BCPC Balchem Corporation

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

In the opinion of management, the unaudited condensed consolidated financial statements furnished in this Form 10-Q include all adjustments necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. All such adjustments are of a normal recurring nature. The condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles governing interim financial statements and the instructions to Form 10-Q and Article 10 of Regulation S-X under the Securities Exchange Act of 1934 and therefore do not include some information and notes necessary to conform to annual reporting requirements. The results of operations for the nine months ended September 30, 2007 are not necessarily indicative of the operating results expected for the full year or any interim period.

STOCK-BASED COMPENSATION

On January 1, 2006, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 123 (revised 2004), "Share Based Payment" ("SFAS 123R"), which requires all share-based payments, including grants of stock options, to be recognized in the statement of earnings as an operating expense, based on their fair values. SFAS 123R establishes the accounting for transactions in which an entity pays for employee services in share-based payment transactions. SFAS 123R eliminates the ability to account for share-based compensation transactions using the intrinsic value method and requires companies to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The fair value of employee share options and similar instruments is estimated using option-pricing models that take into account the unique characteristics of those instruments. That cost is recognized over the period during which an employee is required to provide service in exchange for the award. The Company adopted SFAS 123R effective January 1, 2006, using the modified prospective transition method. Under this method, compensation cost is recognized for awards granted and for awards modified, repurchased or cancelled in the period after adoption. Compensation cost is also recognized for the unvested portion of awards granted prior to adoption over the remaining requisite service period. The Company's results for the three and nine months ended September 30, 2007 and 2006 reflected the following compensation cost as a result of adopting SFAS 123R and such

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

-------------------------------------------------------------------------------
 Three Months Three Months
 Ended Ended
 September 30, September 30,
 2007 2006
-------------------------------------------------------------------------------
Cost of sales $ 44 $ 27
Operating expenses 348 235
Net earnings (267) (206)
Basic earnings per common share (0.01) (0.01)
Diluted earnings per common share $ (0.01) $ (0.01)
-------------------------------------------------------------------------------

-------------------------------------------------------------------------------
 Nine Months Nine Months
 Ended Ended
 September 30, September 30,
 2007 2006
-------------------------------------------------------------------------------
Cost of sales $ 131 $ 81
Operating expenses 1,045 705
Net earnings (801) (665)
Basic earnings per common share (0.05) (0.04)
Diluted earnings per common share $ (0.04) $ (0.04)
-------------------------------------------------------------------------------

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

Additionally, since adoption of SFAS 123R, excess tax benefits related to stock compensation are presented as a cash inflow from financing activities. This change had the effect of decreasing cash flows from operating activities and increasing cash flows from financing activities by $83 and $584 for the three and nine months ended September 30, 2007, respectively, and by $-0- and $163 for the three and nine months ended September 30, 2006, respectively.

The Company's stock incentive plans allow for the granting of restricted stock awards and options to purchase common stock. Both incentive stock options and nonqualified stock options can be awarded under the plans. No option will be exercisable for longer than ten years after the date of grant. The Company has approved and reserved a number of shares to be issued upon exercise of the outstanding options that is adequate to cover all exercises. As of September 30, 2007, the plans had 720,153 shares available for future awards. Compensation expense for stock options and restricted stock awards is recognized on a straight-line basis over the vesting period, generally three years for stock options, four years for employee restricted stock awards, and seven years for non-employee director restricted stock awards. Certain awards provide for accelerated vesting if there is a change in control (as defined in the plans) or other qualifying events.

