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     December 31, 1996    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 February 10, 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 December 31, 1996 [Unaudited] 1...2

        Consolidated Statements of Operations for the three and six months
        ended December 31, 1996 and 1995 [Unaudited]................ 3.....

        Consolidated Statement of Stockholders' Equity for the six months
        ended December 31, 1996 [Unaudited]......................... 4.....

        Consolidated Statements of Cash Flows for six months ended
        December 31, 1996 and 1995 [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





                          .   .   .   .   .   .   .   .


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<TABLE>


Part I: Financial Information

Item 1: Financial Statements

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


CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1996.
[UNAUDITED]
------------------------------------------------------------------------------



<S>                                                                   <C> 

Assets:
Current Assets:
  Cash and Cash Equivalents                                             $ 2,124,327
  Accounts Receivable - Net                                               1,336,125
  Inventories                                                             2,306,192
  Deferred Income Taxes                                                      87,000
  Prepaid Expenses and Other Current Assets                                 474,900
                                                                        -----------

  Total Current Assets                                                    6,328,544

Property, Plant and Equipment - Net                                       1,070,937
                                                                        -----------

Other Assets:
  Goodwill                                                                  299,865
  Prepaid Pension Costs                                                     294,334
  Security Deposits and Other Assets                                        138,319
                                                                        -----------

  Total Other Assets                                                        732,518

  Total Assets                                                          $ 8,131,999
                                                                        ===========




The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
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                                         1

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


CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1996.
[UNAUDITED]
------------------------------------------------------------------------------



<S>                                                                   <C> 

Liabilities and Stockholders' Equity:
Current Liabilities:
  Note Payable - Bank                                                   $    37,926
  Note Payable - Stock Retirement                                           156,473
  Accounts Payable                                                        1,220,523
  Federal and State Income Taxes Payable                                    120,567
  Accrued Expenses and Other Current Liabilities                            530,601
                                                                        -----------

  Total Current Liabilities                                               2,066,090

Non-Current Liabilities:
  Note Payable - Bank                                                       188,046
  Notes Payable - Related Party                                             276,444
  Non-Current Rent Payable                                                  105,613
  Deferred Income Taxes                                                      19,000
                                                                        -----------

  Total Non-Current Liabilities                                             589,103

Commitments and Contingencies [4]                                                --

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                                   8,670

  Additional Paid-in Capital                                              4,045,421

  Retained Earnings                                                       1,422,715

  Total Stockholders' Equity                                              5,476,806

  Total Liabilities and Stockholders' Equity                            $ 8,131,999
                                                                        ===========



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

                                         2
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CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


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


                                 Three months ended            Six months ended
                                    December 31,                 December 31,
                                    ------------                 ------------
                                 1 9 9 6      1 9 9 5        1 9 9 6       1 9 9 5
                                 -------      -------        -------       -------
<S>                           <C>           <C>            <C>          <C>

Sales                         $ 1,829,461   $3,110,867     $3,937,915   $ 5,092,206

Cost of Sales                   1,718,000    2,575,959      3,308,259     4,022,835
                              -----------   ----------     ----------   -----------

  Gross Profit                    111,461      534,908        629,656     1,069,371

Selling and Administrative
  Expenses                        527,390      524,690      1,105,939     1,097,855
                              -----------   ----------     ----------   -----------

  Operating [Loss] Income        (415,929)      10,218       (476,283)      (28,484)
                              -----------   ----------     ----------   -----------

Other Income [Expense]:
  Interest Expense                (27,791)     (37,807)       (54,260)      (51,663)
  Interest and Investment Income   10,656       20,874         11,438        23,567
  Loss on Investment in Partnership    --      (36,998)            --       (36,998)
  Commission Income                    --       15,804             --        15,804
                              -----------   ----------     ----------   -----------

  Total Other [Expense]           (17,135)     (38,127)       (42,822)      (49,290)
                              -----------   ----------     ----------   -----------

