SECURITIES AND EXCHANGE COMMISSION
                           WASHINGTON,  D.C.  20549

                                   FORM 10-K

                 ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1995     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)

         1212 Avenue of the Americas, 24th Floor, New York,  NY  10036
                   (Address of principal executive offices)

                  Registrant's Telephone Number: 212-398-0700

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

Title of each Class                       Name of Exchange on Which Registered
Common Stock, $.01 Par Value              American Stock Exchange, Inc.

10.375% Convertible Subordinated          American Stock Exchange, Inc.
Debentures due April 15, 1999

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

                                        None

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 ]  

The registrant has 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, and has
been subject to such filing requirements for the past 90 days.

As of February 29, 1996, 7,982,424 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 $6.0 
million.

                      DOCUMENTS INCORPORATED BY REFERENCE

The information responsive to Part III of this Annual Report on Form 10-K is
incorporated herein by reference to the registrant's Proxy Statement in
connection with the registrant's Annual Meeting of Stockholders to be held on 
May 7, 1996.

The Exhibit Index appears on page 36.

                                 Page 1 of 42


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____________________________________________________________________________

FORM 10-K                                                            PART I 
____________________________________________________________________________


ITEM 1. BUSINESS

Health-Chem Corporation is a Delaware corporation and conducts its business
primarily through its wholly-owned subsidiaries, Herculite Products, Inc.
("Herculite") and Pacific Combining Corp. ("Pacific"), through its 90% owned
subsidiary Transderm Laboratories Corporation ("Transderm") and through its
98.5% owned subsidiary Hercon Environmental Corporation ("Hercon
Environmental").  Unless the context otherwise requires, the term "Company"
includes Health-Chem Corporation and all 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.  The products fall into several
categories - reinforced synthetic fabrics for industrial and health care use,
controlled release dispensers for pharmaceuticals and controlled release
dispensers for environmental chemicals.

Through Herculite and Pacific, which maintain facilities in Pennsylvania and
California, the Company manufactures and markets multilayered synthetic
fabrics which are sold domestically and internationally to health-care,
industrial, military, maritime and institutional markets.  The manufacturing
process of these products involves laminating a layer of vinyl or urethane to
one or both sides of a synthetic textile.  The result is a strong and durable
fabric. 

Fabrics for industrial use include heavy-duty, and high visibility fabrics,
and a variety of custom engineered fabrics.  Some of the applications for
these fabrics include tension structures, livestock curtains for poultry,
cattle and hogs, awnings, banners, tents, inflatable lumbar support bladders
for automobile seats, tennis court wind screens, fabrics for use in motor
homes, swimming pool and spa covers, gymnasium pads and mats, trampolines and
other mass merchandised toys,  long-term storage covers for military and
commercial equipment and fabrics for use in nuclear power plants.

Herculite's Staph-Chek(R) products employ molecular migration technology to
make them self-deodorizing and anti-bacterial.  A wide variety of thicknesses
and colors are sold to manufacturers of institutional mattresses, pillows,
laundry carts, shower and cubicle curtains and many related products. 
Herculite's Staph-Chek Synergy(R) and Staph-Chek Comfort(R) products are the
latest additions to the Company's new generation of fabrics designed for
increased patient comfort and pressure relief in the growing specialty
mattress market for hospitals and nursing homes.  Another fabric,
Lectrolite(R), is also electrically conductive; by dissipating static
electricity it helps reduce the hazard of explosion in flammable, gaseous
atmospheres.  It is sold to manufacturers of pads for various types of
hospital equipment and operating room tables, and to manufacturers in the
computer industry to reduce static problems.  Both Herculite and Pacific are
also actively engaged in the development of product improvements and
innovations to capture existing and new market opportunities for fabric
reinforced composites.  

The Company's fabric products are sold to more than 1,800 customers by a sales
force consisting of several sales and marketing executives, 20 domestic
manufacturers representatives, and sales agents in Europe and other parts of
the world.  The Company also distributes its fabric products through a network
of 25 domestic and foreign distributors.

The Company also employs molecular migration technology to manufacture very
different controlled release products.



<PAGE>
Through Hercon Environmental, the Company manufactures and distributes
controlled release dispensers and pheromone products for insect control and
household use.  Insecticide or insect pheromone products are contained in
insoluble, vinyl dispensers to kill, trap or monitor insects as part of safer,
more ecologically sound pest management programs.  These products are sold to
industry, farmers, the United States Department of Agriculture, and a variety
of state agencies.  Sales are effected primarily by a four person sales team. 
In an effort to  decrease the seasonality and cyclical nature of Hercon
Environmental's business, the Company plans to increase product development
and marketing of products for household use.  In late 1995, the Company
received Environmental Protection Agency ("EPA") registrations for three
pheromone products which will be marketed in the United States and in selected
foreign countries in 1996.  Additional new products are being developed
through joint programs with governmental and private enterprises.  
                
Through Transderm's 98.5% owned subsidiary Hercon Laboratories Corporation
("Hercon Laboratories"), the Company is engaged in the development and
manufacture of controlled release products for the pharmaceutical industry 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.  Among their advantages, controlled release dispensers
provide steady dose rates and reduce 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 in the U.S. for the generic
market.  This product is used for transdermal relief of vascular and
cardiovascular symptoms related to angina pectoris.  The Company distributes
the transdermal nitroglycerin patch to pharmaceutical companies who distribute
it in the United States and in Europe.  The Company is currently awaiting FDA
approval of its applications to market improved transdermal nitroglycerin
products, thinner, smaller, more comfortable transparent patches.  Some of
these applications are the subject of a lawsuit instituted by Key
Pharmaceuticals, Inc. in August 1995 (see Item 3. Legal Proceedings).  In
addition to its nitroglycerin transdermal products, the Company is also
developing transdermal products for treatment of post-menopausal symptoms. 
The Company is also working on transdermal products for other hormone
replacement therapies including a testosterone product and combination
products.  There can be no assurance that FDA filings for any of these
additional products will be effected or that FDA approval for any of these
products will be obtained.  

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.

RESEARCH AND DEVELOPMENT

The Company's pharmaceutical research and development laboratory facilities
are maintained at its York, Pennsylvania facilities.  The Company currently
utilizes the skills of approximately 20 full-time employees with varying
technical backgrounds, including pharmaceutics and pharmaceutical sciences, to
conduct its research and development efforts in this area.  Independent
laboratories are often engaged for special projects.  Research and development
for the Company's synthetic fabric operations are conducted at the Company's
York and Los Angeles, California facilities.  The York facilities also serve
the Company's environmental product operations.  See the Consolidated
Statements of Operations for the amount of research and development costs
incurred during 1995, 1994 and 1993.  

SUPPLIERS; RAW MATERIALS

Most of the products and materials used by the Company are purchased from a
variety of suppliers and are readily available on the open market.  Several
materials used in the manufacture of the Company's products are available only
from sole source suppliers.  The Company has not experienced difficulty
acquiring such materials which generally have been available to the Company
and the industries in which the Company operates on commercially reasonable
terms.


<PAGE>


COMPETITION

Each of the businesses in which the Company is engaged is highly competitive. 
Many of its competitors are large national and international manufacturers and
distributors, with considerably more financial, marketing and other resources
than the Company.  The Company believes that its principal competitive
strength lies in its research, engineering and manufacturing capabilities.


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.


ENVIRONMENTAL MATTERS

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, although its manufacturing operations typically are shut down for
a one-week vacation period during the third quarter, which is reflected in
results of operations for the period.


CUSTOMERS;  GOVERNMENT CONTRACTS

Sales of transdermal nitroglycerin patches to Mylan Pharmaceuticals, Inc.
accounted for approximately 14% of the Company's consolidated net sales during
the fiscal year ended December 31, 1995.  Other than Mylan, there was no
single customer nor, to the Company's knowledge, any group of affiliated
customers to which sales during the fiscal year ended December 31, 1995 were
in the aggregate equal to 10% or more of the Company's consolidated net sales. 
Government contracts are not material to the Company's consolidated net sales.



EMPLOYEES

The Company employs approximately 286 employees, of whom 108 are covered by
collective bargaining agreements.  The Company believes its relationship with
its employees to be good.

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<PAGE>


ITEM 2.  PROPERTIES

The following table lists the principal facilities owned or leased by the
Company as of December  31, 1995.  In the opinion of management, the
facilities are adequate for their purposes.
                                    Lease
                  Approx.         Expiration
Location          Sq. Ft.           Date                  Use                


New York, NY       7,000            3/99          Executive offices
             
York, PA          61,000           (owned)        Pharmaceutical production,
                                                  warehouse, research 
                                                  facility & office

York, PA         278,000 (1)       (owned)        Production, warehouse,
                                                  & office

Los Angeles, CA   30,000            2/99          Production, office and
                                                  warehouse; synthetic fabrics

Los Angeles, CA   25,000            6/98          Warehouse; synthetic fabrics


(1)   Non-affiliated tenants lease approximately 114,000 square feet
      under a lease expiring in September 1997, with an option to extend
      the lease term through September 2000.


