<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 1997 Commission File Number 1-6787
HEALTH-CHEM CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-2682801
(State of Incorporation) (I.R.S. Employer Identification No.)
1212 Avenue of the Americas, 24th Floor, New York, NY 10036
(Address of principal executive offices)
Registrant's Telephone Number: 212-398-0700
The registrant has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months,
and has been subject to such filing requirements for the past 90 days.
As of July 31, 1997, 7,982,424 shares of Common Stock, $.01 Par Value, were
outstanding.
Page 1<PAGE>
<PAGE>
<TABLE> HEALTH-CHEM CORPORATION Part I
CONSOLIDATED BALANCE SHEETS (Unaudited) Item 1
(In thousands) Page 2
June 30, December 31,
1997 1996
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 292 $ 134
Accounts receivable, net 5,882 5,337
Inventories (Note 3) 6,698 7,343
Deferred taxes-current 564 554
Other current assets 1,411 1,285
Total Current Assets 14,847 14,653
PROPERTY, PLANT & EQUIPMENT
Land and buildings 5,721 5,713
Other property, plant & equipment 24,058 23,788
Total Property, Plant & Equipment 29,779 29,501
Less accumulated depreciation & amortization 16,787 15,934
Net Property, Plant & Equipment 12,992 13,567
NON-CURRENT ASSETS
Notes receivable 1,050 1,200
Cash surrender value of life insurance
policies 1,138 1,138
Excess of cost over fair value of assets
acquired 693 706
Deferred taxes-non-current 1,368 675
Other non-current assets 318 474
Total Non-Current Assets 4,567 4,193
TOTAL ASSETS $ 32,406 $ 32,413
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 4,257 $ 5,026
Accrued expenses and other current liabilities 2,482 2,132
Income taxes payable 568 568
Total Current Liabilities 7,307 7,726
LONG-TERM LIABILITIES
10.375% convertible subordinated debentures 8,000 9,500
Long-term debt 9,152 6,082
Other long-term liabilities 2,249 1,949
Minority interest 13 12
STOCKHOLDERS' EQUITY
Convertible special stock 7 7
Common stock 145 145
Additional paid in capital 18,286 18,286
Less stockholder notes receivable <148> <148>
Accumulated deficit <4,922> <3,463>
Subtotal 13,368 14,827
Less treasury stock <7,683> <7,683>
Total Stockholders' Equity 5,685 7,144
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 32,406 $ 32,413
<FN>
See Notes to Consolidated Financial Statements.<PAGE>
<PAGE>
</TABLE>
<TABLE>
HEALTH-CHEM CORPORATION Part I
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Item 1
(In thousands, except per share amounts) Page 3
For the Six Months
Ended June 30,
<S> 1997 1996
REVENUE: <C> <C>
Net sales $19,076 $26,258
Cost of goods sold 14,578 18,390
Gross profit 4,498 7,868
OPERATING EXPENSES:
Selling, general and administrative expense 4,605 4,829
Legal expense 275 1,103
Research and development expense 1,247 1,410
Net interest expense 789 667
Total operating expenses 6,916 8,009
LOSS FROM OPERATIONS <2,418> <141>
Other income - net 258 204
<LOSS> INCOME FROM OPERATIONS BEFORE TAXES
AND MINORITY INTEREST <2,160> 63
Income tax benefit 703 15
<LOSS> INCOME BEFORE MINORITY INTEREST <1,457> 78
Minority Interest in <earnings> of subsidiary <1> 0
<LOSS> INCOME BEFORE EXTRAORDINARY GAIN <1,458> 78
Extraordinary <loss> gain from repurchase
of debentures <1> 5
NET <LOSS> INCOME $<1,459> $ 83
Earnings per common share (primary & fully
diluted) (Note 4):
<Loss> Income before extraordinary gain $ <.18> $ .01
Extraordinary gain from repurchase of
debentures .00 .00
NET <LOSS> INCOME PER SHARE $ <.18> $ .01
Average number of common and common equivalent
shares outstanding (primary & fully diluted)
(Note 4): 7,982 7,982
<FN>
See Notes to Consolidated Financial Statements.
