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, 2000        Commission File Number 000-28876

                            CHEM INTERNATIONAL, INC.
            (Exact name of small business registrant in its charter)

               Delaware                                      22-2407475
      (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, 2000 were $17,974,885.

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, 2000 was $ 3,771,782.

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, 2000
       Common Stock $.002 par value                 5,152,500 Shares
      Class A Redeemable Common Stock              1,265,000 Warrants
             Purchase Warrants
      Class C Redeemable Common Stock
             Purchase Warrants                      150,000 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

Part I                                                                      Page

  Item 1.     Description of Business                                          1

  Item 2.     Description of Properties                                        3

  Item 3.     Legal Proceedings                                                3

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

Part II

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

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

  Item 7.     Financial Statements                                             8

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

Part III

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

  Item 10.    Executive Compensation                                           9

  Item 11.    Security Ownership of Certain Beneficial
              Owners and Management                                            9

  Item 12.    Certain Relationships and Related Transactions                   9

  Item 13.    Exhibits and Reports on Form 8-K                                 9

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  judgement 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"],  manufactures  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
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 51% and 55%, respectively,  for the fiscal years ended
June 30, 2000 and 1999. 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 these certain individuals,  particularly E. Gerald Kay, Chairman
of the Board, 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 four executive  officers,  which expire on June 30, 2002.  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 Pharmachem Laboratories, Inc.

Employees

As of June 30, 2000, the Company had 88 full time employees, of whom 54 belonged
to a  local  unit  of the  Teamsters  Union  and  are  covered  by a  collective
bargaining agreement, which expires August 31, 2002.

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 Untied 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  ["cGMP"]  specific  to  the
manufacture of dietary  supplements,  to be modeled after food cGMP. The Company
currently  manufactures its dietary  supplement  products pursuant to food cGMP.
The Company  believes  that it is currently in  compliance  with all  applicable
government regulations.  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 record keeping
and expanded  documentation of the properties of certain products and scientific
substantiation regarding ingredients, product claims and safety of efficacy.


                                       2
<PAGE>


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 who 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
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 result
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.

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 Chairman of
the Board, 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.  On
April  28,  2000  the  lease  was  amended   reducing  the  square   footage  to
approximately 75,000 square feet and extending the lease to May 31, 2015.

The  Company  also leases  40,000  square feet of  manufacturing  facilities  in
Hillside,  New Jersey from  Morristown  Holding  Company,  Inc.  (formerly Gerob
Realty  Partnership),  of which E.  Gerald  Kay,  Chairman  of the  Board of the
Company, is a majority shareholder.  The lease which expires on December 31,2000
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  lawsuits  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
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


                                       3
<PAGE>


firms that manufactured tablets and/or capsules containing L-tryptophan.

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  judgements.  SDA has agreed to indemnify  Manhattan  Drug against any
judgements 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.

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 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, 2000.


                                       4
<PAGE>


                                     PART II

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


Set forth below are the high and low closing  prices of the Common Stock and the
Class A  Redeemable  Warrant as reported on the Nasdaq  National  Market for the
periods indicated:




                                             HIGH                    LOW

COMMON STOCK [CXIL]

FISCAL YEAR ENDED JUNE 30, 1999
First Quarter                                3 3/8                  1 3/8
Second Quarter                               1 7/8                  3/4
Third Quarter                                1 1/4                  5/8
Fourth Quarter                               2 5/8                  11/16


FISCAL YEAR ENDED JUNE 30, 2000
First Quarter                                1 3/4                  1/2
Second Quarter                               1 7/16                 7/16
Third Quarter                                2 15/16                9/16
Fourth Quarter                               1 23/32                25/32

CLASS A REDEEMABLE WARRANTS [CXILW]

FISCAL YEAR ENDED JUNE 30, 1999
First Quarter                                3/4                    3/8
Second Quarter                               7/16                   3/16
Third Quarter                                1/4                    1/16
Fourth Quarter                               11/16                  1/16


FISCAL YEAR ENDED JUNE 30, 2000
First Quarter                                11/16                  1/8
Second Quarter                               6/16                   1/8
Third Quarter                                23/32                  3/32
Fourth Quarter                               9/16                   1/4


As of June 30, there were  approximately  125 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.


                                       5
<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, 2000 Compared to the Year ended June 30, 1999.


The  Company's  net income for the year ended June 30,  2000 was  $3,143,695  as
compared to the net loss of $(2,628,433)  for the year ended June 30, 1999. This
increase in net income of approximately  $5,800,000 is primarily the result of a
$670,000 increase in operating income resulting from a corresponding increase in
gross  profit  of  $670,000,  an  increase  in  other  income  of  approximately
$6,200,000  due to the  settlement of a Class Action  Lawsuit and an increase in
Federal and State income taxes of approximately $1,100,000.