ITEM 3.  LEGAL PROCEEDINGS

In August 1995, Key Pharmaceuticals, Inc., a subsidiary of Schering-Plough
Corporation ("Key"), commenced an action against the Company's Hercon
Laboratories subsidiary in the United States District Court for the District
of Delaware 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' improved
transdermal nitroglycerin products for which the Company is awaiting FDA
approval constitutes infringement of Key's patent for its Nitro-Dur(R)
products.  Key seeks 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.  By Answer and Counterclaim dated
August 28, 1995, 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 has not infringed and does not
infringe any claim of the patent.  In its counterclaim against Key, Hercon
Laboratories seeks a declaratory judgment of patent noninfringement,
invalidity and unenforceability.  Discovery in this action has commenced. 
Management believes that Key's claims are without merit and intends to defend
the action vigorously.

In October 1995, Gershon Yormack, a stockholder of the Company, initiated an
action in the Delaware Chancery Court (New Castle County) against the Company,
its directors and its Transderm subsidiary seeking injunctive and declaratory
relief with respect to certain options to purchase Transderm common stock to
be 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,
in 1995.  Pursuant to Employment Agreements entered into in April 1995, in
November 1995 the Company caused Transderm to issue an option to purchase
shares of 





<PAGE>


Transderm's common stock at an exercise price of $.10 per share to each of
Marvin M. Speiser and Robert D. Speiser.  The plaintiff alleges that this
exercise price, which is the same per share price as the subscription price
for Transderm common stock offered by the Company to stockholders under a
registered subscription rights offering (via a prospectus dated September 18,
1995), is substantially less than the fair market value of such Transderm
common stock.  Management believes that the claims are without merit and
intends to defend the action vigorously.


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.





                                                                             
 
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 traded on the American Stock Exchange, Inc.
under the symbol HCH.

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
past two years:

                             1995                     1994    
   
            QUARTER      High     Low             High     Low
            1st         3 1/8    2 3/4           4 5/8    3 1/2 
            2nd         2 15/16  2 5/8           4        2 3/4  
            3rd         3 1/8    2 1/8           3 7/16   2 3/4
            4th         2 1/4    1 5/16          3 1/4    2 5/8 


There were approximately 1,558 holders of record of the Company's Common Stock
as of February 29, 1996.

The Company has not paid cash dividends on its Common Stock during the five
years ended December 31, 1995.  See Note 4 to the Consolidated Financial
Statements concerning restrictions on the payment of dividends.









<PAGE>
<TABLE>



ITEM 6.  SELECTED FINANCIAL DATA (In Thousands, Except Per Share Data)
<CAPTION>
                                           Year Ended December 31,
                                   1995      1994     1993      1992     1991
<S>                             <C>       <C>      <C>       <C>      <C>
Net Sales                       $46,544   $46,930  $44,869   $38,717  $37,100

Income <Loss> from continuing
  operations                    $  <297>  $ 1,415  $ 2,557   $ 1,749  $   483 

Loss from Discontinued
  Operations                          0         0        0         0      <30>

Loss on Disposal of
  Discontinued Operations             0         0        0         0     <718>

Extraordinary Gain from 
  Repurchase of Subordinated 
  Debentures                          7         5       75       225      186 

Cumulative Effect of Change in
  Accounting for Income Taxes         0         0        0       723        0

NET INCOME <LOSS>               $  <290>  $ 1,420   $2,632   $ 2,697  $   <79> 



Earnings Per Common Share (Primary & Fully Diluted):

Income <Loss> from
  Continuing Operations         $  <.04>  $   .18  $   .33   $   .22  $   .06 

Loss from Discontinued  
  Operations                        .00       .00      .00       .00      .00 

Loss on Disposal of
  Discontinued Operations           .00       .00      .00       .00     <.10>

Extraordinary Gain from
  Repurchase of Subordinated
  Debentures                        .00       .00      .01       .03      .03

Cumulative Effect of Change in
  Accounting for Income Taxes       .00       .00      .00       .10      .00

NET INCOME <LOSS> PER SHARE     $  <.04>  $   .18  $   .34   $   .35  $  <.02>

Dividends Per Share             $     0   $     0  $     0   $     0  $     0

Total Assets at year end        $33,653   $32,177  $29,162   $28,895  $39,118

Long-term Debt (including
 current portion) at year end   $17,616   $15,358  $14,625   $18,367  $24,417

<FN>

See Item 8 herein for more detailed financial information.

</TABLE>


<PAGE>

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


Results of Operations

Year ended December 31, 1995 versus December 31, 1994

Sales decreased $.4 million, or 1% for the twelve months ended December 31,
1995 as compared to the same period for 1994.  The decrease is due primarily
to decreases in sales of synthetic fabrics and environmental products of $.7
million and $.1 million, respectively, partially offset by a $.4 million
increase in sales of the Company's transdermal nitroglycerin patches.  The
synthetic fabrics sales decrease is due principally to lower governmental and
foreign sales and timing of customer demand for certain fabrics. 
Environmental product sales decreased due primarily to the loss of a customer
for the Japanese Beetle Lures.  Sales decreases were partially offset by a $.4
million transdermal nitroglycerin patch sales increase which was due primarily
to greater demand from both domestic and foreign distributors.

Gross profit decreased $1.8 million or 12% for the twelve months ended
December 31, 1995 as compared to the same period in 1994.  Gross profit as a
percent of sales was 29% for the twelve months ended December 31, 1995 as
compared to 32% for the same period in 1994.  Gross profit for synthetic
fabrics and environmental products decreased $2.2 million and $.1 million,
respectively, while transdermal nitroglycerin patch gross profit increased $.5
million as compared to the same period in 1994.  The synthetic fabrics gross
profit decrease is due primarily to unfavorable manufacturing variances and
rising raw material cost of $1.5 million and higher plant overhead of $.7
million.  Management believes that synthetic fabrics margins will improve in
1996 as manufacturing deficiencies are rectified in part by implementation of
a new computer system.  Transdermal nitroglycerin patch gross profit increased
due primarily to increased domestic sales volumes of higher margin products. 
Gross profit as a percent of sales for transdermal nitroglycerin patches was
60% for the twelve months ended December 31, 1995 as compared to 58% for the
same period in 1994 reflecting domestic price increases, reduced operating
costs and increased domestic sales volumes.  

Selling, general and administrative expenses increased $.5 million for the
twelve months ended December 31, 1995 as compared to the corresponding period
in 1994.  The increase is due primarily to higher 1995 payroll-related
expenses of $.5 million, including $.4 million related to pension accruals,
and to a 1994 $.2 million non-recurring reduction to expenses from a receipt
of life insurance proceeds relating to a former officer.  These increases were
partially offset by decreased sales commissions and royalty expense.

Research and development expense increased $.2 million for the twelve months
ended December 31, 1995 as compared to the same period in 1994.  The Company
anticipates research and development expenses related to pharmaceutical
products in 1996 to equal or exceed 1995 levels as new studies for patch
applications are developed from initial formulation work through commercial
scale up and current studies advance through various phases of completion.

Interest expense was approximately the same for the twelve months ended
December 31, 1995 as compared to the same period in 1994 as lower interest
rates were offset by an increase in the level of long-term debt.

Other income - net decreased $.1 million for the twelve months ended December
31, 1995 as compared to the corresponding period in 1994.  The decrease is due
primarily to 1994 nonrecurring income producing items.



 
<PAGE>

Income from operations before taxes and minority interest decreased $2.6
million for the twelve month period ended December 31, 1995 as compared to the
corresponding period in 1994 due primarily to lower synthetic fabrics profit
margins related to unfavorable manufacturing variances, rising material costs
and higher plant overhead.  

The Company reported less than a $.1 million tax benefit on a loss from
operations for the twelve months ended December 31, 1995 as compared to a $.8
million tax provision on income from operations in 1994.  Income tax provision
or benefit varies with the amount and nature of the components of income or
loss from operations before income taxes.  The 1995 federal tax benefit
resulting from this loss was partially offset by the provision for state taxes
which was generated from income associated with the sale of transdermal
nitroglycerin patches.  Note 12 to the accompanying consolidated financial
statements presents a reconciliation of taxes on income for 1995 and 1994.

Minority interest represents a 1.5% interest of a former Hercon Laboratories
president in the equity of Hercon Environmental.


