<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 March 31, 1998 Commission File Number 1-6787
HEALTH-CHEM CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-2682801
(State of Incorporation) (I.R.S. Employer Identification 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 April 30, 1998, 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
March 31, December 31,
1998 1997
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 111 $ 162
Accounts receivable, net 5,767 4,194
Inventories (Note 3) 7,604 7,537
Other current assets 1,086 1,044
Total Current Assets 14,568 12,937
PROPERTY, PLANT & EQUIPMENT
Land and buildings 5,721 5,721
Other property, plant & equipment 23,916 23,875
Total Property, Plant & Equipment 29,637 29,596
Less accumulated depreciation & amortization 18,175 17,704
Net Property, Plant & Equipment 11,462 11,892
NON-CURRENT ASSETS
Notes receivable 825 900
Cash surrender value of life insurance
policies 906 1,033
Excess of cost over fair value of assets
acquired 676 682
Deferred taxes-non-current 1,891 1,892
Other non-current assets 705 600
Total Non-Current Assets 5,003 5,107
TOTAL ASSETS $31,033 $29,936
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 3,859 $ 4,189
Accrued expenses and other current liabilities 3,552 2,884
Income taxes payable 166 166
Total Current Liabilities 7,577 7,239
LONG-TERM LIABILITIES
10.375% convertible subordinated debentures 8,000 8,000
Long-term debt 9,010 8,270
Other long-term liabilities 2,671 2,530
Minority interest 11 11
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 <6,843> <6,721>
Subtotal 11,447 11,569
Less treasury stock <7,683> <7,683>
Total Stockholders' Equity 3,764 3,886
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $31,033 $29,936
<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 Three Months
Ended March 31,
<S> 1998 1997
REVENUE: <C> <C>
Net sales $10,307 $ 8,743
Cost of goods sold 7,355 6,871
Gross profit 2,952 1,872
OPERATING EXPENSES:
Selling, general and administrative expense 2,158 2,317
Legal expense 367 107
Research and development expense 253 744
Net interest expense 413 384
Total operating expenses 3,191 3,552
LOSS FROM OPERATIONS <239> <1,680>
Other income - net 89 101
LOSS FROM OPERATIONS BEFORE TAXES
AND MINORITY INTEREST <150> <1,579>
Income tax benefit 28 530
LOSS BEFORE MINORITY INTEREST <122> <1,049>
Minority Interest in loss of subsidiary 0 1
LOSS BEFORE EXTRAORDINARY GAIN <122> <1,048>
Extraordinary gain from repurchase of debentures 0 1
LOSS $ <122> $<1,047>
Earnings per common share (basic & diluted)
(Note 4):
Loss before extraordinary gain $ <.02> $ <.13>
Extraordinary gain from repurchase of
debentures .00 .00
LOSS PER COMMON SHARE $ <.02> $ <.13>
Average number of common shares outstanding
(basic & 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 4
For the Three Months
Ended March 31,
<S> 1998 1997
Cash was <Used for> Provided by: <C> <C>
OPERATIONS:
Loss before extraordinary gain $ <122> $<1,049>
Adjustments to reconcile to net cash used for
operations:
Depreciation and amortization 533 364
Gain on disposal of property, plant and equipment 1 <14>
Provision for doubtful accounts receivable 15 12
Deferred income taxes 0 <529>
Minority interest 0 <1>
Changes in:
Accounts receivable <1,588> <74>
Inventories <67> 174
Other current assets <42> <50>
Other non-current assets <128> 0
Accounts payable <331> <314>
Accrued expenses and other current liabilities 301 152
Interest and income taxes payable 248 272
Other long-term liabilities 130 136
Other, net 0 <3>
Net cash used for operations <1,050> <924>
INVESTING:
Additions to property, plant and equipment <49> <189>
Proceeds on disposals of property, plant and
equipment 0 17
Investment in life insurance policies - net 126 0
Payments received on notes receivable 75 0
Net cash provided by <used for> investing 152 <172>
FINANCING:
Long-term debt proceeds 853 6,887
Long-term debt payments <6> <5,553>
Repurchase of convertible subordinated debentures 0 <95>
Net cash provided by financing 847 1,239
Net <Decrease> Increase in Cash and Cash Equivalents <51> 143
Cash and Cash Equivalents at beginning of period 162 134
Cash and Cash Equivalents at end of period $ 111 $ 277
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 194 $ 129
Income Taxes 3 4
Supplemental Disclosures of Noncash Investing
and Financing:
Acquisition of fixed assets through capital
lease obligations $ 24 $ 47
<FN>
See Notes to Consolidated Financial Statements
<PAGE>
<PAGE>
HEALTH-CHEM CORPORATION Part I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Item 1
(Unaudited) Page 5
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 March 31, 1998, the Consolidated
Statements of Operations and the Consolidated Cash Flow Statements for
the interim periods ended March 31, 1998 and 1997 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 March 31, 1998 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, 1997 Annual Report on Form 10-K. The results of
operations for the periods ended March 31, 1998 and 1997 are not
necessarily indicative of the operating results for the full years.
