UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington D.C. 20549
                                    ---------
                                   FORM 10-KSB

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

For the fiscal year ended June 30, 1998        Commission File Number 000-28876
                          -------------                              ---------

                            CHEM INTERNATIONAL, INC.
            (Exact name of small business registrant in its charter)
               Delaware                                     13-3035216
            (State or other jurisdiction of              (I.R.S. Employer
            incorporation or organization)              Identification No.)

            201 Route 22, Hillside, New Jersey                 07205
            ----------------------------------                 -----
            (Address of principal executive offices)        (Zip code)

Registrant's telephone number: (973) 926-0816

Securities registered under Section 12(b) of the Exchange Act:  None.

Securities registered under Section 12(g) of the Exchange Act:

                     Common Stock $.002 par value per share
                Class A Redeemable Common Stock Purchase Warrants
                              (Title of Each 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  and  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 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-KSB or any  amendment to
this Form 10-KSB.

            Yes   X        No

Registrant's revenues for the fiscal year ended June 30, 1998 were $16,011,049.

The  aggregate  market value of the voting stock held by  non-affiliates  of the
Registrant based on the trading price of the Registrant's Common Stock on August
31, 1998 was $3,352,500.

The number of shares  outstanding of each of the Registrant's  classes of common
equity, as of the latest practicable date:

                 Class                            Outstanding at August 31, 1998
            Common Stock $.002 par value                 5,178,300 Shares
            Class A Redeemable Common Stock             1,265,000 Warrants
            Purchase Warrants
            Class C Redeemable Common Stock              150,000 Warrants
            Purchase Warrants

                       DOCUMENTS INCORPORATED BY REFERENCE

The  information  required  by Part III will be  incorporated  by  reference  to
certain  portions of a definitive  Proxy Statement which is expected to be filed
by the Registrant within 120 days after the close of its fiscal year.


<PAGE>



                    CHEM INTERNATIONAL, INC. AND SUBSIDIARIES

                            FORM 10-KSB ANNUAL REPORT

                                      INDEX

                                                                         Page

Part I

  Item 1.   Description of Business                                       1

  Item 2.   Description of Properties                                     4

  Item 3.   Legal Proceedings                                             4

  Item 4.   Submission of Matters to a Vote of Security Holders           5

Part II

  Item 5.   Market for Registrant's Common Equity and Related Stockholder
            Matters                                                       6

  Item 6.   Management's Discussion and Analysis of Financial Condition
            and Results of Operations                                     7

  Item 7.   Financial Statements                                         12

  Item 8.   Changes in and Disagreements with Accountants on
            Accounting and Financial Disclosure                          12

Part III

  Item 9.   Directors, Executive Officers, Promoters and
            Control Persons; Compliance with Section 16(a) of the
            Exchange Act                                                 12

  Item 10.  Executive Compensation                                       12

  Item 11.  Security Ownership of Certain Beneficial
            Owners and Management                                        12

  Item 12.  Certain Relationships and Related Transactions               12

  Item 13.  Exhibits and Reports on Form 8-K                             12

Signatures


<PAGE>



                                     PART I

Disclosure Regarding Forward-Looking Statements

All statements  other than  statements of historical  fact, in this Form 10-KSB,
including without limitation,  the statements under "Management's Discussion and
Analysis of Financial  Condition and Results of Operations" and  "Description of
Business"  are,  or may be  deemed  to be,  forward  looking  statements.  These
statements represent the Company's current judgment and are subject to risks and
uncertainties that could cause actual results to differ  materially.  Such risks
and uncertainties  include,  without  limitation:  (i) loss of a major customer,
(ii) competition, and/or (iii) government regulation.

Item 1. Description of Business

Chem  International  Inc. [the  "Company"] a Delaware  corporation,  is the
survivor of a merger of Chem International,  Inc. a Delaware  Corporation,  with
and into Frog  Industries,  Ltd. a New York  corporation,  which was effected on
December 27, 1994 with Frog  Industries,  Ltd. renamed Chem  International  Inc.
after the  merger.  The Company  was  reincorporated  in Delaware on February 2,
1996. The Company is engaged primarily in manufacturing,  marketing and sales of
vitamins,  nutritional supplements and herbal products,  including vitamins sold
as single  entity  supplements,  in  multi-vitamin  combinations  and in varying
potency  levels and in different  packaging  sizes.  The  Company's  subsidiary,
Manhattan Drug Company, Inc. ["Manhattan Drug"],  manufacturers the vitamins and
nutritional  supplements  for sale to  distributors,  multilevel  marketers  and
specialized  health-care providers.  The Company also manufactures such products
for sale under its own private brand,  "Vitamin Factory," at its retail store in
Hillside, New Jersey or through mail order.

Development and Supply Agreement

On April 9,1998,  the Company  signed a development  and supply  agreement  with
Herbalife  International of America, Inc. ["Herbalife"] whereby the Company will
develop,  manufacture  and supply  certain  nutritional  products  to  Herbalife
through December 31, 2000.

Manufacturing Agreement

On February 14, 1998,  the Company signed a  manufacturing  agreement with Pilon
International,  PLC., a company that supplies Zepter International, a world-wide
direct sales distributor of consumer products.  The Company will manufacture and
develop dietary supplements through the year 2001.

Risk of Reduction of Significant Revenues from Major Customer

The Company derives a significant portion of its sales from one customer, Rexall
Sundown,  Inc.  ["Rexall"],  for which it manufactures  vitamins and nutritional
supplements.  Sales to Rexall  expressed as a percentage of the Company's  total
sales, were approximately 44% and 48%, respectively,  for the fiscal years ended
June 30, 1998 and 1997. The loss of this customer  would have a material  affect
on the Company's operations.

Dependence on Key Personnel

The Company is highly  dependent  on the  experience  of its  management  in the
continuing  development of its manufacturing and retail operations.  The loss of
the  services  of certain of these  individuals,  particularly  E.  Gerald  Kay,
Chairman  of the Board,  President  and  director of the  Company,  would have a
material adverse effect on the Company's business.  The Company has entered into
employment agreements with each of its five executive officers,  which expire on
June 30, 1999.  Such  agreements  may be terminated by the employees at any time
upon 30 days  prior  written  notice  without  penalty,  subject  to a one  year
non-compete  clause.  The Company has  obtained  key-man  life  insurance in the
amount of $  1,000,000  on the life of Mr.  Kay,  with the  Company as the named
beneficiary.

                                        1

<PAGE>



Raw Materials

The principal raw materials  used in the  manufacturing  process are natural and
synthetic  vitamins,  minerals,  herbs,  and  related  nutritional  supplements,
gelatin  capsules  and  coating  materials  and  the  necessary  components  for
packaging the finished  products.  The raw materials are available from numerous
sources within the United States. The gelatin capsules and coating materials and
packaging materials are similarly widely available.  Raw materials are generally
purchased by the Company  without  long term  commitments,  on a purchase  order
basis. The Company's principal suppliers are Roche Vitamins, Inc., Triarco Inc.,
M.W. International Inc. and BASF Corporation.

Employees

As of June 30, 1998, the Company had 96 full time employees, of whom 60 belonged
to a  local  unit  of the  Teamsters  Union  and  are  covered  by a  collective
bargaining agreement which expires August 30, 1999.

Seasonality

The Company's results of operations are not  significantly  affected by seasonal
factors.

Trademarks

The Company owns the  registration  in the United  States  Patent and  Trademark
offices for "Oxitiva."  Oxitiva is the Company's  brand of chewable  antioxidant
formula.

Government Regulations

The manufacturing,  processing, formulation, packaging, labeling and advertising
of the  Company's  products  are  subject to  regulation  by a number of federal
agencies,  including the Food and Drug  Administration  [the "FDA"], the Federal
Trade  Commission [the "FTC"],  the United States Postal  Service,  the Consumer
Product Safety Commission and the United States  Department of Agriculture.  The
FDA is primarily  responsible for the regulation of the manufacturing,  labeling
and sale of the Company's products.  The Company's activities are also regulated
by various state and local  agencies in which the  Company's  products are sold.
The  operation of the  Company's  vitamin  manufacturing  facility is subject to
regulation by the FDA as a food manufacturing  facility. In addition, the United
States Postal  Service and the FTC regulate  advertising  claims with respect to
the Company's products sold by solicitation through the mail.

The Dietary Supplement Health and Education Act of 1994 [the "Dietary Supplement
Act"] was enacted on October 25,  1994.  The Dietary  Supplement  Act amends the
Federal  Food,  Drug and Cosmetic  Act by defining  dietary  supplements,  which
include vitamins, minerals,  nutritional supplements and herbs, and by providing
a regulatory  framework  to ensure safe,  quality  dietary  supplements  and the
dissemination of accurate  information about such products.  Dietary supplements
are regulated as foods under the Dietary Supplement Act and the FDA is generally
prohibited from regulating the active ingredients in dietary supplements as food
additives, or as drugs unless product claims trigger drug status.

The  Dietary   Supplement  Act  provides  for  specific   nutritional   labeling
requirements  for dietary  supplements  effective  January 1, 1997.  The Dietary
Supplement Act permits substantiated,  truthful and non-misleading statements of
nutritional  support  to be made in  labeling,  such  as  statements  describing
general well being from  consumption  of a dietary  ingredient  or the role of a
nutrient or dietary ingredient in affecting or maintaining structure or function
of the body. In addition,  the Dietary Supplement Act also authorizes the FDA to
promulgate  Current  Good  Manufacturing  Practices  ["CGMPs"]  specific  to the
manufacture of dietary supplements,  to be modeled after food CGMPS. The Company
currently  manufactures its dietary supplement  products pursuant to food CGMPS.
The Company  believes  that it is currently in  compliance  with all  applicable
government regulations.

                                        2

<PAGE>



The FDA will be proposing and promulgating  regulations to implement the Dietary
Supplement Act. The Company cannot determine what effect such regulations,  when
promulgated, will have on its business in the future or what cost it will add to
manufacturing the product.  Such regulations could, among other things,  require
expanded or different labeling,  the recall,  reformulation or discontinuance of
certain products,  additional  recordkeeping  and expanded  documentation of the
properties  of  certain   products  and  scientific   substantiation   regarding
ingredients, product claims, safety or efficacy.

Competition

The  business  of  manufacturing,   distributing  and  marketing   vitamins  and
nutritional supplements is highly competitive. Many of the Company's competitors
are  substantially  larger and have greater  financial  resources  with which to
manufacture and market their products.  In particular,  competition is fierce in
the retail  segment.  Many direct  marketers not only focus on selling their own
branded  products,  but  offer  national  brands  at  discounts  as  well.  Many
competitors have established brand names recognizable to consumers. In addition,
major  pharmaceutical   companies  offer  nationally   advertised   multivitamin
products. The Company also competes with certain of its customers that also have
their own manufacturing capabilities.

Many of the Company's  competitors  in the retailing  segment have the financial
resources  to  advertise  freely to promote  sales and to produce  sophisticated
catalogs. In many cases, such competitors are able to offer price incentives for
retail  purchasers and offer  participation  in frequent buyers  programs.  Some
retail  competitors  also  manufacture  their own products whereby they have the
ability and financial incentive to sell their own product.

Product Liability Insurance

The Company  intends to compete by  stressing  the quality of its  manufacturing
product, providing prompt service, competitive pricing of products in its direct
marketing segment and by focusing on niche products in the international  retail
markets.

The Company,  like other manufacturers,  wholesalers and distributors of vitamin
and  nutritional  supplement  products,  faces an  inherent  risk of exposure to
product liability claims if, among other things, the use of its products results
in injury.  Accordingly,  the  Company  currently  maintains  product  liability
insurance  policies  which  provides  a total of $10  million  of  coverage  per
occurrence and $10 million of coverage in the aggregate.  Although the Company's
product  liability  insurance  policies do not  currently  provide  coverage for
claims  with  respect to products  containing  L-tryptophan  manufactured  after
September 1992, the Company  discontinued  manufacturing  such products in 1989.
Based upon indemnification  arrangements with its supplier of L-tryptophan,  the
Company's product liability insurance and the product liability insurance of its
suppliers, the Company believes that its product liability insurance is adequate
to cover  any  product  liability  claims.  There can be no  assurance  that the
Company's  current  level of product  liability  insurance  will  continue to be
available or, if available, will be adequate to cover potential liabilities.


                                        3

<PAGE>



Item 2. Description of Properties

On  January  10,  1997,  the  Company   entered  into  a  lease   agreement  for
approximately 84,000 square feet of factory,  warehouse and office facilities in
Hillside,  New Jersey. The facilities are leased from Vitamin Realty Associates,
L.L.C., a limited  liability  company which is owned by the Company's  president
and  principal  stockholder  and  certain  family  members  and 10% owned by the
Company's  chief  financial  officer.  The  Lease  has a term of five  years and
expires on January 10,  2002.  The lease  provides  for a base annual  rental of
$346,000  plus  increases  in real estate taxes and  building  expenses.  At its
option, the Company has the right to renew the lease for an additional five year
period.  The space is utilized for the retail mail order  business,  warehousing
and packaging operations and also houses the Company's corporate offices.

The  Company  also leases  40,000  square feet of  manufacturing  facilities  in
Hillside,  New Jersey  from Gerob  Realty  Partnership,  of which E. Gerald Kay,
President  of the  Company,  is a general  partner.  The lease which  expires on
December 31, 1998  provides for a minimum  annual rental of $60,000 plus payment
of all real estate  taxes.  The space is utilized for  Manhattan  Drug's  tablet
manufacturing operations.

Item 3. Legal Proceedings

Numerous  unrelated  manufacturers,   distributors,   suppliers,  importers  and
retailers of  manufactured  L- tryptophan are or were defendants in an estimated
2,000  lawsuits  brought in federal and state courts  seeking  compensation  and
punitive  damages  for  alleged  personal  injury  from  ingestion  of  products
containing manufactured L-tryptophan.  A number of these suits have been settled
or discontinued.  Additional suits may be filed. Prior to a request from the FDA
in November 1989 for a national,  industry-wide  recall,  Manhattan  Drug halted
sales and  distribution  and also  ordered a recall of L-  tryptophan  products.
Subsequently,  the FDA  indicated  that there is a strong  epidemiological  link
between the ingestion of the  allegedly  contaminated  L-tryptophan  and a blood
disorder known as eosinophilia  myalgia syndrome  ["EMS"].  Investigators at the
United  States  Centers for  Disease  Control  suspect  that a  contaminant  was
introduced  during the  manufacture  of the  product in Japan.  While  intensive
independent investigations are continuing, there has been no indication that EMS
was caused by any formulation or manufacturing fault of Manhattan Drug or any of
the  other  firms  that   manufactured   tablets  and/or   capsules   containing
L-tryptophan.

On July 7, 1997, the Company was informed by one of its suppliers of a recall of
the supplier's raw material which was used in  manufacturing  of tablets sold by
the Company.  On July 17, 1997, the Company  issued a voluntary  recall to three
customers  affected by this and,  accordingly,  reduced  its sales and  accounts
receivable  at June 30,  1997 by $  127,000.  The  Company  believes  they  have
recourse  against the supplier for the full value of the tablets sold containing
the  recalled  raw  material.  The Company  does not  believe  there will be any
significant additional costs relating to this recall. On September 30, 1997, the
Company instituted suit to recover all damages.  No estimate can be made at June
30, 1998 as to the amount, if any, of ultimate recovery.

Manhattan  Drug  and  certain  companies  in  the  vitamin  industry,  including
distributors,  wholesalers  and  retailers,  have entered into an agreement [the
"Indemnification Agreement"] with Showa Denko America, Inc. ["SDA"], under which
SDA, a U.S.  subsidiary  of a Japanese  corporation,  Showa Denko K.K.  ["SDK"],
which  appears  to have been the  supplier  of all of the  alleged  contaminated
L-tryptophan  products,  has assumed the defense of all claims against Manhattan
Drug arising out of the ingestion of L-tryptophan products and has agreed to pay
the legal fees and  expenses in that  defense,  and SDK has agreed to  guarantee
SDA's  obligation  therein.  SDA has posted a  revolving  irrevocable  letter of
credit, in the amount of $20,000,000,  to be used for the benefit of the Company
and other  indemnified  parties if SDA is unable or  unwilling  to  satisfy  any
claims or  judgments.  SDA has agreed to  indemnify  Manhattan  Drug against any
judgments and to fund settlements  arising out of those actions and claims if it
is determined  that a cause of the injuries  sustained by the  plaintiffs  was a
constituent in the bulk material sold by SDA to Manhattan Drug or its suppliers,
except  to the  extent  that  Manhattan  Drug is  found  to have any part of the
responsibility  for those  injuries  and except for certain  claims  relating to
punitive damages. There is no assurance that SDA will have the financial ability
to perform under the Indemnification Agreement.

                                        4

<PAGE>



Manhattan  Drug has product  liability  insurance,  which the  Company  believes
provides coverage for all of its L-tryptophan  products subject to these claims,
including  legal  defense  costs.  Due  to  the  multitude  of  defendants,  the
probability  that some or all of the total  liability  will be assessed  against
other  defendants  and the fact that discovery in these actions is not complete,
it is  impossible  to  predict  the  outcome  of these  actions or to assess the
ultimate  financial  exposure  of the  Company.  Based  upon the  aforementioned
indemnification arrangements,  the Company's product liability insurance and the
product liability  insurance of its suppliers,  the Company does not believe the
outcome of these actions will have a material  adverse effect on Manhattan Drug,
and,  accordingly,  no  provision  has been made in the  Company's  Consolidated
Financial  Statements  for any loss that may be  incurred  by the  Company  as a
result of these actions.

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 ended June 30, 1998.



                                        5

<PAGE>



                                     PART II

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

On October 30, 1996,  the Company's  units  [Consisting  of two shares of Common
Stock and two Class A Redeemable Warrants],  Common Stock and Class A Redeemable
Warrants  commenced  trading on the National  Association of Securities  Dealers
Automated  Quotation  SmallCap  Market System  "NASDAQ" under the symbols CXILU,
CXIL and CXILW, respectively.  In November 1996 the Company unbundled its public
unit. In November 1996, the Company authorized NASDAQ to delist the Unit [CXILU]
and cease trading it. Prior to the Company's  initial public offering in October
1996 the Common Stock was traded sporadically in the over-the-counter  market on
the NASD's Electronic  Bulletin Board during the period commencing  December 18,
1995  through  May 5, 1996,  at which  time it was  voluntarily  withdrawn  from
trading.

The following table sets forth the high and low prices for each of the Unit, the
Common  Stock and the Class A  Redeemable  Warrant for the periods  indicated as
reported by NASDAQ.

UNITS [CLIXU]

Time Period:                                        HIGH         LOW

October 30, 1996 through November 27, 1996 [Trading
ceased on November 29, 1996]                          27           8

COMMON STOCK [CXIL]

Time Period:

October 30, 1996 through December 31, 1996            10       5 1/4
January 1, 1997 through March 31, 1997            10 1/4       6 1/4
April 1, 1997 through June 30, 1997                8 3/4         2 1/2
July 1, 1997 through September 30, 1997            3 7/8       1 7/8
October 1, 1997 through December 31, 1997         3 5/16       13/32
January 1, 1998 through March 31, 1998             2 1/4           1/2
April 1, 1998 through June 30, 1998                3 3/8       1 5/8

CLASS A REDEEMABLE WARRANTS [CXILW]

Time Period:

October 30, 1996 through December 31, 1996             5       2 1/4
January 1, 1997 through March 31, 1997               5 1/2         2 1/2
April 1, 1997 through June 30, 1997                4 3/4         3/8
July 1, 1997 through September 30, 1997                1         3/8
October 1, 1997 through December 31, 1997              1        1/16
January 1, 1998 through March 31, 1998              7/16        1/16
April 1, 1998 through June 30, 1998                  3/4        5/16

As of June 30,  1998  there  were  approximately  167  holders  of record of the
Company's Common Stock.

The Company has not declared or paid a dividend with respect to its Common Stock
nor does the Company anticipate paying dividends in the foreseeable future.


                                        6

<PAGE>



Item 6.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
------------------------------------------------------------------------------



The  following  discussion  should be read in  conjunction  with the  historical
financial statements of the Company and notes thereto.

Results of Operations

Year ended June 30, 1998 Compared to the Year ended June 30, 1997

The  Company's  net [loss] for the year ended  June 30,  1998 was  $(97,438)  as
compared  to net loss of  $(654,304)  for the year  ended  June 30,  1997.  This
decrease  in net loss of  approximately  $557,000 is  primarily  the result of a
$865,000 decrease in operating loss and a decrease in the federal tax benefit of
approximately  $200,000.  The $865,000  decrease in  operating  loss is due to a
gross profit increase of approximately $1,500,000 and an increase in selling and
administrative expense of approximately $650,000.

Sales  for the  years  ended  June  30,  1998  and  1997  were  $16,011,049  and
$11,126,860,  respectively,  an increase of approximately $5,000,000 or 44%. For
the year  ended  June 30,  1998,  the  Company  had sales to one  customer,  who
accounted for 44% of net sales in 1998 and 48% of net sales in 1997. The loss of
this customer would have an adverse affect on the Company's operations.

Retail and mail order sales for the year ended June 30, 1998 totaled  $1,090,854
as  compared  to  $983,749  for the year ended June 30,  1997,  an  increase  of
$107,105 or 11%.

On February 17, 1997,  the Company  signed a  distribution  agreement with Roche
Vitamins,  Inc. to service  and supply  Roche  products  to a select  segment of
Roche's food, nutrition and cosmetic accounts. The agreement has an initial term
of two years and shall be renewable for an additional term of one year each.
Sales for the year ended June 30, 1998 totaled $1,250,480.

Cost of sales  increased to  $12,841,937  in 1998 as compared to $9,475,624  for
1997. Cost of sales decreased as a percentage of sales to 80% as compared to 85%
for 1997. The decrease in cost of sales is due to greater operating efficiencies
because of the extensive  renovation of the blending  department and an increase
in sales to customers of bottled products.

Selling  and  administrative  expenses  for the year  ended  June 30,  1998 were
$3,197,047  versus  $2,546,972  for the same period a year ago.  The increase of
$650,075  was  primarily   attributable   to  an  increase  of   advertising  of
approximately $170,000, an increase in travel and entertainment of approximately
$85,000, a decrease in professional fees of approximately $55,000, a decrease in
consulting  fees  of  approximately   $124,000,   an  increase  in  pension  and
profit-sharing  plan  expenses  of  approximately  $400,000,  and an increase in
office salaries of approximately $49,000.

Other  income  [expense]  was  $(105,789)  for the year ended  June 30,  1998 as
compared  to  $(4,588)  for the same  period a year ago.  This  increase  in net
expense of  $101,201  is  attributable  to a  decrease  in  interest  expense of
$12,128,  a decrease in interest and investment income of $48,491, a decrease in
sales of fixed assets of $25,000,  a loss resulting from the write off of a note
receivable of $33,058, and a decrease in partnership income of $6,780.



                                        7

<PAGE>



MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
------------------------------------------------------------------------------



Results of Operations

Year ended June 30, 1997 Compared to the Year Ended June 30, 1996

The  Company's  net [loss] for the year ended June 30,  1997 was  $(654,304)  as
compared  to net  income of  $42,198  for the year  ended  June 30,  1996.  This
decrease in net income of  approximately  $700,000 is primarily  the result of a
$1,200,000  decrease  in  operating  income  resulting  from a decrease in gross
profit of approximately  $650,000 and an increase in selling and  administrative
expenses of approximately  $550,000 for the year ended June 30, 1997 as compared
to the year ended June 30, 1996. The decrease in gross profit is due to a higher
percentage  of sales to lower margin  customers  and an increase in raw material
costs.

Cost of sales  increased to  $9,475,624  in 1997 as compared to  $8,343,179  for
1996. Cost of sales increased as a percentage of sales to 85% as compared to 78%
for 1996. The increase in cost of sales is due to an increase in material costs.
The Company has begun to develop new raw material  suppliers whereby the Company
can achieve a lower cost of materials.

Selling  and  administrative  expenses  for the year  ended  June 30,  1997 were
$2,546,972  versus  $1,990,997  for the same period a year ago.  The increase of
$555,975 was primarily  attributable to an increase in officers' compensation of
approximately $225,000, an increase in office salaries of approximately $25,000,
a decrease in professional fees of approximately  $38,000,  a decrease in travel
and  entertainment of approximately  $21,000,  an increase in consulting fees of
approximately  $207,000, a decrease in office rent of approximately  $22,000, an
increase in  advertising  and catalog  costs of  approximately  $117,000  and an
increase in payroll tax expense of approximately $9,000.

Other income [expense] was $(4,588) for the year ended June 30, 1997 as compared
to  $(127,823)  for the same  period a year ago.  This  increase  of $123,235 is
attributable  to a decrease in sales of fixed assets of $39,000,  an increase of
$38,778 from a 50% owned partnership,  a decrease in interest expense of $85,600
and an increase in interest and investment income of $37,857.

The  Company  began in July of 1997 a  renovation  of its  blending  department.
Management  expects  the  renovation  to be  completed  by October  15, 1997 and
expects to achieve greater manufacturing efficiencies as a result.

Sales  for the  years  ended  June  30,  1997  and  1996  were  $11,126,860  and
$10,637,797,  respectively, an increase of approximately $490,000 or 5%. For the
year ended June 30, 1997,  the Company had sales to one customer,  who accounted
for 48% of net  sales  in 1997 and 40% of net  sales  in 1996.  The loss of this
customer would have an adverse affect on the Company's operations.

Retail and mail order sales for the year ended June 30, 1997 totaled $983,749 as
compared to $756,711 for the year ended June 30,  1996,  an increase of $227,038
or 30%.

On February 17, 1997,  the Company  signed a  distribution  agreement with Roche
Vitamins,  Inc. to service  and supply  Roche  products  to a select  segment of
Roche's food, nutrition and cosmetic accounts. The agreement has an initial term
of two years and shall be renewable for additional terms of one year each. Sales
for the period from  February 20, 1997 through June 30, 1997 under the agreement
totaled $308,259.



                                        8

<PAGE>



MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
------------------------------------------------------------------------------



Results of Operations

Year ended June 30, 1997 Compared to the Year Ended June 30, 1996

In 1997, the Company signed an exclusive agreement with International  Nutrition
Research  Center,  Inc.  ["INRC"] to market and distribute the Master Amino Acid
Pattern  ["MAP"].  MAP is a new patented  unique food  supplement  in the sports
nutrition field and is specifically  recommended  for  professional  and weekend
athletes  who  need  to  maximize  protein  synthesis.  MAP  is  being  marketed
exclusively by "The Vitamin  Factory,  Inc." a subsidiary of the Company through
mail order. MAP represents the first  proprietary  product developed for sale by
the Company.

On July 7, 1997, the Company was informed by one of its suppliers of a recall of
the supplier's raw material used in the manufacturing of tablets sold containing
the recalled raw  material.  On July 17,  1997,  the Company  issued a voluntary
recall to three customers affected by this and accordingly reduced its sales and
accounts receivable at June 30, 1997 by $127,000. The Company believes they have
recourse  against the supplier for the full value of the tablets sold containing
the recalled raw material. In September,  the Company instituted suit to recover
all damages.