Option activity for the nine months ended September 30, 2007 and 2006 is summarized below:

----------------------------------------------------------------------------------------------------------
 Weighted
 Weighted Aggregate Average
 Average Intrinsic Remaining
For the nine months ended Exercise Value Contractual
September 30, 2007 Shares (000s) Price ($000s) Term
----------------------------------------------------------------------------------------------------------
Outstanding as of December 31, 2006 2,170 $ 10.13 $ 15,168
 Granted 10 18.00
 Exercised (160) 4.70
 Expired -- --
 Forfeited (13) 14.01
----------------------------------------------------------------------------------------------------------
Outstanding as of September 30, 2007 2,007 $ 10.58 $ 19,726 6.9
==========================================================================================================
Exercisable as of September 30, 2007 1,490 $ 8.70 $ 17,441 6.3
==========================================================================================================

----------------------------------------------------------------------------------------------------------
 Weighted
 Weighted Aggregate Average
 Average Intrinsic Remaining
For the nine months ended Exercise Value Contractual
September 30, 2006 Shares (000s) Price ($000s) Term
----------------------------------------------------------------------------------------------------------
Outstanding as of December 31, 2005 2,153 $ 8.38 $ 10,479
 Granted 15 15.06
 Exercised (64) 4.98
 Expired -- --
 Forfeited (21) 9.64
----------------------------------------------------------------------------------------------------------
Outstanding as of September 30, 2006 2,083 $ 8.53 $ 9,720 6.8
==========================================================================================================
Exercisable as of September 30, 2006 1,366 $ 7.02 $ 8,430 5.9
==========================================================================================================

The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted average assumptions: dividend yields of 0.3% and 0.4%; expected volatilities of 27% and 26%; risk-free interest rates of 4.2% and 3.8%; and expected lives of 3.7 and 4.5, in each case for the nine months ended September 30, 2007 and 2006, respectively.

The Company used a projected expected life for each award granted based on historical experience of employees' exercise behavior. Expected volatility is based on the Company's historical volatility levels. Dividend yields are based on the Company's historical dividend yields. Risk-free interest rates are based on the implied yields currently available on U.S. Treasury zero coupon issues with a remaining term equal to the expected life.

Other information pertaining to option activity during the three and nine months ended September 30, 2007 and 2006 was as follows:

------------------------------------------------------------------------------------------------------
 Three Months Ended Nine Months Ended
 September 30, September 30,
 2007 2006 2007 2006
------------------------------------------------------------------------------------------------------
Weighted-average fair value of options granted $ 6.44 $ N/A $ 6.44 $ 3.50
Total intrinsic value of stock options exercised $ 424 $ 89 $ 1,936 $ 613
------------------------------------------------------------------------------------------------------

Non-vested restricted stock activity for the nine months ended September 30, 2007 and 2006 is summarized below:

--------------------------------------------------------------------------------
 Weighted
 Average
 Grant
 Date Fair
Nine Months ended September 30, 2007 Shares (000s) Value
--------------------------------------------------------------------------------
Non-vested balance as of December 31, 2006 113 $ 16.40
Granted 5 18.61
Vested -- --
Forfeited -- --
Non-vested balance as of September 30, 2007 118 $ 16.49
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
 Weighted
 Average
 Grant
 Date Fair
Nine Months ended September 30, 2006 Shares (000s) Value
--------------------------------------------------------------------------------
Non-vested balance as of December 31, 2005 34 $ 13.22
Granted -- --
Vested -- --
Forfeited -- --
Non-vested balance as of September 30, 2006 34 $ 13.22
--------------------------------------------------------------------------------

As of September 30, 2007 and 2006, there was $2,946 and $1,625, respectively, of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the plans. As of September 30, 2007, the unrecognized compensation cost is expected to be recognized over a weighted-average period of 2 years. We estimate that share-based compensation expense for the year ended December 31, 2007 will be approximately $1,576.

STOCK SPLITS AND REPURCHASE OF COMMON STOCK

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

On December 15, 2005, the Board of Directors of the Company approved a three-for-two split of the Company's common stock to be effected in the form of a stock dividend to

shareholders of record on December 30, 2005. Such stock dividend was made on January 20, 2006. The stock split was recognized by reclassifying the par value of the additional shares resulting from the split, from additional paid-in capital to common stock.

