<PAGE>

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

                                   FORM 10-K

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

For the fiscal year ended December 31, 1998     Commission File Number 0-27642

                         TRANSDERM LABORATORIES CORPORATION
                (Exact name of registrant as specified in its charter)

           Delaware                      13-3518345
    (State of Incorporation)     (I.R.S. Employer Identification Number)

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

                      Registrant's Telephone Number: 212-751-5600

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

                                         None


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

                        Common Stock, $.001 Par Value

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: (1) 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, Yes     No  X ; and (2) has been subject to such filing requirements
for the past 90 days. Yes X  No

As of August 31, 1999, 40,000,000 shares of the registrant's Common Stock were
outstanding.  The aggregate market value of the Common Stock (based on the
last reported sale price on such date) held by non-affiliates was
approximately $29,000.

                     DOCUMENTS INCORPORATED BY REFERENCE

                                   None

The Exhibit Index appears on page 47.


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<PAGE>


FORM 10-K                                                              PART I



ITEM 1.  BUSINESS

Transderm Laboratories Corporation is a Delaware corporation and conducts its
business primarily through its subsidiary, Hercon Laboratories Corporation
("Hercon").  Unless the context otherwise requires, the term "Company"
includes Transderm Laboratories Corporation and Hercon, of which the Company
owns 98.5%.  The Company operates in a single business segment with several
different products.  The Company's executive offices are located in New York,
New York. The Company is a 90%-owned subsidiary of Health-Chem Corporation
("Health-Chem").

The Company is engaged in the development, manufacture and marketing of
transdermal drug delivery systems.  A transdermal drug delivery system is an
adhesive patch containing medication which is released through the skin into
the bloodstream at a controlled rate over an extended period of time.
Transdermal delivery can significantly enhance the therapeutic benefit of
certain drugs, through improved efficacy, safety and patient compliance, when
compared to conventional methods of drug administration, such as oral,
parenteral and continuous infusion.  In addition, transdermal delivery systems
may provide additional commercial advantages compared to non-transdermal
delivery systems for certain drugs.

The Company has developed a base of technology in the design of transdermal
systems by applying its expertise in the area of skin biology, pharmaceutical
and polymer chemistry, drug diffusion, adhesive technology, pharmacokinetics
and clinical protocol design.  The Company believes that integration of these
technologies with its manufacturing experience gives it a competitive
advantage by providing it with the capability to custom design and produce
individual, cost-effective transdermal delivery systems for specific drugs.

The Company is also engaged in the development, manufacture and marketing of
over-the-counter pharmaceutical and cosmetic products.  These products are
natural extensions of the Company's expertise developed in transdermal drug
delivery systems.


TRANSDERMAL DRUG DELIVERY

In general, a transdermal drug delivery system consists of four basic
elements.  An inert backing, often the outermost component of the system,
protects the drug stored in the patch and provides support for the system.
The next element of the system is a drug storage section, which provides a
supply of the drug for subsequent migration into the skin of a patient.  The
third element of the system is a mechanism by which the transdermal drug
delivery system is affixed to the patient.  Nearly all transdermal systems
employ a pressure-sensitive adhesive in some fashion to adhere the patch to
the skin.  Where the drug storage section is a pressure-sensitive adhesive
matrix, no separate adhesive element is required.  The last element of the
system is a disposable protective layer which protects the drug and the
adhesive from contamination prior to use.  The protective layer is removed
immediately prior to application, exposing the adhesive surface to the skin.
Other elements such as penetration enhancers and rate-controlling membranes
may be employed for specific transdermal drug delivery systems.


PRODUCTS AND PRODUCTS UNDER DEVELOPMENT

  Nitroglycerin Transdermal Systems

Since 1986, the Company has manufactured a transdermal nitroglycerin patch
which is used for transdermal relief of vascular and cardiovascular symptoms
related to angina pectoris.  This patch was the first such product introduced
in the United States for the generic market.  Since that time, the Company has
sold over 245 million of these patches.  The Company sells this product to

<PAGE>
Watson Laboratories, Inc. for distribution in the United States and to
Almirall Prodesfarma S.A. for distribution in Spain.

Angina pectoris is a condition caused by a lack of oxygen to the heart.
Historically, nitroglycerin tablets were placed under the tongue after an
attack had begun.  A tablet releases the drug, which diffuses through
membranes beneath the tongue and into the bloodstream.  It then dilates the
blood vessels, increasing the flow of oxygenated blood to the heart, and
ending the attack within a few minutes.  Due to the body's rapid metabolism
and clearance of the drug, however, tablets are not a practical preventative
for angina attacks.  Nitroglycerin ointments, which deliver continuous levels
of nitroglycerin in the blood, are greasy and difficult to dose accurately.
Transdermal nitroglycerin patches, which provide continuous therapeutic levels
of nitroglycerin in the blood and thereby help prevent angina attacks, became
commercially available in 1982 and are currently being marketed by several
companies.

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

In March 1999, the Federal Register published a Notice containing a proposal
by the FDA to withdraw approval of a number drug applications relating to
transdermal nitroglycerin products, including the Company's product which it
has manufactured and marketed since 1986 (the "NTS Product"). In May 1999, the
Company filed a detailed submission of data, information and analyses in
support of its contention that the FDA's proposed actions are factually and
legally baseless and that the Company is entitled as a matter of law to
summary judgment in its favor and rescission of the Notice. The Company also
submitted a timely request for a hearing in accordance with the Notice and FDA
regulations in the event the Notice is not rescinded or that summary judgment
is not granted in favor of the Company. To date, there has been no action
taken by the FDA in respect of the Notice or the Company's submission. There
can be no assurance that the Company will be successful in obtaining any of
the relief sought in its submission. If the FDA rejects the Company's
contentions, the FDA could at that time decide without further proceedings to
withdraw the approval of the NTS Product. In that event, unless either the FDA
or an appropriate United State Court of Appeal were to stay the FDA action,
the Company would be precluded from continuing to manufacture and market the
NTS Product. Such a development would have a material adverse impact on the
business of the Company.

  Over-the-Counter Pharmaceutical and Cosmetic Products

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

  Products for Hormone Replacement Therapy

The Company is developing several different transdermal products for the
hormone replacement market.  Estrogen replacement therapy is the most
frequently prescribed therapy for prevention of menopausal symptoms and
osteoporosis.  The current market for estrogen in the United States is
dominated by oral products.  Transdermal delivery of estrogen avoids many of
the problems inherent in oral dosing.  The Company believes that transdermal
products will capture a significant portion of the hormone replacement market.




<PAGE>
  Other Products

The Company is also developing transdermal and topical systems for the
delivery of drugs including anesthetics and cardiovascular agents.  A number
of other feasibility studies are currently being conducted.  Several products
under evaluation are being targeted to compete in the non-prescription or
over-the-counter and cosmetics markets.

For those additional products where FDA approval is necessary, there can be no
assurance that FDA filings for such products will be effected nor that FDA
approval will be obtained.

To date, the Company has pursued the development of delivery systems primarily
using its own resources.  The Company's ability to develop and commercialize
products in the future will largely depend on its ability to enter into
collaborative arrangements with pharmaceutical companies.  No assurances can
be given that the Company will enter into collaborative arrangements or that
such collaborative arrangements will be successful.  In addition, there can be
no assurance that the Company will be able to develop products successfully or
that the Company will be successful in the manufacturing or commercialization
of such products.

RESEARCH AND DEVELOPMENT

The Company's pharmaceutical research and development laboratory facilities
are maintained in its York, Pennsylvania facilities.  At August 31, 1999, the
Company employed six 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 generally
engaged for clinical testing.  See the Consolidated Statements of Operations
included below under "Item 8.  Financial Statements" for the amount of
research and development costs incurred during 1998, 1997 and 1996.

MANUFACTURING; SUPPLY

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

The manufacture of advanced transdermal drug delivery systems requires
specialized skills in several areas, as well as specialized manufacturing
equipment.  The Company's process development and design engineers work
closely with the research and development department starting early in the
product design stage, resulting in efficiencies in the manufacturing
development process.  All scale up work, commencing with initial product
development trials, is conducted on full-size, completely functional
manufacturing equipment, reducing delays in the development and approval
process and smoothing the transition to commercial production.  Some of this
equipment is manufactured in-house; the balance is fabricated by outside
manufacturers to the Company's specifications.  The Company believes that this
equipment provides a decided advantage in the manufacture of the complex
multilayer systems necessary for successful transdermal drug delivery.  The
Company currently has assembly packaging equipment in place having a single
shift capacity of over 35 million patches annually.  Additional equipment has
been qualified to increase this capacity to over 70 million patches and
support the market introduction of the Company's next generation of
nitroglycerin patches.  In addition to the above equipment, the Company
purchased and placed into service die cutting and packaging equipment for pore
strip production with an annual single shift capacity of over 30 million
units.  Due in large part to the unfavorable decision in the Company's
litigation with Key Pharmaceuticals, Inc., as of the date of this report, the
Company's manufacturing facility is operating significantly below capacity.
See "Item 3. Legal Proceedings" and "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations".  The Company
believes that its current approximately 61,000 square foot plant will be
sufficient for product expansion for the foreseeable future.

As part of the manufacturing process, the Company has developed and performs

<PAGE>
appropriate quality control procedures including testing of all raw materials
and finished product.

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

COMPETITION

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

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

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

PATENTS AND PROPRIETARY RIGHTS

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

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

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

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

GOVERNMENT REGULATION; ENVIRONMENTAL MATTERS

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

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

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

There can be no assurance that problems will not arise that could delay or
prevent the commercialization of the Company's products, or that the FDA and
foreign regulatory agencies will be satisfied with the results of the clinical
trials and approve the marketing of any products. See "PRODUCTS AND PRODUCTS
UNDER DEVELOPMENT - Nitroglycerin Transdermal Systems" above.

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

The Company does not believe that its compliance 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.

<PAGE>
<PAGE>
BACKLOG;  SEASONALITY

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

CUSTOMERS;  GOVERNMENT CONTRACTS

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

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

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

EMPLOYEES

As of August 31, 1999, the Company employed thirty-eight full time employees.
Of these, six were engaged in research and development, twenty-five in process
development and manufacturing and seven in other disciplines.  Nine employees
at the Company's York, Pennsylvania facility are covered by a collective
bargaining agreement with a local of the R.W.D.S.U. (an AFL-CIO unit) for a
three year period ending December 10, 2001.  The Company believes its
relations with employees are good.

ITEM 2.  PROPERTIES

The Company owns an approximately 61,000 square foot building in York,
Pennsylvania which is used for manufacturing, quality control, research and
development, warehousing and office space.  The Company's manufacturing
facility complies with GMP standards and is operating under a license from the
DEA and pursuant to registration with the Pennsylvania Department of Health.


ITEM 3.  LEGAL PROCEEDINGS

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

<PAGE>
expiration of Key's patent on February 16, 2010.  In November 1998, the United
States Court of Appeals for the Federal Circuit in Washington, D.C. (the
"CAFC") affirmed the Delaware District Court's ruling in favor of Key.  In
January 1999, the CAFC denied Hercon's petition for rehearing of its appeal.
Hercon is currently reviewing its options with respect to the manufacture and
marketing of its improved nitroglycerin patches.