  [Loss] Before Income Taxes     (433,064)     (27,909)      (519,105)      (77,774)

Federal and State Income
  Taxes [Benefit]                (138,760)      (2,426)      (160,915)      (18,026)
                              -----------   ----------     ----------   -----------

  Net [Loss]                  $  (294,304)  $  (25,483)    $ (358,190)  $   (59,748)
                              ===========   ==========     ==========   ===========

  Net [Loss] Per Share        $      (.08)  $     (.01)    $     (.10)  $      (.02)
                              ===========   ==========     ==========   ===========

  Average Common Shares
   Outstanding                  3,887,250    3,021,000      3,454,125     3,021,000
                              ===========   ==========     ==========   ===========



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

                                         3
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CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE SIX MONTHS ENDED
DECEMBER 31, 1996.
[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               --        --     7,049       --      7,049

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

  Net [Loss]                             --        --        -- (358,190)  (358,190)
                                   --------  -------- --------- --------   --------

Balance - December 31, 1996        4,335,000 $  8,670 $4,045,421$1,422,715 $5,476,806
                                   ========= ======== ==================== ==========




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

                                         4
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CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


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


                                                              Six months ended
                                                                 December 31,
                                                             1 9 9 6       1 9 9 5
                                                             -------       -------
<S>                                                        <C>         <C> 

Operating Activities:
  Net [Loss]                                               $ (358,190)  $   (59,748)
                                                           ----------   -----------
  Adjustments to Reconcile Net Income to Net Cash
   [Used for] Operating Activities:
   Depreciation and Amortization                              139,788       121,944
   Non-Current Rent Charge                                     (3,140)       17,798
   Deferred Income Taxes                                      (24,000)      (30,955)
   Imputed Interest on Note Payable - Related Party             7,049         7,049
   Loss on Investment in Partnership                               --        36,998

  Changes in Assets and Liabilities:
   [Increase] Decrease in:
     Accounts Receivable                                      860,375      (741,339)
     Inventories                                             (872,960)     (219,203)
     Prepaid Expenses and Other Current Assets               (201,843)      (39,990)
     Security Deposits and Other Assets                       (37,896)           --

   Increase [Decrease] in:
     Accounts Payable                                        (656,667)      405,726
     Federal and State Income Taxes Payable                   (48,398)      (24,579)
     Accrued Expenses and Other Liabilities                    80,978       (41,889)
                                                           ----------   -----------

   Total Adjustments                                         (756,714)     (508,440)
                                                           ----------   -----------

  Net Cash - Operating Activities - Forward                (1,114,904)     (568,188)
                                                           ----------   -----------

Investing Activities:
  Investment in Split Dollar Life Insurance                        --        (9,663)
  Payment for Property and Equipment                         (150,773)      (85,484
  Loans to Stockholders'                                       (1,519)      (10,193)
  Repayment of Note Receivable                                  2,109            --
  Repayment of Loan Receivable                                     --      (100,000)
  Loan to Related Company                                        (722)         (100)
  Contribution to Paid-in Capital                                  --         2,977
                                                           ----------   -----------

  Net Cash - Investing Activities - Forward                  (150,905)     (202,463)
                                                           ----------   -----------

Financing Activities:
  Proceeds from Initial Public Offering                     3,645,790            --
  Proceeds from Notes Payable                                 332,844            --
  Repayment of Notes Payable                               (1,134,117)     (646,896)
  Deferred Offering Costs                                    (219,446)           --
                                                           ----------   -----------

  Net Cash - Financing Activities - Forward                $2,625,071   $  (646,896)



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

                                         5
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CHEM INTERNATIONAL, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


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


                                                              Six months ended
                                                                 December 31,
                                                             1 9 9 6       1 9 9 5
                                                             -------       -------
<S>                                                        <C>          <C>  

  Net Cash - Operating Activities - Forwarded              $(1,114,904) $  (568,188)