<PAGE>
<PAGE>
</TABLE>
<TABLE> HEALTH-CHEM CORPORATION Part I
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Item 1
(In thousands, except per share amounts) Page 4
For the Three Months
Ended June 30,
<S> 1997 1996
REVENUE: <C> <C>
Net sales $10,333 $13,109
Cost of goods sold 7,707 9,157
Gross profit 2,626 3,952
OPERATING EXPENSES:
Selling, general and administrative expense 2,288 2,456
Legal expense 168 798
Research and development expense 503 718
Net interest expense 405 269
Total operating expenses 3,364 4,241
LOSS FROM OPERATIONS <738> <289>
Other income - net 157 121
LOSS FROM OPERATIONS BEFORE TAXES AND MINORITY
INTEREST <581> <168>
Income tax benefit 173 27
LOSS BEFORE MINORITY INTEREST <408> <141>
Minority Interest in <earnings> of subsidiary <2> 0
LOSS BEFORE EXTRAORDINARY GAIN <410> <141>
Extraordinary <loss> gain from repurchase
of debentures <2> 0
NET LOSS $ <412> $ <141>
Earnings per common share (primary & fully
diluted) (Note 4):
Loss before extraordinary gain $ <.05> $ <.02>
Extraordinary gain from repurchase of
debentures .00 .00
NET LOSS PER SHARE $ <.05> $ <.02>
Average number of common and common equivalent
shares outstanding (primary & fully diluted)
(Note 4): 7,982 7,982
<FN>
See Notes to Consolidated Financial Statements.
<PAGE>
<PAGE>
</TABLE>
<TABLE> HEALTH-CHEM CORPORATION Part I
CONSOLIDATED CASH FLOW STATEMENTS (Unaudited) Item 1
(In thousands) Page 5
For the Six Months
Ended June 30,
1997 1996
Cash was <Used for> Provided by:
<S> <C> <C>
OPERATIONS:
<Loss> income before extraordinary gain $<1,458> $ 78
Adjustments to reconcile to net cash <used for>
provided by operations:
Depreciation and amortization 811 979
Gain on disposal of property, plant and equipment <14> 0
Provision for doubtful accounts receivable 10 48
Deferred income taxes <703> <12>
Minority interest 1 0
Changes in:
Accounts receivable <556> <1,476>
Inventories 646 1,513
Other current assets <127> <157>
Other non-current assets 1 13
Accounts payable <769> 754
Accrued expenses and other current liabilities <12> 93
Interest and income taxes payable <5> <143>
Long-term liabilities 272 337
Other, net 0 <8>
Net cash <used for> provided by operations <1,903> 2,019
INVESTING:
Additions to property, plant and equipment <279> <1,637>
Proceeds on disposals of property, plant and
equipment 17 21
Investment in life insurance policies - net 250 <84>
Payments received on notes receivable 150 0
Net cash provided by <used for> investing 138 <1,700>
FINANCING:
Long-term debt proceeds 8,616 10,563
Long-term debt payments <5,551> <9,616>
Repurchase of convertible subordinated debentures <1,142> <1,330>
Net cash provided by <used for> financing 1,923 <383>
Net Increase <Decrease> in Cash and Cash Equivalents 158 <64>
Cash and Cash Equivalents at beginning of period 134 259
Cash and Cash Equivalents at end of period $ 292 $ 195
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 859 $ 839
Income Taxes 5 144
Supplemental Disclosures of Noncash Investing
and Financing:
Acquisition of fixed assets through capital
lease obligations $ 45 $ 0
<FN>
See Notes to Consolidated Financial Statements
<PAGE>
<PAGE>
HEALTH-CHEM CORPORATION Part I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Item 1
(Unaudited) Page 6
1. Principles of consolidation
The consolidated financial statements include the accounts of Health-
Chem Corporation ("Health-Chem") and all of its subsidiaries
(collectively the "Company").
The Consolidated Balance Sheet as of June 30, 1997, the Consolidated
Statements of Operations and the Consolidated Cash Flow Statements for
the interim periods ended June 30, 1997 and 1996 have been prepared by
the Company, without audit. In the opinion of the Company, all
necessary adjustments, consisting of normal recurring items, have been
made to present fairly the financial position, results of operations and
cash flows at June 30, 1997 and for all periods presented. Certain
amounts included in the consolidated financial statements relating to
prior periods have been reclassified to conform to the current
presentation.
Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
consolidated financial statements be read in conjunction with the
consolidated financial statements and notes thereto included in the
Company's December 31, 1996 Annual Report on Form 10-K. The results of
operations for the periods ended June 30, 1997 and 1996 are not
necessarily indicative of the operating results for the full years.
