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

                                    FORM 10-K

[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
                                 ACT OF 1934
                                      OR
  [   ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
                            EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1998     Commission File Number 1-6787

                           HEALTH-CHEM CORPORATION
           (Exact name of registrant as specified in its charter)

                 Delaware                          13-2682801
       (State of Incorporation)     (I.R.S. Employer Identification Number)

                460 Park Avenue, Suite 1300, New York, NY  10022
                     (Address of principal executive offices)

                   Registrant's Telephone Number: 212-751-5600

           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

                                        None


            SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                           Common Stock, $.01 Par Value

                           10.375% Convertible Subordinated
                           Debentures due April 15, 1999


Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.  [ X ]

Indicate by check mark whether the registrant has: (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, Yes     No  X ; and (2) has been subject
to such filing requirements for the past 90 days. Yes  X    No

As of August 31, 1999, 7,665,018 shares of the registrant's Common Stock were
outstanding.  The aggregate market value of the Common Stock (based on the
closing price on such date) held by non-affiliates was approximately $101,000.

                      DOCUMENTS INCORPORATED BY REFERENCE

                                    None

The Exhibit Index appears on page 64.




<PAGE>
<PAGE>
____________________________________________________________________________

FORM 10-K                                                             PART I
____________________________________________________________________________


ITEM 1. BUSINESS

Health-Chem Corporation is a Delaware corporation and, effective August 19,
1999, conducts its business primarily through its 90%-owned subsidiary,
Transderm Laboratories Corporation ("Transderm").  Unless the context
otherwise requires, the term "Company" includes Health-Chem Corporation and
its subsidiaries.  The Company's executive offices are located in New York,
New York.

The Company develops, manufactures and distributes products relying on or
derived from laminated or coated films.  In November 1998, the Company adopted
a plan to discontinue the operations of its wholly-owned Pacific Combining
Corporation subsidiary ("Pacific"), a synthetic fabric manufacturer located in
Los Angeles, California.  Until August 19, 1999, the Company's products fell
into several categories: controlled release dispensers for pharmaceuticals and
over-the-counter pharmaceutical and cosmetic products (Transderm); reinforced
synthetic fabrics for industrial and health care use Herculite Products, Inc.
("Herculite"));and controlled release dispensers for environmental chemicals
(Hercon Environmental Corporation ("Hercon Environmental")). On August 19,
1999, the assets of Herculite and Hercon Environmental were sold to Aberdeen
Road Company.  For additional information with respect to discontinued
operations, see Note 14 to the Consolidated Financial Statements.

TRANSDERM

Transderm owns 98.5% of Hercon Laboratories Corporation ("Hercon
Laboratories"), which develops and manufactures controlled release products
for the pharmaceutical industry, at Transderm's Pennsylvania facility, to
deliver a variety of drugs topically or transdermally.  Many medications can
be administered to or through a patient's skin at precise rates from small,
adhesive patches.  Some of the  advantages of controlled release dispensers
are steady dose rates and reduced dosage frequency.  They also can be used for
oral, buccal and subdermal delivery of medication.

Since 1986, Hercon Laboratories has manufactured a transdermal nitroglycerin
patch which was the first such product introduced for the generic market in
the U.S.  This product is used for transdermal relief of vascular and
cardiovascular symptoms related to angina pectoris.  The Company sells the
transdermal nitroglycerin patch to pharmaceutical companies who distribute it
in the United States and in Europe.

On October 30, 1998, the Company received United States Food and Drug
Administration ("FDA") approval for its improved nitroglycerin patches which
have been rated by the FDA as an accepted generic alternative to Novartis
Pharmaceutical Corporation's Transderm Nitro(R) products.  The Company is
currently not commercially exploiting its newly-approved nitroglycerin
products as a result of an unfavorable decision in the Company's litigation
with Key Pharmaceuticals, Inc.  See "Item 3. Legal proceedings".

In March 1999, the Federal Register published a Notice containing a proposal
by the FDA to withdraw approval of a number drug applications relating to
transdermal nitroglycerin products, including the Company's product which it
has manufactured and marketed since 1986 (the "NTS Product"). In May 1999, the
Company filed a detailed submission of data, information and analyses in
support of its contention that the FDA's proposed actions are factually and

<PAGE>
legally baseless and that the Company is entitled as a matter of law to
summary judgment in its favor and rescission of the Notice. The Company also
submitted a timely request for a hearing in accordance with the Notice and FDA
regulations in the event the Notice is not rescinded or that summary judgment
is not granted in favor of the Company. To date, there has been no action
taken by the FDA in respect of the Notice or the Company's submission. There
can be no assurance that the Company will be successful in obtaining any of
the relief sought in its submission. If the FDA rejects the Company's
contentions, the FDA could at that time decide without further proceedings to
withdraw the approval of the NTS Product. In that event, unless either the FDA
or an appropriate United State Court of Appeal were to stay the FDA action,
the Company would be precluded from continuing to manufacture and market the
NTS Product. Such a development would have a material adverse impact on the
business of the Company.

Since 1998, the Company has manufactured over-the-counter pharmaceutical and
cosmetic products which are used to clean facial pores.  These deep cleansing
facial pore strips are designed to remove clogged dirt, oil and blackheads
from the nose, chin, forehead and anywhere else on the face that needs deep
cleaning.  The Company has sold these products for distribution in the United
States, Canada and certain other foreign countries.

In addition to its nitroglycerin transdermal products, the Company is also
developing transdermal products for hormone replacement therapies.  The
Company has additional products in early development and is conducting a
number of feasibility studies on drugs to be developed independently or for
client companies.  There can be no assurance that FDA filings for any
additional products will be effected or that FDA approval for any additional
products will be obtained.

RESEARCH AND DEVELOPMENT

The Company's pharmaceutical research and development laboratory facilities
are maintained at Transderm's York, Pennsylvania facilities.  Independent
laboratories are engaged for special projects.  The Company currently utilizes
the skills of 6 full-time employees with varying technical backgrounds,
including pharmaceutics and pharmaceutical sciences, to conduct its research
and development efforts.  See the Consolidated Statements of Operations for
the amount of research and development costs incurred during 1998, 1997 and
1996.

MANUFACTURERS; SUPPLY

The Company manufactures its products at a fully-equipped, state-of-the-art
facility in York, Pennsylvania.  The Company's products are manufactured in
accordance with Good Manufacturing Practices ("GMP") prescribed by the FDA.

The manufacture of advanced transdermal drug delivery systems requires
specialized skills in several areas, as well as specialized manufacturing
equipment.  The Company's process development and design engineers work
closely with the research and development department starting early in the
product design stage, resulting in efficiencies in the manufacturing
development process.  All scale up work, commencing with initial product
development trials, is conducted on full-size, completely functional
manufacturing equipment, reducing delays in the development and approval
process and smoothing the transition to commercial production.  Some of this
equipment is manufactured in-house; the balance is fabricated by outside
manufacturers to the Company's specifications.  The Company believes that this
equipment provides a decided advantage in the manufacture of the complex
multi-layer systems necessary for successful transdermal drug delivery.  The
Company currently has assembly packaging equipment in place having a single

<PAGE>
shift capacity of over 35 million patches annually.  Additional equipment has
been qualified to increase this capacity to over 70 million patches and
support the market introduction of the Company's next generation of
nitroglycerin patches.  In addition to the above equipment, the Company
purchased and placed into service die cutting and packaging equipment for pore
strip production with an annual single shift capacity of over 30 million
units.  Due in large part to the unfavorable decision in the Company's
litigation with Key Pharmaceuticals, Inc., as of the date of this report, the
Company's manufacturing facility is operating significantly below capacity.
See "Item 3. Legal Proceedings" and "Item 7. Management's Discussion and
Analysis of Financial Conditions and Results of Operations".  The Company
believes that its current approximately 61,000 square foot plant will be
sufficient for product expansion for the foreseeable future.

As part of the manufacturing process, the Company has developed and performs
appropriate quality control procedures including testing of all raw materials
and finished product.

Several raw materials used in the manufacture of the Company's products are
available from only a single source.  These materials have generally been
available to the Company and the pharmaceutical industry on commercially
reasonable terms.  To date, the Company has not experienced difficulty
acquiring necessary materials.  The Company plans to negotiate supply
agreements, as appropriate, for certain components.  Any interruption of
supply could have a material adverse effect on the Company's ability to
manufacture its products.

COMPETITION

The Company's primary competitors that develop and/or manufacture transdermal
drug delivery systems include Alza Corporation, Elan Corporation, plc, Ethical
Holdings, PLC, Mylan Laboratories Inc., Novartis Pharmaceuticals Corp., Noven
Pharmaceuticals, Inc. and Schering-Plough Corporation.  The Company's primary
competitors that develop and/or manufacture deep cleansing facial pore strips
are The Andrew Jergens Company and Chesebrough-Pond's USA Company.  These
companies have substantially greater financial resources and larger research
and development staffs than the Company, and may have substantially greater
experience in developing products, in obtaining regulatory approvals and in
manufacturing and marketing pharmaceutical and cosmetic products.  Many other
pharmaceutical companies have the financial resources to acquire the skills
necessary to develop transdermal systems.

The Company's transdermal products also compete with drugs marketed in
traditional dosage forms, including oral doses, injections and continuous
infusion.  New drugs, new therapeutic approaches or further developments or
innovations in alternative drug delivery methods, such as time release
capsules, liposomes and implants, may provide greater therapeutic benefits for
a specific indication or may offer comparable performance at lower cost, than
those offered by the Company's current transdermal drug delivery systems.
There can be no assurance that the Company will successfully develop
technologies and products that are more effective or affordable than those
being developed by its competitors.  In addition, one or more of the Company's
competitors may achieve product commercialization or obtain patent protection
earlier than the Company.  Competitive products have either been approved or
are being developed for most of the Company's current or development stage
products.  The first product to reach the market in a therapeutic area often
has a significant competitive advantage relative to later entrants to the
market.  The Company's pore strip products also compete in a highly
competitive market.  Competitive pore strip products were introduced to the
market earlier than the Company's products.  There can be no assurance that
product introductions or developments by others will not render the Company's

<PAGE>
products or technologies non-competitive or obsolete.

The Company expects products approved for sale to compete primarily on the
basis of product efficiency, safety, patient convenience, reliability,
availability and price.  The Company's competitive position will also depend
on its ability to attract and retain qualified scientific and other personnel,
develop effective proprietary products, implement production and marketing
plans, effect distribution of its products, obtain patent protection and
secure adequate capital resources.

PATENTS AND PROPRIETARY RIGHTS

The Company has obtained various U.S. and foreign patents and trademarks
(which expire from time to time) for certain of its products and processes.
While it is the Company's view that these patents and trademarks are a
valuable asset, the Company does not consider any single patent or trademark
to be of material importance to its business as a whole.  The Company
continues to seek patent and trademark protection for its proprietary
technologies and products as it believes is appropriate in the U.S. and
abroad.  Except for the litigation matter with Key Pharmaceuticals, Inc.
described below under "Item 3. Legal Proceedings", the Company currently is
not aware of any claims of infringement against its products or technologies.

There can be no assurance that any of the Company's patents will provide
proprietary protection or be circumvented or invalidated. The Company may be
required or may desire to obtain licenses from others to develop, manufacture
and market commercially viable products. There can be no assurance that such
licenses will be obtainable on commercially reasonable terms, if at all, or
that any licensed patents or proprietary rights will be valid and enforceable.

The Company also relies upon unpatented trade secrets. No assurance can be
given that others will not independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to the
Company's trade secrets or disclose such technology, or that the Company can
meaningfully protect its right to unpatented trade secrets.

It is Company policy to require its key employees, consultants and other
advisors to execute confidentiality agreements. There can be no assurance,
however, that these agreements will provide meaningful protection or adequate
remedies for the Company's trade secrets in the event of unauthorized use or
disclosure of such information.

GOVERNMENT REGULATION; ENVIRONMENTAL MATTERS

The research and development, manufacture and marketing of cosmetics and drug
delivery systems are subject to regulation by the FDA in the United States and
by comparable authorities in other countries.  These national agencies and
other federal, state and local entities regulate, among other things, research
and development activities and the testing, manufacturing, safety,
effectiveness, labelling, storage, record keeping, approval, advertising and
promotion of the Company's products.  The regulations and statutes applicable
to the Company's drug products may change as the currently limited number of
approved transdermal drug delivery products increases and regulators acquire
additional experience in this area.

Each domestic drug product manufacturing establishment must be registered with
and inspected by the FDA.  Drug product manufacturing establishments located
in Pennsylvania must be registered with the Pennsylvania Department of Health.
Establishments handling controlled substances must be licensed by the United
States Drug Enforcement Administration ("DEA").  Domestic drug and cosmetic
manufacturing establishments are subject to periodic inspections by the FDA

<PAGE>
for GMP compliance.

Sales of the Company's products outside the United States are subject to
regulatory requirements governing human clinical trials and marketing approval
for drugs and transdermal delivery systems.  These requirements vary widely
from country to country.

There can be no assurance that problems will not arise that could delay or
prevent the commercialization of the Company's products, or that the FDA and
foreign regulatory agencies will be satisfied with the results of the clinical
trials and approve the marketing of any products.

The Company is also subject to regulation under U.S. federal, state and local
regulations regarding work place safety, environmental protection and
hazardous and controlled substance controls, among others.

The Company does not believe that compliance by it with federal, state or
local laws and regulations which have been enacted or adopted regulating the
discharge of materials into the environment or otherwise relating to the
protection of the environment has or will have any material effect upon the
capital expenditures, earnings or competitive position of the Company.  There
can be no assurance, however, (i) that changes in federal, state or local laws
or regulations, changes in regulatory policy or the discovery of unknown
problems or conditions will not in the future require substantial
expenditures, or (ii) as to the extent of the Company's liabilities, if any,
for past failures, if any, to comply with laws, regulations and permits
applicable to its operations.

BACKLOG;  SEASONALITY

The Company's backlog orders usually do not exceed 60 days.  Neither the
backlog nor the Company's operations are subject to substantial seasonal
variations.

CUSTOMERS;  GOVERNMENT CONTRACTS

Currently, the Company sells its transdermal nitroglycerin patches to one
customer for distribution in the United States and to one customer for
distribution in Spain.  The Company has sold its over-the-counter
pharmaceutical and cosmetic pore strip products to two customers for
distribution in the United States, Canada and certain other foreign countries.

Sales of transdermal nitroglycerin patches to  Watson Laboratories, Inc. and
Warner Chilcott Laboratories and sales of over-the-counter pharmaceutical and
cosmetic products to Revlon Consumer Products Corporation each accounted for
10% or more of total revenues for the year ended December 31, 1998.  See Note
1a of the Notes to Consolidated Financial Statements included below under
"Item 8. Financial Statements" for (i) the percentage of sales to each major
customer who was responsible for 10% or more of total revenues during 1998,
1997 and 1996 and (ii) foreign sales during the same three years.

The Company does not currently sell, nor has it in the preceding three years
sold, any of its products under government contracts.

EMPLOYEES

The Company employs approximately forty-two employees, of whom nine are
covered by a collective bargaining agreement with a local unit of the Retail
Wholesale and Department Store Union, AFL-CIO ("R.W.D.S.U.").  The R.W.D.S.U.
agreement is for a three year period ending December 10, 2001.  The contract
is subject to annual renewal thereafter.  The Company believes its relations
with employees are good.

<PAGE>
<PAGE>
ITEM 2.  PROPERTIES

The following table lists the principal facilities owned or leased by the
Company as of August 31, 1999.  In the opinion of management, the facilities
are adequate for their purposes.
                                Lease
                    Approx.     Expiration
Location            Sq. Ft.       Date               Use

New York, NY            5,000        2/04       Executive offices

York, PA               61,000       (owned)     Pharmaceutical production,
                                                warehouse, research
                                                facility & office


ITEM 3.  LEGAL PROCEEDINGS

(a)  In August 1995, Key Pharmaceuticals, Inc., a subsidiary of Schering-
Plough Corporation ("Key"), commenced an action against Hercon Laboratories in
the United States District Court for the District of Delaware ("Delaware
District Court") alleging that Hercon Laboratories' submission to the United
States Food and Drug Administration ("FDA") of three Abbreviated New Drug
Applications ("ANDAs") relating to some of Hercon Laboratories' transdermal
nitroglycerin products, for which Hercon Laboratories has applied for FDA
approval, constituted infringement of Key's patent for its Nitro-Dur(R)
products.  Key sought certain injunctive relief, monetary damages if
commercial manufacture, use or sale occurs, and a judgment that the effective
date for FDA approval of the above-referenced ANDAs be not earlier than
February 16, 2010, the expiration date of Key's patent.  Hercon Laboratories
denied the material allegations of the complaint, asserting, among other
things, that the Key patent is invalid and unenforceable and that Hercon
Laboratories had not infringed and did not infringe any claim of the patent.
Hercon Laboratories counterclaimed against Key for declaratory judgment of
patent noninfringement, invalidity and unenforceability.  On September 30,
1997, the Delaware District Court ruled in favor of Key on its infringement
claim and on Hercon Laboratories' claim that Key's patent is invalid and
unenforceable.  On December 17, 1997, the Delaware District Court issued an
injunction, enjoining Hercon Laboratories, except as provided for by statute,
from making, using, offering for sale, selling or importing any transdermal
nitroglycerin patches that have been found to infringe claim 14 of Key's
patent, before the expiration of Key's patent on February 16, 2010.  In
November 1998, the United States Court of Appeals for the Federal Circuit in
Washington, D.C. (the "CAFC") affirmed the Delaware District Court's ruling in
favor of Key.  In January 1999, the CAFC denied Hercon Laboratories' petition
for rehearing of its appeal.  Hercon Laboratories is currently reviewing its
options with respect to the manufacture and marketing of its improved
nitroglycerin patches.

(b)  In October 1995, Gershon Yormack, a stockholder of the Company, initiated
an action against the Company, its directors and Transderm in the Delaware
Chancery Court (New Castle County) in which he sought injunctive and
declaratory relief with respect to certain options to purchase Transderm
common stock granted to each of Marvin M. Speiser, the Company's Chairman of
the Board and President, and Robert D. Speiser, the Company's Executive Vice
President.  Pursuant to Employment Agreements entered into in April 1995, in
November 1995 the Company caused Transderm to issue an option to purchase
shares of Transderm's common stock at an exercise price of $.10 per share to
each of Marvin M. Speiser and Robert D. Speiser ("the Options").  The
plaintiff alleges that this price for Transderm common stock offered by the
Company to stockholders under a registered subscription rights offering (via

<PAGE>
a prospectus dated September 18, 1995) was substantially less than the fair
market value of such Transderm common stock.  In November 1998, the court
approved a settlement reached between the plaintiff and the defendants
pursuant to which the defendants neither admitted nor denied any wrongdoing or
liability.  The material terms of the settlement were that:  (i) the exercise
price of the Options was increased to an average of $0.15 per share; (ii) the
Company and Robert D. and Marvin M. Speiser agreed that no additional options
to purchase Transderm stock will be issued to the Speisers during the term of
the Options; (iii) the Speisers will not exercise the Options before April 4,
2000, unless there is a transaction in which Transderm is acquired, in which
case the number of Options exercisable will be limited to 20% of the total
Options for each year that has passed subsequent to their authorization; (iv)
the action was dismissed, with prejudice, thereby releasing defendants from
liability for all claims which were or could have been asserted in the action;
and (v) plaintiff's counsel received fees and expenses in the amount of
$70,000 which were paid by the Company.

In August 1999, Andy E. Yurowitz, a stockholder of the Company, initiated an
action against the Company and its directors in the Court of Chancery of the
State of Delaware in and for New Castle County, in which he sought to
summarily direct the prompt holding of a meeting of the Company's stockholders
pursuant to Court supervision.  In connection with this action, Yurowitz also
sought to enjoin the sale of assets by the Company's subsidiaries Herculite
Products, Inc. and Hercon Environmental Corporation (the "Asset Sale").  On
August 13, 1999, Yurowitz and the Company entered into a stipulation (the
"August Stipulation") wherein, among other things: (i) Yurowitz agreed to
withdraw his motion for injunctive relief and to take no steps to interfere
with or impede the consummation of the Asset Sale; and (ii) the Company agreed
to provide Yurowitz with prior notice before entering into and/or consummating
any extraordinary corporate transaction requiring approval of the Company's
Board of Directors in advance of the Meeting.

On October 27, 1999, the Company and Yurowitz entered into a further
stipulation amending the August Stipulation with respect to such litigation
(the "October Stipulation") which provides, among other things, that: (i) the
Company will provide two business days' notice of any extraordinary corporate
transaction requiring the approval of the Company's Board of Directors; (ii)
the Company will mail on behalf of Yurowitz and at his expense any soliciting
materials prepared by Yurowitz; (iii) Yurowitz shall reduce from nine to six
persons nominated by him for election as directors at the Meeting; and (iv)
Yurowitz shall not solicit or encourage an involuntary bankruptcy petition
naming the Company as debtor.

