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     September 30, 1998   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 November 12, 1998
----------------------------------           -----------------------------------

Common Stock, Par Value                                  5,178,300


<PAGE>



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


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




Part I: Financial Information

Item 1: Consolidated Financial Statements

        Consolidated Balance Sheet as of September 30, 1998 [Unaudited] 1..2

        Consolidated Statements of Operations for the three months ended
        September 30, 1998 and 1997 [Unaudited]..................... 3.....

        Consolidated Statement of Stockholders' Equity for the three months
        ended September 30, 1998 [Unaudited]........................ 4.....

        Consolidated Statements of Cash Flows for three months ended
        September 30, 1998 and 1997 [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.....17

Part II: Other Information..........................................18

Signature...........................................................19





                          .   .   .   .   .   .   .   .


<PAGE>



CHEM INTERNATIONAL, INC.
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CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1998.
[UNAUDITED]
------------------------------------------------------------------------------



<TABLE>

Assets:
Current Assets:
<S>                                                                     <C>        
  Cash and Cash Equivalents                                             $   304,758
  Accounts Receivable - Net                                               1,748,880
  Deferred Income Taxes                                                      75,000
  Inventories                                                             3,747,520
  Prepaid Expenses and Other Current Assets                                 152,572
  Refundable Federal Income Taxes                                           200,000
                                                                        -----------

  Total Current Assets                                                    6,228,730

Property and Equipment - Net                                              1,634,189
                                                                        -----------

Other Assets:
  Goodwill                                                                  278,887
  Deferred Income Taxes                                                      43,000
  Security Deposits and Other Assets                                        108,151
                                                                        -----------

  Total Other Assets                                                        430,038

  Total Assets                                                          $ 8,292,957
                                                                        ===========




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


                                         1

<PAGE>



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


CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1998.
[UNAUDITED]
------------------------------------------------------------------------------





Liabilities and Stockholders' Equity:
Current Liabilities:
<S>                                                                     <C>        
  Accounts Payable                                                      $ 1,249,104
  Notes Payable                                                             399,180
  Accrued Expenses and Other Current Liabilities                            179,137
  Accrued Expenses - Related Party                                           40,000
  Capital Lease Obligation                                                   34,771
                                                                        -----------

  Total Current Liabilities                                               1,902,192

Non-Current Liabilities:
  Notes Payable                                                             173,907
  Notes Payable - Related Party                                             694,129
  Capital Lease Obligation                                                   58,555
                                                                        -----------

  Total Non-Current Liabilities                                             926,591

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

  Retained Earnings                                                         606,412

  Total Stockholders' Equity                                              5,464,174

  Total Liabilities and Stockholders' Equity                            $ 8,292,957
                                                                        ===========



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

                                         2


<PAGE>



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


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


                                                              Three months ended
                                                                 September 30,
                                                             1 9 9 8       1 9 9 7
                                                             -------       -------

<S>                                                        <C>          <C>        
Sales                                                      $2,223,732   $ 2,351,590

Cost of Sales                                               2,132,595     2,022,752
                                                           ----------   -----------

  Gross Profit                                                 91,137       328,838

Selling and Administrative Expenses                           682,940       595,756
                                                           ----------   -----------

  Operating [Loss]                                           (591,803)     (266,918)
                                                           ----------   -----------

Other Income [Expense]:
  Interest Expense - Related Party                            (18,807)           --
  Partnership Loss                                                 --        (3,503)
  Interest Expense                                            (12,543)      (11,197)
  Interest and Income Investment Income                           217        16,616
                                                           ----------   -----------

  Other Income [Expense] - Net                                (31,133)        1,916
                                                           ----------   -----------

  [Loss] Before Income Taxes                                 (622,936)     (265,002)

Federal and State Income Tax [Benefit]                       (200,185)      (82,700)
                                                           ----------   -----------

  Net [Loss]                                               $ (422,751)  $  (182,302)
                                                           ==========   ===========

  Net [Loss] Per Share:
   Basic and Diluted                                       $     (.08)  $      (.04)
                                                           ==========   ===========

  Average Common Shares Outstanding                         5,178,300     4,335,000
                                                           ==========   ===========



