<PAGE>   1

                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-QSB

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

For the quarterly period ended    March 31, 1999
                                  --------------

Commission file Number                1-4591
                                  --------------

                          FAIRMOUNT CHEMICAL CO., INC.
                          ----------------------------
             (Exact name of registrant as specified in its charter.)

          New Jersey                                             22-0900720
-------------------------------                               ----------------
(State of other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                               Identification No.)

                 117 Blanchard Street, Newark, NJ         07105
          -------------------------------------------------------
          (Address of principal executive offices)     (Zip Code)

Registrant's telephone number, including area code: (973)-344-5790
                                                    --------------

      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 |_|

      Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date:

      Common Stock, $1 Par Value - 8,292,866 shares as of April 1, 1999


<PAGE>   2

                                      INDEX

                                                                           PAGE

PART I         FINANCIAL INFORMATION

      Item 1.

               Statements of Operations
                        Three months March 31, 1999 and 1998               3

               Balance Sheets
                        March 31, 1999 and December 31, 1998               4

               Statement of Stockholders' Equity and Comprehensive
               Income for three months ended March 31, 1999 and
               1998                                                        5

               Statements of Cash Flows
                        Three months ended March 31, 1999 and 1998         6

               Notes to Financial Statements                               7-9

      Item 2.

               Management's Discussion and Analysis of
                        Financial Condition and Results of Operations      10-13

PART II        OTHER INFORMATION

      Item 1.  Legal Proceedings                                           14

      Item 6.  Exhibits and Reports on Form 8-K                            14


                                       2
<PAGE>   3

                          PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements

                          FAIRMOUNT CHEMICAL CO., INC.

                            Statements of Operations

               For The Three Months Ended March 31, 1999 and 1998
           (Dollar amounts rounded to hundreds, except per share data)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                      Three Months Ended

                                              March 31, 1999     March 31, 1998
                                              --------------     --------------
<S>                                            <C>                <C>         
Net sales                                      $  2,245,500       $  3,217,800

Cost of goods sold                                2,019,400          2,465,600
                                               ------------       ------------

Gross profit                                        226,100            752,200

Research & development                              100,300             85,000
Selling, general and
  administrative expense                            454,800            467,000
                                               ------------       ------------
        Operating income (loss)                    (329,000)           200,200

Interest expense                                     32,800             35,900
Insurance proceeds                                 (375,000)        (1,140,100)
Other (income) expense                              (28,100)           (16,300)
                                               ------------       ------------
Net income before income taxes                       41,300          1,320,700

Income taxes                                             --                 --
                                               ------------       ------------
      Net earnings                             $     41,300       $  1,320,700
                                               ============       ============
Earnings per share
     Basic                                     $         --       $        .16
                                               ============       ============
     Diluted                                   $         --       $        .10
                                               ============       ============
Common shares and equivalents
  outstanding

     Basic                                        8,292,866          8,292,866
                                               ============       ============
     Diluted                                     14,232,026         13,692,900
                                               ============       ============
</TABLE>

                 See Accompanying Notes to Financial Statements.


                                       3
<PAGE>   4

                          FAIRMOUNT CHEMICAL CO., INC.

                                 Balance Sheets
                      (Dollar amounts rounded to hundreds)

<TABLE>
<CAPTION>
                                                        March 31, 1999  December 31, 1998
                                                        --------------  -----------------
                                                         (Unaudited)
<S>                                                      <C>               <C>         
Assets
   Current Assets:
       Cash                                              $  2,391,400      $  2,422,700
       Accounts receivable-trade                            1,812,600         1,881,400
       Inventories                                          2,457,500         1,941,900
       Prepaid expenses                                       156,000           186,800
       Other current assets                                    47,300            19,100
                                                         ------------      ------------
          Total Current Assets                              6,864,800         6,451,900
                                                                         