On November 18, 1999, Yurowitz and the Company entered into a Supplemental
Stipulation (the "Supplemental Stipulation") which provides that: (i)
notwithstanding prior agreement that the Company would convene its annual
meeting on December 1, 1999, the Company shall convene its annual meeting on
December 10, 1999; and (ii) Yurowitz shall not initiate any action to compel
production of a 1996 NOBO list.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.


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<TABLE>


FORM 10-K                                                            PART II



ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS


The Company's Common Stock is currently traded in the over-the-counter (OTC)
market.  Until April 8, 1999, the Company's Common Stock was traded on the
American Stock Exchange, Inc. under the symbol HCH. In April 1999, the
Exchange moved to delist the Company's securities for failure to meet the
Exchange's continued listing guidelines and the Company's securities were
delisted in May 1999. Since April 1999, prices for the Company's Common Stock
may be obtained from the National Quotation Bureau which publishes The Pink
Sheets, a daily list/quotation service that collects and redistributes market
maker quotes in OTC securities issued by corporations whose shares do not
trade on major exchanges.  Such quotations reflect inter-dealer prices,
without retail markup, markdown or commission, and may not represent actual
transactions.

The following information indicates the range of sale prices at which the
Company's Common Stock traded on the American Stock Exchange, Inc. during the
two years ended December 31, 1998:

                             1998                     1997
            <S>         <C>      <C>              <C>     <C>
            QUARTER      High     Low             High     Low
            1st         $ .688   $.438           $1.188   $.75
            2nd          1.938    .563             .938    .688
            3rd          1.938    .875             .938    .75
            4th          1.625    .563            1.000    .50
</TABLE>

There were approximately 1,320 holders of record of the Company's Common Stock
as of August 31, 1999.

The Company has not paid cash dividends on its Common Stock during the five
years ended December 31, 1998.  See Note 4 to the Consolidated Financial
Statements concerning restrictions on the payment of dividends.

<PAGE>
<PAGE>
<TABLE>
ITEM 6.  SELECTED FINANCIAL DATA (In thousands, except per share data)



                                           Year Ended December 31,
                                  1998     1997     1996     1995     1994
<S>                            <C>      <C>      <C>      <C>      <C>
Net sales                      $ 6,907  $ 5,299  $12,146  $12,495  $12,104

<Loss> income from continuing
 operations                     <6,482>  <4,878>  <2,042>    <399>  <1,073>

<Loss> income from discontinued
 operations                     <4,160>   1,602      710      102    2,488

<Loss> income before
  extraordinary <loss> gain   $<10,642> $<3,275> $<1,327> $  <297> $ 1,415

Extraordinary <loss> gain from
  repurchase of subordinated
  debentures                        <3>      17        5        7        5

NET <LOSS> INCOME             $<10,645> $<3,258> $<1,322> $  <290> $ 1,420


Earnings per common share (basic & diluted):

Continuing operations          $  <.81> $  <.61> $  <.26> $   .04  $  <.03>

Discontinued operations           <.52>     .20      .09     <.08>     .21

Extraordinary <loss> gain from
  repurchase of subordinated
  debentures                       .00      .00      .00      .00      .00

NET <LOSS> INCOME PER SHARE    $ <1.33> $  <.41> $  <.17> $  <.04> $   .18

Dividends per share            $     0  $     0  $     0  $     0  $     0

Total assets                   $23,928  $29,936  $32,413  $33,653  $32,177

Long-term debt (including
 current portion)              $18,022  $17,765  $16,483  $17,616  $15,358
</TABLE>


[FN]
See Item 7 and Item 8 herein for more detailed financial information.

<PAGE>
<PAGE>
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS


In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, the Company provides the following cautionary
remarks regarding important factors which, among others, could cause future
results to differ materially from the forward-looking statements, expectations
and assumptions expressed or implied herein.  The following discussion
includes certain forward-looking statements.  Such forward-looking statements
are subject to a number of factors, including material risks and
uncertainties, including those referred to herein and in the Company's Reports
on Form 10-Q, which could cause actual results to differ materially from the
forward-looking statements.

Since late November 1998, the make-up of the Company has changed dramatically.
Operations of the Company's Pacific subsidiary located in Los Angeles,
California were discontinued in accordance with a plan adopted by management
in November 1998. In response to pressing needs for funds to satisfy debt
service obligations, a financial advisory firm was retained late in 1998 to
assist in restructuring some or all of the Company's financial obligations.
It was ultimately determined to realize the value of the Herculite and Hercon
Environmental subsidiaries through a sale of assets. A sale of the assets of
these businesses and the assumption by the buyer of certain related
liabilities was completed on August 19, 1999. Funds received from the sale of
these assets have primarily been used to pay off amounts outstanding under the
term loan and line of credit with IBJ Whitehall Business Credit Corporation
and to make a $1.9 million payment on the Company's $8.0 million outstanding
subordinated debentures which matured on April 15, 1999. These actions have
provided management with some additional time to take action to attempt to
increase cash flow from operations and to secure new funding sources to enable
the Company to continue operating.

The Company's ability to repay the balance due on its subordinated debentures
and the viability of the Company are dependent upon its ability to generate
cash in flows sufficient to sustain operations by increasing sales of existing
products, to introduce commercially viable new products based on similar
technology and to more fully utilize its existing manufacturing capacity.
Although the Company has a competitive design for its transdermal
nitroglycerin products that were approved by the FDA in 1998, it has not sold
such patches due to the result of litigation with Key Pharmaceuticals, Inc.
discussed in Item 3 of this report.  Arrangements that would allow for the
production and sale of the improved patch are being pursued but there can be
no assurance that such efforts will be successful. Sales of the Company's pore
strip products have also declined. Management cannot predict if or when sales
of its pore strip products may recover. Research and development activities
are ongoing but there can be no assurance that commercially viable products
will be developed.

Under the terms of the subordinated debenture indenture between the Company
and Bankers Trust Company as indenture trustee ("the Trustee"), the Trustee
can institute any action or proceeding at law or in equity for the collection
of the sums due and unpaid.  No forebearance has been offered by the Trustee
that it will abstain from exercising such rights.  In the circumstances, the
Company is not able to meet its payment obligations and does not have in place
an effective plan to mitigate such conditions.  In compliance with generally
accepted accounting principals, the Company's Statement of Assets and
Liabilities as at December 31, 1998 has been presented on a liquidation basis.
Accordingly, the net assets of the Company as of that date are stated at
liquidation value whereby assets are stated at their estimated net realized
values and liabilities, which include estimated liquidation expenses

<PAGE>
representing certain corporate expenses that would continue to be incurred
through the date of the dissolution of the Company, are stated at their
anticipated settlement amounts.  Estimates used in the liquidation basis of
accounting are forward-looking statements within the meaning of Section 21E of
the Securities Exchange Act of 1934.  There are a number of important factors
that could cause actual results to differ from these estimates.

As of August 31, 1999, the Company and its subsidiaries entered into two
agreements with the Trustee.  Under a Security and Pledge Agreement, a
security interest in the $550,000 escrow deposit created at the closing of the
sale of assets of Herculite and Hercon Environmental on August 19, 1999 was
granted in favor of debentureholders.  Pursuant to a second agreement with the
Trustee, the Company and its subsidiaries agreed: (i) to exercise their best
efforts to effect a repayment plan to pay the debentures at the earliest
practical date; (ii) that pending a repayment plan, they will not make any
payments to insiders except for salaries and benefits due and becoming due to
them and that insiders can receive pari passu payments on debentures they
hold; and (iii) to give the Trustee not less than two business days' notice
before engaging in any extraordinary transactions.

The consolidated statement of assets and liabilities of the Company as of
December 31, 1998 and the consolidated statements of operations and cash flow
for the three years then ended have been reclassified to report the net assets
and results of operations of Pacific, Herculite and Hercon Environmental as
discontinued operations in accordance with generally accepted accounting
principles. Accordingly, the consolidated results of continuing operations
reflect primarily the results of operations of the remaining operating
subsidiary, Transderm.

Results of Operations

The information in the following paragraph is provided due to the timing of
filing this Form 10-K:

Net sales of $3.6 million for the nine months ended September 30, 1999 were
approximately  $1,268,000 lower than net sales in the same period in 1998, due
primarily to lower domestic sales volumes of transdermal nitroglycerin
patches.  Gross profit for the nine months ended September 30, 1999 was
approximately $715,000 lower than gross profit in the same period in 1998.
Gross profit as a percentage of sales declined approximately 32.6% for 1999
from 38.8% for 1998.

Year ended December 31, 1998 versus December 31, 1997

Net sales with respect to continuing operations increased $1.6 million, or 30%
to $6.9 million for the twelve months ended December 31, 1998 as compared to
$5.3 million for the same period for 1997. The sales increase consists of a
$1.4 million increase in volume and $.2 million in higher selling prices.
Volume increased due to initial sales of over-the-counter pharmaceutical and
cosmetic pore strip products of $2.4 million, partially offset by decreases in
sales of transdermal nitroglycerin patches of $.8 million.  The transdermal
nitroglycerin patch sales decrease is due primarily to lower domestic sales
volumes.  Transderm received FDA approval in October 1998 for its improved
nitroglycerin patches which have been rated by the FDA as an accepted generic
alternative to Novartis Pharmaceutical Corporation's Transderm Nitro(R)
products.  However, the Company is not commercially exploiting its newly-
approved nitroglycerin products due to  the unfavorable decision in the
Company's litigation with Key Pharmaceuticals, Inc. (the "Key Litigation").
(See Note 8 to the Consolidated Financial Statements.)



<PAGE>
Gross profit with respect to continuing operations increased $30,000, or 1.3%,
to $2.4 million for the twelve months ended December 31, 1998 as compared to
the same period in 1997.  Gross profit as a percent of sales was 34.3% for the
twelve months ended December 31, 1998 and 44.1% for the same period in 1997.
This increase was due primarily to initial sales of over-the-counter
pharmaceutical and cosmetic pore strip products. The decrease in the gross
profit percent resulted from a change in product mix from higher to lower
margin business. Selling, general and administrative expenses decreased $7,000
for the twelve months ended December 31, 1998 as compared to the corresponding
period in 1997, due primarily to lower payroll-related expenses.

Legal expenses increased $155,000 for the twelve months ended December 31,
1998 as compared to the same period in 1997.  The increased legal expenses
relate to activity associated with the Key Litigation and to an award of fees
and expenses in connection with the dismissal of a derivative action.

Research and development expense decreased $1.3 million for the twelve months
ended December 31, 1998 as compared to the same period in 1997.  Payroll-
related expenses decreased $.4 million, reflecting on organizational
restructuring, and outside clinical testing and clinical materials expenses
decreased a combined $.9 million. Management expects research and development
expenses to continue to decline through 1999.

Net interest expenses increased $.2 million for the twelve months ended
December 31, 1998 as compared to the same period in 1997 because the amount of
debt outstanding during the year and the interest rates on that debt were
marginally higher in 1998.

Other income - net increased $.2 million for the twelve months ended December
31, 1998 as compared to the same period in 1997, due primarily to recording
approximately $.2 million related to development work income.

The Company reported a $1,622,000 tax provision on a $4.9 million loss from
continuing operations for the twelve months ended December 31, 1998 as
compared to a $1.2 million tax benefit on a $6.1 million loss from continuing
operations in 1997.  The loss from continuing operations decreased to $4.9
million in 1998 from $6.1 million in 1997 primarily due to reducing research
and development expenses 1998.

Income tax provision or benefit varies with the amount and nature of the
components of income or loss from operations before income taxes.  In 1998,
the $1,622,000 tax provision consisted of recording a $1,892,000 valuation
allowance for a deferred tax asset which was partially reduced by state tax
refunds of $27,000 and a decrease in a long-term liability of $243,000,
originally established to provide for potential state tax audit adjustments.
Management evaluates the adequacy of such liabilities periodically, and in
1998 determined that due to the sale of assets of Herculite and Hercon
Environmental in August of 1999 a valuation allowance of $1,892,000 would be
required since the tax planning strategy supporting such deferred tax asset
was no longer applicable.  Regarding the $243,000 liability, the tax years in
question were no longer open, therefore,  liability was no longer required and
was reversed to income.  The Company's tax planning strategy, in conjunction
with other deferred tax liabilities, permitted the recognition of deferred tax
assets in the amount of $1,892,000 at December 31, 1997. A valuation allowance
of $4,574,000 has been provided to offset all current year activity related to
temporary differences and tax benefits from current year losses.  (See Note 12
to the Consolidated Financial Statements for further information of taxes on
income for 1998 and 1997.)

The reported loss from operations of discontinued businesses represents the
losses of Pacific of $5.3 million in 1998, including $664,000 of write-off

<PAGE>
relating to goodwill, and $1.2 million in 1997, offset by the income for the
operations of Herculite and Hercon Environmental of $1.6 million in 1998 and
$1.4 million in 1997. The reported loss of $0.5 million on the disposal of
discontinued operations in 1998 represents a write-down of the recorded values
of equipment, leasehold improvements beyond fair market value, accounts
receivable, inventory, accounts payable and includes overhead expenses for
Pacific through July 1999. Similar adjustments to the working capital and
fixed assets of Herculite and Hercon Environmental were not necessary because
the assets were sold above their recorded values.  (See Note 14 to the
Consolidated Financial Statements).

Year ended December 31, 1997 versus December 31, 1996

Net sales decreased $6.8 million, or 56% to $5.3 million in 1997 from $12.1
million in 1996. Sales of transdermal nitroglycerin patches, manufactured and
marketed by Transderm's subsidiary Hercon Laboratories, decreased due
primarily to the absence of sales to a former domestic distributor and current
competitor of Transderm who accounted for approximately 38% of Transderm's
sales for the year ended December 31, 1996.  Sales to both of Transderm's
domestic distributors of nitroglycerin patches in 1997 also decreased during
1997 as compared to 1996.  During the first half of 1997, in anticipation of
increased market pressures and delays in approvals from the FDA for the sale
of new nitroglycerin patches, the Company undertook an organizational
restructuring which reduced annual payroll-related expenses by $1.0 million.

Gross profit decreased $4.8 million, or 67%, to $2.3 million for the twelve
months ended December 31, 1997 as compared to $7.1 million for the same period
in 1996.  Gross profit as a percent of sales was 44.1% for the twelve months
ended December 31, 1997 and 58.9% for the same period in 1996. The decrease in
gross profit was due primarily to decreased domestic sales volumes of higher
margin products.  Plant overhead decreased $630,000, including a $450,000
decrease in payroll-related expenses.

Selling, general and administrative expenses declined slightly in 1997
compared 1996 due primarily to lower payroll expenses.

Legal expenses decreased $2.2 million for the twelve months ended December 31,
1997 as compared to the same period in 1996. This decrease in legal expenses
was due primarily to reduced activity associated with the Key Litigation (See
Note 8 to the Consolidated Financial Statements).

Research and development expenses decreased $154,000 for the twelve months
ended December 31, 1997 as compared to the same period in 1996. Payroll costs
decreased $.5 million, reflecting the organizational restructuring, while
outside testing and clinical material expenses increased $.6 million.

Net interest expense increased $.4 million for the twelve months ended
December 31, 1997 as compared to the same period in 1996 due primarily to
higher average outstanding balances on borrowing.

Other income - net decreased $72,000 for the twelve months ended December 31,
1997 as compared to the same period in 1996 because, in the third quarter of
1996, the proceeds from the settlement of a lawsuit where recorded in income.

Loss from continuing operations increased $2.8 million for the twelve month
period ended December 31, 1997 as compared to the corresponding period in 1996
due primarily to the loss of sales and gross profits from transdermal
nitroglycerin patches partially offset by the decrease in legal expenses
related to the Key Litigation.

The Company reported a $1.2 million tax benefit on a $6.1 million loss from

<PAGE>
operations for the twelve months ended December 31, 1997 as compared to a $1.3
million tax benefit on a $3.2 million loss from continuing operations in 1996.
The income tax provision or benefit varies with the amount and nature of the
components of income or loss before income taxes.  In 1997, the Company
recorded a valuation allowance of $371,000 against current year tax assets.
In 1996, a tax benefit was increased by adjustments to reserves for a
settlement with a local taxing authority of disputed tax assessments
pertaining to prior years of $69,000 and a reversal of a portion of the
valuation allowance amounting to $25,000.  (See Note 12 to the Consolidated
Financial Statements for further information about taxes on income for 1997
and 1996.)

Liquidity and Capital Resources

The following measures of liquidity are drawn from the Company's Consolidated
Financial Statements only for 1997 and are unavailable for 1998 since the
financial statements are presented on a liquidation basis:
<TABLE>     <S>                                             <C>     <C>
            Working capital (current assets less
              current liabilities, in thousands)             $5,698
            Current ratio (current assets/
              current liabilities)                              1.8
            Quick ratio (cash and receivables/
              current liabilities)                               .6
</TABLE>
The following measures of liquidity are drawn from the Company's December 31,
1998 cash flow statement.  Accounts receivable increased $924,000 while other
assets decreased by $613,000.  Accounts payable and accrued expenses increased
$602,000. The increase in accounts receivable resulted from an increase in
sales in the month of December 1998 as compared to the month of December 1997
and also reflects the timing of customer payments.

In 1998, the Company reduced a liability by $243,000 representing the reversal
of state tax accruals and in 1997 the Company reversed a liability for federal
income taxes payable in the amount of $443,000.  These liabilities were
originally established to provide for potential audit adjustments.  The
Company re-evaluated the liabilities at each year end and determined that the
Company was no longer subject to such liabilities and hence such liabilities
should be reversed to income.

At December 31, 1997, the Company had moved into a three year cumulative loss
status.  In accordance with SFAS 109, this required the Company to assess the
likelihood that all or a portion of its deferred tax asset would not be
realized, in which case the asset would have to be reduced by a valuation
allowance.  To determine the amount of the valuation allowance, all positive
and negative information regarding financial position and results of
operations of the Company for the current, preceding and future years was
considered.  In addition, the Company considered tax-planning strategies in
determining the amount of valuation allowance required.  Under SFAS 109, a tax
planning strategy is a prudent and feasible action that is allowable under the
tax law and is expected to result in realization of deferred tax benefits.
Such action is one that management normally would not implement unless the
Company were about to lose tax benefits.  At December 31, 1997, the Company
determined that it would be feasible to enter into a sale-leaseback
transaction before the deferred tax assets expire.  This tax planning
strategy, in conjunction with other deferred tax liabilities, enable the
Company to recognize deferred tax assets of approximately $1,892,000.  In
1998, due to the sale of assets of Herculite and Hercon Environmental, the net
deferred tax asset was reduced to zero since the tax planning strategy
supporting such asset could not be executed.  In 1998, the Company was
required, in accordance with SFAS 109, to increase its valuation allowance by

<PAGE>
$4,574,000 to offset any federal or state net operating losses, changes in
temporary differences generated in the current year and the deferred tax asset
from 1997.

Cash used for operations for the twelve months ended December 31, 1998 was
$3.2 million as compared to cash used for continuing operations of $4.5
million for the same period in 1997.  The decrease in  use of cash is due
primarily to increasing accounts receivable of $.9 million in 1998 as compared
to decreasing accounts receivable of $.5 million in 1997.  Cash provided by
discontinued operations for the twelve months ended December 31, 1998 was $2.7
million as compared to $2.6 million for the same period in 1997.  Investing
activities for the twelve months ended December 31, 1998 provided cash of $.3
million as compared to the same period in 1997 which provided cash of $.6
million.  This decrease is due primarily to higher additions to property,
plant and equipment for 1998.  Financing activities for the twelve months
ended December 31, 1998 provided $.2 million of cash as compared to the same
period in 1997 which provided $1.3 million of cash.  In 1998 and in 1997,
financing activities provided cash for operations, compared to 1996 when cash
from operations was used by financing activities to reduce outstanding debt.

On January 9, 1997, the Company replaced a $6,000,000 line of credit and a
$1,750,000 term loan from The First National Bank of Maryland ("First
National") with secured financing from IBJ Whitehall Business Credit
Corporation (f/k/a IBJ Schroder Business Credit Corporation) (as successor in
interest to IBJ Schroder Bank & Trust Company) ("IBJ").  Pursuant to a
Revolving Credit Term Loan and Security Agreement ("Loan Agreement") dated as
of January 9, 1997, the Company was provided with up to $7,000,000 in term
loans and up to $8,000,000 in revolving credit.  Proceeds from borrowing under
the Loan Agreement were used by the Company to repay outstanding indebtedness
under the aggregate $7,750,000 facility with First National.  The term loans
were intended to be used to repurchase, repay and/or redeem up to $7,000,000
of the Company's 10 3/8% Convertible Subordinated Debentures due April 15,
1999, as market conditions warrant. The IBJ loan was paid off in August 1999
with proceeds from the sale of assets of Herculite and Hercon Environmental.