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

                                         3

<PAGE>



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


CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 1998.
[UNAUDITED]
------------------------------------------------------------------------------



                                                         Additional                 Total
                             Common Stock      Preferred  Paid-in     Retained   Stockholders'
                          Shares     Par Value   Stock    Capital     Earnings      Equity

<S>            <C>       <C>         <C>       <C>       <C>         <C>          <C>       
Balance - July 1, 1998   5,178,300   $ 10,357  $     --  $4,847,405  $1,029,163   $5,886,925

Net [Loss] for the
 three months ended
 September 30, 1998             --         --        --          --    (422,751)    (422,751)
                         ---------   --------  --------  ----------  ----------   ----------
Balance - September 30,
 1998                    5,178,300     10,357  $     -- $4,847,405   $  606,412   $5,464,174
                         =========   ========  ======== ==========   ==========   ==========




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

                                         4

<PAGE>



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


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


                                                              Three months ended
                                                                 September 30,
                                                             1 9 9 8       1 9 9 7
                                                             -------       -------
Operating Activities:
<S>                                                        <C>          <C>         
  Net [Loss]                                               $ (422,751)  $  (182,302)
                                                           ----------   -----------
  Adjustments to Reconcile Net [Loss] to Net Cash
   [Used for] Operating Activities:
   Depreciation and Amortization                               96,451        76,114
   Amortization of Discount on Note Payable                     5,682            --
   Deferred Income Taxes                                      (18,000)      (10,000)
   Imputed Interest on Note Payable - Related Party                --         3,526
   Loss on Investment in Partnership                               --         3,503
   Interest Income on Note Receivable                              --        (9,347)
   Bad Debt Expense                                             2,500            --

  Changes in Assets and Liabilities:
   [Increase] Decrease in:
     Accounts Receivable                                    1,709,557     1,124,019
     Inventories                                             (225,710)     (792,883)
     Refundable Federal Income Taxes                         (200,000)      (80,000)
     Prepaid Expenses and Other Current Assets                 24,784       108,564
     Security Deposits and Other Assets                        (2,060)     (121,977)

   Increase [Decrease] in:
     Accounts Payable                                      (1,587,938)     (462,388)
     Federal and State Income Taxes Payable                   (40,000)      (40,530)
     Accrued Expenses and Other Liabilities                    68,698       (79,880)
                                                           ----------   -----------

   Total Adjustments                                         (166,036)     (281,279)
                                                           ----------   -----------

  Net Cash - Operating Activities                            (588,787)     (463,581)
                                                           ----------   -----------

Investing Activities:
  Purchase of Property and Equipment                          (82,280)      (22,400)
  Loans to Stockholders'                                      (14,101)           --
  Loan to Related Company                                          --         2,500
                                                           ----------   -----------

  Net Cash - Investing Activities                             (96,381)      (19,900)
                                                           ----------   -----------

Financing Activities:
  Proceeds from Notes Payable                                 520,000            --
  Repayment of Notes Payable                                 (486,477)      (12,244)
                                                           ----------   -----------

  Net Cash - Financing Activities                              33,523       (12,244)
                                                           ----------   -----------

  Net [Decrease] in Cash and Cash Equivalents                (651,645)     (495,725)

Cash and Cash Equivalents - Beginning of Periods              956,403     1,010,256
                                                           ----------   -----------

  Cash and Cash Equivalents - End of Periods               $  304,758   $   514,531
                                                           ==========   ===========


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

                                         5

<PAGE>



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


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


                                                              Three months ended
                                                                 September 30,
                                                             1 9 9 8       1 9 9 7
                                                             -------       -------

Supplemental Disclosures of Cash Flow Information:
  Cash paid during the periods for:
<S>                                                        <C>          <C>        
   Interest                                                $   25,593   $    11,604
   Income Taxes                                            $   50,425   $    62,411



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

                                         6
</TABLE>

<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.  Its 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 three months ended September 30, 1998 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 $93,453 and $73,117 for the three  months ended  September  30, 1998
and 1997,  respectively.  Amortization  of  equipment  under  capital  leases is
included with depreciation expense.