Liquidity and Capital Resources

At June 30, 1998,  the Company's  working  capital was $4,761,511 an increase of
$729,109 over working capital at June 30, 1997. Cash and cash  equivalents  were
$956,403 at June 30, 1998 a decrease of $53,853 from June 30, 1997.  The Company
utilized  $414,153 and  $1,776,278  for  operations for the years ended June 30,
1998 and 1997,  respectively.  The  primary  reasons  for the  decrease  in cash
utilized for  operations  are (a) an increase in  inventories  of  approximately
$1,400,000,  (b) an increase in accounts receivable of approximately  $1,000,000
resulting from an increase of approximately  $2,000,000 in sales for the quarter
ended June 30,  1998,  (c) an  increase  in  accounts  payable of  approximately
$1,000,000,  (d) a decrease in prepaid pension costs of  approximately  $340,000
due to the  termination of the Company's  defined benefit pension plan in May of
1997,  and (e) a decrease in refundable  federal  income taxes of $240,000.  The
Company  utilized  $740,216 and $660,004 in investing  activities  for the years
ended June 30, 1998 and 1997,  respectively.  The Company  generated net cash of
$1,100,516  from debt financing  activities for the year ended June 30, 1998 and
generated  $2,681,473 from financing activities for the year ended June 30, 1997
through net proceeds from a public offering of $3,426,344 and proceeds from debt
financing of $412,744, with payments on debt of $1,157,615.

The  Company  had a $500,000  revolving  line of credit  with a bank which bears
interest  at 1.5% above the bank's  prime  lending  rate and expired on July 29,
1998.  At June 30,  1998,  the  balance  due under  the line of credit  loan was
$300,000.  The Company has additionally  secured a five year equipment loan with
interest at .75% above the bank's prime  lending  rate.  At June 30,  1998,  the
balance due under the equipment loan was $169,043.

On July 27, 1998, the Company  signed a new financing  agreement with a new bank
providing for a $500,000  revolving  line of credit with interest at 1.00% above
the bank's prime  lending  rate and  expiring on July 30, 1999, a $170,000  five
year  equipment  loan with  interest at 1.5% above the bank's prime lending rate
expiring  on June 30,  2003 and a five year  $225,000  equipment  term loan with
interest at 1.50% above the bank's prime lending rate.

On July 29, 1998, the Company borrowed $300,000 from the new bank to pay off the
existing line of credit  balance and $170,000 to pay off the existing  equipment
loan balance. Subsequently, the Company repaid the $300,000 on August 7, 1998.

Effective July 1, 1996, the Company entered into employment agreements with each
of its five  executive  officers  providing  for aggregate  compensation  in the
amount of $680,000 for the fiscal years ending June 30, 1998 and June 30, 1999.

                                        9

<PAGE>



MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
------------------------------------------------------------------------------



Liquidity and Capital Resources

In December 1997, the Underwriter of the public  offering ceased  operations and
market making  activities.  As part of the October 1996 underwriting  agreement,
the Company had entered into an agreement retaining the Underwriter as financial
consultant  to the Company for a two year period  commencing  on the date of the
completion  of the  offering at a fee of $88,550.  Accordingly  at December  31,
1997,  the  balance of prepaid  consulting  fees of $36,896  was  written off as
consulting expense for the nine months ended December 31, 1997.

On February 10, 1998,  the Company  signed an exclusive  manufacturer  agreement
with Martin Health Care Products,  Inc. to provide to Martin Health Care certain
products for a ten year period.  In connection  with the agreement,  the Company
also agreed to forgive from Martin  Health Care  outstanding  invoices  totaling
$22,000.  In return for the  forgiveness,  Martin agreed to pay to the Company a
royalty on sales of certain  products and to issue to the Company  15,000 shares
of common stock in Martin  Health Care  Products,  Inc. The Company has recorded
the cost for the common  stock at $1,000 and has  recorded  the  royalties  as a
non-current asset in the amount of $21,000.

On February 14, 1998,  the Company signed a  manufacturing  agreement with Pilon
International,  PLC., a company that supplies Zepter International, a world-wide
direct sales distributor of consumer products.  The Company will manufacture and
develop dietary supplements through the year 2001.

On March 12, 1998, the Company  negotiated a three year promissory note with its
Chairman and  President.  The note bears  interest at 7% and is due on March 12,
2001.  The note provides for interest only to be paid  quarterly.  As additional
consideration  for the loan and in light of the below market  interest  rate and
uncollateralized  nature of the loan,  the  Company  issued a Class C Warrant to
purchase 150,000 shares of common stock at the aggregate purchase price of $1.77
per share. The warrant is exercisable for a four year period commencing one year
after the issuance of the note and expires on March 12, 2003.

On March 17, 1998, the Company secured a three year equipment loan with interest
at 9.66%. At June 30, 1998, the balance due on the note was $101,529.

On April 9, 1998,  the Company  signed a development  agreement  with  Herbalife
International of America,  Inc.  ["Herbalife"] whereby the Company will develop,
manufacture  and  supply  certain  nutritional  products  to  Herbalife  through
December 31, 2000.

The Company's total annual  principal  commitments at June 30, 1998 for the next
five years of $1,364,124  consists of  obligations  under  operating  leases for
facilities and lease  agreements for the rental of warehouse  equipment,  office
equipment and automobiles.

Based upon a  preliminary  study,  the  Company  expects to spend  approximately
$50,000 through 1999 to modify its computer  information systems enabling proper
processing  of  transactions  relating to the year 2000 and beyond.  The Company
continues  to  evaluate  appropriate  courses of  corrective  action,  including
replacement  of certain  systems  whose  associated  costs  would be recorded as
assets and  amortized.  Accordingly,  the  Company  does not expect the  amounts
required to be expanded over the next eighteen  months to have a material effect
on its financial  position or results of operations.  The amount  expended as of
June 30, 1998 was $2,248.

                                       10

<PAGE>



MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
------------------------------------------------------------------------------



New Authoritative Pronouncements

The FASB has issued SFAS No. 130,  "Reporting  Comprehensive  Income." SFAS
No. 130 is effective for fiscal years beginning after December 15, 1997. Earlier
application is permitted.  Reclassification of financial  statements for earlier
periods  provided  for  comparative  purposes is  required.  SFAS No. 130 is not
expected to have a material impact on the Company.

The FASB has  issued  SFAS  No.  131,  "Disclosures  About  Segments  of an
Enterprise and Related Information." SFAS No. 131 changes how operating segments
are  reported in annual  financial  statements  and  requires  the  reporting of
selected  information  about  operating  segments in interim  financial  reports
issued to  shareholders.  SFAS No. 131 is effective for periods  beginning after
December  15,  1997,  and  comparative  information  for earlier  years is to be
restated.  SFAS No. 131 need not be applied to interim  financial  statements in
the  initial  year of its  application.  SFAS No. 131 is not  expected to have a
material impact on the Company.

In February  1998,  the FASB issued SFAS No. 132,  "Employers  Disclosure  about
Pension and Other Postretirement  Benefits," which is effective for fiscal years
beginning after December 15,1997.  The modified disclosure  requirements are not
expected  to have a material  impact on the  Company's  results  of  operations,
financial position or cash flows.

In June  1998,  the  FASB  issued  SFAS  No.  133,  "Accounting  for  Derivative
Instruments  and  Hedging  Activities,"  which is  effective  for  fiscal  years
beginning  after June  15,1999.  The Company  will  evaluate the new standard to
determine any required new disclosures or accounting.

Impact of Inflation

The Company  does not believe  that  inflation  has  significantly  affected its
results of operations.

                                       11

<PAGE>



Item 7. Financial Statements

For a list of financial  statements  filed as part of this report,  see index to
financial statements at F-1.

Item 8. Changes in and  Disagreements  with  Accountants  on Accounting and
Financial Disclosure

None

                                    PART III

Item 9.  Directors,  Executive  Officers,  Promoters  and Control  Persons;
Compliance With Section 16(a) of the Exchange Act.

Incorporated by reference to the Company's Proxy Statement for Annual Meeting of
Stockholders to be filed with the Securities and Exchange  Commission within 120
days after the close of the fiscal year ended June 30, 1998.

Item 10.  Executive Compensation

Incorporated by reference to the Company's Proxy Statement for Annual Meeting of
Stockholders to be filed with the Securities and Exchange  Commission within 120
days after the close of the fiscal year ended June 30, 1998.

Item 11.  Security Ownership of Certain Beneficial Owners and Management

Incorporated by reference to the Company's Proxy Statement for Annual Meeting of
Stockholders to be filed with the Securities and Exchange  Commission within 120
days after the close of the fiscal year ended June 30, 1998.

Item 12.  Certain Relationships and Related Transactions

Incorporated by reference to the Company's Proxy Statement for Annual Meeting of
Stockholders to be filed with the Securities and Exchange  Commission within 120
days after the close of the fiscal year ended June 30, 1998.

Item 13.  Exhibits and Reports on Form 8-K

(a) The following documents are filed as part of this Report:

     (1) A list of the financial  statements filed as part of this report is set
         forth  in  the  index  to  financial  statements  at  Page  F-1  and is
         incorporated herein by reference.

     (2) Exhibits

         Number                           Description

         3.1    Restated Certificate of Incorporation of Registrant (1)
         3.2    By-Laws of Registrant (1)
         4.1    Form of Amended Warrant Agreement among the Registrant and
                Continental Stock Transfer & Trust Company, as Warrant Agent(1)
         4.2    Specimen Common Stock Certificate of Registrant (2)
         4.3    Specimen Class A Warrant Certificate of Registrant (2)
         10.1   Employment Agreement, effective January 1, 1996, between the
                Registrant and Ronald G. Smalley (1)
         10.2   Employment Agreement, effective July 1, 1996, between the
                Registrant and E. Gerald Kay (1)
         10.3   Employment  Agreement,  effective  July  1,  1996,  between  the
                Registrant and Eric Friedman (1)

                                       12

<PAGE>




         Number                           Description

         10.4   Employment Agreement, effective July 1, 1996, between the
                Registrant and Riva L. Kay (1)
         10.5   Employment Agreement, effective July 1, 1996, between the
                Registrant and Christina M. Kay (1)
         10.6   Lease Agreement,  dated January 1, 1996,  between the Registrant
                and Gerob Realty Partnership (1)
         10.7   Stock Option Plan (2)

         10.8   Amended Employment Agreement, effective September 20, 1996,
                between the Registrant and E. Gerald Kay (3)

         10.9   Lease Agreement, dated August 3, 1994, between the Registrant
                and Hillside 22 Realty Associates, L.L.C. (2)

         10.10  Exclusive License Agreement between the Registrant and
                International Nutrition Research Center, Inc. and amendments,
                dated April 29, 1997 and November 27, 1996 (4)

         10.11  Lease  Agreement  between  the  Registrant  and  Vitamin  Realty
                Associates, dated January 10, 1997 (4)

         10.12  Manufacturing agreement between Chem International, Inc. and
                Herbalife International of America, Inc. dated April 9, 1998(5)

         10.13  Manufacturing agreement between Chem International, Inc. and
                Pilon International, PLC. dated February 14, 1998 (5).

         10.14  Stock Sale Agreement between the Company and Gerob Realty
                Partnership (5)

         10.15  Promissory note between the Company and E. Gerald Kay dated
                March 12, 1998 (5)

         10.16  Class C warrant to purchase common stock dated March 12, 1998(5)

         10.17  Consulting agreement with Buttonwood Advisory Group dated
                March 20, 1998 (5)

         21     Subsidiaries of the Registrant
         27     Financial Data Schedule


         (1)    Incorporated  herein by reference to the  corresponding  exhibit
                number to the Registrants  Registration  Statement on Form SB-2,
                Registration No. 333-5240-NY.
         (2)    Incorporated  herein by reference to the  corresponding  exhibit
                number to the Registrants Registration Statement Amendment No. 1
                on Form SB-2, Registration
                No. 333-5240-NY
         (3)    Incorporated  herein by reference to the  corresponding  exhibit
                number of the Registrants Registration Statement Amendment No. 2
                on Form SB-2, Registration
                No. 333-5240-NY
         (4)    Incorporated  herein by reference to the  corresponding  exhibit
                number to the  Registrants  Annual report on form 10-KSB for the
                fiscal year ended June  30,1997,  filed on  September  29, 1997,
                Commission File No. 000-28876.
         (5) Filed herewith.

(b)  No reports on Form 8-K were filed by the Registrant during the last quarter
     of the period covered by this report.




                                       13

<PAGE>



CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


INDEX
------------------------------------------------------------------------------




Item 7: Consolidated Financial Statements

  Independent Auditor's Report....................................  F-2....

  Consolidated Balance Sheet as of June 30, 1998..................  F-3.... F-4

  Consolidated Statements of Operations for the years
  ended June 30, 1998 and 1997....................................  F-5....

  Consolidated Statements of Stockholders' Equity for the years
  ended June 30, 1998 and 1997....................................  F-6....

  Consolidated Statements of Cash Flows for years ended
  June 30, 1998 and 1997 .........................................  F-7.... F-8

  Notes to Consolidated Financial Statements......................  F-9.... F-22





                          .   .   .   .   .   .   .   .

                                       F-1

<PAGE>



                          INDEPENDENT AUDITOR'S REPORT


To the Stockholders and Board of Directors of
  Chem International, Inc.



            We have audited the accompanying  consolidated balance sheet of Chem
International,  Inc. and its  subsidiaries  as of June 30, 1998, and the related
consolidated statements of operations,  stockholders' equity, and cash flows for
each of the two  fiscal  years in the  period  then  ended.  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 audit.

            We  conducted  our  audits in  accordance  with  generally  accepted
auditing  standards.  Those standards require that we plan and perform the audit
to  obtain  reasonable  assurance  about  whether  the  consolidated   financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and  significant  estimates made by  management,  as well as evaluating the
overall  consolidated  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  consolidated  financial
position of Chem  International,  Inc. and its subsidiaries as of June 30, 1998,
and the  consolidated  results of their operations and their cash flows for each
of the two fiscal years in the period then ended in  conformity  with  generally
accepted accounting principles.







                                          MOORE STEPHENS, P. C.
                                          Certified Public Accountants.

Cranford, New Jersey
August 14, 1998

                                       F-2

<PAGE>



CHEM INTERNATIONAL, INC.
------------------------------------------------------------------------------


CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1998.
------------------------------------------------------------------------------



<TABLE>

Assets:
Current Assets:
<S>                                                                     <C>        
  Cash and Cash Equivalents                                             $   956,403
  Accounts Receivable - Net                                               3,460,937
  Inventories                                                             3,521,810
  Prepaid Expenses and Other Current Assets                                 177,357
  Deferred Income Taxes                                                      63,000
                                                                        -----------

  Total Current Assets                                                    8,179,507

Property and Equipment - Net                                              1,645,362
                                                                        -----------

Other Assets:
  Goodwill - Net                                                            281,884
  Deferred Income Taxes                                                      37,000
  Security Deposits and Other Assets                                         91,990
                                                                        -----------

  Total Other Assets                                                        410,874

  Total Assets                                                          $10,235,743

</TABLE>



The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.

                                        F-3

<PAGE>



CHEM INTERNATIONAL, INC.
------------------------------------------------------------------------------


CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1998.
------------------------------------------------------------------------------


<TABLE>


Liabilities and Stockholders' Equity:
Current Liabilities:
<S>                                                                     <C>        
  Accounts Payable                                                      $ 2,837,042
  Notes Payable                                                             356,537
  Accrued Expenses and Other Current Liabilities                            165,439
  Accrued Expenses - Related Party                                           25,000
  Capital Lease Obligation                                                   33,978
                                                                        -----------

  Total Current Liabilities                                               3,417,996

Non-Current Liabilities:
  Notes Payable                                                             174,824
  Notes Payable - Related Party                                             688,447
  Capital Lease Obligation                                                   67,551
                                                                        -----------

  Total Non-Current Liabilities                                             930,822

Commitments and Contingencies [14]                                               --

Stockholders' Equity:
  Preferred Stock - Authorized 1,000,000 Shares,
   $.002 Par Value, No Shares Issued                                             --

  Common Stock - Authorized 25,000,000 Shares,
   $.002 Par Value, 5,178,300 Shares Issued and Outstanding                  10,357

  Additional Paid-in Capital                                              4,847,405

  Retained Earnings                                                       1,029,163

  Total Stockholders' Equity                                              5,886,925

  Total Liabilities and Stockholders' Equity                            $10,235,743


</TABLE>

The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.

                                        F-4

<PAGE>



CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


CONSOLIDATED STATEMENTS OF OPERATIONS
------------------------------------------------------------------------------
<TABLE>


                                                                Years ended
                                                                  June 30,
                                                          1 9 9 8          1 9 9 7

<S>                                                    <C>             <C>         
Sales                                                  $   16,011,049  $ 11,126,860

Cost of Sales                                              12,841,937     9,475,624
                                                           ----------   -----------

  Gross Profit                                              3,169,112     1,651,236

Selling and Administrative Expenses                         3,197,047     2,546,972
                                                           ----------   -----------

  Operating [Loss]                                            (27,935)     (895,736)
                                                           ----------   -----------

Other Income [Expense]:
  Gain on Sale of Fixed Assets                                     --        25,000
  Interest Expense                                            (80,616)      (85,696)
  Interest Expense - Related Party                             (7,051)      (14,099)
  Interest and Investment Income                               19,936        68,427
  Income [Loss] on Investment in Partnership                   (5,000)        1,780
  [Loss] on Note Receivable                                   (33,058)           --
                                                           ----------   -----------

  Other [Expense] - Net                                      (105,789)       (4,588)
                                                           ----------   -----------

  [Loss] Before Income Taxes                                 (133,724)     (900,324)

Federal and State Income Tax [Benefit]                        (36,286)     (246,020)
                                                           ----------   -----------

  Net [Loss]                                               $  (97,438)  $  (654,304)
                                                           ==========   ===========

  Net [Loss] Per Common Share
   Basic and Diluted                                       $     (.02)  $      (.16)
                                                           ==========   ===========

  Weighted Average Common Shares Outstanding                4,725,460     4,007,877
                                                           ==========   ===========

</TABLE>



The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.

                                        F-5

<PAGE>



CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


CONSOLIDATED  STATEMENTS  OF  STOCKHOLDERS'  EQUITY FOR THE YEARS ENDED JUNE 30,
1998 AND 1997.
------------------------------------------------------------------------------
<TABLE>



                                                      Additional                    Total
                             Common Stock    Preferred  Paid-in     Retained    Stockholders'
                           Shares  Par Value    Stock   Capital     Earnings       Equity

Balance -
<S>   <C>                <C>        <C>       <C>      <C>         <C>          <C>        
 July 1, 1996            3,370,000  $  6,740  $     -- $1,883,132  $ 1,700,905  $ 3,590,777

Reversal of Issuance
 of Bridge Units          (300,000)     (600)       -- (1,199,400)      80,000   (1,120,000)

Imputed Interest on
 Note Payable -
 Related Party                  --        --        --     14,099           --       14,099

Issuance of Stock
 Options                        --        --        --    143,601           --      143,601

Net Proceeds from
 Public Offering1        1,265,000     2,530        --  3,354,640           --    3,357,170

Net [Loss]                      --        --        --         --     (654,304)    (654,304)
                         ---------  --------  -------- ----------  -----------  -----------

Balance -
 June 30, 1997           4,335,000     8,670        --  4,196,072    1,126,601    5,331,343

Imputed Interest on
 Note Payable -
 Related Party                  --        --        --      7,051           --        7,051

Common Stock Issued
 in Payment of Debt        843,300     1,687        --    571,757           --      573,444

Issuance of Stock
 Options                        --        --        --      4,343           --        4,343

Fair Value of Stock
 Purchase Warrant
 [7][12A]                       --        --        --     68,182           --       68,182

Net [Loss]                      --        --        --         --      (97,438)     (97,438)
                         ---------  --------  -------- ----------  -----------  -----------

Balance -
 June 30, 1998           5,178,300  $ 10,357  $     -- $4,847,405  $ 1,029,163  $ 5,886,925
                         =========  ========  ======== ==========  ===========  ===========

</TABLE>


The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.

                                        F-6

<PAGE>



CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


CONSOLIDATED STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------
<TABLE>


                                                                 Years ended
                                                                    June 30,
                                                             1 9 9 8       1 9 9 7

Operating Activities:
<S>                                                        <C>          <C>         
  Net [Loss]                                               $  (97,438)  $  (654,304)
                                                           ----------   -----------
  Adjustments to Reconcile Net [Loss] to Net Cash
   [Used for] Operating Activities:
   Depreciation and Amortization                              413,060       310,395
   Lease Termination Items                                         --      (108,753)
   Amortization of Discount on Note Payable                     6,629            --
   Deferred Income Taxes                                      (83,000)       27,000
   Imputed Interest on Note Payable - Related Party             7,051        14,099
   [Gain] Loss on Investment in Partnership                     5,000        (1,780)
   Interest Income on Note Receivable                         (12,368)      (14,623)
   Write-off of Note Receivable                                33,058            --
   Bad Debt Expense                                            13,240        23,779
   [Gain] on Sale of Property and Equipment                        --       (25,000)
   Consulting Expense - Stock Options                           4,343       143,601

  Changes in Assets and Liabilities:
   [Increase] Decrease in:
     Accounts Receivable                                   (1,031,469)     (291,987)
     Inventories                                           (1,435,444)     (653,134)
     Prepaid Expenses and Other Current Assets                 97,032      (241,332)
     Prepaid Pension Costs                                    340,291       (45,957)
     Security Deposits and Other Assets                        11,868       (12,991)
     Refundable Federal Income Taxes                          240,000            --

   Increase [Decrease] in:
     Accounts Payable                                       1,075,080      (115,228)
     Federal and State Income Taxes Payable                    (1,416)     (127,549)
     Accrued Expenses and Other Liabilities                       330        (2,514)
                                                           ----------   -----------

   Total Adjustments                                         (316,715)   (1,121,974)
                                                           ----------   -----------

  Net Cash - Operating Activities - Forward                  (414,153)   (1,776,278)
                                                           ----------   -----------

Investing Activities:
  Investment in Partnership                                        --        (5,000)
  Investment in Officers Life Insurance                       (20,375)           --
  Issuance of Note Receivable                                      --      (223,750)
  Repayment of Loan from Related Company                           --        16,849
  Repayment of Note Payable - Stock Retirement                     --      (156,473)
  Purchase of Property and Equipment                         (974,385)     (316,499)
  Proceeds from Sale of Property and Equipment                     --        25,000
  Loans to Stockholders                                            --           (92)
  Repayment of Loans by Stockholders                            2,044            --
  Repayment of Note Receivable                                250,000         3,183
  [Loan to] Repayment of Loan to Related Company                2,500        (3,222)
                                                           ----------   -----------

  Net Cash - Investing Activities - Forward                $ (740,216)  $  (660,004)

</TABLE>

The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.

                                        F-7

<PAGE>



CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


CONSOLIDATED STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------
<TABLE>


                                                                  Years ended
                                                                    June 30,
                                                             1 9 9 8       1 9 9 7

<S>                                                        <C>          <C>         
  Net Cash - Operating Activities - Forwarded              $ (414,153)  $(1,776,278)
                                                           ----------   -----------

  Net Cash - Investing Activities - Forwarded                (740,216)     (660,004)
                                                           ----------   -----------

Financing Activities:
  Proceeds from Public Offering                                    --     3,426,344
  Proceeds from Notes Payable                                 581,886       412,744
  Proceeds from Notes Payable - Related Party                 750,000            --
  Repayment of Notes Payable                                 (231,370)   (1,157,615)
                                                           ----------   -----------

  Net Cash - Financing Activities                           1,100,516     2,681,473
                                                           ----------   -----------

  Net [Decrease] Increase in Cash and Cash Equivalents        (53,853)      245,191

Cash and Cash Equivalents - Beginning of Years              1,010,256       765,065
                                                           ----------   -----------

  Cash and Cash Equivalents - End of Years                 $  956,403   $ 1,010,256
                                                           ==========   ===========

Supplemental Disclosures of Cash Flow Information:
  Cash paid during the years for:
   Interest                                                $   55,000   $    59,000
   Income Taxes                                            $   75,000   $   168,000

Supplemental Disclosure of Non-Cash Investing and Financing Activities:
  The Company  incurred  offering  costs of $69,174 as of June 30,  1996.  These
costs were offset  against the net proceeds of the public  offering as reflected
in the consolidated  statements of stockholders'  equity for the year ended June
30, 1997.

  The Company  issued  843,300  shares of its common  stock to Gerob,  a related
party in  consideration  of  $297,000  of past due  rent and  satisfaction  of a
promissory note in the amount of $276,444.

  The  promissory  note from a related  party is  recorded  net of a discount of
$68,182,  which  represents  the fair  value of the  Class C  Warrant  issued as
consideration of the note.

  The Company has received common stock and royalties receivable in exchange for
forgiveness of debt in the amount of $22,000 from a customer.

</TABLE>



The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.

                                        F-8

<PAGE>



CHEM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------



[1] Business

Chem  International,  Inc.  [the  "Company"]  is engaged  primarily  in the
manufacturing,  marketing  and sales of vitamins,  nutritional  supplements  and
herbal  products.  Its customers  are located  primarily  throughout  the United
States and Europe.

[2] Summary of Significant Accounting Policies

Principles of Consolidation - The accompanying consolidated financial statements
include  the  accounts  of the  Company  and its  subsidiaries  all of which are
wholly-owned.  Intercompany  transactions  and balances have been  eliminated in
consolidation.

Cash and Cash  Equivalents - Cash  equivalents  are comprised of certain  highly
liquid investments with a maturity of three months or less when purchased.

Inventories - The inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out method.

Depreciation - The Company follows the general policy of  depreciating  the cost
of property and equipment over the following estimated useful lives:

Leasehold Improvements                              15 Years
Machinery and Equipment                              7 Years
Machinery and Equipment Under Capital Leases         7 Years
Transportation Equipment                             5 Years

Machinery  and  equipment  are  depreciated  using  accelerated   methods  while
leasehold  improvements  are amortized on a  straight-line  basis.  Depreciation
expense was  $401,072  and  $298,408 for the years ended June 30, 1998 and 1997,
respectively.  Amortization  of equipment  under capital leases is included with
depreciation expense.

Goodwill - Goodwill,  representing the excess of cost over the fair value of the
net assets acquired of the Company's  principal operating business subsidiary at
its date of its  acquisition  in 1981, is being  amortized  over 40 years on the
straight-line  method.  The Company  carries  its  goodwill  net of  accumulated
amortization of $197,596 and is subject to periodic review for impairment.

Amortization  expense  was $11,987 for each of the years ended June 30, 1998 and
1997.

Estimates - The preparation of financial statements in conformity with generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

                                       F-9

<PAGE>



CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #2
------------------------------------------------------------------------------




[2] Summary of Significant Accounting Policies [Continued]

Net [Loss] Per Share -The FASB  issued SFAS No.  128,  "Earnings  Per Share," in
February  1997.   SFAS  No.  128  simplifies  the  earnings  per  share  ["EPS"]
calculations required by Accounting Principles Board ["APB"] Opinion No. 15, and
related  interpretations,  by replacing the  presentation  of primary EPS with a
presentation of basic EPS. SFAS No. 128 requires dual  presentation of basic and
diluted EPS by entities with complex capital  structures.  Basic EPS includes no
dilution and is computed by dividing income available to common  stockholders by
the weighted-average number of common shares outstanding for the period. Diluted
EPS  reflects  the  potential  dilution  of  securities  that could share in the
earnings of an entity,  similar to the fully  diluted EPS of APB Opinion No. 15.
SFAS No. 128 is effective for  financial  statements  issued for periods  ending
after December 15, 1997,  including interim periods;  earlier application is not
permitted.  The Company has adopted SFAS No. 128 in these financial  statements.
Basic EPS is based on average common shares  outstanding and diluted EPS include
the  effects of  potential  common  stock,  such as,  options and  warrants,  if
dilutive. Potential common shares of 150,000 are not currently dilutive, but may
be in the future. Adoption of SFAS No. 128 is not material to the Company.

