and
$378,000 for the specialty products  segment).  It has been the Company's policy
and  practice to  maintain  an  inventory  of  finished  products  or  component
materials  for its  segments to enable it to ship  products  within a short time
after receipt of a product order.



                                       5
<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  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
improvement.  In addition,  the winning and retention of customer  acceptance of
the  Company's  encapsulated  products  involve  substantial   expenditures  for
applications  testing  and sales  efforts.  The  Company  also  engages  various
universities to assist in research and provide independent  third-party data. In
the specialty products business,  the Company faces competition from alternative
sterilizing technologies and products.

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

            During the years ended December 31, 2000, 1999 and 1998, the Company
incurred research and development  expense of approximately  $1.1 million,  $1.3
million  and $1.0  million,  respectively,  on  Company-sponsored  research  and
development  for  new  products  and  improvements  to  existing   products  and
manufacturing  processes,  principally  in the  encapsulated  products  segment.
During the year ended December 31, 2000, an average of 10 employees were devoted
full time to research and development  activities.  The Company has historically
funded its R&D 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 reviews 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.

Environmental Matters:
- ---------------------


            The Federal Insecticide,  Fungicide and Rodenticide Act, as amended,
a health and safety statute, requires that certain products within the Company's
specialty products segment must be registered with the EPA. 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. The Company holds an EPA registration to permit it to sell packaged
100%  ethylene  oxide as a medical  device  sterilant  and spice  fumigant.  The


                                       6
<PAGE>
Company  is  in  the  process  of   re-registering   this   product   use.   The
re-registration requirement is a result of a congressional enactment during 1988
requiring the  re-registration of this product and all products that are used as
pesticides.  The Company,  in conjunction with one other company,  has conducted
the required  testing under the direction of the EPA.  Testing has concluded and
the EPA has stated that, due to, a backlog of projects,  it cannot  anticipate a
date for completing the  re-registration  process for this product at this time.
The Company hopes to recover the cost of re-registration in the selling price of
the sterilant.


            The Company's  management continues to believe it will be successful
in  obtaining  re-registration  for  this  product  as  it  has  met  the  EPA's
requirements  thus far.  Additionally,  the product is used as a sterilant  with
certain  qualities  and  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 if the product were unavailable.


            On February 27, 1988,  California's  Proposition  65 (Safe  Drinking
Water and Toxic Enforcement Act of 1986) went into effect.  100% ethylene oxide,
a  sterilant/fumigant  distributed  by the  Company,  is  listed by the State of
California as a carcinogen and reproductive  toxin. 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 do so would  result in  liability of up to
$2,500 per day per person exposed.

            The  California  Birth Defect Law of 1984  requires  the  California
Department of Food and Agriculture ("CDFA") to identify chemicals in "widespread
use" for which  significant data gaps exist, and requires  registrants for those
products to submit the data or pay an assessment to the CDFA to fund independent
development of the data. The CDFA determined that data gaps existed for ethylene
oxide. After initially requesting an exemption,  the Company, along with another
registrant, agreed to submit information to close the data gaps. The registrants
have provided  requested  data, and, to the Company's  knowledge,  fulfilled the
data submission obligations to the CDFA.

            The Company  believes it is in compliance  in all material  respects
with  federal,  state and local  provisions  that have been  enacted  or adopted
regulating the discharge of materials into the 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.  The proceeding referred to in Item 3 below
has been substantially completed.


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


            As of March 1, 2001, the Company employed approximately 133 persons.
No employees are covered by any collective bargaining agreement.

                                       7
<PAGE>

Certain Factors Affecting Future Operating Results:
- ---------------------------------------------------


            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 Company can give no  assurances  that the  expectations
reflected in  forward-looking  statements will prove correct and various factors
could  cause  results  to differ  materially  from the  Company's  expectations.
Certain factors that might cause such a difference include,  without limitation;
(1) changes in the laws or regulations  affecting the operations of the Company;
(2)  changes  in  the  business  tactics  or  strategies  of  the  Company;  (3)
acquisition(s) of assets or of new or complementary  operations,  or divestiture
of any segment of the existing  operations of the Company;  (4) changing  market
forces or contingencies that necessitate,  in management's judgment,  changes in
plans,  strategy  or  tactics  of  the  Company;  and  (5)  fluctuations  in the
investment  markets  or  interest  rates,  which  might  materially  affect  the
operations  or  financial  condition of the  Company,  as well as the  following
matters,  and all forward-looking  statements are qualified in their entirety by
these cautionary statements:

Competition. The Company faces competition in its markets from a number of large
and  small  companies,  some of  which  have  greater  financial,  research  and
development,  production and other  resources  than the Company.  Various of the
Company's  products also face competition from products or technologies that may
be used as an alternative therefor.  The Company's competitive position is based
principally on  performance,  quality,  customer  support,  service,  breadth of
product line,  manufacturing  technology and the selling prices of its products.
The Company's  competitors can be expected to improve the design and performance
of their  products and to  introduce  new products  with  competitive  price and
performance  characteristics.  There can be no  assurance  that the Company will
have sufficient resources to maintain its current competitive position or market
share.

Environmental and Regulatory Matters.  Pursuant to applicable  environmental and
safety laws and  regulations,  the  Company is  required to obtain and  maintain
certain  governmental  permits and approvals,  including an EPA registration for
its ethylene oxide  sterilant  product.  Permits and approvals may be subject to
revocation,  modification  or  denial  under  certain  circumstances.  While the
Company believes it is in compliance in all material respects with environmental
laws,  there can be no assurance  that  operations  or activities of the Company
will not result in  administrative  or private  actions,  revocation of required
permits or licenses, or fines, penalties or damages, which could have an adverse
effect on the Company.  In addition,  the Company  cannot  predict the extent to
which any  legislation  or  regulation  may affect the market for the  Company's
products or its cost of doing business.

            Raw  Materials.  The principal raw materials  used by the Company in
the manufacture of its products can be subject to price fluctuations.  While the


                                       8
<PAGE>
selling prices of the Company's  products tend to increase or decrease over time
with the cost of raw materials,  such changes may not occur simultaneously or to
the same degree. There can be no assurance that the Company will be able to pass
increases in raw material  costs  through to its  customers in the form of price
increases.  Increases  in the price of raw  materials,  if not offset by product
price  increases,  could have an adverse  impact upon the  profitability  of the
Company. In addition,  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.

Reliance on Continued  Operation and Sufficiency of Facilities and on Unpatented
Trade Secrets.  The Company's revenues are dependent on the continued  operation
of its manufacturing,  packaging and processing facilities. The operation of the
Company's  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 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,  may adversely affect the  profitability of the Company during the
period of such operational  difficulties.  The Company's competitive position is
also dependent  upon  unpatented  trade secrets.  There can be no assurance that
others  will not  independently  develop  substantially  equivalent  proprietary
information.

Risks  Associated  with  Foreign  Sales.  For the year ended  December 31, 2000,
approximately  9% of the  Company's  net sales  consisted  of sales  outside the
United  States,  predominately  to  Europe.  Changes in the  relative  values of
currencies take place from time to time and could in the future adversely affect
prices for the Company's products. In addition,  international sales are subject
to other inherent risks, including possible labor unrest,  political instability
and export duties and quotas.  There can be no assurance that these factors will
not have a material  adverse  impact on the  Company's  ability to  increase  or
maintain its international sales.

Dependence  on Key  Personnel.  The  Company's  operations  are dependent on the
continued efforts of its senior executives. The loss of the services of a number
of senior executives could have a material adverse effect on the Company.


Item 2.     Properties


            The executive, sales, marketing,  research & development offices and
manufacturing  facilities of the Company's  encapsulated  products segment and a
drumming  facility for the  Company's  ethylene  oxide  business,  are presently
housed in four  buildings  located,  together  with a 14,900  square  foot steel
warehouse, in Slate Hill, New York. The Company owns a total of approximately 16
acres of land on several parcels in this community.


                                       9
<PAGE>
            The Company also owns a facility located on an approximately 24 acre
parcel of land in Green Pond,  South  Carolina.  The Company sold the balance of
its formerly 81 acre site in Green Pond in 1997.  The facility now consists of a
drumming facility,  a maintenance  building and an office building.  The Company
uses the  facility as a terminus,  warehouse  and drum  filling  station for its
products in its specialty products segment.


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 cleaned the area and removed  additional soil from the drum burial site.
The cost for this clean-up and the related reports was  approximately  $164,000.
Clean-up was  completed in 1996,  but NYDEC  required the Company to monitor the
site through  1999.  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 historically been less than
$10,000 per year.


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

            No matters were  submitted to a vote of security  holders during the
fourth quarter of 2000.

PART II

Item 5. Market for the Registrant's Common Equity and Related Stockholder
        Matters

(a)         Market Information.


            The Company's  common stock is traded on the American Stock Exchange
under the symbol BCP.  The high and low closing  prices for the common  stock as
recorded in the American Stock Exchange Market Statistical  Reports for 2000 and
1999, for each quarterly period during the past two years were as follows:


                                       10
<PAGE>
<TABLE>
<CAPTION>

- -----------------------------------------------------------------------------
Quarterly Period                                  High                  Low
- -----------------------------------------------------------------------------
<S>                                             <C>                   <C>
Ended March 31, 2000                            $  9.25               $  7.50
Ended June 30, 2000                               11.75                  8.25
Ended September 30, 2000                          12.38                 11.00
Ended December 31, 2000                           13.43                 10.32


<CAPTION>

- -----------------------------------------------------------------------------
Quarterly Period                                  High                  Low
- -----------------------------------------------------------------------------
<S>                                             <C>                   <C>
Ended March 31, 1999                            $  7.75                $ 5.06
Ended June 30, 1999                                6.50                  5.00
Ended September 30, 1999                           7.25                  5.69
Ended December 31, 1999                            8.75                  5.88

</TABLE>

(b)         Record Holders.