Goodwill - Goodwill,  representing the excess of cost over the fair value of the
net assets acquired of the Company's  principal operating business subsidiary at
its date of its  acquisition  in 1981, is being  amortized  over 40 years on the
straight-line  method.  The Company  carries  its  goodwill  net of  accumulated
amortization of $200,626 and is subject to periodic review for impairment.

Amortization expense was $2,998 for each of the three months ended September 30,
1998 and 1997.

                                        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  of  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  including  goodwill 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
reevaluates the periods of amortization to determine  whether  subsequent events
and circumstances warrant revised estimates of useful lives. As of September 30,
1998, management expects these assets to be fully recoverable.

Advertising - Costs  incurred for producing and  communicating  advertising  are
expensed  when  incurred.  Advertising  expense  was $89,334 and $42,882 for the
three months ended September 30, 1998 and 1997, respectively.

[3] Inventories

Inventories consist of the following at September 30, 1998:

Raw Materials                 $ 2,095,774
Work-in-Process                   770,580
Finished Goods                    881,166
                              -----------

  Total                       $ 3,747,520
  -----                       ===========




                                        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 September 30, 1998:

Leasehold Improvements                            $1,066,416
Machinery and Equipment                            2,341,178
Machinery and Equipment Under Capital Leases         109,545
Transportation Equipment                              36,652

Total                                              3,553,791
Less:  Accumulated Depreciation and Amortization   1,919,602

  Total                                           $1,634,189

[5] Notes Payable

Notes payable are summarized as follows at September 30, 1998:

                                                         Related Party
                                           Notes Payable Note Payable    Total
Notes Payable:
  Bio Merieux Vitek, Inc. (a)               $   58,754   $        --  $   58,754
  President and Chief Executive Officer (b)         --       694,129     694,129
  First Union National Bank:
   Revolving Line-of-Credit (c)                350,000            --     350,000
   Equipment Term Loan (d)                     164,333            --     164,333
                                            ----------   -----------  ----------

  Totals                                       573,087       694,129   1,267,216
  Less:  Current Portion                       399,180            --     399,180
                                            ----------   -----------  ----------

   Noncurrent Portion                       $  173,907   $   694,129  $  868,036
   ------------------                       ==========   ===========  ==========

(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-collaterized  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 the 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 September 30, 1998 was $5,682 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. The
   loan has been guaranteed by the Company's principal stockholder. At September
   30, 1998, the interest rate was 9.25%.




                                        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.  The  loan  has been  guaranteed  by the  Company's
   principal stockholder. At September 30, 1998, the interest rate was 9.75%.

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 September 30, 1998.

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

                                                         Related Party
                                           Notes Payable Note Payable    Total
September 30,
  1999                                      $  399,180   $        --  $  399,180
  2000                                          50,785            --      50,785
  2001                                          52,533       694,129     746,662
  2002                                          42,288            --      42,288
  2003                                          28,301            --      28,301
                                            ----------   -----------  ----------

  Totals                                    $  573,087   $   694,129  $1,267,216
  ------                                    ==========   ===========  ==========

[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
September 30, 1998 had a cost of $109,545  accumulated  depreciation  of $22,361
with a net book value of $87,184

The future minimum lease payments under capital leases and the net present value
of the future minimum lease payments at September 30, 1998 are as follows:

Total Minimum Lease Payments                $  104,900
Amount Representing Interest                   (11,574)
                                            ----------

Present Value of Net Minimum Lease Payments     93,326
Current Portion                                (34,771)

  Long-Term Capital Lease Obligation        $   58,555

[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 September 30, 1998, the
Company's uninsured cash balances totaled  approximately  $268,000.  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 September 30, 1998 is $28,250.