Property, plant and equipment                                            
    less accumulated depreciation of                                     
    $4,779,400 and $4,599,400 as of March                                
    31, 1999 and 1998, respectively                         4,058,200         4,185,900
Other assets                                                      700               700
                                                         ------------      ------------
Total Assets                                             $ 10,923,700      $ 10,638,500
                                                         ============      ============
Liabilities and Stockholders' Equity                                     
    Current Liabilities:                                                 
        Accounts payable                                 $    861,900      $    508,500
        Accrued compensation                                   52,700           115,700
        Pension liability                                     185,900           145,300
        Other accrued liabilities                              82,000           156,400
        Short-term bank borrowings                             21,200            33,900
                                                         ------------      ------------
             Total Current Liabilities                      1,203,700           959,800
                                                                         
     Promissory notes to affiliated parties                 1,571,600         1,571,600
     Pension liability                                        409,000           409,000
                                                                         
Stockholders' Equity                                                     
   Preferred stock, par and liquidation value $1 per                     
     share authorized - 10,000,000 shares; 5,400,000    
     shares issued and outstanding                          5,400,000         5,400,000
   Common stock, par value $1 per share                                  
     authorized - 15,000,000 shares; 8,293,366 shares                    
     issued and outstanding in 1999 and 1998                8,293,400         8,293,400
   Less:  Treasury stock (at cost) - 500 shares                  (500)             (500)
   Capital in excess of par value                           7,316,000         7,316,000
   Accumulated deficit                                    (12,967,900)      (13,009,200)
   Additional minimum pension liability                      (301,600)         (301,600)
                                                         ------------      ------------
         Total Stockholders' Equity                         7,739,400         7,698,100
                                                         ------------      ------------
Total Liabilities and Stockholders' Equity               $ 10,923,700      $ 10,638,500
                                                         ============      ============
</TABLE>

                 See accompanying Notes to Financial Statements.


                                       4
<PAGE>   5

                          FAIRMOUNT CHEMICAL CO., INC.

                  Statement of Changes in Stockholders' Equity
                                       and
                              Comprehensive Income
                 For Three Months Ended March 31, 1999 and 1998

                      (Dollar amounts rounded to hundreds)

<TABLE>
<CAPTION>
                                                    1999                           1998
                                          ------------------------    -------------------------------
                                                     Comprehensive                      Comprehensive
                                                            Income                             Income
                                                            ------                             ------
<S>                                      <C>               <C>           <C>               <C>       
Preferred stock:
     Balance at March 31,                $ 5,400,000                     $ 5,400,000                 
           (5,400,000 shares)                                                            
                                                                                         
Common stock:                                                                            
      Balance at March 31                  8,293,400                       8,293,400                 
           (8,293,366 shares)                                                            
                                                                                         
Capital in excess of par value:            7,316,000                       7,316,000                 
     Balance at March 31,                                                                
                                                                                         
Accumulated deficit:                                                                     
     Balance at January 1                (13,009,200)                    (14,866,200)                
     Net income                               41,300        41,300         1,320,700        1,320,000
                                         -----------                     -----------
     Balance at March 31,                (12,967,900)                    (13,545,500)                
                                                                                         
Accumulated other comprehensive                                                          
     loss:                                                                               
           Balance at January 1             (301,600)                       (297,500)                
           Additional minimum pension                                                    
           liability                              --            --                --               --
                                                           -------                         ----------
           Comprehensive income                            $41,300                         $1,320,000
                                                           =======                         ==========
                                         -----------                     -----------
Balance at March 31                         (301,600)                       (297,500)                
                                                                                         
Treasury stock:                                                                          
     Balance at March 31,                       (500)                           (500)                
           (500 shares)                                                                  
                                         -----------                     -----------
Total Stockholders' Equity               $ 7,739,400                     $ 7,165,900                 
                                         ===========                     ===========
</TABLE>

                 See accompanying notes to financial statements.


                                       5
<PAGE>   6

                          FAIRMOUNT CHEMICAL CO., INC.