2. Taxes on Income (In thousands) For the Three Months
Ended March 31,
1998 1997
The income tax <benefit> provision includes:
State and local income taxes $ <28> $ <36>
Federal income taxes 0 <493>
Total $ <28> $ <529>
Taxes on income are comprised of:
Currently payable $ <28> $ 0
Deferred benefit 0 <529>
Total $ <28> $ <529>
Taxes are charged <credited> to:
Operations $ <28> $ <530>
Extraordinary gain on repurchase of
debentures 0 1
Total $ <28> $ <529>
A reconciliation of taxes on income to the federal statutory rate is as
follows:
For the Three Months
Ended March 31,
1998 1997
Tax benefit at statutory rate $ <51> $ <536>
Increase <decrease> resulting from:
Intangibles and officers life insurance
premiums 2 36
State and local taxes, net of federal
tax benefit 3 <36>
Valuation allowance 11 0
Other 7 7
Tax benefit $ <28> $ <529>
<PAGE> HEALTH-CHEM CORPORATION Part I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Item 1
(Unaudited) Page 6
3. Inventories (In thousands)
March 31, 1998 December 31, 1997
Raw materials $3,588 $3,590
Finished goods and work-in-process 4,016 3,947
Total $7,604 $7,537
4. Earnings Per Share
On December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 "Earnings Per Share" ("SFAS 128"). SFAS
128 establishes standards for computing and presenting earnings per
share and applies to entities with publicly-held common stock or
potential common stock. SFAS 128 simplifies the standards for computing
earnings per share previously found in APB Opinion No. 15, "Earnings Per
Share," by replacing the presentation of primary earnings per share with
a presentation of basic earnings per share. It also requires dual
presentation of basic and diluted earnings per share on the face of the
income statement for all entities with complex capital structures.
Restatement of all prior-period earnings per share data is required upon
adoption. The impact of adopting SFAS 128 on the Company's earnings per
share data is not material. In accordance with SFAS 128, if there is a
loss from continuing operations, diluted earnings per share would be the
same as basic earnings per share.
Basic and diluted earnings per share are computed based upon the
weighted average number of common shares outstanding during each period
after adjustment for any dilutive effect of the Company's outstanding
10.375% convertible subordinated debentures and stock options. Interest
on the subordinated debentures, when dilutive, net of applicable taxes,
is added to net income for the purpose of computing earnings per share.
Convertible subordinated debentures and stock options are anti-dilutive
for all periods presented.