Year ended December 31, 1994 versus December 31, 1993

Sales increased $2.1 million, or 5% for the twelve months ended December 31,
1994 as compared to the same period for 1993.  The increase was due primarily
to a $3.7 million increase in the sales of synthetic fabrics, offset by a $1.4
million decrease in the sales of the Company's transdermal nitroglycerin
patches.  Synthetic fabrics sales increased $3.7 million due principally to an
overall increase in market activity, timing of customer demand for certain
fabrics and biannual foreign sales.  Pharmaceutical sales were adversely
affected in 1994 by actions taken by distributors in 1993 to build their
inventories to desired levels after adjusting for market demand. 
Environmental product sales decreased $.2 million due primarily to a reduction
of government contracts for the Gypsy Moth Lure.

Gross profit decreased $.4 million, or 3% for the twelve months ended December
31, 1994 as compared to the same period in 1993.  Gross profit as a percent of
sales was 32% for the twelve months ended December 31, 1994 as compared to 35%
for the same period in 1993.  The decrease was due primarily to decreased
sales volumes of higher margin transdermal nitroglycerin patches.  Lower gross
profits also reflect rising raw material costs and higher labor costs which
could not be passed on to the customers because of market conditions.  

Selling, general and administrative expenses decreased $.7 million for the
twelve months ended December 31, 1994 as compared to the corresponding period
in 1993.  The decrease was primarily due to reductions in expenses for bonus
accruals of $.7 million, life insurance of $.3 million and royalties of $.1
million, partially offset by increases in sales commissions of $.2 million and
payroll and fringe costs of $.2 million.

Research and development expense was approximately the same for the twelve
months ended December 31, 1994 as compared to the same period in 1993.  A $.2
million increase for costs related to new product development of synthetic
product lines, relating primarily to associated payroll and fringe costs, was
offset by research and development costs related to pharmaceutical products. 


Interest expense decreased $.1 million for the twelve months ended December
31, 1994 as compared to the same period in 1993 due primarily to lower average
outstanding balances on the Company's long-term line of credit and
subordinated debentures.



<PAGE>




Other income - net decreased $.5 million for the twelve months ended December
31, 1994 as compared to the corresponding period in 1993.  The decrease was
due primarily to a 1993 nonrecurring recovery of expenses representing an
insurance recovery and a reduction of reserves from certain litigation
contingencies settled in 1993.

Income from operations before taxes decreased $.1 million for the twelve month
period ended December 31, 1994 as compared to the corresponding period in 1993
primarily due to the change in other income mentioned above.  Income tax
provision increased $1 million for the twelve months ended December 31, 1994
as compared to the same period in 1993 due to full recognition of benefits of
tax loss carryforwards and other tax credits in 1993 and no such items
existing in 1994.  Note 12 to the accompanying consolidated financial
statements presents a reconciliation of taxes on income for 1994 and 1993.


Liquidity and Capital Resources

The following measures of liquidity are drawn from the Company's Consolidated
Financial Statements: 
                                                          December 31,
                                                         1995     1994

            Working capital (current assets less
              current liabilities, in thousands)       $9,041   $8,179
            Current ratio (current assets/
              current liabilities)                        2.3      2.0
            Quick ratio (cash and receivables/       
              current liabilities)                         .7       .7

Working capital increased $.9 million from December 31, 1994 to December 31,
1995 due to a $1.5 million decrease in current liabilities, partially offset
by a $.6 million decrease in current assets.  Increases in working capital
were primarily the result of decreases in accounts payable and accrued
expenses and other current liabilities of $.5 million and $.6 million,
respectively, along with an increase in other current assets of $.8 million. 
These increases to working capital were partially offset by decreases in
accounts receivable, net and inventories of $.6 million and $.5 million,
respectively.  The accounts receivable decrease is due primarily to a decrease
in transdermal nitroglycerin patch sales in the fourth quarter of 1995 as
compared to the fourth quarter of 1994.  Management believes this decrease is
temporary.  Inventory decreases of $.8 million were achieved in the synthetic
fabrics area due principally to the implementation of improvements to the
material management system.  Efforts were enhanced by the new computer system
which was brought on line January 1, 1995 for the Company's Herculite
subsidiary.  Accrued expenses and other current liabilities have decreased
principally due to accruals related to payroll expenses, legal expenses and
audit fees.  

Cash and cash equivalents decreased $.4 million at December 31, 1995 as
compared to the same period in 1994.  Cash generated from operations and
financing activities for the year ended December 31, 1995 was $.9 million and
$2.3 million, respectively.  The Company made capital expenditures of $3.7
million in 1995, of which $1.8 million was related to the building of a new
production line for its Pacific subsidiary.  This new production line will
increase capacity for both current products and new products created through
research and development.  The remaining $1.9 million was for additions
consisting of manufacturing tooling and equipment and leasehold improvements.





<PAGE>



The Company expects to meet $.6 million of debenture interest payments each
April and October and other periodic interest payments out of working capital. 
The required $1.5 million sinking fund payment on the Company's subordinated
debentures due on April 15, 1996 is to be satisfied by application of $.8
million of debentures previously repurchased and by the Company's option to
call for redemption of an additional $.7 million of debentures.

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

At December 31, 1995, the Company had borrowed $3.9 million on its $6.0
million line of credit from the First National Bank of Maryland (First
National).   The credit line bears interest, at the Company's option, at
either the bank's prime rate or the London Inter-Bank Offer Rate, is secured
by the Company's assets with the exception of real estate, and expires in
October of 1997.  The Company's line of credit balance of $3.9 million was
unchanged at February 29, 1996.  It is the Company's practice to utilize the
line of credit to fund current obligations when required and to pay down the
line of credit when funds become available.  

At December 31, 1995, the Company had purchased, in market transactions
throughout 1995, $.7 million principal amount of its 10.375% convertible
subordinated debentures for $.7 million.  Subsequent to the end of the year,
through February 29, 1996, the Company, purchased in market transactions, $.1
million principal amount of its debentures for $.1 million.  Additional
debentures may be repurchased and retired or if debentures are not available
for purchase, the Company has an option to call for redemption the amount
required to meet future sinking fund requirements.

The Company's debt to equity ratio was 3:1 at December 31, 1995 unchanged from
December 31, 1994.  The Company's debt to equity ratio decreased at December
31, 1994 down from 4:1 at December 31, 1993.  This lower ratio reflects
increases in stockholders' equity from net income of $1.4 million for the
twelve months ended December 31, 1994 and the common stock transactions of
$1.1 million discussed in Note 9 of the accompanying Notes to Consolidated
Financial Statements.

Management believes anticipated expenditures in 1996 such as capital
expenditures, debenture repurchasing, research and development costs and other
operating expenses will be funded with cash generated from operations,
supplemented by the utilization of the line of credit.  The Company
anticipates capital expenditures for property, plant and equipment in 1996 to
decrease from the $3.7 million expended in 1995 to approximately $1.2 millon. 
These capital expenditures will primarily consist of manufacturing tooling and
equipment and leasehold improvements.


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.

<PAGE>
<PAGE>



ITEM 8.  FINANCIAL STATEMENTS

Index to Consolidated Financial Statements.

                                                                PAGE 

Independent Auditors' Reports                                  13-14

Consolidated Balance Sheets - December 31, 1995 and 1994       15-16

Consolidated Statements of Operations
  Years Ended December 31, 1995, 1994 and 1993                    17

Consolidated Cash Flow Statements
  Years Ended December 31, 1995, 1994 and 1993                 18-19

Consolidated Statements of Stockholders' Equity
  Years Ended December 31, 1995, 1994 and 1993                    20

Notes to Consolidated Financial Statements                     21-34

<PAGE>
<PAGE>












INDEPENDENT AUDITORS' REPORT

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 (Company) as of
December 31, 1995 and for the year then ended listed in Item 14(a) 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 financial statements and financial statement
schedule based on our audit.  

We conducted our audit in accordance with generally accepted auditing
standards.  These 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.

In our opinion, the 1995 financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Health-Chem Corporation as of December 31, 1995, and the consolidated results
of their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.  In addition, in our opinion,
the financial statement schedule 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.






                                                        COOPERS & LYBRAND
L.L.P.
One South Market Square
Harrisburg, Pennsylvania
March 15, 1996  (Except
for the last two paragraphs
of Note 9 which are dated
as of March 26, 1996)
<PAGE>

<PAGE>










INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying consolidated financial statements of Health-
Chem Corporation and subsidiaries as of December 31, 1994, and for each of the
two years in the period ended December 31, 1994 listed in Item 14(a)1.  Our
audits also included the financial statement schedule for each of the two
years in the period ended December 31, 1994 listed in Item 14(a)2.  These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management.  Our responsibility is to express
an opinion on the consolidated financial statements and 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 consolidated financial
statements are free of material misstatement.  An audit includes examining, on
a test basis, evidence supporting the amount 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Health-
Chem Corporation and subsidiaries at December 31, 1994 and the results of
their operations and their cash flows for each of the two years in the period
ended December 31, 1994 in conformity with generally accepted accounting
principles.  Also, in our opinion, the financial statement schedule referred
to above, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.