            As of March 1, 2001, the approximate  number of holders of record of
the Company's common stock was as follows:

            Title of Class                      Number of Record Holders
            --------------                      ------------------------


Common Stock, $.06-2/3 par value                            261*

*An unknown number of  stockholders  hold stock in street name. The total number
of  beneficial  owners  of  the  Company's  common  stock  is  estimated  to  be
approximately 1,342.


(c)         Dividends.

            The  Company  declared a  dividend  of $0.06 per share on the common
stock during its fiscal year ended December 31, 2000.

                                       11
<PAGE>



Item 6.     Selected Financial Data

Earnings  per share and  dividend  amounts  have been  adjusted for the May 1998
three-for-two stock split (effected by means of a stock dividend).
<TABLE>
<CAPTION>

                                        (In thousands, except per share data)
- ----------------------------------------------------------------------------------------
Year ended December 31,            2000        1999        1998         1997      1996
- ----------------------------------------------------------------------------------------
Statement of Operations Data
<S>                              <C>         <C>         <C>         <C>         <C>
Net sales                        $33,198     $29,682     $28,721     $28,619     $26,371
Earnings before income
     tax expense                   5,996       4,905       4,628       4,227       2,917

Income tax expense                 2,267       1,811       1,673       1,456         990

Net earnings                       3,729       3,094       2,955       2,771       1,927

Basic net earnings per
     common share                    .80         .64         .61         .58         .41

Diluted net earnings per
     common share                    .78         .63         .60         .57         .40

<CAPTION>

                                        (In thousands, except per share data)
- ----------------------------------------------------------------------------------------
At December 31,                    2000        1999        1998        1997        1996
- ----------------------------------------------------------------------------------------
Balance Sheet Data
<S>                              <C>         <C>         <C>         <C>         <C>
Total assets                     $23,222     $22,030     $22,648     $17,593     $15,140

Long-term debt                        --       1,250       3,750       1,500       2,100
Other long-term
    obligations                      362         606         841         890         794

Total stockholders' equity        19,580      17,939      15,775      12,336       9,387
Dividends per share              $   .06     $   .05     $  .033     $  .033     $  .030

</TABLE>
                                       12

<PAGE>


Item 7.     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 above.  Reference
should be made to such factors and all forward-looking  statements are qualified
in their entirety by the above cautionary statements.


                        (All dollar amounts in thousands)

Results of Operations:

Fiscal Year 2000 compared to Fiscal Year 1999

            Net sales for 2000 were $33,198 as compared to $29,682 for 1999,  an
increase of $3,516 or 12%.  Net sales for the  specialty  products  segment were
$20,113 for 2000 as  compared  to $19,843  for 1999,  an increase of $270 or 1%.
This increase was attributable  primarily to increased  volumes sold of ethylene
oxide related  products.  Net sales for the  encapsulated  products segment were
$13,085 for 2000 as  compared to $9,839 for 1999,  an increase of $3,246 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.  In late  1999,  the  Company  launched
Reashure(TM),  its  encapsulated  choline for  ruminant  animals,  after  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  providing  required  levels to dairy cows during
certain  weeks  preceding  and following  calving,  commonly  referred to as the
"transition  period" of the animal.  Sales of Reashure(TM)  continued to develop
through  growth from  existing  customers and with the addition of new customers
primarily in the East and Midwest.

            Gross profit as a percent of sales for 2000 was 42.3% as compared to
40.8% for 1999.  Margins  for the  specialty  products  segment  were  favorably
affected   primarily   by  increased   volumes  sold  and  improved   production
efficiencies of blended  ethylene oxide products which the Company now sells for
non-medical  sterilization.  Margins also improved in the encapsulated  products
division,  a result of efficiencies  realized from increased  production and the
mix of products sold during 2000.


                                       13
<PAGE>
            Operating  expenses  for 2000  increased  to $8,103  from $7,111 for
1999,  an  increase  of $992 or 14%.  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. The Company expended $1,069
and $1,264 in 2000 and 1999,  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 the gathering of data for Reashure(TM) from university studies,
commercial field trials and veterinarians in 1999.

            As a result of the foregoing, earnings from operations for 2000 were
$5,938  as  compared  to $5,013  for  1999.  Earnings  from  operations  for the
specialty  products  segment for 2000 was $5,605 as compared to $5,613 for 1999.
Earnings from operations for the encapsulated products segment for 2000 was $333
as compared to a loss of $600 for 1999.

            Net interest income for 2000 totaled $58 as compared to net interest
expense of $111 for 1999.  Long-term  debt was eliminated in 2000 from $1,250 in
1999 resulting in lower interest expense.

            The Company's effective income tax rate was 38% for 2000 as compared
with 37% for 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.

            As a result of the  foregoing,  net earnings were $3,729 for 2000 as
compared to $3,094 for 1999.


Fiscal Year 1999 compared to Fiscal Year 1998

            Net sales for 1999 were $29,682 as compared to $28,721 for 1998,  an
increase  of $961 or 3%.  Net  sales for the  specialty  products  segment  were
$19,843 for 1999 as  compared  to $19,434  for 1998,  an increase of $409 or 2%.
This increase was  attributable  primarily to an increase in volumes sold of the
Company's  ethylene oxide product  partially offset by a decline in volumes sold
of the  Company's  methyl  chloride  product.  Net  sales  for the  encapsulated
products segment were $9,839 for 1999 as compared to $9,287 for 1998 an increase
of $552 or 6%. This increase was primarily the result of increased  sales in the
domestic food markets  partially offset by decreased sales in the  international
food and animal nutrition markets.  With successful  university and field trials
conducted  in  1999,  targeted  at the  dairy  industry  and in  particular  the
transition  period of the dairy cow,  the  Company  launched  Reashure(TM),  its
encapsulated choline for animal feed in the fourth quarter of 1999.

                                       14
<PAGE>
            Gross profit as a percent of sales for 1999 was 40.8% as compared to
39.8%  in  1998.  Margins  for the  specialty  products  segment  were  affected
favorably by increased  volumes sold of ethylene  oxide and improved  production
efficiencies  of blended  ethylene  oxide  products,  a result of the  Company's
decision to blend internally rather than use third party blenders.  These margin
improvements  were partially  offset by declines in volumes produced and sold of
the  Company's  methyl  chloride  product and  additional  amortization  expense
associated  with the early  purchase  price  buy-out  option under the agreement
pertaining to the 1994 acquisition by the specialty products segment. Margins in
the encapsulated  products  division  declined two percentage  points in 1999 as
compared to 1998,  principally  as a result of the mix of products sold into the
international food market.

            Operating  expenses  for 1999  increased  to $7,111  from $6,616 for
1998,  an  increase  of $495 or 7%.  The  increase  in  operating  expenses  was
primarily  the result of  increased  payroll  expense in the area of selling and
applications research and development, increased advertising costs and increased
R&D consulting  expenses in the encapsulated  products segment.  These increases
were partially offset by a decrease in consulting fees in the specialty products
segment and other payroll  related  expenses.  During 1999 and 1998, the Company
spent  $1,264 and $1,017,  respectively,  on research and  development  programs
substantially  all of which  pertained to the  Company's  encapsulated  products
segment  for both  food and  animal  feed  applications.  The  Company  incurred
considerable development expenses in the gathering of data for Reashure(TM) from
university  and  veterinarian  studies as well as field trials to accelerate the
marketing effort for this product.

            As a result of the foregoing, earnings from operations for 1999 were
$5,013  as  compared  to $4,807  for  1998.  Earnings  from  operations  for the
specialty  products  segment for 1999 was $5,613 as compared to $4,631 for 1998.
Loss from operations for the encapsulated  products segment for 1999 was $600, a
result of lower  margins and  increased  research  and  development  expenses as
described above, as compared to income of $176 for 1998.

                                       15
<PAGE>
            Net  interest  expense for 1999 totaled $111 as compared to $164 for
1998.  Long-term  debt was  reduced  to $1,250 in 1999  from  $3,750 in 1998,  a
reduction of $2,500 resulting in lower interest expense.

            The  Company's  effective  income  tax  rate  increased  in  1999 as
compared to 1998 due principally to the effects of the Company's  utilization of
net operating loss carry-forwards for state income tax purposes in 1998.


            As a result of the  foregoing,  net earnings were $3,094 for 1999 as
compared to $2,955 for 1998.


Liquidity and Capital Resources

            Cash flows provided by operating  activities were $5,953 for 2000 as
compared  with  $4,682 for 1999.  The  increase  in cash  flows  from  operating
activities was due primarily to increased net earnings, reduced inventory levels
and  increases  in accounts  payable,  income  taxes  payable and other  accrued
expense  balances,  a result of timing of  payments  made to  vendors  and other
service providers partially offset by an increase in accounts receivable.

            Capital  expenditures were $881 for 2000.  Capital  expenditures are
projected to be approximately $1,800 for 2001.

            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 December 31, 2000, 343,316 shares had been
repurchased under the program at a total cost of $3,179 of which,  56,248 shares
had been issued by the Company as of such date 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 2000,  the Company paid off its remaining  long-term  debt of
$1,250. There was no long-term debt outstanding at December 31, 2000.

            The Company knows of no current or pending demands on or commitments
for its liquid  assets that will  materially  affect its  liquidity.  Management
believes  current  cash  balances  and  expected  operating  cash  flow  will be
sufficient  to fund  operations  in the next year.  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 December 31, 2000.

                                       16
<PAGE>
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,  as amended,  is effective for
all fiscal quarters 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 upon adoption  effective January 1,
2000  because  the  Company  does  not  currently  have   derivative   financial
instruments or derivative commodity  instruments,  nor does the Company have any
financial instruments entered into for trading or hedging purposes.