Sales  for the  years  ended  June  30,  2000  and  1999  were  $17,974,885  and
$12,274,448, respectively, an increase of $5,700,437 or 46%. For the year ending
June 30, 2000 the Company had sales to one customer who accounted for 51% of net
sales in 2000 and 55% of net sales in 1999. 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, 2000 totaled $679,612 as
compared to $713,962 for the year ended June 30, 1999,  as a decrease of 5%. The
Company has been  experiencing  a decline in mail order  sales due to  increased
competition and a decrease in advertising expenses.


Sales under the Roche Vitamins,  Inc. distribution  agreement were $2,689,575 as
compared  to  $1,607,092  for the year  ended  June 30,  1999,  an  increase  of
$1,082,483 or 67%.


Cost of sales  increased to $16,687,844  in 2000 as compared to $11,655,173  for
1999. Cost of sales decreased as a percentage of sales to 93% as compared to 95%
for 1999.  The  decrease  in cost of sales is due to the  greater  manufacturing
efficiencies.


Selling  and  administrative  expenses  for the year  ending  June 30, 2000 were
$3,276,435  versus  $3,275.723  for the same period a year ago.  The increase of
$712 was primarily  attributable  to a decrease in advertising of  approximately
$50,000,  an increase in freight out of approximately  $46,000 a decrease in bad
debt  expenses of  approximately  $166,000,  a decrease in officers  salaries of
approximately  $80,000, an increase in office salaries of approximately $47,000,
a  decrease  in the  write-off  of the  balance  of  goodwill  of  approximately
$276,000, an increase in consulting fees of approximately  $295,000, an increase
in professional  fees of approximately  $63,000 and an increase in entertainment
and lodging of approximately $57,000.


Other  income  (expense)  was  $6,047,145  for the year ended  June 30,  2000 as
compared  to  $(136,159)  for the same period a year ago.  This  increase in net
income of  approximately  $6,200,000  is  primarily  the result of the  proceeds
received of $6,143,849  from the  settlement of a Class Action  Lawsuit  against
three bulk vitamin suppliers.


                                       6
<PAGE>


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

Results of Operations

Year ended June 30, 1999 Compared to the Year ended June 30, 1998.


The  Company's net [loss] for the year ended June 30, 1999 was  $(2,628,433)  as
compared to the net loss of  $(97,438)  for the year ended June 30,  1998.  This
increase in net loss of  approximately  $2,500,000  is primarily the result of a
$2,600,000 increase in operating loss and an increase in the federal tax benefit
of approximately $130,000. The $2,600,000 decrease in operating loss is due to a
gross profit decrease of approximately $2,500,000 and an increase in selling and
administrative  expense of approximately  $100,000. The decrease in gross profit
is due to an increase in manufacturing  expenses as the Company hired additional
direct labor and increased its  production  capacity for the year ended June 30,
1999 in anticipation of increased  orders.  Product launches expected during the
year in  eastern  Europe  have been  delayed  because  of  uncertainties  in the
European markets. The Company cannot anticipate when these product launches will
eventually occur.

Sales  for the  years  ended  June  30,  1999  and  1998  were  $12,274,448  and
$16,011,049,  respectively,  a decrease of $3,736,601 or 23%. For the year ended
June 30, 1999,  the Company had sales to one customer,  who accounted for 55% of
net sales in 1999 and 44% of net sales in 1998.  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, 1999 totaled $713,962 as
compared to $1,090,854  for the year ended June 30, 1998, a decrease of $376,892
or 35% due primarily to the closing of the retail store on November 13, 1998 for
approximately  9 weeks for  renovations.  The store reopened on January 7, 1999.
The Company  anticipates  retail and mail order sales  returning to their fiscal
1998 levels in the coming year.

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 had an initial term
of two years and shall be renewable  for an additional  term of one year.  Sales
for the year ended June 30, 1999 totaled  $1,607,092  as compared to  $1,250,480
for the year ended June 30, 1998, an increase of $356,612 or 29%.

Cost of sales  decreased to $11,655,173  in 1999 as compared to $12,841,937  for
1998. Cost of sales increased as a percentage of sales to 95% as compared to 80%
for 1998.  The increase in cost of sales is due to an increase in  manufacturing
costs and fixed overhead costs.

Selling  and  administrative  expenses  for the year  ended  June 30,  1999 were
$3,275,723  versus  $3,197,047  for the same period a year ago.  The increase of
$78,676 was primarily attributable to a decrease of advertising of approximately
$110,000,  a decrease in travel and  entertainment of approximately  $93,000,  a
decrease in pension and profit sharing plan expenses of approximately  $330,000,
the  writeoff  of the  balance of  goodwill  of  approximately  $276,000  and an
increase in the allowance for doubtful accounts of $315,000.

Other  income  (expense)  was  $(136,159)  for the year ended  June 30,  1999 as
compared  to  $(105,789)  for the same period a year ago.  This  increase in net
expense of $30,370 is attributable to an increase in interest expense of $50,578
due to an increase in borrowings,  a decrease in interest and investment  income
of  $19,350,  a decrease  in  partnership  loss of $5,000,  a decrease in a loss
resulting  from the writeoff of a note  receivable of $33,058 and an increase in
gains on the sale of equipment.

