UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                              Washington D.C. 20549

                                     ------


                                   FORM 10-QSB


                Quarterly Report Pursuant to Section 13 or 15(d)

                     of the Securities Exchange Act of 1934


For the quarter ended  March 31, 1999          Commission File Number  000-28876


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

                   Delaware                               13-3035216
        (State or other jurisdiction of              (I.R.S. Employer
        incorporation or organization)               Identification No.)

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

Registrant's telephone number, including area code:   (973) 926-0816


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of 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 the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date.

        Class                                     Outstanding as of May 11, 1999
        -----                                     ------------------------------

Common Stock, Par Value                                     5,178,300


<PAGE>

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

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


<TABLE>
<S>                                                                                  <C>
Part I: Financial Information

Item 1: Consolidated Financial Statements

        Consolidated Balance Sheet as of March 31, 1999 [Unaudited] ...............  1 .... 2

        Consolidated Statements of Operations for the three and nine months
        ended March 31, 1999 and 1998 [Unaudited] .................................  3 ....

        Consolidated Statement of Stockholders' Equity for the nine months
        ended March 31, 1999 [Unaudited] ..........................................  4 ....

        Consolidated Statements of Cash Flows for nine months ended
        March 31, 1999 and 1998 [Unaudited] .......................................  5 .... 6

        Notes to Consolidated Financial Statements [Unaudited] ....................  7 .... 14

Item 2: Management's Discussion and Analysis of Financial Condition
          and Results of Operations ...............................................  15 ... 18

Part II: Other Information ........................................................  19

Signature .........................................................................  20
</TABLE>


                                 . . . . . . . .

<PAGE>

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

CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1999.
[UNAUDITED]
--------------------------------------------------------------------------------

Assets:
Current Assets:
     Cash and Cash Equivalents                                        $  134,106
     Accounts Receivable - Net                                         2,182,433
     Deferred Income Taxes                                                97,000
     Inventories                                                       3,835,762
     Prepaid Expenses and Other Current Assets                           201,682
     Refundable Federal Income Taxes                                     196,645
                                                                      ----------

     Total Current Assets                                              6,647,628
                                                                      ----------

Property and Equipment - Net                                           1,573,455
                                                                      ----------
Other Assets:
     Deferred Income Taxes                                                55,000
     Security Deposits and Other Assets                                  122,456
                                                                      ----------

     Total Other Assets                                                  177,456
                                                                      ----------

     Total Assets                                                     $8,398,539
                                                                      ==========


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


                                       1
<PAGE>

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

CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1999.
[UNAUDITED]
--------------------------------------------------------------------------------



Liabilities and Stockholders' Equity:
Current Liabilities:
     Accounts Payable                                               $ 2,515,826
     Notes Payable                                                      551,214
     Accrued Expenses and Other Current Liabilities                     309,446
     Accrued Expenses - Related Party                                    65,000
     Capital Lease Obligation                                            36,412
                                                                    -----------

     Total Current Liabilities                                        3,477,898
                                                                    -----------
Non-Current Liabilities:
     Notes Payable                                                      148,731
     Notes Payable - Related Party                                      705,492
     Capital Lease Obligation                                            39,296
                                                                    -----------

     Total Non-Current Liabilities                                      893,519
                                                                    -----------

Commitments and Contingencies [9]                                            --
                                                                    -----------
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

     Accumulated [Deficit]                                             (830,640)
                                                                    -----------

     Total Stockholders' Equity                                       4,027,122
                                                                    -----------

     Total Liabilities and Stockholders' Equity                     $ 8,398,539
                                                                    ===========


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


                                       2
<PAGE>

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

CONSOLIDATED STATEMENTS OF OPERATIONS
[UNAUDITED]
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                            Three months ended                   Nine months ended
                                            ------------------                   -----------------
                                                 March 31,                           March 31,
                                                 ---------                           ---------

                                           1999              1998              1999              1998
                                       -----------       -----------       -----------       -----------
<S>                                    <C>               <C>               <C>               <C>
Sales                                  $ 2,930,006       $ 4,978,839       $ 7,993,500       $ 9,948,939

Cost of Sales                            2,772,837         4,010,136         7,683,041         8,225,099
                                       -----------       -----------       -----------       -----------
Gross Profit                               157,169           968,703           310,459         1,723,840

Selling and Administrative
Expenses                                   615,287           732,255         2,299,586         2,047,980
                                       -----------       -----------       -----------       -----------

Operating Income [Loss]                   (458,118)          236,448        (1,989,127)         (324,140)
                                       -----------       -----------       -----------       -----------
Other Income [Expense]

Interest Expense - Related Party           (18,806)               --           (56,420)               --

Interest Expense                           (16,780)          (15,028)          (45,185)          (43,009)

Interest and Investment Income                 119               267               467            19,702

Income [Loss] on Investment in
Partnership                                     --                --                --            (5,000)
                                       -----------       -----------       -----------       -----------

