UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                   FORM 10-QSB

[X]  Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934

                  For the quarterly period ended June 30, 1999

[ ]  Transition report pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934

                 For the transition period from _____ to _____.

                        COMMISSION FILE NUMBER: 001-23407

                                  SURREY, INC.
             (Exact name of registrant as specified in its charter)

              Texas                                              74-2138564
(State or other jurisdiction of                               (I.R.S. Employer
 incorporation or organization)                              Identification No.)

                              13110 Trails End Road
                              Leander, Texas 78641
                    (Address of principal executive offices)
                                 (512) 267-7172
              (Registrant's telephone number, including area code)

     Check whether the registrant: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes __X__      No _____

     On August 12, 1999, the registrant had 2,472,727 outstanding shares of
common stock, no par value.

     Transitional Small Business Disclosure Format (check one);

Yes _____      No __X__


                                      -1-

<PAGE>



                                  SURREY, INC.

                                      INDEX


PART I - FINANCIAL INFORMATION

Item 1.        Financial Statements (Unaudited)

                    Statements of Operations for the Three Months and Six Months
                    Ended June 30, 1999 and 1998

                    Balance Sheets as of June 30, 1999 and December 31, 1998

                    Statements of Cash Flows for the Six Months Ended June 30,
                    1999 and 1998

                    Notes to Financial Statements

Item 2.        Management's Discussion and Analysis or Plan of Operation


PART II - OTHER INFORMATION


SIGNATURES


EXHIBITS



                                      -2-
<PAGE>


PART I:                 FINANCIAL INFORMATION

ITEM 1                  FINANCIAL STATEMENTS

SURREY, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                    THREE MONTHS ENDED        SIX MONTHS ENDED
                                                         JUNE 30,                JUNE 30,
                                                   1999        1998          1999         1998
                                                 -------      -------      -------      -------
<S>                                              <C>          <C>          <C>          <C>
Net sales                                        $ 5,245      $ 1,917      $ 8,577      $ 3,819
Cost of sales                                    $ 3,954      $ 1,399      $ 6,716      $ 2,764
                                                 -------      -------      -------      -------

Gross profit                                     $ 1,291      $   518      $ 1,861      $ 1,055

Operating expenses:
   Sales and marketing                           $   367      $   178      $   651      $   344
   General and administrative                    $   482      $   519      $ 1,021      $   897
                                                 -------      -------      -------      -------

Total operating expenses                         $   849      $   697      $ 1,672      $ 1,241

Income (loss) from operations                    $   442      ($  179)     $   189      ($  186)

Other:
   Interest expense                              ($  171)     ($   52)     ($  283)     ($   84)
   Other income                                  $     0      $    13      $     0      $    38
                                                 -------      -------      -------      -------

Income (loss) before income taxes                $   271      ($  218)     ($   94)     ($  232)

Income tax (benefit) provision                   $    83      ($   74)     ($   28)     ($   79)
                                                 -------      -------      -------      -------

Net Income (loss)                                $   188      ($  144)     ($   66)     ($  153)
                                                 -------      -------      -------      -------

Basic earnings per share                         $  0.08      ($ 0.06)     ($ 0.03)     ($ 0.06)

Diluted earnings per share                       $  0.07      ($ 0.06)     ($ 0.02)     ($ 0.06)

Shares used in computing earnings per share:
   Basic                                           2,473        2,473        2,473        2,473
   Diluted                                         2,823        2,473        2,823        2,473


</TABLE>


SEE ACCOMPANYING NOTES



                                      -3-
<PAGE>



SURREY, INC
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)

                                                          JUNE 30,  DECEMBER 31,
                                                           1999          1998
                                                         --------      --------
ASSETS
Current assets:
     Cash and cash equivalents                           $     47      $     77
     Accounts receivable                                 $  3,467      $  1,713
     Inventories, net                                    $  2,526      $  2,232
     Prepaid expenses and other current assets           $     30      $    315
     Deferred income taxes                               $    138      $    182
     Income taxes receivable                             $    130      $    156
                                                         --------      --------

Total current assets                                     $  6,338      $  4,675

Property and equipment, net                              $  4,143      $  3,710
Deferred income taxes                                    $    219      $    178
                                                         --------      --------