[8] Major Customer

For the three months ended  September 30, 1998 and 1997,  approximately  44% and
39% of revenues were derived from one customer.  The loss of this customer would
have an adverse affect on the Company's operations.  In addition,  for the three
months ended September 30, 1998 and 1997, an aggregate of approximately  19% and
23%, respectively,  of revenues were derived from two other customers;  no other
customers accounted for more than 10% of consolidated sales for the three months
ended  September 30, 1998 and 1997.  Accounts  receivable  from these  customers
comprised  approximately  67% and 64% of total accounts  receivable at September
30, 1998 and 1997, 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, 1998,  provides for a minimum
annual  rental of $60,000 plus payment of all real estate  taxes.  Rent and real
estate tax expense for the three  months  ended  September  30, 1998 and 1997 on
this lease was approximately $20,000 and $29,000,  respectively.  Unpaid rent of
$40,000 due to Gerob at  September  30, 1998 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 three months ended  September 30, 1998 and 1997 on
this lease was approximately $117,000 and $102,000, 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
September 30,                 Commitment    Commitment       Total

   1999                       $   43,023     $ 259,500    $  302,523
   2000                           48,240       346,000       394,240
   2001                           24,717       346,000       370,717
   2002                           16,912       182,609       199,521
   2003                               --            --            --
   Thereafter                         --            --            --
                              ----------     ---------    ----------

   Total                      $  132,892     $1,134,109   $1,267,001
   -----                      ==========     ==========   ==========

Total rent expense,  including real estate taxes and  maintenance  charges,  was
approximately  $137,000 and $122,000  for the three months ended  September  30,
1998 and 1997,  respectively.  Rent expense is stated net of sublease  income of
approximately  $4,000 and $8,000 for the three months ended  September  30, 1998
and 1997, 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.

[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 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.

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 the  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.  The case is currently in the
discovery  stage.  The Company expects that the case will proceed to non-binding
arbitration in January 1999. No estimate can be made at September 30, 1998 as to
the amount, if any, of ultimate recovery.

                                       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 three months ended September 30, 1998 and 1997, by the Company
was $3,300 and $3,000, 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.



                                       13

<PAGE>



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



[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.

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 its  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] Subsequent Events

[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.

[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  on
October 7, 1998.


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

                                       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
financial statements of the Company and notes thereto.

Three months ended September 30, 1998 Compared to September 30, 1997

Results of Operations

The Company's net losses for the three months ended  September 30, 1998 and 1997
were  $(422,751)and  $(182,302)  respectively.  This  increase  in net  loss  of
approximately  $240,000  is  primarily  the result of a $325,000  increase in an
operating loss resulting from a corresponding  $238,000 decrease in gross profit
and an $87,000 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 in the
fourth  quarter of fiscal 1998 in  anticipation  of  increased  orders.  Product
launches  expected for the first  quarter of fiscal 1999 in eastern  Europe were
delayed because of the uncertainties in the European  markets.  The Company does
expect second quarter sales to reflect the product launches.  Bulk manufacturing
sales which carry a lower gross margin were higher than the comparative quarter.

Sales for the three months ended September 30, 1998 and 1997 were $2,223,732 and
$2,351,500,  respectively, a decrease of approximately $128,000 or 5.4% due to a
decrease primarily in mail order sales. For the three months ended September 30,
1998, the Company had sales to one customer,  who accounted for 44% of net sales
in 1998 and 39% in 1997.  The loss of this customer would have an adverse affect
on the Company's operations.

Retail and mail order sales for the first  quarter of 1998  totaled  $198,119 as
compared  to $273,749  for the first  quarter of 1997 a decrease of 27.6% due to
decreased mail order business over the summer months.

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 an initial term
of two years and shall be  renewable  for an  additional  term of one year each.
Sales for the quarter  ended  September  30,  1998 were  $310,021 as compared to
$275,132 for the quarter ended September 30, 1997, an increase of 12.7%.

Cost of sales  increased to $2,132,595 for the first quarter of 1998 as compared
to  $2,022,752  for the first  quarter  of 1997.  Cost of sales  increased  as a
percentage  of sales to 96% for the first quarter of 1998 from 86% for the first
quarter  of  1997.  The  increase  in cost of  sales  is due to an  increase  in
manufacturing costs and an increase in lower margin sales.

Selling and  administrative  expenses for the three months ended  September  30,
1998 were $682,940  versus $595,756 for the same period a year ago. The increase
of  $87,184  was  primarily  attributable  to  an  increase  in  advertising  of
approximately $40,000 over the comparative period last year as the Company tries
to generate new sales and  customers,  including  hiring a consulting  group and
signing a  professional  services  contract  with Allen  Houston of the New York
Knicks to be the Company's  spokesman for its Vitality Medicine line of product.
The Company believes this increased  advertising effort will increase its sales.
There was also, an increase in professional  fees of approximately  $12,000 that
was not indicative in the  comparative  period last year.  The Company  believes
these expenses will stabilize at approximately  $700,000 per quarter, which will
be lower than the comparative quarters in the prior year.