Other [Expense] Income - Net               (35,467)          (14,761)         (101,138)          (28,307)
                                       -----------       -----------       -----------       -----------
Income [Loss] Before Income
Taxes                                     (493,585)          221,687        (2,090,265)         (352,447)

Federal and State Income
Tax Expense [Benefit]                      (14,683)           94,746          (230,462)          (91,000)
                                       -----------       -----------       -----------       -----------

Net Income [Loss]                      $  (478,902)      $   126,941       $(1,859,803)      $  (261,447)
                                       ===========       ===========       ===========       ===========
Net Income [Loss] Per
Common Share:

Basic                                  $      (.09)      $       .03       $      (.36)      $      (.06)
                                       ===========       ===========       ===========       ===========

Diluted                                $      (.09)      $       .02       $      (.36)      $      (.06)
                                       ===========       ===========       ===========       ===========
Weighted Average Common
Shares Outstanding                       5,178,300         5,065,685         5,178,300         4,575,068

Dilutive Potential Common Shares:               --         1,925,247                --                --
Warrants and Options                   -----------       -----------       -----------       -----------

Adjusted Weighted Average
Common Shares                            5,178,300         6,990,932                --                --
                                       ===========       ===========       ===========       ===========
</TABLE>


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


                                       3
<PAGE>

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

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE NINE MONTHS
ENDED MARCH 31, 1999
[UNAUDITED]
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                                Additional                           Total
                                                                                ----------                           -----
                                      Common Stock              Preferred        Paid-in        Accumulated       Stockholders'
                                --------------------------      ---------        -------        -----------       -------------
                                  Shares        Par Value         Stock          Capital         [Deficit]           Equity
                                ---------      -----------      ---------      -----------      -----------       -------------
<S>                             <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] for the nine
months ended
March 31, 1999                         --               --             --               --       (1,859,803)       (1,859,803)
                                ---------      -----------      ---------      -----------      -----------       -----------

Balance - March 31, 1999        5,178,300      $    10,357      $      --      $ 4,847,405      $  (830,640)      $ 4,027,122
                                =========      ===========      =========      ===========      ===========       ===========
</TABLE>


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


                                       4
<PAGE>

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

CONSOLIDATED STATEMENTS OF CASH FLOWS
[UNAUDITED]
--------------------------------------------------------------------------------


                                                          Nine months ended
                                                          -----------------
                                                              March 31,
                                                              ---------
                                                        1 9 9 9       1 9 9 8
                                                      -----------   -----------
Operating Activities:
   Net [Loss]                                         $(1,859,803)  $  (261,447)
                                                      -----------   -----------
   Adjustments to Reconcile Net [Loss] to Net Cash
      [Used for] Operating Activities:
      Depreciation and Amortization                       302,084       274,111
      Amortization of Discount on Note Payable             17,045           947
      Deferred Income Taxes                               (52,000)       90,000
      Imputed Interest on Note Payable-Related Party           --         7,051
      Loss on Investment in Partnership                        --         5,000
      Interest Income on Note Payable                          --       (11,627)
      Bad Debt Expense                                      7,500         5,000
      Writeoff of Note Receivable                              --        33,058
      Writeoff of Goodwill                                275,891            --
Changes in Assets and Liabilities:
   [Increase] Decrease in:
      Accounts Receivable                               1,271,004      (639,492)
      Inventories                                        (313,952)   (2,041,198)
      Refundable Federal Income Taxes                    (196,645)       45,000
      Prepaid Expenses and Other Current Assets           (24,325)       79,377
      Security Deposits and Other Assets                   (3,433)       (4,767)
Increase [Decrease] in:
   Accounts Payable                                      (321,216)    1,475,594
   Federal and State Income Taxes Payable                 (40,000)      (41,416)
   Accrued Expenses and Other Liabilities                 224,007       (23,999)
                                                      -----------   -----------
Total Adjustments                                       1,145,960      (747,361)
                                                      -----------   -----------
Net Cash - Operating Activities - Forward                (713,843)   (1,008,808)
                                                      -----------   -----------
Investing Activities:
   Repayment of Note Receivable                                --       250,000
   Purchase of Property and Equipment                     250,000      (601,024)
   Loans to Stockholders'                                 (27,033)       (4,673)
   Loan to Related Company                                     --         2,500
                                                      -----------   -----------
   Net Cash-Investing Activities - Forward               (251,217)     (353,197)
                                                      -----------   -----------
Financing Activities:
   Proceeds from Notes Payable                            670,000     1,050,000
   Repayment of Notes Payable                            (527,237)      (37,769)
                                                      -----------   -----------
   Net Cash-Financing Activities - Forward                142,763     1,012,231
                                                      -----------   -----------