DELOITTE & TOUCHE, LLP
Baltimore, Maryland
March 15, 1995
<PAGE>
<PAGE> 
<TABLE>

                           HEALTH-CHEM CORPORATION
                         CONSOLIDATED BALANCE SHEETS
                    (In thousands, except share amounts)

<CAPTION>


                        ASSETS                                December 31,
<S>                                                         1995        1994
CURRENT ASSETS                                           <C>         <C>
   Cash and cash equivalents                             $   259     $   624
   Accounts receivable, net of allowances for 
     doubtful accounts of $260 and $286                    4,621       5,224
   Inventories  (Note 2)                                   9,070       9,540
   Other current assets                                    1,886       1,097
     Total Current Assets                                 15,836      16,485

PROPERTY, PLANT AND EQUIPMENT
   Land                                                      141         150
   Buildings                                               5,572       5,546
   Equipment and leasehold improvements                   18,511      16,462
   Construction-in-progress                                3,134       1,625
     Total Property, Plant and Equipment                  27,358      23,783
   Less accumulated depreciation and amortization         14,090      12,419
     Net Property, Plant and Equipment                    13,268      11,364

NON-CURRENT ASSETS
   Notes receivable                                        1,500       1,500
   Cash surrender value of life insurance policies,
     net of loans of $929 and $883                         2,110       1,808
   Excess of cost over fair value of assets acquired         731         755
   Other non-current assets                                  208         265
     Total Non-Current Assets                              4,549       4,328

TOTAL ASSETS                                             $33,653     $32,177



Consolidated Balance Sheets are continued on the next page.

See Notes to Consolidated Financial Statements.


</TABLE>


<PAGE>
<PAGE>
<TABLE>



                           HEALTH-CHEM CORPORATION
                   CONSOLIDATED BALANCE SHEETS, CONTINUED
                    (In thousands, except share amounts)


<CAPTION>
                    LIABILITIES AND STOCKHOLDERS' EQUITY        December 31,
<S>                                                           1995       1994
                                                           <C>        <C>
CURRENT LIABILITIES
   Accounts payable                                        $ 3,689    $ 4,215
   Accrued expenses and other current
     liabilities (Note 3)                                    2,462      3,069
   Income taxes payable (Note 12)                              644      1,022
     Total Current Liabilities                               6,795      8,306

LONG-TERM LIABILITIES
   10.375% convertible subordinated debentures 
     (Notes 4 and 17)                                       11,000     12,500
   Long-term debt (Note 4)                                   5,623      1,919
   Deferred income taxes (Note 12)                               8        317
   Other long-term liabilities                               1,744        424
   Minority interest (Note 18)                                  17          0
   

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          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          7
   Common stock, par value $.01 per share;
     50,000,000 shares authorized; 14,473,056
     shares issued; 7,982,424 shares and 7,980,424
     shares outstanding in 1995, and 1994 respectively         145        145
   Additional paid-in capital                               18,286     18,281
   Less stockholder notes receivable (Note 17)                <148>      <188>
   Accumulated deficit                                      <2,141>    <1,851>
     Subtotal                                               16,149     16,394
   Less treasury stock                                      <7,683>    <7,683>
     Total Stockholders' Equity                              8,466      8,711

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                 $33,653    $32,177







See Notes to Consolidated Financial Statements.

</TABLE>
<PAGE>
<PAGE>
<TABLE>

                           HEALTH-CHEM CORPORATION
                    CONSOLIDATED STATEMENTS OF OPERATIONS
                  (In thousands, except per share amounts)

<CAPTION>

                                                     Year Ended December 31,
<S>                                                  1995      1994      1993
REVENUE:                                          <C>       <C>       <C>
  Net sales                                       $46,544   $46,930   $44,869
  Cost of goods sold                               33,264    31,867    29,389
  Gross profit                                     13,280    15,063    15,480

OPERATING EXPENSES:     
  Selling, general and administrative 
    expense                                         9,211     8,752     9,466
  Research and development expense                  3,555     3,337     3,289
  Net interest expense (Note 13)                    1,351     1,344     1,469
    Total operating expenses                       14,117    13,433    14,224

INCOME <LOSS> FROM OPERATIONS:                       <837>    1,630     1,256 
  Other income - net (Note 14)                        512       629     1,151

INCOME <LOSS> FROM OPERATIONS BEFORE TAXES
AND MINORITY INTEREST:                               <325>    2,259     2,407
  Income tax provision <benefit> (Note 12)            <45>      844      <150>

INCOME <LOSS> BEFORE MINORITY INTEREST:              <280>    1,415     2,557 
  Minority Interest in earnings of 
    subsidiary (Note 18)                              <17>        0         0

INCOME <LOSS> BEFORE EXTRAORDINARY GAIN:             <297>    1,415     2,557
  Extraordinary gain from repurchase of             
    subordinated debentures (Note 15)                   7         5        75

NET INCOME <LOSS>                                 $  <290>  $ 1,420   $ 2,632 


Earnings per common share (primary & fully diluted)
  (Note 1h):
  Income <loss> before extraordinary gain          $ <.04>   $  .18    $  .33
  Extraordinary gain from repurchase of debentures    .00       .00       .01
NET INCOME <LOSS> PER SHARE                        $ <.04>   $  .18    $  .34 
 


Average number of common shares 
 outstanding (Note 1h)               
  Primary                                           7,991     7,701     7,447
  Fully Diluted                                     7,993     7,703     7,460


See Notes to Consolidated Financial Statements.
/TABLE
<PAGE>

<PAGE>
<TABLE>


                           HEALTH-CHEM CORPORATION
                      CONSOLIDATED CASH FLOW STATEMENTS
                              (In thousands)  

<CAPTION>
                                                      Year Ended December 31,
                                                       1995     1994     1993
<S>                                                 <C>      <C>      <C>

Cash was Provided by <Used for>:

OPERATIONS:
Income <loss> before extraordinary gain             $  <297> $ 1,415  $ 2,557 
Adjustments to reconcile to net cash provided   
 by <used for> operations:
  Depreciation and amortization                       1,786    1,620    1,534
  Deferred income taxes                                <278>     433       23 
  Minority interest                                      17        0        0
 Changes in:
  Accounts receivable                                   603     <616>      92 
  Inventories                                           470   <2,186>  <1,165>
  Other current assets                                 <265>     450     <327>
  Other non-current assets                             <313>    <130>    <237>
  Accounts payable                                     <526>   1,403      721 
  Accrued expenses and other current liabilities       <619>    <962>   1,231 
  Interest and income taxes payable                     <85>    <175>    <348>
  Long term liabilities                                 399        0        0
 Other, net                                               8      <98>      17
Net cash provided by operations                         900    1,154    4,098


Extraordinary item:
  Gain from repurchase of subordinated debentures         7        5       75
  Gain from repurchase of debentures providing 
    no cash                                              <7>      <5>     <75>
Net cash provided by extraordinary item                   0        0        0
Net cash provided by operations                         900    1,154    4,098


















Consolidated Cash Flow Statements are continued on the next page.

See Notes to Consolidated Financial Statements.

</TABLE>
<PAGE>
<TABLE>





                           HEALTH-CHEM CORPORATION
                CONSOLIDATED CASH FLOW STATEMENTS, CONTINUED
                               (In thousands)

<CAPTION>

<S>                                                  Year Ended December 31,
                                                     1995      1994      1993
INVESTING:                                        <C>       <C>       <C>
 Additions to property, plant and equipment        <3,627>   <2,020>   <1,777>
 Proceeds on disposals of property, plant and
   equipment                                           11        21        87
 Payments received on notes receivable                 71       258        75
 Net cash <used for> investing                     <3,545>   <1,741>   <1,615>

FINANCING:
 Long-term debt proceeds                           15,323     6,019     1,400
 Long-term debt payments                          <11,369>   <4,700>   <4,200>
 Repurchase of convertible subordinated
   debentures                                      <1,679>     <576>     <863>
 Purchase of redeemable common stock                    0    <1,104>        0
 Purchase of common stock of subsidiary                 0         0      <250>
 Sale of treasury stock                                 0     1,112         0
 Stock options exercised                                5         0         0
 Net cash provided by <used for> financing          2,280       751    <3,913>

Net Increase <Decrease> in Cash and Cash
  Equivalents                                        <365>      164    <1,430>
Cash and Cash Equivalents at beginning of period      624       460     1,890
Cash and Cash Equivalents at end of period        $   259   $   624   $   460

Supplemental Disclosures of Cash Flow Information:
 Cash paid during the period for:
  Interest                                        $ 1,727   $ 1,533   $ 1,666
  Income taxes                                        284       592       108










See Notes to Consolidated Financial Statements.