Revenue Recognition - The Company generally  recognizes revenue upon shipment of
the product.

Impairment  - Certain  long-term  assets of the Company  including  goodwill are
reviewed  at least  annually  as to  whether  their  carrying  value has  become
impaired,  pursuant to guidance established in Statement of Financial Accounting
Standards ["SFAS"] No. 121,  "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." Management  considers assets to be
impaired if the  carrying  value  exceeds the future  projected  cash flows from
related operations [undiscounted and without interest charges]. If impairment is
deemed to exist,  the assets will be written down to fair value which represents
the projected  discounted  cash flows from related  operations.  Management also
reevaluates the periods of amortization to determine  whether  subsequent events
and  circumstances  warrant  revised  estimates of useful lives.  As of June 30,
1998, management expects these assets to be fully recoverable.

Advertising - Costs  incurred for producing and  communicating  advertising  are
expensed when  incurred.  Advertising  expense was $447,516 and $235,636 for the
years ended June 30, 1998 and 1997, respectively.

[3] Investment in and Advances to Partnership

The  Company  was a 50%  general  partner in  Swedish  Herbal  Institute  - Chem
Associates [the  "Partnership"].  In addition to its $1,000 capital  investment,
the  Company had  advanced  approximately  $70,000 in  exchange  for a series of
promissory  notes.  As of June 30, 1996, the  Partnership  was insolvent and the
Company recorded a loss on its investment and a charge for  approximately 50% of
its note  receivable  for the year ended June 30, 1997.  At June 30,  1998,  the
balance of this note of $33,058  including  accrued  interest was written off as
uncollectible.

[4] Investment in Manhattan Health Products, L.L.C.

The Company is a 50% partner in Manhattan  Health  Products,  L.L.C. at June 30,
1998. The Company's capital  investment was written down to $-0-, which reflects
a capital cost of $5,000 and a net loss of $5,000 at June 30, 1998.

                                      F-10

<PAGE>



CHEM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #3
------------------------------------------------------------------------------



[5] Inventories

Inventories consist of the following at June 30, 1998:

Raw Materials                 $ 2,122,343
Work-in-Process                   419,663
Finished Goods                    979,804
                              -----------

  Total                       $ 3,521,810
  -----                       ===========

[6] Property and Equipment

Property and equipment comprise the following at June 30, 1998:

Leasehold Improvements                            $1,252,399
Machinery and Equipment                            2,288,210
Machinery and Equipment Under Capital Leases         109,545
Transportation Equipment                              36,652

Total                                              3,686,806
Less:  Accumulated Depreciation and Amortization   2,041,444

  Total                                           $1,645,362

[7] Notes Payable

Notes payable are summarized as follows at June 30, 1998:

                                                         Related Party
                                           Notes Payable Note Payable    Total
Notes Payable:
  Bio Merieux Vitek, Inc. (a)               $   62,318   $        --  $   62,318
  President and Chief Executive Officer (b)         --       688,447     688,447
  Summit Bank:
   Revolving Line-of-Credit (c)                300,000            --     300,000
   Equipment Term Loan (d)                     169,043            --     169,043
                                            ----------   -----------  ----------

  Totals                                       531,361       688,447   1,219,808
  Less:  Current Portion                       356,537            --     356,537
                                            ----------   -----------  ----------

   Noncurrent Portion                       $  174,824   $   688,447  $  863,271
   ------------------                       ==========   ===========  ==========

(a)Five year 10%  equipment  note  dated  April 1, 1997  providing  for  monthly
   payments of $1,698 for principal and interest.  The note is collateralized by
   laboratory equipment.

                                      F-11

<PAGE>



CHEM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #4
------------------------------------------------------------------------------



[7] Notes Payable [Continued]

(b)Three year  non-collaterized  7%  promissory  note for $750,000  with related
   party providing for quarterly payments of $4,725 representing  interest only.
   The note matures on March 12, 2001. As additional  consideration for the loan
   and in the  light of the  below  market  interest  rate and  uncollateralized
   nature of the loan,  the  Corporation  issued a Class C Warrant  to  purchase
   150,000  shares of common stock at the aggregate  purchase price of $1.75 per
   share.  The note is recorded net of $68,182,  which represents the fair value
   of the Class C warrant.  The  amortization at June 30, 1998 was $6,629 and is
   classified as interest  expense in the Company's  financial  statements.  The
   warrant is exercisable  for a four year period  commencing one year after the
   issuance of the note and expires on March 12, 2003 [See Note 12D].

(c)Under the terms of a revolving line of credit which expired on July 29, 1998,
   the  Company  borrowed  $300,000  under a $500,000  line of credit at 1 1/2 %
   above  the  bank's  prime  rate.  The loan  was  collateralized  by  accounts
   receivable,  inventory  and  machinery  and  equipment.  The  loan  has  been
   guaranteed by the Company's president and principal stockholder.  At June 30,
   1998, the interest rate was 10.0% [See Note 20].

(d)Under the terms of an equipment term loan, due November 30, 2001, the Company
   may borrow up to $350,000  at 1-1/2%  above the bank's  prime rate.  The term
   loan provides for monthly  payments of $4,698 for principal and interest.  At
   June 30, 1998,  the interest rate was 9.75%.  The loan is  collateralized  by
   machinery  and  equipment.  The  loan has been  guaranteed  by the  Company's
   president and principal stockholder.

The loan  agreement  with  Summit Bank  contained  certain  financial  covenants
relating to the  maintenance  of  specified  liquidity,  debt to equity and debt
coverage  ratios  and  requires  that  the  Company's  president  and  principal
stockholder  maintain a minimum stock ownership  percentage of the Company.  The
Company was not in  compliance  with its debt coverage  ratio on a  consolidated
basis at June 30, 1998 [See Note 20].

The  non-interest  bearing  note of  approximately  $276,000 due to Gerob Realty
Partnership  ["Gerob"] on September 10, 2002 was exchanged in  consideration  of
shares of authorized but unissued common stock [See Note 17E].

The following are maturities of long-term debt for each of the next five years:

                                                         Related Party
                                           Notes Payable Note Payable    Total
March 31,
  1999                                      $  356,537   $        --  $  356,537
  2000                                          62,814            --      62,814
  2001                                          68,783       688,447     757,230
  2002                                          43,227            --      43,227
  2003                                              --            --          --
                                            ----------   -----------  ----------

  Totals                                    $  531,361   $   688,447  $1,219,808
  ------                                    ==========   ===========  ==========

[8] Capital Lease

The Company  acquired  equipment under the provision of a long-term  lease.  The
lease expires in March 2001.  The  equipment  under the capital lease as of June
30, 1998 had a cost of $109,545  accumulated  depreciation of $15,654 with a net
book value of $93,891.

                                      F-12

<PAGE>



CHEM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #5
------------------------------------------------------------------------------



[8] Capital Lease [Continued]

The future minimum lease payments under capital leases and the net present value
of the future minimum lease payments at June 30, 1998 are as follows:

Total Minimum Lease Payments                $  115,390
Amount Representing Interest                   (13,861)
                                            ----------

Present Value of Net Minimum Lease Payments    101,529
Current Portion                                (33,978)

  Long-Term Capital Lease Obligation        $   67,551

[9] Income Taxes

Provision for income taxes consists of the following:

                                                       Years Ended
                                                        June 30,
                                                   1 9 9 8     1 9 9 7
                                                   -------     -------
Currently Payable:
  Federal                                       $    33,134 $  (277,276)
  State                                              13,580       4,256
                                                ----------- -----------

                                                     46,714    (273,020)

Deferred:
  Federal                                           (60,275)     22,950
  State                                             (22,725)      4,050
                                                ----------- -----------

                                                    (83,000)     27,000

  Totals                                        $   (36,286)$  (246,020)
  ------                                        =========== ===========

Reconciliation  of the  statutory  federal  income  tax  rate  to the  Company's
effective income tax rate is as follows:

                                                       Years Ended
                                                        June 30,
                                                   1 9 9 8     1 9 9 7
                                                   -------     -------

U.S. Statutory Rate                                   (34)%      (34)%
State Taxes on Income - Net of Federal Benefit         (6)        (6)
Nondeductible Items:
  Travel and Entertainment                              1          4
  Amortization of Goodwill                              9          2
  Other - Net                                          --          1
  Consulting Fees                                       3          6
                                                   ------      -----

  Effective Income Tax Rate                           (27)%    (27)%
  -------------------------                        ======  =======

Deferred income taxes arise from temporary differences resulting from income and
expense reported for financial accounting and tax purposes in different periods.

                                      F-13

<PAGE>



CHEM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #6
------------------------------------------------------------------------------



[9] Income Taxes [Continued]

The significant  components of deferred tax assets and  [liabilities]  relate to
the following at June 30, 1998:

Inventory Cost                                    $   31,000
Other                                                 10,000
Nondeductible Expense                                 22,000
Depreciation Expense                                  37,000
                                                  ----------

  Subtotal                                           100,000

Valuation Allowance                                       --

  Net Deferred Tax Assets                         $  100,000
  -----------------------                         ==========

The Company  believes that net deferred tax assets,  which are included in other
current assets,  are more likely than not to be realized  because all deductible
temporary  differences  will be utilized as charges against  reversals of future
taxable  temporary  differences.  Accordingly,  the Company  has not  recorded a
valuation  allowance  for the year ended June 30, 1998.  This is unchanged  from
prior year.

The Company and its subsidiaries file a consolidated federal income tax return.

[10] Pension Plans

In May 1998,  with the approval of the  Internal  Revenue  Service,  the Company
terminated the defined  benefit  pension plan. At June 30, 1997, the Company had
included in the balance sheet in other assets a prepaid pension cost of $340,291
and a  corresponding  deferred tax liability of $136,000.  At June 30, 1998, the
Company wrote off the balance of the prepaid pension cost of $340,291 to pension
plan expense and reduced the deferred tax liability accordingly. The $340,291 is
included in selling and administrative expense at June 30, 1998.

The Company  sponsored a  noncontributory  defined benefit pension plan covering
all nonunion  employees meeting age and service  requirements.  Contributions to
the plan,  which are made solely by the Company,  are  determined  by an outside
actuarial  firm. The Company made no  contributions  and incurred no expense for
1998 or 1997, respectively.

The defined  benefit  pension  plan  called for  benefits to be paid to eligible
employees at retirement  based  primarily upon years of service with the Company
and the average monthly compensation. Contributions to the plan reflect benefits
attributed  to employees'  services to date, as well as services  expected to be
earned in the future. Plan assets consisted primarily of marketable securities.

Pension expense includes the following components:

                                                       Years Ended
                                                        June 30,
                                                   1 9 9 8     1 9 9 7
                                                   -------     -------

Service Cost of the Current Period              $        -- $    27,920
Interest Cost on the Projected Benefit
     Obligation                                          --      36,541
Actual Gain on Assets Held in the Plan                   --     (81,318)
Net Amortization of Transition Liability
     and Net Gain                                        --     (29,100)
                                                ----------- -----------

  Pension Expense [Credit]                      $        -- $   (45,957)
  ------------------------                      =========== ===========

                                      F-14

<PAGE>



CHEM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #7
------------------------------------------------------------------------------



[10] Pension Plans [Continued]

The following  sets forth the funded status of the plan and the amounts shown in
the accompanying balance sheet:

                                                             1 9 9 8    1 9 9 7
                                                             -------    -------

Actuarial Present Value of Benefit Obligations:
  Vested Benefits                                        $       -- $ (567,601)
  Nonvested Benefits                                             --         --
                                                         ---------- ----------

  Accumulated Benefit Obligation                                 --   (567,601)
  Effect of Anticipated Future Compensation Levels
     and Other Events                                            --    (31,187)

  Projected Benefit Obligation                                   --   (598,788)
  Fair Value of Assets Held in the Plan                          --  1,138,348
                                                         ---------- ----------

  Excess of Plan Assets Over Projected Benefit Obligation        --    539,560
  Unrecognized Transition Obligation                             --     80,500
  Unrecognized Net Gain from Past Experience Different
     than Assumed                                                --   (279,769)

  Prepaid Pension Cost Included in the Balance Sheet      $      -- $  340,291
  --------------------------------------------------      ========= ===========

The  weighted  average  discount  rate used to  measure  the  projected  benefit
obligation is 7% for 1997,  the rate of increase in future  compensation  levels
was 2% for 1997, and the expected  long-term rate of return on assets was 7% for
1997. The Company used the straight-line  method of amortization of unrecognized
gains and losses.

Additionally,  the  Company  participates  in a union  sponsored  multi-employer
defined contribution plan covering all union employees.  Information relating to
accumulated benefits obligations and plan assets is not available.  Under ERISA,
an employer, upon withdrawal from a multi-employer plan, is required to fund its
proportionate  share of the  plan's  unfunded  vested  benefits  at the point of
withdrawal.  The Company has no  intention  of  withdrawing  from the plan.  The
Company  is  required  to fund  the  plan on the  first  of each  month  for the
preceding month's  obligation.  Total  contributions  charged to operations were
$59,977 and $48,960 for the years ended June 30, 1998 and 1997, respectively.

[11] Profit-Sharing Plan

The Company maintains a profit-sharing plan which qualifies under Section 401(k)
of the Internal Revenue Code,  covering all nonunion  employees  meeting age and
service  requirements.  Contributions are determined by matching a percentage of
employee contributions.  The total expense for the years ended June 30, 1998 and
1997 was $43,257 and $32,596, respectively.

[12] Significant Risks and Uncertainties

[A]  Concentrations  of Credit Risk - Cash - The Company  maintains  balances at
several financial institutions.  Accounts at each institution are insured by the
Federal  Deposit  Insurance  Corporation  up to $100,000.  At June 30, 1998, the
Company's uninsured cash balances totaled approximately $644,000.
The Company does not require collateral in relation to cash credit risk.

                                      F-15

<PAGE>



CHEM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #8
------------------------------------------------------------------------------



[12] Significant Risks and Uncertainties [Continued]

[B] Concentrations of Credit Risk - Receivables - The Company routinely assesses
the financial strength of its customers and, based upon factors  surrounding the
credit  risk  of its  customers,  establishes  an  allowance  for  uncollectible
accounts and, as a  consequence,  believes that its accounts  receivable  credit
risk exposure  beyond such  allowances is limited.  The Company does not require
collateral in relation to its trade accounts  receivable credit risk. The amount
of the allowance for uncollectible accounts at June 30, 1998 is $25,750.

[13] Major Customer

For the years ended June 30, 1998 and 1997,  approximately 44% or $7,000,000 and
48% or $5,400,000, respectively, of revenues were derived from one customer. The
loss of this customer would have an adverse affect on the Company's  operations.
In  addition,  for the years  ended  June 30,  1998 and 1997,  an  aggregate  of
approximately 19% and 19%, respectively, of revenues were derived from two other
customers;  no other customers accounted for more than 10% of consolidated sales
for the years  ended  June 30,  1998 and 1997.  Accounts  receivable  from these
customers  comprised  approximately 48% and 51% of total accounts  receivable at
June 30, 1998 and 1997, respectively.

[14] Commitments and Contingencies

[A] Leases

Related Party Leases - Certain  manufacturing  and office  facilities are leased
from Gerob Realty  Partnership  ["Gerob"] whose partners are stockholders of the
Company.  The lease, which expires on December 31, 1998,  provides for a minimum
annual  rental of $60,000 plus payment of all real estate  taxes.  Rent and real
estate tax  expense for the years ended June 30, 1998 and 1997 on this lease was
approximately $116,000 and $143,000, respectively. Unpaid rent of $25,000 due to
Gerob at June 30, 1998 has been separately  disclosed as accrued expenses on the
consolidated  balance sheet.  Past due rent at December 31, 1997 of $297,000 was
forgiven in consideration of issuance of shares of common stock [See Note 14E].

Other warehouse and office facilities are leased from Vitamin Realty Associates,
L.L.C.,  a  limited  liability  company,  which is 90%  owned  by the  Company's
president and principal  stockholder and certain family members and 10% owned by
the Company's  Chief Financial  Officer.  The lease was effective on January 10,
1997 and provides for minimum annual rental of $346,000 through January 10, 2002
plus  increases  in real estate taxes and building  operating  expenses.  At its
option, the Company has the right to renew the lease for an additional five year
period.  Rent  expense  for the  years  ended  June 30,  1998 on this  lease was
approximately $450,000.

Other Lease Commitments - The Company leases warehouse equipment for a five year
period providing for an annual rental of $15,847 and office equipment for a five
year period providing for an annual rental of $8,365.

The Company leases automobiles under  non-cancelable  operating lease agreements
which expire through 2001.

                                      F-16

<PAGE>



CHEM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #9
------------------------------------------------------------------------------



[14] Commitments and Contingencies [Continued]

Other  Lease  Commitments  [Continued]  -  The  minimum  rental  commitment  for
long-term non-cancelable leases is as follows:

                                              Related
Year Ending                      Lease      Party Lease
  June 30,                    Commitment    Commitment       Total

   1999                       $   53,646     $ 346,000    $  399,646
   2000                           48,240       346,000       394,240
   2001                           24,717       346,000       370,717
   2002                           16,912       182,609       199,521
   2003                               --            --            --
   Thereafter                         --            --            --
                              ----------     ---------    ----------

   Total                      $  143,515     $1,220,609   $1,364,124
   -----                      ==========     ==========   ==========

Total rent expense,  including real estate taxes and  maintenance  charges,  was
approximately  $568,000 and $411,000 for the years ended June 30, 1998 and 1997,
respectively.  Rent  expense is stated net of sublease  income of  approximately
$16,000 and $160,000 for the years ended June 30, 1998 and 1997, respectively.

[B] Employment  Agreements - Effective  July 1, 1996,  the Company  entered into
three year  employment  agreements  with its president  and four other  officers
which provide for aggregate annual salaries of $580,000 for the year ending June
30,  1997,   and  $680,000  for  the  years  ending  June  30,  1998  and  1999,
respectively. These agreements are subject to annual increases equal to at least
the increase in the consumer price index for the Northeastern area.

[C]  Investment in and Royalties  Receivable  from Martin Health Care  Products,
Inc. - On February  10,  1998,  the  Company  signed an  exclusive  manufacturer
agreement  with Martin  Health Care  Products,  Inc. to provide to Martin Health
Care certain  products for a ten year period.  In connection with the agreement,
the Company also agreed to forgive from Martin Health Care outstanding  invoices
totaling  $22,000.  In return for the  forgiveness,  Martin agreed to pay to the
Company a  royalty  on sales of  certain  products  and to issue to the  Company
15,000 shares of common stock in Martin Health Care  Products,  Inc. The Company
has  recorded  the cost for the  common  stock at $1,000  and has  recorded  the
royalties as a non-current asset in the amount of $21,000.

[D]  Litigation  - The  Company  is unable to  predict  its  ultimate  financial
exposure  with  respect  to its prior sale of  certain  products  which may have
contained  allegedly  contaminated  Tryptophan  which is the subject of numerous
lawsuits against unrelated manufacturers, distributors, suppliers, importers and
retailers of that product.  However,  management does not presently  believe the
outcome of these actions will have a material adverse effect on the Company.

On July 7, 1997, the Company was informed by one of its suppliers of a recall of
the supplier's raw material which was used in  manufacturing  of tablets sold by
the Company.  On July 17, 1997, the Company  issued a voluntary  recall to three
customers  affected by this and,  accordingly,  reduced  its sales and  accounts
receivable at June 30, 1997 by $127,000. The Company believes they have recourse
against the  supplier  for the full value of the  tablets  sold  containing  the
recalled  raw  material.  The  Company  does  not  believe  there  will  be  any
significant additional costs relating to this recall. On September 30, 1997, the
Company  instituted  suit to recover all  damages.  The case is currently in the
discovery  stage.  The Company expects that the case will proceed to non-binding
arbitration  in January 1999. No estimate can be made at June 30, 1998 as to the
amount, if any, of ultimate recovery.

                                      F-17

<PAGE>



CHEM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #10
------------------------------------------------------------------------------



[14] Commitments and Contingencies [Continued]

[E] Consulting  Agreements - On October 29, 1996, the Company entered into a two
year  consulting  agreement  for $88,550 with the  underwriter  of the Company's
public  offering,  which  is  being  taken  into  expense  over  the term of the
agreement.  In December 1997,  the  underwriter  of the public  offering  ceased
operations  and market making  activities.  At December 31, 1997, the balance of
prepaid consulting fees of $36,896 was written off as consulting expense.

The Company entered into a consulting  agreement with a financial advisory group
["Consultants"]  commencing  on March 20,  1998 until  February  28,  1999.  The
Company is  obligated  to pay $2,500 for  services  rendered  at the end of each
month  that  services  are  provided  during  the  terms of this  agreement.  In
addition, the Company has issued to the Consultants options for 45,000 shares of
common stock [See Note 17C].

[F]  Development  and Supply  Agreement - On April 9,1998,  the Company signed a
development and supply agreement with Herbalife  International of America,  Inc.
["Herbalife"]  whereby the Company will develop,  manufacture and supply certain
nutritional products to Herbalife through December 31, 2000.

[G]  Manufacturing  Agreement  - On February  14,  1998,  the  Company  signed a
manufacturing agreement with Pilon International,  PLC., a company that supplies
Zepter  International,   a  world-wide  direct  sales  distributor  of  consumer
products.  The Company will manufacture and develop dietary  supplements through
the year 2001.

[15] Related Party Transactions

During the year ended June 30,  1997,  the  Company  entered  into a  consulting
agreement with the brother of the Company's  president on a month to month basis
for $1,000 per month.  The total  consulting  expense  recorded  per this verbal
agreement for the years ended June 30, 1998 and 1997, by the Company was $12,000
and $11,000, respectively.

[16] Fair Value of Financial Instruments

Generally  accepted  accounting  principles require disclosing the fair value of
financial  instruments to the extent practicable for financial instruments which
are  recognized  or  unrecognized  in the balance  sheet.  The fair value of the
financial instruments disclosed herein is not necessarily  representative of the
amount  that  could be  realized  or  settled,  nor does the fair  value  amount
consider the tax consequences of realization or settlement.

In assessing the fair value of financial instruments, the Company uses a variety
of methods and  assumptions,  which are based on estimates of market  conditions
and risks existing at the time. For certain instruments, including cash and cash
equivalents,  accounts  receivable,  notes  receivable,  accounts  payable,  and
accrued  expenses,  it was estimated that the carrying amount  approximated fair
value because of the short maturities of these instruments.  Short-term debt and
long-term debt  including  long-term debt to a related party is based on current
rates at which the Company could borrow funds with similar remaining  maturities
and approximates fair value.



                                      F-18

<PAGE>



CHEM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #11
------------------------------------------------------------------------------



[17] Equity Transactions

[A] Capital Stock - In February 1996, the Company [a New York  corporation]  was
merged into its wholly-owned  subsidiary,  Chem International,  Inc. [a Delaware
corporation],  pursuant to Section 253 of the Delaware  Corporation  Law for the
sole  purpose of changing  its  domicile.  As a result  thereof and after giving
effect to restatements to the Company's certificate of incorporation  subsequent
to the  conversions  and  retirement of the previously  outstanding  Class A and
Class B preferred  stock,  the  authorized  capitalization  of the Company is as
follows:

Preferred Stock:  Authorized 1,000,000 shares $.002 par value
Common Stock:  Authorized 25,000,000 shares $.002 par value

The  Board  of  Directors  of  the  Company  has  the  right  to  determine  the
designations,  rights,  preferences and privileges of the holders of one or more
series of preferred stock which might be issued.

In May 1996, the Company sold, in a private  placement,  70,000 shares of common
stock for  $175,000.  In June 1996,  the Company also issued the  equivalent  of
300,000  Bridge  Units  [each  consisting  of one share of common  stock and one
warrant  to  purchase  a share of common  stock at $5.50 a share for four  years
following the offering] in connection with the sale of $300,000 of 7% promissory
notes to four  investors.  The Bridge  Units were valued at $4 each,  a total of
$1,200,000,  which was being charged to  operations  over the term of the Bridge
Notes. On October 16, 1996, the Bridge Lenders waived their rights to the bridge
units and agreed to the cancellation of the underlying securities.  Accordingly,
the Company has eliminated the amount  previously  recorded for the bridge units
and the related bridge loan finance costs of $80,000.

In July 1996,  the Company  affected a 1 for 4 reverse  common stock split.  The
financial statements give retroactive effect to the reverse stock split.

On October  29,  1996,  the  Company  received  net  proceeds  of  approximately
$3,400,000  from  the  sale of  632,500  units  at  $7.00  per  unit in a public
offering.  Each unit  consisted  of two  shares of Common  Stock and two Class A
Redeemable Common Stock Purchase Warrants.

[B] Additional Paid-in Capital - For financial accounting purposes,  interest of
8.5% a year was being imputed on a related party non-interest  bearing note [See
Note 7(b)].

[C] Stock  Option Plan - The  Company  has  adopted a stock  option plan for the
granting of options to employees,  officers,  directors and  consultants  of the
Company to purchase up to 1,000,000 shares of common stock, at the discretion of
the Board of  Directors.  Stock option  grants are limited to a total of 500,000
shares for  "incentive  stock  options"  and 500,000  shares for  "non-statutory
options" and, may not be priced less than the fair market value of the Company's
common stock at the date of grant.  Options  granted are  generally for ten year
periods,  except that  options  granted to a 10%  stockholder  [as  defined] are
limited to five year terms.  On October 16,  1996,  options to purchase  573,597
shares at the offering  price  [$3.50] and 25,974 shares at 110% of the offering
price were granted.  Such options  became  exercisable  on October 16, 1997. The
weighted average grant date fair value of the above options was $3.50.

                                      F-19

<PAGE>



CHEM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #12
------------------------------------------------------------------------------



[17] Equity Transactions [Continued]

[C] Stock Option Plan [Continued] - Information pertaining to options as of June
30, 1998 and for the year then ended is as follows:

                                                                     Remaining
                                                                    Contractual
                                                    Weighted Average   Life
                                             Common  Exercise Price of Options
                                             Shares     Per Share   Outstanding


Options Outstanding - June 30, 1996                --          --           --

Granted:
  Exercise Price Equals Market Price          573,597        3.50    4.3 Years
  Exercise Price is Greater Than Market Price  25,974        3.85    8.7 Years
Options Exercised                                  --          --           --
Options Canceled                                   --          --           --
                                             --------  ---------- ------------

  Options Outstanding - June 30, 1997         599,571  $     3.52    4.5 Years

Granted:
  Exercise Price is Greater Than Market Price  45,000        2.54          4.8
Options Exercised                                  --          --           --
Options Canceled                                   --          --           --
                                             --------  ---------- ------------

  Options Outstanding - June 30, 1998         644,571        3.45          3.6
  -----------------------------------        ========  ========== ============

  Options Exercisable - June 30, 1998         644,571  $     3.45          3.6
  -----------------------------------        ========  ========== ============

The  Company  applies  APB  Opinion  25 in  accounting  for its stock  issued to
employees.  Accordingly,  no compensation  cost has been recognized for employee
stock options for the years ended June 30, 1998 and 1997, respectively.