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


                                       5
<PAGE>

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

CONSOLIDATED STATEMENTS OF CASH FLOWS
[UNAUDITED]
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                               Nine months ended
                                                               -----------------
                                                                   March 31,
                                                                   ---------
                                                          1 9 9 9           1 9 9 8
                                                        -----------       -----------
<S>                                                     <C>               <C>
     Net Cash-Operating Activities-Forwarded            $  (713,843)      $(1,008,808)
     Net Cash-Investing Activities-Forwarded               (251,217)         (353,197)
     Net Cash-Financing Activities-Forwarded                142,763         1,012,231
                                                        -----------       -----------
     Net [Decrease] in Cash and Cash Equivalents           (822,297)         (349,774)
   Cash and Cash Equivalents-Beginning of Periods           956,403         1,010,256
                                                        -----------       -----------
     Cash and Cash Equivalents-End of Periods           $   134,106       $   660,482
                                                        ===========       ===========

Supplemental Disclosures of Cash Flow Information:
   Cash paid during the periods for:
    Interest                                            $    71,435       $    37,125
    Income Taxes                                        $    51,067       $    70,863
</TABLE>


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


                                       6
<PAGE>

CHEM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[UNAUDITED]
--------------------------------------------------------------------------------

[1]  Business

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

[2]  Summary of Significant Accounting Policies

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

Basis of Reporting - The accompanying  unaudited  interim  financial  statements
have been prepared in accordance with generally accepted  accounting  principles
for interim  financial  information and with the instructions to Form 10-QSB and
Item  310(b) of  Regulation  S-B.  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,  such interim
statements  include all adjustments  which are considered  necessary in order to
make the interim financial statements not misleading. It is suggested that these
financial  statements be read in conjunction  with the financial  statements and
notes thereto,  together with management's  discussion and analysis of financial
condition and results of operations, contained in the Company's annual report to
stockholders  incorporated  by reference in the Company's  annual report on Form
10-KSB for the fiscal year ended June 30, 1998.  The results of  operations  for
the nine  months  ended  March 31, 1999 are not  necessarily  indicative  of the
results for the entire fiscal year ending June 30, 1999.

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

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

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

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

Machinery  and  equipment  are  depreciated  using  accelerated   methods  while
leasehold  improvements  are amortized on a  straight-line  basis.  Depreciation
expense was $ 296,091 and $ 265,120 for the nine months ended March 31, 1999 and
1998,  respectively.  Amortization of equipment under capital leases is included
with the depreciation expense.

Goodwill - At December 31, 1998,  goodwill  with a carrying  value of $ 275,891,
which  arose in  connection  with the  acquisition  of the  Company's  principal
operating business subsidiary,  was written down to zero due to impairment.  The
writeoff of goodwill is included in the March 31, 1999 income  statement as part
of selling and administrative expenses.

Amortization  expense was $ 5,993 for the nine months ended March 31, 1999,  and
$8,991 for the nine months ended March 31, 1998.


                                       7
<PAGE>

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

[2]  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  or  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

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

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

Impairment  - Certain  long-term  assets of the  Company's  principal  operating
business  subsidiary are reviewed at least annually as to whether their carrying
value has become  impaired,  pursuant to guidance  established  in  Statement of
Financial  Accounting Standards ["SFAS"] No. 121, "Accounting for the Impairment
of Long-Lived  Assets and for Long-Lived  Assets to Be Disposed Of."  Management
considers  assets to be  impaired  if the  carrying  value  exceeds  the  future
projected cash flows from related operations  [undiscounted and without interest
charges].  If impairment is deemed to exist,  the assets will be written down to
fair value which  represents  the projected  discounted  cash flows from related
operations.   Management  also  re-evaluates  the  periods  of  amortization  to
determine whether subsequent events and circumstances  warrant revised estimates
of useful  lives.  As of March 31, 1999,  management  expects these assets to be
fully recoverable.

Advertising - Costs  incurred for producing and  communicating  advertising  are
expensed when  incurred.  Advertising  expense was $232,917 and $294,299 for the
nine months ended March 31, 1999 and 1998 respectively.

[3]  Inventories

Inventories consist of the following at March 31, 1999:

Raw Materials                         $   2,542,846
Work-in-Process                             467,384
Finished Goods                              825,532
                                      -------------

Total                                 $   3,835,762
-----                                 =============


                                       8
<PAGE>

CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #3
[UNAUDITED]
--------------------------------------------------------------------------------

[4]  Property and Equipment

Property and equipment comprise the following at March 31, 1999:

Leasehold Improvements                               $1,124,876
Machinery and Equipment                               2,422,222
Machinery and Equipment Under Capital Leases            109,545
Transportation Equipment                                 32,152
                                                     ----------

Total                                                 3,688,795
Less: Accumulated Depreciation and Amortization       2,115,340
                                                     ----------

   Total                                             $1,573,455
   -----                                             ==========

[5]  Notes Payable

Notes payable are summarized as follows at March 31, 1999:

<TABLE>
<CAPTION>
                                                             Related Party
                                                             -------------
                                             Notes Payable   Notes Payable        Total
                                             -------------   -------------        -----
<S>                                            <C>             <C>             <C>
Notes Payable:
  Bio Merieux Vitek, Inc. (a)                  $   52,612      $       --      $   52,612
  President and Chief Executive Officer (b)            --         705,492         705,492
  First Union National Bank:
    Revolving Line-of-Credit (c)                  500,000              --         500,000
    Equipment Term Loan (d)                       147,333              --         147,333
                                               ----------      ----------      ----------