Liquidity and Capital Resources

At June 30, 2000 the  Company's  working  capital was  $5,459,783 an increase of
$2,962,322 over working capital at June 30, 1999. Cash and cash equivalents were
$1,823,009  at June 30, 2000 an increase of $1,523,979  from June 30, 1999.  The
Company generated  $4,098,629 and utilized $483,206 for operations for the years
ended June 30,  2000 and 1999,  respectively.  The  primary  reason for the cash
generated from operations was net income of approximately 3,100,000. The Company
believes  that the  anticipated  sales for next  year  will meet cash  needs for
operations.

The Company utilized $167,460 and $297,744 in investing activities for the years
ended June 30, 2000 and 1999,  respectively.  The Company  utilized  net cash of
$2,407,190 and generated  $123,577 from debt  financing  activities for


                                       7
<PAGE>


the year ended June 30, 2000 and 1999, respectively.

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

Liquidity and Capital Resources [Continued]

The  Company's  total  annual  commitments  at  June  30,  2000  for  long  term
non-cancelable  leases of $4,908,297  consists of  obligations  under  operating
leases  for  facilities  and  lease  agreements  for  the  rental  of  warehouse
equipment, office equipment and automobiles.

The Company has a  $1,000,000  revolving  line of credit  agreement  which bears
interest at 3.0% above the prime  interest rate and expires on November 5, 2001.
At June 30,  2000 the  balance  due  under  the  revolving  line of  credit  was
$540,757.

On January 20, 2000 the Company entered into a Settlement Agreement with a major
supplier in  connection  with a  multidistrict  consolidated  class  action.  In
exchange for the Company's release and agreement to opt out of any settlement or
litigation pertaining to the pending class action lawsuit, the Company agreed to
a settlement  of 4.9 million  dollars.  The  settlement  proceeds were offset by
$1,333,333, the amount due under a promissory note dated November 17, 1999.

On March 20, 2000 the Company entered into its second  Settlement  Agreement and
received a payment  of  $437,000  in  settlement  of the  second  portion of the
multidistrict consolidated class action suit.

On April 13, 2000 the Company settled the last major portion of its Class Action
Lawsuit for approximately $792,000.

On April 13, 2000, the Company announced a stock repurchase  program whereby the
Company may purchase up to 500,000 shares of its  outstanding  common stock.  At
June 30, 2000 the  Company has  repurchased  25,800  shares of its common  stock
under the program at an average price of $1.12.

New Accounting Pronouncement


In June  1998,  the  FASB  issued  SFAS  No.  133,  "Accounting  for  Derivative
Instruments and Hedging  Activities".  Statement No. 133 establishes  accounting
and reporting  standards for derivative  instruments and for hedging activities.
It  requires  that an entity  recognize  all  derivatives  as  either  assets or
liabilities  and measure them at fair value.  Under certain  circumstances,  the
gains or losses from  derivatives may be offset against those from the items the
derivatives  hedge  against.  The Company  will adopt SFAS No. 133 in the fiscal
year  ending  June 30,  2001.  SFAS No. 133 is not  expected  to have a material
impact on the financial statements.


Impact of Inflation


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


Item 7. Financial Statements


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


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

NONE


                                       8
<PAGE>


                                    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, 2000.


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, 2000.


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, 2000.


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, 2000.


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)

            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)


                                       9
<PAGE>


            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)

            10.18 Employment  Agreement,  effective  July 1, 1999,  between  the
                  Registrant and Eric Friedman (6)

            10.18 Employment  Agreement,  effective  July 1, 1999,  between  the
                  Registrant and Riva Sheppard (6)

            10.18 Employment  Agreement,  effective  July 1, 1999,  between  the
                  Registrant and Christina Kay (6)

            10.18 Employment Agreement, effective February 16, 1999, between the
                  Registrant and Abdulhameed Mirza (6)

            16.1  Letter on changes in certifying accountants (6)

            21    Subsidiaries of the Registrant

            27    Financial Data Schedule

            --------------------------------------
            (1)   Incorporated herein by reference to the corresponding  exhibit
                  number to the Registrants Registration Statement of 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 to 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)   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, 1998,  filed on September 23, 1998,
                  Commission File No. 000-28876.

            (6)   Incorporated herein by reference to the corresponding  exhibit
                  number to the Registrants Annual Report of From 10-KSB for the
                  fiscal year ended June 30, 1999,  filed on September 30, 1999,
                  Commission File No. 000-28876.

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


                                       10


<PAGE>

CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX


Item 7: Consolidated Financial Statements


   Independent Auditors' Report......................................F-2...

   Consolidated Balance Sheet as of June 30, 2000....................F-3... F-4

   Consolidated Statements of Operations for the years
   ended June 30, 2000 and 1999......................................F-5...

   Consolidated Statements of Stockholders' Equity for the years
   ended June 30, 2000 and 1999......................................F-6...

   Consolidated Statements of Cash Flows for the years ended
   June 30, 2000 and 1999............................................F-7... F-8

   Notes to Consolidated Financial Statements........................F-9... F-17




                                 . . . . . . . .