Item 7A. 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. As of December 31, 2000,
the  Company did not have any long term  borrowings.  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, as it presently does not have any outstanding debt.

            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.

Item 8.     Financial Statements and Supplementary Data

Index to Financial Statements and Supplementary Financial Data:             Page

            Independent Auditors' Report                                     18

            Consolidated Balance Sheets as of
            December 31, 2000 and 1999                                       19

            Consolidated Statements of Earnings for the
            years ended December 31, 2000, 1999 and 1998                     21

            Consolidated Statements of Stockholders' Equity
            for the years ended December 31, 2000, 1999 and 1998             22

            Consolidated Statements of Cash Flows
            for the years ended December 31, 2000, 1999 and 1998             23

            Notes to Consolidated Financial Statements
            for the years ended December 31, 2000, 1999 and 1998             24

            Financial Statement Schedule - Valuation and Qualifying
            Accounts for the years ended December 31, 2000, 1999 and 1998    42



                                       17
<PAGE>
Independent Auditors' Report

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, 2000 and 1999, and the related
consolidated  statements  of earnings,  stockholders'  equity and cash flows for
each  of the  years  in the  three-year  period  ended  December  31,  2000.  In
connection with our audits of the  consolidated  financial  statements,  we also
have  audited the  financial  statement  schedule on  valuation  and  qualifying
accounts for the three year period ended December 31, 2000.  These  consolidated
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

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,  2000 and 1999 and the  results of their
operations and their cash flows for each of the years in the  three-year  period
ended  December 31, 2000, 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,  in all
material respects, the information set forth therein.


/s/KPMG LLP
- -----------
KPMG LLP
Short Hills, New Jersey
February 6, 2001

                                       18
<PAGE>
<TABLE>
<CAPTION>
                                         BALCHEM CORPORATION
                                     Consolidated Balance Sheets
                                      December 31, 2000 and 1999

                       (Dollars in thousands, except share and per share data)

                               Assets                                                 2000        1999
                               ------                                                 ----        ----
<S>                                                                                  <C>         <C>
Current assets:
    Cash and cash equivalents                                                        $ 3,068     $ 1,699
    Accounts receivable, net of allowance for doubtful accounts of $48 and $0 at
       December 31, 2000 and 1999, respectively                                        5,044       3,981
    Inventories                                                                        2,554       2,748
    Prepaid expenses                                                                     502         501
    Deferred income taxes                                                                200         188
                                                                                     -------     -------
          Total current assets                                                        11,368       9,117
                                                                                     -------     -------

Property, plant and equipment, net                                                     7,765       7,786

Investments in intangibles assets, net                                                 4,089       5,127
                                                                                     -------     -------

          Total assets                                                               $23,222     $22,030
                                                                                     =======     =======

</TABLE>
                                                 19
<PAGE>
<TABLE>
<CAPTION>
                                           BALCHEM CORPORATION
                                  Consolidated Balance Sheets, continued
                                        December 31, 2000 and 1999
                         (Dollars in thousands, except share and per share data)

                            Liabilities and Stockholders' Equity                    2000           1999
                            ------------------------------------                    ----           ----

<S>                                                                               <C>           <C>
Current liabilities:
    Trade accounts payable                                                        $    970      $    565
    Accrued compensation and other benefits                                          1,135           829
    Other accrued expenses                                                             654           429
    Dividends payable                                                                  277           245
    Income taxes payable                                                               208           131
    Current portion of  long-term debt                                                  --           600
    Current portion of other long-term obligations                                      36            36
                                                                                  --------      --------
        Total current liabilities                                                    3,280         2,835
                                                                                  --------      --------

Long-term debt                                                                          --           650
Deferred income taxes                                                                  225           381
Deferred  compensation                                                                  91           108
Other long-term obligations                                                             46           117
                                                                                  --------      --------
        Total liabilities                                                            3,642         4,091
                                                                                  --------      --------
Stockholders' equity:

Preferred stock, $25 par value. Authorized 2,000,000
  shares; none issued and outstanding
Common stock, $.0667 par value. Authorized 10,000,000 shares; 4,903,238
  shares issued and 4,616,170 shares outstanding at December 31, 2000 and
  4,903,238 shares issued and 4,781,358 shares outstanding at December 31, 1999        327           327
Additional paid-in capital                                                           3,082         2,994
Retained earnings                                                                   18,968        15,516
Treasury stock, at cost: 287,068 and 121,880 shares at December 31, 2000
  and 1999, respectively                                                            (2,797)         (898)
                                                                                  --------      --------
Total stockholders' equity                                                          19,580        17,939
                                                                                  --------      --------
Commitments and contingencies (note 11)
        Total liabilities and stockholders' equity                                $ 23,222      $ 22,030
                                                                                  ========      ========

</TABLE>
          See accompanying notes to consolidated financial statements.
                                       20

<PAGE>
<TABLE>
<CAPTION>
                                                BALCHEM CORPORATION
                                        Consolidated Statements of Earnings
                                   Years Ended December 31, 2000, 1999 and 1998
                                       (In thousands, except per share data)

                                                               2000                  1999                   1998
                                                            --------              --------               --------
<S>                                                         <C>                   <C>                    <C>
Net sales                                                   $ 33,198              $ 29,682               $ 28,721

Cost of sales                                                 19,157                17,558                 17,298
                                                            --------              --------               --------

Gross profit                                                  14,041                12,124                 11,423
Operating expenses:
        Selling expenses                                       3,914                 3,082                  2,584
        Research and development expenses                      1,069                 1,264                  1,017
        General and administrative expenses                    3,120                 2,765                  3,015
                                                            --------              --------               --------
                                                               8,103                 7,111                  6,616

Earnings from operations                                       5,938                 5,013                  4,807
Other expenses (income):

        Interest (income) expense - net                          (58)                  111                    164
        Other (income) expense - net                               -                    (3)                    15
                                                            --------              --------               --------

            Total other (income) expenses                        (58)                  108                    179
                                                            --------              --------               --------

Earnings before income tax expense                             5,996                 4,905                  4,628
        Income tax expense                                     2,267                 1,811                  1,673
                                                            --------              --------               --------

Net earnings                                                $  3,729              $  3,094                $ 2,955
                                                            ========              ========                =======

Basic net earnings per common share                         $   0.80              $   0.64                $  0.61
                                                            ========              ========                =======

Diluted net earnings per common share                       $   0.78              $   0.63                $  0.60
                                                            ========              ========                =======
</TABLE>
          See accompanying notes to consolidated financial statements.

                                       21
<PAGE>
<TABLE>
<CAPTION>
                                                         BALCHEM CORPORATION
                                           Consolidated Statements of Stockholders' Equity
                                            Years Ended December 31, 2000, 1999 and 1998
                                       (Dollars in thousands, except share and per share data)


                                                                   Additional                                              Total
                                                  Common Stock       Paid-in     Retained         Treasury Stock       Stockholders'
                                              Shares     Amount      Capital     Earnings      Shares        Amount      Equity
                                              ------     ------      -------     --------      ------        ------      ------
<S>                                          <C>          <C>        <C>          <C>          <C>             <C>       <C>
 Balance - January 1, 1998                   4,793,163    $ 319      $ 2,145      $ 9,872            -          $ -      $ 12,336

Net earnings                                         -        -            -        2,955            -            -         2,955
 Dividends ($.033 per share)                         -        -            -         (160)           -            -          (160)
 Employee stock option compensation             17,144        1          263            -            -            -           264
 Grants of non-employee stock options                -        -           52            -            -            -            52
 Shares issued under employee stock
   option plans                                 65,607        5          323            -            -            -           328
                                             ---------    -----      -------     --------     --------     --------      --------

Balance - December 31, 1998                  4,875,914      325        2,783       12,667            -            -        15,775

Net earnings                                         -        -            -        3,094            -            -         3,094
 Dividends ($.05 per share)                          -        -            -         (245)           -            -          (245)
 Treasury shares purchased                           -        -            -            -     (128,400)        (943)         (943)
 Shares issued under employee benefit
   plans                                        19,927        2          124            -        4,420           30           156
 Grants of non-employee stock options                -        -           60            -            -            -            60
 Shares issued under employee stock
   option plans                                  7,397        -           27            -        2,100           15            42
                                             ---------    -----      -------     --------     --------     --------      --------

 Balance - December 31, 1999                 4,903,238      327        2,994       15,516     (121,880)        (898)       17,939
 Net earnings                                        -        -            -        3,729            -            -         3,729
 Dividends ($.06 per share)                          -        -            -         (277)           -            -          (277)
 Treasury shares purchased                           -        -            -            -     (214,916)      (2,236)       (2,236)
 Shares issued under employee benefit
   plans                                             -        -           58            -       17,095          116           174
 Shares issued under stock option plans              -        -           30            -       32,633          221           251
                                             ---------    -----      -------     --------     --------     --------      --------

 Balance - December 31, 2000                 4,903,238    $ 327      $ 3,082     $ 18,968     (287,068)    $ (2,797)     $ 19,580
                                             =========    =====      =======     ========     ========     ========      ========

</TABLE>
          See accompanying notes to consolidated financial statements.