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


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.


<PAGE>
<PAGE>

FORM 10-K                                                            PART II




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


The Company's Common Stock is traded on the NASDAQ OTC Bulletin Board under
the symbol TLCC.

The high and low sales prices for the Company's Common Stock, as reported by
NASDAQ, have been as follows during the two years ended December 31, 1998:
<TABLE>
                              1998                    1997
      <S>                <C>     <C>            <C>      <C>
      QUARTER             High     Low           High      Low
      1st                $0.25   $0.063         $0.625   $0.125
      2nd                 0.719   0.063          0.25     0.125
      3rd                 0.75    0.031          0.50     0.156
      4th                 0.594   0.04           0.25     0.125
</TABLE>

There were approximately 149 holders of record of the Company's Common Stock
as of August 31, 1999.

The Company has not paid cash dividends on its Common Stock and does not
anticipate doing so in the foreseeable future.

<PAGE>
<PAGE>
ITEM 6.  SELECTED FINANCIAL DATA


The following table presents selected consolidated financial information
derived from the Company's consolidated financial statements.  The Selected
Financial Data should be read in conjunction with "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Item 8. Financial Statements" included herein.
<TABLE>
                                          Year Ended December 31,
                                  1998     1997     1996     1995     1994
                                   (In thousands, except per share amounts)
<S>                            <C>      <C>      <C>      <C>      <C>
Net sales                      $ 6,907  $ 5,299  $12,146  $12,495  $12,104

<Loss> income from
  operations                   $  <674> $<2,222> $    84  $ 1,416  $ 1,129

Net <loss> income                 <674>  <2,222>      84    1,416    1,129

Preferred dividends                595      612      674      233       --

Net <loss> income applicable
  to common stockholders       $<1,269> $<2,834> $  <590> $ 1,183  $ 1,129

Net <loss> income per common
  share (basic and diluted)    $ <0.03> $ <0.07> $ <0.01> $  0.03

Common shares outstanding       40,000   40,000   40,000   40,000

Dividends per share                  0        0        0        0        0

Total assets                   $ 7,012  $ 6,187  $ 7,863  $ 9,319  $ 9,130

Long-term debt, (including
  current portion)             $10,456  $ 9,121  $ 7,000  $ 7,200  $ 7,692

Redeemable preferred stock     $ 8,500  $ 8,500  $ 9,500  $10,000

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

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

On April 15, 1999, the Company's parent company, Health-Chem defaulted on its
obligation to repay $8 million in principal as well as the accrued interest of
$.4 million due on it 10.375% convertible subordinated debentures at maturity.
Effective August 1999, besides the operations of the Company, Health-Chem does
not have any other operating activities.  Health-Chem was also a borrower
along with its affiliates, including the Company, under the terms of a secured
financing agreement with IBJ Whitehall Business Credit Corporation.  The loan
was repaid in August 1999 with the proceeds from the sale of assets of Health-
Chem's Herculite Products, Inc. and Hercon Environmental Corporation
subsidiaries.  Out of such proceeds, Health-Chem made a $1.9 million partial
repayment of its debt obligations in respect of the debentures in September
1999.  Health-Chem's ability to repay the balance of the obligations on the
debentures is contingent, among other things, upon the Company's effecting a
business solution with regard to the manufacture of its new nitroglycerin
products and the Company's ability to secure financing from a financial
institution.  There can be no assurance that Health-Chem or the Company will
be successful in their efforts toward that end.  Under the terms of the
subordinated debentures between Health-Chem and Bankers Trust Company as
indenture trustee (the "Trustee"), the trustee can institute an action or
proceeding at law or in equity for the collection of the sums due and unpaid.
No concessions have been offered by the Trustee that it will continue to
abstain from exercising such rights.  In the circumstances, Health-Chem is not
able to meet its payment obligations and does not have in place an effective
plan to mitigate such conditions.  In compliance with generally accepted
accounting principles, the Company's Statement of Assets and Liabilities as of
December 31, 1998 have been presented on a liquidation basis.  Accordingly,
the net assets of the Company as of that date are stated at liquidation value
whereby assets are stated at their estimated net realizable values and
liabilities are stated at their anticipated settlement amounts.  Estimates
used in the liquidation basis of accounting are forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934 and
there are a number of important factors that could cause actual results to
differ from these estimates.

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

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

Net sales of $3.6 million for the nine months ended September 30, 1999 were
$1,268,000 lower than net sales in the same period in 1998, due primarily to

<PAGE>
lower domestic sales volumes of transdermal nitroglycerin patches.  Gross
profit for the nine months ended September 30, 1999 was $715,000 lower than
gross profit in the same period in 1998.  Gross profit as a percentage of
sales declined to 32.6% for 1999 from 38.8% for 1998.

Year ended December 31, 1998 versus December 31, 1997

Net sales increased by $1,600,000 to $6,900,000 in 1998 as compared to
$5,300,000 in 1997.  The increase in net sales consists of a $1,400,000
increase in volume and $200,000 in higher selling prices.  The net sales
increase is due to initial sales of over-the-counter pharmaceutical and
cosmetic pore strip products of $2,400,000, partially offset by decreases in
sales of transdermal nitroglycerin patches of $800,000.  The transdermal
nitroglycerin patch sales decrease is due primarily to lower domestic sales
volumes.  The Company received FDA approval in October 1998 for its improved
nitroglycerin patches which have been rated by the FDA as an accepted generic
alternative to Novartis Pharmaceutical Corporation's Transderm Nitro(R)
products.  However, the Company is not currently commercially exploiting its
newly-approved nitroglycerin products due to the unfavorable decision in the
Company's litigation with Key Pharmaceuticals, Inc. (the "Key Litigation")
(See Note 5 of the Notes to Consolidated Financial Statements).

Gross profit increased by $100,000 to $2,400,000 or 34.3% of net sales in 1998
from $2,300,000 or 44.1% of net sales in 1997.  Gross profit increased
primarily due to initial sales of over-the-counter pharmaceutical and cosmetic
pore strip products.  Lower margins reflect a change in product mix from
higher margin to lower margin business.

Selling, general and administrative expenses, excluding legal expenses, were
approximately $1,400,000 in both 1998 and 1997.  A higher allocation of
expenses from affiliates of $146,000 was largely offset by lower selling,
general and administrative expenses of $140,000.  Pursuant to a Corporate
Services Agreement between the Company and Health-Chem, selling, general and
administrative expenses incurred by Health-Chem which cannot be directly
attributed to a specific subsidiary have been allocated to the Company based
upon its net sales as a percentage of Health-Chem's consolidated net sales.
The Company's allocation of Health-Chem's total expenses in 1998 was higher
than 1997 due to the Company's share of these expenses increasing from 14% in
1997 to 18% in 1998, partially offset by Health-Chem's total expenses being
lower.  The decrease in selling, general and administrative expenses is due
primarily to lower payroll-related costs.

Legal expenses decreased $15,000 for the year ended December 31, 1998 as
compared to the same period in 1997.  The decreased legal expenses are due
primarily to lower general legal matter expenses, partially offset by higher
expenses related to the Key Litigation.

Research and development expenses decreased $1,300,000, or 61.5%, for the year
ended December 31, 1998 as compared to the same period in 1997.  The decrease
is due primarily to lower payroll-related, outside testing and clinical
materials expenses.  The Company expects total research and development
expenses related to pharmaceutical products in 1999 to be lower than 1998
levels.

Net interest expense increased $75,000, or 9.8%, for the year ended December
31, 1998 as compared to the same period in 1997 due primarily to additional
interest related to higher average outstanding balances on borrowings from
affiliates.

Income tax benefit was $25,000 in 1998 compared to a provision for income
taxes of $35,000 in 1997.  Income tax provision or benefit varies with the
amount and nature of the components of income or loss from operations before
income taxes.  At December 31, 1998, the Company recorded a $285,000 net
valuation allowance due to losses incurred during 1998.  At December 31, 1998,
the net valuation allowance relating to tax loss and tax credit carryforwards
was $666,000.  This net valuation allowance consists of a $742,000 decrease in
tax loss and tax credit carryforwards, partially offset by a $76,000 decrease
in a payable to Health-Chem, which is only payable as certain net operating

<PAGE>
loss and tax credit carryforwards are used.  At December 31, 1997, the Company
recorded a $1,082,000 net valuation allowance relating to tax loss and tax
credit carryforwards, with such valuation allowance directly increasing the
income tax provision.  This net valuation allowance consisted of a $1,307,000
decrease in tax loss and tax credit carryforwards, partially offset by a
$225,000 decrease in a payable to Health-Chem which was only payable as
certain net operating loss and tax credit carryforwards were used.  See Note
6 of the Notes to Consolidated Financial Statements.

Year ended December 31, 1997 versus December 31, 1996

Net sales decreased by $6,800,000 to $5,300,000 in 1997 as compared to
$12,100,000 in 1996.  The decrease in net sales consisted of a $6,700,000
decrease in volume and $100,000 in lower selling prices.  The net sales
decrease was due primarily to the absence of sales to a former domestic
distributor who had accounted for approximately 38% of the Company's sales for
the year ended December 31, 1996.  The most recent sales to this distributor
were during the fourth quarter of 1996.  Sales to both of the Company's
current domestic distributors of nitroglycerin patches also decreased during
1997 as compared to 1996.  During the first half of 1997, in anticipation of
increased market pressures and delays in approvals from the FDA for the sale
of new nitroglycerin patches, Hercon undertook an organizational restructuring
which reduced annual payroll-related expenses by $1,100,000.

Gross profit decreased by $4,700,000 to $2,300,000 or 44.1% of net sales in
1997 from $7,000,000 or 57.9% of net sales in 1996.  Gross profit decreased
primarily due to decreased domestic sales volumes of transdermal nitroglycerin
patches.  Lower margins reflect increased domestic sales volumes of lower
margin products, as well as the allocation of fixed costs over decreased
revenue.  Plant overhead decreased $630,000, including a $450,000 decrease for
payroll-related expenses, for the year ended December 31, 1997 as compared to
the same period in 1996 reflecting, in part, the organizational restructuring.

Selling, general and administrative expenses, excluding legal expenses, were
approximately $1,400,000 in 1997 as compared to $2,200,000 in 1996.  The
$800,000 decrease was due primarily to a lower allocation of expenses from
affiliates, amounting to approximately $480,000, from lower payroll-related
expenses of approximately $110,000 and from lower consulting costs of
approximately $100,000.  The Company's allocation of Health-Chem's total
expenses in 1997 was lower than 1996 due to Health-Chem's total expenses being
lower and to the Company's share of these expenses dropping from 26% in 1996
to 14% in 1997.  The decrease in payroll-related expenses reflected, in part,
the organizational restructuring.  The decrease in consulting costs was due
primarily to lower outside consulting service expenses related to the
Company's applications with the FDA to market improved transdermal
nitroglycerin products.

Legal expenses decreased $1,800,000 for the year ended December 31, 1997 as
compared to the same period in 1996.  The decreased legal expenses were due
primarily to reduced activity associated with the Key Litigation.