                            Statements of Cash Flows

               For The Three Months Ended March 31, 1999 and 1998
                      (Dollar amounts rounded to hundreds)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                          1999           1998
                                                      -----------    -----------
<S>                                                   <C>            <C>        
Cash Flow from Operating Activities:
   Net earnings                                       $    41,300    $ 1,320,700
   Adjustments to reconcile net earnings to
        net cash (used in) provided by operating
        activities:
             Depreciation                                 180,000        180,000
             Insurance proceeds, net                     (375,000)    (1,140,100)

   Increase (decrease) from changes in:
        Accounts receivable-trade                          68,800        (28,500)
        Inventories                                      (515,600)      (462,300)
        Prepaid expenses                                   30,800         (7,500)
        Other assets                                      (28,200)         5,600
        Accounts payable                                  353,400        345,800
        Accrued compensation                              (63,000)        39,500
        Other liabilities                                 (33,800)        66,800
                                                      -----------    -----------
               Cash Flow (Used in) Provided by
                 Operating Activities                    (341,300)       320,000

Cash Flow Provided by Investing Activities:
   Capital expenditures                                   (52,300)       (29,000)
    Insurance proceeds, net                               375,000      1,140,100
                                                      -----------    -----------
          Net Cash Provided by Investing Activities       322,700      1,111,100

Cash Flow Used in Financing Activities:
   Bank (repayment) borrowings                            (12,700)      (212,700)
                                                      -----------    -----------
          Cash Flow Used in by Financing Activities       (12,700)      (212.700)
                                                      -----------    -----------
(Decrease)/Increase in Cash                               (31,300)     1,218,400

Cash at Beginning of Period                             2,422,700        711,800
                                                      -----------    -----------

Cash at End of Period                                 $ 2,391,400    $ 1,930,200
                                                      ===========    ===========
Supplemental Disclosure of Cash Flow Information:

Interest paid                                         $    32,800    $   129,200
                                                      ===========    ===========
Income taxes paid                                     $        --    $        --
                                                      ===========    ===========
</TABLE>

                 See accompanying Notes to Financial Statements


                                       6
<PAGE>   7

                          FAIRMOUNT CHEMICAL CO., INC.
                          NOTES TO FINANCIAL STATEMENTS
                                  March 31,1999

Note 1. Summary of Significant Accounting Policies

ORGANIZATION

      The accompanying financial statements, which should be read in conjunction
with the financial statements of Fairmount Chemical Co., Inc. (the "Company")
included in the 1998 Annual Report filed on Form 10-KSB, are unaudited but have
been prepared in the ordinary course of business for the purpose of providing
information with respect to the interim period. The Company believes that all
adjustments (none of which were other than normal recurring accruals) necessary
for a fair presentation for such periods have been included. The Company's
interim results of operations are not necessarily indicative of what may be
expected for the full year.

RECLASSIFICATIONS

      Certain prior year amounts have been reclassified to conform with the 1999
presentation.

REVENUE

      Revenue is recognized on the date of invoice to a customer and invoices
are prepared on or after the date of shipment. The Company's terms are FOB
shipping point and accordingly title for goods pass to the customer when product
is shipped. Sales are generally final, without a right of return. If the product
does not meet specifications, the Company may accept returns.

INCOME TAXES

      The Company accounts for income taxes in accordance with the asset and
liability method. 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.

      No provisions for income taxes have been recorded by the Company as a
result of net operating losses utilized. A valuation allowance has been recorded
at March 31, 1999 and 1998 for that portion of deferred tax assets which are not
presently considered more likely than not to be realized.

FINANCIAL STATEMENTS

      The statements of operations for the three months ended March 31, 1999 and
1998, the statements of cash flows for the three months ended March 31, 1999 and
1998, and the balance sheet as of March 31, 1999 are unaudited. The balance
sheet as of December 31, 1998 is audited.


                                       7
<PAGE>   8

Notes to Financial Statements (Continued)

Note 2. Earnings Per Share

      Basic earnings per share are based on the net earnings/(loss) of the
Company since there were no preferred dividends paid in the periods ending March
31, 1999 and 1998. Diluted earnings per share is calculated by dividing the net
earnings of the Company by the weighted average number of shares outstanding
adjusted for dilutive common share equivalents including preferred stock and
shares granted under stock option arrangements. As of March 31, 1999 and 1998,
1,072,500 stock options were outstanding, 72,500 with an exercise price of $1.00
per share 1,000,000 with an exercise price of $.11 per share.