                                   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, 2000, and the related
consolidated statements of operations,  stockholders' equity, and cash flows for
the years ended June 30, 2000 and 1999. These consolidated  financial statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express an  opinion  on these  consolidated  financial  statements  based on our
audits.

     We conducted  our audits in accordance  with  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,  2000,  and the
consolidated  results  of their  operations  and their  cash flows for the years
ended June 30, 2000 and 1999 in conformity  with generally  accepted  accounting
principles.



                             /s/ Amper, Politziner & Mattia, P.A.


Edison, New Jersey
August 15, 2000


                                       F-2
<PAGE>

CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 2000


Assets:
Current Assets:
   Cash and Cash Equivalents                            $1,823,009
   Accounts Receivable-Net                               1,422,128
   Inventories                                           3,236,678
   Prepaid Expenses and Other Current Assets               110,140
   Deferred Income Taxes                                   280,000
   Refundable Federal Income Taxes                         216,352
                                                        ----------
   Total Current Assets                                  7,088,307
                                                        ----------
Property and Equipment-Net                               1,367,047
                                                        ----------
Other Assets:
   Security Deposits and Other Assets                      124,195
                                                        ----------
   Total Assets                                         $8,579,549
                                                        ==========


See accompanying notes to consolidated financial statements


                                       F-3
<PAGE>


CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 2000


Liabilities and Stockholders' Equity:
Current Liabilities:
   Accounts Payable                                                 $ 1,356,634
   Notes Payable                                                         16,223
   Accrued Expenses and Other Current Liabilities                        91,451
   Accrued Expenses-Related Party                                       130,000
   Capital Lease Obligation                                              34,216
                                                                    -----------

   Total Current Liabilities                                          1,628,524
                                                                    -----------

Non-Current Liabilities:
   Notes Payable                                                        558,529
   Capital Lease Obligation                                              19,140
                                                                    -----------
   Total Non-Current Liabilities                                        577,669
                                                                    -----------

Commitments and Contingencies [12]

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                                                  1,544,425
                                                                    -----------
                                                                      6,402,187
   Less Treasury Stock at cost, 25,800 common shares                    (28,831)
                                                                    -----------

     Total Stockholders' Equity                                       6,373,356
                                                                    -----------

   Total Liabilities and Stockholders' Equity                       $ 8,579,549
                                                                    ===========


See accompanying notes to consolidated financial statements.


                                       F-4
<PAGE>


CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS


                                                          Years ended
                                                             June 30,
                                                       --------------------
                                                       2000            1999
                                                       ----            ----

Sales                                              $ 17,974,885    $ 12,274,448
Cost of Sales                                        16,687,844      11,655,173
                                                   ------------    ------------
  Gross Profit                                        1,287,041         619,275

Selling and Administrative Expenses                   3,276,435       3,275,723
  Operating [Loss]                                   (1,989,394)     (2,656,448)
                                                   ------------    ------------

Other Income [Expense]:
  Gain on Sale of Equipment                               6,344           1,500
  Interest Expense                                     (119,380)        (63,018)
  Interest Expense-Related Party                        (76,271)        (75,227)
  Interest and Investment Income                         42,603             586
  Administrative Fee Income                              50,000              --
  Gain on Settlement of Lawsuit                       6,143,849              --
                                                   ------------    ------------
Other Income [Expense]-Net                            6,047,145        (136,159)
                                                   ------------    ------------
Income [Loss] Before Income Taxes                     4,057,751      (2,792,607)

Federal and State Income Tax Expense [Benefit]          914,056        (164,174)
                                                   ------------    ------------

  Net Income [Loss]                                $  3,143,695    $ (2,628,433)
                                                   ============    ============

Net Income [Loss] Per
Common Share:

Basic                                              $        .61    $       (.51)
                                                   ============    ============

Diluted                                            $        .60    $       (.51)
                                                   ============    ============

Average Common Shares Outstanding                     5,169,185       5,178,300

Dilutive Potential Common Shares:
Warrants and Options                                     86,738              --
                                                   ------------    ------------

Average Common Shares
Outstanding-assuming dilution                         5,255,923       5,178,300
                                                   ============    ============


See accompanying notes to consolidated financial statements.



                                       F-5
<PAGE>


CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED  STATEMENTS  OF  STOCKHOLDERS'  EQUITY FOR THE YEARS ENDED JUNE 30,
2000 AND 1999


<TABLE>
<CAPTION>

                                                                Additional                                                Total
                                  Common Stock       Preferred   Paid-in      Retained      Treasury        Stock     Stockholders'
                             Shares        Par Value   Stock     Capital      Earnings       Shares          Cost         Equity
                             ------        ---------  -----      -------      --------       ------          ----         ------
<S>                          <C>         <C>          <C>    <C>           <C>                 <C>      <C>            <C>
Balance-
July 1, 1998                 5,178,300   $    10,357   $ --   $ 4,847,405   $ 1,029,163             --   $        --    $ 5,886,925