Research and development expenses decreased $200,000, or 6.8%, for the year
ended December 31, 1997 as compared to the same period in 1996.  Payroll-
related expenses decreased $480,000, reflecting the organizational
restructuring changes.  The decrease was partially offset by higher outside
testing expenses.

Net interest expense increased $310,000, or 68.4%, for the year ended December
31, 1997 as compared to the same period in 1996 due primarily to $230,000 in
additional interest related to higher average outstanding balances on
borrowings from affiliates and to an $85,000 reduction in capitalized interest
related to new equipment under construction.

Provision for income taxes was $35,000 in 1997 as compared to a benefit of
$4,000 in 1996.  Income tax provision or benefit varies with the amount and
nature of the components of income or loss from operations before income
taxes.  At December 31, 1997, the Company recorded a $1,082,000 net valuation
allowance relating to tax loss and tax credit carryforwards, with such

<PAGE>
valuation allowance directly increasing the income tax provision.  This net
valuation allowance consisted of a $1,307,000 decrease in tax loss and tax
credit carryforwards, partially offset by a $225,000 decrease in a payable to
Health-Chem which was only payable as certain net operating loss and tax
credit carryforwards were used.  During 1996, the Company reversed a portion
of the valuation allowance amounting to $25,000, with such reversal directly
reducing the income tax provision.  See Note 6 of the Notes to Consolidated
Financial Statements.

Liquidity and Capital Resources

The following measures of liquidity are drawn from the Company's Consolidated
Financial Statements only for 1997 and are unavailable for 1998 since the
financial statements are presented on a liquidation basis:

            Working capital deficit (current assets less
              current liabilities, in thousands)             $<1,019>
            Current ratio (current assets/
              current liabilities)                               0.6
            Quick ratio (cash and receivables/
              current liabilities)                               0.3

The following measures of liquidity are drawn from the Company's December 31,
1998 financial statements.   Accounts receivable increased $924,000 while cash
and inventory decreased $9,000 and $3,000, respectively.  Accounts payable,
accrued expenses and other liabilities increased by $326,000.  The increase in
accounts receivable resulted from an increase in sales in the month of
December 1998 as compared to the month of December 1997 and also reflects the
timing of customer payments.  The increase in liabilities is due to increases
in accounts payable and preferred dividends payable of $417,000, and $433,000,
respectively, partially offset by a decrease in accrued expenses of $89,000.

Cash <used for> provided by operations for the years ended December 31, 1998,
1997 and 1996 was approximately $<700,000>, $<1,200,000> and $700,000,
respectively.

The Company has not paid cash dividends on its Common Stock and does not
anticipate doing so in the foreseeable future.

Capital expenditures for property, plant and equipment were $520,000 in 1998,
$128,000 in 1997 and $357,000 in 1996.  The expenditures in 1998 related to
equipment needed to assemble and package the Company's over-the-counter
pharmaceutical and cosmetic products and second generation nitroglycerin
products.  Capital expenditures in 1999 for property, plant and equipment are
projected to be approximately $300,000.  The majority of these capital
expenditures will consist of equipment needed to assemble and package the
Company's over-the-counter pharmaceutical and cosmetic products and second
generation nitroglycerin products.

The Company has financed its capital requirements primarily from borrowings
from its affiliates.

Health-Chem was a borrower along with the Company, under the terms of a
secured financing agreement with IBJ Whitehall Business Credit Corporation (as
successor in interest to IBJ Schroder Business Credit Corporation) ("IBJ").
Outstanding borrowings under this agreement were paid off in August, 1999 with
the proceeds from the sale of assets of Health-Chem's Herculite Products, Inc.
("Herculite") and Hercon Environmental Corporation ("Hercon Environmental")
subsidiaries.  The Company is currently working on a business solution in
regard to the manufacture of its new nitroglycerin products, along with
securing up to $1.5 million financing from a financial institution.  A failure
to effect such a business solution or to secure such financing for short-term
capital requirements would have a material adverse effect on the financial
condition of the Company and its ability to continue operations.

The Company is required to make semi-annual interest payments each March and
September on its $7,000,000, 9% Subordinated Promissory Note.  The Company
made the required 1998 and 1999 semi-annual interest payments in March and

<PAGE>
September.  On May 12, 1998, Hercon and Health-Chem entered into an amendment
to the Subordinated Promissory Note, whereby the maturity date of the note and
corresponding $7,000,000 principal payment were extended from March 31, 1999
to March 31, 2002.

The Company is required to make semi-annual preferred dividend payments out of
funds legally available therefore each March and September at the annual rate
of $.70 per share on the then-outstanding shares of its redeemable preferred
stock, $10.00 par value.  As of June 30, 1998, $162,000 was available for the
payment of preferred dividends.  In August 1998, the Company declared and paid
a dividend of $162,000 in respect of dividends in arrears that were due on
September 30, 1997.  Legally available funds were not available to make the
1998 and 1999 preferred dividend payments, nor were they available to make the
required $1,000,000 redemption payments in March 1998 and 1999.  Additional
required redemption payments are $1,000,000 annually in 1999 through 2004 and
$1,500,000 in 2005.  Legally available funds were also not available to make
either the preferred dividend payment or the required redemption payment in
March 1999.  The terms of the preferred stock provide that if either dividends
payable on the preferred stock shall be in default in an amount equal to two
full semi-annual dividend payments or a mandatory redemption payment is not
made, the holder of all of the outstanding shares of the preferred stock shall
be entitled to elect the smallest number of Directors necessary to constitute
a majority of the Company's Board of Directors until such time as the default
is cured.  Health-Chem waived this right since, as a practical matter, it
already possessed such power.

Pursuant to a Corporate Services Agreement between the Company and Health-
Chem, Health-Chem provides or otherwise makes available to the Company certain
general corporate services provided by Health-Chem's corporate staff,
including, but not limited to, accounting, tax, corporate communications,
legal, data processing, purchasing, human resources, financial and other
administrative staff functions, and arranges for administration of insurance
and employee benefit programs.  The Company reimburses Health-Chem for the
actual out-of-pocket cost to Health-Chem or, for those services not directly
attributable to the Company, reimburses them based upon a method (allocation
based upon the Company's net sales as a percentage of Health-Chem's
consolidated net sales) which is considered by the Company to be reasonable.
The Company reimbursed Health-Chem approximately $667,000, $521,000 and
$998,000 in 1998, 1997, and 1996, respectively.  The agreement expired on
December 31, 1998 and automatically renewed for a one-year term.  The
agreement will continue to automatically renew for successive one-year terms
unless notice of non-renewal is given by either party.  The Company and
Health-Chem are currently reconsidering the method of allocation in light of
the sale of assets of Health-Chem's Herculite and Hercon Environmental
subsidiaries in August 1999.

Pursuant to a tax sharing agreement between the Company and Health-Chem, the
Company is required to pay Health-Chem as the Company uses its net operating
loss and tax credit carryforwards to offset future taxable income.  At
December 31, 1998, the maximum amount of such payments which may be made in
the future was $76,000.

The semi-annual interest payment on the subordinated promissory note is
$315,000 and the semi-annual dividend on the preferred stock currently
outstanding is  $297,500.  In addition to the cumulative dividends and
interest payments, the Company is obligated to redeem the preferred stock and
repay the promissory note as described above.  Internally generated funds are
not currently sufficient to provide the Company with cash to meet all of these
retirement and redemption obligations and thus the Company will need to either
continue to obtain waivers and amendments of some of these payment obligations
or raise additional capital from third parties.  The Company is currently
working on a business solution in regard to the manufacture of its new
nitroglycerin products, along with securing up to $1.5 million financing from
a financial institution.  A failure to effect such a business solution or to
secure such financing for short-term capital requirements would have a
material adverse effect on the financial condition and operations of the
Company.


<PAGE>
Inflation

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


Update on the Impact of the Year 2000 Issue

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

Prior to August 19, 1999, the Company maintained an IBM AS400 computer system
for which it completed a Year 2000 project upgrade in July 1999. This system
was sold to Aberdeen Road Company on August 19, 1999 as part of the sale of
assets of Herculite and Hercon Environmental.  The Company has access to the
AS400 computer system for six months after the sale for historical
information.  The Company currently leases a new personal computer based
system which is Year 2000 compliant. The Company presently believes that it
has resolved its Year 2000 Issue concerns.  If unforseen problems arise,
although the Company is uncertain about the duration of a worst case scenario,
the Company's most reasonably likely worst case scenario would be to
temporarily lose the ability to process transactions, send invoices or engage
in similar normal business activities. The Company has developed a contingency
plan which includes maintaining records on a manual system until a portion or
all of the computer system recovers. The Company believes a worst case
scenario is unlikely but if it did occur it could have a material adverse
effect on the operations of the Company.

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

<PAGE>
<PAGE>
ITEM 8.  FINANCIAL STATEMENTS

Index to Consolidated Financial Statements.

                                                                PAGE

Reports of Independent Accountants                             18-19

Consolidated Statement of Assets and Liabilities                  20
  (Liquidation Basis) - December 31, 1998

Consolidated Balance Sheet - December 31, 1997                    21

Consolidated Statements of Operations
  Years Ended December 31, 1998, 1997 and 1996                    22

Consolidated Cash Flow Statements
  Years Ended December 31, 1998, 1997 and 1996                    23

Consolidated Statements of Capital Deficiency
  Years Ended December 31, 1998, 1997 and 1996                    24

Notes to Consolidated Financial Statements                     25-36


<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

The Board of Directors and Stockholders
of Transderm Laboratories Corporation:


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

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

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

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



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



<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

The Board of Directors and Stockholders
of Transderm Laboratories Corporation:


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

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

In our opinion, the consolidated financial statements referred to above
present fairly in all material respects, the consolidated financial position
of Transderm Laboratories Corporation and its subsidiaries as of December 31,
1997, and the consolidated results of their operations and their cash flows
for each of the two years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.  In addition, in our opinion,
the financial statement 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 25, 1998

<PAGE>
<PAGE>        TRANSDERM LABORATORIES CORPORATION AND SUBSIDIARY
    CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES (LIQUIDATION BASIS)
<TABLE>                        (In thousands)
                                                                December 31,
                                                                       1998
Assets (Note 1a)
<S>                                                             <C> <C>
Cash                                                                $     9
Accounts receivable                                                   1,675
Inventories                                                             756
Property, plant and equipment                                         4,568
Other assets                                                              4
TOTAL ASSETS                                                        $ 7,012

Liabilities and Capital Deficiency

Collateralized obligations
  Capitalized lease obligation                                      $    21

Uncollateralized obligations
  Payroll and related costs payable                                      42
  Accounts payable                                                    1,056
  Accrued expenses and other liabilities                                316
                                                                      1,414
Other obligations
  Amount due to Health-Chem Corporation
    Subordinated promissory note                                      7,000
    Note payable                                                      3,435
    Redeemable preferred stock                                        8,500
    Preferred dividends payable                                         879
                                                                     19,814
Capital deficiency
  Common stock, par value $.001 per share; 60,000,000 share authorized;
    40,000,000 shares issued and outstanding                             40
  Accumulated deficit                                               (14,277)
    Total Capital deficiency                                        (14,237)
TOTAL LIABILITIES AND CAPITAL DEFICIENCY                            $ 7,012
</TABLE>



[FN]
See Notes to Consolidated Financial Statements.