Totals                                            699,945         705,492       1,405,437
Less: Current Portion                             551,214              --         551,214
                                               ----------      ----------      ----------

   Noncurrent Portion                          $  148,731      $  705,492      $  854,223
   ------------------                          ==========      ==========      ==========
</TABLE>


(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) Three year  non-collateralized  7% promissory note for $750,000 with related
party providing for quarterly  payments of $13,125  representing  interest only.
The note matures on March 12, 2001. As additional consideration for the loan and
in the light of the below market  interest rate and  uncollateralized  nature of
the loan, the Corporation issued a Class C Warrant to purchase 150,000 shares of
common  stock at an  aggregate  purchase  price of $1.75 per share.  The note is
recorded net of $68,182, which represents the fair value of the Class C Warrant.
The  amortization  at March 31, 1999 was $17,045 and is  classified  as interest
expense in the Company's financial statements.  The warrant is exercisable for a
four year period  commencing one year after the issuance of the note and expires
on March 12, 2003.

(c) Under the terms of a  revolving  line of credit  which  expires  on July 27,
1999,  the Company may borrow up to 500,000 at 1% above the bank's prime lending
rate. The loan is collateralized  by the assets of Manhattan Drug Company,  Inc.
The loan has been guaranteed by the Company's  principal  stockholder.  At March
31, 1999 the interest rate was 8.75%.



                                       9
<PAGE>

CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #4
[UNAUDITED]
--------------------------------------------------------------------------------

[5]  Notes Payable [Continued]

(d) Under the terms of a five year equipment term loan, dated July 27, 1998, the
Company may borrow up to $395,000 at 1.5% above the bank's prime  interest rate.
The term loan provides for monthly  payments of $2,834 for principal and monthly
payments for  interest.  The loan is  collateralized  by the assets of Manhattan
Drug  Company,  Inc. The loan has been  guaranteed  by the  Company's  principal
stockholder. At March 31, 1999, the interest rate was 9.25%.

The loan  agreement with First Union  National Bank contains  certain  financial
covenants relating to the maintenance of specified liquidity, debt to equity and
debt coverage  ratios and requires  that the  Company's  president and principal
stockholder  maintain a minimum stock ownership  percentage of the Company.  The
Company was not in  compliance  with its debt coverage  ratio on a  consolidated
basis at March 31, 1999.

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

                                                Related Party
                                                -------------
                              Notes Payable     Notes Payable             Total
                              -------------     -------------             -----
March 31,
---------
  2000                        $  549,823          $       --          $  549,823
  2001                            51,479             705,492             756,971
  2002                            53,310                  --              53,310
  2003                            34,000                  --              34,000
  2004                            11,333                  --              11,333
                              ----------          ----------          ----------

Totals                        $  699,945          $  705,492          $1,405,437
------                        ==========          ==========          ==========


[6]  Capital Lease

The Company  acquired  equipment under the provision of a long-term  lease.  The
lease expires in March 2001.  The equipment  under the capital lease as of March
31, 1999 had a cost of $109,545  accumulated  depreciation of $36,148 with a net
book value of $73,397.

The future minimum lease payments under capital leases and the net present value
of the future minimum lease payments at March 31, 1999 are as follows:

Total Minimum Lease Payments                    $  104,900
Amount Representing Interest                       (29,192)
                                                ----------

Present Value of Net Minimum Lease Payments         75,708
Current Portion                                    (36,412)
                                                ----------

  Long-Term Capital Lease Obligation            $   39,296
  ----------------------------------            ==========


[7]  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 March 31, 1999 the
Company's uninsured cash balances totaled  approximately  $124,000.  The Company
does not require collateral in relation to cash credit risk.


                                       10
<PAGE>

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

[7]  Significant Risks and Uncertainties [Continued]

[B] Concentrations of Credit Risk - Receivables - The Company routinely assesses
the financial strength of its customers and, based upon factors  surrounding the
credit  risk  of its  customers,  establishes  an  allowance  for  uncollectible
accounts and, as a  consequence,  believes that its accounts  receivable  credit
risk exposure  beyond such  allowances is limited.  The Company does not require
collateral in relation to its trade accounts  receivable credit risk. The amount
of the allowance for uncollectible accounts at March 31, 1999 is $33,250.

[8]  Major Customer

For the nine months ended March 31, 1999 and 1998,  approximately 45% and 55% of
revenues were derived from one customer. The loss of this customer would have an
adverse  effect on the Company's  operations.  In addition,  for the nine months
ended  March 31,  1999 and 1998,  an  aggregate  of  approximately  14% and 12%,
respectively,  of  revenues  were  derived  from two other  customers;  no other
customers  accounted for more than 10% of consolidated sales for the nine months
ended  March  31,  1999 and  1998.  Accounts  receivable  from  these  customers
comprised  approximately  59% and 73% of total accounts  receivable at March 31,
1999 and 1998, respectively.