2. Taxes on Income (In thousands) For the Six Months
Ended June 30,
1997 1996
The income tax <benefit> provision includes:
State and local income taxes $ <35> $ <65>
Federal income taxes <668> 53
Total $ <703> $ <12>
Taxes on income are comprised of:
Currently payable $ 0 $ 0
Deferred benefit <703> <12>
Total $ <703> $ <12>
Taxes are charged <credited> to:
Operations $ <703> $ <15>
Extraordinary gain on repurchase of
debentures 0 3
Total $ <703> $ <12>
A reconciliation of taxes on income to the federal statutory rate is as
follows:
For the Six Months
Ended June 30,
1997 1996
Tax provision at statutory rate $ <735> $ 24
Increase <decrease> resulting from:
Intangibles and officers life insurance
premiums 53 28
State and local taxes, net of federal
tax benefit <35> 14
Settlement of state tax assessments 0 <69>
Reversal of valuation allowance 0 <25>
Other 14 16
Tax benefit $ <703> $ <12>
<PAGE>
HEALTH-CHEM CORPORATION Part I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Item 1
(Unaudited) Page 7
3. Inventories (In thousands)
June 30, 1997 December 31, 1996
Raw materials $3,379 $3,979
Finished goods and work-in-process 3,319 3,364
Total $6,698 $7,343
4. Earnings Per Share
Primary and fully diluted earnings per share are computed based upon the
weighted average number of common and common equivalent shares
outstanding. Shares issuable upon exercise of dilutive stock options
are included in the number of common and common equivalent shares
outstanding for 1996. Subordinated debentures are anti-dilutive for all
periods presented.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 "Earnings Per Share"
(SFAS 128). SFAS 128 establishes standards for computing and presenting
earnings per share and applies to entities with publicly-held common
stock or potential common stock. SFAS 128 simplifies the standards for
computing earnings per share previously found in APB Opinion No. 15,
"Earnings Per Share," by replacing the presentation of primary earnings
per share with a presentation of basic earnings per share. It also
requires dual presentation of basic and diluted earnings per share on
the face of the income statement for all entities with complex capital
structures.
SFAS 128 is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods. Earlier application
is not permitted; however, restatement of all prior-period earnings per
share data is required upon adoption. The impact of adopting SFAS 128
on the Company's earnings per share data is not expected to be
significant.
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 alleging that
Hercon's submission to the United States Food and Drug Administration
("FDA") of three Abbreviated New Drug Applications ("ANDAs") relating to
some of Hercon's transdermal nitroglycerin products, for which the
Company is awaiting FDA approval, constitutes infringement of Key's
patent for its Nitro-Dur(R) products. Key seeks certain injunctive
relief, monetary damages if commercial manufacture, use or sale occurs,
and a judgment that the effective date for FDA approval of the above-
referenced ANDAs be no earlier than February 16, 2010, the expiration
date of Key's patent. In its answer, Hercon denied the material
allegations of the complaint, asserting, among other things, that the
Key patent is invalid and unenforceable and that Hercon has not
infringed and does not infringe any claim of the patent. Hercon has
counterclaimed against Key for declaratory judgment of patent
noninfringement, invalidity and unenforceability. Following extensive
discovery, a two-week, non-jury trial was completed on October 10, 1996.
Post-trial briefs were filed in December 1996 and supplemental post-
trial briefs, requested by the Court, were filed in June 1997. The
Company is awaiting decision by the Court. Management continues to
believe that Key's claims are without merit.
<PAGE>
<PAGE>
HEALTH-CHEM CORPORATION Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF Item 2
FINANCIAL CONDITION & RESULTS OF OPERATIONS Page 8
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-K and Form 10-Q, which could cause actual results to differ
materially from the forward-looking statements.
Net sales decreased $7.2 million, or 27% for the six months ended June 30,
1997 as compared to the same period in 1996. The decrease is due primarily to
decreases in sales of transdermal nitroglycerin patches, synthetic fabrics and
environmental products of $4.5 million, $2.6 million and $.1 million,
respectively. Sales of transdermal nitroglycerin patches, manufactured and
marketed by the Company's Hercon Laboratories subsidiary ("Hercon
Laboratories"), decreased due primarily to the absence of sales to a former
domestic distributor in 1997 who accounted for approximately 14% of the
Company's sales for the six months ended June 30, 1996. The most recent sales
to this distributor were during the fourth quarter of 1996. In August 1996,
this former distributor obtained approval from the United States Food and Drug
Administration for the manufacture and sale of its own nitroglycerin patches
and now competes with the Company's nitroglycerin patches. Sales to the
Company's current domestic distributors of nitroglycerin patches also
decreased during the six months ended June 30, 1997, as compared to the same
period in 1996. The synthetic fabrics sales decrease is due primarily to
lower sales of industrial fabrics which includes governmental sales.