<PAGE>
<PAGE>        TRANSDERM LABORATORIES CORPORATION AND SUBSIDIARY
<TABLE>                  CONSOLIDATED BALANCE SHEET
                               (In thousands)


ASSETS                                                    December 31,
<S>                                                              1997
CURRENT ASSETS                                               <C>       <C>
   Cash (Note 1g)                                            $     18
   Accounts receivable, net of allowances of
     $100 (Note 1a)                                               751
   Inventories  (Notes 1b and 2)                                  759
   Other current assets                                             0
     Total Current Assets                                       1,528

PROPERTY, PLANT AND EQUIPMENT (Note 1c)
   Land                                                           120
   Building                                                     2,734
   Equipment                                                    7,855
   Construction-in-progress                                        54
     Total Property, Plant and Equipment                       10,763
   Less accumulated depreciation and amortization               6,105
     Net Property, Plant and Equipment                          4,658

NON-CURRENT ASSETS                                                  1

TOTAL ASSETS                                                 $  6,187


LIABILITIES AND CAPITAL DEFICIENCY

CURRENT LIABILITIES
   Accounts payable                                          $    639
   Accrued expenses and other current
     liabilities (Note 3)                                         462
   Current portion of redeemable preferred stock
     (Note 7)                                                   1,000
   Preferred dividends payable                                    446
     Total Current Liabilities                                  2,547

LONG-TERM LIABILITIES
   Subordinated promissory note (Note 1g)                       7,000
   Long-term payable - Health-Chem (Note 1g)                    2,087
   Other long-term debt (Note 4)                                   21

REDEEMABLE PREFERRED STOCK (Note 7)                             7,500

CAPITAL DEFICIENCY (Note 8)
   Common stock                                                    40
   Retained deficit                                           <13,008>
     Total Stockholders' Equity (Deficiency)                  <12,968>

TOTAL LIABILITIES AND CAPITAL DEFICIENCY                     $  6,187
</TABLE>
[FN]
See Notes to Consolidated Financial Statements.

<PAGE>
<PAGE>              TRANSDERM LABORATORIES CORPORATION AND SUBSIDIARY
<TABLE>                   CONSOLIDATED STATEMENTS OF OPERATIONS
                        (In thousands, except per share amounts)



                                                 Year Ended December 31,
<S>                                              1998       1997       1996
REVENUE:                                      <C>        <C>        <C>
  Net sales (Note 1a)                         $ 6,907    $ 5,299    $12,146
  Cost of goods sold                            4,538      2,960      5,116
  Gross profit                                  2,369      2,339      7,030

OPERATING EXPENSES:
  Selling, general and administrative
    expenses (Note 1h)                          1,419      1,413      2,183
  Legal expense                                   289        304      2,088
  Research and development expense (Note 1e)      813      2,112      2,265
  Net interest expense (Note 9)                   843        768        456
    Total operating expenses                    3,364      4,597      6,992

<LOSS> INCOME FROM OPERATIONS BEFORE
   OTHER INCOME                                  <995>    <2,258>        38
  Other income - net                              296         71         42

<LOSS> INCOME FROM OPERATIONS BEFORE TAXES:      <699>    <2,187>        80
  Income tax <benefit> provision (Note 6)         <25>        35         <4>

NET <LOSS> INCOME                                <674>    <2,222>        84

PREFERRED DIVIDENDS (Note 7)                      595        612        674

NET LOSS APPLICABLE TO COMMON STOCKHOLDERS    $<1,269>   $<2,834>   $  <590>


Loss per Common Share (basic & diluted)
  (Note 1i):

NET LOSS PER COMMON SHARE                     $ <0.03>   $ <0.07>   $ <0.01>

Average number of common shares
  outstanding (basic and diluted) (Note 1i)    40,000     40,000     40,000
</TABLE>






[FN]
See Notes to Consolidated Financial Statements.

<PAGE>
<PAGE>              TRANSDERM LABORATORIES CORPORATION AND SUBSIDIARY
<TABLE>                    CONSOLIDATED CASH FLOW STATEMENTS
                                    (In thousands)

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

OPERATING ACTIVITIES:
 Net <loss> income                                $  <674> $<2,222> $    84
 Adjustments to reconcile net <loss> income to
   net cash <used for> provided by operations:
   Depreciation and amortization                      610      598      672
   Deferred income taxes                                0      133       <2>
   Loss on disposal of property, plant and
    equipment, net                                      0       10        0
 Changes in:
   Accounts receivable                               <924>     481     <582>
   Inventories                                          3       21      154
   Other assets                                        <3>       2       <2>
   Accounts payable                                   417     <274>     663
   Accrued expenses and other current liabilities     <91>      87     <190>
   Income taxes payable                                 0       <3>     <88>
 Net cash <used for> provided
    by operating activities                          <662>  <1,167>     709

INVESTING ACTIVITIES:
 Additions to property, plant and equipment          <520>    <128>    <357>
 Disposal of property, plant and equipment              0      121        0
 Net cash used for investing activities              <520>      <7>    <357>

FINANCING ACTIVITIES:
 Borrowings from affiliates, net                    1,348    2,514    1,102
 Other long-term debt payments                        <13>     <11>    <200>
 Redemption of preferred stock                          0   <1,000>    <500>
 Preferred dividends paid                            <162>    <332>    <741>
 Net cash provided by <used for>
   financing activities                             1,173   <1,171>    <339>


Net <Decrease> Increase in Cash                        <9>      <3>      13
Cash at beginning of period                            18       21        8
Cash at end of period                             $     9  $    18  $    21

Supplemental Disclosures of Cash Flow Information:
 Cash paid during the period for:
  Interest                                        $   843  $   772  $   604
  Income taxes                                          1        1      116

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


[FN]
See Notes to Consolidated Financial Statements.

<PAGE>
<PAGE>            TRANSDERM LABORATORIES CORPORATION AND SUBSIDIARY
<TABLE>              CONSOLIDATED STATEMENTS OF CAPITAL DEFICIENCY
                     YEARS ENDED DECEMBER 31, 1998, 1997 and 1996
                                   (In thousands)



                                  Common      Accumu-
                                  Stock       lated
                                (Note 1a)     Deficit        Total

<S>                               <C>         <C>          <C>
Balance, January 1, 1996          $    40     $ <9,584>    $< 9,544>

Net loss applicable to common
 stockholders 1996                                <590>        <590>

Balance, December 31, 1996             40      <10,174>     <10,134>

Net loss applicable to common
 stockholders 1997                              <2,834>      <2,834>

Balance, December 31, 1997             40      <13,008>     <12,968>

Net loss applicable to common
 stockholders 1998                              <1,269>      <1,269>

Balance, December 31, 1998        $    40     $<14,277>    $<14,237>
</TABLE>






[FN]
See Notes to Consolidated Financial Statements.


<PAGE>
<PAGE>        TRANSDERM LABORATORIES CORPORATION AND SUBSIDIARY
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                YEARS ENDED DECEMBER 31, 1998, 1997 and 1996


1.  Presentation and Accounting Policies

a.  Basis of Presentation and Nature of Operations

The consolidated financial statements include the accounts of Transderm
Laboratories Corporation and its subsidiary, Hercon Laboratories Corporation
("Hercon").  Transderm Laboratories Corporation and Hercon Laboratories
Corporation are sometimes hereinafter referred to collectively as the
"Company".  The Company is an indirect 90% owned subsidiary of Health-Chem
Corporation ("Health-Chem").

Health-Chem failed to repay $8 million in principal as well as the accrued
interest of $.4 million due on its 10.375% convertible subordinated debentures
at maturity, on April 15, 1999.  In January 1997, Health-Chem and its
subsidiaries, including the Company, entered into a secured financing
agreement with IBJ Whitehall Business Credit Corporation.  The loan was repaid
in August 1999 with the proceeds from the sale of assets of Health-Chem's
Herculite Products, Inc. and Hercon Environmental Corporation subsidiaries
aggregating $14.2 million.  Out of such proceeds, Health-Chem made a $1.9
million partial payment on its debt obligation in respect of the Debentures in
September 1999.  Health-Chem's ability to repay the balance of the obligations
on the Debentures is contingent, among other things, upon the Company's
effecting a business solution with regard to the manufacture of its new
nitroglycerin products and Health-Chem's ability to secure financing from a
financial institution.  There can be no assurance that Health-Chem or the
Company will be successful in such efforts.  The terms of the related
debenture indenture between Health-Chem and Bankers Trust Company as trustee
for the debentureholders, empower the trustee to institute an action or
proceeding at law or in equity for the collection of the sums due and unpaid.
The trustee has not indicated any forbearance specifically that it will
abstain from exercising such rights and to ensure compliance with generally
accepted accounting principles, the Company's Statement of Assets and
Liabilities as at December 31, 1998 has been presented on a liquidation basis.
Accordingly, the net assets of the Company as of that date are stated at
liquidation value whereby assets are stated at their estimated net realizable
values and liabilities are stated at their anticipated settlement amounts.

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

The Company is engaged in the development, manufacture and marketing of
transdermal drug delivery systems and over-the-counter pharmaceutical and
cosmetic products.  The Company manufactures and markets a transdermal
nitroglycerin patch which it sells to one customer for distribution in the
United States (two customers through December 31, 1998) and to one customer
for distribution in Spain.  The Company also manufactures and markets deep
cleansing facial pore strips which it sells to two customers for distribution
in the United States, Canada and certain other foreign countries.  In August
1996, Customer A obtained approval from the United States Food and Drug
Administration ("FDA") for the manufacture and sale of its own nitroglycerin
patches and now competes with the Company's nitroglycerin patches.  The
percentage of sales to each major customer who was responsible for 10% or more
of total revenues is as follows:
<TABLE>

<PAGE>
<PAGE>                                       <C>       <C>     <C>
                                             Year Ended December 31,
    <S>                                      1998      1997     1996
    Customer A........................         0%        0%      38%
    Customer B........................        25        54       31
    Customer C........................        36        45       26
    Customer D........................        32         0        0
</TABLE>
At December 31, 1998 and 1997, accounts receivable of approximately $1,544,000
and $689,000, respectively, were from such customers.  To reduce credit risk,
the Company performs ongoing credit evaluations of its customers' financial
condition but does not generally require collateral.

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

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

On October 30, 1998, the Company received FDA approval for the sale of new
nitroglycerin patches which are thinner, more flexible and smaller than the
Company's current patches.  The Company is currently not commercially
exploiting its newly-approved nitroglycerin products as a result of the
unfavorable decision in the Company's litigation with Key Pharmaceuticals,
Inc.  (See Note 5).