  Net Cash - Investing Activities - Forwarded                (150,905)     (202,463)

  Net Cash - Financing Activities - Forwarded               2,625,071      (646,896)
                                                           ----------   -----------

  Net Increase [Decrease] in Cash and Cash Equivalents      1,359,262    (1,417,547)

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

  Cash and Cash Equivalents - End of Periods               $2,124,327   $   453,200
                                                           ==========   ===========

Supplemental Disclosures of Cash Flow Information:
  Cash paid during the periods for:
   Interest                                                $   46,298   $    47,284
   Income Taxes                                            $   52,562   $   144,973

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 six months  ended  December 31,
1996.




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

                                         6
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<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.

[D]  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 December 31, 1996, the balance of this note is $31,611.

[3] Inventories

Inventories consist of the following at December 31, 1996:

Raw Materials                 $ 1,038,531
Work-in-Process                   156,412
Finished Goods                  1,111,249
                              -----------

  Total                       $ 2,306,192
  -----                       ===========

[4] Commitments and Contingencies

Certain  manufacturing  and  office  facilities  are leased  from  Gerob  Realty
Partnership  whose partners are stockholders of the Company.  The current 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 six  months  ended  December  31,  1996  and  1995  on  this  lease  was
approximately $87,000 and $85,000, respectively.

                                        7

<PAGE>



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



[4] Commitments and Contingencies [Continued]

The Company's lease agreement for other warehouse and office facilities  expires
on November 14, 2001 and provides for minimum annual rentals of $332,500 through
November 14, 1999 and $370,000 from November 15, 1999 through  November 14, 2001
plus real estate taxes and building operating expenses.  The rentals under these
leases are 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
have been  reflected as a non-current  liability in the attached  balance sheet.
This  liability  will be reduced in future  years to the extent that the minimum
rentals  payable in those years exceeds the average net expense  recorded on the
straight-line  basis.  At its  option,  the  Company has the right to renew this
lease for an  additional  five year  period.  On  January  10,  1997,  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, purchased these premises.

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

Year Ending
  June 30,
   1997                       $   495,681
   1998                           435,681
   1999                           435,681
   2000                           459,119
   2001                           473,181
   Thereafter                     177,443
                              -----------

   Total                      $ 2,476,786
   -----                      ===========

Total rent expense,  including real estate taxes and  maintenance  charges,  was
approximately  $255,000 and $89,000 for the six months  ended  December 31, 1996
and 1995,  respectively.  The Company  subleases a portion of its  premises on a
month-to-month  basis.  Rent  expense  is  stated  net  of  sublease  income  of
approximately  $125,000 and $90,000 for the six months  ended  December 31, 1996
and 1995, respectively.

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 customer 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 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.



                                        8

<PAGE>



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



[5] New Authoritative Pronouncement

The Financial  Accounting Standards Board ["FASB"] issued 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," in March of
1995.  SFAS No. 121  establishes  accounting  standards  for the  impairment  of
long-lived assets,  certain  identifiable  intangibles,  and goodwill related to
those  assets  to be held  and  used,  and for  long-lived  assets  and  certain
identifiable  intangibles  to be  disposed  of.  SFAS No. 121 is  effective  for
financial  statements issued for fiscal years beginning after December 15, 1995.
SFAS No. 121 could have a material impact on the Company's financial statements.