Net  income  [loss] and net income  [loss] per share as  reported,  and on a pro
forma basis as if  compensation  cost had been  determined  on the basis of fair
value pursuant to SFAS No. 123 is as follows:

                                                       Year Ended
                                                        June 30,
                                                   1 9 9 8     1 9 9 7
                                                   -------     -------

Net [Loss] - As Reported                        $   (97,438)$  (654,304)
                                                =========== ===========

Pro Forma                                       $   (97,438)$(1,589,680)
                                                =========== ===========

[Loss] Per Share - As Reported                  $      (.02)$      (.16)
                                                =========== ===========

Pro Forma                                       $      (.02)$      (.40)
                                                =========== ===========



                                      F-20

<PAGE>



CHEM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #13
------------------------------------------------------------------------------



[17] Equity Transactions [Continued]

[C] Stock  Option  Plan  [Continued]  - During the years ended June 30, 1998 and
1997,  the Company  issued  45,000 and 75,000 stock  options,  respectively,  to
consultants  at an exercise  price equal to the market  price  [$1.06 and $3.50,
respectively] on the dates of grants. The cost of issuing these stock options to
consultants  during the years  ended June 30,  1998 and 1997,  is  approximately
$4,300 and $144,000 The weighted average fair value of the stock options granted
to consultants  for the years ended June 30, 1998 and 1997 is estimated at $2.54
and $2.08, respectively,  using the Black-Scholes option pricing model and using
a risk-free interest rate of 5.3% and 6.1%, an expected  volatility ranging from
43% to 52% for 1998  and 64% for  1997,  and an  expected  life of 5  years.  No
dividends are expected to be paid during the expected life of the options.

[D]  Consultant  Agreement/Stock  Options  - In  connection  with  a  consulting
agreement  dated March 20, 1998, the Company has issued three options for 45,000
shares of common  stock [See Note 17C].  Each option is  exercisable  for 15,000
shares at  exercise  prices of  $1.125,  $2.50 and  $4.00,  respectively.  These
options are exercisable until five years following the date of this agreement.

[E] Related Party Debt  Conversion - On January 12, 1998,  the Company  signed a
Stock Sale Agreement with Gerob.  Under the terms of the agreement,  the Company
sold 843,300  shares of common stock to Gerob.  The issuance of the stock was in
consideration  of $297,000 of past due rent and the satisfaction of a promissory
note of $276,444 [See Note 7 and 14A].

[F] Related Party Promissory Note - On March 12, 1998, the Company  negotiated a
three year  promissory  note for $750,000 with its Chairman and  President.  The
note bears  interest at 7% and is due on March 12, 2001.  The note  provides for
interest only to be paid quarterly. As additional consideration for the loan and
in the light of the below market  interest rate and  uncollateralized  nature of
the loan, the Corporation issued a Class C Warrant to purchase 150,000 shares of
common stock at the  aggregate  purchase  price of $1.75 per share.  The note is
recorded  net of  $68,182,  which  represents  the  fair  value  of the  Class C
Warrants. Amortization of $6,629 was recorded for the warrants at June 30, 1998.
The warrant is exercisable for a four year period  commencing one year after the
issuance of the note and expires on March 12, 2003 [See Note 7].

[18] New Authoritative Pronouncements

The FASB has issued SFAS No. 130,  "Reporting  Comprehensive  Income." SFAS
No. 130 is effective for fiscal years beginning after December 15, 1997. Earlier
application is permitted.  Reclassification of financial  statements for earlier
periods  provided  for  comparative  purposes is  required.  SFAS No. 130 is not
expected to have a material impact on the Company.

The FASB has  issued  SFAS  No.  131,  "Disclosures  About  Segments  of an
Enterprise and Related Information." SFAS No. 131 changes how operating segments
are  reported in annual  financial  statements  and  requires  the  reporting of
selected  information  about  operating  segments in interim  financial  reports
issued to  shareholders.  SFAS No. 131 is effective for periods  beginning after
December  15,  1997,  and  comparative  information  for earlier  years is to be
restated.  SFAS No. 131 need not be applied to interim  financial  statements in
the initial year of its application.  Management is in the process of evaluating
the  disclosure  requirements.  SFAS No. 131 is not  expected to have a material
impact on the Company.

In February  1998,  the FASB issued SFAS No. 132,  "Employers  Disclosure  about
Pension and Other Postretirement  Benefits," which is effective for fiscal years
beginning after December 15,1997.  The modified disclosure  requirements are not
expected  to have a material  impact on the  Company's  results  of  operations,
financial position or cash flows.

In June  1998,  the  FASB  issued  SFAS  No.  133,  "Accounting  for  Derivative
Instruments  and  Hedging  Activities,"  which is  effective  for  fiscal  years
beginning  after June  15,1999.  The Company  will  evaluate the new standard to
determine any required new disclosures or accounting.

                                      F-21

<PAGE>



CHEM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #14
------------------------------------------------------------------------------



[20] Subsequent Events

On July 27, 1998, the Company signed a new financing  agreement with First Union
Bank providing for a $500,000 revolving line of credit with interest at 1% above
the bank's prime  lending  rate and  expiring on July 30, 1999, a $170,000  five
year  equipment  loan with  interest  at1.5% above the bank's prime lending rate
expiring on June 30, 2003,  and a five year  $225,000  equipment  term loan with
interest at 1.50% above the bank's prime  lending rate.  The above  financing is
personally  guaranteed by the Company's  President,  and is  collateralized by a
security  interest in all the assets of Manhattan  Drug  Company.  The financing
with First  Union Bank  contains  certain  financial  covenants  relating to the
maintenance of specified liquidity, debt to equity and debt coverage ratios.

On July 29, 1998, the Company borrowed  $300,000 of the $500,000  revolving line
of credit from the new bank to pay off the  existing  line of credit  balance at
June  30,  1998 and used the  $170,000  equipment  loan to pay off the  existing
equipment  loan balance at June 30, 1998.  Subsequently,  the Company repaid the
$300,000 on August 7, 1998.




                 .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .

                                      F-22

<PAGE>



                                  Exhibit 10.12

                        DEVELOPMENT AND SUPPLY AGREEMENT


      THIS DEVELOPMENT AND SUPPLY AGREEMENT  ("Agreement") is entered into as of
March 13, 1998, by and between  Manhattan Drug Company,  Inc a company organized
and  existing   under  the  laws  of  New  York   ("Supplier"),   and  Herbalife
International of America,  Inc., a company organized and existing under the laws
of California ("Herbalife"), with reference to the following facts:

                                    RECITALS

      A. Herbalife is in the business of selling  nutritional and other products
manufactured in accordance with formulas.  Supplier has demonstrated  Supplier's
capability  to  develop  formulas  and to  manufacture  and  supply  nutritional
products derived from those formulas.

      B. Herbalife  desires to have Supplier develop  formulas,  which are to be
owned by Herbalife,  and to have  Supplier  manufacture  and supply  nutritional
products made in .accordance  with those and/or other  Herbalife  formulas,  and
Supplier desires to so develop,  manufacture and supply nutritional products for
and to Herbalife in accordance with the terms and conditions of this Agreement.

                                    AGREEMENT

      NOW,  THEREFORE,  in consideration of the foregoing,  the mutual covenants
contained in this Agreement,  and for other valuable consideration,  the receipt
and  sufficiency of which are hereby  acknowledged,  the parties hereby agree as
follows:

          1. Definitions. Capitalized terms not otherwise defined herein shall
bear the respective meanings given to them below:

      "Current  Products" means the  nutritional  products listed on Exhibit A-1
hereto  made in  accordance  with the Product  Rights for the Current  Products,
including any modification,  derivatives alteration, improvement, enhancement or
successor of the nutritional products listed on Exhibit A-1 hereto.

      "Product  Rights"  means all  documentation,  materials  and  rights  with
respect to Supplied Products (whether or not each respective document,  material
or right is complete or reduced to tangible form),  that have been or are at any
time  generated  or  derived,  whether  before,  on or  after  the  date of this
Agreement,  in  connection  with the  development,  manufacture  and  supply  of
Supplied  Products,   including  without  limitation   formulas,   formulations,
processes,  specifications,  standards  and  procedures  for Supplied  Products,
whether  developed by or on behalf of Herbalife or Supplier (whether pursuant to
Section 3(a) or otherwise),  an ' d any and all (a) modifications,  derivatives,
alterations, improvements, enhancements or successors thereof, whether developed
by or on behalf of  Herbalife or Supplier  (whether  pursuant to Section 3(a) or
otherwise , and (b) patents, copyrights, trademarks, service marks, trade dress,
know-how,  proprietary  or  confidential  information or other  intellectual  or
industrial  property  rights  (whether or not reduced to tangible form) included
in, pertaining to or associated with the foregoing.

      "New  Products"  means (i) any and all new  nutritional  products  made in
accordance with Product Rights, the chemical composition of which Product Rights
are materially different from any Product Rights for a Current Product, and (ii)
any and all  substitute  nutritional  products made in  accordance  with Product
Rights,  the  chemical  composition  of  which  Product  Rights  are  materially
different  from any  Product  Rights for a Current  Product  (and which  Product
Rights are substitutes for a Current  Product),  and, in the case of both of the
foregoing clauses (i) and (ii), which Product Rights were developed from time to
time by or on behalf of Herbalife or Supplier  (whether pursuant to Section 3(a)
or otherwise),  and which new or substitute nutritional products were designated
by Herbalife  to be  manufactured  and supplied by Supplier  pursuant to Section
4(b).

      "Product Prices" means the prices at which Supplied Products shall be sold
by Supplier to Herbalife or its designees hereunder.  The Product Price for each
Current  Product is listed on Exhibit A-1 hereto in reference to the  respective
Current Product.


<PAGE>





      "Supplied  Products" means any and all Current  Products,  and any and all
New Products made subject to the terms and conditions of this Agreement pursuant
to Section 4(b) below.

      2. Term.  The term of this  Agreement  shall  commence  as of the date set
forth  above and shall  continue  through  December  31,  2000,  unless  earlier
terminated pursuant to the provisions hereof (the "Term").

      3. Development.

         (a)Appointment as a Developer.  Herbalife hereby appoints Supplier, and
Supplier hereby accepts such appointment,  to develop,  derive,  create,  alter,
modify,  improve and enhance Product Rights  according to the  requirements  and
specifications  established  or  agreed  to from  time to  time,  by  Herbalife.
Supplier  shall  diligently  proceed  with the  development  and creation of the
Product Rights,  and shall commit and utilize  sufficient  resources to complete
the  development  and  creation  of  the  Product  Rights  in a  timely  manner.
Supplier's  appointment hereunder is on a non-exclusive basis, and Herbalife may
appoint any other  person or entity to carry on the same or similar  services to
those to be carried out hereunder by Supplier.

         (b)Personnel.  The  services  described  in Section 3(a) above shall be
performed only by Supplier's employees, all of whom are aware of the obligations
of Supplier set forth in Section 9 of this  Agreement  and are bound to abide by
all of such obligations of Supplier.

         (c)No  Additional   Compensation   For  Development.   No  compensation
whatsoever,   whether  in  the  form  of  royalties,   license   fees,   expense
reimbursement  claims or  otherwise,  shall be payable or paid by  Herbalife  to
Supplier,  or any third party in any way connected to Supplier,  for  Supplier's
development  and  creation  of  the  Current   Products  above,  or  (except  as
specifically set forth herein) for the development,  manufacture, use or sale by
or for  Herbalife (or its  designees) of any product made in accordance  with or
otherwise based upon, developed or derived,  directly or indirectly,  in any way
from the Product Rights for the Supplied Products.

      4. Manufacture and Supply Terms.

         (a)Appointment  as  a  Manufacturer  and  Supplier.   Herbalife  hereby
appoints  Supplier,   and  Supplier  hereby  accepts  such  appointment,   as  a
manufacturer  and  supplier to Herbalife  of Supplied  Products,  subject to the
terms and  conditions of this  Agreement  (including  without  limitation  those
special additional terms and conditions set forth on Exhibit A hereto). Supplier
shall  manufacture  and  supply the  Supplied  Products  exclusively  for and to
Herbalife  and  its   designee(s).   Supplier  shall  not  develop,   formulate,
manufacture,  supply,  distribute  or  otherwise  sell  at @ny  time  any of the
Supplied  Products,  or any product made with or using any or all of the Product
Rights,  for or to any person or entity (including  without limitation for or to
any person or entity,  or for or to any person or entity  that  manufactures  or
supplies for or to any person or entity,  that directly or indirectly engages in
multilevel  marketing)  other  than  Herbalife  or  its  designee(s).  Herbalife
acknowledges  that  Supplier  currently  develops,   manufactures  and  supplies
nutritional products (other than Supplied Products) to other persons or entities
(including  without  limitation  for or to entities  that engage in  multi-level
marketing) and will continue such activities  during the Term of this Agreement;
provided, however, that such activities by Supplier shall be subject to Supplier
complying  with  the  terms  and  provisions  set  forth  i ' n  this  Agreement
(including the prior sentence). Notwithstanding the foregoing, Herbalife, or its
designee(s), shall have the right itself, to: (i) manufacture,  supply and sell,
(ii) have  manufactured,  supplied  and sold on its behalf  and (iii)  otherwise
order and procure from any third party,  any and all products made in accordance
with or  otherwise  based upon,  developed  or derived  from the Product  Rights
(whether  or not  such  products  are  similar  or  identical  to  the  Supplied
Products).

                                        2

<PAGE>





         (b)New  Products.  Herbalife agrees that if at any time during the Term
Supplier  completes the  development  or creation of any proposed New Product in
accordance  with the  requirements  and  specifications  established  or  agreed
pursuant to Section  3(a) above,  Supplier  shall have thirty (30) days from the
date of such  completion  to make a proposal to Herbalife in writing,  including
the pricing  thereof,  and  Herbalife  and Supplier  shall then  negotiate on an
exclusive  basis with each  other in good  faith for up to a further  sixty (60)
days for an order to be made by  Herbalife  subject to the terms and  conditions
hereof  with  respect to such  proposed  New  Product,  but in the event that no
agreement shall be reached either party shall be entitled in accordance with the
terms and  conditions  hereof to supply or purchase such proposed New Product to
or from any person or entity,  if either party so desires.  Subject to Herbalife
complying  with its  obligations  under the  preceding  sentence of this Section
4(b), if applicable,  Herbalife shall have the right, but not the obligation, to
designate  Supplier as a manufacturer  and supplier of any proposed New Product,
provided  that the  panics  agree  upon  the  price  and  other  terms  for such
manufacture  and supply by Supplier.  In connection  therewith,  Supplier  shall
provide to Herbalife,  upon Herbalife's request,  production samples of any such
proposed New Product in  sufficient  quantities  for testing and  evaluation  by
Herbalife. In the event the parties reach agreement on the price and other terms
for such  proposed  New  Product  (after  good faith  negotiations  between  the
parties, taking into account, among other things,  Supplier's actual cost of raw
materials and other  manufacturing  costs and a reasonable  overhead  charge and
gross margin with respect to the price), each such proposed New Product shall be
added to the list of New  Products  set forth on Exhibit A-2  hereto,  including
without limitation the price therefor, and shall be deemed a New Product subject
to the terms and conditions hereof; provided,  however, that if Herbalife or any
designee  places any firm purchase order with Supplier for any such New Product,
then such New Product  shall be deemed to have been listed on Exhibit A-2 hereto
and shall be  subject  to the terms and  conditions  hereof  (including  without
limitation  those special  additional  terms and conditions set forth on Exhibit
A-2 hereto).

         (c)Orders.  Herbalife  shall have the right to order and  procure  from
Supplier, and Supplier shall be obligated to manufacture, package, label, supply
and deliver to Herbalife,  Supplied Products in any quantity ordered at any time
by Herbalife, at Herbalife's sole discretion,  for use at any time, whether such
use shall occur during the Term or after expiration of the Term,  subject to the
terms and  conditions  hereof  Herbalife  shall have the right to appoint one or
more  designees  to order and  procure  Supplied  Products  from  Supplier,  and
Supplier shall be obligated to manufacture and supply  Supplied  Products to any
such designee; provided, however, that any such designee shall be subject to the
due  observance and  performance of any and all terms..  applicable to Herbalife
affecting the  procurement  and sale of Supplied  Products  hereunder.  Supplier
shall  maintain  sufficient  inventory  and  packaging  components  to  minimize
Supplier's lead times and to fulfill Herbalife's  purchase order requirements on
a timely basis.  Supplier  shall acquire all  inventory,  packaging  components,
ingredients,  inputs, and other materials  necessary for manufacture of Supplied
Products solely from manufacturers and suppliers that meet industry standards of
acceptability and comply fully with all Laws (as hereinafter defined).  Supplier
shall advise Herbalife of the start date of product  packaging at least five (5)
business  days prior to any such start date so  Herbalife  can make  appropriate
delivery of labels  therefor when requested.  Herbalife  shall provide  Supplier
with the  necessary  product  labels at its own  expense.  Supplier  shall label
Supplied Products with the appropriate labels supplied by Herbalife.

            (i)Open Blanket  Purchase  Order.  Within thirty (30) days after the
execution of this  Agreement,  for the  remainder  of this  calendar  year,  and
thereafter at the commencement of each calendar year during the Term,  Herbalife
shall initiate orders hereunder by placing a preliminary,  non-binding estimated
order as to the Supplied  Products (the "Open Blanket  Purchase  Order") listing
the types and quantities of the Supplied  Products  estimated to be purchased by
Herbalife from Supplier for delivery in the respective year.

            (iiShipping  Schedules and Firm Binding  Purchase  Orders.  For each
delivery of Supplied Products  requested  hereunder,  Herbalife shall, not later
than  eight  (8)  weeks  prior  to the  anticipated  shipping  date of  Supplied
Products,  provide  Supplier with a shipping  schedule  specifying  the Supplied
Products and  quantities  estimated to be  purchased.  Supplied  Products on the
shipping  schedule  may be modified by Herbalife  through,  and shall not become
firm binding purchase orders until, a date five (5) weeks prior to the scheduled
B modification.

                                        3

<PAGE>





      5. Quality Standards; Compliance with Laws.

         (a)Manufacturing  Practices and Standards.  Supplier shall manufacture,
package,  label,  supply and deliver  all  Supplied  Products in a  professional
manner in accordance with the requirements and specifications (including without
limitation formulas) established or agreed to from time to time by Herbalife and
the other terms and  conditions  hereof.  Supplier  shall  apply the  trademarks
designated by Herbalife on the packaging and related product materials,  subject
to the licenses  and  conditions  set forth in Section  g(b) of this  Agreement.
Supplier  shall  manufacture  and supply all  Supplied  Products  hereunder in a
clean, safe,  sanitary manner and using standards and operating  procedures that
are at least as good as those  prevailing in the industry.  Supplier  shall also
manufacture  and supply in  accordance  with good  manufacturing  practices  and
standard operating procedures.

         (b)No Adulteration, Misbranding or Defects. All Supplied Products shall
be free  from  adulteration  or  misbranding  and  merchantable  and fit for the
intended  use  by  Herbalife  and  purchasers  of  the  Supplied  Products  from
Herbalife.  All Supplied Products shall be free of contamination or defect,  and
all reasonable care and skill shall be used in  manufacturing  and supplying the
Supplied Products.

         (c)Compliance  with Laws.  Supplier shall comply, and shall insure that
all  manufacturers  of Supplied  Products  comply,  fully with any and all laws,
regulations, rules and orders (including without limitation those of the Federal
Food and Drug  Administration)  in any and all  jurisdictions  applicable  to or
affecting Supplier's  obligations  hereunder  (collectively,  "Laws"), and shall
make, and shall insure that all  manufacturers  of Supplied  Products make, such
adjustments  as  may  be  necessary  to  effect  and  maintain  such  compliance
throughout  the Term.  Without  limiting the  generality of the  foregoing,  (i)
Supplier's   facilities  shall  comply  with  all  applicable  pro-duct  safety,
sanitation  and  environmental  Laws,  and (ii) all Supplied  Products  shall be
clearly and accurately labeled and packaged in the manner requested by Herbalife
and otherwise as required by all Laws.

         (d)Approvals.  Supplier shall obtain,  at its cost,  all  governmental,
administrative and other approvals,  licenses,  permits and other authorizations
and  registrations  necessary  for the  operation  and conduct of its  business,
including without limitation the development and/or manufacture and/or supply of
nutritional products generally, Supplier shall obtain all inventory,  equipment,
employees,  facilities  and any other  item  necessary  in order to assure  that
Supplier has, and will have, the ability to perform its obligations hereunder in
accordance  with the terms and  conditions  hereof  Upon  request by  Herbalife,
Supplier shall furnish Herbalife with a copy of any and all documentation of any
kind  demonstrating  that Supplier is in compliance with, and has Complied with,
all Laws. Supplier expressly acknowledges the exclusive rights held by Herbalife
in  and to all  governmental,  administrative  and  other  approvals,  licenses,
permits and other  authorizations and registrations  (collectively,  "Approval")
necessary  for the  marketing,  distribution  and sale to the public of Supplied
Products by or on behalf of Herbalife or its  affiliates,  which Approvals shall
be obtained by Herbalife at Herbalife's cost.  Supplier agrees that it shall not
have any right,  title or interest in or to the  Approvals and that it shall not
register or commence  any  procedures  related to  registration  of the Supplied
Products with any  governmental or other entity or authority  without the prior,
written  consent of  Herbalife.  In the event  Herbalife  consents to  Suppliers
registering of any of the Supplied  Products with a governmental or other entity
or authority, Supplier hereby (i) assigns and transfers to Herbalife all rights,
title and  interests  in and to or arising  out of such  registrations  or other
Approvals  and  undertakes  to fully  cooperate  with  Herbalife  to effect such
assignment and transfer  (including without limitation  executing and delivering
any  documentation  required in  connection  therewith),  whenever  requested by
Herbalife  (and/or   immediately   following   termination  of  this  Agreement,
irrespective of the reason for such termination); and (ii) undertakes to request
cancellation  of any Supplied  Product  registration  or other Approval that has
been  effected by  Supplier  with the  applicable  health  authorities  whenever
requested  by  Herbalife  (and/of  immediately  following  termination  of  this
Agreement,  irrespective of the reason for such  termination).  Without limiting
the generality of the foregoing,  Supplier  hereby  expressly,  irrevocably  and
unconditionally  grants Herbalife all necessary powers required for Herbalife to
implement  on  behalf  of  Supplier  the  assignment,   transfer,  cancellation,
revalidation or rectification of the Supplied Product  registrations.  and other
Approvals.

                                        4

<PAGE>



      6. Rejection of Nonconforming Supplied Products; Ser-vice Level.

         (a)Defective  Products.  Upon  inspection  of any  Supplied  Product by
Herbalife,  if Herbalife  reasonably  determines that any Supplied Product or an
entire  lot of  Supplied  Products  delivered  by  Supplier  fails  to meet  the
requirements  and  specifications  established or agreed to from time to time by
Herbalife  and the other terms and  conditions  hereof (other than to the extent
caused  by  and  attributable  to the  acts  or  omissions  of  Herbalife)  (the
"Defective  Products"),  Herbalife shall notify Supplier thereof after discovery
of the defect.  Herbalife,  or  Herbalife's  designated  agents,  may submit any
Supplied Product to any and all forms of chemical analysis,  testing and review.
Herbalife  shall  provide  Supplier with copies of, or summaries of, or relevant
extracts from (at Herbalife's discretion) the results of such chemical analysis,
testing and review  within five (5) business days after  Herbalife  receives the
results thereof.  All Defective Products,  other than any Defective Products (or
any portions thereof) retained by Herbalife for testing, evaluating or sampling,
shall be, at Herbalife's  option,  destroyed or returned to Supplier,  in either
case, at  Supplier's  expense.  Supplier  shall  promptly  destroy all Defective
Products returned to Supplier or in Supplier's possession and confirm in writing
to Herbalife  such action.  Herbalife  shall  confirm to Supplier in writing any
destruction by Herbalife of Defective Products. If Supplier receives any written
notice of Defective  Products,  Supplier  shall,  at  Supplier's  expense,  ship
replacement Supplied Products to the destination designated by Herbalife as soon
as  commercially  possible after receipt of such notice,  provided that Supplier
shall use its best  efforts to make any such  shipment  within five (5) business
days after receiving  notification of such Defective  Products.  Notwithstanding
the foregoing,  Herbalife's  failure to discover Defective Products as set forth
herein shall not relieve  Supplier of its  obligations  under  Section 12 or any
other  provision  hereunder or limit any rights or remedies  Herbalife  may have
under applicable Law.

         (b)Shortfall.  Upon inspection of any Supplied Product by Herbalife, if
Herbalife  reasonably  determines  that  there is a  shortfall  in any  Supplied
Product  delivered by Supplier  hereunder  (the  "Shortfall"),  Herbalife  shall
notify  Supplier  thereof,  and Supplier shall,  at Supplier's  expense,  ship a
sufficient  quantity  of  Supplied  Products to the  destination  designated  by
Herbalife to fulfill the entire  obligation  to be performed by Supplier as soon
as commercially  possible,  provided that Supplier shall use its best efforts to
make  any  such  shipment   within  five  (5)  business  days  after   receiving
notification of such Shortfall.

         (c)Service  Level.  Supplier  agrees  that  Supplier  shall,  for  each
Supplied Product,  meet a ninety-seven  percent (97%) service level, which shall
be  calculated  in  reference  to the  ratio of (i) the  number  of cases of the
Supplied  Product  delivered to Herbalife or its  designee(s)  in any month that
meet the requirements and  specifications  established or agreed to from time to
time by Herbalife and the other terms and conditions  hereof,  to (ii) the total
number of cases of that Supplied Product ordered by Herbalife or its designee(s)
that month (the "Service Level").

      7. Price, Delivery and Payment Terms.

         (a)Prices,  Delivery  and Title.  Herbalife  shall pay Supplier for the
Supplied  Products at the Product  Prices.  Supplier shall meet the delivery and
frequency  schedules  (by day and time of day) set by  Herbalife,  in accordance
with the terms and conditions  hereof,  as such  schedules  shall be modified in
writing  from time to time during the Term by mutual  agreement  of the parties.
The Supplied  Products  shall be delivered  F.O.B.  to the location set forth on
Exhibit B hereto (the "Local Delivery Point"),  (unless, at Herbalife's request,
drop-shipped,  at Herbalife's  expense,  to any other destination  determined by
Herbalife  and  designated  in  writing).  In the case of  delivery to the Local
Delivery Point, the risk of loss and title shall pass to Herbalife upon delivery
to the Local Delivery Point, and transport, insurance, and other costs, charges,
and  duties for  transport  beyond the Local  Delivery  Point  shall be borne by
Herbalife.  For deliveries made to a location other than a Local Delivery Point,
risk of loss and title shall pass to Herbalife at Supplier's shipping point, and
transport,  insurance and other costs,  charges and duties for transport  beyond
Supplier's  shipping point shall be borne by Herbalife.  Notwithstanding  any of
the above,  title and risk of loss shall not pass to Herbalife for any Defective
Products rejected by Herbalife or its designees  pursuant to Section 6(a) above,
and any  transport,  insurance  and other  costs,  charges and duties  Defective
Products  shall be borne by Supplier  pursuant to Section  6(a) above.  Supplier
shall deliver all Supplied  Products free from all liens and  encumbrances,  and
upon delivery by Supplier to Herbalife, or Herbalife's designee(s),  of Supplied
Products,  subject to and in  accordance  with the terms and  conditions of this
Agreement,  Herbalife,  or  Herbalife's  designers),  as the case may be,  shall
acquire good title free from all liens and encumbrances.