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

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

b.  Inventories

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

c.  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, and
range from 4 to 25 years.  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.

d.  Revenue Recognition

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

e.  Research and Development

Research and development costs are charged to operations as incurred.

f.  Income Taxes

The Company is included in the consolidated federal income tax return of its
parent, Health-Chem, and is party to a Tax Sharing Agreement.  Income taxes
are provided by the Company on a stand-alone basis 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 6).   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.  Deferred tax assets are reduced by a valuation allowance

<PAGE>
when, in the opinion of management, it is more likely than not that some
portion or all of the deferred tax assets will not be realized.  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.

g.  Cash Management

The Company participates in Health-Chem's cash management practice, wherein
all cash requirements are borrowed from Health-Chem and all excess cash is
advanced to Health-Chem.  The intercompany balance is expected to be paid out
of future cash flow and is therefore considered to be long-term.  Interest is
charged based upon the average outstanding intercompany balance and interest
rate on Health-Chem's credit facility which, from January 1997 through August
1999, was with IBJ Whitehall Business Credit Corporation (as successor in
interest to IBJ Schroder Business Credit Corporation) (the "Bank").  The
average interest rate charged was 8.36%, 8.44% and 8.27% during 1998, 1997 and
1996, respectively.  On August 31, 1995, Hercon issued to Health-Chem a
$7,000,000, 9% Subordinated Promissory Note in exchange for the then
outstanding borrowings from affiliates.  The Company is required to make semi-
annual interest payments each March and September on this note, with the
principal amount of $7,000,000 payable on March 31, 2002.

Health-Chem was a borrower along with its affiliates, including the Company,
under the terms of a secured financing agreement with the Bank.  The loan was
paid off by Health-Chem in August 1999 with the proceeds from the sale of
assets of Health-Chem's Herculite Products, Inc. and Hercon Environmental
Corporation subsidiaries.  The Revolving Credit, Term Loan and Security
Agreement (the "Loan Agreement") which was entered into effective January 9,
1997, was comprised of up to $7,000,000 in term loans and up to $8,000,000 in
revolving credit.  The line of credit's borrowing base was limited to the sum
of 85% of eligible accounts receivable and 50% of eligible inventory on a
consolidated Health-Chem basis.  Borrowings under the Loan Agreement were
collateralized by a pledge of substantially all the assets of Health-Chem, the
Company and Health-Chem's other operating subsidiaries.  The Loan Agreement,
which would have expired on January 9, 2002, contained various financial
covenants.  On January 21, 1998, Health-Chem entered into a First Amendment
(the "First Amendment") to the Loan Agreement with the Bank.  The First
Amendment, among other things, amended the terms for drawing upon the term
loan and amended certain financial covenants.  Pursuant to the First
Amendment, the maximum term loans amount was reduced from $7,000,000 to
$3,998,000, providing a revised aggregate of up to $11,998,000 in senior
secured financing.  In addition, an overadvance facility of $400,000 was
provided through July 31, 1998.  The revolving credit line interest rate was
increased to the Bank's prime rate plus .50% and the term loans interest rate
was increased to the Bank's prime rate plus .875%.  On July 31, 1998, Health-
Chem entered into a Second Amendment to the Loan Agreement with the Bank.  The
Second Amendment, among other things, increased Health-Chem's overadvance
facility to $600,000 through December 31, 1998.   At December 31, 1998,
Health-Chem and its affiliates were in compliance with the covenants, as
amended, except for the net worth, current ratio, fixed charge coverage and
minimum level of earnings before taxes, depreciation and amortization
covenants.  This resulted in Health-Chem reclassifying amounts outstanding
under the line of credit and term loan to current liabilities.  On January 11,
1999, Health-Chem entered into a Waiver and Third Amendment (the "Third
Amendment") to the Loan Agreement with the Bank.  The Third Amendment, among
other things, increased Health-Chem's overadvance facility to $1,200,000
through March 31, 1999 and waived compliance with the covenants Health-Chem
was not in compliance with on September 30, 1998.  In connection with the
Third Amendment, Marvin M. Speiser, Health-Chem's President and Chairman of
the Board, and his wife, Laura G. Speiser, pledged certain investment property
consisting of marketable securities valued at no less than $710,000 (the
"Collateral") and entered into a limited guaranty of the obligations of
Health-Chem and its subsidiaries under the Loan Agreement not to exceed the
principal sum of $1,000,000 plus interest.  IBJ released its security interest
in all of the Collateral upon repayment of the loan in August 1999.  On March
24, 1999, Health-Chem entered into a Consent and Fourth Amendment to the Loan
Agreement with the Bank.  The Fourth Amendment, among other things, increased

<PAGE>
Health-Chem's overadvance facility to $1,800,000 and extended such facility to
April 13, 1999.  In a series of Amendment and Forebearance Agreements with the
Bank dated April 14, May 14, June 21, July 15, and August 15, 1999, Health-
Chem received extensions of its time to repay special advances made by the
Bank under the Loan Agreement.  On August 19, 1999, Health-Chem paid the
entire amount due to the Bank under the term loans and the revolving credit
line with proceeds from the sale of assets of Health-Chem's Herculite and
Hercon Environmental subsidiaries. The Company is currently working on a
business solution in regard to the manufacture of its new nitroglycerin
products, along with securing up to $1.5 million financing from a financial
institution.  A failure to effect such a business solution or to secure such
financing for short-term capital requirements would have a material adverse
effect on the financial condition of the Company and its ability to continue
operations.

h.  Expenses Charged by Health-Chem

Pursuant to a Corporate Services Agreement between the Company and Health-
Chem, Health-Chem pays for certain expenses on behalf of the Company for which
Health-Chem is reimbursed, including all of the costs related to the building
in which the Company operates.  The Company is also charged by Health-Chem for
the cost of certain administrative expenses, comprised mainly of an allocation
of corporate services including executive, legal, accounting, human resources,
public relations, and office rent.  The allocation of these costs,
approximately $667,000, $521,000 and $998,000 for 1998, 1997, and 1996,
respectively, reflect Health-Chem's estimate of their cost for these services
based upon a method (allocation based upon the Company's net sales as a
percentage of Health-Chem's consolidated net sales) which is considered by the
Company to be reasonable.  The Company estimates that these expenses, on a
stand-alone basis, would not have been materially different from the costs
allocated.

i.  Per Share Information

Basic and diluted earnings per share are computed based upon the weighted
average number of common shares outstanding after adjustment for any dilutive
effect of the Company's stock options.

A reconciliation of the numerators and denominators of the basic and diluted
earnings per common share computations for income from continuing operations
for the years ended December 31, 1998, 1997 and 1996 is presented below (in
thousands, except per share amounts):
<TABLE>
                            1998                    1997                    1996
                  Income  Shares  Per-    Income  Shares  Per-    Income  Shares  Per-
                  (Numer- (Denom- Share   (Numer- (Denom- Share   (Numer- (Denom- Share
                  ator)   inator) Amount  ator)   inator) Amount  ator)   inator) Amount
<S>               <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>
Net <loss> income $  <674>                $<2,222>                $   84
Less:
 Preferred stock
  dividends           595                     612                    674
Basic Earnings
Per Common Share
 Net loss applicable
 to common
 stockholders      <1,269> 40,000 $<0.03>  <2,834> 40,000 $<0.07>   <590> 40,000 $<0.01>
Effect of
Dilutive
Securities
 Options                0       0               0       0              0       0
Diluted Earnings
Per Common Share
 Net loss applicable
 to common
 stockholders
 and assumed
 conversions      $<1,269> 40,000 $<0.03> $<2,834> 40,000 $<0.07> $ <590> 40,000 $<0.01>
</TABLE>
<PAGE>
Options to purchase 11,450,000 shares of common stock were outstanding during
1998, and options to purchase 11,400,000 shares of common stock were
outstanding during 1997 and 1996 (See Note 8).  No options were included in the
computation of diluted earnings per common share because the Company reported
a loss from continuing operations for all years presented.

j.  Fair Value of Financial Instruments

The carrying amounts reported in the consolidated balance sheets at December
31, 1998 and 1997 for cash, accounts receivable, accounts payable, and accrued
expenses and other current liabilities approximate net realizable value and/or
fair value as applicable.  The carrying amounts of the Company's long-term
payable with Health-Chem approximate fair value because the underlying
instrument reprices frequently.  The fair value of the fixed rate Subordinated
Promissory Note is estimated by discounting future cash flows using the
Company's incremental borrowing rate.  Management believes that determining a
fair value for the Company's Redeemable Preferred Stock is impractical due to
the closely-held nature of these securities.

k.  Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

l.  Reclassifications

Certain amounts included in the consolidated financial statements relating to
prior periods have been reclassified to conform to the current presentation.
<TABLE>
2.  Inventories  (In thousands)                         <C>          <C>
                                                            December 31,
            <S>                                           1998         1997
            Raw materials                               $  484       $  526
            Finished goods and work in process             272          233
            Total inventories                           $  756       $  759
</TABLE>
At December 31, 1998 and 1997 the inventory valuation allowance balance was
$100,000.

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

3.  Accrued Expenses and Other Liabilities  (In thousands)
<TABLE>                                                    December 31,
                                                          1998         1997
<S>                                                     <C>          <C>
Accrued interest                                        $  158       $  158
Deferred revenue                                           130          130
Accrued payroll and related liabilities                       *          35
Accrued bonuses                                               *          25
Accrued accounting fees                                     16           15
Accrued legal fees                                          12           86
Capitalized lease obligation                                  *          13
Total accrued expenses and other liabilities            $  316       $  462
*Stated separately in the financial statements for 1998
</TABLE>
<PAGE>
<PAGE>
<TABLE>
4.  Debt

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

                                                           December 31,
                                                          1998         1997
  <S>                                                  <C>          <C>
  Subordinated promissory note (Note 1g)               $ 7,000      $ 7,000
  Long-term debt - Health-Chem (Note 1g)                 3,435        2,087
  Capitalized lease obligation                               0           21
  Total debt                                           $10,435      $ 9,108
</TABLE>

The Company leases certain equipment under agreements which are classified as
capital leases, the most recent agreement of which was entered into in January
1999.  Future minimum payments under these leases are $89,000 and $72,000 in
1999 and 2000, respectively.