[9]  Commitments and Contingencies

[A]  Leases

Related Party Leases - Certain  manufacturing  and office  facilities are leased
from Gerob Realty  Partnership  ["Gerob"] whose partners are stockholders of the
Company.  The lease, which expires on December 31, 1999,  provides for a minimum
annual  rental of $60,000 plus payment of all real estate  taxes.  Rent and real
estate tax  expense  for the nine  months  ended March 31, 1999 and 1998 on this
lease was  approximately  $56,000  and  $87,000,  respectively.  Unpaid  rent of
$65,000 due to Gerob at March 31, 1999 has been separately  disclosed as accrued
expenses on the consolidated balance sheet.

Other warehouse and office facilities are leased from Vitamin Realty Associates,
L.L.C.,  a  limited  liability  company,  which is 90%  owned  by the  Company's
president and principal  stockholder and certain family members and 10% owned by
the Company's  Chief Financial  Officer.  The lease was effective on January 10,
1997 and provides for minimum annual rental of $346,000 through January 10, 2002
plus  increases  in real estate taxes and building  operating  expenses.  At its
option, the Company has the right to renew the lease for an additional five year
period.  Rent  expense for the nine months ended March 31, 1999 and 1998 on this
lease was approximately $345,000 and $338,000, respectively.

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

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


                                       11
<PAGE>

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

[9]  Commitments and Contingencies [Continued]

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

                                             Related
                                             -------
                            Lease          Party Lease
                            -----          -----------
March 31,                Commitment         Commitment             Total
---------                ----------         ----------             -----
  2000                   $   51,284         $  346,000         $  397,284
  2001                       31,247            346,000            377,247
  2002                       24,212            269,110            293,322
  2003                        1,395                 --              1,395
  2004                           --                 --                 --
  Thereafter                     --                 --                 --
                         ----------         ----------         ----------

Total                    $  108,138         $  961,110         $1,069,248
-----                    ==========         ==========         ==========


Total rent expense,  including real estate taxes and  maintenance  charges,  was
approximately  $401,000  and $ 411,000 for the nine months  ended March 31, 1999
and 1998,  respectively.  Rent  expense  is  stated  net of  sublease  income of
approximately  $17,000 and $16,000 for the nine months  ended March 31, 1999 and
1998, respectively.

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

[C]  Investment in and Royalties  Receivable  from Martin Health Care  products,
Inc. - On February  10,  1998,  the  Company  signed an  exclusive  manufacturer
agreement  with Martin  Health Care  Products,  Inc. to provide to Martin Health
Care certain  products for a ten year period.  In connection with the agreement,
the Company also agreed to forgive from Martin Health Care outstanding  invoices
totaling  $22,000.  In return for the  forgiveness,  Martin agreed to pay to the
Company a  royalty  on sales of  certain  products  and to issue to the  Company
15,000 shares of common stock in Martin health Care  Products,  Inc. The Company
has  recorded  the cost for the  common  stock at $1,000  and has  recorded  the
royalties as a  non-current  asset in the amount of $21,000.  No royalties  have
been paid as of March 31, 1999.

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

On July 7, 1997 the Company was informed by one of its  suppliers of a recall of
the supplier's raw material which was used in  manufacturing  of tablets sold by
the Company.  On July 17, 1997, the Company  issued a voluntary  recall to three
customers  affected by this and,  accordingly,  reduced  its sales and  accounts
receivable at June 30, 1997 by $127,000. The Company believes they have recourse
against the supplier for the full value of these  tablets  sold  containing  the
recalled  raw  material.  The  Company  does  not  believe  there  will  be  any
significant additional costs relating to this recall. On September 30, 1997, the
Company instituted suit to recover all damages. On February 10, 1999 the Company
settled the suit and filed a Stipulation of Dismissal.


                                       12
<PAGE>

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

[9]  Commitments and Contingencies [Continued]

[E] 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 is obligated to pay $2,500 for services rendered
at the end of each month that  services  are  provided  during the terms of this
agreement.  In addition, the Company has issued to the Consultants 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.

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

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

[10] Related Party Transactions

During the year ended June 30,  1997,  the  Company  entered  into a  consulting
agreement with the brother of the Company's  president on a month to month basis
for $1,100 per month.  The total  consulting  expense  recorded  per this verbal
agreement  for the nine moths ended March 31, 1999 and 1998,  by the Company was
$9,900 and $9,000, respectively.

[11] Fair Value of Financial Instruments

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

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

[12] New Authoritative Pronouncements

The FASB has issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130
is   effective   for  fiscal   years   beginning   after   December   15,  1997.
Reclassification  of  financial  statements  for earlier  periods  provided  for
comparative purposes is required. The Company adopted SFAS No. 130 as of July 1,
1998. SFAS No. 130 does not have a material impact on the Company.