The FASB has also issued SFAS No. 123 "Accounting for Stock-Based Compensation,"
in October 1995.  SFAS No. 123 uses a fair value based method of recognition for
stock options and similar equity  instruments  issued to employees as contrasted
to the  intrinsic  valued based method of  accounting  prescribed  by Accounting
Principles  Board  ["APB"]  Opinion  No.  25,  "Accounting  for Stock  Issued to
Employees."  The  recognition  requirements  of SFAS No. 123 are  effective  for
transactions  entered into in fiscal  years that begin after  December 15, 1995.
The Company will continue to apply Opinion No. 25 in recognizing its stock based
employee arrangements. The disclosure requirements of SFAS No. 123 are effective
for financial statements for fiscal years beginning after December 15, 1995. The
Company  adopted  the  disclosure  requirements  on July 1, 1996.  SFAS 123 also
applies to  transactions  in which an entity  issues its equity  instruments  to
acquire  goods  or  services  from  non-employees.  Those  transactions  must be
accounted for based on the fair value of the consideration  received or the fair
value of the equity instrument  issued,  whichever is more reliably  measurable.
This requirement is effective for  transactions  entered into after December 15,
1995.

[6] 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.

[7] Subsequent Events

Commitments and  Contingencies - On January 10, 1997, the Company entered into a
lease  agreement with 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 for warehouse and office  facilities  expiring January 9, 2007 [See Note
4].


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

                                        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.

Six months ended  December 31, 1996 Compared to the Six month ended December 31,
1995

Results of Operations

The  Company's  net losses for the six months  ended  December 31, 1996 and 1995
were $(358,190) and $(59,748), respectively.

Sales for the six months ended  December 31, 1996 and 1995 were  $3,937,915  and
$5,092,206,  respectively, a decrease of approximately $1,154,000 or 23%. Retail
and mail order sales for the six months ended December 31, 1996 totaled $416,604
as compared to $369,569 for the six months ended  December 31, 1995, an increase
of $47,035 or 13%.

For the six  months  ended  December  31,  1996,  the  Company  had sales to one
customer,  who  accounted  for 37% of net  sales in 1996 and 33% of net sales in
1995.

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 $3,308,259  1996 as compared to $4,022,835 for 1995.
Cost of sales  increased as a percentage  of sales to 84% as compared to 79% for
1995.  The  increase  in cost of sales is due to an  increase  in  manufacturing
expenses.

Selling and  administrative  expenses for the six months ended December 31, 1996
were $1,105,939  versus  $1,097,855 for the same period a year ago. The increase
of $8,084 was primarily attributable to an increase in officers' compensation of
approximately  $103,000,  a decrease  in travel and  entertainment  expenses  of
approximately $45,000, a decrease in freight out of approximately $43,000, and a
decrease in consulting fees of approximately $11,000.

Other income  [expense] was $(42,822) for the six months ended December 31, 1996
as compared to $(49,290) for the same period a year ago. This decrease of $6,468
is primarily  attributable to a loss of $36,998 from a 50% owned  partnership in
1995, a decrease in interest and investment income of $12,129, and to a decrease
in commission income of $15,804.

Three months ended December 31, 1996 Compared to the Three months ended December
31, 1995

The Company's  net losses for the three months ended  December 31, 1996 and 1995
were $(294,304) and $(25,483), respectively.

Sales for the three months ended December 31, 1996 and 1995 were  $1,829,461 and
$3,110,867,  respectively, a decrease of approximately $1,280,000 or 41%. Retail
and mail order  sales for the three  months  ended  December  31,  1996  totaled
$233,200 as compared to $180,595 for the three  months ended  December 31, 1996,
an increase of $52,605 or 29%.

For the three  months  ended  December  31,  1996,  the Company had sales to one
customer,  who  accounted  for 31% of net  sales in 1996 and 25% of net sales in
1995.



                                       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 December 31, 1996 Compared to the Three months ended December
31, 1995

Cost of sales  decreased to  $1,718,000  in 1996 as compared to  $2,575,959  for
1995. Cost of sales increased as a percentage of sales to 94% as compared to 83%
for 1995.  The increase in cost of sales is due to an increase in  manufacturing
expenses.

Selling and administrative expenses for the three months ended December 31, 1996
were  $527,390  versus  $524,690 for the same period a year ago. The increase of
$2,700 was  primarily  attributable  to and  increase in  officers'  salaries of
approximately  $66,000,  a decrease in travel and entertainment of approximately
$12,000,  a decrease  in freight  out of  approximately  $20,000,  a decrease in
professional fees of $57,000 and an increase in advertising of $25,000.