<PAGE>
<PAGE>
5.  Litigation

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

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

<PAGE>
<PAGE>
<TABLE>
6.  Taxes on Income  (In thousands)
                                                    Year Ended December 31,
<S>                                                  1998     1997     1996
Taxes on income include <benefit> provision for:   <C>      <C>     <C>
  Federal income taxes                             $    0   $  159  $    42
  State and local income taxes                        <25>    <124>     <46>
   Total                                           $  <25>  $   35  $    <4>

Taxes on income are comprised of:
  Current                                          $  <25>  $  <98> $    <2>
  Deferred                                              0      133       <2>
   Total                                           $  <25>  $   35  $    <4>

A reconciliation of taxes on income to the federal statutory rate is as follows:
                                                    Year Ended December 31,
                                                     1998     1997     1996
  <S>                                              <C>      <C>      <C>
  Tax <benefit> provision at statutory rate        $ <238>  $ <743>  $   27
  Decrease resulting from:
   State and local taxes, net of federal tax
    benefit                                           <72>    <120>     <23>
   Decrease in tax loss and tax credit
    carryforwards (not previously recognized)           0        0       16
   Provision for <reversal of> valuation
    allowance                                         285      898      <25>
   Other                                                0        0        1
  Tax <benefit> provision                          $  <25>  $   35   $   <4>

At December 31, 1998 and 1997, the deferred tax assets and liabilities result
from the following temporary differences and carryforwards:

<S>                                                  1998     1997
Deferred tax assets:                               <C>      <C>
  Net operating loss carryforwards                 $1,052   $1,121
  Tax credit carryforwards                                     421
  Accrued research and development costs                        69
  Inventory reserves                                            40
  Capitalization of overhead costs as
   inventory in accordance with tax laws                         8
     Total deferred tax assets                      1,052    1,659

Deferred tax liabilities:
  Accelerated depreciation                           <369>    <352>
  Inventory reserves                                  <17>       -
     Total deferred tax liabilities                  <386>    <352>

Net deferred tax asset before valuation allowance     666    1,307
Valuation allowance                                   666   <1,307>
Net deferred tax asset                             $    0   $    0
</TABLE>
At December 31, 1998, the Company had a net operating loss carryforward on a
stand-alone basis, of approximately $2,632,000 available to offset future
stand-alone income tax liabilities which expire through 2013 and 2010,
respectively (See Note 1f).  Realization is dependent on generating sufficient
taxable income prior to expiration of the loss and credit carryforwards.  At
December 31, 1998, the net valuation allowance relating to tax loss and tax
credit carryforwards was $666,000.  This net valuation allowance consists of
a $742,000 decrease in tax loss and tax credit carryforwards, partially offset
by a $76,000 decrease in a payable to Health-Chem, which is only payable as
certain net operating loss and tax credit carryforwards are used.  Management
determined the valuation allowance was necessary as a result of delays in the
approval from the FDA for the sale of the Company's new transdermal
nitroglycerin patches and unfavorable decision in the Key Litigation, with such
matters contributing to the operating losses of the Company.   The various
components of net  deferred tax assets were adjusted to reflect change in
estimates.


<PAGE>
7.  Redeemable Preferred Stock

The Company is required to make semi-annual preferred dividend payments out of
funds legally available therefor each March and September at the annual rate
of $.70 per share on the then-outstanding shares of its redeemable preferred
stock, $10.00 par value.  As of June 30, 1998, $162,000 was available for the
payment of preferred dividends.  In August 1998 the Company declared and paid
a dividend of $162,000 in respect of dividends in arrears that were due on
September 30, 1997.  Legally available funds were not available to make the
1998 and 1999 preferred dividend payments, nor were they available to make the
required $1,000,000 redemption payments in March 1998 and 1999.  Additional
required redemption payments are $1,000,000 annually in 1999 through 2004 and
$1,500,000 in 2005.  The terms of the preferred stock provide that if either
dividends payable on the preferred stock shall be in default in an amount equal
to two full semi-annual dividend payments or a mandatory redemption payment is
not made, the holder of all of the outstanding shares of the preferred stock
shall be entitled to elect the smallest number of Directors necessary to
constitute a majority of the Company's Board of Directors until such time as
the default is cured.  Health-Chem waived this right since, as a practical
matter, it already possessed such power.

8.  Stock Options

In accordance with the terms of employment agreements between Health-Chem and
each of Robert D. Speiser and Marvin M. Speiser, on November 13, 1995, the
Company entered into stock option agreements with Robert D. Speiser and Marvin
M. Speiser allowing each of them to purchase 5,000,000 shares of the Company's
Common Stock.  After amendment of the options in November 1998, the exercise
price is $.15 per share, and the options are exercisable from April 4, 2000
through November 13, 2005, unless there is a transaction in which the Company
is acquired in which case the number of shares as to which the option is
exercisable will be limited to twenty (20%) percent of the total number of
shares underlying the options for each year that has passed since April 4,
1995, with part years to be pro-rated temporally.  The Company has reserved
10,000,000 shares of Common Stock for issuance to Robert D. Speiser and Marvin
M. Speiser pursuant to these stock option agreements (the "Agreements").

In April 1996, the Company adopted the 1996 Performance Equity Plan (the
"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 Plan, up
to an aggregate of 2,000,000 shares of the Company's Common Stock are available
for the granting of stock or stock related incentive awards.  During 1996, the
Company entered into stock option agreements with three officers and key
employees allowing them to purchase up to an aggregate of 1,400,000 shares
under the Plan.  During 1998, the Company entered into a stock option agreement
with a key employee allowing the employee to purchase up to an aggregate of
50,000 shares under the Plan.  The Company has reserved 1,450,000 shares of
Common Stock pursuant to these stock option agreements.

The Agreements and Plan are collectively referred to as "Plans".

<PAGE>
<PAGE>
<TABLE>
The Company has adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation" ("SFAS 123").  As permitted by SFAS
123, the Company has chosen to apply APB Opinion No. 25, "Accounting for Stock
Issued to Employees" and related Interpretations in accounting for its Plans.
Accordingly, no compensation cost has been recognized for options granted under
the Plans.  Had compensation cost for the Company's Plans been determined based
on the fair value at the grant dates for awards under the Plans consistent with
the method of SFAS 123, the Company's net <loss> income and net <loss> income
per share would have been <increased> reduced to the pro forma amounts
indicated below.  The Company did not award any option grants during the year
ended December 31, 1997.

                                         1998         1997         1996
<S>                   <C>            <C>          <C>          <C>
Net loss              As reported    $<1,269,000> $<2,834,000> $  <590,000>
                      Pro forma      $<1,300,000> $<2,864,000> $<1,301,000>

Basic and diluted     As reported        $<0.03>      $<0.07>      $<0.01>
 loss per share       Pro forma          $<0.03>      $<0.07>      $<0.03>


The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1998, 1996 and 1995, respectively; no dividend
yield for all years; expected volatility of 100% for all years; risk-free
interest rates of 5.68%, 6.11% and 5.86%, respectively; and expected lives of
seven years for all the option grants.

A summary of the status of the Company's Plans as of December 31, 1998, 1997
and 1996 and changes during the years ended on those dates is presented below
(in thousands, except per share amounts):

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

Granted                  50     0.1875       0     0        1,400      0.125

Exercised                 0     0            0     0            0      0

Forfeited                 0     0            0     0            0      0

Outstanding at end
 of year             11,450     0.147   11,400     0.103   11,400      0.103

Options exercisable
 at year-end            560             10,280             10,000

Weighted-average
 fair value of
 options granted
 during the year      $0.19                 $0             $0.106

</TABLE>

<PAGE>
<PAGE>
<TABLE>
The following table summarizes information about the Plans' stock options
outstanding at December 31, 1998:


                   Options Outstanding                Options Exercisable

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


9.  Net Interest Expense  (In thousands)
                                                Year Ended December 31,
                                                 1998      1997     1996
     <S>                                       <C>       <C>      <C>
     Interest expense - promissory note        $  630    $  630   $  630
     Interest expense - long-term
      payable/<receivable> - Health-Chem, net     208       132      <96>
     Interest expense - capitalized lease
      obligation                                    5         6        0
     Interest expense - note payable                0         0        9
     Capitalized interest                           0         0      <87>

     Total net interest expense                $  843    $  768   $  456

</TABLE>
10.  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 $10,000,
$14,000, and $21,000 in 1998, 1997 and 1996, respectively.

11.  Segment Information

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

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

Classes of Similar Products:
 Net Sales:
  Transdermal Nitroglycerin Products       $4,478    $5,299   $12,146
  Over-the-Counter Pharmaceutical and
   Cosmetic Products                        2,429         0         0
                                           $6,907    $5,299   $12,146
</TABLE>
<PAGE>
<PAGE>
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

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


<PAGE>
<PAGE>


FORM 10-K                                                            PART III



ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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

Name                         Age(1)       Principal Occupation

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

Joyce F. Brown, Ph.D.          53         President of The Fashion Institute
                                          of Technology

Michael J. Campbell            44         Managing Director of Atmosphere
                                          Interactive, Inc.

David N. Dinkins               72         Professor in the Practice of Public
                                          Affairs at the Columbia University
                                          School of International and Public
                                          Affairs

Ester R. Fuchs, Ph.D.          48         Director of the Center for Urban
                                          Research and Policy of Columbia
                                          University's School of
                                          International & Public Affairs

Donald E. Kauffman, Jr.        45         Vice President of the Company and
                                          Vice President - Manufacturing of
                                          Hercon Laboratories Corporation

Murray Lieber                  61         Vice President of the Company and
                                          Vice President - Marketing of
                                          Hercon Laboratories Corporation

Marvin M. Speiser              74         President Health-Chem Corporation

Robert D. Speiser              46         President and Chief Executive
                                          Officer of the Company and Hercon
                                          Laboratories Corporation and
                                          Executive Vice President of Health-
                                          Chem Corporation


(1)   Age as of September 1, 1999.
(2)   Marvin M. Speiser is the father of Robert D. Speiser.

The following are summaries of the business experience during at least the last
five years of each of the Company's directors.

Thomas J. Atkins, Ph.D. has been Vice President and a director of the Company
and Vice President-Research and Development of the Company's 98.5% owned
subsidiary Hercon Laboratories Corporation ("Hercon Laboratories") since March
1996.  Prior to joining Hercon Laboratories and since 1995, Dr. Atkins served
as Vice President, Research and Development for Medisorb Technologies
International, L.P. ("Medisorb").  From 1988 to 1994, he served as Director,
Polymer Research and Drug Delivery Systems for Stolle Research & Development
Corporation ("Stolle").  Both Medisorb and its parent, Stolle, are engaged in

<PAGE>
research and manufacturing of controlled release drug delivery systems.  Dr.
Atkins is the author of numerous publications and the named inventor on
numerous United States and foreign patents.

Joyce F. Brown, Ph.D., has served as a director of the Company since July 1995.
Dr. Brown is a psychologist and has served as President of The Fashion
Institute of Technology since June 1998.  From January 1994 to May 1998, Dr.
Brown served as a professor of Clinical Psychology at the Graduate School and
University Center of The City University of New York.  From January 1993 to
December 1993, Dr. Brown served as Deputy Mayor for Public and Community
Affairs for The City of New York.  Prior thereto, Dr. Brown held a number of
senior administrative posts at The City University of New York including
serving as Acting President of Baruch College, Vice Chancellor for Student
Affairs and Urban Programs and Vice Chancellor for Urban Affairs and
Development.

Michael J. Campbell has served as a director of the Company since July 1995.
Since September 1, 1999, Mr. Campbell has served as Managing Director of
Atmosphere Interactive, Inc., a subsidiary of the advertising firm Battan,
Barton, Durstin & Osbourne ("BBDO"). Through August 1999, Mr. Campbell was
Senior Vice President and Senior Creative Director of BBDO where he had been
employed since 1986.

David N. Dinkins has served as a director of the Company since April 1996.  Mr.
Dinkins has served as a Professor in the Practice of Public Affairs at the
School of International and Public Affairs at Columbia University since 1994.
The 106th Mayor of the City of New York, from 1990 to 1993, Mr. Dinkins served
as President of the Borough of Manhattan from 1986 to 1989.  He served as New
York City Clerk from 1975 to 1985 and as President of the New York City Board
of Elections from 1972-1973.  Mr. Dinkins began his career in public service
in 1966 in the New York State Assembly.  Mr. Dinkins maintained a private law
practice from 1956 to 1975.