                                       22
<PAGE>
<TABLE>
<CAPTION>
                                              BALCHEM CORPORATION
                                     Consolidated Statements of Cash Flows
                                 Years Ended December 31, 2000, 1999 and 1998
                                     (In thousands, except per share data)

                                                                             2000         1999         1998
                                                                           -------      -------      -------
<S>                                                                        <C>          <C>          <C>
Cash flows from operating activities:
  Net earnings                                                             $ 3,729      $ 3,094      $ 2,955
  Adjustments to reconcile net earnings to
  net cash provided by operating  activities:
      Depreciation and amortization                                          2,015        2,028        1,654
      Non-employee stock compensation                                           --           60           52
      Income tax benefit from stock options exercised                           77           --           --
      Shares issued under employee benefit plans                               174          156          264
      Deferred income tax (benefit) expense                                   (168)        (113)          92
      Provision for doubtful accounts                                           48           --         (187)
      Loss on sale of equipment                                                 --           --           19
          Changes in assets and liabilities:
            Accounts receivable                                             (1,111)        (698)         (35)
            Inventories                                                        194          127         (368)
            Prepaid expenses                                                    (1)         (25)           5
            Accounts payable and accrued expenses                              936         (249)        (550)
            Income taxes payable                                                77          329           --
            Other long-term obligations                                        (17)         (27)          (8)
                                                                           -------      -------      -------
                   Net cash provided by operating activities                 5,953        4,682        3,893
                                                                           -------      -------      -------
  Cash  flows from investing activities:
  Proceeds from sale of property, plant and equipment                           --           --           15
  Capital expenditures                                                        (881)        (602)      (1,637)
  Increase in intangibles assets                                               (75)         (97)      (4,063)
                                                                           -------      -------      -------
                   Net cash used in investing activities                      (956)        (699)      (5,685)
                                                                           -------      -------      -------
Cash  flows from  financing  activities:
  Proceeds from long-term debt                                                  --           --        3,000
  Principal payments on long-term debt                                      (1,250)      (2,500)        (750)
  Proceeds from stock options and warrants exercised                           174           42          328
  Dividends paid                                                              (245)        (160)        (160)
  Purchase of treasury stock                                                (2,236)        (943)          --
  Other financing activities                                                   (71)         (71)         (14)
                                                                           -------      -------      -------
                   Net cash (used in) provided by financing activities      (3,628)      (3,632)       2,404
                                                                           -------      -------      -------
Increase in cash and cash equivalents                                        1,369          351          612
Cash and cash equivalents beginning of year                                  1,699        1,348          736
                                                                           -------      -------      -------
Cash and cash equivalents end of year                                      $ 3,068      $ 1,699      $ 1,348
                                                                           =======      =======      =======

</TABLE>
          See accompanying notes to consolidated financial statements.

                                       23
<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 (the "Company") is engaged in the development,  manufacture
and marketing of specialty  performance  ingredients  and products for the food,
feed 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 when all
significant  obligations of the Company have been  satisfied.  In December 1999,
the Securities and Exchange  Commission ("SEC") issued Staff Accounting Bulletin
No. 101,  "Revenue  Recognition in Financial  Statements"  ("SAB 101").  SAB 101
summarizes certain of the SEC's views in applying generally accepted  accounting
principles to revenue recognition in financial statements. SAB 101 is not a rule
or  interpretation  of the  SEC,  however,  it  represents  interpretations  and
practices followed by the Division of Corporation  Finance and the Office of the
Chief  Accountant in  administering  the disclosure  requirements of the Federal
securities  laws. The Company believes its revenue  recognition  policies are in
compliance with the interpretations outlined in SAB 101.


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

The Company  considers  all highly  liquid debt  instruments  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.

                                       24
<PAGE>
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


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.


Intangible Assets
- -----------------

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

                      Customer lists                        6-10 years
                      Re-registration costs                   10 years

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 income in the period that includes the enactment date.

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

The preparation of financial  statements in accordance  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect the reported  amounts of assets,  liabilities,  revenues,  and  expenses.
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, 2000 and 1999 does not differ  materially  from the
aggregate  carrying  values  of  its  financial   instruments  recorded  in  the


                                       25
<PAGE>
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.


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

Research and development costs are expensed as incurred.

Credit Risk
- -----------

Trade  receivables  potentially  subject the Company to credit risk. 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.  International sales
are mostly to companies in Europe.


Stock Option Plan
- -----------------

 The Company applies the intrinsic  value-based method of accounting  prescribed
by Accounting  Principles  Board ("APB")  Opinion No. 25,  "Accounting for Stock
Issued to Employees," and related interpretations  including FASB Interpretation
No. 44,  "Accounting for Certain  Transactions  involving Stock Compensation and
interpretation  of APB Opinion No. 25" issued in March 2000,  to account for its
fixed plan stock options. Under this method, compensation expense is recorded on
the date of grant  only if the  current  market  price of the  underlying  stock
exceeded  the  exercise  price.  SFAS  No.  123,   "Accounting  for  Stock-Based
Compensation,"  established accounting and disclosure  requirements using a fair
value-based method of accounting for stock-based employee compensation plans. As
allowed by SFAS No.  123,  the  Company  has  elected to  continue  to apply the
intrinsic  value-based method of accounting described above, and has adopted the
disclosure requirements of SFAS No. 123.

                                       26
<PAGE>

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

Long-lived  assets,  including  intangible  assets,  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 future net cash
flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying  amount or fair value less
costs to sell.

                                       27
<PAGE>


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

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

NOTE 2-INVENTORIES
- ------------------

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

                                                        2000               1999
                                                       ------             ------
Raw materials                                          $1,147             $1,340
Finished goods                                          1,407              1,408
                                                       ------             ------
  Total inventories                                    $2,554             $2,748
                                                       ======             ======

NOTE 3- PROPERTY, PLANT AND EQUIPMENT
- -------------------------------------

Property,  plant and  equipment at December 31, 2000 and 1999 are  summarized as
follows:

                                                          2000             1999
                                                         ------          ------
Land                                                     $    60         $    60
Building                                                   4,551           4,331
Equipment                                                 11,011          10,350
                                                          15,622          14,741
                                                         -------         -------
Less: Accumulated depreciation                             7,857           6,955
                                                         -------         -------
   Net property, plant and equipment                     $ 7,765         $ 7,786
                                                         =======         =======

NOTE 4- INTANGIBLE ASSETS
- -------------------------

Intangible assets at December 31, 2000 and 1999 consist of the following:

                                                          2000             1999
                                                         ------           ------
Customer lists                                           $6,760           $6,760
Re-registration costs                                       356              356
Covenants not to compete                                    295              295

Patents                                                     215              116

Other                                                       125              148

                                                          7,751            7,675
                                                         ------           ------
Less: Accumulated amortization                            3,662            2,548
                                                         ------           ------
   Net intangible assets                                 $4,089           $5,127
                                                         ======           ======


                                       28
<PAGE>
In 1994, the Company purchased certain tangible and intangible assets for one of
its packaged  specialty products for $1,500 in cash and the Company was required
to pay additional  contingent  amounts to compensate the seller for the purchase
of the seller's  customer  list in  accordance  with a formula  based on profits
derived from sales of the specialty  packaged  ingredient.  In 1998, the Company
elected to exercise  the early  payment  option under the  agreement  and made a
final payment of $3,700 to the seller in  settlement  of its remaining  purchase
price  obligation  under the terms of the  agreement.  Amounts  allocated to the
customer list are being amortized over its remaining  estimated useful life on a
straight-line basis through 2004.

In 1997,  the  Company  entered  into  non-compete  agreements  with two  former
officers  of the  Company.  The Company has  recorded  the present  value of the
future  monthly  payments  under these  agreements  as a deferred  charge and is
amortizing such amount over the terms of the respective agreements, which end in
2002.


The  Company  is in the  process  of  re-registering  a  product  it  sells  for
sterilization of medical devices and other uses. The re-registration requirement
is  a  result  of  a   congressional   enactment   during  1988   requiring  the
re-registration  of this  product  and  all  other  products  that  are  used as
pesticides.  The  Company,  in  conjunction  with one  other  company,  has been
conducting  the  required  testing  under  the  direction  of the  Environmental
Protection  Agency  ("EPA").  Testing has concluded and the EPA has stated that,
due to a backlog of projects,  it cannot  anticipate a date for  completing  the
re-registration  process for this product at this time. The Company's management
believes it will be successful in obtaining  re-registration  for the product as
it has met the EPA's  requirements thus far, although no assurance can be given.
Additionally,  the  product  is used as a  sterilant  with no known  substitute.
Management  believes absence of availability of this product could not be easily
tolerated by medical  device  manufacturers  and the health care industry due to
the resultant infection potential if the product were unavailable.


NOTE 5 - LONG-TERM DEBT & CREDIT AGREEMENTS
- -------------------------------------------

There was no long-term  debt  outstanding  at December 31, 2000.  Borrowings  at
December 31, 1999 included  $1,250 due under a term loan  agreement  with a bank
that was paid in full during 2000. Such borrowings had an interest rate of LIBOR
plus 1%.

The Company  also has  approval  for a $2,000  short-term  line of credit from a
bank. There were no outstanding  borrowings under the line of credit on December
31, 2000 or 1999. The approval  expires on June 30, 2001. The Company intends to
seek renewal of such approval in 2001.

                                       29
<PAGE>


NOTE 6 - INCOME TAXES


Income tax expense  (benefit)  attributable  to  earnings  before  income  taxes
expense consists of the following:


                                           2000             1999            1998
                                         -------         -------         -------
Current:
     Federal                             $ 2,018         $ 1,598         $ 1,402
     State                                   417             326             179
Deferred:
     Federal                                (149)           (102)             85

     State                                   (19)            (11)              7
                                         -------         -------         -------

Total income tax provision               $ 2,267         $ 1,811         $ 1,673
                                         =======         =======         =======



The provision for income taxes differs from the amount  computed by applying the
Federal  statutory  rate of 34% to earnings  before  income tax expense in 2000,
1999 and 1998 due to the following :

                                       30
<PAGE>

                                             2000          1999          1998
                                            -------       -------       -------
Income tax at Federal
     Statutory rate                         $ 2,039       $ 1,668       $ 1,574
State income taxes, net of
     Federal income tax benefit                 263           208           123

Other                                           (35)          (65)          (24)
                                            -------       -------       -------


Total income tax provision                  $ 2,267       $ 1,811       $ 1,673
                                            =======       =======       =======



The tax effects of temporary  differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 2000 and
1999 are as follows:


                                                               2000         1999
                                                               ----         ----
Deferred tax assets:
     Amortization                                              $504         $340
     Inventories                                                121          158
     Deferred compensation                                       41           48
     Non-employee stock options                                  99           99
     Other                                                       92           84
                                                               ----         ----


          Total deferred tax assets                             857          729
                                                               ====         ====

Deferred tax liabilities:
     Depreciation                                               882          922
                                                               ----         ----
          Total deferred tax liabilities                        882          922
                                                               ====         ====
           Net deferred tax liability                          $ 25         $193
                                                               ====         ====

There is no valuation allowance for deferred tax assets at December 31, 2000 and
1999.  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.