Net [Loss]                          --            --     --            --    (2,628,433)            --            --     (2,628,433)
                           -----------   -----------   ----   -----------   -----------    -----------   -----------    -----------

Balance-
June 30, 1999                5,178,300        10,357     --     4,847,405    (1,599,270)            --            --      3,258,492

Purchase of
Treasury Stock                      --            --     --            --            --         25,800       (28,831)       (28,831)

Net Income                          --            --     --            --     3,143,695             --            --      3,143,695
                           -----------   -----------   ----   -----------   -----------    -----------   -----------    -----------

Balance-
June 30, 2000                5,178,300   $    10,357   $ --   $ 4,847,405   $ 1,544,425         25,800   $   (28,831)   $ 6,373,356
                           ===========   ===========   ====   ===========   ===========    ===========   ===========    ===========



</TABLE>


See accompanying notes to consolidated financial statements.


                                      F-6
<PAGE>


CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                    Years ended
                                                                      June 30,
                                                               --------------------
                                                               2000            1999
                                                               ----            ----
<S>                                                         <C>            <C>
Operating Activities:
  Net Income [Loss]                                         $ 3,143,695    $(2,628,433)
                                                            -----------    -----------
  Adjustments  to Reconcile Net Income [Loss] to Net Cash
  Provided By [Used for]
  Operating Activities:
  Depreciation and Amortization                                 339,811        403,198
  Write-off of Goodwill                                              --        275,891
  Amortization of Discount on Note Payable                       38,826         22,727
  Deferred Income Taxes                                         (36,000)      (144,000)
  Bad Debt Expense                                              170,387        336,450

Changes in Assets and Liabilities:
  [Increase] Decrease in:
  Accounts Receivable                                           410,705      1,121,267
  Inventories                                                   241,949         43,183
  Prepaid Expenses and Other Current Assets                     (15,352)        82,569
  Security Deposits and Other Assets                            (22,269)        (3,433)
  Refundable Federal Income Taxes                              (161,707)       (41,645)

Increase [Decrease] in:
  Accounts Payable                                              201,823       (182,231)
  Federal and State Income Taxes Payable                             --        (40,000)
  Accrued Expenses and Other Liabilities                       (213,239)       271,251
                                                            -----------    -----------

  Total Adjustments                                             954,934      2,145,227
                                                            -----------    -----------

Net Cash-Operating Activities                                 4,098,629       (483,206)
                                                            -----------    -----------

Investing Activities:
  Purchase of Property and Equipment                           (168,590)      (290,111)
  Loans to Stockholders                                           1,130         (7,633)
                                                            -----------    -----------

Net Cash-Investing Activities                                  (167,460)      (297,744)
                                                            -----------    -----------

Financing Activities:
  Proceeds from Notes Payable                                   927,504        670,000
  Repayment of Notes Payable                                 (3,305,863)      (546,243)
  Purchase of Treasury Stock                                    (28,831)            --
                                                            -----------    -----------
Net Cash-Financing Activities                                (2,407,190)       123,577
                                                            -----------    -----------

Net Change in Cash and Cash Equivalents                       1,523,979       (657,373)

Cash and Cash Equivalents-Beginning of Year                     299,030        956,403
                                                            -----------    -----------

Cash and Cash Equivalents-End of Year                       $ 1,823,009    $   299,030
                                                            ===========    ===========

</TABLE>


See accompanying notes to consolidated financial statements.


                                      F-7
<PAGE>


CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                    Years ended
                                                                      June 30,
                                                                -------------------
                                                                2000           1999
                                                                ----           ----
<S>                                                           <C>             <C>
Supplemental Disclosures of Cash Flow Information:

   Cash paid during the years for:
      Interest                                               $  183,075   $   89,000

      Income Taxes                                            1,205,160       62,000

Supplement Schedule of Investing and Financing Activities:

Note payable issued in payment of accounts payable, trade    $1,500,000

Proceeds from lawsuit used in payment of note payable         1,333,333


</TABLE>


See accompanying notes to 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] Liquidity

Although the Company  anticipates  operating losses during the 2000 fiscal year,
the Company  believes that the available cash on hand and the operating plan for
the fiscal year ended June 30, 2001 will provide  sufficient  working capital to
meet its needs for the current year.

[3] 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.

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. All debt is based on
current  rates at which the Company  could borrow  funds with similar  remaining
maturities and approximates fair value.

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

Inventories-Inventory is valued by the first-in,  first-out method, at the lower
of cost or market.

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  $339,811  and  $397,205 for the years ended June 30, 2000 and 1999,
respectively.  Amortization  of equipment  under capital leases is included with
depreciation expense.


                                      F-9
<PAGE>

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


[3] Summary of Significant Accounting Policies [Continued]


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.


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


Advertising-  Costs  incurred for producing and  communicating  advertising  are
expensed when  incurred.  Advertising  expense was $284,888 and $335,232 for the
years ended June 30, 2000 and 1999, respectively.