                                        5

<PAGE>





         (b)Payment  Terms.  Herbalife  shall  cause  payment  for the  Supplied
Products purchased from Supplier under the terms of this Agreement to be made no
later than  thirty  (30) days from the later of (i) the date of delivery of such
Supplied Products to Herbalife or its designers) and (ii) the date of receipt by
Herbalife or its  designers)  of an invoice for Supplied  Products  'meeting the
requirements  and  specifications  established or agreed to from time to time by
Herbalife.  Payment  made on any invoice  within ten (10) days from the later of
(i) such date of  delivery  of and (ii) such  receipt of an invoice  for, as the
case may be,  Supplied  Products  meeting the  requirements  and  specifications
established  or agreed to from time to time by Herbalife  shall be entitled to a
two percent (2%) discount.  In addition to any other remedies Herbalife may have
under this Agreement,  at law or in equity,  Herbalife shall be entitled, at its
option,  to (i) a  refund  of the  amount  paid  for any  Defective  Product  or
Shortfall or (ii) a credit against future purchases of Supplied Products.

      8. Intellectual Property.

         (a)Ownership of Product Rights.

            (i)Intention  That Herbalife Own;  Transfer of Product Rights. It is
the express intention, understanding and agreement of the parties that Herbalife
(or  its  designee)  be the  owner  of all  rights  and  interests  of any  kind
whatsoever in the Product Rights. Effective as of the date hereof, and effective
at any time  hereafter  as and where  Supplier  develops  or creates any Product
Rights,  Supplier hereby conveys,  transfers,  assigns and delivers to Herbalife
(or its designee) all rights, title and interests, in and to any and all Product
Rights throughout the world, free from any liens or encumbrances,  to the extent
that  Herbalife  (or its  designee)  is not  already the owner of all rights and
interests of any kind  whatsoever  in such Product  Rights.  Supplier  agrees to
execute  any  and  all  documents  to  effectuate  such  conveyance,   transfer,
assignment, and delivery to Herbalife (or its designee) and to provide Herbalife
(or its designee,  as the case may be) with all other  information  necessary to
enable  Herbalife (or its designee) to exercise the rights  granted to Herbalife
(or its designee) hereunder. Supplier agrees to give Herbalife (or its designee,
as the case may be) all reasonable cooperation to register, obtain, or otherwise
establish or defend the proprietary rights of Herbalife (or its designee, as the
case may be) in and in  connection  with any and all  Product  Rights.  Supplier
acknowledges  and agrees  that  Supplier  shall have no, and shall not assert or
claim any, legal,  equitable or other right or interest, in whole or in part, in
or to any of the Product  Rights,  Herbalife  Trademarks  (as defined in Section
8(b)  below)  or  other   intellectual  or  industrial   property  of  Herbalife
whatsoever,  except for the rights  expressly  granted to Supplier by  Herbalife
pursuant to Section 8(a)(ii) and Section 8(b) below.

            (iiLimited  Grant-back  License to Supplier for the Term.  Herbalife
hereby   grants  to   Supplier  a  limited,   non-exclusive,   non-transferable,
royalty-free,  right and  license to use the  Product  Rights  for the  Supplied
Products solely to manufacture (or have  manufactured) the Supplied Products for
Herbalife  for the  remainder  of the Term only and not  thereafter,  and at all
times subject to the terms of this Agreement.  Supplier  acknowledges and agrees
that  Herbalife  reserves and retains any and all rights not  expressly  granted
hereunder  to  Supplier,  and  Supplier  shall not claim any rights that are not
expressly granted or set forth hereunder to Supplier.

         (b)Trademarks.   Herbalife   hereby   grants  to  Supplier  a  limited,
nonexclusive, nontransferable royalty-free license solely to use the trademarks,
servicemarks,  tradenames,  and logos  owned by or licensed  to  Herbalife  (the
"Herbalife Trademarks') in packaging the Supplied Products for Herbalife,  using
only the labels  provided by  Herbalife,  for the remainder of the Term only and
not  thereafter,  and at all times  subject to the terms and  conditions of this
Agreement.  Supplier hereby agrees that the Herbalife  Trademarks  shall only be
affixed  to the  Supplied  Products.  Supplier  shall  have no rights to use the
Herbalife  Trademarks  other than for  purposes of packaging  Supplied  Products
pursuant  to this  Agreement  which  packaging  shall be in form  and  substance
satisfactory  to  Herbalife.  Supplier  agrees to submit  copies of the proposed
manner, use and layout of the Herbalife Trademarks for approval by Herbalife, in
Herbalife's sole and absolute discretion,  prior to Supplier using the Herbalife
Trademarks as set forth herein.  Supplier shall not use the Hcrbalife Trademarks
in  advertising or promotional  campaigns or otherwise,  or use any  confusingly
similar  names.,  marks or logos,  in any manner that, in  Herbalife's  sole and
absolute  discretion,  may be inconsistent  with Herbalife's  public image or be
misleading or harmful to Herbalife. In the event of termination,  expiration, or
non-renewal  of this  Agreement,  Supplier  shall not have any right to sell any
Supplied Products remaining in any of Supplier's

                                        6

<PAGE>





 inventory, Supplier acknowledges and agrees that Herbalife reserves and retains
any and all rights not  expressly  granted  hereunder  to Supplier  and Supplier
shall not assert or claim any rights that are not expressly granted or set forth
hereunder to Supplier.

         Supplier   hereby  grants   Herbalife  (or  its  designee)  a  limited,
non-exclusive,   nontransferable,   royalty-free   license  solely  to  use  the
trademarks, servicemarks, tradenames, and logos owned by or licensed to Supplier
(the "Supplier  Trademark")  in labeling and packaging the Supplied  Products to
identify  the source and  contents  thereof,  and in related  marketing,  sales,
distribution  and promotional  activities.  For products  manufactured by or for
Herbalife (or its designee)  other than by Supplier as permitted by Section 4(a)
of this  Agreement,  Supplier  grants to Herbalife  (or its designee) a limited,
non- cxclusive, perpetual, non-transferable,  royalty-free license solely to use
Supplier  Trademarks in labeling and  packaging  such  products,  and in related
marketing,  sales,  distribution  and  promotional  activities,  to identify the
source and contents of such products,  to the extent that such contents  include
the Product Rights.  Supplier agrees to keep Herbalife  informed  concerning any
third party whose  consent or license is required,  and provide  Herbalife  with
reasonable  assistance  in obtaining  any  required  consent or license from any
third party, with respect to the trademarks, servicemarks, tradenames, and logos
of that third party,  which are not included in Supplier's  license to Herbalife
herein,  but which are necessary to meet the  requirements  for  identifying the
source and contents of the products  manufactured by or for Supplier,  Herbalife
or its designee (the "Third Party Trademarks").

         Supplier  represents,  warrants and covenants  that all use of Supplier
Trademarks  (that are owned by any third  party) and Third Party  Trademarks  in
connection  with  Supplied  Products has been and shall be  authorized,  that no
royalty or other compensation  whatsoever is or shall be owed to any third party
with respect to such use, and that the content of any Supplied Products that use
Supplier  Trademarks  (that  arc owned by any dill  party)  and/or  Third  Party
Trademarks  include a  component  or  ingredient  which is  manufactured,  sold,
marketed, or otherwise distributed by such third party.

         (c)Infringement. Supplier shall promptly notify Herbalife of any actual
or  apparent  infringement  of  Herbalife's  rights in or to any of the  Product
Rights or Herbalife  Trademarks.  Herbalife may, at its sole option and expense,
prosecute  any  suit  it  deems  necessary  or  appropriate  to  protect  any of
Herbalife's  rights to the  Product  Rights  or  Herbalife  Trademarks  from and
against  infringement by third parties  anywhere in the world and Supplier shall
cooperate fully with Herbalife in connection with arty such action.

      9. Confidential Information.

         (a)Confidential   Information.   For   purposes   of  this   Agreement,
"Confidential Information" means any non-public information or material, whether
written,  oral, or in any other form,  received or obtained at any time, whether
before,  on or after the date hereof,  that is  described as (or provided  under
circumstances  indicating  it  is)  confidential  or  proprietary.  Confidential
Information includes, but is not limited to, know-how, product prices, marketing
surveys and plans, flow charts, technical documentation,  formulas, ingredients,
weight control concepts, and information  concerning the design,  specifications
and methods for the  development,  manufacture,  packaging,  supply,  marketing,
distribution  and sale of products,  in addition to the terms and  conditions of
this  Agreement.  Moreover,  Confidential  Information  includes  not  only  the
information itself, but any document,  sketch, design, video tape, reproduction,
chart,  graph,  written   application,   or  other  writing  or  other  form  of
communication  or documentation  (whether  visual,  audio, or otherwise) of that
information.  Confidential Information does not include information that a party
can demonstrate  with competent  written proof is: (i) already lawfully known by
that party at the time of first  receipt from the other party and is not subject
to any other  nondisclosure  agreement  between the parties;  (ii) now, or which
later becomes,  generally known to the industry  through no fault of that party,
or which is later  published or  generally  disclosed to the public by the other
party; (iii) otherwise lawfully and independently developed by that party (other
than the Product  Rights in the case of  development  by Supplier),  or lawfully
acquired from a third party without any obligation of  confidentiality;  or (iv)
required  by any  governmental  authority  having  jurisdiction  over that party
asserting  a right to obtain such  information,.  including  without  limitation
where  disclosure is required to be made for the purpose of Herbalife  obtaining
Approvals  in any  jurisdiction;  provided  however,  that  prior  to  any  such
disclosure  pursuant  to this  clause  (iv)  (except  where such  disclosure  is
required to be made to a governmental authority in order for Herbalife to obtain
Approvals in any jurisdiction) the party concerned

                                        7

<PAGE>





shall  promptly  advise  the  other  party  in the  event  of any  request  by a
Governmental authority for the Confidential Information and shall cooperate with
the other party to assert any right of  objection  to such  request or to seek a
protective order or to take other appropriate action to protect the Confidential
Information.   Without  limiting  the  generality  of  the  foregoing,  Supplier
acknowledges  and  agrees  that  any and all of the  Product  Rights  (including
without limitation for proposed New Products), Herbalife's intellectual property
and  trade  secrets,  and  information  relating  to  any  and  all  aspects  of
developing, manufacturing,  distributing or multi-level marketing of Herbalife's
products are the Confidential Information of Herbalife.

         (b)Non-Use and Non-Disclosure.  Each party agrees to hold in confidence
and  not to  disclose  or  reveal  to any  person  or  entity  any  Confidential
Information of the other party disclosed  hereunder without the clew and express
prior written  consent of a duly authorized  representative  of the other party,
except  to  those  persons  and  entities  who (i)  are  required  to  have  the
Confidential  Information  in order  for the  party  receiving  the  information
hereunder to exercise its rights or perform its obligations under this Agreement
or for testing,  evaluating or sampling  proposed products for inclusion in this
Agreement,  and  (ii) are  bound by an  obligation  of  confidentiality  no less
stringent am that set forth in this Agreement.  Each party further agrees not to
use or disclose any Confidential  Information of the other party for any purpose
at any  time,  other  than  for  the  limited  purpose(s)  referred  to in  this
Agreement.  In the event that a party is directed to disclose any portion of any
Confidential  information of the other party or any other materials  proprietary
to the other party in conjunction with a judicial  proceedings,  or arbitration,
the disclosing party shall immediately notify the other party both orally and in
writing  and shall  provide  the other  party with  reasonable  cooperation  and
assistance i obtaining a suitable protective order and in taking any other steps
to preserve confidentiality.

         (c)Supplier  Not To Use  Confidential  Information  of  Other  Parties.
Supplier  represents,  warrants and covenants that it will not use in the course
of its performance under this Agreement, and will not disclose to Herbalife, any
confidential   or  proprietary   information  of  any  third  party   (including
competitors of Herbalife or Supplier) unless Supplier is expressly authorized in
writing by such third party to do so.

         (d)Return of Materials Upon Termination.  Upon termination,  expiration
or non-renewal of this Agreement, each party shall use all reasonable commercial
efforts  to return to the other  party all  material  and  documents  containing
Confidential  Information,  including any copies or extracts thereof,  and shall
erase any copies  thereof  contained in any  electronic or other memory  device.
Supplier  immediately  shall  cease  and  desist  from  using  any  Confidential
Information of Herbalife,  including without limitation Confidential Information
concerning the Product Rights, for any purpose whatsoever.

      10. Inspection and Documents; Audits. Herbalife, or Herbalife's designated
agents,  shall have the right from time to time, on reasonable notice and during
business hours, to inspect and/or carry out a general quality  assurance  review
of Supplier's facilities,  manufacturing  arrangements,  inventory storage areas
and all other places relating to the performance of Supplier's duties hereunder.
Additionally,  Herbalife,  or  Herbalife's  designated  agents,  may  submit any
Supplied Product to any and all forms of chemical analysis,  testing and review.
Upon request by Herbalife,  or  Herbalife's  designated  agents,  Supplier shall
furnish  Herbalife  with  information  and  copies of  documents  necessary  for
Herbalife  to: (i) give  Herbalife  assurance  that the Supplied  Products  were
manufactured  and supplied in accordance  with this  Agreement and in compliance
with applicable Laws, (ii) enable Herbalife to assure that the Supplied Products
comply with the labeling claims made for the Supplied Products, (iii) secure all
governmental  licenses;  registrations or approvals for the Supplied Products as
required by  applicable  Laws,  (iv)  respond to all  governmental  inquiries or
requests,  and (v) verify the true and actual cost of manufacturing,  packaging,
labeling,  insuring,  shipping,  supply and  delivery  by  Supplier  of Supplied
Products.

      11.   Termination.

         (a)By  Supplier.  Supplier may terminate  this Agreement (i) sixty (60)
days  following  written  notice  to  Herbalife  of a  material  breach  of this
Agreement (or any other written agreement between the parties) by Herbalife,  if
such breach has not been cured, or if Herbalife has not commenced  diligently to
cure such breach,  within such sixty-day  (60-day)  period;  or (ii) immediately
upon the Insolvency of Herbalife.

                                        8

<PAGE>





         (b)By Herbalife.  Herbalife may terminate this Agreement (i) sixty (60)
days following written notice to Supplier of a material breach of this Agreement
(or any other  written  agreement  between  the parties ) by  Supplier,  if such
breach has not been cured,  or if Supplier has not commenced  diligently to cure
such breach, within such sixty-day (60-day) period; or (ii) immediately upon (x)
the Insolvency of Supplier,  (y) notice to Supplier in the event of a failure by
Supplier, on three (3) or more occasions in any twelve-month  (12-month) period,
to meet the Service Level  requirements  as set forth in Section 6(c) or (z) the
Change of Control of Supplier.

         (c)Definition of Insolvency.  "Insolvency" shah mean that, with respect
to an entity, such entity shall (i) make a general assignment for the benefit of
creditors  or an agent  authorized  to  liquidate  its  assets,  (ii) become the
subject of bankruptcy or insolvency  proceedings or other proceedings for relief
under any bankruptcy or other Law for the relief of debtors, where, with respect
to an  involuntary  petition in  bankruptcy,  the  petition  shall not have been
stayed within sixty (60) days,  (iii) apply to a court for the  appointment of a
receiver or custodian for substantially all of its assets or properties, with or
without consent,  and such receiver is not discharged with sixty (60) days after
appointment or (iv) adopt a plan of complete liquidation of its assets.

         (d)Definition of Change of Control. A "Change of Control" means (i) any
change, sale, merger,  reorganization,  transfer, pledge, granting of an option,
wan-ant  hypothecation or any other event or action that results or could result
in a third party having an interest in or a lien or encumbrance  upon (x) all or
a material  part of the  business or assets of Supplier or (y) any of the issued
and outstanding  capital stock of Supplier (on a fully-diluted  basis) such that
the present shareholders of Supplier no longer own more than fifty (50%) of such
capital  stock or no longer have the  authority and power to elect a majority of
the directors of Supplier or to direct and control the management and affairs of
Supplier or (ii) any  assignment  or  delegation  of,  sale,  transfer,  pledge,
granting of an option,  hypothecation  or any other action that results or could
result in a third  party  having an interest  in or a lien or  encumbrance  upon
Supplier's  rights and  obligations  under this Agreement (or any part thereof),
without the prior written consent of Herbalife.

         (e)Effect of Termination,  Expiration or  Non-Renewal.  In the event of
any  termination,  expiration or non-renewal of this Agreement,  Herbalife shall
remain the sole and exclusive  owner of the Product Rights and shall be entitled
to sell and  distribute  all  Supplied  Products in its  inventory.  If Supplier
terminates  this  Agreement  pursuant to Section  11(a) above,  Herbalife  shall
purchase Supplied Products remaining in Supplier's  possession but not to exceed
the quantity on firm order for the preceding  five (5) weeks at prices no higher
than  those  specified  in  this  Agreement;  provided,  however,  that  if this
Agreement  is  terminated  for any other  reason or expires or is not renewed in
accordance with the terms and conditions hereof, Herbalife shall have the right,
but  not  the  obligation,  to  (i)  purchase  Supplied  Products  remaining  in
Supplier's  possession  and/or (ii)  purchase and take  delivery of any Supplied
Products ordered prior to the date of termination,  expiration or non-renewal of
this  Agreement,  at prices no higher than those  .specified in this  Agreement.
Unless otherwise provided in this Agreement, Supplier shall promptly destroy all
Supplied  Products in its  possession  upon  termination  of this  Agreement and
provide written confirmation to Herbalife of such action.

         (f)No  Liability  of  Terminating  Party for  Termination  Pursuant  to
Agreement.  Supplier and Herbalife  have each  considered the  possibility  that
either or both parties will incur expenses in preparing for  performance of this
Agreement and that either or both parties will incur expense's and suffer losses
as a result of termination  of this Agreement and the parties have  nevertheless
agreed that neither party in exercising its right to terminate or not renew this
Agreement in accordance with the terms and conditions  hereof (the  "Terminating
Party") shall incur any liability  whatsoever for any damage, loss or expense of
any kind  suffered  or  incurred  by the other (or for any  compensation  to the
other) arising from or incident to any such  termination or nonrenewal,  whether
or not the Terminating Party is aware of any such damage,  loss or expense.  Any
termination  hereof shall not impair any rights nor  discharge  any  obligations
which have accrued to the parties as of the effective date of such termination.

         (g)Survival.  Notwithstanding  any other  provision  contained  herein,
Sections 6(a) and (b), 7, 8(a)(i),  9, 10, 11(e),  (f), and (g), 12, 15, 18, and
25 through 28 shall survive the  termination,  expiration or non-renewal of this
Agreement for any reason.

                                        9

<PAGE>





      12. Indemnification.  Supplier shall indemnify,  defend and hold Herbalife
and its  designees,  and their  respective  officers,  directors,  shareholders,
affiliates,  employees and agents (each, an "Indemnified Party"),  harmless from
and against any and all claims, demands,  losses, costs, expenses,  obligations,
liabilities,   damages,   recoveries  and  deficiencies,   including   interest,
penalties,  reasonable  attorneys' fees, costs of investigation and any legal or
other  expenses or costs incurred or suffered by any  Indemnified  Party arising
out of, in connection  with or resulting from any claim or allegation as to: (a)
any  product  liability  or  defect  (other  than to the  extent  caused  by and
attributable  to the acts or omissions  of any  Indemnified  Party),  or (b) any
violation or infringement by Supplier (or any manufacturer of Supplied Products)
'upon any common law or statutory rights of any third party,  including  without
limitation  rights  relating to copyrights,  Patents,  trade marks,  contractual
rights  or  trade  secret  rights  (other  than  to  the  extent  caused  by and
attributable  to the acts or omissions of  Herbalife),  or (c) any inaccuracy or
breach  in or of or  any  failure  to  observe  or  perform  any  of  Supplier's
covenants,  representations,  warranties or  obligations  under this  Agreement.
Further, with respect to rights of Herbalife under (b) above in this Section 12:
(i) Supplier  shall provide,  at its own cost,  non-infringing  replacements  to
Supplied  Products of equivalent  quality and effect,  or obtain at its own cost
the  necessary  licenses  from third  parties to allow  Herbalife to continue to
market, sell, distribute and promote the Supplied Products, and (ii) in addition
to other remedies,  Herbalife shall be entitled to a full refund of all payments
made to or in connection with Supplier.

      13. Insurance. Supplier shall maintain, and shall insure all manufacturers
of Supplied Products maintain,  in full force and effect throughout the Term, at
their sole cost and expense,  insurance with  financially  sound and established
reputable  insurers  of the type and  quantity  (and with  such risk  retention)
generally  maintained by the companies of established  repute in the nutritional
products  line of  business,  such  insurance  to include,  without  limitation,
products liability insurance in an amount no less than five million U.S. dollars
(U.S.  $5,000,000.00)  per  occurrence.  Supplier  shall  upon  request  provide
Herbalife  with a copy of any  documentation  relating  to any such  insurances.
Supplier shall, and shall insure that all manufacturers of Supplied Products, if
Herbalife  so  requests,   have  Herbalife   named  as  an  additional   insured
beneficiary,  with Herbalife able to claim thereunder as primary beneficiary and
without offset or deduction  whatsoever as a result of any insurance obtained by
Herbalife.

      14.  Amendment or Waiver.  This Agreement shall not be amended,  nor shall
any of its  terms be deemed to have been  waived by either  party,  unless  such
amendment or waiver is in writing in a document that specifically refers to this
Agreement  and  specifically  states that it intends to amend this  Agreement or
waive a term of this  Agreement  and such document is signed by Supplier and two
(2) duly authorized  executive officers of Herbalife.  Any delay or failure by a
non-defaulting   party  hereto  to  exercise  its  rights  hereunder  shall  not
constitute  a waiver  thereof  by that  non-defaulting  party,  and no single or
partial  exercise by a  non-defaulting  party  hereto  shall  preclude  other or
further exercise thereof by that non-defaulting  party.  General  correspondence
between the parties,  invoices,  purchase orders or any other document exchanged
between the parties not meeting the requirements of this Section 14 shall not be
deemed to amend or waive any term of this Agreement.

      15.   Governing Law; Injunctive Relief

         (a)Governing  Law. This Agreement is to be construed in accordance with
and governed by the internal  laws of the State of  California  (as permitted by
Section 1646.5 of the California Civil Code or any similar successor  provision)
without giving effect to any choice of law rule that would cause the application
of the laws of any  jurisdiction  other than the  internal  laws of the State of
California  to the rights and duties of the  parties.  In the event of any legal
action,  arbitration or other proceeding, the prevailing party shall be entitled
to reimbursement of its costs,  including court and arbitration costs and expert
witnesses' and reasonable attorneys' fees and costs.

         (b)Injunctive  Relief.  If Supplier  breaches  Section 8, 9, or 19, the
parties  acknowledge that the damage or imminent damage to Herbalife's  business
or its goodwill  would be  irreparable  and  difficult  to estimate,  making any
remedy at law or in damages inadequate.  Accordingly,  notwithstanding any other
provision in this Agreement Herbalife shall have the right to pursue a claim for
injunctive  relief,  damages  and  attorneys'  fees  in  a  court  of  competent
jurisdiction  for  Supplier's  breach of any  covenant,  agreement or obligation
arising under Section 8, 9, or 19, in addition to any other relief  available to
Herbalife under this Agreement or under Law.

                                       10

<PAGE>





      16. Counterparts. This Agreement may be executed in multiple counterparts,
which taken together shall  constitute one instrument and each of which shall be
considered an original for all purposes.

      17. Time is of the Essence.  The parties agree that time is of the essence
under this Agreement.

      18.  Notices.  All  notices,  requests,  demands and other  communications
hereunder shall be in writing, in English, and shall be deemed to have been duly
given (except as may otherwise be specifically  provided herein to the contrary)
if delivered by hand, by a nationally  recognized overnight delivery service, by
facsimile  transmission  followed by mail,  or mailed by certified or registered
mail with postage prepaid.

         (a)If to Supplier:

            Manhattan Drug Company, Inc.
            201 Route 22
            Hillside, New Jersey 07205
            Attention: Mr. E. Gerald Kay, President
            Facsimile No.: (973) 926-1735

            With copies to:

            Shanley & Fisher P.C.
            131 Madison Avenue
            Morristown, New Jersey 07960
            Attention: Kevin M. Kilcullen, Esq.
            Facsimile No.: (973) 540-8819

         (b)If to Herbalife:

            Herbalife International of America, Inc.
            1800 Century Park East, 14th Floor
            Century City, California
            Attention: Mr. Bernie O'Brien,
            Senior Vice President
            Facsimile No.: (310) 557-3928

         With copies to:

            Herbalife International, Inc.
            1800 Century Park East, 14th Floor
            Century City, California 90067
            Attn: Robert A. Sandler, Esq.
                General Counsel
            Facsimile NO.: (310) 557-3906

            Morrison & Foerster LLP
            555 West 5th Street
            Los Angeles, California 90013
            Attn:  Rena L. O'Malley, Esq.
            Facsimile No.: (213) 892-5454

or such other address or facsimile number as any of the persons designated above
may have  specified  in a  notice  or  communication  duly  given  to the  other
designated  person as  provided  herein.  Such notice or  communication  will be
deemed to have  been  given as of the date so  delivered  or  telecopied,  or if
mailed, two business days thereafter.

                                       11

<PAGE>





      19. Binding Effect;  Non-Assignability.  This Agreement shall inure to the
benefit of, and be binding on, the parties hereto,  their respective  successors
and assigns;  provided,  however, that neither this Agreement nor the rights and
obligations of Supplier hereunder shall be transferable, assignable or delegable
by Supplier  nor shall  there be any Change of Control of  Supplier  without the
consent of Herbalife. Any purported transfer, assignment or delegation in breach
of this Section 19 shall be null and void.

      20.  Relationship  of the Parties.  The parties  expressly  understand and
agree that Supplier is an independent  contractor  hereunder;  no joint venture,
partnership or agency  relationship is created or intended to be created by this
Agreement;.  and  Supplier  shall not be deemed  to be or become  hereunder  the
representative or agent of Herbalife.

      21. Force  Majeure.  Neither  party shall be liable to the other party for
failure  or  delay  in the  performance  of any of the  obligations  under  this
Agreement  for the time and to the  extent  such  failure  or delay is caused by
reason of acts of God or other cause beyond its  reasonable  control,  including
acts of government, riots, war, interruption of transportation, strikes or other
labor trouble,  shortage of labor, fire, storm, flood, earthquake,  inability to
obtain suitable raw materials,  products,  parts, components,  fuel or power, or
extraordinary price increases (each a "Force Majeure Event"). The performance of
obligations  hereunder  shall be  suspended  during the  existence of any ,Force
Majeure Event,  and upon  cessation of such Force Majeure Event,  shall again be
required;  provided, however, that the parties hereto shall use their reasonable
commercial  efforts to minimize the consequences of such Force Majeure Event and
in the event either party is unable to perform as a result of such Force Majeure
Event  for a period  of  sixty  (60)  consecutive  days,  the  other  party  may
immediately terminate this Agreement upon notice to the non-performing party.

      22.  Exhibits and Schedules.  Any exhibit or schedule  attached  hereto is
made a part hereof and is fully incorporated herein by reference.

      23. Entire Agreement.  This Agreement embodies the entire understanding of
the parties,  and  supersedes  any other  agreement  between the  parties,  with
respect to the subject matter of this Agreement,  including  without  limitation
any  confidentiality  agreement between Herbalife and Supplier.  In the event of
any conflict  between this  Agreement  and any other  document.,  including  any
purchase order, this Agreement shall prevail.

      24.  Agreement  Negotiated.  The parties are  sophisticated  and have been
represented by lawyers throughout this transaction who have carefully negotiated
the  provisions  hereof  As a  consequence,  the  parties  do  not  believe  the
presumption  of  California  Civil Code  Section  1654 and similar laws or rules
relating  to  the  interpretation  of  contracts  against  the  drafter  of  any
particular  clause  should  be  applied  in this  case and  therefore  waive its
effects.