                                       31
<PAGE>

NOTE 7 - STOCKHOLDERS' EQUITY
- -----------------------------

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. Since inception of its repurchase authorization,
through  December 31, 2000,  the Company had  repurchased  343,316  shares at an
average cost of $9.26 per share.

On May 2, 1998, the Board of Directors of the Company  approved a  three-for-two
split of the Company's common stock  distributed in the form of a stock dividend
to shareholders of record on May 15, 1998. Such distribution was made on June 3,
1998. Accordingly, the stock split was recognized by reclassifying $105, the par
value of the additional shares resulting from the split, from additional paid-in
capital to common stock.

In June 1999, the Company adopted the Balchem  Corporation  1999 Stock Plan (the
"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 are either fully  exercisable on the date of grant or become  exercisable
thereafter in such  installments  as the  Committee may specify.  The 1999 Stock
Plan reserves an aggregate of 600,000  shares of common stock for issuance under
the Plan. 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 under the  Non-Qualified  Plan,  generally vested on the date of
grant, and expire ten years from the date of grant.

The Company  applies APB Opinion No. 25 in accounting  for employee and director
stock options and, accordingly,  when the exercise price of the options is equal
to or greater than the fair value of the stock on date of grant, no compensation
cost is recognized in the  consolidated  financial  statements.  Had the Company
determined compensation cost based on the fair value at the grant dates for such
stock options under SFAS No. 123, the Company's net earnings  would have been as
set forth below for the years ended December 31:

                                       32
<PAGE>
                                        2000          1999          1998
                                     --------      --------     ---------
Net Earnings

     As Reported                     $  3,729      $  3,094     $   2,955
     Pro forma                          3,465         2,971         2,805
Earnings per share
     As Reported - Basic             $    .80      $    .64     $     .61
     Pro forma - Basic                    .74           .61           .58
     As Reported - Diluted                .78           .63           .60
     Pro forma - Diluted                  .73           .61           .57

The fair value of each option  grant is estimated on the date of grant using the
Black-Scholes   option-pricing   model  with  the  following   weighted  average
assumptions used for grants in 2000, 1999 and 1998, respectively: dividend yield
of .52%,  .46% and .40%;  expected  volatility  of 54%,  48% and 46%;  risk-free
interest rates of 4.9%,  6.3% and 4.8%; and expected life of five years for 2000
and six years for 1999 and 1998, respectively.  The weighted average fair values
of options  granted during the years 2000,  1999 and 1998 were $7.23,  $4.66 and
$1.81, respectively.  Pro forma net earnings reflects only options granted since
January 1, 1995. Therefore, the full impact of calculating compensation cost for
employee  stock options under SFAS No. 123 is not reflected in the pro forma net
earnings amounts presented above because compensation cost is reflected over the
options'  vesting  periods and  compensation  cost for options  granted prior to
January 1, 1995 has not been considered.

A charge to earnings and corresponding increase to additional paid-in capital of
approximately  $60 and $52 was  recorded  for  options  granted in 1999 and 1998
respectively,  to  non-employees  (including  directors)  in exchange  for their
services.  The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions  used for grants in 1999 and 1998,  respectively:  dividend yield of
 .46% and .40%;  expected  volatility of 48% and 46%; risk-free interest rates of
6.3% and 4.6%;  and  expected  lives of three years and six years.  The weighted
average fair values of options granted during the years 1999 and 1998 were $2.92
and $2.65 respectively.


                                       33
<PAGE>



A summary of stock option plan activity for 2000, 1999 and 1998 for all plans is
as follows:


                                               # of            Weighted Average
                            2000              Shares            Exercise Price
- --------------------------------------------------------------------------------
 Outstanding at beginning of year            427,322                 $ 7.92
 Granted                                     103,711                  11.42
 Exercised                                   (32,621)                  5.32
 Terminated or expired                       (56,615)                 10.87
 Outstanding at end of year                  441,797                 $ 8.55
 Exercisable at end of year                  314,627                 $ 8.51


                                               # of             Weighted Average
                            1999              Shares             Exercise Price
- --------------------------------------------------------------------------------
Outstanding at beginning of year             363,972                 $ 8.09
Granted                                       89,100                   6.79
Exercised                                     (9,497)                  4.42
Terminated or expired                        (16,253)                  7.62
Outstanding at end of year                   427,322                 $ 7.92
Exercisable at end of year                   272,252                 $ 7.78


                                               # of             Weighted Average
                            1998              Shares             Exercise Price
- --------------------------------------------------------------------------------
Outstanding at beginning of year             325,717                 $ 7.09
Granted                                      119,627                   8.81
Exercised                                    (65,607)                  4.37
Terminated or expired                        (15,765)                  8.20
Outstanding at end of year                   363,972                 $ 8.09
Exercisable at end of year                   181,247                 $ 6.51


                                       34
<PAGE>

Information related to stock options outstanding under all plans at December 31,
2000 is as follows:

<TABLE>
<CAPTION>
                                                             Options Outstanding               Options Exercisable
                                                        ---------------------------         -------------------------
                                                          Weighted
                                                          Average          Weighted                          Weighted
                                                         Remaining          Average                           Average
                                                        Contractual        Exercise            Number        Exercise
                                                        -----------        --------            ------        --------
  Range of Exercise Prices     Shares Outstanding          Life              Price          Exercisable        Price
<S>                                  <C>                 <C>                <C>                <C>           <C>
     $ 2.45 -     $ 5.92              81,691              5.1 years          $ 4.44             81,691        $ 4.44
       6.00 -       9.50             168,685              8.2 years            7.40             83,515          7.37
      10.75 -      13.25             191,421              8.1 years           11.33            149,421         11.38
                                     441,797              7.6 years          $ 8.55            314,627        $ 8.51
</TABLE>

NOTE 8 - NET EARNINGS PER SHARE

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

<TABLE>
<CAPTION>
                                                           Earnings             Number of Shares
                                    2000                 (Numerator)            (Denominator)             Per Share Amount
- --------------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>                      <C>                            <C>
Basic EPS - Net earnings and weighted
average common shares outstanding                          $3,729                   4,683,355                      $.80

Effect of dilutive securities - stock options                                          89,423
                                                                                    ---------
Diluted EPS - Net earnings and weighted
average common shares outstanding and
effect of stock options                                    $3,729                   4,772,778                      $.78

<CAPTION>
                                                           Earnings             Number of Shares
                                    1999                 (Numerator)            (Denominator)             Per Share Amount
- --------------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>                      <C>                            <C>
Basic EPS - Net earnings and weighted
average common shares outstanding                          $3,094                   4,856,782                      $.64


Effect of dilutive securities - stock options                                          30,049
                                                                                    ---------

Diluted EPS - Net earnings and weighted
average common shares  outstanding  and
effect of stock options                                    $3,094                   4,886,831                      $.63


<CAPTION>
                                                           Earnings             Number of Shares
                                    1998                 (Numerator)            (Denominator)             Per Share Amount
- --------------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>                      <C>                            <C>
Basic EPS - Net earnings and weighted
average common shares outstanding                          $2,955                   4,841,300                      $.61


Effect of dilutive securities - stock options                                          69,038
                                                                                    ---------

Diluted EPS - Net earnings and weighted
average common shares  outstanding  and
effect of stock options                                    $2,955                   4,910,338                      $.60

</TABLE>
                                       36
<PAGE>


NOTE 9 - EMPLOYEE BENEFIT PLANS
- -------------------------------

Effective  January 1, 1998,  the Company  terminated  its  defined  contribution
pension  plan and  amended its 401(k)  savings  plan.  Assets of the  terminated
defined  contribution  pension plan were merged into an enhanced  401(k)/ profit
sharing plan. 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 $208 and $174 in 2000, $186 and $156 in 1999 and $178 and $172
in 1998, respectively.

NOTE 10 - BUSINESS CONCENTRATIONS
- ---------------------------------


A Specialty  Products  customer  accounted for 13%, 16% and 15% of the Company's
consolidated  net sales for 2000,  1999 and 1998,  respectively.  This  customer
accounted  for 10% and  16% of the  Company's  accounts  receivable  balance  at
December 31, 2000 and 1999, respectively.