Total assets                                             $ 10,700      $  8,563
                                                         ========      ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
     Trade accounts payable                              $  1,845      $  1,159
     Accrued expenses                                    $    208      $    204
     Notes payable                                       $  2,350      $      0
     Current maturities of long-term debt                $    125      $    134
     Current maturities of capital lease obligations     $    216      $    208
                                                         --------      --------

Total current liabilities                                $  4,744      $  1,705

Long-term debt, less current maturities                  $  2,444      $  3,192
Capital lease obligations, less current maturities       $    288      $    376
Deferred income taxes                                    $      0      $      0

Commitments and contingencies

Shareholders' equity:

     Common stock; no par value                          $  4,099      $  4,099
     Common stock warrants                               $     64      $     64
     Retained deficit                                    $   (939)     ($   873)
                                                         --------      --------

Total shareholders' equity                               $  3,224      $  3,290
                                                         --------      --------

Total liabilities and shareholders' equity               $ 10,700      $  8,563
                                                         ========      ========


SEE ACCOMPANYING NOTES.


                                      -4-
<PAGE>



SURREY, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                   SIX MONTHS ENDED
                                                                                      JUNE 30,
                                                                                  1999         1998
                                                                                 -------      -------
<S>                                                                              <C>          <C>
OPERATING ACTIVITIES
Net income (loss)                                                                ($   66)     ($  153)
Adjustments to reconcile net income to net cash
   provided by (used in) operating activities:
      Depreciation                                                               $   184      $   143
      Changes in operating assets and liabilities:
      Accounts receivable                                                        ($1,754)     $   356
      Inventories                                                                ($  294)     ($  677)
      Prepaid expenses and other current assets                                  $   285      ($  396)
      Deferred income taxes                                                      $     3      $     0
      Trade accounts payable                                                     $   686      $   106
      Accrued expenses                                                           $     4      ($  236)
      Income taxes receivable/payable                                            $    26      ($   79)
                                                                                 -------      -------

Net cash provided by (used in) operating activities                              ($  926)     ($  936)

INVESTING ACTIVITIES
Acquisition of property and equipment                                            ($  617)     ($1,230)
                                                                                 -------      -------

Net cash used in investing activities                                            ($  617)     ($1,230)

FINANCING ACTIVITIES
Proceeds from issuance of notes payable                                          $ 1,350      $     0
Payment of notes payable                                                         $     0      ($  895)
Proceeds from issuance of long-term debt                                         $   311      $ 1,939
Payment of long-term debt                                                        ($   68)     ($1,225)
Proceeds from capital lease obligations                                          $    33      $     0
Principle payments on capital lease obligations                                  ($  113)     ($   39)
Payment of deferred financing costs                                              $     0      ($   22)
                                                                                 -------      -------

Net cash provided (used) by financing activities                                 $ 1,513      ($  242)

Net increase (decrease) in cash                                                  ($   30)     ($2,408)
                                                                                 -------      -------
Cash and cash equivalents, beginning of period                                   $    77      $ 3,066

Cash and cash equivalents, end of period                                         $    47      $   658
                                                                                 -------      -------

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
   Interest                                                                      $   283      $    86
   Income taxes                                                                  $     0      $     0
Acquisition of property and equipment via issuance of
   Capital leases                                                                $    33      $    30


</TABLE>

SEE ACCOMPANYING NOTES



                                      -5-
<PAGE>


                                  SURREY, INC.

                          NOTES TO FINANCIAL STATEMENTS
                                  JUNE 30, 1999

1. ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
regulations S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six month periods ended June
30, 1999 and 1998 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1999. For further information, refer to
the financial statements and footnotes thereto included in the Surrey, Inc.
annual report Form 10-KSB for the year ended December 31, 1998.

2. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                                               Three Months Ended         Six Months Ended
                                                                                     June 30                  June 30
                                                                               -------------------      --------------------

                                                                                1999         1998         1999         1998
                                                                               -------------------      --------------------
<S>                                                                            <C>         <C>          <C>          <C>
Numerator:

   Net Income (loss)                                                           $   188     $  (144)     $   (66)     $  (153)

   Numerator for basic and diluted earnings (loss)
   Per share - income (loss) available to common
   Stockholders                                                                $   188     $  (144)     $   (66)     $  (153)
                                                                               -------     -------      -------      -------

Denominator:

   Denominator for basic earnings (loss) per share - weighted - average
   shares                                                                        2,473       2,473        2,473        2,473
                                                                               -------     -------      -------      -------


   Denominator for diluted earnings (loss) per share - adjusted weighted -
   average shares and assumed conversions                                        2,823       2,473        2,823        2,473

Basic earnings (loss) per share                                                $  0.08     $ (0.06)     $ (0.03)     $ (0.06)
                                                                               -------     -------      -------      -------

Diluted earnings (loss) per share                                              $  0.07     $ (0.06)     $ (0.02)     $ (0.06)

</TABLE>


                                      -6-
<PAGE>

Options to purchase 525,000 shares of common stock, at exercise prices ranging
between $1.82 to $4.40 per share, warrants to purchase 675,000 shares of common
stock at $4.80 per share, and a warrant to purchase 62,500 Units (consisting of
two shares of common stock and one redeemable common stock purchase warrant) at
$9.75 per Unit are outstanding. Shares issuable upon exercise of the warrants
were not included in the computation of diluted earnings per share because the
exercise prices were greater than the average market price of the common shares;
therefor, the effect would be antidilutive.

3. CONTINGENCIES

The Company is involved in certain claims arising in the normal course of
business. An estimate of the possible loss resulting from these matters cannot
be made; however, the Company believes that the ultimate resolution of these
matters will not have a material adverse effect on its financial position or
results of operations.

4. LONG-TERM DEBT

As of June 30, 1999, the Company was not in compliance with certain financial
covenants specified in its term loan and line of credit agreements. The Company
has received a waiver from the lender for such violations.




                                      -7-
<PAGE>


PART I: FINANCIAL INFORMATION

ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

     The following discussion and analysis provides information that management
believes is relevant to an assessment and understanding of the Company's level
of operation and financial condition. This discussion should be read with the
financial statements appearing in Part I, Item 1 of this report.

RESULTS OF OPERATIONS

     NET SALES. Net sales for the Company reflect total sales less cash
discounts and estimated returns. Net sales increased to $5,245,000 for the three
months ended June 30, 1999 from $1,917,000 for the three months ended June 30,
1998, an increase of 175%. Net sales increased to $8,577,000 for the six months
ended June 30, 1999 from $3,819,000 for the six months ended June 30, 1998, an
increase of 125%. The substantial increase in net sales for both periods is
primarily attributable to shipments for three major accounts. During first
quarter 1999, the Company delivered opening order shipments (initial shipments
of products to stock store shelves) for two major accounts, Bath & Body Works
glycerin soap and Minnetonka Brands, for its "Star Wars" soap retail
distribution project. During second quarter 1999, the Company shipped large
follow-on orders to both Bath & Body Works and Minnetonka Brands, and a large
potpourri products order to Wal-Mart to be included in a special late summer
promotional program. With the completion of the Company's expansion and with all
new manufacturing equipment on-line and operational, the Company's sales staff
has been able to begin marketing new product lines to take full advantage of the
new manufacturing facilities.

     GROSS PROFIT. Gross profit increased for the three months ended June 30,
1999 to $1,291,000 from $518,000 for the comparable three month period in 1998.
Gross profit margin for the three month period decreased from 27.1% in 1998 to
24.7% in 1999. Gross profit increased for the six months ended June 30, 1999 to
$1,861,000 from $1,055,000 for the comparable six month period in 1998. Gross
profit margin also decreased for the six month period from 27.7% in 1998 to
21.7% in 1999. The decrease in gross profit margin during both periods is
attributable to the build up of materials and the hiring of additional
production workers to fully staff three production shifts required to enter into
full production for the Bath & Body Works and Minnetonka Brands soap projects.
While full production was achieved in March 1999, the Company is still working
on improving its gross profit margin. The Company has shown strong improvement
in gross profit margin when compared to the gross profit margin for the year end
1998 which was 15.0%. The Company continues to expect that the new expansion and
installation of more labor efficient production equipment, coupled with
continued sales increases, will allow the Company to further reap benefits of
improved economies of scale, resulting in continued improvement of the gross
profit margin for the second half of 1999.