Borrowings under the IBJ facility were collateralized by a pledge of
substantially all of the assets of the Company.  The Loan Agreement, which
would have expired on January 9, 2002, was subject to various covenants which,
among other things, required the Company to maintain specified ratios of net
worth, current ratio, fixed charge coverage, minimum level of earnings before
taxes, depreciation and amortization and limits capital expenditures.  On
January 21, 1998, the Company entered into a First Amendment (the "First
Amendment") to the Loan Agreement with IBJ.  The First Amendment, among other
things, amended the terms for drawing upon the term loan and amended certain
financial covenants.  Pursuant to the First Amendment, the maximum term loan
amount was reduced from $7,000,000 to $3,998,000 providing an aggregate of up
to $11,998,000 in senior secured financing.  In addition, an overadvance
facility of $400,000 was provided through July 31, 1998.  The interest rates
on the revolving credit line and term loans were increased to IBJ's prime plus
 .50% and IBJ's prime plus .875%, respectively.  The Company paid a facility
fee of 3/8 of 1% on the amount of the unused available financing facility.

In April 1998, the Company borrowed the remaining $1.2 million allowable by
IBJ in term loans to purchase the Company's convertible subordinated
debentures to meet the April 1998 sinking fund requirements.  In May 1998, the
Company commenced required monthly payments on the term loan of $56,000.
Monthly payments would have continued until the termination of the loan on
January 9, 2002.  The $8,000,000 revolving credit line borrowing base was
limited to the sum of 85% of eligible accounts receivable, 50% of eligible
inventory and an overadvance facility of $1,200,000 which effectively
increased the eligible amount by $1,200,000.  On July 31, 1998, the Company

<PAGE>
entered into a Second Amendment to the Loan Agreement with IBJ.  The Second
Amendment, among other things, increased the Company's overadvance facility to
$600,000 through December 31, 1998.

At December 31, 1998 the Company had borrowed $6.5 million on its revolving
line of credit from IBJ and $3.5 million in term loans.  For the twelve months
ended December 31, 1998, the maximum eligible amount of the $8,000,000
revolving credit line, ranged from $6,215,000 to $7,620,000, or from 78% to
95% exclusive of the $1,200,000 overadvance facility.  At December 31, 1998,
the Company was not in compliance with the following covenants, as amended:
net worth, current ratio, fixed charge coverage and minimum level of earnings
before taxes, depreciation and amortization covenants.

On January 11, 1999, the Company entered into a Waiver and Third Amendment
(the "Third Amendment") to the Loan Agreement with IBJ.  The Third Amendment,
among other things, increased the Company's overadvance facility to $1,200,000
through March 31, 1999 and waived compliance with the covenants the Company
was not in compliance with on September 30, 1998.  In connection with the
Third Amendment, Marvin M. Speiser, the Company's President and Chairman of
the Board, and his wife, Laura G. Speiser, pledged certain investment property
consisting of marketable securities valued at no less than $710,000 (the
"Collateral") and entered into a limited guaranty of the Company's obligations
under the Loan Agreement not to exceed the principal sum of $1,000,000 plus
interest.  IBJ released its security interest in all of the Collateral upon
repayment of the loan in August 1999.

On March 24, 1999, the Company entered into a Consent and Fourth Amendment
(the "Fourth Amendment") to the Loan Agreement with IBJ.  The Fourth
Amendment, among other things, increased the Company's overadvance facility to
$1,800,000 and extended such facility to April 13, 1999.  In a series of
Amendment and Forbearance Agreements with IBJ dated April 14, May 14, June 21,
July 15 and August 15, 1999, the Company received extensions of its time to
repay special advances made by IBJ under the Loan Agreement.  On August 19,
1999, the Company paid the entire amount due to IBJ under the term loans and
the revolving credit line with proceeds from the sale of assets of Herculite
and Hercon Environmental.

The required $1.5 million sinking fund payment on the Company's convertible
subordinated debentures due on April 15, 1998 was satisfied by application of
$.3 million debentures previously repurchased or redeemed, of which $.1
million were purchased in 1996, and by calling for redemption of the remaining
$1.2 million. In October 1998, the Company paid $.5 million in interest on its
debentures. In April 1999, the Company defaulted on its obligations to repay
the remaining $8 million in principal as well as the accrued interest of
approximately $.4 million due on the Debentures at maturity. The Company made
a $1.9 million payment on its debt obligations in respect of the Debentures
out of the proceeds of the sale of assets of Herculite and Hercon
Environmental in August 1999. The Company's ability to repay the balance of
its obligations on the Debentures as well as to continuing operations is
contingent upon the Company's effecting a business solution with regard to the
manufacture of its new nitroglycerin products and the Company's ability to
secure up to $1.5 million financing from a financial institution. A failure to
effect such a business solution or to secure such financing for short-term
capital requirements would have a material adverse effect on the financial
status of the Company.

The Company has not paid cash dividends and does not anticipate paying such
dividends on its common stock in the foreseeable future. The terms of the
indenture relating to the Debentures restricted the Company's ability to pay
case dividends and/or repurchase its capital stock pursuant to a formula based
upon the consolidated net income of the Company and other factors. Under the

<PAGE>
formula, at December 31, 1998, no amount was available for the payment of
dividends and/or the repurchase of capital stock.

The Company's 90% owned Transderm subsidiary had outstanding stock options of
11,450,000 at December 31, 1998.  At December 31, 1998, 560,000 of the
11,450,000 stock options were exercisable.  (See Note 8(b) to the Consolidated
Financial Statements.)  The Company's ownership in Transderm would be reduced
to approximately 70% in the event that all outstanding options to purchase
common stock of Transderm were exercised.  There would be no impact on
minority interest due to the deficit equity position of Transderm.  The
exercise of all such options would not affect the method by which the Company
is consolidated from a financial reporting standpoint.  Such exercises would
preclude the Company from utilizing any tax attributes available to Transderm.
Management believes that there would be no material adverse effect on the
financial condition of the Company from the loss of any such tax attributes
that may be available to Transderm.

The Company's total capital deficiency at December 31, 1998 is $7.4 million.
The Company's debt to equity ratio for December 31, 1997 was 7:1.  The
Company's equity went from $3.8 million to a negative $7.4 million due to
current year net losses of $10.6 million, provision for estimated liquidation
expenses of $6.1 million and estimated expenses in connection with sale of
Herculite and Hercon Environmental of $.7 million, partly offset by an
increase in net realizable value of assets held for sale of $6 million (see
Note 1.a and 3.b to the Consolidated Financial Statements).  The $10.6 million
net loss from the current year includes a $4.2 million loss from discontinued
operations.

Expenditures in 1999 such as capital expenditures, research and development
costs and other operating expenses have been financed, in part, by the
utilization of a credit facility and in part by capital generated by the
realization of proceeds from the sale of assets of Herculite and Hercon
Environmental.  The Company anticipates capital expenditures for property,
plant and equipment in the remaining portion of 1999 not to exceed $.1
million.  These capital expenditures will primarily consist of manufacturing
equipment.  In 1998, the Company had expended $590,000 for capital
expenditures for property, plant and equipment.

Inflation

The Company believes that inflation has not had a material effect upon its
results of operations and liquidity and capital resources for any of the
periods presented.

Impact of the Year 2000 Issue

The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year.  Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000.  This could result in a
system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.

Prior to August 19, 1999, the Company maintained an IBM AS400 computer system
for which it completed a Year 2000 project upgrade in July 1999. This system
was sold to Aberdeen Road Company on August 19, 1999 as part of the sale of
assets of Herculite and Hercon Environmental.  The Company has access to the
AS400 computer system for six months after the sale for historical
information.  The Company currently leases a new personal computer based
system which is Year 2000 compliant. The Company presently believes that it

<PAGE>
has resolved its Year 2000 Issue concerns.  If unforseen problems arise,
although the Company is uncertain about the duration of a worst case scenario,
the Company's most reasonably likely worst case scenario would be to
temporarily lose the ability to process transactions, send invoices or engage
in similar normal business activities. The Company has developed a contingency
plan which includes maintaining records on a manual system until a portion or
all of the computer system recovers. The Company believes a worst case
scenario is unlikely but if it did occur it could have a material adverse
effect on the operations of the Company.

The Company has assessed the effect of the Year 2000 Issue on its non-
information technology systems, and believes that it will not have a material
impact on the operations of the Company. The Company has addressed Year 2000
issues relating to third parties with which it has a material relationship by
sending questionnaires to vendors, suppliers and customers who could have a
material impact on the Company's operations if their operations were
disrupted. The Company's operations could be adversely affected if such
vendors, suppliers and customers do not prepare for the impact of the Year
2000. Companies responding to the Company's questionnaires have indicated an
awareness of and preparation for dealing with the impact of the Year 2000 on
their operations.

<PAGE>
<PAGE>
ITEM 8.  FINANCIAL STATEMENTS

Index to Consolidated Financial Statements.

                                                                PAGE

Reports of Independent Accountants                             21-22

Consolidated Statement of Assets and Liabilities                  23
  (Liquidation Basis) - December 31, 1998

Consolidated Statement of Changes in Assets and Liabilities       23
  (Liquidation Basis) -  Period ended December 31, 1998

Consolidated Balance Sheet - December 31, 1997                 24-25

Consolidated Statements of Operations
  Years Ended December 31, 1998, 1997 and 1996                    26

Consolidated Cash Flow Statements
  Years Ended December 31, 1998, 1997 and 1996                 27-28

Consolidated Statements of Stockholders' Equity
  (Capital Deficiency) Years Ended
   December 31, 1998, 1997 and 1996                               29

Notes to Consolidated Financial Statements                     30-52


<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

The Board of Directors and Stockholders
  of Health-Chem Corporation:

We have audited the accompanying consolidated financial statements and the
financial statement schedule of Health-Chem Corporation and Subsidiary
Companies as of December 31, 1998 and for the year then ended, listed in Item
14(a) of this Form 10-K.  These financial statements and financial statement
schedules are the responsibility of the Company's management.  Our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.  An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.  We believe that our audit provides a reasonable basis
for our opinion.

As discussed in Note 1(a) to the financial statements, the Trustee of
$8,000,000 of convertible subordinated debentures of the Company possesses
certain rights for collection of the unpaid amount including satisfaction by
recovery of the Company's assets. In the circumstances, the Company is not
able to meet its payment obligations and does not have in place an effective
plan to mitigate such conditions, therefore, effective December 31, 1998, the
Company has changed to a liquidation basis of accounting.  Accordingly, the
carrying values of the remaining assets at December 31, 1998 are presented at
estimated realizable values and all liabilities are presented at estimated
settlement amounts.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated assets and liabilities in liquidation
of Health-Chem Corporation and subsidiary as of December 31, 1998, the
consolidated changes in assets and liabilities in liquidation, results of
their operations and their consolidated cash flows for the year then ended, in
conformity with generally accepted accounting principles, applied on the bases
described in Note 1(a).

RICHARD A. EISNER & COMPANY, LLP
New York, New York
October 1, 1999



<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

The Board of Directors and Stockholders
  of Health-Chem Corporation:

We have audited the consolidated balance sheet of Health-Chem Corporation and
its subsidiaries as of December 31, 1997 and the related consolidated
statements of operations, changes in shareholders' equity and cash flows for
each of the two years in the period ended December 31, 1997, that are included
in Item 8 of this Form 10-K.  In connection with our audit of such
consolidated financial statements, we have also audited the related financial
statement schedule for the years ended December 31, 1997 and 1996 listed in
item 14a of this Form 10-K.  These financial statements and financial
statement schedule are the responsibility of the Company's management.  Our
responsibility is to express an opinion on these consolidated financial
statements and the financial statement schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.  An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.  We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Health-Chem
Corporation and its subsidiaries as of December 31, 1997, and the consolidated
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.  In addition, in our opinion, the financial statement
schedules referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.




PricewaterhouseCoopers, LLP
One South Market Square
Harrisburg, Pennsylvania
March 25, 1998 except for the
restatements for discontinued operations
as described in Note 14 to the consolidated financial
statements and for the segment information included
in Note 16 to the consolidated financial statements
for which the date is November 11, 1999



<PAGE>
<PAGE>         HEALTH-CHEM CORPORATION AND SUBSIDIARIES
    CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES (LIQUIDATION BASIS)
<TABLE>                        (In thousands)

                                                                December 31,
                                                                       1998
Assets (Note 1a)
<S>                                                            <C> <C>
Cash and cash equivalents                                          $    154
Accounts receivable                                                   2,502
Inventories                                                           1,006
Assets held for sale                                                 13,782
Property, plant and equipment                                         4,588
Cash surrender value of life insurance policies,
  net of loans of $1,579                                              1,051
Other assets                                                            845
TOTAL ASSETS                                                       $ 23,928

Liabilities and Capital Deficiency

Collateralized obligations
  IBJ Whitehall Business Credit Corporation debt                   $ 10,022
  Capitalized lease obligation                                           21
                                                                     10,043
Uncollateralized obligations
  Taxes payable                                                         155
  Payroll and related costs payable                                      93
  10.375% convertible subordinated debentures, past due               8,000
  Accounts payable                                                    1,930
  Accrued expenses and other liabilities                              4,323
  Estimated expenses in connection with sale of assets                  700
  Estimated liquidation expenses                                      6,081
                                                                     21,282
Commitments (Note 7)
Capital deficiency
  Preferred stock, par value $.01 per share; 1,000,000 shares
    authorized, none issued
  Convertible special stock, par value $.01 per share; 750,000            7
    authorized, 738,667 issued, all of which are held in treasury
  Common stock, par value $.01 per share; 50,000,000 shares             145
    authorized; 14,473,056 shares issued; 7,982,424 shares outstanding
  Additional paid-in capital                                         18,286
  Accumulated deficit                                               <18,152>
    Subtotal                                                            286
  Less treasury stock                                                <7,683>
    Total capital deficiency                                         <7,397>
TOTAL LIABILITIES AND CAPITAL DEFICIENCY                           $ 23,928

         CONSOLIDATED STATEMENT OF CHANGES IN ASSETS AND LIABILITIES
                        (LIQUIDATION BASIS)
                           (In thousands)

Capital deficiency at December 31, 1998, immediately               $ <6,611>
    prior to liquidation basis
Increase in net realizable value of assets held for sale (Note 1.a)   5,995
Estimated expenses in connection with sale of assets                   <700>
Estimated liquidation expenses (Note 3.b)                            <6,081>

Capital deficiency at December 31, 1998                            $ <7,397>
</TABLE>
[FN]
See Notes to Consolidated Financial Statements.
<PAGE>             HEALTH-CHEM CORPORATION AND SUBSIDIARIES
<TABLE>                  CONSOLIDATED BALANCE SHEET
                     (In thousands, except share amounts)




                        ASSETS                                December 31,
<S>                                                                1997
CURRENT ASSETS                                                  <C>     <C>
   Cash and cash equivalents                                    $   162
   Accounts receivable, net of allowances for
     doubtful accounts of $353                                    4,194
   Inventories  (Note 2)                                          7,537
   Assets held for sale                                               0
   Other current assets                                           1,044
     Total Current Assets                                        12,937

PROPERTY, PLANT AND EQUIPMENT
   Land                                                             141
   Buildings                                                      5,580
   Equipment and leasehold improvements                          23,788
   Construction-in-progress                                          87
     Total Property, Plant and Equipment                         29,596
   Less accumulated depreciation and amortization                17,704
     Net Property, Plant and Equipment                           11,892

NON-CURRENT ASSETS
   Notes receivable                                                 900
   Cash surrender value of life insurance policies,
     net of loans of $1,579 and $1,313                            1,033
   Excess of cost over fair value of assets acquired                682
   Deferred taxes-non-current                                     1,892
   Other non-current assets                                         600
     Total Non-Current Assets                                     5,107

TOTAL ASSETS                                                    $29,936
</TABLE>

[FN]
Consolidated Balance Sheet is continued on the next page.

See Notes to Consolidated Financial Statements.






<PAGE>
<PAGE>           HEALTH-CHEM CORPORATION AND SUBSIDIARIES
<TABLE>           CONSOLIDATED BALANCE SHEET, CONTINUED
                   (In thousands, except share amounts)



                 LIABILITIES AND STOCKHOLDERS' EQUITY       December 31,
                                                                  1997
<S>                                                         <C>      <C>
CURRENT LIABILITIES
   Accounts payable                                            $ 4,189
   Accrued expenses and other current
     liabilities (Note 3)                                        1,389
   Current portion of 10.375% convertible subordinated
    debentures                                                   1,190
   Bank debt                                                       305
   Income taxes payable (Note 12)                                  166
     Total Current Liabilities                                   7,239

LONG-TERM LIABILITIES
   10.375% convertible subordinated debentures
     (Notes 4 and 17)                                            8,000
   Long-term debt (Note 4)                                       8,270
   Other long-term liabilities                                   2,530
   Minority interest (Note 18)                                      11


COMMITMENTS (Note 7)

STOCKHOLDERS' EQUITY (Notes 9, 10 and 11)
   Preferred stock, par value $.01 per share;
     1,000,000 shares authorized, none issued                        0
   Convertible special stock, par value $.01
     per share; 750,000 shares authorized;
     738,667 shares issued, all of which are
     held in treasury                                                7
   Common stock, par value $.01 per share;
     50,000,000 shares authorized; 14,473,056
     shares issued; 7,982,424 shares outstanding
     in 1998 and 1997                                              145
   Additional paid-in capital                                   18,286
   Less stockholder notes receivable (Note 17)                    <148>
   Accumulated deficit                                          <6,721>
     Subtotal                                                   11,569
   Less treasury stock                                          <7,683>
     Total Stockholders' Equity                                  3,886

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                     $29,936
</TABLE>





[FN]
See Notes to Consolidated Financial Statements.



<PAGE>
<PAGE>               HEALTH-CHEM CORPORATION AND SUBSIDIARIES
<TABLE>               CONSOLIDATED STATEMENTS OF OPERATIONS
                     (In thousands, except per share amounts)
                                                   Year Ended December 31,
<S>                                                1998*     1997      1996
REVENUE:                                        <C>       <C>       <C>
  Net sales                                     $ 6,907   $ 5,299   $12,146
  Cost of goods sold                              4,538     2,960     4,989
  Gross profit                                    2,369     2,339     7,157

OPERATING EXPENSES:
  Selling, general and administrative
    expenses                                      4,310     4,317     4,386
  Legal expense                                     642       487     2,685
  Research and development expense                  813     2,111     2,265
  Net interest expense (Note 13)                  1,762     1,603     1,263
    Total operating expenses                      7,527     8,518    10,599

LOSS FROM OPERATIONS:                            <5,158>   <6,179>   <3,442>
  Other income - net                                298        71       143

LOSS FROM CONTINUING OPERATIONS BEFORE TAXES,
 DISCONTINUED OPERATIONS, MINORITY INTEREST
 AND EXTRAORDINARY GAIN                          <4,860>   <6,108>   <3,299>
  Income tax provision <benefit> (Note 12)        1,622    <1,230>   <1,257>
LOSS FROM CONTINUING OPERATIONS BEFORE
 DISCONTINUED OPERATIONS, MINORITY INTEREST
 AND EXTRAORDINARY GAIN:                         <6,482>   <4,878>   <2,042>
DISCONTINUED OPERATIONS:  (NOTE 14)
  <Loss> Income from discontinued operations
    (Income tax provision was $0, $0 and $358
      for 1998, 1997 and 1996).                  <3,640>    1,602       710
  Loss on disposal of discontinued operation
   (Income tax benefit was $0)                     <520>        0         0
     Total discontinued operations               <4,160>    1,602       710

LOSS BEFORE MINORITY INTEREST AND
EXTRAORDINARY GAIN:                             <10,642>   <3,276>   <1,332>
  Minority Interest in loss of subsidiary
    (Note 18)                                         0         1         5

LOSS BEFORE EXTRAORDINARY <LOSS> GAIN:          <10,642>   <3,275>   <1,327>
  Extraordinary <loss> gain from repurchase
    of subordinated debentures (Note 15)             <3>       17         5

NET LOSS                                       $<10,645>  $<3,258>  $<1,322>

Earnings <Loss> per common share (basic & diluted)
  (Note 1i):
  Continuing operations                        $   <.81>   $ <.61>   $ <.26>
  Discontinued operations                          <.52>      .20       .09
  Extraordinary <loss> gain from repurchase
   of debentures                                    .00       .00       .00
NET LOSS PER SHARE                             $  <1.33>   $ <.41>   $ <.17>
Average number of common shares
 outstanding (Note 1i)
  Basic                                           7,982     7,982     7,982
  Diluted                                         7,982     7,982     7,982
</TABLE>
[FN]
*Immediately prior to liquidation basis.
See Notes to Consolidated Financial Statements.