NOTE 11 - LEASES
- ----------------

The Company leases most of its vehicles and office equipment under noncancelable
operating  leases,  which expire at various  times  through  2003.  Rent expense
charged  to  operations  under  such lease  agreements  for 2000,  1999 and 1998
aggregated  approximately  $326, $335 and $345,  respectively.  Aggregate future
minimum  rental  payments  required  under  noncancelable  operating  leases  at
December 31, 2000 are as follows:

                      Year
                      ----
                      2001                            $ 205
                      2002                              125
                      2003                               69
                                                      -----
          Total minimum lease payments                $ 399
                                                      =====

NOTE 12 - 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.  They are  managed  separately



                                       38
<PAGE>

because each business requires  different  technology and marketing  strategies.
The Specialty  Products segment consists of three  specialties:  ethylene oxide,
propylene oxide and methyl chloride. The Encapsulated Products segment is in the
business of  encapsulating  performance  ingredients for use throughout the food
and animal health industries for processing,  mixing, packaging applications and
nutritional  fortification  and for  shelf-life  improvement.  The Company sells
products for both 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.
<TABLE>
<CAPTION>

Business Segment Net Sales:
- ---------------------------
                                                   2000         1999          1998
                                                --------     --------      --------
<S>                                             <C>          <C>           <C>
Specialty Products                              $ 20,113     $ 19,843      $ 19,434
Encapsulated Products                             13,085        9,839         9,287
                                                --------     --------      --------
Total                                           $ 33,198     $ 29,682      $ 28,721
                                                ========     ========      ========

<CAPTION>

Business Segment Earnings (Loss):
- ---------------------------------
                                                   2000         1999          1998
                                                --------     --------      --------
<S>                                             <C>          <C>           <C>
Specialty Products                              $  5,605     $  5,613      $  4,631
Encapsulated Products                                333         (600)          176
Interest expense and other income (expense)           58         (108)         (179)
                                                --------     --------      --------
Earnings before income taxes                    $  5,996     $  4,905      $  4,628
                                                ========     ========      ========


Depreciation/Amortization:
- --------------------------
<S>                                             <C>          <C>           <C>
Specialty Products                              $  1,666     $  1,706      $  1,412
Encapsulated Products                                349          322           242
                                                --------     --------      --------
Total                                           $  2,015     $  2,028      $  1,654
                                                ========     ========      ========

<CAPTION>
Business Segment Assets:
- ------------------------
                                                   2000         1999          1998
                                                --------     --------      --------
<S>                                             <C>          <C>           <C>
Specialty Products                              $ 11,679     $ 12,680      $ 13,651
Encapsulated Products                              7,442        6,527         6,524
Other Unallocated                                  4,101        2,823         2,473
                                                --------     --------      --------
Total                                           $ 23,222     $ 22,030      $ 22,648
                                                ========     ========      ========

</TABLE>


Other  unallocated  assets consist of cash,  prepaid  expenses,  deferred income
taxes and other  deferred  charges,  which the Company  does not allocate to its
individual business segments.

                                       39
<PAGE>
<TABLE>
<CAPTION>
Expenditures for Segment Assets:
- --------------------------------
                                               2000         1999          1998
                                             -------       -------       -------
<S>                                           <C>          <C>           <C>
Specialty Products                           $   516       $   256       $ 4,477
Encapsulated Products                            365           443         1,183
                                             -------       -------       -------
Total                                        $   881       $   699       $ 5,660
                                             =======       =======       =======

<CAPTION>

Geographic Revenue Information:
- ------------------------------
                                                2000          1999          1998
                                             -------       -------       -------
<S>                                          <C>           <C>           <C>
United States                                $30,187       $26,970       $25,833
Foreign Countries                              3,011         2,712         2,888
                                             -------       -------       -------
Total                                        $33,198       $29,682       $28,721
                                             =======       =======       =======
</TABLE>

The Company has no foreign operations.  Therefore,  all long-lived assets are in
the United  States and  revenue  from  foreign  countries  is based on  customer
ship-to address.


                                       40
<PAGE>

Note 13 - SUPPLEMENTAL CASH FLOW INFORMATION
- --------------------------------------------

Cash paid during the year for:
- ------------------------------

                                               2000          1999           1998
                                              ------        ------        ------
Income taxes                                  $2,281        $1,607        $1,578
Interest                                      $   47        $  174        $  197
                                              ------        ------        ------


Non-cash financing activities:
- ------------------------------

                                                2000          1999          1998
                                              ------        ------        ------
Dividends declared                            $  277        $  245        $  160
                                              ------        ------        ------



Supplementary Financial Information (unaudited):
(In thousands, except per share data)

<TABLE>
<CAPTION>
                                            2000                                         1999
                           ---------------------------------------     ----------------------------------------
                           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                  $7,751     $7,849     $8,450     $9,148     $7,047     $7,270     $7,229     $8,136
Gross profit                3,113      3,257      3,574      4,097      2,840      2,940      2,994      3,350
Earnings before
     income taxes           1,296      1,376      1,517      1,807      1,163      1,175      1,063      1,612

Net earnings                  809        847        984      1,089        750        755        661        928

Basic net earnings per
     common share          $  .17     $  .18     $  .21     $  .24     $  .15     $  .15     $  .14     $  .20
Diluted net earning
     per common share      $  .17     $  .18     $  .21     $  .23     $  .15     $  .15     $  .14     $  .19

</TABLE>

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

             Not applicable.

                                       41
<PAGE>
<TABLE>
<CAPTION>
                                                                                                           SCHEDULE II
                                                 BALCHEM CORPORATION
                                           Valuation and Qualifying Accounts
                                     Years Ended December 31, 2000, 1999 and 1998
                                                    (In thousands)

                                                                    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>
Allowance for doubtful accounts:
Year ended December 31, 2000                $  --            $  48            $--            $  --             $  48
Year ended December 31, 1999                   --               --             --               --                --
Year ended December 31, 1998                  187               --             --             (187)               --

</TABLE>
                                       42
<PAGE>
PART III

Item 10.    Directors and Executive Officers of the Registrant.

(a)         Directors of the Company.

            The required  information is to be set forth in the Company's  Proxy
Statement for the 2001 Annual Meeting of Stockholders  ("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 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 Proxy  Statement
under the caption "Section 16(a)  Beneficial  Ownership  Reporting  Compliance,"
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
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.

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

Item 13.    Certain Relationships and Related Transactions.

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

Item 14.    Exhibits and Reports on Form 8-K.

(a)         Exhibits:



                                       43
<PAGE>

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
            for the year ended December 31, 1999 (the "1999 10-K")).

3.2         Composite By-laws of the Company.

10.1        Incentive   Stock   Option   Plan  of  the   Company,   as  amended,
            (incorporated by reference to the Company's  Registration  Statement
            on Form S-8, File No. 33-35910, 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")).*

10.2        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.  33-35912,  dated October 25, 1996, and to the
            1998 Proxy Statement).*

10.3        Balchem  Corporation  1999 Stock Plan  (incorporated by reference to
            Exhibit A to Proxy  Statement dated April 23, 1999 for the Company's
            1999 Annual Meeting of Stockholders (the "1999 Proxy Statement")). *

10.4        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.  333-4448,  dated
            December 12, 1997).*

10.5        Employment  Agreement,  dated as of  January 1,  2001,  between  the
            Company and Dino A. Rossi. *


10.6        Agreements dated as of April 1, 1993,  January 1, 1995 and April 25,
            1997,  as amended,  between the Company and Dr.  Charles  McClelland
            (incorporated by reference to Exhibit 10.5 to the 1999 10-K).*


                                       44
<PAGE>
- ----------------------
            *  Each  of  the  Exhibits  noted  by an  asterisk  is a  management
            compensatory plan or arrangement.


21.         Subsidiaries of Registrant.

23.1        Consent of KPMG LLP, Independent Auditors

27.         Financial Data Schedule.

(b)         Reports on Form 8-K.

            No  reports on Form 8-K were  filed  during the last  quarter of the
year ended December 31, 2000.



                                       45
<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 28, 2001                              BALCHEM CORPORATION



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



                                       46
<PAGE>



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.

                                          By:/s/ Dino A. Rossi
                                          --------------------
                                          Dino A. Rossi, President,
                                          Chief Executive Officer, Principal
                                          Financial Officer and
                                          Director
                                          Date: March 28, 2001

                                          By:/s/ Francis J. Fitzpatrick
                                          ------------------------------
                                          Francis J. Fitzpatrick, Controller
                                          Date: March 28, 2001


                                          By:/s/ John E. Beebe
                                          ---------------------
                                          John E. Beebe, Director
                                          Date: March 28, 2001

                                          By:/s/ Francis X. McDermott
                                          ---------------------------
                                          Francis X. McDermott, Director
                                          Date: March 28, 2001


                                          By:/s/ Kenneth P. Mitchell
                                          --------------------------
                                          Kenneth P. Mitchell, Director
                                          Date: March 28, 2001


                                          By:/s/ Carl R. Pacifico
                                          -----------------------
                                          Carl R. Pacifico, Director
                                          Date: March 28, 2001


                                          By:/s/ Israel Sheinberg
                                          -----------------------
                                          Israel Sheinberg, Director
                                          Date: March 28, 2001


                                          By:/s/ Leonard J. Zweifler
                                          --------------------------
                                          Leonard J. Zweifler, Director
                                          Date: March 28, 2001



                                       47
<PAGE>
                                  EXHIBIT INDEX


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
            for the year ended December 31, 1999 (the "1999 10-K")).

3.2         Composite By-laws of the Company.

10.1        Incentive   Stock   Option   Plan  of  the   Company,   as  amended,
            (incorporated by reference to the Company's  Registration  Statement
            on Form S-8, File No. 33-35910, 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")).*

10.2        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.  33-35912,  dated October 25, 1996, and to the
            1998 Proxy Statement).*

10.3        Balchem  Corporation  1999 Stock Plan  (incorporated by reference to
            Exhibit A to Proxy  Statement dated April 23, 1999 for the Company's
            1999 Annual Meeting of Stockholders (the "1999 Proxy Statement")). *

10.4        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.  333-4448,  dated
            December 12, 1997).*

10.5        Employment  Agreement,  dated as of  January 1,  2001,  between  the
            Company and Dino A. Rossi. *

10.6        Agreements dated as of April 1, 1993,  January 1, 1995 and April 25,
            1997,  as amended,  between the Company and Dr.  Charles  McClelland
            (incorporated by reference to Exhibit 10.5 to the 1999 10-K).*

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

22.         Subsidiaries of Registrant.

23.2        Consent of KPMG LLP, Independent Auditors

28.         Financial Data Schedule.


                                       48
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.2
<SEQUENCE>2
<FILENAME>0002.txt
<TEXT>


                               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 the meeting, and upon payment to the corporation of such costs by

<PAGE>

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  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.