       [4] Inventories

       Raw materials                                          $1,754,690
       Work-in-Process                                           737,024
       Finished Goods                                            744,964
                                                              ----------

             Total                                            $3,236,678
                                                              ==========


       [5] Property and Equipment

       Leasehold Improvements                                 $1,157,960
       Machinery and Equipment                                 2,570,722
       Machinery and Equipment Under Capital Leases              134,061
       Transportation Equipment                                   60,596
                                                              ----------
       Total
                                                               3,923,312
       Less: Accumulated Depreciation and Amortization         2,556,265
                                                              ----------

             Total                                            $1,367,047
                                                              ==========


                                      F-10
<PAGE>


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

[6] Notes Payable

Bio Merieux Vitek, Inc. (a)                        $ 33,995
Medallion Business  Credit, LLC (b)                 540,757
                                                   --------

Totals                                              574,752
Less: Current Portion                                16,223
                                                   --------

   Noncurrent Portion                              $558,529
                                                   ========

(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.

(b) Under the terms of a  revolving  credit  note which  expires on  November 5,
2001,  the Company  may borrow up to  $1,000,000  at 3% above the  prime-lending
rate. The loan is collateralized by the inventory,  receivables and equipment of
Chem International, Inc., and Chem's two operating subsidiaries,  Manhattan Drug
Company,  Inc. and Vitamin  Factory,  Inc. The note has been  guaranteed  by the
Company's principal stockholder. At June 30, 2000 the interest rate was 12.5%.

The  loan  agreement  with  Medallion  Business  Credit,  LLC  contains  certain
financial  covenants  relating to the  maintenance of specified  liquidity,  the
tangible  net worth.  The Company was in  compliance  with all of its  financial
covenants.

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

June 30,
-------
2001                                               $558,529
2002                                                 16,223
2003                                                     --
2004                                                     --
2005                                                     --
                                                   --------

Totals                                             $574,752
                                                   ========


[7] Capital Lease

The  Company  acquired  capsule  equipment  and  warehouse  equipment  under the
provisions  of two long-term  leases.  The leases expire in March 2001 and March
2003,  respectively.  The equipment under the capital leases as of June 30, 2000
has a cost of $134,061 and accumulated  depreciation of $65,144, with a net book
value of $68,917.

The future minimum lease payments under capital leases and the net present value
of the future minimum lease payments at June 30, 2000 are as follows:

Total Minimum Lease Payments                       $ 129,416
Amount Representing Interest                         (76,060)
                                                   ---------

Present Value of Net Minimum Lease Payments           53,356
Current Portion                                      (34,216)
                                                   ---------

Long-Term Capital Lease Obligation                 $  19,140
                                                   =========


                                      F-11
<PAGE>


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


[8] Income Taxes

Deferred tax attributes  resulting from differences between financial accounting
amounts and tax bases of assets and liabilities at June 30, 2000 follow:

Current assets and liabilities
Allowance for doubtful account                       $ 116,000
Inventory overhead capitalization                       36,000
Depreciation                                            76,000
Other accruals                                          52,000
                                                     ---------
                                                       280,000
Valuation allowance                                        (--)
                                                     ---------

Net current deferred tax asset (liability)           $ 280,000
                                                     =========


The provision for income taxes consists of the following:


                                                              June 30,
                                                        2000             1999
                                                        ----             ----
Deferred tax (benefit)                               $ (36,000)       $(467,000)
Current tax expense                                    950,056          (20,174)
Net change in valuation allowance                           --          323,000
                                                     ---------        ---------
                                                     $ 914,056        $ 164,174)
                                                     =========        =========

A  valuation  reserve  was  established  as of June  30,  1999  for  those  loss
carryforwards  and deductible  temporary  differences,  which were not presently
considered more likely than not to be fully realized.

The  statutory  income tax rate differs from the  effective tax rate used in the
financial  statements  as a  result  of the  permanent  differences,  change  in
statutory tax rate and current year net operating  losses. A  reconciliation  of
the  statutory  tax rate to the effective tax rate for the year ended June 30 is
as follows:

                                                              2000         1999
                                                              ----         ----
Computed (benefit) provision at the
statutory tax                                                 34%          (15)
State tax rate                                                 6            (8)
Reversal of prior year tax accruals                           (5)            5
Change in valuation allowance                                 (8)           12
Change in estimated tax rate                                  (2)            0
                                                             ---           ---
Effective income tax rate                                     25%           (6)%
                                                             ===           ===



                                      F-12
<PAGE>


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


[9] 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, 2000
and 1999 was $53,214 and $56,930, respectively.

[10] 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, 2000, the
Company's uninsured cash balances totaled approximately $1,714,089.

[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, 2000 is $290,000.

[11] Major Customer

For the years ended June 30, 2000 and 1999,  approximately 51% or $9,200,000 and
55% or $6,700,000  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, 2000 and 1999,  an aggregate of  approximately  24%
and 11%,  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, 2000 and 1999. Accounts receivable from these customers comprised
approximately  44% and 61% of total  accounts  receivable  at June 30,  2000 and
1999, respectively.