<PAGE>
<TABLE>           HEALTH-CHEM CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED CASH FLOW STATEMENTS
                               (In thousands)

                                                    Year Ended December 31,
                                                     1998*    1997     1996
<S>                                               <C>      <C>      <C>
Cash was Provided by <Used for>:

Operating Activities:
Net Loss                                         $<10,645> $<3,258> $<1,322>
Less:
Loss <Income> from operations of
  discontinued subsidiary                           3,640   <1,602>    <710>
Loss on disposal of discontinued operations           520        0        0
Loss from continued operations                     <6,485>  <4,860>  <2,032>

Adjustments to reconcile net loss to cash used
  in operating activities:
Depreciation and Amortization                         632      720      784
Deferred tax                                        1,892   <1,105>    <840>
Stockholder loans                                     148        0        0
Accounts receivable                                  <924>     481     <582>
Inventories                                             3       21      154
Other assets                                          613     <195>     145
Accounts payable and accrued expenses                 602      <93>     257
Other long term liabilities                           277      545      531
Gain on sale of fixed assets                            0      <21>       0

Net cash used in continuing operations             <3,242>  <4,507>  <1,583>
Net cash provided by discontinued operations        2,685    2,610    2,156
Net cash <used in> provided by operating
   activities before extraordinary item              <557>  <1,897>     573

Extraordinary item:
<Loss> Gain from repurchase of subordinated
   debentures                                          <3>      17        5
<Gain> loss from repurchase of debentures
   providing no cash                                    3      <17>      <5>
Net cash provided by extraordinary item                 0        0        0
Net cash <used in> provided by
   operating activities                              <557>  <1,897>     573

Investing Activities:
Additions to property plant and equipment            <590>    <168>    <285>
Proceeds on disposal of property, plant
   and equipment                                        0      121        0
Investment in life insurance policies-net             <18>     369      708
Payment received on notes receivable                  900      300        0

Net cash provided by investing activities             292      622      423
</TABLE>
[FN]
Consolidated Cash Flow Statements are continued on the next page.
*Immediately prior to liquidation basis.

<PAGE>
<PAGE>            HEALTH-CHEM CORPORATION AND SUBSIDIARIES
<TABLE>         CONSOLIDATED CASH FLOW STATEMENTS (continued)
                               (In thousands)


                                                    Year Ended December 31,
                                                     1998*    1997     1996


<S>                                               <C>      <C>      <C>
Financing Activities:
Long-term debt proceeds                             1,447    2,484      209
Repurchase of convertible subordinated debentures  <1,190>  <1,181>  <1,330>

Net cash provided by <used in>
 financing activities                                 257    1,303   <1,121>

Net increase <decrease> in cash
 and cash equivalents                                  <8>      28     <125>
Cash and cash equivalents at beginning of period      162      134      259
Cash and cash equivalents at end of period        $   154  $   162  $   134

Supplemental Disclosures of Cash Flow Information:
 Cash paid during the period for:
  Interest                                        $ 1,824  $ 1,755  $ 1,357
  Income taxes                                          4        6      170

Supplemental Disclosures of Noncash Investing
 and Financing activities:
  Acquisition of fixed assets through capital
   lease obligations                              $     0  $    45  $     0
</TABLE>


[FN]
* Immediately prior to liquidation basis.
See Notes to Consolidated Financial Statements.


<PAGE>
<PAGE>
<TABLE>             HEALTH-CHEM CORPORATION AND SUBSIDIARIES
       CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY/CAPITAL DEFICIENCY
                   YEARS ENDED DECEMBER 31, 1998, 1997 and 1996
                                (In thousands)


                                           Stock-
               Conver-           Addi-     holder
               tible             tional    Notes    <Accumu-
               Special  Common   Paid-In   Receiv-  lated     Treasury
                Stock   Stock    Capital    able    Deficit>   Stock   Total
<S>            <C>      <C>      <C>       <C>      <C>       <C>      <C>
Balance,       $     7  $  145   $18,286   $  <148> $ <2,141> $<7,683> $8,466
January 1,
1996
Net loss 1996                                         <1,322>          <1,322>

Balance,       $     7  $  145   $18,286   $  <148> $ <3,463> $<7,683> $7,144
December 31,
1997
Net loss 1997                                         <3,258>          <3,258>

Balance,       $     7  $  145   $18,286   $  <148> $ <6,721> $<7,683> $3,886
December 31,
1998
Net loss 1998                                  148   <10,645>         <10,497>

Balance,
December 31,
1998*          $     7  $  145   $18,286   $     0  $<17,366> $<7,683> <6,611>
</TABLE>









     [FN]
*Immediately prior to liquidation basis.
See Notes to Consolidated Financial Statements.


<PAGE>
<PAGE>               HEALTH-CHEM CORPORATION AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 1998, 1997, 1996




1.  Accounting Policies

a.  Principles of consolidation

The consolidated financial statements include the accounts of Health-Chem
Corporation ("Health-Chem") and all of its subsidiaries (collectively the
"Company"). The operations of the Company's Pacific Combining Corporation
("Pacific") were discontinued in November 1998 and the assets auctioned off in
1999.  In August 1999, the sale of substantially all of the assets of two of
the Company's subsidiaries, Herculite Products, Inc. ("Herculite") and Hercon
Environmental Corporation ("Hercon Environmental") was completed.  These
businesses have been accounted for, and reported as, discontinued operations
in the consolidated financial statements. (See Note 14 for further
information).

The Company failed to repay $8 million in principal as well as the accrued
interest of $.4 million due on its 10.375% convertible subordinated debentures
at maturity, on April 15, 1999.  In January 1997, the Company entered into a
secured financing agreement with IBJ Whitehall Business Credit Corporation. The
loan was repaid in August 1999 with the proceeds from the sale of assets of the
Company's Herculite Products, Inc. and Hercon Environmental Corporation
subsidiaries aggregating $14.2 million.  The Company also made a $1.9 million
partial payment of it debt obligations in respect of the Debentures in
September 1999.  The Company's ability to repay the balance of the obligations
on the Debentures is contingent, in part, upon the Company's ability to effect
a business solution with regard to the manufacture of its new nitroglycerin
products and the Company's ability to secure additional financing.  There can
be no assurance that the Company will achieve profitable results or obtain
adequate funding.  Under the terms of the indenture between the Company and
Bankers Trust Company as trustee, the trustee can institute an action or
proceeding at law or in equity for the collection of the sums due and unpaid.
There can be no assurance that either the trustee or the debenture holders will
continue to abstain from exercising such rights. Therefore, in compliance with
generally accepted accounting principles, the Company's Statement of Assets and
Liabilities as at December 31, 1998 has been presented on a liquidation basis.
Accordingly, the net assets of the Company as of that date are stated at
liquidation value whereby assets are stated at their estimated net realizable
values and liabilities, which include estimated liquidation expenses to be
incurred through the date of the Company's dissolution, are stated at their
anticipated settlement amounts.

The valuation of assets and liabilities necessarily requires estimates and
assumptions.  The actual value of any liquidating distributions, therefore,
would depend on a variety of factors including among others, the proceeds from
the sale of any of the Company's remaining assets and the timing of actual
distributions.  The valuations presented in the accompanying consolidated
Statement of Assets and Liabilities represent estimates, based on present facts
and circumstances, of the estimated realizable values of assets and settlement
amounts of liabilities.  The actual values could be higher or lower than the
amounts recorded.

The remaining manufacturing operation is Hercon Laboratories which is engaged
in the development, manufacture and marketing of transdermal drug delivery
systems and over-the-counter pharmaceutical and cosmetic products.  The Company
manufactures and markets a transdermal nitroglycerin patch which it sells to

<PAGE>
one customer for distribution in the United States (two customers through
December 31, 1998) and to one customer for distribution in Spain.  The Company
also manufactures and markets deep cleansing facial pore strips which it has
sold to two customers for distribution in the United States, Canada and certain
other foreign countries.  In August 1996, Customer A obtained approval from the
United States Food and Drug Administration ("FDA") for the manufacture and sale
of its own nitroglycerin patches and now competes with the Company's
nitroglycerin patches.  The percentage of sales to each major customer who was
responsible for 10% or more of total revenues is as follows:
<TABLE>                                      <C>       <C>      <C>
    <S>                                      Year Ended December 31,
                                             1998      1997     1996
    Customer A........................         0%        0%      38%
    Customer B........................        25        54       31
    Customer C........................        36        45       26
    Customer D........................        32         0        0
</TABLE>
At December 31, 1998 and 1997, accounts receivable of approximately $1,544,000
and $689,000, respectively, were from such customers.  To reduce credit risk,
the Company performs ongoing credit evaluations of its customers' financial
condition but does not generally require collateral.

Foreign sales, consisting of sales to distributors in Spain and Canada, were
$326,000, $76,000, and $558,000, or 4.7%, 1.4%, and 4.6% of sales in 1998, 1997
and 1996, respectively.

For the years ended December 31, 1998, 1997 and 1996, the Company purchased
approximately 20%, 20%, and 20% of its raw materials from one source.

On October 30, 1998, the Company received FDA approval for the sale of new
nitroglycerin patches which are thinner, more flexible and smaller than the
Company's current patches.  The Company is currently not commercially
exploiting its newly-approved nitroglycerin products as a result of the
unfavorable decision in the Company's litigation with Key Pharmaceuticals, Inc.
(See Note 8).

The first product to reach the market in a therapeutic area often has a
significant competitive advantage relative to later entrants to the market.
There can be no assurance that developments by others will not render the
Company's products or technologies uncompetitive or obsolete.

In addition, the Company is also developing a number of other transdermal
products.  These products will also require approval from the FDA.  There can
be no assurance that FDA filings for any of these additional products will be
effected nor that FDA approval for any of these products will be obtained.

b.  Cash equivalents

Money market funds and investment instruments with original maturities of
ninety days or less are considered cash equivalents.

c.  Inventories

Inventories are stated at lower of cost (first-in, first-out basis) or market.

d.  Depreciation and amortization

Property, plant and equipment are recorded at cost. Depreciation and
amortization are provided using the straight-line method by charges to
operations over the estimated useful lives of depreciable assets or, where
applicable, the terms of the respective leases, whichever is shorter.  The cost
<PAGE>
and related accumulated depreciation of disposed assets are removed from the
applicable accounts and any gain or loss is included in income in the period
of disposal.  Depreciation expense on property, plant and equipment was
$632,000, $639,000 and $703,000 for 1998, 1997 and 1996, respectively.


The Company has adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of" (SFAS 121).  SFAS 121 requires that long-lived assets,
including related goodwill, be reviewed for impairment and written down to fair
value whenever events or changes in circumstances indicate that the carrying
value may not be recoverable.  The Company evaluates long-lived assets for
impairment by individual business unit.  The cumulative effect resulting from
the adoption of SFAS 121 was immaterial.

e.  Amortization of excess of cost over fair value of assets acquired

The excess of cost over fair value of assets acquired is being amortized over
40 years on a straight-line basis.  The accumulated amortization and write-off
of goodwill at December 31, 1998 and 1997 was $905,000 and $223,000
respectively.  The Company's policy is to record an impairment loss against the
net unamortized cost in excess of net assets of businesses acquired in the
period when it is determined that the carrying amount of the asset may not be
recoverable.  An evaluation is made at each balance sheet date (quarterly) and
it is based on such factors as the occurrence of a significant change in the
environment in which the business operates or if the expected future net cash
flows (undiscounted and without interest) would become less than the carrying
amount of the asset.  On September 30, 1998, after considering continuing
reductions in revenues and escalating losses at Pacific Combining Corporation
("Pacific") as well as future prospects, the Company, in accordance with
Accounting Principles Board ("APB") Opinion No.17  decided to write-off the
goodwill of $.7 million at Pacific.  On November 20, 1998, after considering
a restructuring, sale, or other disposition of this business the Company
decided to discontinue operations at Pacific.

f.  Revenue Recognition

The Company recognizes revenue from product sales upon shipment to customers.

g.  Research and development

Research and development costs are charged to operations as incurred.

h.  Income taxes

Deferred tax assets and liabilities are provided for differences between the
financial statement and tax bases of assets and liabilities that will result
in future taxable or deductible amounts.  The deferred tax assets and
liabilities are measured using the enacted tax laws and rates applicable to the
periods in which the differences are expected to affect taxable income.  Income
tax expense is computed as the tax payable or refundable for the period plus
or minus the change during the period in deferred tax assets and liabilities.
Deferred tax assets are reduced by a valuation allowance when, in the opinion
of management, it is more likely than not that some portion or all of the
deferred tax assets will not be realized.  (See Note 12).

i.  Per share information

On December 31, 1997, the Company adopted Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" ("SFAS 128").  SFAS 128 establishes
standards for computing and presenting earnings per share and applies to

<PAGE>
entities with publicly-held common stock or potential common stock.  SFAS 128
simplifies the standards for computing earnings per share previously found in
APB Opinion No. 15, "Earnings Per Share," by replacing the presentation of
primary earnings per share with a presentation of basic earnings per share.
It also requires dual presentation of basic and diluted earnings per share on
the face of the income statement for all entities with complex capital
structures.  Restatement of all prior-period earnings per share data is
required upon adoption.  The impact of adopting SFAS 128 on the Company's
earnings per share data is not material.  In accordance with SFAS 128, if there
is a loss from continuing operations, diluted earnings per share would be the
same as basic earnings per share.

Basic and diluted earnings per share are computed based upon the weighted
average number of common shares outstanding during each year after adjustment
for any dilutive effect of the Company's outstanding 10.375% convertible
subordinated debentures and stock options and excluding the weighted average
number of redeemable common shares outstanding (See Note 9).  Interest on the
subordinated debentures, when dilutive, net of applicable taxes, is deducted
from net loss for the purpose of computing earnings per share.  Convertible
subordinated debentures and stock options are anti-dilutive for each of the
years ended December 31, 1998, 1997 and 1996.

A reconciliation of the basic and diluted earnings per common share
computations for net loss for the years ended December 31, 1998, 1997 and 1996
is presented below (in thousands, except per share amounts):
<TABLE>
                      1998                  1997                 1996
              Income  Shares  Per-  Income  Shares  Per   Income Shares   Per
              (Numer- (Denom- Share (Numer- (Denom- Share (Numer-(Denom-  Share
               ator)  inator) Amt.   ator)  inator) Amt.   ator)  inator) Amt.
<S>           <C>     <C>     <C>    <C>    <C>     <C>    <C>    <C>     <C>
Net Loss      $<10,645>              $<3,275>              $<1,327>

Basic Earnings
Per Common Share
 Net loss
 applicable
 to common
 stock-      <10,645>  7,982 $<1.33><3,275> 7,982 $<0.41>  <1,327> 7,982 $<0.16>
 holders
Effect of
Dilutive
Securities
 Stock options              0      0              0      0              0      0
 Convertible
  debentures                0      0              0      0              0      0

Diluted Earnings
Per Common Share
 Net loss
 applicable
 to common
 stockholders
 and assumed
 conver-    $<10,645> 7,982 $<1.33>$<3,275> 7,982 $<0.41> $<1,327>7,982  $<0.16>
 sions
</TABLE>
j.  Fair Value of Financial Instruments

In 1995, the Company adopted Statement of Financial Accounting Standards No.
107, "Disclosures about Fair Value of Financial Instruments," which requires

<PAGE>
disclosure of fair value information about financial instruments, whether or
not recognized in the financial statements.  The amounts reported in the
consolidated Statement of Assets and Liabilities at December 31, 1998 for cash
and cash equivalents, accounts receivable, accounts payable, and accrued
liabilities approximate fair value due to the short-term nature of these
instruments.  The carrying amount of the Company's notes receivable and certain
debt approximate fair value because the underlying instruments reprice
frequently.  The fair value of the Company's convertible subordinated
debentures had a quoted market price at December 31, 1998 of approximately $6
million.  However, in May 1999 the convertible subordinated debentures were
delisted for failure to meet listing requirements and therefore, from May 1999,
a value is unobtainable.

k.  Use of Estimates in the Preparation of Financial Statements

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.

Presently, management estimates that the carrying amount of liabilities
approximates its settlement amount.  Particularly sensitive estimates include
assumptions about the dissolution of the Company eighteen months after December
31, 1998 and the level of expenses that will be incurred through such date.
Also, the assumptions underlying the valuation of the assets convertible
subordinated debentures are similarly sensitive.

l.  Implementation of New Financial Accounting Standards

In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130").  SFAS 130 establishes standards for reporting and display
of comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general-purpose financial statements.  SFAS 130
requires that an enterprise (a) classify items of other comprehensive income
by their nature in a financial statement and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in-capital in the equity section of a statement of financial
position.  SFAS 130 is effective for financial statements issued for periods
beginning after December 15, 1997.  The Company does not expect the
implementation of SFAS 130 to have a material impact on the presentation of the
consolidated financial statements of the Company.

m.  Minority Interest

Minority interest relating to a former president of Hercon Laboratories and
Hercon Environmental is not considered to be material.

n.  Reclassifications

Certain amounts included in the Consolidated Financial Statements and Notes
thereto relating to prior periods have been reclassified to conform to the
current presentation.
<TABLE>
2.  Inventories  (In thousands)                              December 31,
                                                          1998         1997
            <S>                                         <C>          <C>
            Raw materials                               $  484       $3,590
            Finished goods and work in process             522        3,947
            Total                                       $1,006       $7,537
</TABLE>
<PAGE>
<PAGE>
<TABLE>
3.a  Accrued Expenses and Other Liabilities  (In thousands)

                                                           December 31,
                                                          1998         1997
<S>                                                     <C>          <C>
Allowance for litigation contingencies                  $  201       $  201
Allowance for disposal of discontinued operation           478            0
Accrued interest on debt                                   242           37
Accrued legal and audit fees                               126          197
Accrued payroll and related liabilities                       *         551
Financed insurance premiums                                231          119
Accrued pension cost                                     1,994             *
Other                                                    1,051          284
Total accrued expenses and other liabilities            $4,323       $1,389

*Stated separately in the financial statements for respective years.
</TABLE>
3.b  Estimated liquidation expenses (In thousands)

The following represents an estimate for liquidation expenses for the eighteen
month period January 1, 1999 through June 30, 2000.  Such estimate has been
derived from unaudited information subsequent to December 31, 1998 and includes
amounts expected to be incurred through June 30, 2000:
<TABLE>
  <S>                                                   <C>    <C>
  Corporate expenses, net                               $3,238
  Interest                                               1,583
  Funds required for
   Transderm Laboratories                                1,260
                                                        $6,081
</TABLE>
Management has estimated June 30, 2000 as the date of dissolution unless the
current status of the Company's financial condition improves.
<PAGE>
<PAGE>
4.  Debt

The Company's debt balances are as follows (in thousands):
<TABLE>
                                                           December 31,
                                                          1998         1997
  <S>                                                  <C>          <C>
  10.375% convertible subordinated debentures,
    due April 15, 1991 through April 15, 1999          $ 8,000      $ 9,500
  Less debentures purchased to meet
    sinking fund requirements                                0          310
  Subtotal                                               8,000        9,190
  Less current portion (1)                                            1,190
  Total                                                $ 8,000      $ 8,000

  Line of credit                                       $ 6,528      $ 5,834
  Bank debt term loan                                    3,494        2,741
  Subtotal other debt                                   10,022        8,575
  Less current portion (1)                                              305
  Total other debt                                     $10,022      $ 8,270
</TABLE>
(1) Applicable to 1997 only due to liquidation basis presentation in 1998 which
does not distinguish between current and long-term.

From January 1996 through January 8, 1997 the Company had a $6.0 million long-
term line of credit and a $1,750,000 term loan from The First National Bank of
Maryland ("First National") which had been scheduled to expire October 15, 1997
and November 15, 2000, respectively.  Borrowings under the line of credit and
term loan were collateralized by a pledge of substantially all of the assets
of the Company and its subsidiaries with the exception of real estate.  They
were subject to various financial covenants which, among other things, required
the Company to maintain specified ratios of debt to tangible net worth and
fixed charge coverage, and minimum levels of tangible net worth and limits
capital additions.  The borrowing base was limited to the sum of 80% of
eligible accounts receivable and 35% of eligible inventory.  At the Company's
option, borrowings under the line would bear interest at the lender's prime
rate or the London Inter-Bank Offer Rate, as amended.  In addition, the Company
paid a facility fee of 1/4 of 1% on the amount of the unused credit facility.
Borrowings under the term loan would bear interest at the lender's prime rate
plus .375%, unless Pacific elected otherwise in accordance with the loan
documents.  The term loan required quarterly principal payments of $62,500 in
1996 which would have increased to $87,500 in 1997 and $95,833 from 1998
through November 2000 had the loan not been replaced in January of 1997.

On January 9, 1997, the Company replaced the line of credit and term loan from
First National with secured financing from IBJ Whitehall Business Credit
Corporation (f/k/a IBJ Schroder Business Credit Corporation) (as successor in
interest to IBJ Schroder Bank & Trust Company) ("IBJ"). The IBJ loan was paid
off in August 1999 with the proceeds from the sale of Herculite and Hercon
Environmental. Pursuant to a Revolving Credit Term Loan and Security Agreement
("Loan Agreement') dated as of January 9, 1997, the Company was provided with
up to $7,000,000 in term loans and up to $8,000,000 in revolving credit.
Proceeds from borrowings under the Loan Agreement were used by the Company to
repay outstanding indebtedness under the aggregate $7,750,000 facility with
First National.  The term loans were intended to be used to repurchase, repay
and/or redeem up to $7,000,000 of the Company's 10 3/8% Convertible
Subordinated Debentures due April 15, 1999, as market conditions warranted.