Note 3. Long Term Promissory Notes to Affiliated Parties

      All promissory notes have similar terms and conditions. Interest payable
from January 1, 1998 through December 31, 1998 is at the rate of 7% per annum.
Interest payable thereafter commencing with 1999, is at the corporate base rate
posted by Citibank, N. A. (or its successor) on the last banking day of the
previous calendar year. All of the promissory notes are subordinated to the
Company's line of credit financing with Summit Bank and are collateralized by
security agreements on the Company's accounts receivable, inventories and
personal property. All promissory notes are due January 1, 2005. Interest paid
on long-term debt to affiliated parties during the three months ended March 31,
1999 was $28,400 and $27,500 during the three months ended March 31, 1998.

<TABLE>
<CAPTION>
        Promissory Notes:
                 <S>                                             <C>        
                 Leistner Trust                                  $   491,600
                 Leistner Trust                                  $   648,000
                 da Mota Family Partnership                      $   224,600
                 Glen da Mota                                    $   142,500
                 Lynn da Mota                                    $    64,800
                                                                 -----------
                                                                 $ 1,571,600
                                                                 ===========
</TABLE>

Note 4. Bank Borrowings

      The Company has a $1,250,000 line of credit from Summit Bank. The line of
credit is comprised of two separate available balances. There is $750,000
available for working capital purposes and $500,000 available to finance capital
expenditures. Interest on the borrowings is at the bank's prime rate plus 1%.
Borrowings and repayments under the working capital line of credit are handled
on a revolving credit basis. Borrowings against the capital expenditure line of
credit are treated as a three-year note. The line of credit is subject to an
annual review for renewal. The bank has been given a first security interest in
the accounts receivable, inventories and personal property of the Company. The
line of credit was renewed during the second quarter of 1998 and is due for
renewal during the second quarter of 1999. Management is not aware of any
matters that would prevent the renewal of the Company's line of credit.


                                       8
<PAGE>   9

Notes to Financial Statements (Continued)

Note 5.  Inventories

         Inventories at March 31, 1999 and December 31, 1998 consisted of the
following:

<TABLE>
<CAPTION>
                                                 March 31, 1999    December 31, 1998
                                                 --------------    -----------------
            <S>                                    <C>                <C>       
            Finished goods                         $2,190,800         $1,715,700
            Raw materials                             266,700            226,200
                                                   ----------         ----------
                                                   $2,457,500         $1,941,900
                                                   ==========         ==========
</TABLE>

Note 6. Contingencies

      The Company has received notice from the New Jersey Department of
Environmental Protection ("NJDEP") that the NJDEP is investigating whether any
material from the Company has caused or contributed to the contamination
detected at the Ciuba landfill property in Newark. The NJDEP alleges that there
is a possibility that during the 1970's the Company disposed of waste generated
at the Company's facility through contracts with certain garbage removal
companies located at the Ciuba landfill. The Company has also received notice
from the United States Environmental Protection Agency ("USEPA") that the USEPA
has information indicating that hazardous substances from the Company may have
been discharged into the Passaic River. It is the Company's understanding that
these allegations by the EPA are related to historical rather than present
events. The Company has taken the position that its material neither caused nor
contributed to the contamination of the Passaic River and that it has not
discharged hazardous substances into the Passaic River. In both cases, it is
possible that potentially responsible parties will bring claims against the
Company alleging that it is at least partially responsible for the
contamination. To date, no litigation has commenced with respect to these
matters.

      It is the Company's policy to accrue and charge against earnings,
environmental cleanup costs when it is probable that a liability has been
incurred and an amount is reasonably estimable. These accruals are reviewed
periodically and adjusted, if necessary, as additional information becomes
available. These accruals can change substantially due to such factors as
additional information on the nature or extent of the contamination, methods of
remediation required and other actions by government agencies or private
parties. Cash expenditures often lag behind the period in which an accrual is
recorded by a number of years. The Company has not accrued costs associated with
the above two matters, because the amounts can not be reasonably estimated.

      Management does not believe that the resolution of such matters will have
a material adverse affect on the financial position of the Company but could be
material to the results of operations of the Company in any one accounting
period.