                                       2
<PAGE>
                        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 six (6),
effective  immediately  prior to election of  directors  at the Year 2001 annual
meeting of  shareholders,  and prior  thereto  shall be seven (7).  The Board of
Directors is divided into three classes,  Class 1, Class 2 and Class 3, who have
staggered three year terms. Class 1, effective  immediately prior to election of
directors at said Year 2001 annual meeting of shareholders, shall consist of one
director,  and prior thereto shall consist of two (2)  directors,  Class 2 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
<PAGE>


                        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.


                                       7
<PAGE>


                        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 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

                                       8
<PAGE>
the  corporation  in such  depositaries  as may be  designated  by the  Board of
Directors.


                        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


                                       10
<PAGE>
duly endorsed or  accompanied by proper  evidence of  succession,  assignment or
authority to 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

                                       12
<PAGE>
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.

                                    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.


                                       13
<PAGE>

                                  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.

                                   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.


                                       14
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.5
<SEQUENCE>3
<FILENAME>0003.txt
<TEXT>

                              EMPLOYMENT AGREEMENT

               Agreement,   dated  as  of  January  1,  2001,   between  BALCHEM
CORPORATION, a Maryland corporation ("Company") and DINO A. ROSSI ("Employee").

               In consideration  of the agreements  contained below, the parties
agree as follows:

               1.  Company  shall  employ  Employee as its  President  and Chief
Executive  Officer for a term (the "Term")  commencing as of the date hereof and
terminating   December  31,  2001,  provided  that  the  Term  shall  be  deemed
automatically  extended for  successive one (1) year periods (each an "Extension
Period")  ending on each  successive  anniversary  of December 31, 2001,  unless
either party hereto gives  written  notice to the other not less than sixty (60)
days prior to the end of such initial term or the then current  Extension Period
that the Term is to terminate effective as of the end of such initial term or of
such then current Extension Period, as the case may be, in all events subject to
earlier termination in accordance with the provisions of this Agreement.

               2.  Throughout  the Term,  the Board of Directors of Company (the
"Board")  shall,  consistent  with its  fiduciary  duty,  cause  Employee  to be
nominated (and recommended by the Board) for election as a director of Company.

               3.  During the Term,  Employee  shall  devote all of his  working
time,  attention  and effort to the  performance  of his duties for Company.  4.
During the Term,  Employee  shall  receive a salary at the rate of $194,700  per
annum, which salary may be increased,  at a minimum annually,  but not decreased
during the Term, at the instance of the Board.

               5. In addition to his annual salary as aforesaid,  Employee shall
be entitled to annual  discretionary  bonuses  based on a target figure of up to
100% (as  determined  by the Board or an  authorized  committee  thereof) of his
annual salary,  and consistent  with operating  and/or other  financial  targets
established by the Board or an authorized committee thereof, for each respective
fiscal year of Company during the Term.

               6.  Employee  shall be entitled to four weeks paid  vacation  per
calendar year or such greater  amount as may be provided  under  Company's  then
prevailing vacation policy as in effect from time to time. All vacation shall be
scheduled so as not to interfere with Company's operations.

               7.  Employee  shall  be  entitled  during  the Term to all of the
fringe  benefits  from  time  to  time  afforded  by  Company  generally  to its
executives, as well as:

                   (1) Use of a leased  company car (generally  consistent  with
that provided to comparable  executive  officers in Company's industry regarding
model, year and reimbursement for related expenses).

<PAGE>

                   (2) The sum of $2,500 per annum, to be applied by Employee to
the premium cost of term life insurance and disability insurance (in addition to
such group life  insurance  and  disability  insurance as may be made  available
generally to Company's executives) for the benefit of such person(s) as Employee
may designate from time to time.

               8.  In  the  event  Employee's   employment  with  Company  shall
terminate for any reason,  then, in addition to any entitlements under Section 9
or Section 10 hereof, if then applicable thereto,  Employee shall be entitled to
receive any accrued but unpaid  salary to the date of such  termination  and any
unpaid  annual  bonus  which  Employee  shall  have  earned  in  respect  of any
theretofore completed fiscal year of Company.

               9. In the event (x) Company  shall  terminate  the  employment of
Employee  under this  Agreement for any reason other than (i) "Cause" (as herein
defined), (ii) Employee's death, or (iii) by reason of notice from Employee that
Employee  intends  to  terminate  his  employment  with  Company,  whether  such
termination  by Company is pursuant to a notice given under Section 1 above,  or
whether such termination shall otherwise occur upon the expiration of, or at any
time during,  the Term, or (y) Executive  shall  terminate his  employment  with
Company  within  twelve (12) months after  Executive  shall have been demoted by
Company from his position as President and Chief Executive Officer of Company or
shall  otherwise  have  suffered  by reason  of  Company's  intentional  actions
regarding the terms and nature of his  employment  such a fundamental  change in
his  employment  with  Company  as  to  effectively  amount  to a  "constructive
termination"  of his  employment  with  Company (but shall not in fact have been
discharged from such employment):

                      (1) Company shall pay to Employee,  and Employee  shall be
entitled to receive as his sole and exclusive  remedy and compensation by reason
of or arising out of such  termination,  in addition to the amounts specified in
Section 8 hereof, an amount (the "Severance Amount") equal to 150% of Employee's
then current annual salary at the time of such termination. The Severance Amount
shall be due and payable to Employee in twelve (12) equal  monthly  installments
commencing  the  tenth  day of the  month  immediately  after  the month of such
termination.

                      (2) As of the  effective  date  of such  termination,  all
options to purchase shares of common stock of the Company theretofore granted to
Employee but not yet vested shall be deemed vested and  accordingly  immediately
exercisable  in  full  (to the  extent  not  theretofore  exercised)  and  shall
thereupon be exercisable in accordance with and so long as is provided under the
respective terms and conditions of such options.

               10.  (a) In the  event a  Change  of  Control  Event  (as  herein
defined) shall occur during the Term,  then, if Company (or any other  successor
thereto for which Employee shall  thereupon  become  employed)  shall  terminate
Employee's  employment  with Company (or such  successor) for any reason,  other
than (i) for Cause,  (ii)  Employee's  death,  or (iii) by reason of notice from
Employee of Employee's  intention to terminate his  employment  with Company (or
such successor),  in each case prior to the second anniversary of such Change of
Control  Event,  then Company  shall pay to Employee,  in lieu of the  Severance
Amount  provided  for in Section  9(a)  hereof,  but in  addition to the amounts
specified  in  Section  8 hereof  (and in any event  subject  to  Section  10(d)
hereof), an amount (the "Involuntary  Change of Control Amount"),  equal to 200%
of the sum of (x)  Employee's  then  current  annual  salary plus (y) the annual
bonus  earned by Employee  in respect of the fiscal year of Company  immediately


<PAGE>
prior to the fiscal  year in which such  Change of Control  Event  occurs.  Such
Involuntary Change of Control Amount shall be due and payable to Employee in one
lump sum within ninety (90) days after such termination.

                    (b) In the  event a Change of  Control  Event  shall  occur,
then,  if Employee  elects to  terminate  his  employment  with  Company (or the
successor  thereto for which Employee shall thereupon  become employed) prior to
the second  anniversary of such Change of Control Event,  then Company shall pay
to Employee (and in any event subject to Section 10(d)  hereof),  an amount (the
"Voluntary  Change of Control  Amount") equal to 100% of Employee's then current
annual salary.  Such Voluntary Change of Control Amount shall be due and payable
to Employee in 12 equal monthly installments  commencing on the tenth day of the
month immediately after the month in which the Change of Control Event occurs.

                    (c) For purposes of this Agreement:

                        (1) "Change of Control  Event" means the  occurrence  of
any of the following events during the Term:

                            (1) any  "person" or "group" (as such terms are used
in Sections 13(d) and 14(d) of the  Securities  Exchange Act of 1934, as amended
(the  "Exchange  Act"),  is or becomes  (including by merger,  consolidation  or
otherwise)  the  "beneficial  owner"  (as  defined  in  Rules  13d-3  and  13d-5
promulgated  under the Exchange Act,  directly or indirectly,  of 50% or more of
the voting power of the total outstanding Voting Stock of Company;

                            (2)  during  any  period of two  consecutive  years,
individuals who at the beginning of such period  constituted the Board (together
with any new directors  whose  election to the Board,  or whose  nomination  for
election by the  stockholders  of the Company,  was approved by a vote of 75% of
the directors then still in office who were either directors at the beginning of
such period or whose  election or  nomination  for  election was  previously  so
approved) cease to constitute a majority of the Board then in office; or
<PAGE>

                            (3) the sale or other disposition (other than by way
of merger or  consolidation) of all or substantially all of the capital stock or
assets of Company to any Person or group (as  defined in Rule 13d-5  promulgated
under the Exchange  Act) as an entirety or  substantially  as an entirety in one
transaction or a series of related transactions, unless the ultimate "beneficial
owners" of the Voting Stock of such Person  immediately  after giving  effect to
such transaction own, directly or indirectly,  more than 80% of the total voting
power of the total outstanding Voting Stock of Company immediately prior to such
transaction.

                        (i)   "Person"   means  any   individual,   corporation,
partnership, joint venture, limited liability company, trust, or other entity.