Borrowings under the IBJ facility were collateralized by a pledge of
substantially all of the assets of the Company.  The Loan Agreement, which
would have expired on January 9, 2002, was subject to various covenants which,

<PAGE>
among other things, required the Company to maintain specified ratios of net
worth, current ratio, fixed charge coverage, minimum level of earnings before
taxes, depreciation and amortization and limits capital expenditures.  On
January 21, 1998, the Company entered into a First Amendment ("First
Amendment") to the Loan Agreement with IBJ.  The First Amendment, among other
things, amended the terms for drawing upon the term loan and amended certain
financial covenants.  Pursuant to the Amendment, the maximum term loan amount
was reduced to $3,998,000 from $7,000,000 providing an aggregate of up to
$11,998,000 in senior secured financing.  In addition, an overadvance facility
of $400,000 was provided through July 31, 1998.  The interest rates on the
revolving credit line and term loans increased to IBJ's prime plus .50% and
IBJ's prime plus .875%, respectively.  The Company paid a facility fee of 3/8
of 1% on the amount of the unused available financing facility.

In April 1998, the Company borrowed the remaining $1.2 million allowable by IBJ
in term loans to purchase the Company's convertible subordinated debentures to
meet the April 1998 sinking fund requirements.  In May 1998, the Company
commenced required monthly payments on the term loan of $56,000.  Monthly
payments would have continued until the termination of the loan on January 9,
2002.  The $8,000,000 revolving credit line borrowing base was limited to the
sum of 85% of eligible accounts receivable, 50% of eligible inventory and an
overadvance facility of $1,200,000 which effectively increased the eligible
amount by $1,200,000.  On July 31, 1998, the Company entered into a Second
Amendment to the Loan Agreement with IBJ, among other things, to increase the
Company's overadvance facility to $600,000 through December 31, 1998.

At December 31, 1998, the Company was not in compliance with the following
covenants:  the net worth, current ratio, fixed charge coverage and minimum
level of earnings before taxes, depreciation and amortization covenants.  This
resulted in reclassification of amounts outstanding under the line of credit
and term loan to current liabilities. At December 31, 1998 the Company had
borrowed $6.5 million on its revolving line of credit from IBJ and $3.5 million
in term loans.  For the twelve months ended December 31, 1998, the maximum
eligible amount of the $8,000,000 revolving credit line, ranged from $6,215,000
to $7,620,000, or from 78% to 95% exclusive of the $1,200,000 overadvance
facility.

On January 11, 1999, the Company entered into a Waiver and Third Amendment (the
"Third Amendment") to the Loan Agreement with IBJ.  The Third Amendment, among
other things, increased the Company's overadvance facility to $1,200,000
through March 31, 1999 and waived compliance with the covenants the Company was
not in compliance with on September 30, 1998.  In connection with the Third
Amendment, Marvin M. Speiser, the Company's President and Chairman of the
Board, and his wife, Laura G. Speiser, pledged certain investment property
consisting of marketable securities valued at no less than $710,000 (the
"Collateral") and entered into a limited guaranty of the Company's obligations
under the Loan Agreement not to exceed the principal sum of $1,000,000 plus
interest.  IBJ released its security interest in all of the Collateral upon
repayment of the loan in August 1999.

On March 24, 1999, the Company entered into a Consent and Fourth Amendment (the
"Fourth Amendment") to the Loan Agreement with IBJ.  The Fourth Amendment,
among other things, increased the Company's overadvance facility to $1,800,000
and extended such facility to April 13, 1999.  In a series of Amendments and
Forebearance Agreements with IBJ dated April 14, May 14, June 21, July 15, and
August 15, 1999, the Company received extensions of its time to repay special
advances made by IBJ under the Loan Agreement.  On August 19, 1999, the Company
paid the entire amount due to IBJ under the term loans and the revolving credit
line with proceeds from the sale of assets of Herculite and Hercon
Environmental aggregating $14.2 million.


<PAGE>
The required $1.5 million sinking fund payment on the Company's convertible
subordinated debentures due on April 15, 1998 was satisfied by application of
$.3 million debentures previously repurchased or redeemed, of which $.1 million
were purchased in 1996, and by calling for redemption of the remaining $1.2
million. In October 1998, the Company paid $.5 million in interest on its
debentures.  The debentures were convertible into shares of the Company's
common stock at $19.52 per share through April 15, 1999.  During 1998, 1997 and
1996, the Company repurchased debentures with a face amount of $.4 million in
market transactions and called for redemption $3.3 million to meet sinking fund
requirements.  In April 1999, the Company defaulted on its obligations to repay
the remaining $8 million in principal as well as the accrued interest of $.4
million due on the Debentures at maturity. The Company made a $1.9 million
payment on its debt obligations in respect of the Debentures out of the
proceeds of the sale of assets of Herculite and Hercon Environmental in August
1999.   The Company's ability to repay the balance of its obligations on the
Debentures is contingent upon the Company's effecting a business solution with
regard to and continue operating the manufacture of its new nitroglycerin
products and the Company's ability to secure up to $1.5 million financing from
a financial institution.  There can be no assurance that the Company will be
successful in its efforts toward that end.  A failure to effect such a business
solution or to secure such financing for short-term capital requirements would
have a material adverse effect on the financial status of the Company.

As of August 31, 1999, the Company and its subsidiaries entered into two
agreements with Bankers Trust Company, the indenture trustee for the
debentures.  Under a Security and Pledge Agreement, a security interest in the
$550,000 escrow deposit created at the closing of the sale of assets of
Herculite and Hercon Environmental on August 19, 1999 was granted in favor of
debentureholders.  Pursuant to a second agreement with Bankers Trust Company,
the Company and its subsidiaries agreed: (i) to exercise their best efforts to
effect a repayment plan to pay the debentures at the earliest practical date;
(ii) that pending a repayment plan, they will not make any payments to insiders
except for salaries and benefits due and becoming due to them and that insiders
can receive pari passu payments on debentures they hold; and (iii) to give
Bankers Trust Company not less than two business days' notice before engaging
in any extraordinary transactions.

The Company has not paid cash dividends and does not anticipate paying such
dividends on its common stock in the foreseeable future.

The terms of the indenture relating to the debentures restrict the Company's
ability to pay cash dividends and/or repurchase its capital stock pursuant to
a formula based upon the consolidated net income of the Company and other
factors.  Under the formula, at December 31, 1998, no amount was available for
the payment of dividends and/or the repurchase of capital stock.

Annual maturities of debt for the period following December 31, 1998 is as
follows: (in thousands)
                         Convertible      Line of
                         Subordinated     Credit      Term
      Year               Debentures(1)    Payable(2)  Loan (2)
      1999                 $ 8,000         $6,527    $3,496

Note: (1)   Amounts shown are net of face value of repurchased debentures.

      (2)   The Company was not in compliance with certain covenants at
            December 31, 1998 making the debt immediately payable.


<PAGE>
<PAGE>
5.  Supplemental Pension Agreements

In April 1995, Health-Chem entered into five-year Employment Agreements with
each of Marvin M. Speiser and Robert D. Speiser which entitle them to receive
upon retirement on or after January 1, 2000, in the case of Marvin M. Speiser,
and on or after January 1, 2010, in the case of Robert D. Speiser, an annual
supplemental pension benefit equal to 60% of such executive's final base
salary, which for this purpose will be the highest nominal annual salary paid
to him during his employment.  The supplemental pension will be payable for a
period of ten (10) years beginning on the retirement date, or if later, January
1, following termination of employment.  In the event of termination of
employment prior to the retirement date, the amount of the supplemental pension
payable on that date will be prorated based on the period of employment from
December 31, 1994 to the date of termination.  No proration will be applied,
however, if the executive's employment is involuntarily terminated.  An
actuarially reduced supplemental pension benefit may be paid if the benefit is
commenced upon termination of employment prior to the retirement date.  For the
year ended December 31, 1998 and 1997 the related pension accrual in the amount
of $1,994,000 and $1,474,000, respectively, has been recorded on the
Consolidated Financial Statements. In August 1999, Marvin M. Speiser agreed to
waive his first year's supplemental pension benefit, payable commencing January
1, 2000, in the amount $300,000 (See Note 9).

Net pension cost included in the operating results for fiscal year ended
December 31, 1998, 1997 and 1996 consisted of the following components:
(in thousands)
<TABLE>
                                            1998      1997     1996
<S>                                         <C>       <C>      <C>
Service costs                               $ 84      $ 81     $ 76
Interest costs                               157       147      134
Net amortization                             279       316      321
Net pension cost                            $520      $544     $531
</TABLE>
The supplemental pension agreements currently are not funded.  The status of
these plans at December 31, 1998 and 1997 is as follows: (in thousands)
<TABLE>
                                           1998     1997
<S>                                      <C>      <C>
Accumulated benefit obligations          $2,371   $1,932
Projected benefit obligation              2,651    2,243
Projected obligation in excess
  of plan assets                          2,651    2,243
Unrecognized prior service cost            <657>    <769>
Accrued pension cost                     $1,994   $1,474
</TABLE>
The assumed discount rate used in determining the accumulated benefit
obligation was 7% for 1998 and 1997.

<PAGE>
<PAGE>
6.  Employee Benefit Plan

All permanent, full-time non-union employees of the Company are eligible to
participate in Health-Chem's 401(k) Plan (the "Plan") following six months of
employment.  The Plan allows eligible employees to defer up to 20% of their
income on a pre-tax basis through contributions to the Plan.  The Company may
contribute for each participant a matching contribution equal to a percentage
of the elective contributions made by the participants.  The decision to make
matching contributions and the amount of such contributions will be made each
year by the Company.  These Company matching contributions were $53,000,
$59,000, and $64,000 in 1998, 1997 and 1996, respectively.

7.  Commitments

The Company leases office space in New York City and leases certain equipment
under agreements which are classified as capital leases at Transderm, the most
recent of such capital leases was entered into in January 1999.  Future minimum
payments under the capital leases are $89,000 and $72,000 in 1999 and 2000,
respectively.  Minimum rental commitments required under these non-cancelable
leases having a term of more than one year as of December 31, 1998 were as
follows (in thousands):

                  Year                     Amount
                  1999                     $  196
                  2000                        214
                  2001                        214
                  2002                        214
                  2003                        214
                 Total                     $1,052

Rent expense was $189,000, $185,000 and $185,000 in 1998, 1997 and 1996,
respectively.

At December 31, 1998, commitments under employment arrangements aggregated
$2,379,000 through 2002.  Certain employees were provided bonuses, based upon
defined earnings or the attainment of certain sales levels, which amounted to
$130,000, $251,000 and $201,000 in 1998, 1997 and 1996, respectively.

8.  Litigation

(a)  In August 1995, Key Pharmaceuticals, Inc., a subsidiary of Schering-Plough
Corporation ("Key"), commenced an action against Hercon Laboratories in the
United States District Court for the District of Delaware ("Delaware District
Court") alleging that Hercon Laboratories' submission to the United States Food
and Drug Administration ("FDA") of three Abbreviated New Drug Applications
("ANDAs") relating to some of Hercon Laboratories' transdermal nitroglycerin
products, for which Hercon Laboratories has applied for FDA approval,
constituted infringement of Key's patent for its Nitro-Dur(R) products.  Key
sought certain injunctive relief, monetary damages if commercial manufacture,
use or sale occurs, and a judgment that the effective date for FDA approval of
the above-referenced ANDAs be not earlier than February 16, 2010, the
expiration date of Key's patent.  Hercon Laboratories denied the material
allegations of the complaint, asserting, among other things, that the Key
patent is invalid and unenforceable and that Hercon Laboratories had not
infringed and did not infringe any claim of the patent.  Hercon Laboratories
counterclaimed against Key for declaratory judgment of patent noninfringement,
invalidity and unenforceability.  On September 30, 1997, the Delaware District
Court ruled in favor of Key on its infringement claim and on Hercon
Laboratories' claim that Key's patent is invalid and unenforceable.  On
December 17, 1997, the Delaware District Court issued an injunction, enjoining
Hercon Laboratories, except as provided for by statute, from making, using,

<PAGE>
offering for sale, selling or importing any transdermal nitroglycerin patches
that have been found to infringe claim 14 of Key's patent, before the
expiration of Key's patent on February 16, 2010.  In November 1998, the United
States Court of Appeals for the Federal Circuit in Washington, D.C. (the
"CAFC") affirmed the Delaware District Court's ruling in favor of Key.  In
January 1999, the CAFC denied Hercon Laboratories' petition for rehearing of
its appeal.  Hercon Laboratories is currently reviewing its options with
respect to the manufacture and marketing of its improved nitroglycerin patches.

(b)  In October 1995, Gershon Yormack, a stockholder of the Company, initiated
an action against the Company, its directors and Transderm in the Delaware
Chancery Court (New Castle County) in which he sought injunctive and
declaratory relief with respect to certain options to purchase Transderm common
stock granted to each of Marvin M. Speiser, the Company's Chairman of the Board
and President, and Robert D. Speiser, the Company's Executive Vice President.
Pursuant to Employment Agreements entered into in April 1995, in November 1995
the Company caused Transderm to issue an option to purchase shares of
Transderm's common stock at an exercise price of $.10 per share to each of
Marvin M. Speiser and Robert D. Speiser (the "Options").  The plaintiff alleges
that this price for Transderm common stock offered by the Company to
stockholders under a registered subscription rights offering (via a prospectus
dated September 18, 1995) was substantially less than the fair market value of
such Transderm common stock.  In November 1998, the court approved a settlement
reached between the plaintiff and the defendants pursuant to which the
defendants neither admitted nor denied any wrongdoing or liability.  The
material terms of the settlement were that:  (i) the exercise price of the
Options was increased to an average of $0.15 per share; (ii) the Company and
Robert D. and Marvin M. Speiser agreed that no additional options to purchase
Transderm stock will be issued to the Speisers during the term of the Options;
(iii) the Speisers will not exercise the Options before April 4, 2000, unless
there is a transaction in which Transderm is acquired, in which case the number
of Options exercisable will be limited to 20% of the total Options for each
year that has passed subsequent to their authorization; (iv) the action was
dismissed, with prejudice, thereby releasing defendants from liability for all
claims which were or could have been asserted in the action; and (v)
plaintiff's counsel received fees and expenses in the amount of $70,000 which
were paid by the Company.



9.  Redeemable Common Stock and Stock Purchase Agreement/Rights Offering

On July 15, 1994, the Company exercised its option to purchase 525,000 shares
of the Company's Common Stock, par value $.01 per share, at $2.00 per share,
from National Union Fire Insurance Company of Pittsburgh, PA.  These shares are
included in treasury stock and had previously been classified as Redeemable
Common Stock.

In compliance with certain restrictive covenants under the indenture governing
the Company's 10.375% convertible subordinated debentures due April 15, 1999,
the Company paid for the 525,000 shares from the proceeds of the substantially
concurrent sale of 575,000 shares of the Company's treasury stock the ("1994
Optioned Stock") at $2.00 per share, to Marvin M. Speiser pursuant to a stock
purchase and option agreement ("1994 Option Agreement")

In September 1996, the Company issued 952,520 shares of its Common Stock, at
$1.10 per share, pursuant to a subscription rights offering of up to 1,320,000
shares registered under the Securities Act (the "Rights Offering").  The Rights
Offering was effected in accordance with a contemporaneous stock purchase
agreement between the Company and Marvin M. Speiser.  Substantially all of the
proceeds of this Rights Offering were used to pay the exercise price (at

<PAGE>
$1.0816 per share) of an equal number of shares acquired from Marvin M. Speiser
upon the exercise of the Company's repurchase rights under the 1994 Option
Agreement and an option agreement entered into in 1991 (together with the 1994
Option Agreement, the "Option Agreements").  Of the total of 1,782,689 shares
subject to repurchase by the Company, 952,520 shares were purchased, 512,763
shares were retained by Mr. Speiser free of the Company's repurchase rights,
as the deemed exercise of his pro rata subscription rights, and 317,406 shares
remained subject to the Company's repurchase rights under the Option Agreements
through June 30, 1999.

In August 1999, Mr. Speiser agreed to transfer the 317,406 shares previously
subject to the Option Agreements to the Company in exchange for a) the
Company's cancellation of a remaining $249,000 debt owed by Mr. Speiser to the
Company in connection with Mr. Speiser's purchase of the 1994 Optioned Stock
and b) Mr. Speiser's waiver of his first year's supplemental pension benefit,
payable commencing January 1, 2000 in accordance with Mr. Speiser's Employment
Agreement with the Company (See Note 5), in the amount of $300,000.
<TABLE>
10.  Stockholders' Equity

a.  A summary of the shares of common and treasury stock is as follows:

                                                   Treasury Stock
                                  Common     Convertible        Common
                                  Stock      Special Stock      Stock

    <S>                        <C>                 <C>        <C>
    Balance at 12/31/97        7,982,424           738,667    6,490,632

    Balance at 12/31/98        7,982,424           738,667    6,490,632
</TABLE>

b.  Convertible special stock

The convertible special stock has the same rights as common stock except that
it is nonvoting.  Each share is convertible into 1 1/3 shares of the Company's
common stock.  The conversion rate is subject to change under certain
circumstances.  No shares of convertible special stock are outstanding.



c.  Reserved shares
<TABLE>                                                     Number of
        Purpose of Reservation                               Shares
    <S>                                                       <C>      <C>
    Conversion of convertible special stock                   984,889
    Stock option plans                                        898,000
    Conversion of 10.375% convertible
      subordinated debentures                                 409,836
    Total reserved shares                                   2,292,725
</TABLE>
In August 1999, options to purchase 75,000 shares of the Company's Common Stock
expired unexercised due to the sale of assets of Herculite and Hercon
Environmental and the number of reserved shares was reduced to 2,217,725.

d.  Stock rights plan

On February 28, 1989, the Company adopted a stock rights plan which was amended
November 7, 1990.  Pursuant to such plan, the Board of Directors declared a
dividend of one right ("Right") for each share of common stock of
the Company outstanding on March 21, 1989.  In the event that a person or

<PAGE>
affiliated group, other than any present officer or director, acquired,
obtained the right to acquire, or tendered for 30% or more of the Company's
outstanding common stock (other than through certain permissibly structured
tender offers), then each holder of a Right, other than the 30% stockholder or
tender offeror, would have been entitled to receive upon exercise of each
Right, common shares of the Company which had a market value equal to two times
the exercise price of the Right, or capital stock of the acquiring company
which had a market value of two times the exercise price of the Right.
The Company may have redeemed the Rights for a nominal amount at any time prior
to 10 days (subject to extension by the Board of Directors) after a person or
group acquired or tendered for 30% or more of the Company's common stock.  All
Rights expired on February 27, 1999.

11.  Stock Options

Health-Chem Corporation

Options granted under various stock option plans are exercisable in
installments commencing one year from the date of grant and expire five to ten
years from the grant date.

In March 1995, the Company adopted the 1995 Performance Equity Plan ("1995
Plan") which was designed to attract and retain employees of the highest
caliber, to provide increased incentive for officers and key employees and to
continue to promote the well-being of the Company.  Pursuant to the 1995 Plan,
up to an aggregate of 600,000 shares of the Company's Common Stock are
available for the granting of stock or stock related incentive awards.

The Company has adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation" (SFAS 123).  As permitted by SFAS
123, the Company has chosen to apply APB Opinion No. 25, "Accounting for Stock
Issued to Employees" and related interpretations in accounting for its stock
option plans.  Accordingly, no compensation cost has been recognized for
options granted under the plans.  The Company did not award any option grants
during the years ended December 31, 1998, 1997 and 1996.

<PAGE>
<PAGE>
<TABLE>
A summary of the status of the Company's plans as of December 31, 1998, 1997
and 1996 and changes during the years ended on those dates is presented below:

                               1998              1997              1996
                                 Weighted          Weighted         Weighted
                                 Average           Average          Average
                                 Exercise          Exercise         Exercise
                          Shares   Price   Shares    Price   Shares   Price
<S>                      <C>        <C>    <C>        <C>    <C>       <C>
Outstanding at
beginning of year        302,500    $3.16  557,500    $4.53  615,000   $4.53

Granted                        0                 0                 0

Exercised                      0                 0                 0

Forfeited
 Price @ $9.125-$11.125                    <88,000>   $10.25       0
 Price @ $4.38-$5.25                       <91,000>    $5.25  <3,000>  $5.25
 Price @ $3.25-$3.75      <4,500>   $3.47  <66,000>    $3.48 <44,500>  $3.48
 Price @ $2.50                             <10,000>    $2.50 <10,000>  $2.50
   Total Forfeited        <4,500>         <255,500>          <57,500>

Outstanding at end
 of year                 298,000    $3.16  302,500     $3.16 557,500   $4.65

Options exercisable
 at year-end             275,800           238,900           397,600
</TABLE>
In August 1999, options to purchase 75,000 shares of the Company's Common Stock
expired unexercised due to the sale of assets of Herculite and Hercon
Environmental.

