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, 1997    Commission File Number   000-28876

                    CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
             (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:           (201) 926-0816
                                                        ------------------------


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the  Securities  and  Exchange Act of 1934
during the preceding 12 months (or for such shorter  period that the  registrant
was  required  to file such  reports),  and (2) has been  subject to such filing
requirements for the past 90 days.

                              Yes  X       No

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


             Class                          Outstanding Shares as of May 2, 1997
----------------------------------          ------------------------------------

Common Stock, Par Value $.002                            4,335,000


<PAGE>



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


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




Part I: Financial Information

Item 1: Financial Statements

        Consolidated Balance Sheet as of March 31, 1997 [Unaudited]  1.....2

        Consolidated Statements of Operations for the three and nine months
        ended March 31, 1997 and 1996 [Unaudited]................... 3.....

        Consolidated Statement of Stockholders' Equity for the nine months
        ended March 31, 1997 [Unaudited]............................ 4.....

        Consolidated Statements of Cash Flows for nine months ended
        March 31, 1997 and 1996 [Unaudited]......................... 5.....6

        Notes to Consolidated Financial Statements [Unaudited]...... 7.....9

Item 2: Management's Discussion and Analysis of Financial Condition
        and Results of Operations...................................10.....12

Part II:Other Information...........................................13

Signature...........................................................14





                          .   .   .   .   .   .   .   .


<PAGE>
<TABLE>



Part I: Financial Information

Item 1: Financial Statements

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


CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1997.
[UNAUDITED]
------------------------------------------------------------------------------



<S>                                                                    <C> 


Assets:
Current Assets:
  Cash and Cash Equivalents                                             $ 1,278,285
  Accounts Receivable - Net                                               2,039,246
  Note Receivable                                                           250,000
  Inventories                                                             2,766,286
  Deferred Income Taxes                                                      44,000
  Prepaid Expenses and Other Current Assets                                 416,163
                                                                        -----------

  Total Current Assets                                                    6,793,980

Property, Plant and Equipment - Net                                       1,071,485
                                                                        -----------

Other Assets:
  Goodwill                                                                  296,869
  Prepaid Pension Costs                                                     294,334
  Security Deposits and Other Assets                                        107,690
                                                                        -----------

  Total Other Assets                                                        698,893

  Total Assets                                                          $ 8,564,358
                                                                        ===========




The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
</TABLE>

                                         1

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<TABLE>


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


CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1997.
[UNAUDITED]
------------------------------------------------------------------------------



<S>                                                                    <C> 

Liabilities and Stockholders' Equity:
Current Liabilities:
  Note Payable - Bank                                                   $    37,926
  Accounts Payable                                                        2,081,107
  Federal and State Income Taxes Payable                                     58,656
  Accrued Expenses and Other Current Liabilities                            373,177
                                                                        -----------

  Total Current Liabilities                                               2,550,866

Non-Current Liabilities:
  Note Payable - Bank                                                       179,407
  Notes Payable - Related Party                                             276,444
  Deferred Income Taxes                                                       8,000
                                                                        -----------

  Total Non-Current Liabilities                                             463,851

Commitments and Contingencies [6]                                                --

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, 4,335,000 Shares Issued and Outstanding                   8,670

  Additional Paid-in Capital                                              4,048,946

  Retained Earnings                                                       1,492,025

  Total Stockholders' Equity                                              5,549,641

  Total Liabilities and Stockholders' Equity                            $ 8,564,358
                                                                        ===========



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

                                         2
</TABLE>

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<TABLE>

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


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


                                 Three months ended            Nine months ended
                                      March 31,                    March 31,
                                      ---------                    ---------
                                 1 9 9 7      1 9 9 6        1 9 9 7       1 9 9 6
                                 -------      -------        -------       -------
<S>                           <C>           <C>           <C>           <C> 

Sales                         $ 3,123,960   $2,577,650     $7,061,875   $ 7,669,856

Cost of Sales                   2,447,173    2,066,005      5,755,432     6,088,840
                              -----------   ----------     ----------   -----------

  Gross Profit                    676,787      511,645      1,306,443     1,581,016

Selling and Administrative
  Expenses                        644,629      447,333      1,750,568     1,545,188
                              -----------   ----------     ----------   -----------