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

In June 1999, the Board of Directors of the Company authorized the repurchase of shares of the Company's outstanding common stock over a two-year period commencing July 2, 1999. Under this program, which was subsequently extended, the Company had, as of December 31, 2004, repurchased a total 1,158,692 shares at an average cost of $2.74 per share, none of which remained in treasury at December 31, 2004. In June 2005, the board of directors authorized another extension of the stock repurchase program for up to an additional 1,350,000 shares, over and above those 1,158,692 shares previously repurchased under the program. Under this extension, a total of 149,175 shares were purchased at an average cost of $8.03 per share, none of which remained in treasury at September 30, 2007. During the nine months ended September 30, 2007, no additional shares have been purchased. The Company intends to acquire shares from time to time at prevailing market prices if and to the extent it deems it advisable to do so based on its assessment of corporate cash flow, market conditions and other factors.

Effective April 30, 2007, pursuant to an asset purchase agreement dated March 30, 2007 (the "Akzo Nobel Asset Purchase Agreement"), the Company, through its European subsidiary, Balchem B.V., completed an acquisition of the methylamines and choline chloride business and manufacturing facilities of Akzo Nobel Chemicals S.p.A., located in Marano Ticino, Italy (the "Akzo Nobel Acquisition") for a provisional purchase price including acquisition costs of $9,067, subject to adjustment based on actual working capital and other adjustments.

The Akzo Nobel Acquisition has been accounted for using the purchase method of accounting and the purchase price of the acquisition has been assigned to the net assets acquired based on the fair value of such assets at the date of acquisition. The preliminary allocation of the total purchase price, including acquisition costs, was based on the estimated fair values as of April 30, 2007. Adjustments to these estimates will be included in the allocation of the purchase price of the Akzo Nobel Acquisition upon settlement of any working capital or other adjustments. The preliminary purchase price has been allocated as follows:

--------------------------------------------------------------------------------
 Fair Value Recorded
 in Purchase Accounting
--------------------------------------------------------------------------------
Property plant & equipment $ 7,994
Short-term receivable 2,506
Inventories 4,323
Goodwill 990
Other 83
Accounts payable and accrued expenses (8,258)
--------------------------------------------------------------------------------
 Total $ 7,638
================================================================================

On March 16, 2007, the Company, through its wholly-owned subsidiary BCP Ingredients, Inc. ("BCP"), entered into an asset purchase agreement (the "Asset Purchase Agreement") with Chinook Global Limited ("Chinook"), a privately held Ontario corporation, pursuant to which BCP acquired certain of Chinook's choline chloride business assets (the "Chinook Acquisition") for a purchase price of approximately $29,000, plus the value of certain product inventories of approximately $1,840. The acquisition closed effective the same date.

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

-----------------------------------------------------
 Fair Value Recorded
 in Purchase Accounting
-----------------------------------------------------
Customer list $ 29,262
Inventory 1,840
Short-term receivable 1,850
Short-term obligation (870)
Other 73
-----------------------------------------------------
 Total $ 32,155
-----------------------------------------------------

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

Pro Forma Summary of Operations

The following unaudited pro forma information has been prepared as if the Chinook Acquisition had occurred on January 1, 2007 and does not include cost savings expected from the transaction. In addition to including the results of operations, the pro forma information gives effect primarily to changes in depreciation and amortization of tangible and intangible assets resulting from the acquisition.

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

--------------------------------------------------
 Pro Forma
 Nine Months Ended
 September 30,
 2007
--------------------------------------------------
Net sales $ 131,455
Net earnings 12,439
Basic EPS .70
Diluted EPS .67
==================================================

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

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

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

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

Pro Forma Summary of Operations

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

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

----------------------------------------------------------------
 Actual Pro Forma
 Nine Months Nine Months
 Ended Ended
 September 30, September 30,
 2007 2006
----------------------------------------------------------------
Net sales $ 122,468 $ 75,553
Net earnings 11,963 9,078
Basic EPS .67 .52
Diluted EPS .65 .50
================================================================