A reconciliation of the numerators and denominators of the basic and
diluted earnings per common share computations for income from
continuing operations for the periods ended March 31, 1998 and 1997 is
presented below (in thousands, except per share amounts):
For the Three Months
Ended March 31,
1998 1997
Loss Applicable to Common Stockholders:
Loss before extraordinary item $ <122> $<1,048>
Loss applicable to common stockholders $ <122> $<1,048>
Basic Loss Per Common Share:
Weighted average number of common shares
outstanding 7,982 7,982
Basic Loss per common share $ <0.02> $ <0.13>
Diluted Earnings <Loss> Per Common Share:
Weighted average number of common shares
outstanding 7,982 7,982
Stock options 0 0
Convertible debentures 0 0
Weighted average number of common shares
outstanding - diluted 7,982 7,982
Diluted loss per common share $ <0.02> $ <0.13>
<PAGE> HEALTH-CHEM CORPORATION Part I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Item 1
(Unaudited) Page 7
5. Litigation
In August 1995, Key Pharmaceuticals, Inc. a subsidiary of Schering-
Plough Corporation ("Key") commenced an action against Hercon
Laboratories in the United States District Court for the District of
Delaware alleging that Hercon Laboratories' submission to the United
States Food and Drug Administration ("FDA") of three Abbreviated New
Drug Applications ("ANDAs") relating to some of Hercon Laboratories'
transdermal nitroglycerin products, for which Hercon Laboratories is
awaiting 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 no earlier than February 16, 2010, the expiration date of Key's
patent. Hercon Laboratories denied the material allegations of the
complaint, asserting, among other things, that the Key patent is invalid
and unenforceable and that Hercon Laboratories had not infringed and did
not infringe any claim of the patent. Hercon Laboratories
counterclaimed against Key for declaratory judgment of patent
noninfringement, invalidity and unenforceability. A two-week, non-jury
trial was completed on October 10, 1996. On September 30, 1997, the
Delaware District Court ruled in favor of Key on its infringement claim
and on Hercon Laboratories' claim that Key's patent is invalid and
unenforceable. On December 17, 1997, the Delaware District Court issued
an injunction, enjoining Hercon Laboratories, except as provided for by
statute, from making, using, offering for sale, selling or importing any
transdermal nitroglycerin patches that have been found to infringe claim
14 of Key's patent, before the expiration of Key's patent on February
16, 2010. Hercon Laboratories has appealed to the United States Court
of Appeals for the Federal Circuit in Washington, D.C. from both the
September 30, 1997 judgment and the December 17, 1997 injunction. The
appeals were consolidated on January 23, 1998 and are now in the
briefing stage. Management believes that Hercon Laboratories has strong
grounds for appeal.
Item 2. 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-K, which could cause actual results to differ materially from the
forward-looking statements.
Results of Operations
Net sales increased $1.6 million, or 18%, for the three months ended March 31,
1998 as compared to the same period in 1997. The increase is due primarily to
increases in sales of transdermal nitroglycerin patches and synthetic fabrics
of $1.0 million and $.7 million, respectively. Sales of transdermal
nitroglycerin patches, manufactured and marketed by the Company's Hercon
Laboratories Corporation subsidiary ("Hercon Laboratories") increased due
primarily to an increase in domestic sales volumes. The synthetic fabrics
sales increase is due primarily to higher sales of industrial and health-care
fabrics. 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
<PAGE>
HEALTH-CHEM CORPORATION Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF Item 2
FINANCIAL CONDITION & RESULTS OF OPERATIONS Page 8
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 patches in 1998, no assurances can be made that any new
nitroglycerin patches will be approved by the FDA. Moreover, the Company's
ability to exploit its new nitroglycerin products may be limited in the
absence of a favorable resolution to its litigation with Key (See Note 5 above
and discussion below).
Gross profit increased $1.1 million, or 58%, for the three months ended March
31, 1998 as compared to the same period in 1997. Gross profit as a percent of
sales for the three months ended March 31, 1998 and 1997 was 29% and 21%,
respectively. Gross profit for transdermal nitroglycerin patches and
synthetic fabrics increased $.8 million and $.3 million, respectively, for the
three months ended March 31, 1998 as compared to the same period in 1997.
Plant overhead decreased $.1 million, due primarily to a decrease in payroll-
related expenses, for the three months ended March 31, 1998 as compared to the
same period in 1997 reflecting, in part, the organizational restructuring and
cost reduction program. Transdermal nitroglycerin patch gross profit
increased due primarily to increased domestic sales volumes. Synthetic
fabrics gross profit increased due primarily to increased sales volumes of
certain industrial and health-care fabrics.