      25.  Remedies Not  Exclusive.  No remedy  conferred by any of the specific
provisions  of this  Agreement is intended to be exclusive of any other  remedy,
and each and every  remedy will be  cumulative  and will be in addition to every
other remedy given hereunder or now or hereafter existing at law or in equity or
by statute or  otherwise.  The  election  of any one or more  remedies  will not
constitute a waiver of the right to pursue other available remedies.

      26.  Partial  Invalidity.  In the event that any of the provisions of this
Agreement  are held to be  unenforceable  or invalid  by any court of  competent
jurisdiction,  the validity and enforceability of the remaining  provisions will
not be affected thereby.

      27. Language;  Interpretation.  The language  controlling the construction
and  interpretation  of this Agreement  shall be English.  Section  headings are
included solely for  convenience and shall not constitute a part hereof.  Unless
the context otherwise requires,  words importing the singular shall be deemed to
import the plural and vice versa.

      28. Third Party Beneficiaries.  No person or entity shall be a third party
beneficiary of this  Agreement,  except that any designee of Herbalife  shall be
entitled to enforce  against  Supplier the rights  conferred  upon that designee
hereunder.

                                       12

<PAGE>





      29. Media Relations.  Each of Herbalife and Supplier agree that during the
Term each will not, and will cause its affiliates  not to,  disparage each other
or  release  commercially  sensitive  information  about each other in any oral,
written or electronic public  statements  (including  without  limitation in any
securities  filing of Supplier or its  affiliates  with the U.S.  Securities and
Exchange  Commission)  concerning  any matters  relating to or arising from this
Agreement.  Supplier agrees, and will cause its affiliates not to, make any such
public  statements prior to the launch by Herbalife of the Supplied  Products as
products to be sold in commercial quantities by or on behalf of Herbalife to its
distributors  (and in any event only after  provision to Herbalife of a proposed
draft and then having obtained the approval in advance of Herbalife).

      IN WITNESS  WHEREOF,  the parties  hereto have executed this Agreement the
day and year first above written.

                                          HERBALIFE INTERNATIONAL OF
                                          AMERICA, INC.


                                          By________________________________
                                          Name:_____________________________
                                          Its_______________________________


                                          By________________________________
                                          Name:_____________________________
                                          Its_______________________________


                                          MANHATTAN DRUG COMPANY, INC.


                                          By________________________________
                                          Name:_____________________________
                                          Its_______________________________


                                          By________________________________
                                          Name:_____________________________
                                          Its_______________________________

                                       13

<PAGE>



                                   EXHIBIT A-1

                                SUPPLIED PRODUCTS

1.    LIST OF CURRENT PRODUCTS AND PRODUCT PRICES THEREFOR



               Product                  Product Price Per Unit

           "Super Ginkgo"                        $2.12


                   30 Tablets per Bottle; 12 Bottles per Case


2. SPECIAL TERMS FOR CURRENT PRODUCTS

     *This is not the final name


   Note:  "Ultimate Ginkgo" is final name

                                       14

<PAGE>



                                   EXHIBIT A-2

                                  NEW PRODUCTS

1. LIST OF NEW PRODUCTS AND PRODUCT PRICES THEREFOR

               Product                  Product Price Per Unit





[Detailed description of product?][flavors?][special packaging?]
[units per case?] [volume discount?]


2. SPECIAL TERMS FOR NEW PRODUCTS

                                       15

<PAGE>



                                    EXHIBIT B

                              LOCAL DELIVERY POINT


   Herbalife's Los Angeles distribution center at 930 East 233rd Street, Carson,
CA 90745 or Herbalife's  Memphis  distribution  center at 3580 East Raines Road,
Memphis, TN 38118 as designated by Herbalife.

                                       16

<PAGE>



                                  Exhibit 10.13
                             MANUFACTURING AGREEMENT

      AGREEMENT  (this  "Agreement")  made and entered into  effective as of the
14th day of February,  1998, by and between PILON INTERNATIONAL,  PLC, a company
incorporated under the laws of England and Whales, with its registered office at
Bell House, 175 Regent Street,  London WlR 7FB, England (hereinafter referred to
as "PILON"),  and MANHATTAN  DRUG  COMPANY,  INC., a New York  corporation  with
offices at 225 Long  Avenue,  Building 15, P.O.  Box 278,  Hillside,  New Jersey
07205 (hereinafter referred to as "MANHATTAN") .

                              W I T N E S S E T H:
      WHEREAS,  PILON is  engaged  in,  among  other  things,  the  business  of
distributing  and selling  various  vitamins and  nutritional  supplements  (the
"Business"); and
      WHEREAS,  MANHATTAN  is engaged in,  among other  things,  the business of
manufacturing and developing formulas for vitamins and nutritional  supplements;
and
      WHEREAS,  PILON and  MANHATTAN  agree that it is in their mutual  interest
that  MANHATTAN  develop  formulas and products to be sold under a private label
(the "Private Label"') chosen by PILON; and
      WHEREAS,  PILON and  MANHATTAN  agree that it is in their mutual  interest
that MANHATTAN  manufacture  and supply the products  related to the Business to
PILON on the terms herein set forth.
      NOW, THEREFORE, in consideration of the mutual. covenants herein
contained, the parties hereby agree as follows:
      1. PRODUCTS.  MANHATTAN shall manufacture,  sell and deliver to PILON, and
PILON shall  purchase  and receive from  MANHATTAN,  such  Products  (defined at
clause 2 below) as may be required  by PILON from time to time for the  Business
upon the terms and conditions  hereinafter,  set forth. For the purposes of this
Agreement, the word "manufacture" shall include the manufacture of the Products,
and a bottling and labeling operation with respect to the Products.
    2. PRODUCT DEVELOPHENT. (a) MANHATTAN shall develop formulas, vitamins, and
nutritional supplements for the product's set forth on Schedule A annexed hereto
(the "Products") for sale under the Private Label. All right, title and interest
in the formulas for the Products  shall remain the sole  property of  MANHATTAN.
MANHATTAN shall license PILON with the right to sell the Products containing the
formulas  for the sum of one  ($1.00)  dollar per year  during such time as this
Agreement shall be in force.


<PAGE>




         (b)PILON   acknowledges  and  agrees  that  upon  termination  of  this
Agreement,  all of PILON's  rights in and to the formulas for the Products shall
immediately  cease,  and terminate and PILON shall promptly  return to MANHATTAN
all documentation and other tangible data and information,  including all copies
or other  reproductions  thereof,  relating to the  formulas  for the  Products,
disclosed  or  delivered  by  MANHATTAN  or  otherwise  made  available to PILON
hereunder.
      3. CONFIDENTIALITY AGREEMENT.  Simultaneously with and as condition to the
execution  and delivery of this  Agreement  by PILON,  PILON and  MANHATTAN  are
entering  into that  certain  Confidentiality  Agreement  (the  "Confidentiality
Agreement"),  the  terms  of which  are an  integral  part of the  terms of this
Agreement and are hereby incorporated by this reference.
      4. TERM.  This  Agreement  shall be effective for a three year period (the
"Initial Term") commencing on the lst day of March, 1998 (the "Effective Date"),
and for successive annual periods thereafter (each a "Renewal Term"), subject to
termination  by either  party upon  written  notice to ,the other party not less
than one (1) month prior,  to the  expiration of the Initial Term or any Renewal
Term thereafter,  unless, sooner terminated in accordance with Section 15 below.
Each annual period under this Agreement is hereinafter  sometimes referred to as
a "contract year".
      5. DELIVERY FORECASTS.
      The parties to this Agreement acknowledge that PILON is unable to forecast
its delivery  requirements  on a monthly basis with respect to such Products for
the first contract year. PILON shall use its best efforts to submit to MANHATTAN
delivery forecasts for succeeding contract years.
      6. ALTERNATE MANUFACTURERS. MANHATTAN and PILON acknowledge and agree that
MANHATTAN  shall  be the  exclusive  manufacturer  for  PILON  of such  Products
described on Schedule A annexed  hereto.  PILON shall have the right to purchase
the Products from other manufacturers designated by MANHATTAN during the term of
this Agreement if MANHATTAN is unable to manufacture the Products.
      7. PRICE. The initial per unit prices for the Products shall be MANHATTAN'
s current price (a list of' the current price is attached  hereto as Schedule B)
and are composed of a labor component, an overhead component and a raw materials
component. The price per unit for the Products shall remain MANHATTAN' s current
prices during the Initial Term and for Renewal Terms,  subject to change only in
MANHATTAN's costs of acquiring the raw materials component of the Products.  For
the purpose of this Agreement,  the term "raw materials"  shall include bottling
and packaging materials.

                                        2

<PAGE>




      8. INVOICES AND PAYMENTS. All Products shall be shipped free on board from
Manhattan's  warehouse  facility in. Hillside,  New Jersey. All Products shipped
hereunder shall be shipped pursuant to a 30 day divisible,  transferable  letter
of credit issued by a bank reasonably acceptable to Manhattan.
      9. CHANGES IN SPECIFICATIONS.
         (a)PILON  may at any time and from  time to time  make  changes  to the
Product  specifications,  previously  given to  MANHATTAN.  All  changes  in the
Product  specifications  shall be it  writing,  signed by PILON  and,  as of the
effective  date  specified  by PILON  (which  shall be at least thirty (30) days
after the same are delivered to MANHATTAN), shall be deemed to be a part of this
Agreement.
         (b)If any change in the Product specifications shall result in a change
in MANHATTAN's actual costs of manufacture, MANHATTAN will promptly notify PILON
of such change in writing and the amount of any such increase or decrease  shall
be borne by or inure to the  benefit  of  PILON,  as the case may be.  MANHATTAN
shall provide to PILON upon request  substantiation  of any increase or decrease
in such costs.
      10. DELIVERY; TITLE; RISK OF LOSS. MANHATTAN shall deliver, or cause to be
delivered, the Products ordered hereunder to PILON's facility in Italy having as
address  at SAIMA  AVANDERO  S.P.A.,  Via  Dante N.  132/134,  20090  Limito  Di
Pioltello  (MI) (or to such other  locations  as PILON may advise  MANHATTAN  in
writing) on the dates specified in PILON's  purchase  orders.  Title and risk of
loss with  respect  to all  Products  sold  hereunder  shall  pass to PILON upon
delivery  to PILON.  MANHATTAN  shall be  responsible  for  compliance  with all
health,  environmental  and  other  laws  relating  to  the  safe  handling  and
transportation of the Products until delivered to PILON.
      11. WARRANTIES; REMEDIES. MANHATTAN hereby warrants and agrees that:
         (a)All Products delivered pursuant to this Agreement shall be free from
defects in materials and workmanship.
         (b)MANHATTAN shall comply with all applicable Federal,  State and local
laws and  regulations  in  manufacturing,  bottling,  packaging and labeling the
Products hereunder,  including, but not limited to, all requirements of the Fair
Labeling and  Packaging  Act, the Fair Labor  Standards Act of 1938, as amended,
the Equal Employment  Opportunities  provisions of the Civil Rights Act of 1964,
as amended, and all regulations promulgated thereunder.

                                        3

<PAGE>




         (c)In  addition to any other  remedies that PILON may have hereunder or
under  applicable  law, PILON may return any unit of the Products which does not
satisfy any of the  foregoing  warranties  at the time it is  delivered to PILON
(each,  "Rejected  Product"),  at any time within one (1) year after the date of
such delivery,  to MANHATTAN at MANHATTAN's  risk and cost, and MANHATTAN shall,
if so  directed  by PILON,  at  MANHATTAN's  sole  expense,  promptly  deliver a
replacement  which conforms to all  requirements  set forth in this Agreement to
PILON's facility in Italy having as address at SAIMA AVANDERO S.P.A.,  Via Dante
N. 132/134,  20090 Limito Di Pioltello (MI) (or to such other locations as PILON
may advise MANHATTAN in writing).  If a replacement is not requested,  MANHATTAN
shall  promptly  return all payments  which may have been made in respect of the
Rejected Product, and PILON need not pay for any units thereof for which payment
has not yet been made.
         (d)The  warranties set forth in Subsections (a) and (b) of this Section
11 shall survive PILON's acceptance of Products hereunder.
      12.   INSURANCE.
         (a)MANHATTAN shall,  throughout the term hereof,  maintain (i) worker's
compensation insurance in statutory amounts covering all of its employees,  (ii)
employer's   liability   insurance  with  a  minimum  per  occurrence  limit  of
$1,000,000,  and (iii) public liability  insurance  (including product liability
and "broad form"  contractual  liability)  for  injuries,  including  accidental
death,  to any one person in an amount not less than  $10,000,000 and on account
of any one  accident in an amount not less than  $10,000,000,  and for  property
damage in an amount not less than $500,000 (the employer's  liability and public
liability insurance are herein referred to as the "Liability Insurance").
         (b)All  insurance  policies  required  hereunder  shall  be  issued  by
companies reasonably  acceptable to PILON. PILON (and such other companies as it
may nominate) shall be named as additional  insured under MANHATTAN's  Liability
Insurance.  MANHATTAN  shall furnish PILON with  certificates of insurance which
provide that PILON (and such other companies as it may nominate) are named as an
additional insured under the Liability  Insurance,  that the Liability Insurance
is  primary  as to any  other  insurance,  that  the  issuers  of the  Liability
Insurance waive subrogation against PILON (and its nominees), that the Liability
Insurance  includes  contractual   liability  and  that  all  policies  required
hereunder  cannot be  modified or  cancelled  without  thirty (30) days  advance
notice being given to PILON.  The existence of any such  insurance  shall not be
construed as a limitation of MANHATTAN'S liability hereunder.

                                        4

<PAGE>




      13.   FORCE MAJEURE.
         (a)Failure  by MANHATTAN to make any  delivery  hereunder  (or portions
thereof)  when due shall not  subject  MANHATTAN  to any  liability  to PILON if
MANHATTAN declares in writing to PILON that performance,,  cannot be made due to
(i) act of God or the public enemy, fire,  explosion,  perils of the sea, flood,
drought,  war, riot,  sabotage,  accident or embargo;  (ii) without limiting the
foregoing circumstances, any circumstances of like or different character beyond
the reasonable control of MANHATTAN;  interruption of or delay in transportation
beyond the  reasonable  control of  MANHATTAN;  (iv)  inadequacy  or shortage or
failure of normal sources of supply of materials, energy or equipment beyond the
reasonable control of MANHATTAN;  (v) equipment breakdowns beyond the reasonable
control of MANHATTAN; (vi) labor trouble from whatever cause arising and whether
or  not  the  demands  of the  employees  involved  are  reasonable  and  within
MANHATTAN's  power to concede;  or (vii) compliance by MANHATTAN with any order,
action,  direction or request of any governmental officer,  department,  agency,
authority  or  committee  thereof  (any  occurrence  or  condition  set forth in
subsections (i) through (vii) above are herein referred to as "Force Majeure").
         (b)If MANHATTAN  claims an excuse  hereunder,  MANHATTAN shall promptly
notify PILON in writing,  specifying the reasons therefor and expected  duration
thereof.  MANHATTAN  shall take  reasonable  steps to ensure  resumption of full
performance hereunder as soon as reasonably possible.
      14.INTANGIBLE  PROPERTY;  GRANT  OF  LICENSE;   CONFIDENTIAL  INFORMATION.
         (a)The parties hereby  acknowledge and agree that PILON is the owner of
         all trademarks,
tradenames and information  relating directly or indirectly to any aspect of the
Business or affairs of PILON, or-the pricing,  employees,  customers,  financial
condition or prospects thereof.
         (b)MANHATTAN  covenants for the benefit of PILON its  subsidiaries  and
affiliates, to hold all information (the "Confidential Information") directly or
indirectly  to any aspect of the  Business or affairs of PILON,  or the pricing,
employees, customers, financial condition or prospects thereof, in confidence in
perpetuity and to not disclose any  Confidential  Information to any third party
unless MANHATTAN can demonstrate by documentary  evidence that such Confidential
Information (i) is made known to the public generally through no fault or act of
MANHATTAN,  or its  subsidiaries  or  affiliates,  or  (ii)  is  required  to be
disclosed by governmental authority; provided, however, with respect to required
disclosures  pursuant to  subsection  (iii)  hereof  MANHATTAN  shall give PILON
immediate  notice of the requested  disclosure and shall cooperate with PILON in
the event PILON chooses to challenge such

                                        5

<PAGE>





disclosure.  MANHATTAN  shall protect  Confidential  Information at least to the
extent  it  protects  its  own   proprietary   information  and  shall  disclose
Confidential  Information  only to those employees of MANHATTAN with an absolute
need to know.
         (c)MANHATTAN further acknowledges and agrees that it would be difficult
to assess the monetary damages PILON would sustain in the event of the breach of
the obligations  contained in this Section 14, and expressly  recognizes that an
irreparable  injury  would be  caused  to PILON  by any  such  breach,  and that
MANHATTAN's  obligations  set  forth  in  this  Section  14 can be  enforced  by
injunction.  MANHATTAN  will  indemnify  PILON  for  all,  costs  and  expenses,
including  reasonable  attorneys' fees and  disbursements,  incurred by PILON in
enforcing  MANHATTAN's  .obligations  or  protecting  PILON's  rights under this
Section 14.
      15. MANHATTAN'S INDEMNITY.
      MANHATTAN shall indemnify and hold harmless PILON,  its  subsidiaries  and
affiliates,   and   their   respective   officers,   directors   and   employees
(collectively,  "Indemnitees")  from and against  any and all  claims,  demands,
causes of action, suits, proceedings,  judgments, decrees, liabilities,  losses,
damages and costs,  including  attorneys' fees and  disbursements  (collectively
"Claims"), which may be asserted against any Indemnitee to the extent they arise
out of,  are  connected  with or relate  to,  any and all units of the  Product,
whether or not for damage to  property  or injury or death,  including,  but not
limited to (a) Claims  involving (i) the operation of MANHATTAN's  facility,  or
(ii) the failure of any unit of any Product to comply with the specifications of
PILON's purchase orders, and (b) Claims involving any  environmental,  safety or
health law/ regulation or order of any  governmental  authority.  In addition to
the foregoing,  at PILON's written request,  MANHATTAN will, at its own expense,
assume the defense of any Claim arising out of, connected with or related to any
Product using counsel reasonably  acceptable to PILON;  provided,  however, that
MANHATTAN  shall not be  responsible  for any Claim arising out of (i) misuse of
any Product, or (ii) any change or modification to any Product after delivery to
PILON.
      16.   TERMINATION.
         (a)In addition to the right of either party to terminate this Agreement
at the end of the Initial  Term or any Renewal Term  thereafter  as set forth in
Section 4 above,  either party may terminate this Agreement by written notice to
the other party if the other party (i)  suspends  payment of its debts or enters
into or becomes  subject to insolvency,  liquidation,  dissolution or bankruptcy
proceedings,  (ii) makes an assignment for the benefit of its  creditors,  (iii)
has a receiver  or trustee  appointed  for all or a  substantial  portion of its
assets,  (iv) seeks relief under any law for  debtors'  relief,  (v) attempts to
assign this Agreement or delegate its duties hereunder  unless  authorized under
this

                                        6

<PAGE>





Agreement,  (vi) fails to perform its  obligations  under this  Agreement  for a
period of thirty (30) days (either consecutively or in the aggregate) during any
contract year due to Force Majeure (as hereinafter  defined),  or (vii) fails to
comply with the terms and conditions of this Agreement in any material  respect;
provided,   however,  that  in  such  event,  with  respect  to  the  events  or
circumstances  set forth in subsection  (vii) above, the party failing to comply
with the terms and conditions of this  Agreement in such material  respect shall
be provided at least ten (10) days' prior  written  notice  during  which it may
cure the failure.
            (b)   Except as expressly set forth in this  Agreement,  termination
                  of this Agreement:  (i) will not affect or impair the' rights,
                  liabilities and obligations of any party
under any  purchase  order issued prior to the  effective  date of  termination,
including without  limitation the right of PILON to sell all Products  delivered
to PILON prior to termination hereof; and
                  (ii) will not relieve any party of any obligation or liability
incurred under this Agreement prior to the effective date of termination.
            (c) In the event of termination hereunder for whatever reason (other
than nonpayment),  MANHATTAN shall, at PILON's option, and upon PILON's request,
continue to perform its obligations  hereunder for a period of up to one hundred
eighty (180) days beyond the date of termination.
      17.  GOVERNING  LAW. This  Agreement  shall be governed by the laws of the
State of New Jersey,  including  the New Jersey  adopted  version of the Uniform
Commercial Code.
      18.  ASSIGNABILITY.  This  Agreement  may not be assigned by either  party
without the consent of the other party,  which consent shall not be unreasonably
withheld;  provided,  however,  that either  party may assign some or all of its
rights or obligations  hereunder without the other party's consent to any person
or entity  controlling,  controlled  by, or under common control with, the first
 .party,  or,  pursuant  to a  stock  or  asset  sale,  a  merger  or  any  other
transaction,  to any successor to all or substantially  all of the assets of any
business  unit of the first party  receiving  the  benefits  of this  Agreement,
provided,  however,  that the  successor  is not in a business  similar to or in
competition with PILON' s business (or that of its customers).
      19.  ARBITRATION.  Any  dispute,  controversy  or claim  arising out of or
relating to this Agreement,  which cannot be amicably settled,  shall be finally
settled by arbitration to be held in New Jersey, in accordance with the rules of
the  American  Arbitration  Association.   Arbitration  shall  be  before  three
arbitrators,  one to be  selected  by each of the  parties  and the  third to be
chosen by the first two arbitrators. Each party shall be responsible for its own
expenses regarding any arbitration. The costs of


                                        7

<PAGE>



the arbitration  itself shall be shared equally by the parties unless  otherwise
determined  by  the,-arbitrators.  Judgment upon any award may be entered in any
court having jurisdiction and shall be final.
      20.  NOTICES.  All  notices,  requests,  demands and other  communications
hereunder  shall be in  writing  and  shall be  given  to the  parties  at their
respective  addresses  set forth  below and shall be sent by (i) hand  delivery;
(ii)  certified  mail,  return  receipt  requested,  postage  prepaid;  (iii)  a
recognized "overnight" delivery service; or (iv) telecopy.  Notices sent by hand
delivery  shall be deemed  received when  delivered to the address and/or person
set forth below;  notices sent by certified  mail shall be deemed  received when
accepted;  notices sent by "overnight" delivery service shall be deemed received
when  delivered;  and notices  sent by telecopy  shall be deemed  received  upon
receipt of confirmation of dispatch:
            If to PILON:PILON INTERNATIONAL, PLC
                        Bell House
                        175 Regent Street
                        London W1R 7FB
                        England
                        Attention:Mr. Gabriele Albora
                                  Mr. Peter Colerigde
                        Telephone No. +(44) 171 2875322

      With a copy to:   P&P SERVICES SA
                        via Balestra 22/B
                        CH 6900 LUGANO
                        Switzerland
                        Attention:  Mr. Fernando
                        Telephone No. +(41) 91 912 2670
                        Telephone No. +(41) 91 921 0470

      If to MANHATTAN:  MANHATTAN DRUG COMPANY, INC.
                        225 Long Avenue
                        Hillside, NJ 07205
                        Attention:  Mr. E. Gerald Kay, President
                        Telephone No. (973) 926-0816
                        Telecopy No.  (973) 926-1735

      With copies to:   Shanley & Fisher, P.C.
                        131 Madison Avenue
                        Morristown, NJ 07962-1979
                        Attention:  Kevin M. Kilcullen, Esq.
                        Telecopy No. (973) 285-1625

or to such  other  address  or  telecopy  number as any party may  designate  by
written notice in the aforesaid manner.
      21. INSPECTION.  PILON shall have the right,  during normal business hours
and upon not less than two (2) hours  prior  notice,  to  inspect  the books and
records  of  MANHATTAN  as  to  PILON  transactions  hereunder  and  plants  and
facilities of MANHATTAN  producing PILON Products in order to confirm compliance
with this Agreement or to review any information  provided to PILON by MANHATTAN
hereunder.

                                        8

<PAGE>




      22.  WAIVER.  The  right of  either  party at any time to  require  strict
performance  by the other party hereto of any or all of the terms and conditions
of this  Agreement  shall in no way be affected  or  impaired  by prior  waiver,
forbearance, or course of dealing.
      23. ENTIRETY.  This Agreement constitutes the entire agreement between the
parties  hereto  with  respect to the  development,  manufacture,  and supply by
MANHATTAN and purchase by PILON of the Products,  and merges and  supersedes all
prior understandings and representations,  whether oral or written,  between the
parties  pertaining  thereto.  No addition,  modification  or alteration of this
Agreement shall be of any force or effect  whatsoever  unless reduced to writing
and signed by the party to be charged  thereby.  Any provision  appearing on any
purchase order,  sales order,  sales  acknowledgment,  purchase order release or
similar document which appears to modify, alter or add to the provisions of this
Agreement,   shall  be  null  and  void  and  of  no  effect  whatsoever  unless
acknowledged and accepted, in writing, by both parties on said documents.
      24.  SURVIVAL.  The  obligations of the parties under Sections 10, 13, 14,
15, 18, and 19 hereof shall survive the termination of this Agreement.
      IN WITNESS  WHEREOF,  the parties  hereto have caused this Agreement to be
executed  by their  duly  authorized  officers,  as of the  date and year  first
hereinabove written.
                                  PILON INTERNATIONAL, PLC
                                  By:__________________________
                                  Name:________________________
                                  Title:_______________________

                                  MANHATTAN DRUG COMPANY, INC.
                                  By:__________________________
                                  Name:________________________
                                  Title:_______________________

                                        9

<PAGE>



                                   Schedule A
6th ELEMENT
IMUNO GRANIT
DEFINITY
CAPRICE
FRUITONATURAL
VEGENATURAL
MARE
VULCAN
GINGSTAR


<PAGE>



                                   SCHEDULE B

 Item                 Product                 Original CostRevised Cost
Number              Description                Per Bottle   Per Bottle

2148/30's            6th Element                $   2.52    $   2.580
2149/30's            Imuno Granit               $   2.30    $   2.360
2150/60's            Gingstar                   $   2.45    $   2.533
2151/30's            Definity                   $   2.95    $   3,010
2152/30's            Caprice                    $   1.40    $   1,460
2153/60's            Mare                       $   1.90    $   1,983
2154/30's            Vulcan                     $   2.03    $   2,090
2155/60's            Vege Natural               $   2.28    $   2,363
2156/60's            Fruito Natural             $   2.43    $   2,513
Raw Material Cost Includes the Following:
1. All active ingredients
2. All inactive ingredients
3. Coating Costs
4. Cost of blue bottle, cotton and cap (with 4 color artwork),  Label 5. Cost of
standard non-printed corrugated box (approximately 100 per box)

Manufacturing and Bottling Charge Includes the Following:
1. Manufacturing and bottling labor and necessary supplies
2. Some but not all testing of products. To be discussed in further detail.