     OPERATING EXPENSES. Operating expenses increased for the three months ended
June 30, 1999 by 21.8% over the three months ended June 30, 1998, but decreased
as a percentage of net sales; $849,000 (or 16.2% of net sales) in 1999, as
compared to $697,000 (or 36.4% of net sales) in 1998. Operating expenses also
increased in the six months ended June 30, 1999 by 34.8% over the six months
ended June 30, 1998, but decreased as a percentage of net sales; $1,672,000 (or
19.5% of net sales) in 1999, as compared to $1,241,000 (or 32.5% of net sales)
in 1998.


                                      -8-
<PAGE>



     Operating expenses increased due to increased sales efforts, but decreased
as a percentage of sales primarily because the significant increase in net sales
had a positive effect on the ratio of net sales to fixed operating expenses. The
Company expects this favorable trend in the ratio between net sales and fixed
operating expenses to continue throughout 1999.

     Sales and marketing expenses increased for both the three months and six
months ended June 30, 1999 over the comparable periods in 1998, but decreased in
each case as a percentage of net sales. Such expenses for second quarter
increased from $178,000 (or 9.3% of net sales) in 1998 to $367,000 (or 7.0% of
net sales) in 1999, and for the six-month period, increased from $344,000 (or
9.0% of net sales) in 1998 to $651,000 (or 7.6% of net sales) in 1999. The
increases in each period were due mainly to increased advertising and increased
sales commissions, which are generally based on a percentage of sales.

     General and administrative expenses decreased for the three months ended
June 30, 1999 as compared to the same period in 1998, and also decreased
significantly as a percentage of net sales, from $519,000 (or 27.1% of net
sales) in 1998 to $482,000 (or 9.2% of net sales) in 1999. This decrease was
primarily due to a decrease in legal and accounting fees during the period,
off-set by increased salaries for sales and marketing personnel. For the six
months ended June 30, 1999, general and administrative expenses increased over
the comparable period in 1998, but decreased significantly as a percentage of
net sales. Such expenses for the six-month period increased from $897,000 (or
23.5% of net sales) in 1998 to $1,021,000 (or 11.9% of net sales) in 1999. This
increase was primarily due to increased salaries for sales and marketing
personnel.

     INTEREST EXPENSE. Interest expense increased substantially in both periods,
but each such decrease was only a slight increase as a percentage of net sales.
Interest expense was $171,000 (3.3% of net sales) in the three months ended June
30, 1999, as compared to $52,000 in the three months ended June 30, 1998 (2.8%
of net sales). Interest expense was $283,000 (3.3 % of net sales) for the six
months ended June 30, 1999, as compared to $86,000 (2.3% of net sales) for the
six months ended June 30, 1998. The increase was due to the Company's increased
borrowings in connection with its expansion. Increased interest obligations
resulted as the Company increased its long-term debt to fund the new facility
expansion, incurred lease financing of $2,800,000 for new manufacturing and
storage equipment, and increased its short-term borrowings for working capital
purposes related to increased sales efforts.

LIQUIDITY AND CAPITAL RESOURCES

     The Company's current primary sources of liquidity are cash flow from
operations, bank borrowings, and lease financing.

     In April 1998, the Company entered into a loan agreement with Chase Bank of
Texas, National Association ("Lender") to provide (a) a construction/term loan
in the principal amount of $2,300,000 ("Term Loan") with a final maturity in
April 2005, and (b) a revolving line of credit to be used for working capital
purposes in the amount of the lesser of 80% of eligible accounts receivable or
$1,000,000 ("Revolving Note") which would allow the Company to borrow, repay,
and reborrow until its final maturity in April 2000. The entire Term Loan has
been drawn.

     On January 25, 1999, the Company and the Lender amended the Loan Agreement
to provide for an additional term loan of $400,000 with a maturity of February
2004 ("Additional Term Loan"). The Additional Term Loan was fully drawn in first
quarter of 1999.