----------------------------------------------------------------
 September 30, December 31,
 2007 2006
----------------------------------------------------------------
Raw materials $ 6,380 $ 4,264
Work in progress 225 143
Finished goods 8,390 5,511
----------------------------------------------------------------
 Total inventories $ 14,995 $ 9,918
================================================================

-------------------------------------------------------------------
 September 30, December 31,
 2007 2006
-------------------------------------------------------------------
Land $ 1,234 $ 650
Building 12,316 11,640
Equipment 45,241 38,545
Construction in progress 5,371 1,247
-------------------------------------------------------------------
 64,162 52,082
Less: Accumulated depreciation 23,400 20,769
-------------------------------------------------------------------
 Net property, plant and equipment $ 40,762 $ 31,313
===================================================================

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

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

The Company had goodwill in the amount of $26,264 and $25,253 at September 30, 2007 and December 31, 2006, respectively, subject to the provisions of SFAS Nos. 141 and 142. For the nine months ended September 30, 2007, the increase in goodwill is primarily attributable to the cost in excess of net assets acquired from the Akzo Nobel Acquisition, as described in Note 3.

As of September 30, 2007 and December 31, 2006, the Company had identifiable intangible assets with finite lives with a gross carrying value of approximately $37,227 and $7,799, respectively, less accumulated amortization of $2,881 and $887, respectively. For the nine months ended September 30, 2007, the increase in the gross carrying amount is primarily attributable to the customer list acquired as part of the Chinook Acquisition, as described in Note 3.

Identifiable intangible assets with finite lives at September 30, 2007 and December 31, 2006 are summarized as follows:

-------------------------------------------------------------------------------------------------------
 Gross Gross
 Amortization Carrying Accumulated Carrying Accumulated
 Period Amount at Amortization Amount at Amortization
 (in years) 9/30/07 at 9/30/07 12/31/06 at 12/31/06
-------------------------------------------------------------------------------------------------------
Customer lists 10 $ 34,150 $ 2,325 $ 4,888 $ 497
Regulatory re-registration
costs 10 28 -- 28 --
Patents & trade secrets 15-17 1,616 289 1,550 221
Trademarks & trade names 17 880 134 876 94
Other 5 553 133 457 75
-------------------------------------------------------------------------------------------------------
 $ 37,227 $ 2,881 $ 7,799 $ 887
=======================================================================================================

Amortization of identifiable intangible assets was $1,994 for the first nine months of 2007. Assuming no change in the gross carrying value of identifiable intangible assets, the estimated amortization expense for the remainder of 2007 is $912, approximately $3,614 per annum for 2008 and 2009, $3,611 in 2010, $3,610 in 2011, and $3,573 in 2012. At September 30, 2007, there were no identifiable intangible assets with indefinite useful lives as defined by SFAS No. 142. Identifiable intangible assets are reflected in "Intangible assets with finite lives, net" in the Company's condensed consolidated balance sheets. There were no changes to the useful lives of intangible assets subject to amortization during the nine months ended September 30, 2007.

----------------------------------------------------------------------------------------------------------
 Net Earnings Number of Shares Per Share
 Three months ended September 30, 2007 (Numerator) (Denominator) Amount
----------------------------------------------------------------------------------------------------------
Basic EPS - Net earnings and weighted
average common shares outstanding $ 4,457 17,783,384 $.25

Effect of dilutive securities - stock options
and restricted stock 873,218
 ----------

Diluted EPS - Net earnings and weighted
average common shares outstanding and
effect of stock options and restricted stock $ 4,457 18,656,602 $.24
==========================================================================================================

----------------------------------------------------------------------------------------------------------
 Net Earnings Number of Shares Per Share
 Three months ended September 30, 2006 (Numerator) (Denominator) Amount
----------------------------------------------------------------------------------------------------------
Basic EPS - Net earnings and weighted
average common shares outstanding $ 3,151 17,445,075 $.18

Effect of dilutive securities - stock options
and restricted stock 778,478
 ----------

Diluted EPS - Net earnings and weighted
average common shares outstanding and
effect of stock options and restricted stock $ 3,151 18,223,553 $.17
==========================================================================================================