Not included
Tooling and Plate charges for labels


<PAGE>




                                   6TH ELEMENT

                                    Raw Material Cost   Unit

Pycnogenol                             $2,210.000         kg
Calcium Phosphate Dibasic              $    1.510         kg
Microcrystalline Cellulose             $    3,000         kg
Stearic Acid                           $    1.760         kg
Croscarmellose Sodium                  $   10,000         kg
Magnesium Stearate                     $    2.500         kg
Silica                                 $    2.600         kg
Coating                                $    0.500         1000

Blue PET Bottle, Wadding & Box         $    0.110         bottle
White Ribbed Cap with 4 Color Artwork  $    0.040         each
Label                                  $    0.040         each


<PAGE>





                                  IMUNO GRANIT

                                    Raw Material Cost   Unit

Cat's Claw                             $   62.000         kg
Echinacea                              $  170.000         kg
Calcium Phosphate Dibasic              $    1.510         kg
Microcystalline Cellulose              $    3.000         kg
Calcium Carbonate                      $    1.350         kg
Hydrogenated Vegetable Oil             $    3.770         kg
Croscarmellose Sodium                  $   10.000         kg
Magnesium Stearate                     $    2.500         kg
Silica                                 $    2.600         kg
Coating                                $    0.500         1000

Blue PET Bottle, Wadding & Box         $    0.110         bottle
White Ribbed Cap with 4
Color Artwork                          $    0.040         each
Label                                  $    0.040         each





<PAGE>



                                     GINSTAR


                                    Raw Material Cost   Unit

Ginseng                                $   28.000         kg
Rhodiola                               $  150.000         kg
Schizandra                             $   90.000         kg
Dextrose                               $    0.860         kg
Microcrystalline Cellulose             $    3.000         kg
Calcium Carbonate                      $    1.350         kg
Stearic Acid                           $    1.760         kg
Croscarmellose Sodium                  $   10.000         kg
Silica                                 $    2.600         kg
Magnesium Stearate                     $    2.500         kg
Coating                                $    0.500         1000

Blue PET Bottle, Wadding & Box         $    0.120         bottle
White Ribbed Cap with 4
Color Artwork                          $    0.043         each
Label                                  $    0.060         each




<PAGE>



                                    DEFINITY


                                    Raw Material Cost   Unit

Kava Root                              $  265.000         kg
Passiflora                             $   38.000         kg
St. John's Wort                        $   80.000         kg
Calcium Phosphate Dibasic              $    1.510         kg
Microcrystalline Cellulose             $    3.000         kg
Stearic Acid                           $    1.760         kg
Croscarmellose Sodium                  $   10.000         kg
Soy Polysaccharides                    $    9.740         kg
Magnesium Stearate                     $    2.500         kg
Silica                                 $    2.600         kg
Coating                                $    0.500         1000

Blue PET Bottle, Wadding & Box         $    0.110         bottle
White Ribbed Cap with 4
Color Artwork                          $    0.040         each
Label                                  $    0.040         each



<PAGE>



                                     CAPRICE



                                    Raw Material Cost   Unit

Zhi Shi                                $   72.000         kg
Chromium Chelavite                     $   26.000         kg
St. John's Wort                        $   80.000         kg
Microcrystalline Cellulose             $    3.000         kg
Calcium Phosphate Dibasic              $    1.510         kg
Stearic Acid                           $    1.760         kg
Croscarmellose Sodium                  $   10.000         kg
Magnesium Stearate                     $    2.500         kg
Silica                                 $    2.600         kg
Coating                                $    0.500         1000

Blue PET Bottle, Wadding & Box         $    0.110         bottle
White Ribbed Cap with 4
Color Artwork                          $    0.040         each
Label                                  $    0.040         each



<PAGE>



                                      MARE


                                    Raw Material Cost   Unit

Chlorella                                  45.000         kg
Oyster Shell                                2.160         kg
Spirulina Algae                            18.000         kg
Calcium Phosphate Dibasic                   1.510         kg
Microcrystalline Cellulose                  3.000         kg
Croscarmellose Sodium                      10.000         kg
Stearic Acid                                1.760         kg
Sodium Starch Glycolate                     8.720         kg
Silica                                      2.600         kg
Magnesium Stearate                          2.500         kg
Coating                                     0.500         1000

Blue PET Bottle, Wadding & Box              0.120         bottle
White Ribbed Cap with 4
Color Artwork                               0.043         1000
Label                                       0.060         1000



<PAGE>



                                     VULCAN


                                    Raw Material Cost   Unit

L-Arginine                             $   33.500         kg
Marapuama                              $   80.000         kg
Catuaba                                $   42.000         kg
Ginkgo Biloba                          $  320.000         kg
Niacin                                 $    9.000         kg
Calcium Phosphate Dibasic              $    1.510         kg
Microcrystalline Cellulose             $    3.000         kg
Stearic Acid                           $    1.760         kg
Croscarmellose Sodium                  $   10.000         kg
Magnesium Stearate                     $    2.500         kg
Silica                                 $    2.600         kg
Coating                                $    0.500         1000

Blue PET Bottle, Wadding & Box         $    0.110         bottle
White Ribbed Cap with 4
Color Artwork                          $    0.040         each
Label                                  $    0.040         each


<PAGE>



                                  VEGE NATURAL

                                    Raw Material Cost   Unit

Ascorbic Acid                          $   10.250         kg
Broccoli                               $   48.000         kg
Carrot                                 $   25.000         kg
Beta Carotene                          $  195.000         kg
Folic Acid                             $   12.000         kg
Garlic                                 $   28.000         kg
Niacinamide                            $    8.500         kg
MSM                                    $   24.000         kg
Pyridoxine                             $   26.000         kg
Riboflavin                             $   69.000         kg
Spinach                                $   43.000         kg
Thiamine Mono                          $   23.000         kg
Tomato                                 $   26.500         kg
B-12                                   $   95.000         kg
E 50%                                  $   25.250         kg
Calcium Pantothenate                   $   25.250         kg
Phytonadione                           $   45.000         kg
Calcium Phosphate Dibasic              $    1.510         kg
Microcrystalline Cellulose             $    3.000         kg
Stearic Acid                           $    1.760         kg
Croscarmellose Sodium                  $   10.000         kg
Magnesium Stearate                     $    2.500         kg
Silica                                 $    2.600         kg
Coating                                $    0.500         1000

Blue PET Bottle, Wadding & Box         $    0.120         bottle
White Ribbed Cap with 4
Color Artwork                          $    0.043         each
Label                                  $    0.060         each



<PAGE>



                                 FRUITO NATURAL

                                    Raw Material Cost   Unit

Asorbic Acid                           $   10.250         kg
Apple Fruit                            $   21.000         kg
Acerola Cherry                         $   34.500         kg
Beta Carotene                          $  195.000         kg
Co Q-10                                $1,850.000         kg
Capuaco Fruit                          $   42.500         kg
Cashew                                 $   22.770         kg
Guava                                  $   31.500         kg
Lime                                   $   28.500         kg
Melon                                  $   28.500         kg
Niacinamide                            $    8.500         kg
Papaya                                 $   28.000         kg
Pineapple                              $   24.750         kg
Pyridoxine                             $   26.000         kg
Passion Fruit                          $   26.000         kg
Riboflavin                             $   69.000         kg
Thiamine Mono                          $   23.000         kg
B-12                                   $   95.000         kg
D 1000mu/gm                            $  126.000         kg
Calcium Phosphate Dibasic              $    1.510         kg
Microcrystalline Cellulose             $    3.000         kg
Croscarmellose Sodium                  $   10.000         kg
Stearic Acid                           $    1.760         kg
Magnesium Stearate                     $    2.500         kg
Silica                                 $    2.600         kg
Coating                                $    0.500         1000

Blue PET Bottle, Wadding & Box         $    0.120         bottle
White Ribbed Cap with 4
Color Artwork                          $    0.043         each
Label                                  $    0.060         each


<PAGE>



                                  Exhibit 10.14
                              Stock Sale Agreement


      This Stock Sale  Agreement is made as of the 12th day of January,  1998 by
and between Chem International, Inc. a Delaware corporation (the "Company"), and
Gerob Realty Partnership, a New Jersey general partnership (the "Purchaser").

                               W I T N E S S E T H

      WHEREAS,  the Company desires to sell to Purchaser,  and Purchaser desires
to purchase from  Company,  843,300  shares (the  "Shares") of the common stock,
$.002  par value  (the  "Common  Stock")  of the  Company,  all on the terms and
conditions hereinafter set forth.

      NOW   THEREFORE,   in   consideration   of  the   premises   and  material
representations, warranties and covenants contained herein, the parties agree as
follows:

      1. Sale of Shares. As of the Closing Date (the date hereof) and subject to
all other terms and  conditions  of the  Agreement,  the Company shall issue and
sell the Shares to Purchaser.

      2. Payment of Purchase Price. The Company's  performance of this Agreement
is in consideration  of the following:  (i) satisfaction of the aggregate amount
of $297,000  owed by the  Company to  Purchaser  representing  rent past due and
payable by the  Company to the  Purchaser  for the  period  December  1, 1994 to
December  31,  1997 for the  Company's  rental of the  premises at 201 Route 22,
Hillside,  New  Jersey  under the Lease  dated  December  31,  1994,  as renewed
annually,  by and between the Company, as lessee, and Purchaser,  as lessor, and
(ii)  satisfaction  in full of the  amount  of  $276,443.92  payable  under  the
Promissory  Note dated August 15, 1997 (the "Note") made by the Company in favor
of Purchaser.

      3. Purchase Price per Share.  The purchase price per share of Common Stock
is  sixty-eight  cents  ($.68),  which is an agreed upon value being $.03 higher
than the average of the closing  price for a share of Common  Stock as quoted on
the Nasdaq SmallCap Market for the five business days immediately  preceding the
Closing Date.

      4.  Closing  Documentation.  As of the Closing  Date,  the  Company  shall
forward a letter of instruction  to Continental  Stock Transfer & Trust Company,
its transfer agent, to issue a stock certificate  representing the Shares in the
name of and to the Purchaser.

      5. Purchaser's Closing  Documentation.  As of the Closing Date,  Purchaser
shall deliver the Note marked "paid in full" to the Company.

      6.  Representations  and  Warranties  of the Company.  The Company  hereby
represents and warrants as follows:

(a)      The  Company  has the  legal  capacity  to  execute  and  deliver  this
         Agreement and perform the transactions contemplated hereby.

(b)      This  Agreement has been duly executed and delivered by the Company and
         constitutes  the legal,  valid and binding  obligation  of the Company,
         enforceable in accordance with its terms.


<PAGE>





(c)      The Shares, when issued for the consideration set forth herein, will be
         duly authorized, validly issued and nonassessable.

(d)      The Shares  are not  subject  to any lien,  restriction,  stockholder's
         agreement,  standstill  agreement or similar agreement or restrictions,
         except for  restrictions  on resale  which may be imposed on  Purchaser
         under the Securities Act of 1933, as amended (the "Securities Act").

(e)      There  has not  been  any  material  adverse  change  in the  business,
         operations,  assets or financial condition of the Company from that set
         forth in the  Company's  Annual  Report on Form 10- KSB for the  fiscal
         year ended June 30,  1997 and the  Company's  Quarterly  Report on Form
         10-QSB for the fiscal quarter ended September 30, 1997.

      7.   Representations   and  Warranties  of  Purchaser.   Purchaser  hereby
represents and warrants:

(a)      Purchaser has the legal  capacity to execute and deliver this Agreement
         and to consummate the  transactions  described  herein.  This Agreement
         constitutes  the legal,  valid and  binding  obligation  of  Purchaser,
         enforceable in accordance with its terms.

(b)      No consent of any person is required  for the  execution,  delivery and
         performance of this Agreement by Purchaser.

(c)      Purchaser  is  acquiring  the  Shares  solely for its own  account  for
         investment and not with a view to resale or  distribution  thereof,  in
         whole or part.

(d)      Purchaser  understands  that the Shares have not been registered  under
         the Securities Act or any state  securities  law, and that the offering
         and sale of the Shares by the Company to such  Purchaser is intended to
         be exempt from  registration  under Section 4(2) of the  Securities Act
         and the provisions of Rule 506 of Regulation D promulgated  thereunder,
         based in part upon the  representations  and  warranties  of  Purchaser
         hereunder.

(e)      Purchaser understands that the Shares may not be sold,  hypothecated or
         otherwise  disposed  of  unless   subsequently   registered  under  the
         Securities Act and applicable  state  securities laws or pursuant to an
         exemption from such registration.

(f)   Purchaser did not become aware of the offer of the Shares  through or as a
      result  of any  form  of  general  solicitation  or  general  advertising,
      including, without limitation, any article, notice, advertisement or other
      communication  published in any  newspaper,  magazine or similar  media or
      broadcast over television or radio.

(g)      The  managing  general  partner of  Purchaser  has such  knowledge  and
         experience  in business  and  financial  matters  that he is capable of
         evaluating  the merits and risk of the  purchase of the Shares and make
         an informed investment decision with respect thereto.

(h)      The Purchaser  acknowledges  that all documents,  filings,  records and
         books pertaining to the Company have been made available for inspection
         by it.

(i)      Neither the Securities and Exchange  Commission or any state securities
         commission has approved or recommended the Shares.

                                        2

<PAGE>





(j)      Purchaser  is an  accredited  investor (as such term is defined in Rule
         501 of Regulation D under the Securities Act).

      8. Conditions to the  Obligations of Each Party under this Agreement.  The
respective  obligations of each party under this  Agreement  shall be subject to
the  satisfaction at the Closing Date that no orders,  decrees or rulings issued
by any  court of  competent  jurisdiction,  nor any  rule,  regulation  or order
entered,   promulgated   or  enacted   by  any   governmental,   regulatory   or
administrative agency nor any suit, action or other proceeding would prevent the
consummation of the transactions as contemplated hereby.

      9. Fees and Expenses.  Each of the parties hereto shall be responsible for
their own expenses  incurred in connection  with the  transactions  contemplated
hereby.  Each party  hereby  represents  that no person or entity is entitled to
receive any  brokerage  or finder's  fee or other fees in  connection  with this
Agreement or the transactions  contemplated  hereby.  Each party shall indemnify
the other and hold the other party harmless from and against any claims for such
fees as a result of any  agreement or  understanding  between such  indemnifying
party and any third party.

      10.   Survival   of   Certain   Representations   and   Warranties.    The
representations  and  warranties  of the  parties in this  Agreement  and in any
instrument delivered pursuant hereto shall survive the Closing.

      11. Entire  Agreement.  This  Agreement and the  agreements  and documents
executed and/or delivered at the Closing in connection  herewith  constitute the
entire  agreement  among the parties  hereto with respect to the subject  matter
hereof and supersede all prior agreements and understandings,  oral and written,
among  the  parties  hereto  with  respect  to the  subject  matter  hereof.  No
representation,  warranty, inducement or statement of intention has been made by
any party that is not embodied in this  Agreement or such other  documents,  and
none  of  the  parties  shall  be  bound  by,  or be  liable  for,  any  alleged
representation,  warranty,  inducement  or statement  of intention  not embodied
herein or therein.

      12.  Applicable  Law. This Agreement shall be governed by and construed in
accordance  with  the  laws  of the  State  of New  Jersey,  without  regard  to
principles of conflict of interest.

      13. Binding Effect, Benefits. This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective permitted successors
and  assigns.  Notwith-standing  anything  contained  in this  Agreement  to the
contrary,  nothing in this Agreement,  express or implied, is intended to confer
on any  person  other  than the  parties  hereto or their  respective  permitted
successors and assigns, any rights,  remedies,  obligations or liabilities under
or by reason of this Agreement.

      14.  Assignability.  Neither this Agreement nor any of the parties' rights
hereunder  shall be  assignable  by any party hereto  without the prior  written
consent of the other parties hereto.

      15. Amendments. This Agreement may be modified, amended or supplemented at
any time by mutual agreement of the parties.  Without limiting the generality of
the foregoing,  this Agreement may only be amended, varied or supplemented by an
instrument in writing, signed by the parties hereto.

      16. Counterparts.  This Agreement may be executed simultaneously in two or
more counterparts,  each of which shall be deemed an original,  but all of which
together shall constitute one and the same instrument.

                                        3

<PAGE>





      IN WITNESS  WHEREOF,  each of the undersigned has caused this Agreement to
be duly executed and delivered as of the date hereinabove set forth.

                                    COMPANY:
                                    Chem International, Inc.

                                    By:/s/ Eric Friedman_______________
                                        Eric Friedman, Vice President


                                    PURCHASER:

                                    Gerob Realty Partnership



                                    By:/s/ E. Gerald Kay_______________
                                        E. Gerald Kay, General Partner

                                        4

<PAGE>



                                  Exhibit 10.15

                                 PROMISSORY NOTE

  Amount:  $750,000

  Dated:  March 12, 1998







  FOR VALUE RECEIVED, Chem International, Inc., a Delaware corporation (the
"Borrower"), promises to pay E. Gerald Kay, (the "Lender"), at such place as the
Lender may direct,  SEVEN HUNDRED FIFTY THOUSAND AND 00/100 DOLLARS  ($750,000),
together with interest, as follows:

  1. LOAN: This Note evidences a loan in the amount of $750,000 (the "Loan"),
made by the Lender to the Borrower.

  2. INTEREST RATE: The Loan shall bear interest at a fixed rate per annum equal
to seven percent (7.00%).  Interest shall be calculated for the actual number of
days elapsed on the basis of a 360 day year and shall be paid in arrears.

  3. TERM: The Loan shall mature on March 12, 2001 (the "Maturity Date").

  4. PAYMENTS:  The Borrower shall pay to the Lender accrued interest only, on a
quarterly basis,  payable on the last day of each calendar quarter commencing on
March 31, 1998 and  continuing  thereafter  until the  Maturity  Date,  when all
outstanding  principal,  interest,  fees and other  charges owing under the Loan
shall be due and payable to the Lender.

  5. PREPAYMENTS:  Prepayment will be permitted in whole or in part at any time,
without fee or penalty.  In addition to any prepaid  amount,  the Borrower shall
also pay to the Lender any  accrued and unpaid  interest  and all other sums due
under the terms of this Note at the time of such prepayment.

  6. LATE FEE: If the Lender  does not receive the entire  amount of any payment
required  under this Note within 30 days of its due date, the Borrower shall pay
a late fee of 5% of that entire amount.

  7.  DEFAULT:  The  Borrower  shall be in  default  under  this  Note  upon the
occurrence of any of the following events (an "Event of Default"):

  (a) Failure to make any payment  required under this Note on the Maturity Date
or on the due date thereof;

  (b) The  institution  of  proceedings  by or against  the  Borrower  under any
bankruptcy  or  insolvency  law, or any law for the benefit of  creditors or the
relief of debtors, or a custodianship,  trusteeship,  receivership or assignment
for the benefit of creditors shall be imposed upon the Borrower or sought by the
Borrower or by any other  person or a petition  for  debtor's  relief  under any
state or federal  bankruptcy,  reorganization  or insolvency law, shall be filed
against or by the Borrower;

  (c) The  dissolution  by the Borrower of its existence as a corporation or the
cessation of doing business by the Borrower or the institution of any actions to
accomplish the foregoing; or

  (d) If there  shall  occur a seizure  or  foreclosure  of any of the  material
assets or property of Borrower.


<PAGE>





  Upon the  happening  of any Event of Default,  or on the  Maturity  Date,  the
entire amount of interest,  principal, and any and all other sums due under this
Note  shall  become  due and  payable  immediately  and  interest  shall  accrue
thereafter at a rate of interest  equal to 2% per annum in excess of the rate of
interest which would have been payable on this Note if default had not occurred.

  The Lender does not give up its rights upon a default as a result of any delay
in declaring or failure to declare a default.

  8. WAIVERS:  Borrower hereby waives presentment for payment, demand, notice of
dishonor,  protest,  notice of  protest  and all  other  demands  and  notice in
connection with the delivery, performance and enforcement of this Note.

  9. CHANGES: This Note can only be changed by an agreement in writing signed by
the Borrower and the Lender.

  10. NOTE BINDING ON BORROWER AND SUCCESSORS:  All obligations  under this Note
are unconditional  obligations of Borrower and all who succeed to its rights and
interests.

  11. GOVERNING LAW; JURISDICTION: This Note shall be construed according to the
laws of the State of New Jersey and the Borrower consents to the jurisdiction of
the courts of the State of New Jersey to determine  any questions of fact or law
arising under this Note.

  12.  ACTIONS  INVOLVING THIS NOTE: If this Note is referred to an attorney for
collection, the Borrower agrees to pay all costs of collection,  including court
costs and reasonable attorney's fees.
THE BORROWER HEREBY IRREVOCABLY WAIVES ITS RIGHT TO A TRIAL BY JURY
IN ANY ACTION ARISING OUT OF THE LOAN EVIDENCED BY THIS NOTE AND THE
TRANSACTIONS CONTEMPLATED HEREUNDER.

  13. NO USURY:  The  Lender  and  Borrower  intend to comply at all times  with
applicable  usury laws. If at any time such laws would ever render  usurious any
amounts  called for under this Note,  then it is the Borrower's and the Lender's
express  intention that such excess amount shall be immediately  credited on the
principal  balance of this Note (or, if this Note has been fully paid,  refunded
by the Lender to  Borrower),  and the  provisions  hereof  shall be  immediately
reformed and the amounts thereafter collectible under this Note reduced, without
the  necessity of the execution of any further  documents,  so as to comply with
the then  applicable law, but so as to permit the recovery of the fullest amount
otherwise  called for under this Note.  Any such  crediting  or refund shall not
cure or waive any Event of Default by Borrower  under this Note.  If at any time
following any reduction in the interest rate payable by Borrower,  there remains
unpaid any  principal  amount under this Note and the maximum  interest rate not
prohibited by applicable law is increased or eliminated,  then the interest rate
payable  under this Note shall be  readjusted,  to the extent not  prohibited by
law, so that the dollar amount of interest  payable  hereunder shall be equal to
the dollar  amount of interest  which  would have been paid by Borrower  without
giving  effect to the  reduction  in interest  resulting  from  compliance  with
applicable  usury laws.  Borrower agrees that in determining  whether or not any
interest payable under this Note exceeds the highest rate not prohibited by law,
any non-principal  payment (except payments  specifically stated in this Note to
be "interest"), including, without limitation, prepayment fees and late charges,
shall, to the maximum extent not prohibited by law, be an expense,  fee, premium
or penalty rather than interest.

                                        2

<PAGE>





  14. RIGHTS  CUMULATIVE:  The rights and remedies of the Lender under this Note
shall be cumulative and concurrent and at the sole  discretion of the Lender may
be pursued  singly,  successively,  or together  and  exercised  as often as the
Lender shall desire.  Time is of the essence under this Note. The failure of the
Lender to exercise  any such right or remedy shall in no event be construed as a
waiver or release  thereof.  Nothing  herein  contained  shall be  construed  as
limiting the Lender to the remedies mentioned above.

  IN WITNESS WHEREOF, the Borrower has executed this Note as of the day and year
first set forth above.



Attest:                             BORROWER:

                                    CHEM INTERNATIONAL, INC.


                                    By:
Name:                                  Name:  Eric Friedman
Title:                                 Title: Vice President

                                        3

<PAGE>



                                  Exhibit 10.16

      THIS  WARRANT AND THE SHARES OF COMMON  STOCK  ISSUABLE  UPON THE EXERCISE
HEREOF HAVE NOT BEEN  REGISTERED  UNDER THE  SECURITIES  ACT OF 1933, AS AMENDED
(THE "SECURITIES  ACT") OR UNDER ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD,
TRANSFERRED  OR  OTHERWISE  DISPOSED  OF IN THE  ABSENCE  OF  (I)  AN  EFFECTIVE
REGISTRATION  STATEMENT  UNDER THE SECURITIES ACT COVERING SUCH  TRANSACTION AND
COMPLIANCE WITH REGISTRATION REQUIREMENTS UNDER APPLICABLE STATE SECURITIES LAWS
OR (II) AN OPINION OF COUNSEL ACCEPTABLE TO THE ISSUER THAT SUCH REGISTRATION IS
NOT REQUIRED BECAUSE OF EXEMPTIONS AVAILABLE THEREUNDER.


                                                        Warrant to Purchase
Warrant No. 1                                               150,000 shares


                            VOID AFTER MARCH 12, 2003

                           CLASS C WARRANT TO PURCHASE
                                  COMMON STOCK
                                       OF
                            CHEM INTERNATIONAL, INC.
              Incorporated Under the Laws of the State of Delaware


      THIS IS TO  CERTIFY  that E.  GERALD  KAY (the  "Warrantholder")  , or its
proper  assigns,  is entitled,  upon the due exercise  hereof and subject to the
terms and conditions hereof, as to the total number of shares thereafter,  until
5:00  p.m.  New  Jersey  time  on  March  12,  2003,   to  purchase   from  Chem
International, Inc., a Delaware corporation (the "Company") , all or any part of
One Hundred Fifty  Thousand  (150,000)  fully paid and  nonassessable  shares of
common  stock,  par value $.002 per share of the Company (the "Common  Stock") ,
but not for fractional  shares of Common Stock,  upon surrender  hereof with the
Election to Purchase  attached  hereto as Appendix "A", duly  completed,  at the
principal office of the Company, and simultaneous payment therefor in cash or by
certified or bank check  payable to the order of the Company,  at the  aggregate
purchase price of $1.75 for one (1) share of Common Stock (the "Warrant Exercise
Price").

      1. Term. This Warrant is  exercisable,  in whole or in part, at the option
of the Warrantholder,  for a four (4) year period, commencing one (1) year after
the date hereof and may not be exercised after 5:00 p.m., New Jersey time, March
12, 2003 (the "Expiration  Date"), at which time this Warrant will become wholly
void and all rights evidenced hereby will terminate.

      2. Warrant  Exchange.  If this Warrant is exercised  for less than all the
shares  purchasable  upon the exercise  hereof,  the holder shall be entitled to
receive a new Warrant of like tenor of or the  purchase in the  aggregate of the
number of shares in respect of which this Warrant shall not have been exercised.

      3.  Issuance  of Common  Stock  Certificates.  Upon the  exercise  of this
Warrant,  the  Company  will  issue  to  the  Warrantholder  stock  certificates
representing  the number of shares of Common Stock  exercised  therefor,  in the
name of the Warrantholder or in such names as may be directed by the holder.


<PAGE>





      4.  Adjustment  of Warrant  Exercise  Price and Number of Shares of Common
Stock.

            (a)Subject to the exceptions referred to in Paragraph 4(e) below, in
the event the  Company  shall,  at any time or from time to time  after the date
hereof,  sell any shares of Common Stock for a consideration per share less than
the Market Price of the Common Stock on the date of the sale or issue any shares
of Common Stock as a stock dividend to the holders of Common Stock, or subdivide
or  combine  the  outstanding  shares of Common  Stock  into a greater or lesser
number of shares (any such sale,  issuance,  subdivision,  or combination  being
herein  called a "Change of Shares"),  then,  and  thereafter  upon each further
Change of Shares, the Warrant Exercise Price in effect immediately prior to such
Change of Shares shall be changed to a price (including any applicable  fraction
of a cent)  determined  by  multiplying  the  Warrant  Exercise  Price in effect
immediately prior thereto by a fraction, the numerator of which shall be the sum
of the number of shares of Common  Stock  outstanding  immediately  prior to the
issuance  of such  additional  shares and the  number of shares of Common  Stock
which  the  aggregate   consideration   received   (determined  as  provided  in
subparagraph  4(d)  below) for the  issuance  of such  additional  shares  would
purchase at such Market Price per share of Common Stock,  and the denominator of
which  shall be the sum of the  number of shares  of  Common  Stock  outstanding
immediately after the issuance of such additional shares.  Such adjustment shall
be made  successively  whenever  such an issuance is made.  For purposes of this
Paragraph  4, the term  Market  Price  shall mean the average of the closing bid
price for a share of Common Stock for any twenty (20)  consecutive  trading days
within a period of thirty (30)  consecutive  trading  days ending on the date of
the Change of Shares.