      A bodily injury claim was filed against the Company on December 2, 1998 in
the Superior Court of New Jersey Law Division, Hudson County. The plaintiff
alleges that on March 25, 1997, the date of an explosion at the Company's plant,
the force of the explosion threw him backward and resulted in injuries. The
plaintiff was an invitee upon the adjoining property to the Company. The Company
has not received details as to the extent of the injuries or for the dollar
value of the claim.

      The Company is subject to various claims, and other routine litigation
arising in the normal course of its business. Management believes that the
resolution of such matters will not have a material adverse affect on the
financial position of the Company but could be material to the results of
operations of the Company in any one accounting period.


                                       9
<PAGE>   10

                          FAIRMOUNT CHEMICAL CO., INC.

Item 2.                   MANAGEMENT'S DISCUSSION AND
                       ANALYSIS OF FINANCIAL CONDITION AND
                              RESULTS OF OPERATIONS
                                 March 31, 1999

Liquidity and Capital Resources

      To meet its liquidity requirements, including its capital program, the
Company accesses funds generated from operations, its available cash balances
and its bank line of credit with Summit Bank in Hackensack, New Jersey. The line
of credit was renewed during the second quarter of 1998 and is due for renewal
during the second quarter of 1999. Management is not aware of any matters that
would prevent the renewal of the Company's line of credit.

      The Company's working capital increased by $169,000 during the first three
months of 1999. The increase during the first quarter of 1999 was due in part to
net earnings, including a payment of $375,000 received from the Company's
property insurance carrier as final settlement for property damages sustained
from a dryer explosion during March, 1997. In addition, contributing to the
increase in working capital was higher inventories of $515,600, lower accrued
compensation of $63,000 and lower other liabilities of $33,800. The increase in
working capital was partially offset by lower accounts receivable of $68,800,
and higher accounts payable of $353,400.

      The inventory was higher as of March 31, 1999 as compared to December 31,
1998 due to (a) increased purchases of raw materials and production in
anticipation of sales that did not materialize, (b) scheduled shipments being
delayed at the request of customers and (c) production of inventory for
shipments scheduled for the second half of the 1999. (See Result of Operations)
Accrued compensation decreased because the amounts accrued was paid during the
first quarter of 1999. Other liabilities decreased due to the payment of items
that were accrued as of December 31, 1998.

Year 2000 Compliance

      Historically, certain computer programs have been written using two digits
rather than four digits to define the applicable year, which could result in
computers recognizing a date using "00" as the year 1900 rather than the year
2000. This could result in major system failures or miscalculations, and is
generally referred to as the "Year 2000" problem or issue and could have a
materially adverse impact on Fairmount's operations.

      Fairmount has reviewed its information technology systems to identify any
system that could be affected by the "Year 2000" issue and has developed a plan
to resolve the issue. Fairmount completed its computer conversions and
modifications and is operating with a Year 2000 compliant system as of January
1, 1999. Therefore, Fairmount presently expects the Year 2000 problem will not
pose significant operational problems for Fairmount's information technology
systems. Additionally, Fairmount has reviewed its non-information technology
systems and does not expect Year 2000 related problems from such systems.

      Fairmount is also exposed to risk to the extent that suppliers of
products, materials and services purchased by the company and others with whom
Fairmount transacts business do not comply with Year 2000 requirements. Although
this risk is lessened with respect to suppliers by the availability of
alternative suppliers, the disruption of certain services, such as utilities,
could, 


                                       10
<PAGE>   11

depending upon the extent of the disruption, potentially have a material adverse
impact on Fairmount's operations. As part of its Year 2000 plan, Fairmount is
communicating directly with its significant suppliers, service providers,
vendors, customers and government entities that are believed to be critical to
business operations to determine their Year 2000 capability. Fairmount is
currently in the process of evaluating responses and is sending follow-up
requests to those who have not responded.