  Operating Income [Loss]          32,158       64,312       (444,125)       35,828
                              -----------   ----------     ----------   -----------

Other Income [Expense]:
  Gain on Sale of Fixed Assets         --       62,431             --        62,431
  Interest Expense                 (9,683)     (21,025)       (63,943)      (72,688)
  Interest and Investment Income   25,238        2,979         36,676        26,546
  Income [Loss] on Investment in
   Partnership                      1,780           --          1,780       (36,998)
  Commission Income                    --           --             --        15,804
                              -----------   ----------     ----------   -----------

  Other Income [Expense] - Net     17,335       44,385        (25,487)       (4,905)
                              -----------   ----------     ----------   -----------

  Income [Loss] Before Income
   Taxes                           49,493      108,697       (469,612)       30,923

Federal and State Income
  Tax Expense [Benefit]            19,817       60,148       (180,732)       42,122
                              -----------   ----------     ----------   -----------

  Net Income [Loss]           $    69,310   $   48,549     $ (288,880)  $   (11,199)
                              ===========   ==========     ==========   ===========

  Net Income [Loss] Per Share $       .02   $      .02     $     (.08)  $      (.01)
                              ===========   ==========     ==========   ===========

  Average Common Shares
   Outstanding                  4,286,000    3,021,000      3,727,369     3,021,000
                              ===========   ==========     ==========   ===========



The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
</TABLE>

                                         3

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<TABLE>

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


CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE NINE MONTHS ENDED
MARCH 31, 1997.
[UNAUDITED]
------------------------------------------------------------------------------



                                                      Additional            Total
                                       Common Stock     Paid-in  RetainedStockholders'
                                    Shares   Par Value  Capital  Earnings  Equity
<S>                                <C>        <C>      <C>       <C>        <C>  


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

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

  Imputed Interest on Note
   Payable - Related Party               --        --    10,574       --     10,574

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

  Net [Loss]                             --        --        -- (288,880)  (288,880)
                                   --------  -------- --------- --------   --------

Balance - March 31, 1997           4,335,000 $  8,670 $4,048,946$1,492,025 $5,549,641
                                   ========= ======== ==================== ==========




The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
</TABLE>

                                         4

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<TABLE>

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


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


                                                              Nine months ended
                                                                   March 31,
                                                             1 9 9 7       1 9 9 6
                                                             -------       -------
<S>                                                        <C>          <C> 

Operating Activities:
  Net [Loss]                                               $ (288,880)  $   (11,199)
                                                           ----------   -----------
  Adjustments to Reconcile Net Income to Net Cash
   [Used for] Operating Activities:
   Depreciation and Amortization                              228,398       176,170
   Lease Termination Items                                   (108,753)       31,146
   Deferred Income Taxes                                        8,000       (41,955)
   Imputed Interest on Note Payable - Related Party            10,574        10,574
   [Gain] Loss on Investment in Partnership                    (1,780)       36,998
   Interest Income on Note Receivable                          (5,150)           --

  Changes in Assets and Liabilities:
   [Increase] Decrease in:
     Accounts Receivable                                      157,254      (568,695)
     Inventories                                           (1,333,054)     (349,292)
     Prepaid Expenses and Other Current Assets               (143,106)     (129,716)
     Security Deposits and Other Assets                       (23,410)           --

   Increase [Decrease] in:
     Accounts Payable                                         203,917       206,354
     Federal and State Income Taxes Payable                  (110,309)      (57,538)
     Accrued Expenses and Other Liabilities                   (97,546)       46,976
                                                           ----------   -----------

   Total Adjustments                                       (1,214,965)     (638,978)
                                                           ----------   -----------

  Net Cash - Operating Activities - Forward                (1,503,845)     (650,177)
                                                           ----------   -----------

Investing Activities:
  Issuance of Note Receivable                                (223,750)           --
  Repayment of Loan to Related Company                         16,849            --
  Repayment of Note Payable - Stock Retirement               (156,473)           --
  Purchase of Property and Equipment                         (236,935)     (256,765)
  Loans to Stockholders'                                       (1,519)      (16,487)
  Repayment of Note Receivable                                  3,183            --
  Repayment of Loan Receivable                                     --      (100,000)
  Loan to Related Company                                        (722)           --
                                                           ----------   -----------