                        (2) "Voting Stock" of a person means capital stock of or
equity  interests  in such Person of the class or classes  pursuant to which the
holders  thereof have the general voting power under ordinary  circumstances  to
elect  at  least  a  majority  of the  board  of  directors,  managers,  general
partner(s)  or trustees of such  Person  (irrespective  of whether or not at the
time stock or equity interests of any other class or classes shall have or might
have voting power by reason of the happening of any contingency).
<PAGE>

                    (d)  Notwithstanding  anything  in  this  Agreement  to  the
contrary,  in no event will any amount which otherwise would be payable under or
pursuant to this  Agreement  be payable to  Employee to the extent such  amount,
together with all other amounts payable and benefits  provided to Employee under
or pursuant to this Agreement and/or under any other plan(s),  agreements and/or
arrangement(s)  arising out of Employee's  employment  relationship with Company
and/or  any  direct  or  indirect   subsidiary  of  Company  (including  without
limitation any such amounts  payable by any affiliate of Company or any acquirer
of any of the stock or assets of Company or any affiliate of such acquirer),  if
paid to  Employee,  would  result in  Employee  receiving  an "excess  parachute
payment" for purposes of Section 280G of the Internal  Revenue Code of 1986,  as
amended.  The  determination  of  whether a payment  under or  pursuant  to this
Agreement would result in Employee  receiving an excess  parachute  payment (but
for the  provisions of this Section  10(d)) shall be made by counsel for Company
reasonably  selected by Company,  after consultation with Company's  independent
auditor.

               11. (a) It is expressly  understood that,  solely for purposes of
this Section 11, in the event  Employee's  employment with Company is terminated
for Cause,  or by reason of notice from  Employee of his  intention to terminate
his employment  with Company,  or if Employee  terminates  his  employment  with
Company prior to the then  scheduled  last day of the Term (before giving effect
to such termination), then the Term shall be deemed to end on its then scheduled
last  day  (before  giving  effect  to any  such  termination  or  any  possible
subsequent  Extension Period). If, on the other hand,  Employee's  employment is
terminated by Company for any reason other than (i) for Cause, or (ii) by reason
of notice from  Employee of his  intention  to  terminate  his  employment  with
Company,  then, for purposes of this Section 11, the Term shall be deemed to end
on the effective date of such termination.

                   (b) During the Term (as determined  pursuant to Section 11(a)
above), and for one year thereafter, Employee, shall not:

                            (1) directly or  indirectly  own,  manage,  operate,
join,  control,  or  participate  in the ownership,  management,  operation,  or
control of, or make any financial  investment  in, or become  employed by, or be
connected in any manner with, or render  (whether or not for  compensation)  any
consulting,  advisory or other services to or for the benefit of, any Person, or
otherwise  engage in any  business or  activity,  which  directly or  indirectly
competes with any business  conducted by Company and or any of its subsidiaries;
provided,  however,  that it shall  not be a  violation  of this  Agreement  for
Employee to have beneficial  ownership of less than 1% of the outstanding amount
of any class of securities listed on a national securities exchange or quoted on
an inter-dealer quotation system;

                            (2) directly or indirectly  solicit,  in competition
with  Company  and/or  any of its  subsidiaries,  any  Person who is a client or
customer of any business conducted by Company and/or any of its subsidiaries; or

                            (3)  directly  or  indirectly  induce or  attempt to
induce any employee of Company and/or any of its  subsidiaries  to terminate his
or her employment for any purpose,  including,  without limitation,  in order to
enter into employment with any Person which competes with any business conducted
by Company and/or any of its subsidiaries.
<PAGE>

Notwithstanding the foregoing, it is understood and agreed that in the event any
entity shall acquire  control of Company or shall become a successor to Company,
the provisions of this Section 11(b) shall not apply to any business or activity
conducted by such entity or any of its subsidiaries  which is not  substantially
similar to any of the business(es) or activities conducted by any of Company and
its subsidiaries.

               12.  Employee  acknowledges  that in the course of his employment
with Company,  he will have acquired  information  concerning Company and/or its
subsidiaries which is not publicly  available,  including  non-public  financial
information and trade secrets ("Proprietary  Information").  At all times during
his  employment  and after his  employment  terminates,  Employee will keep such
Proprietary  Information  confidential and will not make use of such Proprietary
Information on his own behalf,  or on behalf of any Person,  without the express
prior  written  consent  from  Company  (which may be withheld  for any reason),
unless such  information  shall have become public knowledge other than by being
divulged or made accessible by him in breach of this provision or any obligation
or  fiduciary  duty to Company or any of its  subsidiaries;  provided  that such
confidentially  obligation shall not prohibit disclosure of information required
pursuant to governmental or judicial process or procedure.

               13. Employee acknowledges that as CEO and President of Company he
has been  placed in a position  of  confidence  and trust with the  clients  and
employees of Company,  and that, in connection with such services to Company, he
has had and will have access to confidential  information  vital to the business
of Company and/or one or more of its subsidiaries. Employee further acknowledges
that,  in view of the  nature  of the  business  in  which  Company  and/or  its
subsidiaries  is  engaged,  the  covenants  in  Sections  11 and 12  hereof  are
reasonable and necessary in order to protect the legitimate interests of Company
and that violation of any thereof would result in irreparable injury to Company.
Accordingly,  Employee  consents and agrees that, if he violates or threatens to
violate  any of such  provisions,  Company  shall be entitled to obtain from any
court  of  competent  jurisdiction,  without  the  posting  of any bond or other
security, preliminary and permanent injunctive relief, as well as damages and an
equitable  accounting of all earnings,  profits and other benefits  arising from
such  violation,  which rights shall be cumulative  and in addition to any other
rights or remedies in law or equity to which Company may be entitled.

               14. Employee acknowledges that: (i) the enforcement of any of the
provisions of any of Sections 11, 12 and 13 hereof (the "Restrictive Covenants")
against Employee would not impose any undue burden upon Employee;  and (ii) none
of the  Restrictive  Covenants  is  unreasonable  as to duration  or scope.  If,
notwithstanding the foregoing, any provision hereof would be held to be invalid,
prohibited  or  unenforceable  in any  jurisdiction  for any reason  (including,
without limitation, any provision which may be held unenforceable because of the
scope, duration or area of its applicability),  unless narrowed by construction,
such provision shall, as to such jurisdiction,  be construed as if such invalid,
prohibited or unenforceable  provision had been more narrowly drawn so as not to
be  invalid,  prohibited  or  unenforceable  (and  the  court  making  any  such
determination  as to any  provision  shall have the power to modify  such scope,
duration or area or all of them, and such provision  shall then be applicable in
such  modified  form  in  such  jurisdiction  only).  If,   notwithstanding  the
foregoing,  any  provision  hereof  would be held to be invalid,  prohibited  or
unenforceable  in any jurisdiction  for any reason,  such provision,  as to such
jurisdiction, shall be ineffective to the extent of such invalidity, prohibition
or  unenforceability,  without  invalidating  the  remaining  provisions of this
Agreement,  or affecting the validity or enforceability of such provision in any
other jurisdiction.
<PAGE>



               15. (a) Company shall be entitled to terminate the  employment of
Employee under this Agreement for Cause at any time during the Term.  "Cause" as
used herein shall mean the following:

                        (1) Habitual absence or lateness;

                        (2) Gross insubordination;

                        (3)  Failure to observe the  provisions  of Section 3 of
this Agreement concerning the devotion of full time to Company's business;

                        (4)  Failure  to comply  with any of the  provisions  of
Section 11 or 12 hereof;

                        (5) Any action  which  constitutes  a  violation  of any
applicable criminal statute; or

                        (6) Any act which  frustrates  or violates the undivided
duty of loyalty owed by Employee to Company.

                    (b)  Company   shall  also  be  entitled  to  terminate  the
employment of Employee under this Agreement for any reason other than for Cause,
in which case the  provisions  of  Section  8, and of  Section 9 or Section  10,
hereof shall, to the extent provided therein, be applicable.

                    (c) In the  event of a Change  of  Control  Event,  Employee
shall be entitled to terminate his  employment  with Company prior to the second
anniversary  of such Change of Control Event and in such event the provisions of
Section 8 and of Section 10 hereof shall, to the extent provided therein, apply.

                    (d) Upon any  termination  pursuant  to this  Section  15 of
Employee's employment with Company, the Term shall be deemed to end concurrently
with the  effectiveness  of such  termination,  except as otherwise  provided in
Section 11(a) hereof.

               16.  Employee may not assign or transfer this Agreement or any of
his rights, duties or obligations  hereunder.  Company may assign this Agreement
to any Person acquiring all or substantially all of Company's assets (by merger,
sale  of  assets  or  otherwise)  so  long  as  such  Person  assumes  Company's
obligations hereunder.

               17. This  Agreement  sets forth the entire  understanding  of the
parties, and supersedes any and all prior agreements,  oral or written, relating
to Employee's  employment by Company or the termination thereof.  This Agreement
may not be  modified  except  by a  writing,  signed by  Employee  and by a duly
authorized officer or director of Company.  This Agreement shall be binding upon
and shall inure to the benefit of Employee's heirs and personal representatives,
and the successors and assigns of Company.

               18. This  Agreement may be executed in more than one  counterpart
which, when taken together, shall constitute one complete, executed Agreement.
<PAGE>

                        Executed as of the day and year first above written.


                                                     BALCHEM CORPORATION


                                                     By: /s/ Kenneth Mitchell
                                                         --------------------
                                                         Kenneth Mitchell




                                                         /s/ Dino A. Rossi
                                                         ------------------
                                                         Dino A. Rossi

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>4
<FILENAME>0004.txt
<TEXT>


Exhibit 23.1

                          Independent Auditors' Consent

The Board of Directors and Stockholders
Balchem Corporation:


We consent to the incorporation by reference in the registration statements (No.
333-78355,  333-44489, 33-35912 and 33-35910) on Form S-8 of Balchem Corporation
of our report  dated  February  6, 2001,  relating to the  consolidated  balance
sheets of Balchem  Corporation and subsidiaries as of December 31, 2000 and 1999
and the related  consolidated  statements of earnings,  stockholders' equity and
cash flows for each of the years in the  three-year  period  ended  December 31,
2000,  which report  appears in the December 31, 2000 annual report on Form 10-K
of Balchem Corporation.


/s/ KPMG LLP
- ------------
KPMG LLP

Short Hills, New Jersey
March 28, 2001

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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