      Due to the general uncertainty inherent in the Year 2000 problem,
Fairmount is unable to determine at this time whether the consequences of Year
2000 problems will have a material adverse effect on Fairmount. Fairmount will
continue to monitor its Year 2000 situation, and Fairmount will develop
contingency plans if it appears that Fairmount or its suppliers will not be Year
2000 compliant and that such non-compliance could have a material adverse impact
on Fairmount's operations. These contingency plans will include identification,
acquisition and/or preparation of backup systems and suppliers.

      Fairmount estimates that its total cost of its Year 2000 initiative will
be approximately $75,000, of which approximately $66,000 has been incurred
through March 31, 1999.

Results of Operations

      Net sales for the first three months 1999 were $2,245,500, a decrease of
$972,300 or 30.2 % as compared to 1998.

<TABLE>
<CAPTION>
                                                               Three Months Ended March 31,
                                                      1999               1998              Change
                                                   ----------         ----------         ---------
           <S>                                     <C>                <C>                <C>       
           Imaging & photographic
              chemicals                            $  236,100         $  920,100         $(684,000)
           Hydrazine blends                           594,800            562,500            32,300
           Hydrazine derivatives                      107,200            320,000          (212,800)
           Plastic additives                          790,700            872,500           (81,800)
           Specialty chemicals                        516,700            542,700           (26,000)
                                                   ----------         ----------         ---------
                          Total                    $2,245,500         $3,217,800         $(972,300)
                                                   ==========         ==========         =========
</TABLE>

      The decrease in imaging chemical sales was due in part to delayed
shipments from the first quarter to the second and third quarter of 1999.
Fairmount had anticipated a decrease in sales during the first half of 1999,
however, the decrease of $684,000 during the first quarter was much greater than
anticipated. This increased the inventory level by approximately $100,000
compared to December 31, 1999.

      The demand for certain types of chemicals used in photographic films is
expected to decrease during the coming years as consumer demand changes due to
new imaging technologies. Fairmount is taking steps to substitute new products
and increase its market share of other existing products.

      The hydrazine derivative sales decrease was due to the softening in that
market and customers consolidating and reducing their inventories. One of
Fairmount's major hydrazine derivative customers has moved the production of
their products to other plants around the world and Fairmount anticipates that
it will no longer sell the volume of product to this customer as it has done in
the past. However, Fairmount believes that its hydrazine derivatives business
will return to its anticipated level, and that it has not lost market share.


                                       11
<PAGE>   12

      Due to a change to a more cost efficient process for making the plastic
additives, Fairmount experienced a slower production rate than anticipated in
the first quarter. The process change resulted in higher than normal
reprocessing and an increase of raw materials, intermediates and finished
product in inventory of approximately $110,000 for plastic additives as compared
to December 31, 1998. However, Fairmount expects that any sales short fall in
the first half of 1999 will be made up during the second half of 1999.

      As in prior years, lower prices and volume for plastic additives due to
competitive pressures from foreign competitors contributed to decreases in
sales. Fairmount expects that the downward pressure on plastic additive prices
will continue.

      In the first quarter of 1999, a specialty chemical customer required a
re-qualification of one of Fairmount's products as part of their
re-certification program. Raw material was purchased, and the product was
produced in the first quarter of 1999; however the anticipated sale was
postponed to the second quarter of 1999. This resulted in an increase in raw
material and finished goods in inventory of approximately $300,000 for specialty
chemicals compared to December 31, 1998

      Each class of similar products contributed the following percentage of
total sales in each of the following two quarters:

<TABLE>
<CAPTION>
                                                 Three Months Ended March 31,
                                                         1999        1998
                                                         ----        ----
         <S>                                              <C>         <C> 
         Imaging & photographic chemicals                  11%         29%
         Hydrazine blends                                  26%         17%
         Hydrazine derivatives                              5%         10%
         Plastic additives                                 35%         27%
         Specialty chemicals                               23%         17%
                                                         ----        ----
                                                          100%        100%
                                                         ====        ====
</TABLE>

      The gross profit for the first three months of 1999 was $226,100, a
decrease of $526,100 or 70 % compared to 1998. As a percent of sales the gross
margin during the first three months of 1999 was 10 % compared to 23 % during
1998. The decrease in gross profit was in part due to the decrease in sales of
imaging chemicals, which traditionally have higher gross margins than the
Company's other product lines. In addition to lower sales volume, lower
production and reprocessing also had a negative impact on gross profit.