                                       13
<PAGE>

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

[12] New Authoritative Pronouncements [Continued]

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

In June  1998,  the  FASB  issued  SFAS  No.  133,  "Accounting  for  Derivative
Instruments and Hedging  Activities."  SFAS No. 133  establishes  accounting and
reporting  standards for derivative  instruments,  including certain  derivative
instruments embedded in other contracts and for hedging activities. SFAS No. 133
requires  that  an  entity   recognize  all  derivatives  as  either  assets  or
liabilities in the statement of financial position and measure those instruments
at fair value.  The  accounting  for  changes in the fair value of a  derivative
depends on the  intended use of the  derivative  and how it is  designated,  for
example, gain or losses related to changes in the fair value of a derivative not
designated  as a hedging  instrument  is recognized in earnings in the period of
the  change,  while  certain  types of hedges  may be  initially  reported  as a
component  of  other   comprehensive   income   [outside   earnings]  until  the
consummation of the underlying transaction.

SFAS No. 133 is  effective  for all fiscal  quarters of fiscal  years  beginning
after June 15,  1999.  Initial  application  of SFAS No. 133 should be as of the
beginning  of a fiscal  quarter;  on that date,  hedging  relationships  must be
designated  anew and  documented  pursuant  to the  provisions  of SFAS No. 133.
Earlier application of all of the provisions of SFAS No. 133 is encouraged,  but
it is permitted only as of the beginning of any fiscal quarter.  SFAS No. 133 is
not to be applied  retroactively to financial  statements of prior periods.  The
Company does not currently have any derivative  instruments and is not currently
engaged in any hedging activities.

[13] Equity Transactions

[A] Incentive  Stock Options - On October 7, 1998, the Company  granted  219,998
incentive stock options for a term of ten years commencing on October 7, 1998 to
its officers at the exercise  price of $1.50 per share and 60,606 shares at 110%
of the exercise price for a term of five years commencing on October 7, 1998. No
options have been exercised as of March 31, 1999.

[B]  Non-Statutory  Options - On October 7, 1998,  the  Company  granted  40,000
non-statutory  stock options to the members of its Scientific  Advisory Board at
the exercise price of $1.50 per share for a term of ten years commencing October
7, 1998. No options have been exercised as of March 31, 1999.


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



                                       14
<PAGE>

Item 2.

CHEM INTERNATIONAL, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
--------------------------------------------------------------------------------

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

Nine months  ended March 31,  1999  Compared to the Nine months  ended March 31,
1998

Results of Operations

The  Company's net losses for the nine months ended March 31, 1999 and 1998 were
$(1,859,803)  and  $(261,447),  respectively.  This  increase  in  net  loss  of
approximately  $1,600,000  is primarily  the result of a $1,650,000  increase in
operating  loss  resulting  from a  corresponding  $1,400,000  decrease in gross
profit and a $250,000  increase  in selling  and  administrative  expenses.  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 nine months  ended  March 31,  1999 in  anticipation  of  increased  orders.
Product launches expected during the nine months ended March 31, 1999 in eastern
Europe have been delayed because of the  uncertainties in the European  markets.
The Company cannot anticipate when these product launches will eventually occur.

Sales for the nine  months  ended March 31,  1999 and 1998 were  $7,993,500  and
$9,948,939,  respectively,  a decrease of $1,955,439 or 20%. For the nine months
ended March 31, 1999,  the Company had sales to one customer,  who accounted for
45% of net sales in 1999 and 55% in 1998.  The loss of this customer  would have
an adverse affect on the Company's operations.

Retail and mail order  sales for the nine months  ended  March 31, 1999  totaled
$517,224 as compared to $846,216  for the nine months  ended March 31,  1998,  a
decrease of $328,992 or 39% 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 fourth  quarter of the year.  The
Company has been unable to date to recapture  the lost sales while the store was
closed for renovations.

On February 17, 1997,  the Company  signed a  distribution  agreement with Roche
Vitamins,  Inc. to service  and supply  Roche  products  to a select  segment of
Roche's food, nutrition and cosmetic accounts. The agreement has initial term of
two years and shall be renewable  for an additional  term of one year each.  The
Company  renewed the  agreement  for the coming year.  Sales for the nine months
ended March 31, 1999 were $1,109,567 as compared to $912,214 for the nine months
ended March 31, 1998, an increase of $197,353 or 22%.

Cost of sales  increased to $7,683,041  for the nine months ended March 31, 1999
as compared to  $8,225,099  for the nine months  ended March 31,  1998.  Cost of
sales  increased as a percentage of sales to 96% for the nine months ended March
31, 1999 from 83% for the nine months ended March 31, 1998. The increase in cost
of sales is due to an increase in manufacturing costs and fixed overhead costs.

Selling and  administrative  expenses  for nine months ended March 31, 1999 were
$2,299,586  versus  $2,047,980  for the same period a year ago.  The increase of
$251,606 was primarily  attributable to the write-off of the balance of goodwill
at December  31, 1998 of  $275,891.  Selling and  administrative  expenses  have
stabilized at approximately $700,000 per quarter.