                                      -9-

<PAGE>

     The January 1999 amendment to the Loan Agreement also provided for an
increase in the amount available under the Revolving Note to include the lesser
of 80% of eligible accounts receivable or $2,000,000. On June 17, 1999, the Loan
Agreement was further amended to provide for amounts available under the
Revolving Note to include the lesser of (A) 80% of Eligible Accounts (as such
definition was revised in the June 1999 amendment) plus the lesser of (i) 100%
of the Eligible Purchase Orders (as such definition was revised in the June 1999
amendment) from Bath & Body Works and Minnetonka Brands and (ii) $500,000 or (B)
$2,500,000. Such percentages are subject to decrease by the Lender in certain
circumstances, as set forth in the June 1999 amendment. The Lender charged an
amendment fee of $10,000 for the June 1999 amendment. As of June 30, 1999, the
Company had $2,350,000 outstanding under the Revolving Note and $150,000
remaining excess borrowing capacity.

     Effective March 31, 1999, the Company and the Lender first amended the Loan
Agreement to provide for reduced financial covenants, in particular the debt to
tangible net worth ratio and the debt service coverage ratio. The Loan
Agreement, as amended, contains the following covenants, among other
requirements, which are tested quarterly: the Company must maintain (a) a
current ratio of not less than 1.50 to 1.00; (b) a debt to tangible net worth
ratio not greater than (i) 2.00 to 1.00 as of March 31, 1999, and (ii) 1.75 to
1.00 as of the end of each calendar quarter thereafter; and (c) a debt service
coverage ratio of not less than (i) 1.00 to 1.00 for the quarter ending June 30,
1999, based on the results of operations for the 1999 calendar year to date,
(ii) 1.25 to 1.00, as of September 30, 1999, based on yearly operations to date,
and (iii) 2.00 to 1.00, as of December 31, 1999 and each calendar quarter
thereafter, based on results of operations for the previous four calendar
quarters.

     At June 30, 1999, the Company was not in compliance with the covenants set
forth above and had received a waiver from the Lender for such non-compliance.
The Company and the Lender are currently negotiating a revision of the financial
covenants.

     Effective with the June 1999 amendment, the interest on each of the Term
Loan, the Additional Term Loan and the Revolving Note was increased. Interest on
the Revolving Note floats at the Lender's Prime Rate plus 1%. Interest on the
term loans will, at the Company's option, float at either the Lender's Prime
Rate plus 1% or the LIBOR Rate (London Interbank Offering Rate) plus the LIBOR
margin, which is 3.65%. Currently, the Company has elected to pay interest at
the LIBOR Rate plus LIBOR margin on the Term Loan, which interest rate is
currently 7.3125%. The Company pays interest at the Prime Rate plus 1% on the
Revolving Note and the Additional Term Loan, which interest rate currently is
9%. The Company and Lender have also entered into an interest rate risk
management program for the term loans, pursuant to which the Company and Lender
entered into an ISDA Agreement (International Swap Dealers Association) intended
to hedge the interest rate fluctuations on the Term Loan and Additional Term
Loan. Overdue amounts on the loans are payable at a past due rate of interest.
The loans are secured by a lien on the Company's plant, equipment, inventory,
and accounts receivable.

     Interest on each of the Term Loan, the Additional Term Loan and the
Revolving Note is payable monthly. Under the amended Loan Agreement, the Company
is required to pay down the Revolving Note and maintain a zero balance for 30
consecutive days once during the period after April 9, 1999 and prior to
maturity in April 2000. Principal on the Term Loan is payable in monthly
installments which began on January 8, 1999 of approximately $9,500 per month,
increasing to approximately $12,700 per month after April 2001.




                                      -10-

<PAGE>

     The Loan Agreement, as amended, also limits indebtedness by the Company,
restricts borrowing under certain equipment leases to $2,000,000, restricts the
Company from making or incurring capital expenditures exceeding $2,000,000 in
any 12 month period, restricts indebtedness in connection with acquisition of
equipment to $200,000 and limits sales of assets. The Loan Agreement also
restricts the Company from making any dividends or distributions on its capital
stock unless net income equals or exceeds $2,000,000, repurchasing or redeeming
any capital stock (other than pursuant to the terms of the Company's Warrants,
provided no default would occur under the bank loans), paying any bonus or other
non-salary compensation, replacing its President or Chief Financial Officer, or
entering into certain related party transactions without prior written consent
of Lender.