/TABLE
<PAGE>
<PAGE>
<TABLE>
                                    HEALTH-CHEM CORPORATION
                        CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                         YEARS ENDED DECEMBER 31, 1995, 1994 and 1993
                                        (In Thousands)
<CAPTION>

                                                         Stock-   Retained
                             Conver-           Addi-     holder   Earnings
                              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, January 1, 1993     $     7  $  140   $16,756   $  <256> $<5,518>  $ <7,211>  $3,918

Repurchase of certain
 minority interest shares
 in Hercon Laboratories                                              <250>               <250>

Accretion of discount on
 redeemable common stock                                              <90>                <90>

Net income 1993                                                     2,632               2,632 
 
Balance, December 31, 1993   $     7  $  140   $16,756   $  <256> $<3,226>  $ <7,211>  $6,210

Reduction of stockholder
 notes                                                        68                           68

Purchase of redeemable
 common stock (Note 9)                     5     1,045                        <1,104>     <54>

Accretion of discount on
 redeemable common stock                                              <45>                <45>

Sale of common stock from
 treasury (Note 9)                                 480                           632    1,112

Net income 1994                                                     1,420               1,420

Balance, December 31, 1994   $     7  $  145   $18,281   $  <188> $<1,851>  $ <7,683>  $8,711

Reduction of stockholder
 notes                                                        40                           40

Exercise of stock options                            5                                      5

Net loss 1995                                                        <290>               <290>

Balance, December 31, 1995   $     7  $  145   $18,286   $  <148> $<2,141>  $ <7,683>  $8,466


See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<PAGE>
                           HEALTH-CHEM CORPORATION
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 1995, 1994, 1993



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").  

In April 1995, the Company's Board of Directors approved a plan to realign
certain of its business operations in order to separate its transdermal
pharmaceutical business from its hospital and industrial laminated fabrics and
environmental chemical business.  As part of such realignment, Hercon
Laboratories Corporation ("Hercon Laboratories") effectively transferred its
environmental chemical business to a subsidiary of Health-Chem, Hercon
Environmental Corporation.

Following the completion of the transfer of the environmental business, the
Company and its subsidiaries Transderm Laboratories Corporation ("Transderm")
and Herculite Products, Inc. ("Herculite") entered into a Plan of
Reorganization and Asset Exchange Agreement effective August 31, 1995.

The Plan of Reorganization and Asset Exchange Agreement required, among other
things:

  .   The transfer from Herculite to Transderm of the manufacturing
      facility in which Hercon Laboratories' operations are conducted
      and the 985 shares of Hercon Laboratories' common stock owned by
      Herculite in exchange for 1,000,000 shares of Transderm's
      redeemable preferred stock, $10.00 par value.

  .   Hercon Laboratories issuance to the Company of a $7,000,000, 9%
      Subordinated Promissory Note evidencing the approximate amount of
      intercompany advances owed to the Company by Hercon Laboratories.

  .   Transderm's issuance of 40,000,000 shares of its authorized
      60,000,000 shares of common stock, $.001 par value, in exchange
      for the previously issued 50 shares of its $.01 par value common
      stock.

  .   Transderm's payment to the Company as it uses its net operating
      loss and tax credit carryforwards to offset future taxable income
      as a result of entering into a Tax Sharing Agreement.

Transactions between the Company and its subsidiaries have been eliminated in
consolidation.

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.




<PAGE>




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 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
$1,712,000, $1,565,000 and $1,420,000 for 1995, 1994 and 1993, respectively.

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 at December
31, 1995 and 1994 was $175,000 and $150,000 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.

f.  Research and development

Research and development costs are charged to operations as incurred.

g.  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 (See Note 12). 

h.  Per share information

Primary and fully 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 10.375% 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 added to
net income for the purpose of computing earnings per share.  In 1994 and 1993
accretion of discount of $45,000 and $90,000 respectively on redeemable common
stock was deducted from net income and income before extraordinary gain for
the purpose of computing earnings per share.  Subordinated debentures are
anti-dilutive and a portion of the stock options are dilutive for each of the
years ended December 31, 1995, 1994 and 1993.








<PAGE>


i.  Fair Value of Financial Instruments

In 1995, the Company adopted Statement of Financial Accounting Standards #107,
"Disclosures about Fair Value of Financial Instruments," which requires
disclosure of fair value information about financial instruments, whether or
not recognized in the balance sheet.  The carrying amount reported in the
consolidated balance sheets at December 31, 1995 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 long-term debt
approximate fair value because the underlying instruments reprice frequently. 
The fair value of the Company's convertible subordinated debentures is based
on quoted market prices and at December 31, 1995 approximated carrying value.

j.  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.

k.  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.


2.  Inventories  (In thousands)
                                                           December 31, 
                                                          1995         1994

            Raw materials                               $4,326       $5,222
            Finished goods and work in process           4,744        4,318
            Total                                       $9,070       $9,540



3.  Accrued Expenses and Other Current Liabilities  (In thousands)

                                                           December 31,
                                                          1995         1994
                       
Allowance for litigation contingencies                  $  201       $  201
Current portion of long-term debt                          993          939
Accrued interest on debt                                   293          319
Accrued research and development                           135          218
Accrued legal and audit fees                               168          351
Accrued payroll and related liabilities                    197          564
Financed insurance premiums                                164          140
Other                                                      311          337
Total accrued expenses and other current liabilities    $2,462       $3,069








<PAGE>




4.  Long-Term Debt

The Company's long-term debt balances are as follows (in thousands):

                                                           December 31,
                                                          1995         1994
                                                                       
  10.375% convertible subordinated debentures,
    due April 15, 1991 through April 15, 1999          $12,500      $14,000
  Less debentures purchased to meet
    sinking fund requirements                              757          561
  Total 10.375% convertible subordinated debentures    $11,743      $13,439

  Long-term line of credit payable                     $ 3,923      $ 1,519
  Long-term bank debt term loan                          1,500            0
  Other long-term debt                                     200          400
  Total other long-term debt                           $ 5,623      $ 1,919

  

Interest on the debentures is payable semi-annually.  The debentures are
subject to redemption through a sinking fund whereby the Company is required
to redeem at face value $1,500,000 of the debentures each April 15, from 1991
through 1998.  The balance is due on April 15, 1999.  The debentures are
convertible into shares of the Company's common stock at $19.52 per share and
are redeemable in whole or in part at par.  During 1995, 1994, and 1993 the
Company repurchased debentures with a face amount of $2,224,000 in market
transactions and called for redemption $1 million to meet future sinking fund
requirements.  The Company satisfied the 1995 sinking fund requirement by
application of $.5 million of debentures previously repurchased and by calling
for redemption the remaining $1 million.  The Company has elected to satisfy
the 1996 sinking fund requirement by application of $.8 million of debentures
previously repurchased and redemption of the remaining $.7 million.

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, 1995, no amount was available for
the payment of dividends and/or the repurchase of capital stock. 

The Company's $6.0 million long-term line of credit from The First National
Bank of Maryland ("First National") replaced its $4.5 million long-term line
of credit from The Bank of Tokyo Trust Company in July 1994.  The line of
credit's borrowing base is limited to the sum of 80% of eligible accounts
receivable and 35% of eligible inventory.  Borrowings under the line of credit
are collateralized by a pledge of substantially all of the assets of the
Company with the exception of real estate.  At the Company's option,
borrowings under the line of credit bear interest at the lender's prime rate
or the London Inter-Bank Offer Rate, as amended.  The weighted average
interest rate was 7.6% at December 31, 1995.  In addition, the Company pays a
facility fee of 1/4 of 1% on the amount of the unused credit facility.  The
borrowing agreement, which expires on October 15, 1997, contains various
covenants which, among other things, require 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.  At December 31,
1995 the Company was in compliance with the covenants, as amended.






<PAGE>



On October 11, 1995, Pacific, a subsidiary of the Company, obtained a
$1,750,000 term loan from First National.  Borrowings under the term loan, as
with the Company's $6,000,000 line of credit with First National, are
collateralized by a pledge of substantially all of the assets with the
exception of real estate of Pacific, the Company, and its other operating
subsidiaries.  Unless Pacific elects otherwise in accordance with the loan
documents, borrowings under the term loan will bear interest at the lender's
prime rate plus .375%.  The interest rate was 7.74% at December 31, 1995.  The
term loan, which expires on November 15, 2000, requires quarterly principal
payments starting February 1996 through November 2000 and is subject to
various financial covenants which are similar to the covenants of the line of
credit agreement.