Other income  (expense) was  $(101,138) for the nine months ended March 31, 1999
as compared to $(28,307) for the nine months ended March 31, 1998. This increase
in net expense of $72,831 is attributable to an increase in interest  expense of
$58,596 due to an increase in borrowings,  a decrease in interest and investment
income of $19,235 and a decrease in a partnership loss of $5,000.


                                       15
<PAGE>

CHEM INTERNATIONAL, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
--------------------------------------------------------------------------------

Nine months  ended March 31,  1999  Compared to the Nine months  ended March 31,
1998

Results of Operations (Continued)

On July 7, 1997, the Company was informed by one of its suppliers of a recall of
the supplier's raw material which was used in  manufacturing  of tablets sold by
Manhattan Drug Company.  On July 17, 1997, the Company issued a voluntary recall
to three  customers  affected by this,  and  accordingly,  reduced its sales and
accounts receivable at June 30, 1997 by $127,000. The Company believes they have
recourse  against the supplier for the full value of the tablets sold containing
the  recalled  material.  The Company  does not  believe  that there will be any
significant  additional costs relating to this recall. On September 30, 1997 the
Company instituted suit to recover all damages. On February 10, 1999 the Company
settled the suit and filed a Stipulation of Dismissal.

Three months  ended March 31, 1999  Compared to the Three months ended March 31,
1998

Results of Operations

The  Company's  net  losses  for the three  months  ended  March  31,  1999 were
$(478,902)  and the  Company's  net  income  for the same  period a year ago was
$126,941.  This increase in net loss of approximately  $600,000 is primarily the
result of an increase in  operating  loss of $695,000  and a decrease in federal
and state  income  tax  benefits  of  approximately  $80,000.  The  increase  in
operating loss results from a  corresponding  $800,000  decrease in gross profit
and an approximately $100,000 decrease in selling and administrative expenses.

Sales for the three  months  ended March 31, 1999 and 1998 were  $2,930,006  and
$4,978,839,  respectively, a decrease of $2,048,833 or 41%. For the three months
ended March 31, 1999 the Company had sales to one customer who accounted for 54%
of net sales in 1999 and 44% in 1998.

Retail and mail order sales for the three  months  ended March 31, 1999  totaled
$149,729 as compared to $296,537  for the three  months  ended March 31, 1998, a
decrease of $146,808 or 50% due to the store being  closed for  renovations  for
approximately  2 weeks in the  quarter.  The  Company has been unable to date to
recapture  the lost  sales  while the  store was  closed  for  renovations,  but
anticipates sales levels returning to their fiscal 1998 levels.

Sales under the Roche Vitamins, Inc. distribution agreement totaled $454,790 for
the three  months  ended March 31,  1999 as  compared to $374,942  for the three
months ended March 31, 1998 an increase of $79,848 or 21%.

Cost of sales  decreased to $2,772,837 for the three months ended March 31, 1999
as compared to  $4,010,136  for the three months  ended March 31, 1998.  Cost of
sales increased as a percentage of sales to 95% as compared to 81% for the three
months ended March 31, 1998. The increase in cost of sales is due to an increase
in manufacturing expenses and fixed overhead costs.

Selling and  administrative  expenses  for the three months ended March 31, 1999
were $615,287 as compared to $732,255 for the three months ended March 31, 1998.
This  decrease  of  approximately  $117,000 is  primarily  due to an increase in
office salaries of approximately $17,000; a decrease in travel and entertainment
of  approximately  $30,000;  an increase in officers  salaries of  approximately
$20,000;  a decrease in freight out of  approximately  $30,000 and a decrease in
advertising of approximately $100,000.


                                       16
<PAGE>

CHEM INTERNATIONAL, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
--------------------------------------------------------------------------------

Three months  ended March 31, 1999  Compared to the Three months ended March 31,
1998

Results of Operations [Continued]

Other income  (expense)  was $(35,467) for the three months ended March 31, 1999
as  compared to  $(14,761)  for the three  months  ended  March 31,  1998.  This
increase  in net expense of $20,706 is  attributable  to an increase in interest
expense of $20,558 and a decrease of interest and investment income of $148.

Liquidity and Capital Resources

At March 31, 1999 the  Company's  working  capital was  $3,169,730 a decrease of
$1,591,781 over working capital at June 30, 1998. Cash and cash equivalents were
$134,106  at March 31,  1999 a decrease  of  $822,297  from June 30,  1998.  The
Company  utilized  $713,843 and  $1,008,808  for  operations for the nine months
ended  March 31,  1999 and  1998,  respectively.  The  primary  reasons  for the
increase  in cash  utilized  for  operations  are  (a) a  decrease  in  accounts
receivable  of  approximately  $1,300,000,  (b) an  increase in  inventories  of
approximately   $300,000,   (c)  an  increase  in  refundable  income  taxes  of
approximately  $200,000 and (d) a decrease in accounts  payable of approximately
$320,000. The Company believes that the anticipated sales for the fourth quarter
of fiscal 1999 will meet the cash needs for  operations  in the next six months.
The Company has drawn down its entire  line of credit and  consequently  will be
looking for additional sources of financing to meet its liquidity needs.