----------------------------------------------------------------------------------------------------------
 Net Earnings Number of Shares Per Share
 Nine months ended September 30, 2007 (Numerator) (Denominator) Amount
----------------------------------------------------------------------------------------------------------
Basic EPS - Net earnings and weighted
average common shares outstanding $ 11,963 17,744,182 $.67

Effect of dilutive securities - stock options
and restricted stock 799,362
 ----------

Diluted EPS - Net earnings and weighted
average common shares outstanding and
effect of stock options and restricted stock $ 11,963 18,543,544 $.65
==========================================================================================================

----------------------------------------------------------------------------------------------------------
 Net Earnings Number of Shares Per Share
 Nine months ended September 30, 2006 (Numerator) (Denominator) Amount
----------------------------------------------------------------------------------------------------------
Basic EPS - Net earnings and weighted
average common shares outstanding $ 9,064 17,421,466 $.52

Effect of dilutive securities - stock options
and restricted stock 811,707
 ----------

Diluted EPS - Net earnings and weighted
average common shares outstanding and
effect of stock options and restricted stock $ 9,064 18,233,173 $.50
==========================================================================================================

The Company had stock options covering 294,400 and 349,300 shares at September 30, 2007 and 2006, respectively, that could potentially dilute basic earnings per share in future periods that were not included in diluted earnings per share because their effect on the period presented was anti-dilutive.

Effective January 1, 2007, the Company adopted the provisions of Financial Accounting Standards Board ("FASB") Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48"). This interpretation, among other things, creates a two-step approach for evaluating uncertain tax positions. Recognition (step one) occurs when an enterprise concludes that a tax position, based solely on its technical merits, is more-likely-than-not to be sustained upon examination. Measurement (step two) determines the amount of benefit that more-likely-than-not will be realized upon settlement. De-recognition of a tax position that was previously recognized would occur when a company subsequently determines that a tax position no longer meets the more-likely-than-not threshold of being sustained. FIN 48 specifically prohibits the use of a valuation allowance as a substitute for de-recognition of tax positions, and it has expanded disclosure requirements. The adoption of FIN 48 resulted in, as a cumulative effect, a non-cash charge, net of federal tax benefits, of $291, recorded as a reduction to beginning retained earnings. The charge before federal tax benefits was $411. The Company includes interest expense or income as well as potential penalties on unrecognized tax positions as a component of income tax expense in the consolidated statement of operations. The total amount of accrued interest and penalties related to uncertain tax positions at January 1, 2007 was $89 and is included in other long-term obligations. All of our unrecognized tax benefits, if recognized in future periods, would impact the Company's effective tax rate. The Company remains open for examination by the IRS for 2003 through 2006. For most of its other significant tax jurisdictions (U.S. states), the Company's income tax returns are also open for examination for 2003 through 2006. There was not a significant change in our liabilities for unrecognized tax benefits during the nine months ended September 30, 2007.

The Company's reportable segments are strategic businesses that offer products and services to different markets. Presently, the Company has three segments:
specialty products, encapsulated / nutritional products and BCP Ingredients, its unencapsulated feed supplements segment.

---------------------------------------------------------------------------------------------------
 Three Months Ended Nine Months Ended
 September 30, September 30,
 2007 2006 2007 2006
---------------------------------------------------------------------------------------------------
Specialty Products $ 8,248 $ 7,966 $ 24,676 $ 23,927
Encapsulated/Nutritional Products 12,880 10,349 36,126 30,676
BCP Ingredients 29,370 6,807 61,666 20,216
---------------------------------------------------------------------------------------------------
Total $ 50,498 $ 25,122 $ 122,468 $ 74,819
===================================================================================================