  Net Cash - Investing Activities - Forward                  (599,367)     (373,252)
                                                           ----------   -----------

Financing Activities:
  Contribution to Paid-in Capital                                  --         2,977
  Net Proceeds from Initial Public Offering                 3,426,344            --
  Proceeds from Notes Payable                                 332,844       294,156
  Repayment of Notes Payable                               (1,142,756)     (895,344)
                                                           ----------   -----------

  Net Cash - Financing Activities - Forward                $2,616,432   $  (598,211)


The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
</TABLE>

                                         5

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<TABLE>

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


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


                                                              Nine months ended
                                                                   March 31,
                                                             1 9 9 7       1 9 9 6
                                                             -------       -------
<S>                                                        <C>          <C> 

  Net Cash - Operating Activities - Forwarded              $(1,503,845) $  (650,177)

  Net Cash - Investing Activities - Forwarded                (599,367)     (373,252)

  Net Cash - Financing Activities - Forwarded               2,616,432      (598,211)
                                                           ----------   -----------

  Net Increase [Decrease] in Cash and Cash Equivalents        513,220    (1,621,640)

Cash and Cash Equivalents - Beginning of Periods              765,065     1,870,747
                                                           ----------   -----------

  Cash and Cash Equivalents - End of Periods               $1,278,285   $   249,107
                                                           ==========   ===========

Supplemental Disclosures of Cash Flow Information:
  Cash paid during the periods for:
   Interest                                                $   54,198   $    58,942
   Income Taxes                                            $   80,688   $   141,589

Supplemental Disclosure of Non-Cash Investing and Financing Activities:
  The Company  incurred  offering  costs of $69,174 as of June 30,  1996.  These
costs were offset  against the net  proceeds of the initial  public  offering as
reflected in the stockholders' equity for the nine months ended March 31, 1997.




The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
</TABLE>

                                         6

<PAGE>



CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
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.  Its customers are located primarily throughout
the United States.

[2] Summary of Significant Accounting Policies

[A]  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.

[B] 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 for the year ended June 30, 1996 included in the Chem International,  Inc.
Form SB-2 which was declared effective October 29, 1996.

[C] Earnings  Per Share - Earnings per common share are computed  based upon the
weighted  average  number  of  common  and  "common  share  equivalent"   shares
outstanding  during the periods presented after giving retroactive effect to the
1-for-4 reverse stock split in July 1996.  Common stock equivalents are included
when dilutive.

[3] Investment in and Advances to Partnership

The  Company  was a 50%  general  partner in  Swedish  Herbal  Institute  - Chem
Associates [the  "Partnership"].  In addition to its $1,000 capital  investment,
the  Company had  advanced  approximately  $70,000 in  exchange  for a series of
promissory  notes.  As of June 30, 1996,  the  Partnership  is insolvent and the
Company has recorded a loss on its investment and a charge for approximately 50%
of its note  receivable for the year then ended.  At March 31, 1997, the balance
of this note is $32,317.

[4] Inventories

Inventories consist of the following at March 31, 1997:

Raw Materials                 $ 1,545,474
Work-in-Process                   407,277
Finished Goods                    813,535
                              -----------

  Total                       $ 2,766,286
  -----                       ===========

[5] Note Receivable

On  February  3, 1997,  the Company  received a secured  promissory  note in the
amount of $250,000 with  interest at 14% per annum.  The note is due and payable
on November 3, 1997. Advance interest of $26,250 was payable out of the proceeds
of the loan and is taken into income over the period of the loan.



                                        7

<PAGE>



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



[6] Commitments and Contingencies

[A] Related  Party  Leases - Certain  manufacturing  and office  facilities  are
leased from Gerob Realty  Partnership  whose  partners are  stockholders  of the
Company.  The lease, which expires on December 31, 1997,  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, 1997 and 1996 on this
lease was approximately $115,000 and $129,000, respectively.