[12] Commitments and Contingencies

[A] Leases

Related Party Leases-  Certain  manufacturing  and office  facilities are leased
from Morristown Holding,  Inc., (formerly Gerob Realty Partnership) whose owners
are stockholders of the Company.  The lease,  which expires on December 31, 2000
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, 2000 and
1999 on this lease was approximately $105,000 and $68,000, respectively.  Unpaid
rent of due to Morristown  Holding Company,  Inc. and Gerob at June 30, 2000 has
been separately disclosed as accrued expenses on the consolidated balance sheet.
The balance due was $130,000 as of June 30, 2000.

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
chairman 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.  Rent
expense has been  straight-lined  over the life of the lease. At its option, the
Company has the right to renew the lease for an additional five year period.  On
April 28, 2000 the lease was amended  reducing the square  footage and extending
the lease to May 31,  2015.  Rent  expense for the years ended June 30, 2000 and
1999 on this lease was approximately $456,000 and $460,000.

Other Lease Commitments- The Company leases warehouse  equipment for a five year
period providing for an annual rental of $23,114 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 2003.


                                      F-13
<PAGE>


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

[12] Commitments and Contingencies [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
  --------                        ----------        ----------             -----
2001                              $   50,569        $  323,559        $  374,128
2002                                  42,533           323,559           366,092
2003                                  15,736           323,559           339,295
2004                                      --           323,559           323,559
2005                                      --           323,559           323,559
Thereafter                                --         3,181,664         3,181,664
                                  ----------        ----------        ----------

Total                             $  108,838        $4,799,459        $4,908,297
                                  ==========        ==========        ==========

Total rent expense,  including real estate taxes and  maintenance  charges,  was
approximately  $556,000 and $527,000 for the years ended June 30, 2000 and 1999,
respectively.  Rent  expense is stated net of sublease  income of  approximately
$12,000 and $18,000 for the years ended June 30, 2000 and 1999, respectively.

[B] Employment  Agreements-  Effective  July 1, 1999,  the Company  entered into
three year employment  agreements with its four executive officers which provide
for aggregate annual salaries of $495,000 for the years ending June 30, 2001 and
2002, respectively. These agreements are subject to annual increases equal to at
least the increase in the consumer price index for the Northeastern area.


[C] 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.

[D] Consulting  Agreements- The Company entered into a consulting agreement with
a financial  advisory group  ["Consultants"]  commencing on March 20, 1998 until
February 28, 1999.  The Company paid $2,500 for services  rendered at the end of
each month that  services are  provided  during the term of this  agreement.  In
addition,  the Company has issued to the  Consultants  three  options for 45,000
shares of common stock. 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 March 20, 2003.

[E]  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.

[F]  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.


                                      F-14
<PAGE>


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

[13] Related Party Transactions

During the year ended June 30,  1997,  the  Company  entered  into a  consulting
agreement with the brother of the Company's  Chairman of the Board on a month to
month basis for $1,100 per month. The total consulting expense recorded per this
verbal agreement for the years ended June 30, 2000 and 1999 was $13,200 for each
year.

[14] Equity Transactions

[A] 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 3,000,000 shares of common stock, at the discretion of
the Board of Directors.  Stock option grants are limited to a total of 1,500,000
shares for  "incentive  stock options" and 1,500,000  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..

During the year ended June 30, 2000 the Company issued to its employees  840,000
stock options at an exercise  price equal to the market price ($.50) on the date
of grant and 750,000  stock  options at an  exercise  price equal to 110% of the
market price ($.55). No dividends are expected to be paid during the life of the
options.

Pro forma  information  regarding  net  income and  earnings  per share has been
determined  as if the Company had  accounted  for its  employee's  stock options
under the fair-value  method.  The fair value for these options was estimated at
the date of grant using a Black-Scholes  option pricing model with the following
weighted-average assumptions for June 30:

                                       2000             1999
                                       ----             ----
Risk-free interest rate                 6.6%             6.0%
Expected volatility                   104.1%           167.0%
Dividend yield                         --               --
Expected life                      7.6 years        7.0 years

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options,  which have no vesting  restrictions and are fully
transferable.  In addition,  option valuation models require the input of highly
subjective  assumptions  including the expected stock price volatility.  Because
the  Company's  employee  stock  options  have   characteristics   significantly
different from those of traded  options,  and because  changes in the subjective
input assumptions can materially affect the fair-value estimate, in management's
opinion,  the  existing  models do not  necessarily  provide a  reliable  single
measure of the fair value of its employee stock options.