     The Company used approximately $1,191,000 of the aggregate Term Loan
proceeds to repay loans to Norwest Bank of Texas, and the Company used
approximately $1,109,000 to finance the expansion of its plant and facility. The
Company used approximately $1,200,000 of the Revolving Note for working capital,
including payment of vendors and payroll expense. In addition, the Company used
approximately $300,000 for down payments on manufacturing and production
equipment and the balance for general working capital needs. The Company used
the proceeds of the Additional Term Loan to finance the 1999 facility expansion,
to remodel approximately 5,000 square feet of existing space into a soap curing
area, and for reimbursement of expenses relating to the construction of a candle
room. All periodic payments on all such loans are to be paid out of future cash
flows generated by the Company.

     The Company leases certain pieces of its manufacturing equipment pursuant
to capital leases. The capital leases currently in effect have maturity dates
ranging from dates during 1999 to 2002. Such leases, some of which are
personally guaranteed by the current and former Chief Executive Officers of the
Company, provide that if no event of default exists thereunder the Company may
purchase the equipment subject to the lease at the expiration of the lease or
may renew the lease.

     The Company has a lease line of credit (the "KCCI Lease Line of Credit")
with Key Corporate Capital, Inc. ("KCCI") which allows for a $1,562,000 leasing
line of credit. The equipment currently leased under this agreement includes two
poured soap lines dedicated to manufacturing glycerin soap, four high speed
wrapping machines and one candle making line. The Company began drawing on the
KCCI Lease Line of Credit in August 1998 and had drawn the entire amount by
December 1998. The Chief Executive Officer of the Company has personally
guaranteed the KCCI Lease Line of Credit. Payments under this line are
approximately $288,400 per year or $24,000 per month.

     The Company relied on a capital lease line of credit from Winthrop
Resources, Inc. (the "Winthrop January 1999 Lease Line of Credit") in the amount
of $477,000 to finance one traditional soap making line. The Company has fully
utilized this line of credit. Payments under the Winthrop January 1999 Lease
Line of Credit are approximately $180,000 per year or $15,000 per month.

     During the first six months of 1999, the Company purchased and installed
four 10,000 gallon storage containers to store key raw materials. To finance the
purchase of the bulk storage containers and related construction, the Company
drew on a Winthrop Resources, Inc. Capital Lease Line of Credit in the amount of
approximately $300,000 ("Winthrop March 1999


                                      -11-
<PAGE>

Lease Line of Credit"). Payments under the Winthrop March 1999 Lease Line of
Credit are approximately $10,000 per month for 36 months, beginning April 1999.

     In March 1999, the Company entered into a lease line of credit with Amembal
Capital Corporation (the "Amembal Capital March 1999 Lease Line of Credit") in
the total amount of approximately $416,000 to finance three poured soap lines
dedicated to manufacturing glycerin soap and required to complete the 1999
expansion. Payments under the Amembal Capital March 1999 Lease Line of Credit
are approximately $70,900 per year or $5,900 per month.

     The Company believes that cash expected to be provided by future operations
and its current bank loans and financing leases will be sufficient to meet its
working capital and anticipated capital expenditure requirements during 1999.
However, the Company may need to seek additional working capital financing if
net sales increase more than currently anticipated.

     The Company experiences seasonal fluctuations in operating results, with
sales and revenues generally higher during the third and fourth calendar
quarters, reflecting primarily orders for the holiday retail season. Orders
shipped in the third and fourth quarters generally account for approximately 60%
of the Company's total net sales for the year.

FORWARD LOOKING INFORMATION

     Statements contained in this report regarding the Company's future
operations, future performance and results, the Company's ability to meet its
working capital needs and the anticipated liquidity, increased sales, and the
reduction of labor costs as a percentage of net sales are forward-looking and
therefore are subject to certain risks and uncertainties.

     Any forward-looking information regarding the operations of the Company
will be affected by the Company's ability to efficiently manage and operate its
facility as expanded (particularly its costs of operations), the continued
receipt of large orders from the Company's significant customers including Bath
& Body Works, the Company's ability to successfully and efficiently manufacture
and deliver product to Bath & Body Works in a timely manner, the ability of the
Company to secure additional working capital, and the Company's general ability
to successfully increase its marketing and sales efforts in order to take
advantage of its increased production facilities. Any forward looking
information regarding an increase of the Company's gross profit margin also will
be affected by the Company's ability to implement its strategy of focusing on
the sales of higher margin products as well as the Company's ability to
efficiently utilize its expanded facilities. There can be no assurance that the
Company will be successful in efficiently managing its growth in order to
maximize potential production.