      Research and development expenses increased by $15,300 in the first
quarter of 1999 compared to the same period in 1998. The increase was primarily
due to increased salaries, insurance and utilities expenses.

      Selling, general and administrative expenses decreased by $12,200 in the
first quarter of 1999 compare to the same period in 1998. Selling expenses
increased $10,400, and general and administrative expenses decreased by $22,600.

      Operating loss was $329,000 in the first three months of 1999 compared to
operating income of $220,200 in 1998. The change in operating income was due to
the above mentioned changes.

      Interest expense was lower in the first three months of 1999 versus 1998
due to a decrease in borrowings through the bank line of credit for working
capital purposes. The increase was somewhat offset by an increase of 3/4 % in
the interest rate on the remaining debt owed to affiliated parties per the new
promissory note agreements.


                                       12
<PAGE>   13

      During 1999, Fairmount received gross insurance proceeds of $375,000,
compared to $1,140,100 in 1998, for the property losses sustained from the March
25, 1997 explosion. Part of these proceeds were used to repair damage to
adjacent buildings

      No provisions for income taxes have been recorded by the Company as a
result of net operating losses utilized. A valuation allowance has been recorded
at March 31, 1999 and 1998 for that portion of deferred tax assets, which are
not presently considered more likely than not to be realized.

Forward Looking Statements

      This report contains and incorporates by reference forward-looking
statements within the meaning of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. These include statements regarding the
present intent, belief and expectations of Fairmount's management. All
statements that address expectations or projections about the future, including
statements about Fairmount's strategy for growth, product development, market
position, expected expenditures and financial results, are forward-looking
statements. Some of the forward-looking statements may be identified by words
like "expects," "anticipates," "plans," "believes," "intends," "projects,"
"indicates," and similar expressions. These statements are not guarantees of
future performance and involve a number of risks, uncertainties and assumptions.
Many factors could cause results to differ materially from those stated. These
factors include, but are not limited to, changes in the laws, regulations,
policies and economic conditions; competitive pressures; failure of Fairmount or
related third parties to become Year 2000 capable; research and development of
new products, including any required regulatory approval and market acceptance.
These risks and uncertainties include, but are not limited to, the ability of
Fairmount to maintain existing relationships with customers, the ability of
Fairmount to successfully implement productivity improvements, cost reduction
initiatives, facilities expansion, the risk of loss of executive officers and
other key employees, and the ability of Fairmount to develop, market and sell
new products and to continue to comply with environmental laws, rules and
regulations. In accordance with the provisions of the Private Securities
Litigation Reform Act of 1995, Fairmount is making investors aware that such
forward-looking statements, because they relate to future events, are by their
very nature only predictions and that actual events or results may differ
materially. In evaluating such statements, you should specifically consider the
various factors that could cause actual events or results to differ materially
from those indicated by the forward-looking statements.


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<PAGE>   14

                           PART II - OTHER INFORMATION

Item 1. Legal Proceedings

      During the quarter ended March 31, 1999, there have been no material
changes in the potential claims reported by the Company in its Annual Report on
Form 10-KSB in "Item 1. Business - Environmental Laws and Government
Regulations".

Item 6. Exhibits and Reports on Form 8-K

      (a)   Exhibits

            27    Financial Data Schedule

      (b)   No reports have been filed on Form 8-K during the quarter ended
            March 31, 1999.


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<PAGE>   15

                          FAIRMOUNT CHEMICAL CO., INC.

                                    SIGNATURE

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


                                             FAIRMOUNT CHEMICAL CO., INC.
                                             ----------------------------
                                                     Registrant


May 13, 1998                                         /s/ Reidar Halle
------------                                         ----------------
Date                                                 Reidar T. Halle
                                                     Chief Executive Officer &
                                                     President


May 13, 1999                                         /s/ William C. Kaltnecker
------------                                         -------------------------
Date                                                 William C. Kaltnecker
                                                     Controller


                                       15