The Company utilized $251,217 and $353,197 in investing  activities for the nine
months ended March 31, 1999 and 1998,  respectively.  The Company  generated net
cash of $142,763 from debt financing  activities for the nine months ended March
31, 1999 and $1,012,231 for the nine months ended March 31, 1998.

The Company has a $500,000  revolving line of credit agreement with a bank which
bears  interest at 1.0% above the bank's prime  lending rate and expires on July
27, 1999. At March 31, 1999 the balance due under the  revolving  line of credit
was $500,000.  The Company has  additionally  secured a five year equipment term
loan with  interest at 1.5% above the bank's prime  lending  rate.  At March 31,
1999 the balance due under the equipment loan was $147,333.  The Company was not
in compliance with its debt coverage on a consolidated basis at March 31, 1999.

The Company's total annual commitments at March 31, 1999 for the next five years
of $1,069,248  consists of obligations under operating leases for facilities and
lease  agreements for the rental of warehouse  equipment,  office  equipment and
automobiles.

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

The Company expects to spend  approximately  $55,000 through 1999 to modify it's
computer information systems enabling proper processing of transactions relating
to the year 2000 ("Y2K") and beyond.  The Company installed a new network system
in  October  of 1998 at a cost  of  approximately  $20,000  whose  hardware  and
software is Y2K  compliant.  The  Company has also spent  $30,439 to provide the
necessary  upgrades and  modifications to the Company's  existing  manufacturing
program to insure Y2K compliance.  The new software  program is installed and is
currently  being tested.  The Company  intends to be fully Y2K compliant by June
30, 1999. The Company's suppliers and vendors have been contacted, and most have
responded  with their intent to be Y2K compliant by the year 2000. At this time,
the Company believes based on their responses,  that there will be no disruption
of their  business.  The  Company  does not expect the  amounts  required  to be
expended over the next twelve months to have a material  effect on its financial
position or results of operations.  The amount expended as of March 31, 1999 was
$50,982.


                                       17
<PAGE>

CHEM INTERNATIONAL, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
--------------------------------------------------------------------------------

New Authoritative Pronouncements

The FASB has issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130
is   effective   for  fiscal   years   beginning   after   December   15,  1997.
Reclassification  of  financial  statements  for earlier  periods  provided  for
comparative purposes is required. The Company adopted SFAS No. 130 as of July 1,
1998. SFAS No. 130 does not have a material impact on the Company.

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

In June  1998,  the  FASB  issued  SFAS  No.  133,  "Accounting  for  Derivative
Instruments and Hedging  Activities."  SFAS No. 133  establishes  accounting and
reporting  standards for derivative  instruments,  including certain  derivative
instruments embedded in other contracts and for hedging activities. SFAS No. 133
requires  that  an  entity   recognize  all  derivatives  as  either  assets  or
liabilities in the statement of financial position and measure those instruments
at fair value. The accounting changes in a fair value of a derivative depends on
the intended use of the derivative and how it is designated,  for example,  gain
or losses related to changes in the fair value of a derivative not designated as
a hedging  instrument  is  recognized  in  earnings in the period of the change,
while certain types of hedges may be initially  reported as a component of other
comprehensive income (outside earnings) until the consummation of the underlying
transaction.

SFAS No. 133 is effective for all fiscal quarters of fiscal years after June 15,
1999.  Initial  application  of SFAS No. 133 should be as of the  beginning of a
fiscal quarter; on that date, hedging  relationships must be designated anew and
documented  pursuant to the provisions of SFAS No. 133.  Earlier  application of
all of the provisions of SFAS No. 133 is encouraged, but it is permitted only as
of the  beginning  of any  fiscal  quarter.  SFAS No.  133 is not to be  applied
retroactively  to financial  statements of prior  periods.  The Company does not
currently have any derivative  instruments  and is not currently  engaged in any
hedging activities.

Impact of Inflation

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



                                       18
<PAGE>

Part II: Other Information

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

Item 1:  Legal Proceeding

                None

Item 2:  Changes in Securities

                None

Item 3:  Defaults Upon Senior Securities

                None

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

               None

Item 5:  Other Information

               None

Item 6:  Exhibits and Reports on Form 8K

               Form 8-K filed May 10, 1999,  reported  change in accounting firm
               on May 5, 1999.


                                       19
<PAGE>

SIGNATURES
--------------------------------------------------------------------------------

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



                                   CHEM INTERNATIONAL, INC.

Date:   May 11, 1999               By:  /s/ E. Gerald Kay
                                        -------------------------------------
                                        E. Gerald Kay,
                                          President and Chief Executive Officer

Date:   May 11, 1999               By:  /s/ Eric Friedman
                                        -------------------------------------
                                        Eric Friedman,
                                          Chief Financial Officer



                                       20