Ester R. Fuchs, Ph.D., has served as a director of the Company since July 1995.
Dr. Fuchs is the Director of the Center for Urban Research and Policy of
Columbia University's School of International & Public Affairs.  Dr. Fuchs has
served as Associate Professor in the Department of Political Science at Barnard
College, Columbia University and a member of the graduate faculty of Columbia
University's Department of Political Science and School of International &
Public Affairs since 1992.  For ten years prior thereto, Dr. Fuchs served as
an Assistant Professor at Barnard.

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

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

Marvin M. Speiser has served as President and Chairman of the Board of
Directors of Health-Chem since January 1969.  He has been a director of the
Company since its inception.

Robert D. Speiser has served as President and a director of the Company since
its inception on April 7, 1989.  He has also been the Executive Vice President
of Health-Chem  since April 1, 1994 and President of Hercon Laboratories since
May 1990.  From October 1986 to March 1994, he served as Senior Vice President
of Health-Chem.  Mr. Speiser also served as President of Union Broach
Corporation, a former Health-Chem subsidiary, from January 1983 through
November 1993.  Prior to 1986, he served as Vice President of Health-Chem.  Mr.
<PAGE>
Speiser is an attorney.

Directors' Fees, Committees and Meetings

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

During 1998, the Board of Directors held four meetings.  During such period no
director participated in fewer than 75% of the aggregate of the number of
meetings of the Board of Directors and committees thereof of which such
director was a member.  The Board of Directors has an Audit Committee and a
Compensation Committee.  The Committees receive their authority and assignments
from the Board of Directors and report to the Board.  The Audit and
Compensation Committees are currently composed of Joyce F. Brown, Michael J.
Campbell and Ester R. Fuchs, who are non-employee directors.

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

The Compensation Committee is empowered to make recommendations to the Board
of Directors relating to the overall compensation arrangements for senior
management of the Company and to make recommendations to the Board of Directors
pertaining to any compensation plans in which officers and directors of the
Company are eligible to participate.  The Compensation Committee is also
responsible for the administration of the Company's 1996 Performance Equity
Plan.  The Compensation Committee met once during 1998.

The Company does not have a standing nomination committee.

                              EXECUTIVE OFFICERS

The following are the executive officers of the Company:

Officers                    Position                    Age(1)

Robert D. Speiser           President                     46

Thomas J. Atkins, Ph.D.     Vice President                52

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

Donald E. Kauffman, Jr.     Vice President                45

Murray Lieber               Vice President                61

Bruce M. Schloss            Secretary                     43

(1)  As of September 1, 1999

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

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

Bruce M. Schloss is an attorney. He has been Secretary of the Company since
September 1999. Mr. Schloss has been General Counsel, Secretary, Vice President
and a director of Health-Chem since September 1991, October 1991, May 1992 and
May 1994, respectively. Prior to joining Health-Chem, Mr. Schloss was a member
of the firm of McLaughlin & Stern, Ballen and Ballen.

Compliance With Section 16(a) of the Exchange Act

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

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

ITEM 11.  EXECUTIVE COMPENSATION

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

                        SUMMARY COMPENSATION TABLE

                                                     Long-term
                                                    Compensation     All
                                          Other       Awards        Other
                              Annual      Annual     Securities    Compensa-
                           Compensation  Compens-    Underlying     tion
Name and Principal        Salary  Bonus  ation(1)      Options      (1)(2)
    Position        Year    ($)    ($)     ($)           (#)          ($)
<S>                 <C>   <C>     <C>    <C>        <C>            <C>
Robert D. Speiser   1998  132,881   ---       794             0        314
President (3)       1997  124,020   ---       518             0        166
                    1996  138,400   ---       990             0        212


Thomas J. Atkins    1998  137,615   1,135   6,243             0        850
Vice President      1997  130,000  25,000   6,536             0        836
                    1996  104,500  20,069  48,144       250,000        557

Murray Lieber       1998  155,462     908   2,267             0      2,106
Vice President      1997  145,000   ---       448             0      1,350
                    1996  140,000   ---       600     1,000,000      1,350

Donald E.           1998  101,942   ---     6,077             0        205
Kauffman, Jr.       1997   95,000   ---     5,827             0        190
Vice President      1996   91,250   ---     5,823       150,000        179
</TABLE>
(1)   Does not include information with respect to personal benefits, if any,
provided to the named individuals which do not exceed disclosure thresholds
established under Securities and Exchange Commission rules.

(2)   Represents the term cost value of all excess group life insurance
policies on behalf of the named individuals.

(3)   Amounts included under Annual Compensation, Other Annual Compensation and
All Other Compensation represent the portion of the compensation paid by

<PAGE>
Health-Chem pursuant to its employment arrangements with Mr. Speiser and which
have been allocated to the Company.  See "Employment Agreement; Options to
Purchase Common Stock" and "Item 13. Certain Relationships and Related
Transactions."

                        OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
During 1998, no options to purchase Common Stock of the Company were granted
to any named executives.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUE
                                      <C>                 <C>
<S>        <C>            <C>         Number of
                                      Securities            Value of
                                      Underlying           Unexercised
                                      Unexercised         In-the-Money
            Shares                    Options at           Options at
           Acquired       Value        12/31/98            12/31/98 (2)
              on          Realized   Exercisable/         Exercisable/
           Exercises (1)    (1)      Unexercisable        Unexercisable
Name           (#)          ($)           (#)                  ($)


Robert D.
Speiser        ---          ---            0/5,000,000        0/0

Thomas J.
Atkins         ---          ---      100,000/  150,000        0/0

Murray
Lieber         ---          ---      400,000/  600,000        0/0

Donald E.
Kauffman, Jr.  ---          ---       60,000/   90,000        0/0
</TABLE>

(1)   No named executive officer exercised any stock options during the fiscal
year ended December 31, 1998.

(2)   Based upon the last sales price of the Company's Common Stock reported
as traded in 1998 on the National Association of Securities Dealers, Inc.
Automated Quotation System ("NASDAQ") Bulletin Board minus the option exercise
price.


           EMPLOYMENT AGREEMENT; OPTIONS TO PURCHASE COMMON STOCK

In April 1995, Health-Chem entered into a five-year Employment Agreement with
Robert D. Speiser which provided for an initial base annual salary which
included $104,000 in respect of services as an officer of the Company's Hercon
Laboratories subsidiary, plus an annual bonus determined by the Health-Chem
Board at least equal to ten percent of the amount by which pretax net income
of Hercon Laboratories for a calendar year exceeds the average of Hercon
Laboratories' pretax net income, as defined, for the prior two calendar years,
and for similar benefits, vacation and perquisites as that made available to
comparable executives of Health-Chem.  The Employment Agreement also provides
for minimum yearly salary increases of 4% on each September 1 during the
employment period.  Mr. Speiser received a 5% salary increase on September 1,
1996.  Mr. Speiser and Health-Chem agreed to defer consideration of the
September 1, 1997 salary increase until consideration of the salary increase
to which Mr. Speiser was entitled in 1998 pursuant to the Employment Agreement.
Mr. Speiser received an 11% salary increase on September 1, 1998.  The
Employment Agreement further provides that upon retirement on or after January
1, 2010 (the "retirement date"), Robert D. Speiser will be entitled to receive
an annual supplemental pension benefit equal to 60% of his final base salary,
which for this purpose will be the highest nominal annual salary paid to him

<PAGE>
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 Mr. Speiser's employment is involuntarily terminated (as described
below).  An actuarially reduced supplemental pension benefit may be paid if the
benefit is commenced upon termination of employment prior to the retirement
date.

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

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

In April 1995, Health-Chem also entered into a similar Employment Agreement
with Marvin M. Speiser, including the same provisions regarding (i) the grant
of an option to acquire shares of the Company's Common Stock on a fully-diluted
basis and (ii) the payment of a portion of his bonus based on the increase in
pretax net income, as defined, for Hercon Laboratories under the same terms as
set forth above for Robert D. Speiser.  Pursuant to this Employment Agreement,
Health-Chem caused the Company to grant Marvin M. Speiser an option, in
November 1995, to purchase up to 5,000,000 shares of Common Stock of the
Company on substantially the same terms and conditions as set forth above for
Robert D. Speiser.  In November 1998, this option was amended on substantially
the same terms and conditions as the November 1998 amendment to the option for
Robert D. Speiser as set forth above.


<PAGE>
<PAGE>
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT


(a)   As of August 31, 1999, other than as set forth in the following table,
the Company knows of no other person or "group" (as that term is defined in
Section 13(d)(3) of the Securities Exchange Act of 1934) who beneficially owns
more than 5% of any class of the Company's voting securities.  The following
table contains, as to each class of the Company's voting securities, the name
and address of each such 5% beneficial owner, the amount of securities of such
class beneficially owned, and the percent of such class beneficially owned.
<TABLE>
                                            Number of Shares
                                              Beneficially
                                              Owned as of
                    Name and Address            August 31,    Percent
Title of Class     of Beneficial Owner          1999  (1)     of Class
<S>             <C>                         <C>               <C>
Common Stock    Health-Chem Corporation(2)  36,000,000        90.00%


Common Stock    Robert D. Speiser(2)            12,155(3)       *


Common Stock    Marvin M. Speiser(2)(6)      2,520,362(4)      6.30%


Common Stock    Laura G. Speiser(2)(6)       2,520,362(5)      6.30%
</TABLE>
________________________
* Indicates ownership of less than one percent (1%) of class.

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

(2)   Address is c/o Health-Chem Corporation, 460 Park Avenue, Suite 1300, New
York, NY  10022.

(3)   Includes 8,826 shares held by Smith Barney as custodian for the IRA of
Robert D. Speiser.

(4)   Includes the following shares of Common Stock:  (i) 188,475 shares owned
by Lauralei Investors, Inc. ("Lauralei"), of which Marvin M. Speiser and Laura
G. Speiser are the sole stockholders; and (ii)  2,331,887 shares of Common
Stock owned by Laura G. Speiser.  Marvin M. Speiser disclaims beneficial
ownership of the shares of Common Stock referenced in (ii) above.

(5)   Includes 188,475 shares owned by Lauralei.

(6)   May be deemed to beneficially own, as of August 31, 1999, an aggregate
of 2,396,020 shares or 30.86% of the common stock of Health-Chem.

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

<PAGE>
<PAGE>
<TABLE>
                                          Number of Shares
                                         Beneficially Owned
                    Name of                 as of August       Percent of
Title of Class  Beneficial Owner            31, 1999  (1)        Class
<S>             <C>                      <C>                   <C>

Common Stock    Thomas J. Atkins             100,000(2)            *

Common Stock    Joyce F. Brown                     0               0

Common Stock    Michael J. Campbell                0               0

Common Stock    David N. Dinkins                   0               0

Common Stock    Ester R. Fuchs                 1,626               *

Common Stock    Donald E. Kauffman, Jr.       60,000(2)            *

Common Stock    Murray Lieber                403,534(2)            *

Common Stock    Marvin M. Speiser          2,520,362              6.30%

Common Stock    Robert D. Speiser             12,155               *

Common Stock    All directors and
                officers as a group
                (11 Persons)               3,097,677(3)           7.64%
______________________
</TABLE>
*  Indicates ownership of less than one percent (1%) of class.