PART II:                OTHER INFORMATION

ITEM 1                  LEGAL PROCEEDINGS

     The Company is, from time to time, involved in legal proceedings arising in
the normal course of business. No current proceeding is expected to result in
any material loss to the Company.



                                      -12-
<PAGE>

ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS

       None.

ITEM 3 DEFAULTS UPON SENIOR SECURITIES

       None.

ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS


     On March 19, 1999, proxy statements were mailed to the holders of record of
2,472,727 shares of common stock to solicit proxies in connection with the
Annual Meeting of Shareholders on April 13, 1999. Shareholders holding 2,449,072
shares were present, in person or by proxy. Two proposals were submitted to a
vote of shareholders.

                                                           Vote
                                                --------------------------------
                   Matter                           For       Withhold Authority
                   ------                           ---       ------------------
        1.         Election of Directors:        2,428,932          20,140
                        John B. van der Hagen    2,428,932          20,140
                        Martin J. van der Hagen  2,428,932          20,140
                        Mary A. van der Hagen    2,427,592          21,470
                        Bruce Masucci            2,428,932          20,140
                        G. Thomas MacIntosh      2,428,932          20,140


       2. Ratification and Appointment of Ernst & Young LLP as independent
          auditors for fiscal year 1999.


          ----------------------------------------------------------
               For                        Against
               ---                        -------
            2,446,072                      3,000


ITEM 5 OTHER INFORMATION

     On April 13, 1999, the Board of Directors approved amendments to the
Company's stock option plans, subject to approval by the shareholders, to
increase the number of shares authorized for grant under incentive stock options
by 500,000 and to grant an additional 10,000 options to each non-employee
director, effective April 13, 1999. In addition, the Board, acting as the
Compensation Committee, voted (i) to re-price certain outstanding employees
options to the fair market value on April 13, 1998, the date of such re-pricing,
which was $1.82 and (ii) to issue an additional 199,500 options to certain
employees.

     As previous reported on Form 8-K, on August 2, 1999, Surrey, Inc. and Ernst
& Young LLP ("E&Y") ceased their current client-auditor relationship. E&Y served
as Surrey's independent certifying auditors for the fiscal years 1995, 1996,
1997 and 1998. No report of E&Y for any such period contained an adverse opinion
or disclaimer of opinion, or was qualified or




                                      -13-
<PAGE>

modified in any way. The decision to change accountants was not recommended or
approved by the Audit Committee or the Board of Directors of Surrey.

     There has been no disagreement between Surrey and E&Y on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure. In April 1999, E&Y advised the Board of Directors of Surrey
that it saw a "material weakness" in Surrey's internal controls, namely the need
for updated inventory software and the need for Surrey to hire a controller and
additional accounting personnel. E&Y stated that such report did not effect its
report, dated February 9, 1999, on the financial statements of Surrey for the
two fiscal years ended December 31, 1998. The Board of Directors discussed the
recommendations at its April 1999 meeting and generally agreed with the
recommendations made by E&Y. The Board recommended to management that new
inventory software and controls should be implemented after the hiring of a
controller. Management is currently reviewing the related costs of implementing
the E&Y recommendations and the Board intends to further address these matters
at the next Board meeting.

     Surrey is currently in the process of selecting a new firm of certifying
accountants.



ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K

     (a)  Exhibit 10.16 - Fourth Amendment of Loan Agreement, June 17, 1999,
          between the Company and Chase Bank of Texas, National Association, as
          lender..

          Exhibit 27. - Financial Data Schedule

     (b)  The Company filed one Report on Form 8-K during the reporting period.
          On August 4, 1999, the Company reported a change in its certifying
          accountants, as discussed above.




                                      -14-
<PAGE>

SIGNATURES

            In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.


                                  SURREY, INC.
                                  (Registrant)



Date: August 12, 1999             By:         /s/ Martin van der Hagen
                                      ---------------------------------
                                              Martin van der Hagen
                                              President


                                  By:         /s/ Mark van der Hagen
                                      ---------------------------------
                                              Mark van der Hagen
                                              Chief Financial Officer




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