Selling, general and administrative expenses decreased $.2 million for the
three months ended March 31, 1998 as compared to the corresponding period in
1997. The decrease is due primarily to lower payroll-related costs.
Legal expenses increased $.3 million for the three months ended March 31, 1998
as compared to the same period in 1997. The increased legal expenses are due
primarily to activity associated with the defense of the action brought by Key
against Hercon Laboratories (see Note 5 of the Notes to Consolidated Financial
Statements) and an award of fees and expenses in connection with the dismissal
of a class and derivative action.
Research and development expenses decreased $.5 million for the three months
ended March 31, 1998 as compared to the same period in 1997. Payroll related
expenses decreased $.3 million reflecting the organizational restructuring
changes. Outside clinical testing, laboratory supplies and clinical materials
expenses decreased a combined $.2 million as compared to the same period in
1997. The Company expects total research and development expenses related to
pharmaceutical products in 1998 to be lower than 1997 levels.
Net interest expenses increased $29,000 for the three months ended March 31,
1998 as compared to the same period in 1997 due primarily to higher average
outstanding balances and interest rates on borrowings.
Other income decreased $12,000 for the three months ended March 31, 1998 as
compared to the same period in 1997 due primarily to 1997 non-recurring
proceeds related to an insurance recovery.
Loss from operations before taxes and minority interest for the three months
ended March 31, 1998 decreased $1.4 million as compared to the same period in
1997 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 March 31, 1998 and 1997 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 9
Liquidity and Capital Resources
The following measures of liquidity are derived from the Company's
Consolidated Financial Statements:
March 31, December 31,
1998 1997
Working Capital (current assets less current
liabilities, in thousands) $6,991 $5,698
Current Ratio (current assets/current liabilities) 1.9 1.8
Quick Ratio (cash & receivables/current liabilities) .8 .6
Working capital increased $1.3 million from December 31, 1997 to March 31,
1998 due to an increase of $1.6 million in current assets, partially offset by
an increase of $.3 million in current liabilities. Accounts receivable and
accrued expenses and other current liabilities increased $1.6 million and $.7
million respectively, while accounts payable decreased $.3 million. The
increase in accounts receivable reflects increased levels of sales for
synthetic fabrics and transdermal nitroglycerin patches. Accrued expenses and
current liabilities increased $.7 million due primarily to increases in
accrued interest for convertible subordinated debentures of $.2 million,
accrued payroll-related of $.1 million and current portion of long-term debt
of $.1 million.
Cash used for operations for the three months ended March 31, 1998 and 1997
was $1.1 million and $.9 million, respectively. This increase is due
primarily to increasing accounts receivable of $1.6 million in 1998 as
compared to increasing accounts receivable of $74,000 in 1997, decreasing
losses from operations of $122,000 in 1998 as compared to losses from
operations of $1.0 million in 1997 and no change in deferred income taxes in
1998 as compared to deferred income tax assets of $.5 million in 1997.
Investing activities for the three months ended March 31, 1998 provided cash
of $.2 million as compared to cash used for investing of $.2 million for the
same period in 1997. This increase is due primarily to lower additions to
property, plant and equipment for 1998 and to a reduction in investment in
life insurance policies. Financing activities for the three months ended
March 31, 1998 and 1997 provided cash for operations of $.8 million and $1.2
million, respectively.
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 secured financing from IBJ Schroder Business Credit
Corporation (formerly 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 was provided with up to $7,000,000 in
term loans and up to $8,000,000 in revolving credit. Proceeds from borrowings
under the Loan Agreement were used by the Company to repay outstanding
indebtedness under the aggregate $7,750,000 facility with First National. The
term loans were intended to be used to repurchase, repay and/or redeem up to
$7,000,000 of the Company's 10 3/8% Convertible Subordinated Debentures due
April 15, 1999, as market conditions warrant. Term loan advances were limited
to $4,000,000 until the resolution of the litigation between Hercon
Laboratories and Key in such a way as to be immaterial on the future
operations of the Company.