The following table summarizes information about the Plan's stock options
outstanding at December 31, 1998:
<TABLE>
                       Options Outstanding              Options Exercisable

                           Weighted-
                            Average     Weighted-                 Weighted-
Range of       Number      Remaining     Average      Number       Average
Exercise    Outstanding   Contractual   Exercise    Exercisable   Exercise
 Prices     at 12/31/98      Life         Price     at 12/31/98     Price
<S>         <C>           <C>           <C>         <C>           <C>
$ 2.50           98,000     3.3 years      $ 2.50        98,000      $ 2.50
$ 3.25          111,000     5.3 years      $ 3.25        88,800      $ 3.25
$ 3.75           89,000     4.3 years      $ 3.75        89,000      $ 3.75

Total           298,000                                 275,800
</TABLE>

Transderm Laboratories Corporation

Pursuant to the five-year Employment Agreements referred to in Note 5, on
November 13, 1995, the Company caused Transderm to enter into stock option
agreements with Robert D. Speiser and Marvin M. Speiser allowing each of them
to purchase 5,000,000 shares of Transderm's common stock.  After amendment of
the options in November 1998, the exercise price is $.15 per share, and the
options are exercisable from April 4, 2000 through November 13, 2005, unless
there is a transaction in which Transderm is acquired in which case the number

<PAGE>
<TABLE>
of shares as to which the option is exercisable will be limited to twenty (20%)
percent of the total number of shares underlying the options for each year that
has passed since April 4, 1995, with part years to be pro-rated temporally.
Transderm has reserved 10,000,000 shares of Common Stock for issuance to Robert
D. Speiser and Marvin M. Speiser pursuant to these stock option agreements (the
"Agreements").

In April 1996, Transderm adopted the 1996 Performance Equity Plan ("Transderm
Plan") which was designed to attract and retain employees of the highest
caliber, to provide increased incentive for officers and key employees and to
continue to promote the well-being of Transderm.  Pursuant to the Transderm
Plan, up to an aggregate of 2,000,000 shares of Transderm's Common Stock were
made available for the granting of stock or stock related incentive awards.
During 1996 the Company entered into stock option agreements with three
officers and key employees allowing them to purchase up to an aggregate of
1,400,000 shares under the Transderm Plan.  Transderm did not award any option
grants during the year ended December 31, 1997.  During 1998, the Company
entered into a stock option agreement with a key employee allowing the employee
to purchase up to an aggregate of 50,000 shares under the Transderm Plan.  The
Company has reserved 1,450,000 shares of Common Stock pursuant to these stock
option agreements.

In accordance with the Company's adoption of SFAS 123, no compensation cost has
been recognized for options granted under the Transderm Plan.  Had compensation
cost for the Transderm Plan been determined based on the fair value at the
grant dates for awards under the Transderm Plan consistent with the method of
SFAS 123, the Company's net loss and net loss per share would have been
increased to the pro forma amounts indicated below.
                                 <C>            <C>            <C>
<S>                <C>               1998           1997          1996
Net loss           As reported  $<10,645,000>   $<3,258,000>   $<1,322,000>
                   Pro forma    $<10,676,000>   $<3,288,000>   $<2,033,000>

Basic and diluted  As reported        $<1.33>        $<0.41>      $<0.17>
loss per share     Pro forma          $<1.33>        $<0.41>      $<0.25>
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1998 and 1996, respectively; no dividend yield
for all years; expected volatility of 100% for all years; risk-free interest
rates of 5.68% and 6.11%, respectively; and expected lives of seven years for
all the option grants.
<PAGE>
<PAGE>
<TABLE>
A summary of the status of the Transderm Plan as of December 31, 1998, 1997 and
1996 and changes during the years ended on those dates is presented below (in
thousands, except per share amounts):

                           1998              1997             1996
                             Weighted         Weighted          Weighted
                             Average          Average           Average
                             Exercise         Exercise          Exercise
<S>                   Shares  Price    Shares  Price     Shares  Price
Outstanding at        <C>    <C>       <C>    <C>        <C>     <C>
 beginning of year    11,400   $0.103  11,400   $0.103   10,000    $0.10

Granted                   50    0.1875      0    0        1,400     0.125
Exercised                  0    0           0    0            0     0
Forfeited                  0    0           0    0            0     0

Outstanding at end
 of year              11,450    0.147  11,400    0.103   11,400     0.103
Options exercisable
 at year-end             560           10,280            10,000
Weighted-average
 fair value of
 options granted
 during the year       $0.19               $0            $0.106
</TABLE>
The following table summarizes information about the Transderm Plan stock
options outstanding at December 31, 1998:
<TABLE>
                    Options Outstanding                  Options Exercisable

                           Weighted-
                            Average      Weighted-                  Weighted-
Range of     Number        Remaining      Average       Number       Average
Exercise   Outstanding    Contractual     Exercise    Exercisable    Exercise
 Prices    at 12/31/98       Life          Price      at 12/31/98     Price
<S>        <C>            <C>            <C>          <C>           <C>
$0.125-     11,450,000     7.0 years      $0.147         560,000     $0.125
$0.1875

12.  Taxes on Income  (In thousands)
                                                   Year Ended December 31,
<S>                                                 1998      1997     1996
Taxes on income include provision <benefit> for:  <C>      <C>       <C>
  Federal income taxes                            $1,892   $<1,136>  $ <767>
  State and local income taxes                      <270>      <85>    <128>
   Total                                          $1,622   $<1,221>  $ <895>

Taxes on income are comprised of:
  Payable <receivable>                            $  <28>  $  <116>  $  <55>
  Deferred <benefit>                               1,650    <1,105>    <840>
   Total                                          $1,622   $<1,221>  $ <895>

Charged <credited> to:
  Loss before extraordinary gain                  $1,622   $<1,230>  $ <898>
  Extraordinary gain on repurchase of debentures       0         9        3
   Total                                          $1,622   $<1,221>  $ <895>
</TABLE>
<PAGE>
<PAGE>
<TABLE>
A reconciliation of taxes on income to the federal statutory rate is as
follows:
                                                   Year Ended December 31,
                                                     1998     1997     1996
   <S>                                            <C>      <C>       <C>
  Tax <benefit> at statutory rate                 $<2,892> $<1,523>  $ <755>
  Increase <decrease> resulting from:
   State and local taxes, net of federal
     tax benefit                                     <323>     <85>     <36>
   Recognition of tax loss and tax credit
     carryforwards (not previously recognized)        <28>     <84>     <51>
   Intangibles and officers' life insurance
     premiums                                         268       79       15
   Settlement of state tax assessments                  0        0      <69>
   Valuation allowance <reversal>                   4,574      371      <25>
   Other                                               23       21       26
  Tax <benefit>                                   $ 1,622  $<1,221>  $ <895>
</TABLE>

In 1998, the Company's $1,622,000 tax provision consisted of state tax refunds
of $27,000, a decrease in the liability of $243,000 and an increase in a
valuation allowance of $1,892,000.  The $1,892,000 valuation allowance was
recorded to eliminate 1997 deferred tax asset for identical amount, since the
assumptions supporting the tax planning strategy based on which such asset was
recognized in earlier years was no longer applicable.  The $243,000 long-term
liability was originally established to provide for potential state tax audit
adjustments.  The Company evaluated this liability at year end and determined
that the Company was no longer subject to such liability and hence such
liability should be reversed to income.  The Company recorded valuation
allowances against tax assets for the years ending December 31, 1998 and 1997
of $4,574,000 and $371,000, respectively.

At December 31, 1998 and 1997, the deferred tax assets and liabilities result
from the following temporary differences and carryforwards:
<TABLE>
<S>                                                  1998      1997
Deferred tax assets:                              <C>       <C>
  Net operating and other tax loss
   carryforwards                                  $ 8,692   $ 9,872
  Tax credit carryforwards                            693       631
  Provision for litigation contingencies               87       101
  Allowances for bad debts                             96       274
  Inventory reserves and
  Capitalization of overhead costs as
   inventory in accordance with tax laws              671       230
  Retirement benefits                                 798       690
  Other                                                77       215
     Total deferred tax assets                     11,114    12,015

Deferred tax liabilities:
  Accelerated depreciation                           <602>     <750>
  Other                                                 0         0
Total deferred tax liabilities                       <602>     <750>
Net deferred tax asset before valuation
 allowance                                         10,512    11,265
Valuation Allowance                               <10,512>   <9,373>
     Total deferred tax assets and
      liabilities net                             $     0   $ 1,892
</TABLE>
At December 31, 1997, the net deferred tax asset was comprised of a non-current
<PAGE>
asset of $1,892,000.  In 1998, total deferred tax assets and liabilities net
was reduced to zero, since the previous tax planning strategy involving sale
and leaseback of certain assets could no longer be executed pursuant to the
actual sale of related assets as state in Note 1a.  Gain arising from sale of
such assets in 1999 net of losses (tax basis) from the year is not expected to
result in any tax benefits.  The various components of net  deferred tax assets
were adjusted to reflect change in estimates.

At December 31, 1998, the Company had approximately $22 million of net
operating loss carryforwards for federal income tax purposes which expire in
various years from 2000 through 2013 and tax credit carryforwards that expire
in various years from 1999 through 2008.  The Company also had net operating
loss carryforwards in various states in which the Company and its subsidiaries
operate which are available to absorb allocated portions of future taxable
income for state tax purposes.  The state operating loss carryforwards expire
from 1999 through 2013.

At December 31, 1997, the Company had moved into a three year cumulative loss
status.  In accordance with SFAS 109, this required the Company to assess the
likelihood that all or a portion of its deferred tax asset would not be
realized, in which case the asset would have to be reduced by a valuation
allowance.  To determine the amount of the valuation allowance, all positive
and negative information regarding financial position and results of operations
of the Company for the current, preceding and future years was considered.  In
addition, the Company considered tax-planning strategies in determining the
amount of valuation allowance required.  Under SFAS 109, a tax planning
strategy is a prudent and feasible action that is allowable under the tax law
and is expected to result in realization of deferred tax benefits.  Such action
is one that management normally would not implement unless the Company were
about to lose tax benefits.  At December 31, 1997, the Company determined that
it would be feasible to enter into a sale-leaseback transaction before the
deferred tax assets expire.  This tax planning strategy, in conjunction with
other deferred tax liabilities, enabled the Company to continue to recognize
deferred tax assets of approximately $1,892,000.

At December 31, 1998, in accordance with SFAS 109, the Company was required to
increase its valuation allowance by $4,574,000, $2,682,000 to offset changes
resulting from the current year operating loss and temporary differences and
$1,892,000 to reduce the net deferred tax assets regarding the sale-leaseback
transaction to zero. The sale-leaseback transaction was proposed as a tax
strategy to allow the company to utilize deferred tax assets before they
expire.  On August 19, 1999, the Company sold the assets underlying such tax
planning strategy, including the building in which Herculite and Hercon
Environmental operated, to Aberdeen Road Company.  A valuation allowance was
therefore recorded for $1,892,000 reducing the net deferred tax assets to zero
at December 31, 1998 as a result of the sale.
<TABLE>
13.  Interest Expense - Net  (In thousands) <C>       <C>       <C>
     <S>                                     Year ended December 31,
                                              1998      1997      1996
     Interest expense                       $1,834    $1,765    $1,544
     Interest income                           <72>     <162>     <181>
     Capitalized interest                        0         0      <100>

     Total interest expense - net           $1,762    $1,603    $1,263
</TABLE>
<PAGE>
<PAGE>
14.  Discontinued Operations

The consolidated financial statements of the Company, including footnotes, and
supplemental financial  data have been reclassified to reflect the results of
operations and net assets of Herculite, Hercon Environmental and Pacific
Combining Corporation subsidiary ("Pacific") as discontinued operations in
accordance with generally accepted accounting principles. On November 20, 1998
("measurement date"), the Company adopted a plan to discontinue the operations
of its Pacific located in Los Angeles, California.  The Company reached this
decision in light of previously reported declining revenues and accelerating
losses at this synthetic fabric manufacturing operation.  The Pacific
operations were essentially terminated in November 1998 and the plant was
closed on July 19, 1999.

Early in 1999, management decided, after considering available options, that
a sale of assets of the Company's Herculite and Hercon Environmental
subsidiaries was the best alternative to generate some or all of the monies
required to satisfy current financial obligations. In June 1999, the Company
entered into a Letter of Intent for the sale of Herculite and Hercon
Environmental for an estimated $14.4 million and estimated the transaction to
be consummated within 60 days. On August 19, 1999, the pending sale of
substantially all of the assets and liabilities  of these subsidiaries was made
to Aberdeen Road Company for approximately $14.2 million with $550,000
remaining in escrow to cover certain contingencies.  The proceeds of this sale
were used primarily to pay off the entire amount due to IBJ under the term
loans and the revolving credit line and to make a $1.9 million partial payment
on the balance of $8.0 million principal amount outstanding of the Company's
convertible subordinated debentures.

Net assets of the discontinued operations at December 31, 1998 aggregating
$13.8 million consist primarily of equipment and leasehold improvements and are
reported on the consolidated balance sheet as "Assets being held for sale".

Depreciation was suspended on the equipment and leasehold improvements at
Pacific from the measurement date through December 31, 1998 amounting to a
$39,000 decrease in depreciation expense.

For the fiscal year ended December 31, 1998,  revenue attributable to
discontinued operations was $29.1 million.  For the fiscal years ended December
31, 1997 and 1996, revenues were $32.4 million and $35.4 million, respectively.

The $4.2 million loss from discontinued operations represents the loss from
operations for Pacific from January through November 20, 1998 of $5.3 million
and the income from operations for Herculite and Hercon Environmental from
January through December 31, 1998 of $1.6 million. Also included is a loss on
the disposal of Pacific of $.5 million primarily representing the difference
between the fair market value of equipment and leasehold improvements and the
amounts expected to be realized from the sale of those assets. Included in the
loss on disposal is $450,000 primarily representing actual expenses incurred
between November 20, 1998, (the date Pacific's operations were terminated)
until July 19, 1999, (the date the Pacific facility was finally closed), partly
offset by reduced settlement of certain payable amounts.

Income tax provision or benefit from discontinued operations resulted in zero
due primarily to the application of prior years net operating losses (NOL's)
for 1998 and 1997.  Health-Chem Corporation files a consolidated federal income
tax return which includes all of its subsidiaries.  There were also sufficient
state NOL's to primarily offset any income tax provision on each subsidiary for
1998 and 1997.

Herculite and Pacific manufactured multilayered synthetic fabrics sold to

<PAGE>
<TABLE>
health-care, industrial, military, automotive, marine and institutional
markets. The manufacturing process involved laminating or coating layer(s) of
vinyl, urethane or polyolefins to a synthetic textile. Hercon Environmental
manufactured and distributed controlled release dispensers and pheromone
products for insect control and household use. These products were sold to
industry, farmers, the United States Department of Agriculture, and a variety
of state agencies.

15.  Extraordinary <Loss> Gain

The Company's Board of Directors previously authorized the repurchase (subject
to certain bank credit facility restrictions) of up to $12 million in principal
amount of the Company's 10.375% convertible subordinated debentures to be used
to satisfy redemption requirements which began in April 1991.  As of December
31, 1998, $7,697,000 principal amount of debentures had been repurchased in
market transactions and $4,303,000 were called for redemption.  Extraordinary
<loss>/gain on the repurchase of debentures during 1998, 1997 and 1996 have
been recognized as follows (in thousands):      <C>       <C>      <C>
   <S>                                           1998      1997     1996
   Extraordinary <loss> gain from repurchase
     of subordinated debentures before taxes    $  <3>    $  26    $   8
   Tax provision (See Note 12)                      0        <9>      <3>
   Extraordinary <loss> gain from repurchase
     of subordinated debentures                 $  <3>    $  17    $   5
</TABLE>
16.  Segment Information

On December 31, 1998, the Company adopted Statement of Financial Accounting
Standards No. 131 "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131").  SFAS 131 establishes standards for the way that
public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
financial information about operating segments in interim financial reports
issued to shareholders.  SFAS 131 also establishes standards for related
disclosures about products and services, geographic areas and major customers.
Restatement of comparative information for earlier years is required upon
adoption.

The Company manages its business on the basis of one reportable segment.  See
Note 1a for a brief description of the Company's business and customers to
which sales for the fiscal year ended December 31, 1998 were in the aggregate
equal to 10% or more of the Company's consolidated net sales. The Company's
manufacturing operation is located in the United States.  Net sales by
geographic area are presented by attributing revenues from external customers
on the basis of where the products are sold.  The information pertaining to the
net sales of the reportable segment as of December 31, 1998, 1997 and 1996 is
presented below (in thousands):
      
<PAGE>
<PAGE>
<TABLE>                                     Year Ended December 31,
<S>                                        1998      1997      1996
Geographic Areas:                        <C>       <C>       <C>
 Net Sales:
  United States                           $6,581    $5,223   $11,588
  International                              326        76       558
                                          $6,907    $5,299   $12,146
Classes of Similar Products:
 Net Sales:
  Transdermal Nitroglycerin Products      $4,478    $5,299   $12,146
  Over-the-Counter Pharmaceutical and
   Cosmetic Products                       2,429         0         0
                                          $6,907    $5,299   $12,146

17.  Related Party Transactions

The consolidated financial statements include the following items applicable
to related parties (in thousands):
  <S>                                                 December 31,
  Statement of Assets and Liabilities/                1998    1997
    Balance Sheet:
                                                      <C>     <C>
  Receivable from director and executive officer      $275    $337

  10.375% convertible subordinated debentures
    held by directors and executive officers           503     465

  Notes payable to directors and executive officers     58       0

  Stockholder notes receivable arising from
    exercise of stock options                            0     148

  <S>                                                Year ended December 31,
  Income Statements:                                  1998    1997     1996
                                                      <C>     <C>      <C>
  Interest expense - net                              $ 20    $ 18     $ 14
</TABLE>
<PAGE>
<PAGE>
<TABLE>
19.  Quarterly Financial Information (Unaudited)  (In thousands except per
     share data)

                4th     3rd     2nd     1st     4th     3rd    2nd     1st
                Qrtr.   Qrtr.   Qrtr.   Qrtr.   Qrtr.   Qrtr.  Qrtr.   Qrtr.
                1998    1998    1998    1998    1997    1997   1997    1997
<S>           <C>      <C>     <C>     <C>     <C>    <C>    <C>     <C>
Net sales     $ 2,028   1,430   1,310   2,139  1,762     983  1,442   1,112

Gross profit  $   476     124     620   1,149    829     468    650     392

Loss
from
continuing
operations    $<4,639> <1,102>   <405>   <336><1,385> <1,507>  <931> <1,056>

Discontinued
operations     <3,406> <1,051>     83     214    534     540    521       7

Loss
before
extraordinary
gain           <8,045> <2,153>   <322>   <122>  <851>   <967>  <410> <1,048>

Extraordinary
gain <loss>         0       0      <3>      0     19       0     <2>      1

NET LOSS
  INCOME      $<8,045> <2,153>   <325>   <122>  <832>   <967>  <412> <1,047>


Earnings <loss> per common share (basic & diluted):

Continuing
operations    $  <.58>   <.14>   <.05>   <.04>  <.15>   <.17>  <.09>   <.11>

Discontinued
operations       <.43>   <.13>    .01     .02    .04     .05    .04    <.02>

Loss
before
extraordinary
gain            <1.01>   <.27>   <.04>   <.02>  <.10>   <.12>  <.05>   <.13>

Extraordinary
gain <loss>       .00     .00     .00     .00    .00     .00    .00     .00

NET LOSS
PER
SHARE         $ <1.01>   <.27>   <.04>   <.02>  <.10>   <.12>  <.05>   <.13>
</TABLE>
<PAGE>
<PAGE>
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

On November 3, 1998, the Company was informed by its independent auditors,
PricewaterhouseCoopers LLP ("PwC"), of PwC's resignation, effective as of that
date.  Prior to receipt of PwC's resignation, the Company had begun the process
of considering firms for engagement as independent auditors upon expiration of
PwC's engagement prior to the end of the 1998 fiscal year.  On November 9,
1998, the Company's Board of Directors approved the recommendation of the
Company's Audit Committee to appoint the accounting firm of Richard A. Eisner
& Company, LLP, as independent accountants for the Company for the year ending
December 31, 1998.  During the two most recent fiscal years and the subsequent
interim period preceding the resignation of PwC, there were no disagreements
with PwC on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of PwC, would have caused them to make
reference in connection with their report to the subject matter of the
disagreement or any reportable events.  PwC's report on the financial
statements for the past two years contained no adverse opinion or disclaimer
of opinion and was not qualified or modified as to uncertainty, audit scope or
accounting principles.



FORM 10-K                                                           PART III



ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

                             DIRECTORS

The Board of Directors currently consists of six members, each of whom were
elected in May 1998 to serve until the next annual meeting of stockholders or
until their respective successors are elected and qualified.  Set forth below
are the names of the directors, their ages, principal occupations and
professional experience for at least the previous five years.

Name                             Age(1)   Principal Occupation

Martin Benis, Ph.D.                 72    Professor of Accounting and
                                          Auditing at Baruch College of
                                          the City University of New York

Matthew Goldstein, Ph.D.            57    Chancellor of the City
                                          University of New York

Eugene Roshwalb                     60    Certified Public Accountant

Bruce M. Schloss                    43    Vice President, Secretary and
                                          General Counsel of the Company

Marvin M. Speiser(2)                74    Chairman of the Board and
                                          President of the Company

Robert D. Speiser(2)                46    Executive Vice President of
                                          the Company and President of
                                          Transderm Laboratories Corporation
                                          and Hercon Laboratories Corporation
(1)  Age as of September 1, 1999.
(2)  Marvin M. Speiser is the father of Robert D. Speiser.