---------------------------------------------------------------------------------------------------
 Three Months Ended Nine Months Ended
 September 30, September 30,
 2007 2006 2007 2006
---------------------------------------------------------------------------------------------------
Specialty Products $ 2,935 $ 2,863 $ 8,891 $ 8,400
Encapsulated/Nutritional Products 2,186 1,028 4,642 3,079
BCP Ingredients 2,072 1,090 5,791 2,841
Other expense (421) (3) (871) (84)
----------------------------------------------------------------------------------------------------
Earnings before income taxes $ 6,772 $ 4,978 $ 18,453 $ 14,236
===================================================================================================

The following table summarizes domestic (U.S.) and foreign sales for the three and nine months ended September 30, 2007 and September 30, 2006:

---------------------------------------------------------------------------------------------------
 Three Months Ended Nine Months Ended
 September 30, September 30,
 2007 2006 2007 2006
---------------------------------------------------------------------------------------------------
Domestic $ 31,958 $ 22,275 $ 87,433 $ 67,505
Foreign 18,540 2,847 35,035 7,314
---------------------------------------------------------------------------------------------------
Total $ 50,498 $ 25,122 $ 122,468 $ 74,819
===================================================================================================

----------------------------------------------------
 Nine months ended
 September 30,
 2007 2006
----------------------------------------------------
Income taxes $ 4,005 $ 3,896
Interest $ 1,074 $ 186
====================================================

Other supplemental non-cash transactions resulting from acquisitions are described in Notes 3 and 11.

On April 30, 2007, the Company, and its principal bank entered into a Loan Agreement (the "European Loan Agreement") providing for an unsecured term loan of $10,244 (the "European Term Loan"), the proceeds of which were used to fund the Akzo Nobel Acquisition (see Note 3) and initial working capital requirements. The European Term Loan is payable in equal monthly installments of principal, each equal to 1/84th of the principal of the European Term Loan, together with accrued interest, with remaining principal and interest payable at maturity. The European Term Loan has a maturity date of May 1, 2010 and is subject to a monthly interest rate equal to EURIBOR plus 1%. At

September 30, 2007, this interest rate was 5.41%. The European Loan Agreement also provides for a short-term revolving credit facility of (euro)2,000, translated to $2,854 as of September 30, 2007 (the "European Revolving Facility"). The European Revolving Facility is subject to a monthly interest rate equal to EURIBOR plus 1.25%, and accrued interest is payable monthly. The Company has drawn down the European Revolving Facility in full as of September 30, 2007. The European Revolving Facility has a maturity date of May 1, 2008. Management believes that such facility will be renewed in the normal course of business.

On March 16, 2007, the Company and its principal bank entered into a Loan Agreement (the "New Loan Agreement") providing for an unsecured term loan of $29,000 (the "New Term Loan"), the proceeds of which were used to fund the Chinook Acquisition (see Note 3). The New Term Loan is payable in equal monthly installments of principal, each equal to 1/60th of the principal of the New Term Loan, together with accrued interest, with remaining principal and interest payable at maturity. The New Term Loan has a maturity date of March 16, 2010 and is subject to a monthly interest rate equal to LIBOR plus 1%. At September 30, 2007, this interest rate was 6.75%. As of September 30, 2007, the Company has prepaid $2,500 of the New Term Loan. The New Loan Agreement also provides for a short-term revolving credit facility of $6,000 (the "New Revolving Facility"). The New Revolving Facility is subject to a monthly interest rate equal to LIBOR plus 1%, and accrued interest is payable monthly. No amounts have been drawn on the New Revolving Facility as of the date hereof. The New Revolving Facility has a maturity date of May 31, 2009. Management believes that such facility will be renewed in the normal course of business.

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

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

Net periodic benefit cost for such retirement medical plan for the nine months ended September 30, 2007 and September 30, 2006 was as follows:

--------------------------------------------------------------
 2007 2006
--------------------------------------------------------------
Service Cost $ 22 $ 21
Interest Cost 31 29
Expected return on plan assets -- --
Amortization of transition obligation -- --
Amortization of prior service cost (14) (14)
Amortization of (gain) or loss (2) (2)
--------------------------------------------------------------
Net periodic benefit cost $ 37 $ 34
==============================================================

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

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

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