The Company's original lease agreement for other warehouse and office facilities
was  terminated on January 10, 1997 when the landlord sold the premises.  At the
time of sale the rentals under the lease were recorded for financial  accounting
purposes on a straight-line  basis. At December 31, 1996, accrued future rentals
of $105,613,  which give effect to both future  scheduled  increases and certain
concessions at the lease inception had been recorded as a non-current liability.
Because of the termination of the lease the balance of accrued future rentals of
$105,613  has been  allocated  to rent  expense in the three month  period ended
March  31,  1997.  The  Company  subleased  a  portion  of  its  premises  on  a
month-to-month basis through January 10, 1997 for approximately $25,000 a month.

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.

The Company leases  warehouse  equipment for a five year period providing for an
annual rental of $15,847.

The minimum rental commitment for long-term non-cancelable leases is as follows:

Year Ending
  June 30,
   1997                       $   269,603
   1998                           391,847
   1999                           361,847
   2000                           361,847
   2001                           361,847
   Thereafter                     182,244
                              -----------

   Total                      $ 1,929,235
   -----                      ===========

Total rent expense,  including real estate taxes and  maintenance  charges,  was
approximately $147,000 and $108,000 for the nine months ended March 31, 1997 and
1996,   respectively.   Rent  expense  is  stated  net  of  sublease  income  of
approximately $166,000 and $131,000 for the nine months ended March 31, 1997 and
1996, 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 year ending June 30, 1998.  These  agreements  are
subject to annual increases equal to at least the increase in the consumer price
index for the  Northeastern  area.  An agreement  with one of the officers  also
provides for a $100,000  signing  bonus which is  refundable on a pro rata basis
during  the  period  from  July 1,  1996  to June  30,  1997,  if the  executive
voluntarily  terminates  his  employment.  The  amount is  included  in  prepaid
expenses and is amortized over the period July 1, 1996 to June 30, 1997.

                                        8

<PAGE>



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


[6] Commitments and Contingencies [Continued]

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

[7] New Authoritative Pronouncements

The FASB has issued SFAS No. 125, "Accounting for Transfers and Servicing of 
Financial Assets and Extinguishment of Liabilities."  SFAS No. 125 is effective 
for transfers and servicing of financial assets and extinguishment of 
liabilities occurring after December 31, 1996.  Earlier application is not 
allowed. The provisions of SFAS No. 125 must be applied prospectively;
 retroactive application is prohibited. Adoption on January 1, 1997 is not
 expected to have a material impact on the Company.  The FASB deferred some
 provisions of SFAS No. 125, which are not expected to be relevant to the 
Company.

The FASB issued Statement of Financial  Accounting  Standards  ["SFAS"] No. 128,
"Earnings Per Share," and SFAS No. 129, "Disclosure of Information about Capital
Structure"  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.   When  adopted,  SFAS  No.  128  will  require
restatement of all prior-period EPS data presented; however, the Company has not
sufficiently  analyzed  SFAS No. 128 to determine  what effect SFAS No. 128 will
have on its historically reported EPS amounts.

SFAS No. 129 does not change any previous  disclosure  requirements,  but rather
consolidates existing disclosure requirements for ease of retrieval.

[8] Equity Transactions

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

[B] Bridge Units - On October 16, 1996,  the bridge  lenders waived their rights
to the bridge units and agreed to the cancellation of the underlying securities.
Accordingly,  the Company has eliminated the amount previously  recorded for the
bridge units and the related bridge loan finance costs.

[C] Initial  Public  Offering - On October 29,  1996,  the Company  received net
proceeds of approximately $3,400,000 from the sale of 625,000 units at $7.00 per
unit.  Each  unit  consisted  of two  shares  of  Common  Stock  and two Class A
Redeemable Common Stock Purchase Warrants.

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

                                        9

<PAGE>



Item 2.

CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
------------------------------------------------------------------------------



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

Nine months  ended March 31,  1997  Compared to the Nine months  ended March 31,
1996

Results of Operations

The  Company's net losses for the nine months ended March 31, 1997 and 1996 were
$(288,880) and $(11,199), respectively.

Sales for the nine  months  ended March 31,  1997 and 1996 were  $7,061,875  and
$7,669,856, respectively, a decrease of approximately $600,000 or 8%. Retail and
mail order sales for the nine months  ended March 31, 1997  totaled  $682,109 as
compared to $529,205 for the nine months  ended March 31,  1996,  an increase of
$152,904 or 29%.