<PAGE>
The following are summaries of the business experience during at least the last
five years of each of the persons nominated for election as a director of the
Company.

Martin Benis, Ph.D. has been Professor of Accounting and Auditing at Baruch
College of the City University of New York since 1972.  Dr. Benis served as the
Chairman of the Department of Accounting at Baruch from 1981 to 1987.  He is
a certified public accountant and the author of a book on auditing standards
and procedures as well as numerous articles and chapters in books on accounting
and auditing.  He became a director of the Company in March 1996.

Matthew Goldstein, Ph.D. has served as Chancellor of the City University of New
York ("The City University") since September 1999. From June 1998 through
August 1999, Dr. Goldstein was President of Adelphi University.  From September
1991 to June 1998, Dr. Goldstein served as President of Baruch College of The
City University.  He was previously the Acting Vice Chancellor for Academic
Affairs for The City University and President of the Research Foundation of The
City University.  Dr. Goldstein is a member of the Board of Trustees of the
Bronx-Lebanon Hospital Center and of the Board of Directors of the Jean Cocteau
Repertory, ex-officio.  He also serves on the Board of Directors of Audits and
Surveys Worldwide, a market research company.  Dr. Goldstein became a director
of the Company in March 1994.

Eugene Roshwalb is a certified public accountant.  He has maintained a practice
as a sole practitioner for more than five years.  He became a director of the
Company in March 1991.

Bruce M. Schloss is an attorney.  He has been General Counsel of the Company
since September 1991, Secretary since October 1991 and Vice President since May
1992.  Prior to joining the Company, Mr. Schloss was a member of the firm of
McLaughlin & Stern, Ballen and Ballen.  Mr. Schloss was elected a director of
the Company in May 1994.

Marvin M. Speiser has served as Chairman of the Board of Directors of the
Company and President since January 1969.

Robert D. Speiser has been Executive Vice President of the Company since April
1, 1994, President of Transderm since April 1989 and President of Hercon
Laboratories since May 1990.  From October 1986 to March 1994, he served as
Senior Vice President of the Company.  Mr. Speiser also served as President of
Union Broach Corporation, a former wholly-owned subsidiary of the Company, from
January 1983 through November 1993.  Prior to 1986, he served as Vice President
of the Company.  Mr. Speiser was elected a director of the Company in February
1983.  Mr. Speiser is an attorney.

Directors' Fees, Committees and Meetings

The Company does not compensate its employee directors for services rendered
as directors. During 1998, non-employee directors received $1,250 per month and
an additional fee of $500 for each meeting of the Board of Directors attended
and $500 for each committee meeting attended that was independently scheduled.
Non-employee directors were also reimbursed for expenses incurred in attending
such meetings.  In April 1999, the Company suspended payment of all directors'
fees until the Company is in a position to resume their payment.

In 1995, Mr. Eugene Roshwalb, a non-employee director, successfully negotiated
with various workers compensation insurance authorities to reclassify certain
Company employees, resulting in significant cost savings for the Company in its
workers compensation insurance premiums.  Mr. Roshwalb did not receive any fees
for the performance of this work, however, Mr. Roshwalb at the time was
provided with an automobile leased by the Company.  The Company continues to

<PAGE>
lease an automobile on behalf of Mr. Roshwalb.  The adjusted annual lease value
of this automobile in 1998 was $3,407. Mr. Roshwalb was also paid $5,500 for
certain tax consulting services rendered on behalf of Mr. Marvin M. Speiser.

During 1998, the Board of Directors held four meetings.  During such period no
director participated in fewer than 80% of the aggregate of the number of
meetings of the Board of Directors and committees thereof of which such
director was a member.  The Board of Directors has, among others, an Audit
Committee and a Compensation Committee.  The Committees receive their authority
and assignments from the Board of Directors and report to the Board.  The Audit
Committee and the Compensation Committee are both currently composed of Martin
Benis and Eugene Roshwalb.  All Committee members are non-employee directors.

The Audit Committee, among other things, is empowered to recommend to the Board
of Directors the engagement of the independent auditors and to review the scope
and procedures of the activities of the independent auditors and their reports
on their audits.  The Audit Committee meets periodically with the independent
auditors and management to review their work and confirm that they are properly
discharging their responsibilities.  The Audit Committee met twice during 1998.

The Compensation Committee is empowered to make recommendations to the Board
of Directors relating to the overall compensation arrangements for senior
management of the Company and to make recommendations to the Board of Directors
pertaining to any compensation plans in which officers and directors of the
Company are eligible to participate.  The Compensation Committee is also
responsible for the administration of the Company's stock option and
performance equity plans and is the approving authority for management's
recommendations with respect to option grants.  The Compensation Committee met
twice during 1998.

The Company does not have a standing nomination committee.

                      EXECUTIVE OFFICERS
<TABLE>
The following are the executive officers of the Company:
<S>                          <C>                              <C>
Officers                     Position                         Age(1)

Marvin M. Speiser(2)         Chairman of the Board              74
                             and President

Robert D. Speiser(2)         Executive Vice President of        46
                             the Company and President
                             of Transderm and Hercon
                             Laboratories

Thomas J. Atkins, Ph.D.      Vice President of Transderm        52
                             and Vice President-Research
                             and Development of Hercon
                             Laboratories

David J. Heath, Jr.          Vice President-Finance             41

Donald E. Kauffman, Jr.      Vice President of                  45
                             Transderm and Vice
                             President-Manufacturing of
                             Hercon Laboratories

Murray Lieber                Vice President of Transderm        61
                             and Vice President-Marketing
                             of Hercon Laboratories

Bruce M. Schloss             Vice President, Secretary          43
                             and General Counsel
</TABLE>
<PAGE>
(1)  As of September 1, 1999.
(2)  Marvin M. Speiser is the father of Robert D. Speiser.

The following is a summary of the business experience during at least the last
five years of all executive officers of the Company and its subsidiaries who
are not directors or nominees for election as directors.  Each of the officers
serves at the discretion of the Board of Directors of the Company or its
subsidiary, as the case may be, from the date of his election until the next
annual meeting of the Board of Directors of the Company or its subsidiary or
until his successor is elected and qualified, subject to earlier termination
by removal or resignation.

Thomas J. Atkins, Ph.D. has been Vice President of Transderm and Vice
President-Research and Development of Hercon Laboratories since March 1996.
Prior to joining Hercon Laboratories and since 1995, Dr. Atkins served as Vice
President, Research and Development for Medisorb Technologies International,
L.P. ("Medisorb").  From 1988 to 1994, he served as Director, Polymer Research
and Drug Delivery Systems for Stolle Research & Development Corporation
("Stolle").  Both Medisorb and its parent Stolle are engaged in research and
manufacturing of controlled release drug delivery systems.  Dr. Atkins is the
author of numerous publications and the named inventor on numerous United
States and foreign patents.

David J. Heath, Jr. has been Vice President-Finance of the Company and
Transderm since August 1999. From January 1998 through August 1999, Mr. Heath
served as Controller of the Company.  Mr. Heath served as Assistant Controller
of the Company from March 1989 through December 1997.

Donald E. Kauffman, Jr. has been Vice President of Transderm since July 1995
and Vice President-Manufacturing of Hercon Laboratories since July 1987.  Mr.
Kauffman joined the Company in June 1976 and has served in various positions
prior to becoming a Vice President of Hercon Laboratories in 1987.

Murray Lieber has been Vice President of Transderm since July 1995 and Vice
President-Marketing of Hercon Laboratories since June 1992.  From September
1989 to June 1992, he was Vice President, Account Supervisor at Klemtner
Advertising, a pharmaceutical advertising agency.  Mr. Lieber was Vice
President of Diversified Health Affiliates, Inc., a pharmaceutical and health
care consulting firm, from January 1988 to September 1989.  Prior thereto, Mr.
Lieber held positions in marketing and business development at companies
including Berlex Laboratories (a division of Schering AG), Roche Laboratories,
and Warner-Chilcott Laboratories (a division of Warner Lambert Company).

Compliance with Section 16(a) of the Exchange Act

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers, directors and persons who beneficially own more than 10%
of the Company's Common Stock to file initial reports of ownership and reports
of changes in ownership with the Securities and Exchange Commission ("SEC").
Such persons are required by SEC regulations to furnish the Company with copies
of all Section 16(a) reports filed by such persons.

Based solely on the Company's review of such reports furnished to the Company,
and written representations from all of the executive officers and directors,
the Company believes that all such filing requirements were complied with
during or in respect of the year ended December 31, 1998.

ITEM 11.  EXECUTIVE COMPENSATION

<PAGE>
The following Summary Compensation Table sets forth the compensation of each
of the Chief Executive Officer and the four most highly-compensated executive
officers of the Company whose annual salary and bonus, if any, exceeded
$100,000 for services in all capacities to the Company during the last three
fiscal years.

<PAGE>
<PAGE>
<TABLE>                        SUMMARY COMPENSATION TABLE

                                          Long-term
                                          Compensation     All
                                            Awards         Other
                              Annual      Securities       Compensa-
                           Compensation   Underlying       tion
Name and Principal        Salary   Bonus  Options          (1)(2)
    Position        Year    ($)     ($)     (#)              ($)
<S>                 <C>   <C>      <C>     <C>             <C>
Marvin M. Speiser   1998  484,208  51,523        0          100,371
Chairman and Chief  1997  458,147 121,178        0           86,758
Executive Officer   1996  443,462  78,553        0           99,785

Robert D. Speiser   1998  260,622   4,541        0              870
Executive Vice      1997  246,594    ---         0              510
President and       1996  238,691    ---         0              510
President-Transderm
Laboratories
Corporation and
Hercon Laboratories
Corporation

Peter F. McKernan(3)1998  145,270  37,579        0              522
Former              1997  135,000  98,947        0              306
Executive Vice      1996  132,500  39,277        0              301
President-Herculite
Products, Inc. and
Pacific Combining
Corporation

Steven Bernstein(3) 1998  155,462  22,985        0              306
Former              1997  145,000  39,000        0              306
Senior Vice         1996  140,000  10,000        0              198
President

Bruce M. Schloss    1998  161,310    ---         0              306
Vice President and  1997  154,000    ---         0              306
General Counsel     1996  150,500    ---         0              306
</TABLE>

(1)   Does not include information with respect to personal benefits, if any,
provided to the named individuals which do not exceed disclosure thresholds
established under Securities and Exchange Commission rules.

(2)   Represents the term cost value of all excess group life insurance
policies on behalf of the named individuals.  For Marvin M. Speiser, also
includes $38,045 which represents the term portion of the premium paid with
respect to a split dollar life insurance arrangement between the Company and
Mr. Speiser, and $51,046 which represents the present value to Mr. Speiser of
the non-term portion of the premium paid by the Company with respect to this
arrangement.  The present value was calculated as an interest-free loan on the
whole life portion of the premium over the maturation of the policy.

(3)   Resigned as officers of the Company and its subsidiaries effective August
19, 1999 upon the sale of assets of the Company's Herculite Products, Inc. and
Hercon Environmental Corporation subsidiaries.

<PAGE>
<PAGE>                        OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
During 1998, no options to purchase Common Stock of the Company were granted
to any named executives.

                           FISCAL YEAR END OPTION VALUE

                                      Number of
                                      Securities            Value of
                                      Underlying           Unexercised
                                      Unexercised         In-the-Money
             Shares                   Options at           Options at
            Acquired       Value       12/31/98            12/31/98 (2)
              on          Realized   Exercisable/         Exercisable/
           Exercises (1)    (1)      Unexercisable        Unexercisable
Name           (#)          ($)           (#)                  ($)
<S>        <C>            <C>        <C>                  <C>
Marvin M.
Speiser        ---          ---       94,000/6,000            0/0
Robert D.
Speiser        ---          ---       56,000/4,000            0/0
Peter F.
McKernan (3)   ---          ---        4,000/1,000            0/0
Steven
Bernstein (3)  ---          ---       26,000/2,000            0/0
Bruce M.
Schloss        ---          ---       28,000/2,000            0/0
</TABLE>
(1)   None of the named executive officers exercised any stock options during
the fiscal year ended December 31, 1998.

(2)   Based upon the closing sale price per share of $.8125 of the Company's
Common Stock on December 31, 1998 on the American Stock Exchange minus the
respective option exercise price. In April 1999, the American Stock Exchange
instituted a trading halt on the Company's securities which were subsequently
delisted in May 1999 for failure to meet the Exchange's continued listing
guidelines.  Since April 1999, the Company's Common Stock has traded in the
over-the-counter market.

(3)   Former officers of the Company whose options expired unexercised in
August 1999.
                          EMPLOYMENT AND OTHER AGREEMENTS

In April 1995, Health-Chem entered into a five-year Employment Agreement with
Marvin M. Speiser which provided for an initial base annual salary of $415,552
($120,000 in respect of services as an officer of the Company's Herculite
subsidiary) plus an annual bonus determined by the Company's Board at least
equal to ten percent of the amount by which pretax net income of each of the
Company's Herculite, Hercon Laboratories and Hercon Environmental subsidiaries
for a calendar year exceeds the average of such subsidiary's pretax net income,
as defined, for the prior two calendar years, and for similar benefits,
vacation and perquisites as that made available to comparable executives of the
Company.  The Employment Agreement also provides for minimum yearly salary
increases of 4% on each September 1 during the employment period.  Mr. Speiser
received a 5% salary increase on September 1, 1996.  Mr. Speiser and the
Company agreed to defer consideration of the September 1, 1997 salary increase
until consideration of the salary increase to which Mr. Speiser was entitled
in 1998 pursuant to the Employment Agreement.  Mr. Speiser received an 11%
salary increase on September 1, 1998.  The Employment Agreement further
provides that upon retirement on or after January 1, 2000 (the "retirement
date"), Marvin M. Speiser will be entitled to receive an annual supplemental
pension benefit equal to 60% of his final base salary, which for this purpose

<PAGE>
will be the highest nominal annual salary paid to him during his employment.
As of August 31, 1999, it is estimated that Mr. Speiser would be entitled to
receive approximately $317,330.83 per year in annual supplemental pension
benefits.  This calculation assumes a retirement date of January 1, 2000 and
a 4% annual increase in salary until retirement.  The supplemental pension will
be payable for a period of ten (10) years beginning on the retirement date, or
if later, the January 1 following termination of employment.  In the event of
termination of employment prior to the retirement date, the amount of the
supplemental pension payable on that date will be prorated based on the period
of employment from December 31, 1994 to the date of termination.  No proration
will be applied, however, if Mr. Speiser's employment is involuntarily
terminated (as described below).  An actuarially reduced supplemental pension
benefit may be paid if the benefit is commenced upon termination of employment
prior to the retirement date. In August 1999, Mr. Speiser agreed to waive his
supplemental pension benefit for the year commencing January 1, 2000. See
"Interest of Management in Certain Transactions".

Pursuant to the Employment Agreement, the Company caused its Transderm
subsidiary to grant to Marvin M. Speiser, in November 1995, an option to
purchase 5,000,000 shares of common stock of Transderm.  After amendment to the
option in November 1998, the exercise price is $.15 per share, and the option
is exercisable from April 4, 2000 through November 13, 2005, unless there is
a transaction in which Transderm is acquired in which case the number of shares
as to which the option is exercisable will be limited to twenty  (20%)  percent
of the total number of shares underlying the option for each year that has
passed since April 4, 1995 with part years to be pro-rated temporally.

Marvin M. Speiser is entitled to continue to receive the salary, bonus and
other compensation provided for under the Employment Agreement for a period of
five (5) years following an involuntary termination of his employment during
the term of the Employment Agreement.  Marvin M. Speiser's employment will be
deemed to have been involuntarily terminated if his employment is terminated
by the Company for reasons other than cause, as defined in the Employment
Agreement.  Mr. Speiser's employment will be deemed to have been involuntarily
terminated in certain events as listed in the Employment Agreement, including
termination for any reason within one year following a Change in Control, as
defined by the Employment Agreement.  The Employment Agreement also provides
that Mr. Speiser will be entitled to supplemental compensation to mitigate the
effect of any excise taxes to which he may be subject as a result of a Change
in Control.  Election of the Yurowitz Nominees would constitute a Change in
Control under Mr. Speiser's Employment Agreement.

In April 1995, Health-Chem also entered into a similar Employment Agreement
with Robert D. Speiser, with the following material differences: (i) his
initial base annual salary was  $223,668 ($104,000 in respect of his services
as an officer of Hercon Laboratories) plus an annual bonus determined by the
Company's Board at least equal to the increase in pretax net income, as
defined, for Hercon Laboratories under the same terms as set forth above for
Marvin M. Speiser; and (ii) his "retirement date," as defined in the Employment
Agreement, is January 1, 2010.  Mr. Speiser received a 5% salary increase on
September 1, 1996.  Mr. Speiser and the Company agreed to defer consideration
of the September 1, 1997 salary increase until consideration of the salary
increase to which Mr. Speiser was entitled in 1998 pursuant to the Employment
Agreement.  Mr. Speiser received an 11% salary increase on September 1, 1998.
In 1995, the Company also caused Transderm to grant Robert D. Speiser, in
accordance with his Employment Agreement, an option to purchase up to 5,000,000
shares of common stock of Transderm.  Robert D. Speiser's option was amended
in November 1998 on substantially the same terms and conditions as set forth
above for Marvin M. Speiser.  Mr. Speiser is entitled to receive an annual
supplemental pension benefit determined in the same manner as for Marvin M.
Speiser.  As of August 31, 1999, it is estimated that Mr. Speiser would be

<PAGE>
entitled to receive approximately $262,940.72 per year in supplemental annual
pension benefits.  This calculation assumes a retirement date of January 1,
2010 and a 4% annual increase in salary until retirement.  Election of the
Yurowitz Nominees would constitute a Change of Control under Mr. Speiser's
Employment Agreement.

In March 1999, the Company entered into indemnification agreements with each
of its executive officers and directors, in anticipation of a proxy contest to
effect a change in control of the Company.  The indemnification agreements
indemnify those persons who were or are a party or are threatened to be made
a party to any pending or completed action, suit or proceeding, whether
criminal, civil, administrative or investigative, to the full extent authorized
and permitted by Delaware law.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

(a)   As of August 31, 1999, other than as set forth in the following table,
the Company knows of no other person or "group" (as that term is defined in
Section 13(d)(3) of the Securities Exchange Act of 1934) who beneficially owns
more than 5% of any class of the Company's voting securities.  The following
table contains, as to each class of the Company's voting securities, the name
and address of each such 5% beneficial owner, the amount of securities of such
class beneficially owned, and the percent of such class beneficially owned.
<TABLE>
                                          Number of Shares
                                            Beneficially
                                            Owned as of
                    Name and Address          August 31,      Percent
Title of Class     of Beneficial Owner        1999  (1)       of Class
<S>             <C>                       <C>                 <C>
Common Stock    Marvin M. Speiser (2)     2,396,020 (3)        30.86%

Common Stock    Laura G. Speiser (2)      2,396,020 (3)        30.86%

Common Stock    Andy E. Yurowitz            551,200 (4)         7.19%
                8 Kupperman Lane
                Monsey, NY  10952
</TABLE>
________________________


(1)   The information concerning security holders is based upon information
furnished to the Company by such security holder.  Except as otherwise
indicated, all of the shares are owned of record and beneficially and the
persons identified have sole voting and dispositive power with respect thereto.

(2)   Address is c/o Health-Chem Corporation, 460 Park Avenue, New York, NY
10022.

(3)   Includes the following shares of Common Stock:  (i) 266,664 shares owned
by Lauralei Investors, Inc. ("Lauralei"), of which Marvin M. Speiser and his
wife, Laura G. Speiser, are the sole stockholders; (ii) 100,000 shares which
Mr. Speiser would receive upon the exercise of all stock options which are
currently exercisable or exercisable within 60 days; (iii) 512,763 shares owned
by Marvin M. Speiser; and (iv) 1,516,593 shares owned by Laura G. Speiser.
Marvin M. Speiser disclaims beneficial ownership of the shares of Common Stock
referenced in (iv) above.  Laura G. Speiser disclaims beneficial ownership of
the shares of Common Stock referenced in (i), (ii) and (iii) above.

(4)   Pursuant to Amendment No. 1 to Schedule 13D filed with the Company in
March 1999.  Includes shares where voting and/or dispositive power is shared

<PAGE>
with other family members.  Does not include 116,100 of Common Stock owned
beneficially by Mr. Yurowitz's son as to which Mr. Yurowitz disclaims
beneficial ownership.