Subsequent to the end of the year, through February 29, 1996, the Company
purchased in market transactions $.1 million principal amount of its 10.375%
convertible subordinated debentures for $.1 million.

Other long-term debt represents the final portion of a settlement to be paid
to Circa Pharmaceuticals, Inc. (formerly Bolar Pharmaceutical Co., Inc.).  The
December 31, 1995 balance is payable in 1997, bearing interest at prime plus
1%.

Annual maturities of long-term debt for each of the five years following
December 31, 1995 are as follows:

                         Convertible      Line of                   Other
                         Subordinated     Credit       Term       Long-Term
      Year               Debentures(1)    Payable    Loan (2)        Debt  
      
      1996                 $   743        $    0      $  250      $     0
      1997                   1,500         3,923         350          200
      1998                   1,500             0         383            0
      1999                   8,000             0         383            0
      2000                       0             0         384            0
      Subtotal              11,743         3,923       1,750          200

      Less:
       Current portion         743             0         250            0
      Total                $11,000        $3,923      $1,500      $   200



Note: (1)   Amounts shown are net of face value of repurchased
            debentures and assume application of such debentures
            to meet, in part, sinking fund requirements for 1996.

      (2)   The term loan requires quarterly principal payments
            commencing with $62,500 in February 1996, increasing
            to $87,500 in 1997 and $95,833 from 1998 through
            November 2000.












<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, 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 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, 1995 the related pension
accrual in the amount of $399,000 has been recorded in other long-term
liabilities on the Consolidated Balance Sheets.

Net pension cost included in the operating results for fiscal year ended
December 31, 1995 consisted of the following components:

                                            1995

Service costs                               $ 50
Interest costs                               107
Net amortization                             242
Net pension cost                            $399

The supplemental pension agreements currently are not funded.  The status of
these plans at December 31, 1995 is as follows:

Accumulated benefit obligations          $<1,515>
Projected benefit obligation              <2,194> 
Plan assets in excess of projected
 obligation                               <2,194>
Unrecognized prior service cost            1,795
Accrued pension cost                     $<  399>


The assumed discount rate used in determining the accumulated benefit
obligation was 7% for 1995.


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 $59,000,
$61,000, and $56,000 in 1995, 1994 and 1993, respectively.



<PAGE>
7.  Commitments

The Company leases office space in New York City and two production/warehouse
facilities in Los Angeles.  Minimum rental commitments required under non-
cancelable operating leases having a term of more than one year as of December
31, 1995 were as follows (in thousands):

                  Year                     Amount
                  1996                        448
                  1997                        448
                  1998                        405
                  1999                         80
                 Total                     $1,381

Rent expense was $502,000, $424,000 and $419,000 in 1995, 1994 and 1993,
respectively.

At December 31, 1995, commitments under employment arrangements aggregated
$3,084,000 through 2000.  Certain employees were provided bonuses based upon
defined earnings or the attainment of certain sales levels, which amounted to
$416,000 and $1,194,000 in 1994 and 1993, respectively.


8.  Litigation

In August 1995, Key Pharmaceuticals, Inc., a subsidiary of Schering-Plough
Corporation ("Key"), commenced an action against the Company's Hercon
Laboratories subsidiary in the United States District Court for the District
of Delaware 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' improved transdermal
nitroglycerin products for which the Company is awaiting FDA approval
constitutes infringement of Key's patent for its Nitro-Dur(R) products.  Key
seeks 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.  By Answer and Counterclaim dated August 28, 1995, 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 has not infringed and does not infringe any claim of the
patent.  In its counterclaim against Key, Hercon Laboratories seeks a
declaratory judgment of patent noninfringement, invalidity and
unenforceability.  Discovery in this action has commenced.  Management
believes that Key's claims are without merit and intends to defend the action
vigorously.

In October 1995, Gershon Yormack, a stockholder of the Company, initiated an
action in the Delaware Chancery Court (New Castle County) against the Company,
its directors and its Transderm subsidiary, seeking injunctive and declaratory
relief with respect to certain options to purchase Transderm common stock to
be 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,
in 1995.  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 plaintiff alleges that
this exercise price, which is the same per share price as the subscription
price for Transderm common stock offered by the Company to stockholders under
a registered subscription rights offering (via a prospectus dated September
18, 1995), is substantially less than the fair market value of such Transderm
common stock.  Management believes that the claims are without merit and
intends to defend the action vigorously.



<PAGE>

9.  Redeemable Common Stock and Stockholders' Equity

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.  As of December 31, 1993, these shares had
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 ("1994
Option Shares") at $2.00 per share, to Marvin M. Speiser.  Under a Stock
Purchase and Option Agreement, Mr. Speiser has granted the Company an option
to purchase these shares at any time until June 30, 1999 at a price equal to
his actual cost of $2.00 per share plus interest incurred on borrowings to
finance the purchase.  In addition, under this agreement, Mr. Speiser has
agreed to vote these shares in the same proportion that all other shares of
common stock are voted.

The effect of the above transactions on the financial position of the Company
was a reduction of redeemable common stock of $1,050,000 and an increase in
stockholders' equity of $1,112,000 after $38,000 of expenses of issuing the
common stock.

On March 26, 1996, the Board of Directors of the Company approved the
Company's entering into a stock purchase agreement with Marvin M. Speiser (the
"Stock Purchase Agreement") relating to 1,782,689 shares of Common Stock owned
by him subject to the Company's option to repurchase.  Pursuant to the Stock
Purchase Agreement, the Company will undertake a subscription rights offering
of up to 1,320,000 shares of the Common Stock to its stockholders (other than
Mr. Speiser).  This offering will be registered under the Securities Act of
1933, as amended.

The Stock Purchase Agreement provides that Mr. Speiser will sell to the
Company such number of shares of Common Stock as are subscribed to in the
offering at a per share price equal to the combined weighted average exercise
price per share of:  (i) 1,207,689 shares of Common Stock which the Company
has the right to acquire pursuant to an option agreement, dated as of December
28, 1990 and amended on August 30, 1991, between Mr. Speiser and the Company
(the "1991 Option Shares"); and (ii) the 1994 Option Shares.  Mr. Speiser will
not receive any subscription rights in the offering but the total number of
shares being offered will reflect his retention of such number of shares as
would have been offered to him, pro rata.  The excess, if any, of the
aggregate subscription price received by the Company over the aggregate
purchase price paid to Mr. Speiser will be retained by the Company to be
applied against the expenses of the transaction and for other corporate
purposes.  The Stock Purchase Agreement also provides that upon the conclusion
of the offering, the agreements relating to the 1991 Option Shares and the
1994 Option Shares and all further rights of the Company to purchase said
Option Shares shall be terminated.












<PAGE>



10.  Stockholders' Equity

a.  A summary of the changes in shares of common and treasury stock is as    
      follows:
[CAPTION]                                          Treasury Stock      
                                  Common     Convertible        Common
                                  Stock      Special Stock      Stock  
[S]                            [C]           [C]              [C]
    Balance at 1/1/93 and
     12/31/93                  7,930,424           738,667    6,540,632

    Shares repurchased (1)      <525,000>                0      525,000
    Shares issued (1)            575,000                       <575,000>
    
    Balance at 12/31/94        7,980,424           738,667    6,490,632
    
    Stock options exercised        2,000                 0            0

    Balance at 12/31/95        7,982,424           738,667    6,490,632


   (1) See Note 9 to the accompanying consolidated financial statements

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
                                                            Number of
        Purpose of Reservation                               Shares  

    Conversion of convertible special stock                   984,889
    Stock option plans                                      1,231,000
    Conversion of 10.375% convertible
      subordinated debentures                                 601,588
    Total reserved shares                                   2,817,477

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
affiliated group, other than any present officer or director, acquires,
obtains the right to acquire, or tenders 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, shall be entitled to receive upon exercise of each Right,
common shares of the Company which have a market value equal to two times the
exercise price of the Right, or capital stock of the acquiring company which
has a market value of two times the exercise price of the Right.  

The Company may redeem 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
acquires or tenders for 30% or more of the Company's common stock.  Unless
redeemed earlier, all Rights expire on February 27, 1999.


<PAGE>

11.  Stock Options

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.  