Environmental products sales decreased due primarily to the timing of sales
related to insect mating disruptant products. During the first half of 1997,
in anticipation of increased market pressures and delays in approvals from the
FDA for the sale of new nitroglycerin patches, the Company undertook an
organizational restructuring which is expected to reduce annual payroll-
related expenses by approximately $1,600,000. While the Company hopes to
receive approvals for its new nitroglycerin pathces in 1997 and 1998, no
assurances can be made that any new nitroglycerin patches will be approved by
the FDA.
Net sales decreased $2.8 million, or 21% for the quarter ended June 30, 1997
as compared to the same period in 1996. The decrease is due primarily to
decreases in sales of transdermal nitroglycerin patches, synthetic fabrics and
environmental products of $1.8 million, $.8 million and $.2 million,
respectively. The sales fluctuations are attributable to the factors noted
above.
Gross profit decreased $3.4 million, or 43% for the six months ended June 30,
1997 as compared to the same period in 1996. The decrease is due primarily to
decreased gross profits for transdermal nitroglycerin patches and synthetic
fabrics of $3.1 million and $.3 million, respectively. Gross profit as a
percentage of net sales for the six months ended June 30, 1997 and 1996 was
24% and 30%, respectively. Gross profit for transdermal nitroglycerin patches
decreased $3.1 million due primarily to decreased domestic sales volumes.
Gross profit for transdermal nitroglycerin patches as a percentage of net
sales for the six months ended June 30, 1997 and 1996 was 41% and 59%,
respectively. Lower transdermal nitroglycerin patch margins also reflect the
allocation of fixed costs over decreased revenue. Gross profit for synthetic
<PAGE>
<PAGE>
HEALTH-CHEM CORPORATION Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF Item 2
FINANCIAL CONDITION & RESULTS OF OPERATIONS Page 9
fabrics decreased $.3 million reflecting a $.6 million decrease for the
Company's Pacific Combining subsidiary ("Pacific") offset by a $.3 million
increase for the Company's Herculite Products subsidiary ("Herculite"). In
1996, the Company focused its cost reduction measures primarily on Herculite,
yielding an improved and more cost efficient manufacturing system. In 1997,
the Company is applying these cost reduction measures to Pacific.
Gross profit decreased $1.3 million, or 34% for the quarter ended June 30,
1997 as compared to the same period in 1996. The decrease is due primarily to
decreased gross profits for transdermal nitroglycerin patches and synthetic
fabrics of $1.3 million and $.1 million, respectively. The gross profit
fluctuations are attributable to the factors noted above.
Selling, general and administrative expenses decreased $.2 million for both
the six months and quarter ended June 30, 1997 as compared to the
corresponding periods in 1996. The decrease for the six month period is due
primarily to lower payroll-related costs and sales commission expense. The
decrease for the quarter ended is due primarily to lower sales commission
expense.
Legal expenses decreased $.8 million and $.6 million for the six months and
quarter ended June 30, 1997 respectively, as compared to the same period in
1996. In August 1995, Key Pharmaceuticals, Inc. ("Key") commenced an action
against Hercon Laboratories relating to some of Hercon Laboratories' improved
transdermal nitroglycerin products. The decreased legal expenses are due
primarily to reduced activity associated with the defense of this action, with
respect to which a two-week trial was completed in October 1996. Post-trial
briefs were filed in early December 1996 and supplemental post-trial briefs,
requested by the Court, were filed in June 1997. The Company is awaiting a
decision by the Court.
Research and development expenses decreased $.2 million for both the six
months and quarter ended June 30, 1997 as compared to the same periods in
1996. These decreases are due primarily to lower outside testing and payroll-
related expenses. The Company expects total research and development expenses
related to pharmaceutical products in 1997 to be lower than 1996 levels.
Net interest expenses increased $.1 million for both the six months and
quarter ended June 30, 1997 as compared to the same periods in 1996. These
increases are due primarily to higher average outstanding balances on
borrowings.