(b)   As of August 31, 1999, each director of the Company, each of the
Company's executive officers named in the Summary Compensation Table above and
all directors and officers of the Company, as a group, beneficially owned the
following amounts (and percentages) of each class of the voting securities of
the Company.
<TABLE>



                                          Number of Shares
                                         Beneficially Owned
                    Name of               as of August 31,     Percent of
Title of Class  Beneficial Owner            1999  (1)            Class
<S>             <C>                      <C>                   <C>
Common Stock    Martin Benis                   3,900               *

Common Stock    Steven Bernstein               5,000 (3)           *

Common Stock    Matthew Goldstein              3,000               *

Common Stock    Peter F. McKernan              5,000 (3)           *

Common Stock    Eugene Roshwalb                6,500               *

Common Stock    Bruce M. Schloss              28,000 (2)           *

Common Stock    Marvin M. Speiser          2,396,020 (2)(4)      30.86%

Common Stock    Robert D. Speiser             85,897 (2)          1.11%

Common Stock    Milton Y. Zussman             29,380 (5)           *

Common Stock    All directors and
                officers as a
                group (13 Persons)         2,602,197 (6)         33.00%
</TABLE>
______________________


(1)   The information concerning security holders is based upon information
furnished to the Company by such security holder.  Except as otherwise
indicated, all of the shares are owned of record and beneficially and the
persons identified have sole voting and dispositive power with respect thereto.

(2)   Includes the following shares of Common Stock subject to stock options
which are currently exercisable or exercisable within 60 days:  Mr. Schloss -
30,000; Mr. Marvin M. Speiser - 100,000; and Mr. Robert D. Speiser - 60,000.

(3)   Former executive officers of the Company.

(4)   See footnote (3) to the table under (a) above for the number of shares
with respect to which Marvin M. Speiser has the right to acquire beneficial
ownership.

(5)   Resigned as a director effective September 30, 1999.

(6)   Includes the following shares of Common Stock:  (i) 221,000 shares which

<PAGE>
six of such persons would receive upon the exercise of stock options which are
either currently exercisable or exercisable within 60 days; and (ii) an
aggregate of 266,664 shares owned by an entity controlled by or for the benefit
of certain relatives of two of such persons, all of which shares are or may be
deemed to be beneficially owned by such persons.

As of August 31, 1999, the Company's directors beneficially owned, directly or
indirectly, the common stock of Transderm, the Company's 90%-owned subsidiary,
in the following amounts: Marvin M. Speiser (2,520,362 shares); Robert D.
Speiser (12,155 shares); and Martin Benis (500 shares).  Marvin M. Speiser's
ownership constituted 6.3% of the issued and outstanding shares of common stock
of Transderm; the shares of each of Robert D. Speiser and Martin Benis
constituted less than 1% of the issued and outstanding shares of common stock
of Transderm.  Marvin M. Speiser's shares include (i) 188,475 shares owned by
Lauralei Investors, inc. of which Marvin M. Speiser and Laura G. Speiser are
the sole stockholders, and (ii) 2,331,887 shares owned by Laura G. Speiser of
which Marvin M. Speiser disclaims beneficial ownership.  Marvin M. Speiser's
shares do not include the attribution of an aggregate of 2,396,020 shares, or
30.86% of the common stock of Health-Chem, through his ownership of such stock
and through his position as an executive officer and director of Health-Chem.
Each of Marvin M. Speiser's and Robert D. Speiser's shares do not include
options to purchase 5,000,000 shares of the Common Stock of Transderm which are
not currently exercisable.  The 500 shares of common stock of Transderm shown
above are owned by Dr. Benis' wife and may be deemed to beneficially be owned
by Dr. Benis.  Except as indicated above, none of the Company's directors
beneficially own, directly or indirectly, any shares of common stock of
Transderm.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In September 1996, the Company exercised its options pursuant to option
agreements with Marvin M. Speiser entered into in 1991 and 1994, respectively
(the "Option Agreements") and acquired 952,520 shares of Common Stock from Mr.
Speiser for an aggregate of $1,030,246 (or $1.0816 per share).  This amount
represented a portion of the proceeds received by the Company from the sale of
952,520 shares of Common Stock (at $1.10 per share) pursuant to a subscription
rights offering commenced in August 1996 to its stockholders of record.  Of the
total of 1,782,689 shares of Common Stock previously held by Mr. Speiser
subject to the Company's repurchase rights under the Option Agreements, 952,520
shares were repurchased by the Company, 512,763 shares were retained by Mr.
Speiser free of the Company's option (as the deemed exercise of his prorata
subscription rights) and 317,406 shares remained subject to the Option
Agreements through June 30, 1999. At December 31, 1998, the exercise prices of
the 1991 and 1994 Option Agreements were $0.5305 per share and $2.7632 per
share, respectively. The Option Agreements provided that Mr. Speiser vote all
shares subject thereto on all matters in which stockholders are entitled to
vote at any annual or special meeting substantially in the same proportion as
all other shares of Common Stock are voted.

In July 1994, Mr. Speiser purchased 575,000 shares of Common Stock from the
Company which shares were the subject of the 1994 Option Agreement.  For this
purchase he borrowed $1,150,000 from The First National Bank of Maryland
("FNBM").  The FNBM loan bore interest at the prime rate and was secured by the
stock, and other collateral, including the cash value of a life insurance
policy on Mr. Speiser.  In 1996, concurrently with the Company's purchase of
the 952,520 shares of Common Stock from Mr. Speiser, the FNBM loan was repaid
in full.  In July 1995 and July 1996, the Company advanced Mr. Speiser $150,000
and $250,000, respectively, the amounts of the annual principal repayment under
the FNBM loan. In addition, the Company advanced to Mr. Speiser amounts equal
to the interest on the FNBM loan.  During 1998, the highest amount owed by Mr.
Speiser to the Company was $337,100, and the aggregate amount due from him at

<PAGE>
December 31, 1998 was $251,608.  This amount, together with interest at the
prime rate as published in the Wall Street Journal, was intended to be repaid
by Mr. Speiser upon the earliest of (i) the sale of the shares which remain
subject to the Option Agreements; (ii) the Company's exercise of its options
under the Option Agreements; and (iii) the expiration of the Option Agreements
on June 30, 1999.  It was intended that Mr. Speiser would be fully reimbursed
for all costs he incurred in connection with his purchase of the Option Shares
which was effected as an accommodation to the Company. As the exercise prices
of the Option Agreements continued to increase and the market price for the
Company's Common Stock continued to fall to a level significantly below these
exercise prices, the Option Agreements were allowed to expire unexercised on
June 30, 1999.

By letter agreement dated August 25, 1999 between Mr. Speiser and the Company,
the Company agreed to cancel Mr. Speiser's outstanding debt owed to the Company
due to the advances paid in respect of the FNBM loan in the approximate amount
of $249,000 and Mr. Speiser agreed to transfer the 317,046 shares of the
Company's Common Stock previously subject to the Option Agreements to the
Company. As further consideration, Mr. Speiser waived his first year's
supplemental pension benefit, payable commencing January 1, 2000 in accordance
with Mr. Speiser's Employment Agreement with the Company, in the amount of
$300,000.

In January 1999, the Company and its subsidiaries entered into a Waiver and
Third Amendment to Revolving Credit, Term Loan and Security Agreement  (the
"Loan Agreement")  with IBJ Whitehall Business Credit Corporation (f/k/a IBJ
Schroder Business Credit Corporation)  (as successor in interest to IBJ
Schroder Bank & Trust Company)  ("IBJ") pursuant to which IBJ agreed to waive
certain events of default under the Loan Agreement and to provide the Company
with an overadvance facility of approximated $1.2 million through March 31,
1999.  In connection with the Loan Agreement, as amended, Marvin M. Speiser and
his wife, Laura G. Speiser pledged certain investment property consisting of
marketable securities valued at no less than $710,000  (the "Collateral")  and
entered into a limited guaranty of the Company's obligations under the Loan
Agreement not to exceed the principal sum of $1,000,000 plus interest.  IBJ
released its security interest in all of the Collateral upon repayment of the
loan in August 1999.



FORM 10-K                                                           PART IV




ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

                                                                      PAGE
(a)  1.  FINANCIAL STATEMENTS

Reports of Independent Accountants                                   21-22

Consolidated Statement of Assets and Liabilities                        23
  (Liquidation Basis) - December 31, 1998

Consolidated Statement of Changes in Assets and Liabilities             23
  (Liquidation Basis) - Period ended December 31, 1998

Consolidated Balance Sheet-December 31, 1997                         24-25

Consolidated Statements of Operations

<PAGE>
  Years Ended December 31, 1998, 1997 and 1996                          26

Consolidated Cash Flow Statements
  Years Ended December 31, 1998, 1997 and 1996                       27-28

Consolidated Statements of Stockholders' Equity (Capital Deficiency)
  Years Ended December 31, 1998, 1997 and 1996                          29

Notes to Consolidated Financial Statements                           30-52

(a)  2.  FINANCIAL STATEMENT SCHEDULES

Schedule II -  Valuation and Qualifying Accounts and Reserves           69


All other schedules are omitted because they are not required, are
inapplicable, or the information is included in the financial statements or
notes thereto.

(a)  3.  EXHIBITS

2.   Plan of Reorganization and Asset Exchange Agreement dated as of June 30,
1995, by and among the Company, Herculite Products, Inc. ("Herculite") and
Transderm Laboratories Corporation ("Transderm").  Incorporated herein by
reference to Exhibit 2 to Registration Statement on Form S-1 (Reg. No. 33-
95080) for Transderm, as filed with the Commission on July 28, 1995.

3.1   Restated Certificate of Incorporation and amendments of the Registrant.
Incorporated herein by reference to Exhibit No. 3 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1985.

3.2   Certificate of Amendment of the Restated Certificate of Incorporation of
the Registrant dated May 8, 1987.  Incorporated herein by reference to Exhibit
No. 3.2 to the Company's Annual Report on Form 10-K for the year ended December
31, 1987.

3.3   By-Laws of the Registrant.  Incorporated herein by reference to Exhibit
3.3 to the Company's Annual Report on Form 10-K for the year ended December 31,
1991.

4.1   Indenture relating to the Company's 10 3/8% Convertible Subordinated
Debentures due 1999.  Incorporated herein by reference to Exhibit No. 4.2 to
the Company's Registration Statement on Form S-7 (Reg. No. 2-71341) as filed
with the Commission on April 15, 1981.

4.2   Rights Agreement between the Company and Harris Trust Company of New York
as Rights Agent dated February 28, 1989.  Incorporated herein by reference to
Exhibit 4.2 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1988.

4.3   Amendment dated as of November 7, 1990 to the Rights Agreement between
the Company and Harris Trust Company of New York as Rights Agent dated February
28, 1989.  Incorporated herein by reference to Exhibit 4.3 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1990.

10.1  The 1986 Stock Option Plan as approved by the Company's Stockholders on
April 26, 1986 and as amended by the Company's Board of Directors on December
30, 1987.  Incorporated herein by reference to Exhibit No. 10.7 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1987.

10.2   Second Amendment to the 1986 Stock Option Plan as approved by the

<PAGE>
Company's Board of Directors on May 6, 1993.  Incorporated herein by reference
to Exhibit 10.4 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1993.

10.3   The 1995 Performance Equity Plan.  Incorporated herein by reference to
Exhibit A to the Company's definitive Proxy Statement dated March 1, 1995 in
connection with the Company's 1995 Annual Meeting of Stockholders.

10.4  Stipulation and Agreement of Compromise and Settlement dated March 15,
1991 and amended on June 7, 1991 with respect to Delaware Stockholders'
Derivative Action.  Incorporated herein by reference to Exhibit 10.10 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1991.

10.5   Lease Agreement between Herculite and WORCO dated August 17, 1994.
Incorporated herein by reference to Exhibit 10.10 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994.

10.6   Amended and Restated Option Agreement, dated as of August 30, 1991, by
and between Marvin M. Speiser and the Company.  Incorporated herein by
reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1991.

10.7   Stock Purchase and Option Agreement by and between Marvin M. Speiser and
the Company dated July 15, 1994.  Incorporated herein by reference to Exhibit
3 to the Company's Current Report on Form 8-K filed with the Commission on July
25, 1994.

10.8(a)   Stock Purchase Agreement dated as of March 29, 1996 by and between
Marvin M. Speiser and the Company.  Incorporated herein by reference to Exhibit
4.1 to the Company's Registration Statement on Form S-3 No. 333-02411 filed
with the Commission on April 10, 1996.

10.8(b)   First Amendment to Stock Purchase Agreement dated as of June 28, 1996
by and between Marvin M. Speiser and the Company.  Incorporated herein by
reference to Exhibit 10.1 to the Company's Form 10-Q for the quarter ended
September 30, 1996.

10.8(c) Second Amendment to Stock Purchase Agreement dated as of September 17,
1996 by and between Marvin M. Speiser and the Company.  Incorporated herein by
reference to Exhibit 10.2 to the Company's Form 10-Q for the quarter ended
September 30, 1996.

10.9   Distribution Agreement between Hercon Laboratories and Bolar
Pharmaceutical Co., Inc. dated as of January 4, 1993.  Incorporated herein by
reference to Exhibit 10.14 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1992.

10.10  Employment Agreement between Marvin M. Speiser and the Company dated
April 4, 1995.  Incorporated herein by reference to Exhibit 10.1 to the
Company's Form 10-Q for the quarter ended March 31, 1995.

10.11  Employment Agreement between Robert D. Speiser and the Company dated
April 4, 1995.  Incorporated herein by reference to Exhibit 10.2 to the
Company's Form 10-Q for the quarter ended March 31, 1995.

10.12(a)  Stock Option Agreement between Transderm and Marvin M. Speiser dated
November 13, 1995.  Incorporated herein by reference to Exhibit 10.3 to
Transderm's Annual Report on Form 10-K for the year ended December 31, 1995.

10.12(b)  Second Amendment to Stock Option Agreement between Transderm and
Marvin M. Speiser dated November 19, 1998.  Incorporated herein by reference

<PAGE>
to Exhibit 10.3(b) to Transderm's Annual Report on Form 10-K for the year ended
December 31, 1998.

10.13(a)  Stock Option Agreement between Transderm and Robert D. Speiser dated
November 13, 1995.  Incorporated herein by reference to Exhibit 10.4 to
Transderm's Annual Report on Form 10-K for the year ended December 31, 1995.

10.13(b)  Second Amendment to Stock Option Agreement between Transderm and
Robert D. Speiser dated November 19, 1998.  Incorporated herein by reference
to Exhibit 10.4(b) to Transderm's Annual Report on Form 10-K for the year ended
December 31, 1998.

10.14  Asset Acquisition Agreement dated April 28, 1995 between Hercon
Environmental and Hercon Laboratories.  Incorporated herein by reference to
Exhibit 10.7 to Transderm's Registration Statement on Form S-1 Reg. No. 33-
95080 as filed with the Commission on July 28, 1995.

10.15  $7,000,000 principal amount Subordinated Promissory Note of Hercon
Laboratories.  Incorporated herein by reference to Exhibit 10.8 to Amendment
No. 1.

10.16  Corporate Services Agreement dated as of August 31, 1995 between the
Company and Transderm.  Incorporated herein by reference to Exhibit 10.9 to
Amendment No. 1.

10.17  Tax Sharing Agreement dated as of August 31, 1995 between the Company
and Transderm.  Incorporated herein by reference to Exhibit 10.10 to Amendment
No. 1.

10.18(a)  Revolving Credit, Term Loan and Security Agreement dated as of
January 9, 1997 by and between the Company, Herculite, Hercon Environmental,
Pacific, Hercon Laboratories and Transderm and IBJ Schroder Bank & Trust
Company.  Incorporated herein by reference to Exhibit 1 to the Company's
Current Report on Form 8-K dated January 22, 1997.

10.18(b)  First Amendment to Revolving Credit, Term Loan and Security Agreement
dated as of January 21, 1998 by and between the Company, Herculite, Hercon
Environmental, Pacific, Hercon Laboratories and Transderm and IBJ Schroder
Business Credit Corporation (as successor in interest to IBJ Schroder & Trust
Company). Incorporated herein by reference to Exhibit 10.18(b) to the Company's
Form 10-K for the year ended December 31, 1997.

10.18(c)  Second Amendment to Revolving Credit, Term Loan and Security
Agreement dated as of July 31, 1998 by and between the Company, Herculite,
Hercon Environmental Corporation, Pacific, Hercon Laboratories and Transderm
and IBJ Schroder Business Credit Corporation (as successor in interest to IBJ
Schroder Bank & Trust Company).  Incorporated herein by reference to Exhibit
6.(a) to the Company's Form 10-Q for the quarter ended September 30, 1998.

10.18(d)  Waiver and Third Amendment to Revolving Credit, Term Loan and
Security Agreement dated as of January 11, 1999 by and between the Company,
Herculite, Hercon Environmental, Pacific, Hercon Laboratories and Transderm and
IBJ Whitehall Business Credit Corporation (as successor in interest to IBJ
Schroder Business Credit Corporation).  Filed herewith on page 71.

10.18(e)  Consent and Fourth Amendment to Revolving Credit, Term Loan and
Security Agreement dated as of March 24, 1999 by and between the Company,
Herculite, Hercon Environmental, Pacific, Hercon Laboratories and Transderm and
IBJ Whitehall Business Credit Corporation.  Filed herewith on page 80.

10.18(f)  Amendment and Forbearance Agreements to Revolving Credit, Term Loan

<PAGE>
and Security Agreement dated as of April 14, 1999, May 14, 1999, June 21, 1999,
July 15, 1999 and August 15, 1999 by and between the Company, Herculite, Hercon
Environmental, Pacific, Hercon Laboratories and Transderm and IBJ Whitehall
Business Credit Corporation (as successor in interest to IBJ Schroder Business
Credit Corporation). Filed herewith on page 87.

10.19   Asset Purchase Agreement dated as of July 20, 1999 by and among
Herculite, Hercon Environmental and Aberdeen Road Company. Incorporated herein
by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K dated
September 2, 1999.

10.20   Letter Agreement dated August 25, 1999 between Marvin M. Speiser and
Health-Chem Corporation. Filed herewith on page 106.

10.21   Security and Pledge Agreement dated as of August 31, 1999 by and among
the Company, Herculite and Hercon Environmental and Bankers Trust Company.
Filed herewith on page 107.

10.22   Agreement dated August 31, 1999 between the Company, HS Protective
Fabrics Corp., Herculite, Hercon Environmental, Transderm, Hercon Laboratories
Corporation and Aberdeen Research Corporation and Bankers Trust Company.  Filed
herewith on page 115.

10.23   Form of Indemnification Agreement, dated March, 1999, between Health-
Chem Corporation and its directors and officers.  Filed herewith on page 118.

21      Subsidiaries of the Registrant.  Filed herewith on page 124.

27      Financial Data Schedule.  Filed herewith on page 125.

(b) REPORTS ON FORM 8-K

During the quarter ended December 31, 1998 the Company filed a report on Form
8-K dated November 3, 1998 in connection with the Company's change in
independent accountants.

On September 3, 1999, the Company filed a report on Form 8-K with regard to the
sale of assets by the Company's Herculite and Hercon Environmental subsidiaries
to Aberdeen Road Company.
<PAGE>
<PAGE>
<TABLE>                             HEALTH-CHEM CORPORATION
                                   SCHEDULE II
                    VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
                                   (In thousands)

                                                    Additions
                                                    Charged to
                                                    Costs and
                                        Beginning   Expenses/ Deductions Balance
                                        Balance at   Capital     from    at End
<S>                                     of Year   Deficiency  Allowances of Year
Year ended December 31, 1998:                   <C>     <C>         <C>   <C>
 Estimated expenses in connection with sale       0      700        0      700
 Estimated liquidation expenses                   0    8,781        0    8,781
 Allowance for doubtful accounts receivable      353       0      353(C)     0
 Allowance for litigation contingencies          201       0        0      201
 Allowance for inventory valuation               318       0      318(C)     0
 Valuation allowance for notes receivable         36       0       36        0

Year ended December 31, 1997:
 Allowance for doubtful accounts receivable      306      159      112(A)  353
 Allowance for litigation contingencies          201       0        0      201
 Allowance for inventory valuation               393       0       75(B)   318
 Valuation allowance for notes receivable         36       0        0       36

Year ended December 31, 1996:
 Allowance for doubtful accounts receivable      260     181      135(A)   306
 Allowance for litigation contingencies          201       0        0      201
 Allowance for inventory valuation               487       0       94(B)   393
 Valuation allowance for notes receivable         36       0        0       36

</TABLE>
(A) Amount includes write-offs, net of recoveries.
(B) Valuation adjustments and credits to costs and expenses.
(C) Discontinued operations.




<PAGE>
<PAGE>
SIGNATURES

Pursuant to the requirements of Sections 13 or 15(d) 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.


HEALTH-CHEM CORPORATION

Date:  November 22, 1999



/s/ Marvin M. Speiser                      /s/ David J. Heath, Jr.
By: Marvin M. Speiser                      By: David J. Heath, Jr.
    Chairman of the Board and                  Vice President-Finance
    President (Principal                       (Principal Financial Officer)
    Executive Officer)                         (Principal Accounting Officer)


Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following Directors on behalf of the
Registrant on the dates indicated:



/s/ Martin Benis                       /s/ Bruce M. Schloss
Martin Benis       November 22, 1999   Bruce M. Schloss    November 22, 1999


/s/ Matthew Goldstein                  /s/ Marvin M. Speiser
Matthew Goldstein  November 22, 1999   Marvin M. Speiser   November 22, 1999


/s/ Eugene Roshwalb                    /s/ Robert D. Speiser
Eugene Roshwalb    November 22, 1999   Robert D. Speiser   November 22, 1999