Transactions under the plans were as follows:

                                       Number of     Range of Option
                                         Shares      Price Per Share

 Balance, January 1, 1993                570,200      $2.50 - $11.13

 Granted during 1993                     152,000       3.75
 Exercised during 1993                       -0-
 Cancelled or expired during 1993       <121,500>      2.50 -  10.63

 Balance, December 31, 1993              600,700       2.50 -  11.13

 Granted during 1994                     179,000       3.25
 Exercised during 1994                       -0-
 Cancelled or expired during 1994        <82,100>      3.25 -  10.25

 Balance, December 31, 1994              697,600       2.50 -  11.13

 Granted during 1995                         -0-
 Exercised during 1995                    <2,000>      2.50
 Cancelled or expired during 1995        <80,600>      3.25 -  11.13

 Balance, December 31, 1995              615,000       2.50 -  10.25

 Exercisable portion at December 
  31, 1995                               343,800       

 Available for future grant at
  December 31, 1995                      616,000


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.

Pursuant to the five-year Employment Agreements referred to in Note 5, on
November 13, 1995, the Company caused its 90% owned subsidiary Transderm
Laboratories Corporation ("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 at $.10 per share, which was the
per share subscription exercise price in Transderm's initial public offering
effected pursuant to the Plan of Reorganization and Asset Exchange Agreement
referred to in Note 1a.  The options are exercisable in full commencing
November 13, 1996, each such option representing ten percent (10%) of the
outstanding common stock of Transderm on a fully-diluted basis.

During October 1995, the FASB issued Statement No. 123, "Accounting for Stock-
Based Compensation".  SFAS 123 encourages employers to adopt its prescribed
fair value-based method of accounting to recognize compensation expense for
employee stock compensation plans, however, it does allow the Corporation to
continue to account for its plans using its current method.  The Corporation
intends to adopt the provisions of SFAS 123 effective January 1, 1996 under
its disclosure-only alternative.

<PAGE>

12.  Taxes on Income  (In thousands)

                                                     Year Ended December, 31,
                                                       1995     1994     1993
Taxes on income include provision <benefit> for:     
  Federal income taxes                               $ <105>  $  680   $ <228>
  State and local income taxes                           63      167       78 
   Total                                             $  <42>  $  847   $ <150>

Taxes on income are comprised of:
  Currently payable                                  $  236   $  414   $ <173>
  Deferred <benefit> payable                           <278>     433       23 
   Total                                             $  <42>  $  847   $ <150>

Charged <credited> to:
  Income before extraordinary gain                   $  <45>  $  844   $ <150>
  Extraordinary gain on repurchase of debentures          3        3        0
   Total                                             $  <42>  $  847   $ <150>


A reconciliation of taxes on income to the federal statutory rate is as
follows:

                                                     Year Ended December, 31,
                                                       1995     1994     1993

  Tax provision <benefit> at statutory rate        $  <107>  $   771   $  844 
  Increase <decrease> resulting from:
   State and local taxes, net of federal tax benefit    13       128      144 
   Proceeds from officer's life insurance                0       <81>       0
   Reversal of previously provided income taxes          0         0     <411>
   Recognition of tax loss and tax credit         
     carryforwards (not previously recognized)           0        <7>    <774>
   Intangibles and officers' life insurance premiums    20        14       35
   Other                                                32        22       12
  Tax provision <benefit>                          $   <42>   $  847   $ <150>


At December 31, 1995 and 1994, the deferred tax liabilities and assets result
from the following temporary differences and carryforwards:

                                                      1995     1994

Liabilities:
  Leveraged leases                                $     0   $<1,968>
  Accelerated depreciation                         <1,097>   <1,078>
  Other                                               <65>      <67>
     Subtotal                                      <1,162>   <3,113>

Assets:
  Net operating and other tax loss
   carryforwards                                    8,730     9,815
  Tax credit carryforwards                            709     1,039
  Provision for litigation contingencies              189       283
  Allowances for bad debts                            285       341
  Inventory reserves                                  207       302
  Capitalization of overhead costs as
   inventory in accordance with tax laws              187       243
  Leveraged leases                                      0       305
  Retirement benefits                                 187         0
  Other                                                21       128
     Subtotal                                      10,515    12,456
  Valuation Allowance                              <8,730>   <9,918>
     Total                                       $    623  $   <575>

<PAGE>



At December 31, 1995, the net deferred tax asset is comprised of a current
asset of $631,000 partially offset by a non-current liability of $8,000.  The
net deferred tax liability at December 31, 1994 is comprised of a non-current
liability of $317,000 and a current liability of $334,000 which is offset by
a current asset of $76,000.  These amounts are included in deferred income
taxes, income taxes payable and other current assets in the consolidated
balance sheets as of December 31, 1995 and 1994.  For the year ended December
31, 1995 the valuation allowance decreased by $1,188,000 primarily as a result
of utilization of federal net operating loss carryforwards.  In 1995, the
leveraged lease term expired thus reversing the remaining deferred tax
liabilities and related reserves.

At December 31, 1995, the Company had approximately $13 million of net
operating loss carryforwards for federal income tax purposes which expire in
various years from 2000 through 2007 and tax credit carryforwards that expire
in various years from 1996 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 1996 through 2009.  Realization is dependent on generating sufficient
taxable income prior to expiration of the loss carryforwards.  Although
realization is not assured, management believes the deferred tax asset net of
a valuation allowance is an amount that is more likely than not to be
realized.  The amount of the deferred tax asset considered realizable,
however, could be reduced in the near term if estimates of future taxable
income during the carryforward period are reduced.


13.  Interest Expense - Net  (In thousands)
                                                                             
                                                   Year ended December 31,
                                                 1995      1994      1993
     Interest expense                          $1,646    $1,605   $ 1,652
     Interest income                             <175>     <178>     <183>
     Capitalized interest                        <120>      <83>        0 

     Total interest expense - net              $1,351    $1,344   $ 1,469



14.  Other Income - Net  (In thousands)
                                                 Year ended December 31,
                                                 1995      1994      1993
     Recovery of <provision for> litigation
       losses                                  $    0    $    0   $   568 (A)
     Rental income                                319       340       473 
     Other income net of expense                  193       289       110 
       Other income - net                      $  512   $   629    $1,151


(A) Consists of a payment of $340,000 from the Company's general liability
    insurance carrier representing a recovery of certain defense costs and
    adjustments to the allowance for litigation contingencies.  









<PAGE>

15.  Extraordinary Gain

The Company's Board of Directors has 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, 1995, $7,257,000 principal amount of debentures had been repurchased in
market transactions and $1,000,000 were called for redemption.  Extraordinary
gains on the repurchase of debentures during 1995, 1994 and 1993 have been
recognized as follows (in thousands):

                                                    1995      1994     1993

   Extraordinary gain from repurchase of 
     subordinated debentures before taxes          $  10     $   8    $  75
   Tax provision (See Note 12)                        <3>       <3>       0 
   Extraordinary gain from repurchase of
     subordinated debentures                       $   7     $   5    $  75


16.  Segment Information and Foreign Sales

The Company's operations consist of a single dominant segment which
manufactures and distributes several products.  These products are related
mainly by manufacturing processes requiring lamination of materials and
usually involve common technological features such as the slow timed release
of various substances.  Most products are wholesaled through distributors or
to other manufacturers.

Foreign sales, consisting primarily of sales to European countries, were $2.0
million or 4% of sales in 1995.  In each of 1995, 1994 and 1993, foreign sales
were less than 10% of total revenues.

In 1995, 1994 and 1993, sales of transdermal nitroglycerin patches to Mylan
Pharmaceuticals, Inc. accounted for approximately 14%, 12% and 12% of
consolidated net sales, respectively.  


17.  Related Party Transactions

The consolidated financial statements include the following items applicable
to related parties (in thousands):
                                                       December 31,
  Balance Sheets:                                     1995      1994

  Receivable from director and executive officer
    included in other current assets (1994 balance
    repaid in February 1995)                          $254      $ 60

  10.375% convertible subordinated debentures
    held by directors and executive officers           467       524

  Stockholder notes receivable arising from
    exercise of stock options                          148       188

                                                     Year ended December 31,
  Income Statements:                                  1995      1994     1993

  Management fees - charged to selling,    
    general and administrative expense                $ 20      $ 60     $ 60

  Interest expense - net                                36        54       39 



<PAGE>
<TABLE>
18.  Minority Interest

A former president of Hercon Laboratories maintains a 1.5% interest in Hercon
Laboratories and Hercon Environmental.  Equity in Hercon Environmental has generated
a $17,000 minority interest.