Other income increased $54,000 and $36,000 for the six months and quarter
ended June 30, 1997 respectively, as compared to the same periods in 1996.
These increases are due primarily to nonrecurring proceeds received in the
second quarter of 1997 related to a Hercon Laboratories distribution
agreement.
Income from operations before taxes and minority interest for the six months
and quarter ended June 30, 1997 decreased $2.2 million and $.4 million,
respectively, as compared to the same period in 1996 due primarily to the
factors discussed above. Income tax provision or benefit varies with the
amount of income or loss from operations before income taxes (See Note 2).
The results of operations for the periods ended June 30, 1997 and 1996 are not
necessarily indicative of the operating results for the full years.
<PAGE>
<PAGE>
HEALTH-CHEM CORPORATION Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF Item 2
FINANCIAL CONDITION & RESULTS OF OPERATIONS Page 10
Liquidity and Capital Resources
The following measures of liquidity are derived from the Company's
Consolidated Financial Statements:
June 30, December 31,
1997 1996
Working Capital (current assets less current
liabilities, in thousands) $7,540 $6,927
Current Ratio (current assets/current liabilities) 2.0 1.9
Quick Ratio (cash & receivables/current liabilities) .8 .7
Working capital increased $.6 million from December 31, 1996 to June 30, 1997
due to an increase of $.2 million in current assets and a decrease of $.4
million in current liabilities. Cash, accounts receivable, deferred taxes -
current and other current assets increased $158,000, $545,000, $10,000 and
$126,000 respectively, while inventory decreased $645,000. The decrease in
inventory primarily reflects reduced sales levels of transdermal nitroglycerin
patches. The decrease in current liabilities is due primarily to a decrease
of $769,000 in accounts payable partially offset by a $350,000 increase in
accrued expenses and other current liabilities. The accounts payable decrease
reflects a decrease in legal fees related to the defense of Hercon
Laboratories in its litigation with Key and a decrease in raw material
purchases related to lower sales levels of transdermal nitroglycerin patches.
Accrued expenses and other current liabilities increased $350,000 as a result
of an annual reclassification of a portion of the Company's subordinated
debentures from long-term debt to current liabilities.
Cash used for operations for the six months ended June 30, 1997 was $1.9
million as compared to cash provided by operations of $2.0 million for the
same period in 1996. This decrease is due primarily to lower sales volumes,
decreased gross profits and decreases in accounts payable and deferred income
taxes for 1997 as compared to 1996. Investing activities for the six months
ended June 30, 1997 provided cash of $.1 million as compared to cash used for
investing of $1.7 million for the same period in 1996. This increase is due
primarily to lower additions to property, plant and equipment for 1997 which
reflects the completion of the new laminating line for Pacific. Financing
activities for the six months ended June 30, 1997 provided $1.9 million of
cash required to fund operations, thus increasing long-term debt as compared
to the same period in 1996 which used $.4 million of cash generated by
operations to reduce long-term debt.
The Company expects to meet $.5 million of debenture interest payments on its
convertible subordinated debentures each April and October and other periodic
interest payments out of working capital. The required $1.5 million sinking
fund payment on the Company's subordinated debentures due on April 15, 1997
was satisfied by application of $.5 million debentures previously repurchased
and by the Company's redemption of an additional $1.0 million of debentures.
In market transactions throughout the six months of 1997, the Company
purchased $145,000 principal amount of its subordinated debentures for
$142,000. Any debentures acquired in excess of the $1.5 million April 15,
1997 sinking fund requirements may be used to meet the 1998 sinking fund
requirements. Additional debentures may be repurchased and retired or if
debentures are not available for purchase, the Company has an option to call
for redemption the amount required to meet sinking fund requirements.
<PAGE>
HEALTH-CHEM CORPORATION Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF Item 2
FINANCIAL CONDITION & RESULTS OF OPERATIONS Page 11
The Company has not paid cash dividends and does not anticipate paying such
dividends on its common stock in the foreseeable future.