               Upon each  adjustment of the Warrant  Exercise  Price pursuant to
this  Paragraph 4, the total number of shares of Common Stock  purchasable  upon
the exercise of this Warrant shall be such number of shares  (calculated  to the
nearest tenth)  purchasable at the Warrant Exercise Price in effect  immediately
prior to such adjustment multiplied by a fraction,  the numerator of which shall
be the Warrant Exercise Price in effect immediately prior to such adjustment and
the  denominator  of  which  shall  be the  Warrant  Exercise  Price  in  effect
immediately after such adjustment.

            (b)In case of any reclassification, capital reorganization, or other
change of outstanding shares of Common Stock, or in case of any consolidation or
merger  of  the  Company  with  or  into  another   corporation  (other  than  a
consolidation  or merger in which the Company is the continuing  corporation and
which does not result in any reclassification,  capital reorganization, or other
change  of  outstanding  shares  of  Common  Stock),  or in case of any  sale or
conveyance to another corporation of all or substantially all of the property of
the  Company  (other  than  a  sale/leaseback,   mortgage,  or  other  financing
transaction), the Company shall cause effective provision to be made so that the
Warrantholder  shall have the right thereafter,  by exercising such Warrant,  to
purchase the kind and number of shares of stock or other  securities or property
(including cash) receivable upon such reclassification,  capital reorganization,
or other change,  consolidation,  merger, sale, or conveyance by a holder of the
number of shares of Common Stock that might have been purchased upon exercise of
such Warrant immediately prior to such reclassification, capital reorganization,
or other change, consolidation,  merger, sale, or conveyance. Any such provision
shall include  provision for adjustments  that shall be as nearly  equivalent as
may be  practicable  to the  adjustments  provided for in this  Paragraph 4. The
Company shall not effect any such consolidation, merger, or sale unless prior to
or simultaneously with the consummation thereof the successor (if other than the
Company)  resulting  from  such  consolidation  or  merger  or  the  corporation
purchasing  assets or other  appropriate  corporation  or entity shall assume by
written  instrument the obligation to deliver to the holder of this Warrant such
shares of stock,  securities,  or assets as, in  accordance  with the  foregoing
provisions,  such holders may be entitled to purchase and the other  obligations
under this Agreement. The foregoing provisions shall similarly apply

                                        2

<PAGE>





to successive  reclassification,  capital reorganizations,  and other changes of
outstanding  shares of Common Stock and to successive  consolidations,  mergers,
sales, or conveyances.

            (c)After each  adjustment of the Warrant  Exercise Price pursuant to
this Paragraph 4, the Company will promptly prepare a certificate  signed by the
Chairman or  President,  and by the  Treasurer or an Assistant  Treasurer or the
Secretary or an  Assistant  Secretary,  of the Company  setting  forth:  (i) the
Warrant Exercise Price as so adjusted, (ii) the number of shares of Common Stock
purchasable  upon  exercise of the Warrant  after such  adjustment,  and (iii) a
brief statement of the facts  accounting for such  adjustment.  The Company will
promptly forward by first class mail such certificate to the Warrantholder.

            (d)For  purposes of Paragraphs  4(a) and 4(b) hereof,  the following
provisions (i) to (vii) shall also be applicable:

               (i)The number of shares of Common Stock  outstanding at any given
time shall include shares of Common Stock owned or held by or for the account of
the Company and the sale or issuance of such treasury shares or the distribution
of any such treasury shares shall not be considered a Change of Shares.

               (iiNo  adjustment  of the  Warrant  Exercise  Price shall be made
unless such adjustment would require an increase or decrease of at least $.10 in
such price;  provided that any adjustments  which by reason of this subparagraph
(ii) are not  required to be made shall be carried  forward and shall be made at
the time of and together with the next  subsequent  adjustment  which,  together
with any adjustment(s) so carried forward, shall require an increase or decrease
of at least $.10 in the Warrant Exercise Price then in effect hereunder.

               (iii)  In case of (1) the  sale by the  Company  for  cash of any
rights or warrants to subscribe for or purchase, or any options for the purchase
of, Common Stock or any securities  convertible  into or exchangeable for Common
Stock without the payment of any further  consideration  other than cash, if any
(such  convertible or exchangeable  securities being herein called  "Convertible
Securities"),  or (2) the  issuance by the  Company,  without the receipt by the
Company of any  consideration  therefor,  of any rights or warrants to subscribe
for or purchase, or any options for the purchase of, Common Stock or Convertible
Securities,  in each  case,  if (and only if) the  consideration  payable to the
Company upon the exercise of such rights,  warrants, or options shall consist of
cash, whether or not such rights,  warrants, or options, or the right to convert
or exchange such Convertible Securities,  are immediately  exercisable,  and the
price per share for which  Common  Stock is issuable  upon the  exercise of such
rights,  warrants,  or  options  or upon  the  conversion  or  exchange  of such
Convertible  Securities  (determined  by  dividing  (x)  the  minimum  aggregate
consideration payable to the Company upon the exercise of such rights, warrants,
or options,  plus the consideration  received by the Company for the issuance or
sale of such rights, warrants, or options, plus, in the case of such Convertible
Securities,  the minimum aggregate amount of additional  consideration,  if any,
other than such Convertible Securities,  payable upon the conversion or exchange
thereof, by (y) the total maximum number of shares of Common Stock issuable upon
the  exercise of such rights,  warrants,  or options or upon the  conversion  or
exchange  of such  Convertible  Securities  issuable  upon the  exercise of such
rights,  warrants,  or options) is less than the fair market value of the Common
Stock on the date of the issuance or sale of such rights,  warrants, or options,
then the total  maximum  number of shares  of  Common  Stock  issuable  upon the
exercise of such rights, warrants, or options or upon the conversion or exchange
of such  Convertible  Securities (as of the date of the issuance or sale of such
rights, warrants, or options) shall be deemed to

                                        3

<PAGE>




be outstanding  shares of Common Stock for purposes of Paragraphs  4(a) and 4(b)
hereof and shall be deemed to have been sold for cash in an amount equal to such
price per share.

                  (iv) In  case  of the  sale  by the  Company  for  cash of any
Convertible  Securities,  whether  or not the right of  conversion  or  exchange
thereunder is immediately exercisable,  and the price per share for which Common
Stock is issuable upon the conversion or exchange of such Convertible Securities
(determined  by dividing (x) the total amount of  consideration  received by the
Company or the sale of such Convertible  Securities,  plus the minimum aggregate
amount  of  additional  consideration,  if  any,  other  than  such  Convertible
Securities,  payable upon the conversion or exchange  thereof,  by (y) the total
maximum  number of  shares  of Common  Stock  issuable  upon the  conversion  or
exchange of such  Convertible  Securities) is less than the fair market value or
the Common Stock on the date of the sale of such  Convertible  Securities,  then
the total maximum  number of shares of Common Stock issuable upon the conversion
or exchange of such  Convertible  Securities (as of the date of the sale of such
Convertible Securities) shall be deemed to be outstanding shares of Common Stock
for purposes of Paragraphs 4(a) and 4(b) hereof and shall be deemed to have been
sold for cash in an amount equal to such price per share.

               (v)In case the  Company  shall  modify the rights of  conversion,
exchange, or exercise of any of the securities referred to in subparagraph (iii)
above or any other  securities  of the  Company  convertible,  exchangeable,  or
exercisable for shares of Common Stock,  for any reason other than an event that
would require  adjustment to prevent  dilution,  so that the  consideration  per
share  received by the Company after such  modification  is less than the market
price on the date prior to such  modification,  the Warrant Exercise Price to be
in effect after such modification shall be determined by multiplying the Warrant
Exercise Price in effect immediately prior to such event by a fraction, of which
the  numerator  shall be the  number  of  shares  of  Common  Stock  outstanding
multiplied  by the market price on the date prior to the  modification  plus the
number of shares of Common Stock which the aggregate consideration receivable by
the Company for the securities  affected by the  modification  would purchase at
the market price and of which the  denominator  shall be the number of shares of
Common Stock  outstanding on such date plus the number of shares of Common Stock
to be issued upon conversion,  exchange,  or exercise of the modified securities
at the modified rate. Such adjustment shall become effective as of the date upon
which such modification shall take effect.

               (vi) On the expiration of any such right,  warrant,  or option or
the  termination  of any such right to convert or exchange any such  Convertible
Securities,  the Warrant Exercise Price then in effect hereunder shall forthwith
be readjusted to such Warrant  Exercise Price as would have obtained (a) had the
adjustments made upon the issuance or sale of such rights, warrants, options, or
Convertible  Securities  been made upon the  basis of the  issuance  of only the
number of shares of Common Stock theretofore  actually  delivered (and the total
consideration received therefor) upon the exercise of such rights,  warrants, or
options or upon the  conversion or exchange of such  Convertible  Securities and
(b) had  adjustments  been made on the basis of the  Warrant  Exercise  Price as
adjusted under clause (a) for all  transactions  (which would have affected such
adjusted Warrant Exercise Price) made after the issuance or sale of such rights,
warrants, options, or Convertible Securities.

               (vii) In case of the sale for cash of any shares of Common Stock,
any Convertible Securities, any rights or warrants to subscribe for or purchase,
or any options for the purchase of, Common Stock or Convertible Securities,  the
consideration  received by the Company therefore shall be deemed to be the gross
sales price therefor without deducting therefrom any expense paid or incurred by
the Company or any underwriting  discounts or commissions or concessions paid or
allowed by the Company in connection therewith.

                                        4

<PAGE>





            (e)No  adjustment to the Warrant  Exercise Price or to the number of
shares of Common  Stock  purchasable  upon the  exercise of this Warrant will be
made, however,

                  (i)Upon the  issuance or sale of Common  Stock or  Convertible
Securities  upon the  exercise  of any rights or warrants  to  subscribe  for or
purchase,  or any options  for the  purchase  of,  Common  Stock or  Convertible
Securities, whether or not such rights, warrants, or options were outstanding on
the date  hereof or were  thereafter  issued or sold  other  than  issuances  of
preferred stock in connection with acquisitions by the Company; or

                  (iiUpon the issuance or sale of Common  Stock upon  conversion
or exchange of any Convertible Securities,  whether or not any adjustment in the
Warrant Exercise Price was made or required to be made upon the issuance or sale
of such Convertible  securities and whether or not such  Convertible  Securities
were outstanding on the date hereof or were thereafter issued or sold; or

                  (iii) Upon the issuance or sale of Common Stock or Convertible
Securities in a private placement unless the issuance or sale price is less than
85% of the fair market  value of the Common  Stock on the date of  issuance,  in
which case the adjustment  shall only be for the  difference  between 85% of the
fair market value and the issue or sale price; or

                  (iv) Upon the issuance or sale of Common Stock or  Convertible
Securities to shareholders  of any corporation  which merges into the Company or
from which the  Company  acquires  assets  and some or all of the  consideration
consists of equity  securities  of the  Company,  in  proportion  to their stock
holdings of such corporation  immediately prior to the acquisition,  but only if
no adjustment is required pursuant to any other provision of this Paragraph 4.

               (f)Any  determination  as to whether an adjustment in the Warrant
Exercise Price in effect hereunder is required pursuant to Paragraph 4, or as to
the  amount of any such  adjustment,  if  required,  shall be  binding  upon the
Warrantholder and the Company if made in good faith by the Board of Directors of
the Company.

               (g)If and  whenever  the  Company  shall  grant to the holders of
Common Stock,  as such,  rights or warrants to subscribe for or to purchase,  or
any options for the purchase of, Common Stock or securities  convertible into or
exchangeable  for or carrying a right,  warrant,  or option to  purchase  Common
Stock, the Company shall concurrently therewith grant to the Warrantholder as of
the record date for such transaction the rights,  warrants,  or options to which
the  Warrantholder  would  have been  entitled  if, on the  record  date used to
determine the stockholders  entitled to the rights,  warrants,  or options being
granted  by the  Company,  the  Warrantholder  were the  holder of record of the
number of whole shares of Common Stock then issuable  upon  exercise  (assuming,
for purposes of this Paragraph  4(g),  that exercise of warrants is permissible)
of this Warrant. Such grant by the Company to the Warrantholder shall be in lieu
of any adjustment which otherwise might be called for pursuant to this Paragraph
4.

      5. No Stockholder  Rights.  The Warrantholder  shall not have the right to
vote or to  consent  or to  receive  notice as a  stockholder  in respect of any
meetings of stockholders or as having any rights  whatsoever as a stockholder of
the Company. The holder of this Warrant shall not be entitled to any rights of a
stockholder  of the  Company  in  respect  of any  shares  purchasable  upon the
exercise  hereof until such shares have been paid for in full and issued to such
holder.

                                        5

<PAGE>





      6.  Restrictions on Transfer.  This Warrant and the shares of Common Stock
issuable upon the exercise hereof  (collectively,  the "Warrant Securities") are
not  registered  upon the  Securities  Act of 1933, as amended (the  "Securities
Act") or any state  securities  laws.  The  Warrant  Securities  are  subject to
restrictions on transferability  and resale and may not be transferred or resold
except as permitted  under the Securities Act and  applicable  state  securities
laws.  Each  certificate  representing  shares of Common Stock issuable upon the
exercise of this Warrant shall bear the following legend:


         The shares of common stock  represented  by this  certificate  have not
         been  registered  under the  Securities  Act of 1933,1 as amended  (the
         "Securities Act") , or under any state securities laws, and said shares
         may not be sold, transferred or otherwise disposed of in the absence of
         (i) an  effective  registration  statement  under  the  Securities  Act
         covering such transaction and compliance with registration requirements
         under  applicable  state  securities laws or (ii) an opinion of counsel
         acceptable to the issuer that such registration is not required because
         of exemptions available thereunder.

      7.  Reservation of Stock Issuable Upon Exercise.  The Company shall at all
times reserve and keep available out of its  authorized  but unissued  shares of
Common  Stock,  solely for the purpose of  effecting  the issuance of the Shares
upon exercise of the Warrant, such number of its shares of Common Stock as shall
from time to time be sufficient to provide for the exercise of this Warrant, and
if at any time the number of  authorized  but  unissued  shares of Common  Stock
shall not be sufficient to provide for the exercise of this Warrant, the Company
will,  subject to the  requirements of applicable state law, take such corporate
action as may,  in the option of its  counsel,  be  necessary  to  increase  its
authorized  but  unissued  shares  of Common  Stock to such  number of shares of
Common Stock as shall be sufficient for such purposes.

      8. Elimination of Fractional Interests.  The Company shall not be required
to issue certificates  representing fractions of shares of Common Stock upon the
exercise of the Warrants, nor shall it be required to issue scrip or pay cash in
lieu of  fractional  interests,  it being  the  intent of the  parties  that all
fractional interests shall be eliminated by rounding any fraction to the nearest
whole  number  of  shares of Common  Stock or other  securities,  properties  or
rights.

     9. Successors.  All the covenants and provisions of this Agreement shall be
binding upon and inure to the benefit of the Company and the  Warrantholder  and
their respective successors. and assigns hereunder.

      10.  Governing  Law:  Submission  to  Jurisdiction.  This  Warrant  issued
hereunder  shall be deemed to be a contract  made under the laws of the State of
New Jersey and for all purposes  shall be construed in accordance  with the laws
of said State  without  giving  effect to the rules of said State  governing the
conflicts of laws.

      The Company and the Warrantholder,  by accepting this Warrant hereby agree
that any  action,  proceeding  or claim  against it or them  arising  out of, or
relating in any way to, this Warrant shall be brought and enforced in the courts
of the State of New Jersey or United States  federal court sitting in New Jersey
and  irrevocably  submit  to such  jurisdiction,  which  jurisdiction  shall  be
exclusive.  The  Company  and the  Warrantholder  hereby  irrevocably  waive any
objection to such exclusive  jurisdiction or inconvenient  forum. Any process or
summons  to be served  upon any of the  Company  and the  Warrantholder  (at the
option of the party bringing such action, proceeding or claim)may be served by

                                        6

<PAGE>




transmitting  a copy thereof,  by registered or certified  mail,  return receipt
requested, postage paid, addressed to the Company at its principal office and to
the Warrantholder at its address  appearing in the records of the Company.  Such
mailing shall be deemed personal service and shall be legal and binding upon the
party so  served  in any  action,  proceeding  or  claim.  The  Company  and the
Warrantholder agree that the prevailing  party(ies) all of its/their  reasonable
legal costs and expenses  relating to such action or proceeding  and/or incurred
in connection with the preparation therefor.

      11.  Notices.  All notices,  requests,  consents and other  communications
hereunder  shall be in  writing  and shall be deemed to have been duly made when
delivered  by  registered  or certified  mail,  return  receipt  requested or by
overnight mail.

         (a) If to the registered Holder of the Warrant,  to the address of such
Holder as shown on the books of the Company; or

         (b) If to the  Company,  to its  principal  offices  at 201  Route  22,
Hillside, New Jersey 07205 or to such other address as the Company may designate
by notice to the Holder.

      12. Entire  Agreement;  Modification.  This Agreement  contains the entire
understanding  between the parties  hereto  with  respect to the subject  matter
hereof and may not be modified or amended except by a writing duly signed by the
party against whom enforcement of the modification or amendment is sought.

                     CHEM INTERNATIONAL, INC.


                               By:____________________________
                                  Eric Friedman, Vice President
Dated:  March 12, 1998








                                        7

<PAGE>




                                   Appendix A


                          FORM OF ELECTION TO PURCHASE


      The  undersigned   hereby   irrevocably  elects  to  exercise  the  right,
represented by this Warrant, to purchase _____ shares of Common Stock.

      In accordance  with the terms of the Class C Warrant dated as of March 12,
1998  issued  by Chem  International,  Inc.  in  favor  of E.  Gerald  Kay,  the
undersigned requests that a certificate for such securities be registered in the
name of _________________ whose address is  __________________________  and that
such Certificate be delivered to ______________________ whose address is
----------------------------------------------.



Dated:______________,

                  Signature________________________
                  (Signature must conform in all respects to name of
               holder as specified on the face of the Warrant.)



                  ------------------------------------------
                  (Insert Social security or Other Identifying Number of Holder)


                                        8

<PAGE>




                                                            Exhibit 10.17
                           CONSULTING AGREEMENT

This  Consulting  Agreement  dated as of _March 20, 1998, is entered into by and
between Chem  International,  Inc. (the  "Company")  with offices located at 201
Route 22 West Hillside,  NJ 07205 and the BUTTONWOOD  ADVISORY GROUP,  INC. (the
"Consultant")  with offices located at 15705 Framingham Lane,  Huntersville,  NC
28078.


                                    RECITALS

WHEREAS,  the  Consultant  has  experience  in the  investment  banking and
financial services business; and

WHEREAS,  the Consultant desires to provide the financial advisory services (the
"Services") set forth in Section 3 hereof to the Company and the Company desires
to retain the Consultant to provide the Services to the Company.

NOW THEREFORE,  in  consideration  of the premises and the mutual  covenants and
agreement  hereinafter  set forth,  the  parties  hereto  covenant  and agree as
follows:

1. Retention.  The Company  hereby  retains the  Consultant,  and the Consultant
   agrees to be retained by the Company, to perform the Services as a Consultant
   to the  Company on the terms and  conditions  set forth  herein.  The parties
   agree that the Consultant  shall be retained by the Company as an independent
   contractor on a consulting basis and not as an employee of the Company.

2. Term. The term of this Agreement  shall commence on the date hereof and shall
   end on February  28,1999,  unless  terminated  earlier  pursuant to Section 8
   hereof.


3. Duties of Consultant.  During the term of this  Agreement,  Consultant  shall
   provide the Company with such regular and  customary  advice as is reasonably
   requested by the Company,  within the scope of the services enumerated below.
   It  is  understood  and  acknowledged  by  the  parties  that  the  value  of
   Consultant's advice is not readily quantifiable, and that Consultant shall be
   obligated to render  advice upon the request of the  Company,  in good faith,
   but not be  obligated  to  spend  any  specific  amount  of  time  so  doing.
   Consultant's  duties shall  include,  but will not  necessarily be limited to
   providing  recommendations  concerning one or more of the following financial
   and related matters upon the request of the Board of Directors of the Company
   and/or its President:

   a. Assisting   in  the   introduction   of  the  Company  to   registered
      representatives at various registered broker/dealers;

   b. Arranging, on behalf of the Company, meetings with securities analysts of
      nationally recognized and regional investment banking firms;

   c. Arranging,  on behalf of the  Company,  meetings  with  "small  cap" money
      managers who manage funds in both North America and Internationally;


<PAGE>





   d.  Rendering  advice with regard to any of the following  corporate  finance
matters:

      1. Changes in capitalization of the Company.
      2. Changes in the Company's corporate structure.
      3. Budgets and business plans.
      4. The Company's financial requirements.

   e. Furnish advice to the Company in connection with prospective  acquisitions
      and/or merger candidates.

   f. Participating as an observer or advisor at meetings of the Company's
      Board of Directors or any committee thereof;

   g. Using its best efforts to cause research reports concerning the Company
      to be written and disseminated by investment banking firms;

   h. Using its best  efforts to provide the Company with  market-makers  in its
      Common Stock, which market-makers have not previously made a market in the
      Company's securities;

   i. Promptly  upon request by the Company,  preparing  press  releases for the
      Company and promptly  distributing  them to the appropriate  news and wire
      services.

   j. Handling investor relations activities such as incoming investor inquiries
and faxing news releases.

4. Compensation. In consideration for the services rendered by Consultant to the
   Company  pursuant to this Agreement,  the Company shall pay to the Consultant
   $2,500 for  services  rendered  during the month of _March and $2,500  within
   fifteen days of the end of each succeeding month for services provided during
   that month during the term of this Agreement.

5. The  Company  will  promptly  reimburse  Consultant  for all  reasonable  and
   required  out-of-pocket  expenses  properly incurred by the Consultant in his
   performance  of this  Agreement  provided  that the Company has approved such
   expenses  in  advance  and  provided  further  that  a  written   accounting,
   reasonable and acceptable to the Company, is made by the Consultant.

6. Confidentiality.  Consultant  acknowledges  that  as  a  consequence  of  his
   relationship  with the  Company,  he has been and will  continue  to be given
   access to ideas, trade secrets, methods, customer information, business plans
   and  other   confidential   and   proprietary   information  of  the  Company
   (collectively,  "Confidential Information").  Consultant agrees that he shall
   maintain in confidence, and shall not disclose directly or indirectly, to any
   third parties or use for any purposes  (other than the  performance  hereof),
   any  Confidential  Information for the term of this Agreement and a period of
   seven years thereafter, unless previously approved by the Company in writing.
   The parties  hereto  agree that  irreparable  damage would occur in the event
   that  any of the  provisions  of  this  Section  6 are not  performed  by the
   Consultant in accordance with the specific terms or are otherwise breached by
   the Consultant.  It is accordingly agreed that the Company shall be entitiled
   to an injunction or injunctions to prevent  breaches of this Section 6 and to
   enforce  specifically  the  terms and  provisions  hereof in any court of the
   United  States or any State  having  jurisdiction  in  addition  to any other
   remedy to which they are entitled at law or in equity. Upon terminationof the
   Agreement,   the  Consultant  shall   immediatley   return  all  confidential
   information to the Company.

                                        2

<PAGE>





7. The company  has issued to the  Consultant  as a portion of his  compensation
   hereunder options (the "Options") exercisable for a total of 45,000 shares of
   Common Stock of the Company as set forth below subject to the Company's Board
   approval:

                  (i)One option exercisable for  15,000 shares of Common Stock
   of the Company at an exercise price of $1.125 per share;

                  (ii)One option exercisable for  15,000  shares of Common
   Stock of the Company at an exercise price of $  2.50 per share;

                  (iii) One option  exercisable  for 15,000 shares of Common
   Stock of the Company at an exercise price of $ 4.00_ per share.

   The Consultant will be granted  "piggyback " registration  rights at any time
   following the signing of this document or at such time as  permissible  under
   applicable  laws and  regulations.  The options will be exercisable  one year
   from the date of the signed Agreement and until five years following the date
   of Consultant's engagement hereunder.

8. Termination. This agreement will terminate upon either:

   (i)Expiration of the term of this Agreement; or

   (ii45 days written notice by either party.

9. Compliance with Law. The Consultant  agrees that in performing this Agreement
   the Consultant shall comply with the applicable  provisions of the Securities
   Act of 1933  and  the  Securities  Exchange  Act of  1934,  as  amended,  the
   applicable  rules and  regulations of the Securities and Exchange  Commission
   thereunder,  the statutes of any state security  commissions and departments,
   the  applicable  rules  and  regulations  of  the  National   Association  of
   Securities Dealers,  Inc. and any other applicable federal,  state or foreign
   laws, rules and regulations.

10.Indemnity.  The  Consultant  shall  indemnify  the  Company,  its  directors,
   officers, stockholders, representatives, agents and affiliates (collectively,
   the  "Affiliated  Parties")  from and  against  any and all  claims,  losses,
   damages, fines, fees, penalties,  deficiencies,  expenses, inlcuding expenses
   of   investigations,   court  costs  and  fees  and   expenses  of  attorneys
   (collectively  "Claims")  which the  Company or its  Affiliated  Parties  may
   sustain at any time resulting from,  arising out of or relating to the breach
   or  failure  to  comply  with  any  of the  covenants  or  agreements  of the
   Consultant or its Affiliated Parties contained in this Agreement.

11.Notices.  Notices,  other  communications or deliveries required or permitted
   under this Agreement shall be in writing  delivered by hand against  receipt,
   certified mail return receipt  requested,  or reputable  overnight courier to
   the  addresses set forth below or to such address as a party may designate in
   accordance with this paragraph and shall be effective upon the earlier of:

                                        3

<PAGE>





                  (i) Actual receipt;

                  (ii)Three (3) calendar  days if sent by certifed  mail; or one
                      (1) day if sent by overnight courier.

                      To the Company at:
                      PO BOX 278
                      Hillsdale, NJ 07205                attn: Mr. E. Gerald Kay

                      To the Consultant at:
                      15705 Framingham Lane
                      Huntersville, NC  28078

12.Applicable  Law. This Agreement shall be governed by the internal laws of the
   Sate of _New Jersey without regard to its conflict of law provisions.

  If the  foregoing  sets  forth your  understanding  of our  Agreement,  kindly
  indicate your compliance on the space provided below.


                         BUTTONWOOD ADVISORY GROUP, INC.

                      _______________________                   3-20-98
                      John Aneralla, President                    Date

                             AGREED AND ACCEPTED BY:

                             Chem International Inc.

                      __________________________                  3-20-98
                      E. Gerald Kay, CEO                            Date

                                        4

<PAGE>



                                   Exhibit 21


                    SUBSIDIARIES OF CHEM INTERNATIONAL, INC.


         Name                      State of Incorporation

Manhattan Drug Company, Inc.              New York
Vitamin Factory, Inc.                     New York
Bexpol International, Inc.                New Jersey
Media Consultants, Inc.                   Delaware
Manhattan International, Inc.             New Jersey
Connaught Press, Inc.                     New Jersey
Bioscience Technologies, I nc.            New Jersey
Gero Industries, Inc.                     New Jersey


<PAGE>


                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) 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.

                                   CHEM INTERNATIONAL, INC. AND SUBSIDIARIES


Date: September 23, 1998           By: /s/ E. Gerald Kay
                                      E. Gerald Kay,
                                       President and Chief Executive Officer


Date: September 23, 1998           By:/s/ Eric Friedman
                                      Eric Friedman,
                                       Chief Financial Officer


<PAGE>