On February 20, 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.  Sales for the  period  from
February 20, 1997 through March 31, 1997 under the agreement totaled $68,816.

For the nine months ended March 31, 1997, the Company had sales to one customer,
who accounted for 45% of net sales in 1997 and 33% of net sales in 1996.

On  January  23,  1997,   the  Company   signed  an  exclusive   agreement  with
International  Nutrition Research Center, Inc. ["INRC"] to market and distribute
the Master Amino Acid Pattern ["MAP"].  MAP is recommended for athletes who need
to maximize protein synthesis.

Cost of sales  decreased to  $5,755,432  in 1997 as compared to  $6,088,840  for
1996. Cost of sales increased as a percentage of sales to 82% as compared to 79%
for 1996.  The increase in cost of sales is due to an increase in  manufacturing
expenses.

Selling and  administrative  expenses  for the nine months  ended March 31, 1997
were $1,750,568  versus  $1,545,188 for the same period a year ago. The increase
of $205,380 was primarily  attributable to an increase in officers' compensation
of  approximately  $137,000,  an  increase in office  salaries of  approximately
$9,000, an increase in depreciation expense of approximately $22,000, a decrease
in travel and entertainment of approximately  $39,000, an increase in consulting
fees of  approximately  $42,000,  a  decrease  in freight  out of  approximately
$53,000, an increase in office rent of approximately  $22,000 and an increase in
advertising and catalog costs of approximately $53,000.

Other income [expense] was $(25,487) for the nine months ended March 31, 1997 as
compared to $(4,905) for the same period a year ago. This increase of $20,582 is
attributable  to a decrease in sales of fixed  assets of $62,431,  a decrease in
commission  income  of  $15,804,  an  increase  of  $38,778  from  a  50%  owned
partnership,  a  decrease  in  interest  expense of $8,745  and an  increase  in
interest and investment income of $10,130.



                                       10

<PAGE>



CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
------------------------------------------------------------------------------


Results of Operations [Continued]

Three months  ended March 31, 1997  Compared to the Three months ended March 31,
1996

The Company's net income for the three months ended March 31, 1997 and 1996 were
$69,310 and $48,549, respectively.

Sales for the three  months  ended March 31, 1997 and 1996 were  $3,123,690  and
$2,577,650,  respectively,  an increase of approximately $546,000 or 21%. Retail
and mail order sales for the three months ended March 31, 1997 totaled  $265,505
as compared to $159,636 for the three  months ended March 31, 1996,  an increase
of $105,869 or 66%.

For the  three  months  ended  March  31,  1997,  the  Company  had sales to one
customer,  who  accounted  for 58% of net  sales in 1997 and 33% of net sales in
1996.

Cost of sales  increased to  $2,447,173  in 1997 as compared to  $2,066,005  for
1996. Cost of sales decreased as a percentage of sales to 78% as compared to 80%
for 1996.  The  decrease in cost of sales is due to an decrease in rent  expense
for the quarter.

Selling and  administrative  expenses  for the three months ended March 31, 1997
were  $644,629  versus  $447,333 for the same period a year ago. The increase of
$197,296 was  primarily  attributable  to an increase in  officers'  salaries of
approximately  $36,000,  a decrease in freight out of approximately  $11,000,  a
decrease in officer's life insurance of  approximately  $19,000,  an increase in
advertising and catalog costs of  approximately  $31,000,  an increase in office
expenses  of  approximately   $11,000,  an  increase  in  professional  fees  of
approximately  $57,000, an increase in office salaries of approximately $16,000,
an increase in regulatory expenses of approximately  $20,000, and an increase in
depreciation expense of approximately $24,000.

Other  income was $17,335 for the three  months ended March 31, 1997 as compared
to  $44,385  for the  same  period a year  ago.  This  decrease  of  $27,050  is
attributable  to a decrease  in gains on sales of fixed  assets of  $62,431,  an
increase in interest and  investment  income of $22,259,  a decrease in interest
expense of $11,342 and a gain of $1,780 from a 50% owned partnership.