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

(2)   Includes the following shares of Common Stock subject to stock options
which are currently exercisable or exercisable within 60 days:  Dr. Atkins -
100,000; Mr. Kauffman - 60,000; and Mr. Lieber - 400,000.

(3)   Includes 560,000 shares of Common Stock issuable upon the exercise of
stock options which are currently exercisable or exercisable within 60 days.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


In 1998, the Company paid Health-Chem $630,000 in interest under a $7,000,000
principal amount 9% Subordinated Promissory Note due March 31, 2002.  This note
was originally issued to Health-Chem at the closing of the transactions under
the 1995 Plan of Reorganization and Asset Exchange Agreement (the "1995 Plan
of Reorganization").

In 1998, the Company paid Health-Chem $162,000 as dividends in respect of
shares of the Company's 7% Redeemable Preferred Stock $10.00 par value (the
"Preferred Stock").  One million shares of Preferred Stock were originally
issued to Health-Chem at the closing under the 1995 Plan of Reorganization.
The Company is required to redeem 100,000 shares of Preferred Stock at par on
March 31 of each year from 1999 through 2004 and 150,000 shares of Preferred
Stock at par on March 31, 2005. The Company is required to make semi-annual
preferred dividend payments out of funds legally available therefore each March
and September at the annual rate of $.70 per share on the then-outstanding
shares.  As of June 30, 1998, $162,000 was available for the payment of
preferred dividends.  The $162,000 dividend payment was in respect of dividends
in arrears that were due on September 30, 1997.  Legally available funds were
not available to make the entire September 1997 preferred dividend payment of

<PAGE>
$297,500.  Legally available funds were also not available to make the March
1998, September 1998 and March 1999 preferred dividend payments of $297,500
each, nor were they available to make the required $1,000,000 redemption
payment in March 1998 and March 1999.  At December 31, 1998, the Company had
accrued $879,250 in dividends due to Health-Chem on the Preferred Stock. The
terms of the Preferred Stock provide that if either (i) dividends payable on
the Preferred Stock shall be in default in an amount equal to two full semi-
annual dividend payments or (ii) a mandatory redemption payment is not made,
the holder of all of the outstanding shares of Preferred Stock shall be
entitled to elect the smallest number of Directors necessary to constitute a
majority of the Company's Board of Directors until such time as the default is
cured.  Health-Chem has waived this right since, as a practical matter, it
already possessed such power.

In 1998, the Company reimbursed Health-Chem $667,000 pursuant to a Corporate
Services Agreement entered into in connection with the 1995 Plan of
Reorganization.  Under this agreement, Health-Chem provides or otherwise makes
available to the Company certain general corporate services provided by Health-
Chem's corporate staff, including but not limited to, accounting, tax,
corporate communications, legal, data processing, purchasing, human resources,
financial and other administrative staff functions, and arranges for
administration of insurance and employee benefit programs.  The Company
reimburses Health-Chem for the actual out-of-pocket cost to Health-Chem or, for
those services not directly attributable to the Company, reimburses Health-Chem
based upon a method (allocation based upon the Company's net sales as a
percentage of Health-Chem's consolidated net sales) which is considered by the
Company to be reasonable.  The agreement expired on December 31, 1998 and
automatically renewed for a one-year term.  The agreement will continue to
automatically renew for successive one-year terms unless notice of non-renewal
is given by either party.  The Company and Health-Chem are currently
reconsidering the method of allocation in light of the sale of assets of
Health-Chem's Herculite and Hercon Environmental subsidiaries in August 1999.

Pursuant to a Tax Sharing Agreement also entered into in connection with the
1995 Plan of Reorganization, the Company is required to pay Health-Chem as it
uses Health-Chem's net operating loss and tax credit carryforwards to offset
future taxable income.  In 1998, the amount of such payment was $149,000 and
at December 31, 1998, the maximum amount of such future payments was $76,000.


<PAGE>
<PAGE>


FORM 10-K                                                            PART IV



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

                                                                         PAGE
(a)  1.  FINANCIAL STATEMENTS

Reports of Independent Accountants                                      18-19

Consolidated Statement of Assets and Liabilities                           20
  (Liquidation Basis) - December 31, 1998

Consolidated Balance Sheet - December 31, 1997                             21

Consolidated Statements of Operations
  Years Ended December 31, 1998, 1997 and 1996                             22

Consolidated Cash Flow Statements
  Years Ended December 31, 1998, 1997 and 1996                             23

Consolidated Statements of Capital Deficiency
  Years Ended December 31, 1998, 1997 and 1996                             24

Notes to Consolidated Financial Statements                              25-36

(a)  2.  FINANCIAL STATEMENT SCHEDULES


All 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 Health-Chem Corporation, ("HCH") Herculite Products, Inc.
("HPI") and Transderm Laboratories Corporation (the "Company"), filed as
Exhibit 2 to the Company's Registration Statement on Form S-1 No. 33-95080
filed with the Commission on July 28, 1995 ("Registration Statement") and
incorporated herein by reference.

 3.1   Restated Certificate of Incorporation dated April 27, 1995, filed as
Exhibit 3.1 to the Registration Statement and incorporated herein by reference.

 3.2   Amendment to Restated Certificate of Incorporation dated July 13, 1995,
filed as Exhibit 3.2 to the Registration Statement and incorporated herein by
reference.

 3.3   By-Laws, filed as Exhibit 3.3 to the Registration Statement and
incorporated herein by reference.

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

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

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

10.3(b)  Second Amendment to Stock Option Agreement between the Company and
Marvin M. Speiser dated November 19, 1998.  Filed herewith on page 51.

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

10.4(b)  Second Amendment to Stock Option Agreement between the Company and
Robert D. Speiser dated November 19, 1998.  Filed herewith on page 52.

10.5   Distribution Agreement between Hercon Laboratories Corporation ("HLC")
and Circa Pharmaceuticals, Inc. (f/k/a Bolar Pharmaceutical Co., Inc.) dated
as of January 4, 1993.  Incorporated herein by reference to Exhibit 10.14 to
HCH's Report on Form 10-K for the year ended December 31, 1992.

10.6   Asset Acquisition Agreement dated April 28, 1995 between HEC and HLC,
filed as Exhibit 10.7 to the Registration Statement and incorporated herein by
reference.

10.7   $7,000,000 principal amount Subordinated Promissory Note of HLC, filed
as Exhibit 10.8 to Amendment No. 1 and incorporated herein by reference.

10.8   Corporate Services Agreement between HCH and the Company, dated as of
August 31, 1995, filed as Exhibit 10.9 to Amendment No. 1 and incorporated
herein by reference.

10.9   Tax Sharing Agreement between HCH and the Company, dated as of August
31, 1995, filed as Exhibit 10.10 to Amendment No. 1 and incorporated herein by
reference.

10.10(a)   Revolving Credit, Term Loan and Security Agreement dated as of
January 9, 1997 by and between HCH, HPI, HEC, Pacific, HLC and the Company and
IBJ Schroder Bank & Trust Company, filed as Exhibit 1 to HCH's Current Report
on Form 8-K filed with the Commission on January 22, 1997 and incorporated
herein by reference.

10.10(b)   First Amendment to Revolving Credit, Term Loan and Security
Agreement dated as of January 21, 1998 by and between HCH, HPI, HEC, Pacific,
HLC and the Company and IBJ Schroder Business Credit Corporation, filed as
Exhibit 10.18(b) to HCH's Report on Form 10-K for the year ended December 31,
1997 and incorporated herein by reference.

10.10(c)   Second Amendment to Revolving Credit, Term Loan and Security
Agreement dated as of July 31, 1998 by and between HCH, HPI, HEC, Pacific, HLC
and the Company and IBJ Schroder Business Credit Corporation, filed as the only
exhibit to HCH's Report on Form 10-Q for the quarter ended September 30, 1998
and incorporated herein by reference.

10.10(d)   Waiver and Third Amendment to Revolving Credit, Term Loan and
Security Agreement dated as of January 11, 1999 by and between HCH, HPI, HEC,
Pacific, HLC and the Company and IBJ Whitehall Business Credit Corporation,
filed as Exhibit 10.18(d) to HCH's Report on Form 10-K for the year ended
December 31, 1998 and incorporated herein by reference.

10.10(e)   Consent and Fourth Amendment to Revolving Credit, Term Loan and
Security Agreement dated as of March 24, 1999 by and between HCH, HPI, HEC,
Pacific, HLC and the Company and IBJ Whitehall Business Credit Corporation,
filed as Exhibit 10.18(e) to HCH's Report on Form 10-K for the year ended
December 31, 1998 and incorporated herein by reference.

10.10(f)   Amendment and Forbearance Agreements to Revolving Credit, Term Loan
and Security Agreement dated as of April 14, 1999, May 14, 1999, June 21, 1999,
July 15, 1999 and August 15, 1999 by and between the Company, Herculite, Hercon
Environmental, Pacific, Hercon Laboratories and Transderm and IBJ Whitehall
Business Credit Corporation, filed as Exhibit 10.18 (f) to HCH's Report on Form
10-K for the year ended December 31, 1998 and incorporated herein by reference.

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

<PAGE>
21   Subsidiaries of Registrant.  Filed herewith on page 50.

27   Financial Data Schedule.  Filed herewith on page 53.

(b) REPORTS ON FORM 8-K

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

<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.

TRANSDERM LABORATORIES CORPORATION

Date:  November 22, 1999


/s/ Robert D. Speiser                      /s/ David J. Heath, Jr.
By: Robert D. Speiser                      By: David J. Heath, Jr.
    President                                  Vice President-Finance
    (Principal Executive Officer)              (Principal Financial Officer)
                                               (Principal Accounting Officer)

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

Name and Signature               Titles                      Date


/s/ Robert D. Speiser            President, Chief Executive  November 22, 1999
Robert D. Speiser                Officer and Director
                                 (Principal Executive
                                 Officer)


/s/ Thomas J. Atkins             Vice President              November 22, 1999
Thomas J. Atkins                and Director


/s/ Joyce F. Brown               Director                    November 22, 1999
Joyce F. Brown


/s/ Michael J. Campbell          Director                    November 22, 1999
Michael J. Campbell


/s/ David N. Dinkins             Director                    November 22, 1999
David N. Dinkins

/s/ Ester R. Fuchs               Director                    November 22, 1999
Ester R. Fuchs


/s/ Donald E. Kauffman, Jr      Vice President               November 22, 1999
Donald E. Kauffman, Jr.         and Director


/s/ Murray Lieber                Vice President              November 22, 1999
Murray Lieber                   and Director


/s/ Marvin M. Speiser            Director                    November 22, 1999
Marvin M. Speiser

EXHIBIT 21

                               SUBSIDIARIES OF THE REGISTRANT

Hercon Laboratories Corporation, incorporated in the State of Delaware, is the
only subsidiary of the registrant.