On January 9, 1997, the Company replaced a $6,000,000 line of credit and a
$1,750,000 term loan from The First National Bank of Maryland ("First
National") with an aggregate of up to $15,000,000 in senior secured financing
from IBJ Schroder Bank & Trust Company ("IBJS"). Pursuant to a Revolving
Credit Term Loan and Security Agreement ("Loan Agreement") dated as of January
9, 1997, the Company will be provided with up to $7,000,000 in term loans and
up to $8,000,000 in revolving credit. Proceeds from borrowings under the Loan
Agreement have been used by the Company to repay outstanding indebtedness
under the aggregate $7,750,000 facility with First National and are also used
to repurchase, repay and/or redeem up to $7,000,000 of the Company's 10 3/8%
Convertible Subordinated debentures due April 15, 1999, as market conditions
warrant, and for general working capital purposes. Advances on the term loan
are limited to $4,000,000 until such time as the litigation between Hercon
Laboratories and Key is resolved in such a way as to be immaterial on the
future operations of the Company.
At June 30, 1997 the Company had borrowed $6.4 million on its revolving line
of credit from IBJS and $2.7 million on the term loan. The $1.1 million
increase in the term loan was primarily used to purchase the Company's
convertible subordinated debentures to meet the April 1997 sinking fund
requirements. The revolving credit line bears interest at the Bank's prime
rate and the term loan bears interest at the Bank's prime rate plus .375%.
Borrowings under the IBJS facility are collateralized by a pledge of
substantially all of the assets of the Company. The Company will pay a
facility fee of 3/8 of 1% on the amount of the unused available financing
facility. The borrowing agreement, which expires on January 9, 2002, contains
various covenants which, among other things, require the Company to maintain
specified ratios of debt to tangible net worth and fixed charge coverage, and
minimum level of earnings before taxes, depreciation and amortization and
limits capital additions. The Company was in compliance with the covenants as
of June 30, 1997 except for the minimum level of earnings before taxes,
depreciation and amortization covenant. IBJS has granted the Company a waiver
for this covenant. The Company is currently in negotiations with IBJS to
amend the facility and anticipates a successful completion of these
negotiations prior to the end of September 1997.
The $8,000,000 revolving credit line borrowing base is limited to the sum of
85% of eligible accounts receivable and 50% of eligible inventory. The
eligible amount is evaluated monthly. For the six months ended June 30, 1997,
the maximum eligible amount has ranged from $6,460,000 to $7,196,000, or from
81% to 90%.
The Company's debt to equity ratio was 5:1 at June 30, 1997 and 4:1 at
December 31, 1996. The increase is due primarily to current year losses.
Management believes anticipated expenditures in 1997 such as capital
expenditures, research and development costs and other operating expenses will
be funded with cash generated from operations, supplemented by the utilization
of the Company's credit facility from IBJS. The term loan portion of up to
$7,000,000 of the overall $15,000,000 credit facility from IBJS will be used
for the repurchasing of debentures. The Company anticipates capital
expenditures for property, plant and equipment in 1997 to decrease from the
$2.2 million expended in 1996 to approximately $1.0 million. These capital
expenditures will primarily consist of manufacturing equipment. At June 30,
1997 the Company had expended $279,000 for capital expenditures for property,
plant and equipment in 1997.
<PAGE>
<PAGE>
Part II
Item 1
Page 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There were no material developments in any pending legal proceedings in the
quarter ended June 30, 1997.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on May 12, 1997. The
following members were elected to the Company's Board of Directors to hold
office for the ensuing year:
Number of Shares Number of Shares Withheld
Nominee Voted For From Voting For
Martin Benis 7,067,668 322,067
Steven Bernstein 7,070,005 319,730
Matthew Goldstein 7,070,185 319,550
Samuel R. Goodson* 7,067,345 322,390
Paul R. Moeller 7,067,839 321,896
Eugene Roshwalb 7,069,997 319,738
Bruce M. Schloss 7,066,849 322,886
Marvin M. Speiser 7,006,674 383,061
Robert D. Speiser 7,022,078 367,657
Milton Y. Zussman 7,050,425 339,310
* Resigned as a director, effective June 17, 1997.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - none.
(b) During the three months ended June 30, 1997 the Company did not file any
reports on Form 8-K.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to the signed on its behalf by the
undersigned thereunto duly authorized.
HEALTH-CHEM CORPORATION
August 14, 1997 /s/ Marvin M. Speiser
By: Marvin M. Speiser
Chairman of the Board and President
(Principal Executive Officer)
/s/ Paul R. Moeller
By: Paul R. Moeller
Vice President - Finance
(Principal Financial Officer)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 292
<SECURITIES> 0
<RECEIVABLES> 6141
<ALLOWANCES> 259
<INVENTORY> 6698
<CURRENT-ASSETS> 1975
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0
0
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</TABLE>