For purposes of pro forma  disclosures,  the estimated fair value of the options
is  amortized  to  expense  over the  option's  life.  The  Company's  pro forma
information follows:

                                                           2000             1999
                                                           ----             ----

Pro forma net income, (loss)                 $        2,545,855   $  (2,993,088)
                                             ==================   =============

Pro forma net income, (loss) per share
Basic                                        $             0.49   $       (0.58)
                                             ==================   =============
Diluted                                      $             0.48   $       (0.58)
                                             ==================   =============


                                      F-15
<PAGE>


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

[14] Equity Transactions [Continued]

There was no  compensation  expense  recorded  from stock  options for the years
ended June 30, 2000 and 1999. A summary of the Company's stock option  activity,
and related information for the years ended June 30, follows:


                                     Weighted Average           Weighted Average
                                         Exercise    Number of      Exercise
                             Options       Price     Exercisable     Price
                             -------       -----     -----------     -----
Outstanding
June 30, 1998                     644,571        $3.45       644,571       $3.45

Granted                           320,604         1.53
Exercised                              --           --
Terminated                        (25,000)        3.50
                                                                           -----

Outstanding                       940,175         2.82       940,175        2.82
June 30, 1999

Granted                         1,590,000         0.52
Exercised                              --           --
Terminated                        (15,000)        3.50
                                  -------

Outstanding
June 30, 2000                   2,515,175         1.36       925,175        2.82
                                =========


Weighted-average fair
value of options granted
during the year                                   2000       1999
                                                  ----       ----

Where exercise price                              0.50       1.50
equals stock price

Where exercise price                              0.55       1.65
exceeds stock price

Where stock price                                   --         --
exceeds exercise price

Following is a summary of the status of stock  options  outstanding  at June 30,
2000:


<TABLE>
<CAPTION>

                           Outstanding Options                      Exercisable Options
                           -------------------                      -------------------
                               Weighted
                                Average          Weighted                      Weighted
   Exercise                    Remaining          Average                      Average
  Price Range     Number    Contractual Life   Exercise Price    Number      Exercise Price
-------------     ------    ----------------   --------------    ------    ----------------
<S>             <C>                       <C>           <C>      <C>                  <C>
$  .50 -  .55   1,590,000                 8.9           0.52           0                 0
$ 1.50 - 1.65     320,604                 7.2           1.53     320,604              1.53
$ 3.50 - 3.85     604,571                 6.2           3.52     604,571              3.52
------   ----     -------                 ---           ----     -------              ----

$ 0.50 - 3.85   2,515,175                 7.6           1.36     925,175              2.82

</TABLE>


There were no warrants  exercised  for the fiscal  years ended June 30, 2000 and
1999.


                                      F-16
<PAGE>


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

[B]  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 12E].  Each option is  exercisable  for 15,000
shares at exercise price of $1.125, $2.50 and $4.00, respectively. These options
are exercisable until five years following the date of this agreement.

[C] Related Party Promissory  Note- On March 12, 1998, the Company  negotiated a
three year  promissory  note for $750,000 with its Chairman and then  President.
The note was  repaid  in  January  2000.  As  consideration  for 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 warrant is exercisable
for a four year period  commencing  one year after the  issuance of the note and
expires on March 12, 2003.

[15] New Accounting Pronouncement

In June  1998,  the  FASB  issued  SFAS  No.  133,  "Accounting  for  Derivative
Instruments and Hedging  Activities".  Statement No. 133 establishes  accounting
and reporting  standards for derivative  instruments and for hedging activities.
It  requires  that an entity  recognize  all  derivatives  as  either  assets or
liabilities  and measure them at fair value.  Under certain  circumstances,  the
gains or losses from  derivatives may be offset against those from the items the
derivatives  hedge  against.  The Company  will adopt SFAS No. 133 in the fiscal
year  ending  June 30,  2001.  SFAS No. 133 is not  expected  to have a material
impact on the financial statements.


[16] Subsequent Events

On July 1,  2000  the  Company  changed  the  name  of its  inactive  subsidiary
Manhattan International,  Inc. to Integrated Health Ideas, Inc. and acquired the
business  of  I.D.E.A.S,  Inc.,  a  leading  value-added  solid  dosage  product
development  and  technical  services  organization.  As  consideration  of  the
acquisition  the Company has agreed to issue 200,000 options on its common stock
exercisable at $1.00 per share to the owners of I.D.E.A.S

On July 18,  2000 the Company  signed a  consulting  agreement  with a financial
public  relations  firm  to  provide  financial   communications   and  investor
relations.  The  agreement  is for a 12-month  period and  provides for a yearly
retainer of $54,000.  In addition the Company has agreed to issue 75,000 options
on  its  common  stock  exercisable  at  $1.10  per  share  and  75,000  options
exercisable  at $1.75 per  share.  Should  the  Company  choose not to renew the
consulting  agreement  the  consultants  have  agreed to give back 50,000 of the
$1.75  options.  The  options are  exercisable  for five years from the date the
agreement was signed.

On August 30, 2000 the Company acquired the  manufacturing  facility that it had
been leasing from Morristown  Holding,  Inc. The company issued 1,050,420 shares
of its common stock in exchange for the property.


                                      F-17
<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 22, 2000       By:/s/ Seymour Flug
                                     -------------------------------
                                         Seymour Flug,
                                         President and Chief Executive Officer


Date:    September 22, 2000       By:/s/ Eric Friedman
                                     --------------------------------
                                         Eric Friedman,
                                         Chief Financial Officer