Other income  [expense] was  $(17,135)  for the three months ended  December 31,
1996 as compared to $(38,127)  for the same period a year ago.  This decrease of
$20,992  is  primarily  attributable  to a loss  of  $36,998  from  a 50%  owned
partnership in 1995, a decrease in interest and investment income of $10,218,  a
decrease in commission income of $15,804,  and a decrease in interest expense of
$10,016.

Liquidity and Capital Resources

At December 31, 1996, the Company had working capital of $4,262,454 and cash and
cash equivalents of $2,124,327. The Company utilized $1,114,904 and $568,188 for
operations  for the six months ended  December 31, 1996 and 1995,  respectively.
The Company utilized  $150,905 and $202,463 in investing  activities for the six
months ended  December 31, 1996 and 1995,  respectively.  The Company  generated
$2,625,071 from financing  activities for the six months ended December 31, 1996
and  utilized  $646,896  from  financing  activities  for the six  months  ended
December 31,1995.

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.

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 December 31, 1996, 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 December
31, 1996, the balance due under the equipment loan was $225,972.

The  Company's   principal   commitments  at  December  31,  1996  consisted  of
obligations under operating leases for facilities.

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 loan  finance  costs.  Stockholders'  equity has been reduced by
$1,120,000.



                                       11

<PAGE>



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



Liquidity and Capital Resources [Continued]

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 Pronouncement

The Financial  Accounting Standards Board ["FASB"] issued 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," in March of
1995.  SFAS No. 121  establishes  accounting  standards  for the  impairment  of
long-lived assets,  certain  identifiable  intangibles,  and goodwill related to
those  assets  to be held  and  used,  and for  long-lived  assets  and  certain
identifiable  intangibles  to be  disposed  of.  SFAS No. 121 is  effective  for
financial  statements issued for fiscal years beginning after December 15, 1995.
SFAS No. 121 could have a material impact on the Company's financial statements.

The FASB has also issued SFAS No. 123 "Accounting for Stock-Based Compensation,"
in October 1995.  SFAS No. 123 uses a fair value based method of recognition for
stock options and similar equity  instruments  issued to employees as contrasted
to the  intrinsic  valued based method of  accounting  prescribed  by Accounting
Principles  Board  ["APB"]  Opinion  No.  25,  "Accounting  for Stock  Issued to
Employees."  The  recognition  requirements  of SFAS No. 123 are  effective  for
transactions  entered into in fiscal  years that begin after  December 15, 1995.
The Company will continue to apply Opinion No. 25 in recognizing its stock based
employee arrangements. The disclosure requirements of SFAS No. 123 are effective
for financial statements for fiscal years beginning after December 15, 1995. The
Company  adopted  the  disclosure  requirements  on July 1, 1996.  SFAS 123 also
applies to  transactions  in which an entity  issues its equity  instruments  to
acquire  goods  or  services  from  non-employees.  Those  transactions  must be
accounted for based on the fair value of the consideration  received or the fair
value of the equity instrument  issued,  whichever is more reliably  measurable.
This requirement is effective for  transactions  entered into after December 15,
1995.

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 filed December 6, 1996,  reported change in accounting firm on
December 4, 1996.

         Form 8-K/A filed December 13, 1996, amended the Form 8-K filed December
         6, 1996 by attaching letter from predecessor accountant.

         Form 8-K/A filed  January 6, 1997,  amended the  disclosure of original
         Form 8-K filed December 6, 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: February 10, 1997            By:/s/ E. Gerald Kay
                                      E. Gerald Kay,
                                       President and Chief Executive Officer

Date: February 10, 1997            By:/s/ Eric Friedman
                                      Eric Friedman,
                                       Chief Financial Officer

                                       14