19.  Quarterly Financial Information (Unaudited)  (In thousands except per share   
     data)


<CAPTION>

                      4th     3rd     2nd    1st    4th     3rd     2nd     1st
                      Qrtr.   Qrtr.   Qrtr.  Qrtr.  Qrtr.   Qrtr.   Qrtr.   Qrtr.
                      1995    1995    1995   1995   1994    1994    1994    1994
<S>                <C>      <C>     <C>    <C>     <C>     <C>     <C>     <C>

Net sales          $10,535  13,012  11,977 11,020  12,159  11,811  12,196  10,764

Gross profit       $ 3,257   4,111   2,633  3,279   3,951   3,772   3,972   3,368

Income <loss> 
  before       
  extraordinary 
  gain             $   <44>    269    <544>    22     469     417     336     193 

Extraordinary gain
  <loss>                 4       2      <3>     4       2       1       1       1

NET INCOME <LOSS>  $   <40>    271    <547>    26     471     418     337     194


Earnings per common share (primary & fully diluted):

Income <loss> 
  before       
  extraordinary 
  gain             $  <.01>    .03    <.07>   .00     .06     .05     .04     .02 

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

NET INCOME <LOSS> 
  PER SHARE        $  <.01>    .03    <.07>   .00     .06     .05     .04     .02

</TABLE>
<PAGE>
<PAGE>




ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

At its board meeting on November 13, 1995, the Board of Directors of the
Company approved the recommendation of the Company's Audit Committee to
appoint the accounting firm of Coopers & Lybrand L.L.P. as independent
accountants for the Company for the year ending December 31, 1995.  The audit
work of Deloitte & Touche LLP was terminated as of November 13, 1995.  During
the two most recent fiscal years and subsequent interim period preceding the
termination of Deloitte & Touche LLP, there were no disagreements with
Deloitte & Touche LLP on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure or any
reportable events.  Deloitte & Touche LLP'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

The information responsive to this item is incorporated by reference to the
Company's Proxy Statement in connection with the registrant's Annual Meeting
of Stockholders to be held on May 7, 1996.


ITEM 11.  EXECUTIVE COMPENSATION

The information responsive to this item is incorporated by reference to the
Company's Proxy Statement in connection with the registrant's Annual Meeting
of Stockholders to be held on May 7, 1996.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information responsive to this item is incorporated by reference to the
Company's Proxy Statement in connection with the registrant's Annual Meeting
of Stockholders to be held on May 7, 1996.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information responsive to this item is incorporated by reference to the
Company's Proxy Statement in connection with the registrant's Annual Meeting
of Stockholders to be held on May 7, 1996.

<PAGE>
<PAGE>

                                                                             
  
FORM 10-K                                                            PART IV
                                                                             



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

                                                                         PAGE
(a)  1.  FINANCIAL STATEMENTS

Independent Auditors' Reports                                           13-14

Consolidated Balance Sheets-December 31, 1995 and 1994                  15-16

Consolidated Statements of Operations
  Years Ended December 31, 1995, 1994 and 1993                             17

Consolidated Cash Flow Statements
  Years Ended December 31, 1995, 1994 and 1993                          18-19

Consolidated Statements of Stockholders' Equity 
  Years Ended December 31, 1995, 1994 and 1993                             20

Notes to Consolidated Financial Statements                              21-34

(a)  2.  FINANCIAL STATEMENT SCHEDULES

Schedule II -  Valuation and Qualifying Accounts and Reserves              40


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.


<PAGE>

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    The 1980 Stock Option Plan.  Incorporated herein by reference to
        Exhibit 10.1 to Form S-8 as filed with the Commission on March 1,
        1983.

10.3    Amendment to the 1980 Stock Option Plan as approved by the Company's
        Board of Directors on December 30, 1987.  Incorporated herein by
        reference to Exhibit No. 10.9 to the Company's Annual Report on Form
        10-K for the year ended December 31, 1987.

10.4    Second Amendments to the 1986 Stock Option Plan and the 1980 Stock
        Option Plan as approved by the 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.

10.5    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.

10.6(a) Loan and Security Agreement between the Company, Hercon Laboratories
        Corporation ("Hercon Laboratories"), Herculite, Pacific Combining
        Corporation ("Pacific") and The First National Bank of Maryland
        ("First National") dated July 15, 1994.  Incorporated herein by
        reference to Exhibit 1 to Current Report on Form 8-K filed with the
        Commission on July 25, 1994.

10.6(b) Modification Agreement dated August 31, 1995 by and between First
        National, the Company, Hercon Laboratories, Herculite, Pacific, Hercon
        Environmental Corporation ("Hercon Environmental") and Transderm. 
        Incorporated herein by reference to Exhibit 10.6(b) to Amendment No.
        1 filed with the Commission on September 6, 1995 ("Amendment No. 1")
        to Transderm's Registration Statement on Form S-1 No. 33-95080 filed
        with the Commission on July 28, 1995.

10.6(c) Second Modification Agreement dated as of October 11, 1995 by and
        between the Company, Hercon Laboratories, Herculite, Pacific, Hercon
        Environmental and Transderm.  Incorporated herein by reference to
        Exhibit 10.5 to the Company's Report on Form 10-Q for the quarter
        ended September 30, 1995.  (Commission File No. 1-6787).

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 Current Report on Form 8-K filed with the Commission
        on July 25, 1994.


<PAGE>




10.8    Indemnification Agreement between Marvin M. Speiser and Laura G.
        Speiser and the Company dated July 15, 1994.  Incorporated herein by
        reference to Exhibit 4 to Current Report on Form 8-K filed with the
        Commission on July 25, 1994.

10.9    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.

10.10   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.

10.11   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.

10.12   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.

10.13   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.

10.14   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.

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

10.16   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.

10.17   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.

10.18   $7,000,000 principal amount Subordinated Promissory Note of Hercon
        Laboratories.  Incorporated herein by reference to Exhibit 10.8 to
        Amendment No. 1.

10.19   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.

10.20   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.
<PAGE>





10.21   Loan and Security Agreement dated as of October 11, 1995 by and
        between Pacific, the Company, Hercon Laboratories, Herculite, Hercon
        Environmental and Transderm and First National.  Incorporated herein
        by reference to Exhibit 1 to the Company's Current Report on Form 8-K
        dated October 11, 1995.

22      Subsidiaries of the Registrant.  Filed herewith on page 42.



(b) REPORTS ON FORM 8-K

During the quarter ended December 31, 1995 the Company filed the following two
reports on Form 8-K:  

(1)  Report dated October 11, 1995 in connection with the Company's Pacific
Combining subsidiary obtaining a $1,750,000 term loan from the First National
Bank of Maryland; 

(2)  Report dated November 13, 1995 in connection with the Company's change in
independent accountants.

<PAGE>
<PAGE>
<TABLE>                             HEALTH-CHEM CORPORATION
                                          SCHEDULE II
                        VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
                                        (In thousands)
<CAPTION>
                                                            Additions
                                                Balance at  Charged to  Deductions   Balance   
                                                Beginning   Costs and      from       at End
                                                 of Year    Expenses    Allowances   of Year

<S>                                             <C>         <C>         <C>          <C>
Year ended December 31, 1995:
 Allowance for doubtful accounts receivable     $    286    $   154     $  180 (A)   $   260
 Allowance for litigation contingencies              201          0          0           201
 Allowance for inventory valuation                   591        594        698 (C)       487
 Valuation allowance for notes receivable             36          0          0            36


Year ended December 31, 1994:
 Allowance for doubtful accounts receivable     $    274    $    79     $   67 (A)   $   286
 Allowance for litigation contingencies              280          0         79 (B)       201
 Allowance for inventory valuation                   618        395        422 (C)       591
 Valuation allowance for notes receivable             36          0          0            36

Year ended December 31, 1993:
 Allowance for doubtful accounts receivable     $    135    $   189     $   50 (A)   $   274
 Allowance for litigation contingencies              519          0        239 (B)       280
 Allowance for inventory valuation                   165        456          3 (C)       618
 Valuation allowance for notes receivable            136          0        100 (C)        36





(A) Amount includes write-offs, net of recoveries.
(B) Adjustments to allowance, reclassifications.
(C) Valuation adjustments and credits to costs and expenses.


</TABLE>
<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:  March 26, 1996



/s/ Marvin M. Speiser                      /s/ Paul R. Moeller              
By: Marvin M. Speiser                      By: Paul R. Moeller
    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/ Bruce M. Schloss              
Martin Benis                               Bruce M. Schloss    March 26, 1996


/s/ Steven Bernstein                       /s/ Gregory P. Speiser            
Steven Bernstein    March 26, 1996         Gregory P. Speiser  March 26, 1996


/s/ Matthew Goldstein                      /s/ Marvin M. Speiser             
Matthew Goldstein   March 26, 1996         Marvin M. Speiser   March 26, 1996


/s/ Samuel R. Goodson                      /s/ Robert D. Speiser             
Samuel R. Goodson   March 26, 1996         Robert D. Speiser   March 26, 1996


/s/ Paul R. Moeller                        /s/ Milton Y. Zussman             
Paul R. Moeller     March 26, 1996         Milton Y. Zussman   March 26, 1996


/s/ Eugene Roshwalb               
Eugene Roshwalb     March 26, 1996