Other income  [expense]  was $(31,133) for the first quarter of 1998 as compared
to  $1,916  for  the  first  quarter  of  1997.  This  decrease  of  $33,049  is
attributable  to an  increase  in  interest  expense of  $20,153,  a decrease in
interest and investment  income of $16,399 and a decrease in a partnership  loss
of $3,503.

                                       15

<PAGE>



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



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
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 the  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.  The case is currently in the
discovery  stage.  The Company expects that the case will proceed to non-binding
arbitration in January 1999. No estimate can be made at September 30, 1998 as to
the amount, if any, of ultimate recovery.

Liquidity and Capital Resources

At September 30, 1998, the Company's  working  capital was $4,326,538 a decrease
of $434,973  over working  capital at June 30, 1998.  Cash and cash  equivalents
were  $304,758 at September  30, 1998 a decrease of $651,645 from June 30, 1998.
The Company  utilized  $588,787 and $463,581 for operations for the three months
ended September 30, 1998 and 1997, respectively.

The primary  reasons for the increase in cash utilized for  operations are (a) a
decrease in accounts receivable of approximately $1,700,000,  (b) an increase in
inventories of  approximately  $225,000,  (c) an increase in refundable  federal
income taxes of $200,000 and (d) a decrease in accounts payable of approximately
$1,600,000.  The  Company  believes  that the  anticipated  sales for the second
quarter of fiscal 1999 will meet the cash needs for  operations in the next nine
months.  During the first quarter of fiscal 1999, the Company had  significantly
paid  accounts  payable from June 30,  1998.  This should not be  indicative  of
future  trends,  as  payables  were up at June 30,  1998 due to an  increase  in
material costs and inventory in anticipation of European sales.  The Company may
also draw on its  available  line of  credit  from the bank.  In  addition,  the
Company is looking for  additional  sources of financing  to meet its  liquidity
needs.

The Company utilized  $96,381 and $19,900 in investing  activities for the three
months ended September, 30, 1998 and 1997,  respectively.  The Company generated
net cash of $33,523 from debt  financing  activities  for the three months ended
September 30, 1998 and utilized  $12,244 in investing  activities  for the three
months ended September 30, 1997.

The Company has a $500,000  revolving line of credit agreement with a bank which
bears  interest at 1.0% above the banks prime  lending  rate and expires on July
27, 1999.  At  September  30, 1998 the balance due under the  revolving  line of
credit was $350,000.  The Company has additionally secured a five year equipment
term loan with  interest  at 1.5%  above  the  bank's  prime  lending  rate.  At
September  30, 1998 the balance due under the equipment  loan was $164,333.  The
Company was not in  compliance  with its debt coverage  ratio on a  consolidated
basis at September 30, 1998.

The Company's total annual  principal  commitments at September 30, 1998 for the
next five years of $1,267,001 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.



                                       16

<PAGE>



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


Liquidity and Capital Resources [Continued]

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 1998 at a cost of approximately  $20,000, whose hardware and software
is Y2K  compliant.  New  manufacturing  software  will be purchased at a cost of
approximately  $32,000.  The  Company  is  still  researching  various  software
programs,  and  anticipates  having a new  manufacturing  program up and running
before June 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  intends to  simultaneously  run its
existing manufacturing program which is independent with its new computer system
to be sure of no disruption in business. The Company does not expect the amounts
required to be expended over the next fifteen  months to have a material  effect
on its financial  position or results of operations.  The amount  expended as of
September 30, 1998 was $2,248.

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 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 its  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.

Impact of Inflation

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

                                       17

<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

            None

                                       18

<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: November 12, 1998            By:/s/ E. Gerald Kay                      
                                      E. Gerald Kay,
                                       President and Chief Executive Officer

Date: November 12, 1998            By:/s/ Eric Friedman                      
                                      Eric Friedman,
                                       Chief Financial Officer

                                       19

<PAGE>