Liquidity and Capital Resources

At March 31, 1997,  the Company had working  capital of $4,243,114  and cash and
cash equivalents of $1,278,285. The Company utilized $1,503,845 and $650,177 for
operations for the nine months ended March 31, 1997 and 1996, respectively.  The
Company  utilized  $599,367 and $373,252 in  investing  activities  for the nine
months  ended  March 31,  1997 and 1996,  respectively.  The  Company  generated
$2,616,432  from  financing  activities for the nine months ended March 31, 1997
and utilized $598,211 from financing  activities for the nine months ended March
31, 1996.

On  February  3, 1997,  the Company  received a secured  promissory  note in the
amount of $250,000 with  interest at 14% per annum.  The note is due and payable
on November 3, 1997. Advance interest of $26,250 was payable out of the proceeds
of the loan and is taken into income over the period of the loan.

On October  29,  1996,  the Company  successfully  completed  an initial  public
offering  whereby the Company  sold 625,000  units at $7.00 per unit,  each unit
consisting of two shares of Common Stock and two Class A Redeemable Common Stock
Purchase Warrants.  The net proceeds to the Company after deducting underwriting
discounts  and  commission  of $575,575  and other  expenses of the  offering of
$442,310 were $3,357,170.



                                       11

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CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
------------------------------------------------------------------------------



Liquidity and Capital Resources [Continued]

The Company has a $500,000  revolving line of credit agreement with a bank which
bears  interest  at .75%  above the bank's  prime  lending  rate and  expires on
November 30, 1997. At March 31, 1997, there was no balance due under the line of
credit  agreement.  The Company has  additionally  secured a five year equipment
term loan with  interest at 1.50% over the bank's prime  lending  rate. At March
31, 1997, the balance due under the equipment loan was $215,508.

The Company's  principal  commitments at March 31, 1997 consisted of obligations
under  operating  leases for facilities and a lease  agreement for the rental of
warehouse equipment.

Effective July 1, 1996, the Company entered into employment agreements with each
of its executive officers providing for aggregate  compensation in the amount of
$530,000 for the fiscal year ending June 30, 1997. Such compensation  amounts to
an approximate increase of $200,000 as compared to fiscal 1996.

On October 16, 1996,  the bridge lenders waived their rights to the bridge units
and agreed to the cancellation of the underlying  securities.  Accordingly,  the
Company  eliminated the amount previously  recorded for the bridge units and the
related bridge costs. Stockholders' equity has been reduced by $1,120,000.

Management  believes  that the net proceeds  from the initial  public  offering,
borrowing  available under the anticipated  line of credit and anticipated  cash
flows from operations  will be sufficient to meet the Company's  working capital
needs for the foreseeable future.

New Authoritative Pronouncements

The FASB has issued SFAS No. 125, "Accounting for Transfers and Servicing of 
Financial Assets and Extinguishment of Liabilities."  SFAS No. 125 is effective
 for transfers and servicing of financial assets  and extinguishment of
 liabilities occurring after December 31, 1996.  Earlier application is not
 allowed. The provisions of SFAS No. 125 must be applied prospectively; 
retroactive application is prohibited. Adoption on January 1, 1997 is not 
expected to have a material impact on the Company.  The FASB deferred some
 provisions of SFAS No. 125, which are not expected to be relevant to the 
Company.

The FASB issued Statement of Financial  Accounting  Standards  ["SFAS"] No. 128,
"Earnings Per Share," and SFAS No. 129, "Disclosure of Information about Capital
Structure"  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.   When  adopted,  SFAS  No.  128  will  require
restatement of all prior-period EPS data presented; however, the Company has not
sufficiently  analyzed  SFAS No. 128 to determine  what effect SFAS No. 128 will
have on its historically reported EPS amounts.

SFAS No. 129 does not change any previous  disclosure  requirements,  but rather
consolidates existing disclosure requirements for ease of retrieval.

Impact of Inflation

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

                                       12

<PAGE>



Part II: Other Information

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



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 8-K

         Form 8-K/A filed  January 6, 1997,  amended the  disclosure of original
         Form 8-K filed December 6, 1996, reporting change in accounting firm on
         December 4, 1996.

                                       13

<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. AND SUBSIDIARIES

Date: May 2, 1997                  By:/s/ E. Gerald Kay
                                      E. Gerald Kay,
                      President and Chief Executive Officer

Date: May 2, 1997                  By:/s/ Eric Friedman
                                      Eric Friedman,
                                       Chief Financial Officer

                                       14

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