<PAGE>
<PAGE>
HEALTH-CHEM CORPORATION Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF Item 2
FINANCIAL CONDITION & RESULTS OF OPERATIONS Page 10
Borrowings under the IBJS facility are collateralized by a pledge of
substantially all of the assets of the Company. The Loan Agreement, which
expires on January 9, 2002, was subject to various covenants which, among
other things, required the Company to maintain specified ratios of net worth,
current ratio, fixed charge coverage, minimum level of earnings before taxes,
depreciation and amortization and limits capital expenditures. On January 21,
1998, the Company entered into a First Amendment ("Amendment") to the Loan
Agreement with IBJS. The Amendment, among other things, amends the terms for
drawing upon the term loan and amends certain financial covenants. At March
31, 1998, the Company was in compliance with the covenants, as amended.
Pursuant to the Amendment, the maximum term loan amount was reduced to
$3,998,000 from $7,000,000 providing an aggregate of up to $11,998,000 in
senior secured financing. The interest rates on the revolving credit line and
term loans increased to IBJS's prime plus .50% and IBJS's prime plus .875%,
respectively. These rates are subject to a .25% decrease upon IBJS's
satisfactory review of the financial statements for the year ended December
31, 1998. The Company pays a facility fee of 3/8 of 1% on the amount of the
unused available financing facility.
At March 31, 1998 the Company had borrowed $6.7 million on its revolving line
of credit from IBJS and $2.7 million in term loans. In April 1998, the
Company borrowed the remaining $1.2 million allowable by IBJS in term loans to
purchase the Company's convertible subordinated debentures to meet the April
1998 sinking fund requirements. 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 three months ended March 31, 1998, the maximum eligible amount of the
$8,000,000 revolving credit line ranged from $6,566,000 to $7,570,000, or from
82% to 95%.
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, 1998
was satisfied by application of $.3 million debentures previously repurchased
or redeemed, of which $.1 million were purchased in 1996, and by calling for
redemption of the remaining $1.2 million. Debentures may be repurchased and
retired or if debentures are not available for purchase, the Company has the
option to call for redemption the amount required to meet sinking fund
requirements.
The Company's debt to equity ratio was 7:1 at March 31, 1998 and at December
31, 1997.
Management believes anticipated expenditures in 1998 such as capital
expenditures, research and development costs and other operating expenses will
be financed, in part, by the utilization of the Company's credit facility from
IBJS. The Company anticipates capital expenditures for property, plant and
equipment in 1998 not to exceed $1.3 million. These capital expenditures will
primarily consist of manufacturing equipment. At March 31, 1998 the Company
had expended $49,000 for capital expenditures for property, plant and
equipment in 1998.
<PAGE>
<PAGE> Part II
Item 1
Page 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In May 1996, Herman Rovner and Bruce Nicholl, two stockholders of the Company,
commenced a class and derivative action against the Company, its directors,
and a former director in the Delaware Chancery Court (New Castle County). The
complaint alleged that the defendants breached their fiduciary duties insofar
as the transactions under a Stock Purchase Agreement entered into between the
Company and Marvin M. Speiser in March 1996 would unfairly benefit Mr. Speiser
to the detriment of the other stockholders and violate the terms of a 1991
Chancery Court order which a derivative action was settled.
Plaintiffs sought expedited proceedings and preliminary injunctive relief. In
July 1996, after a hearing, the Vice Chancellor denied the plaintiffs' motion
for a preliminary injunction on the basis that the plaintiffs failed to show
irreparable harm or the likelihood of establishing that the 1991 Chancery
Court order was violated. Later in July 1996, the Delaware Supreme Court
denied the plaintiff's interlocutory appeal of the Vice Chancellor's decision.
In August 1996, in accordance with the Stock Purchase Agreement, as amended,
the Company commenced a registered subscription rights offering (the "Rights
Offering") of up to 1,320,000 shares of Common Stock to its record holders
other than Marvin M. Speiser. A total of 952,520 shares of the Company's
Common Stock were subscribed for in the Rights Offering prior to its
expiration in September 1996. Under the Stock Purchase Agreement, Mr. Speiser
provided shares of Common Stock for purchase by the Company in an amount equal
to the number of shares issued to subscribers in the Rights Offering. The
shares provided by Mr. Speiser had been subject to repurchase by the Company
from Mr. Speiser pursuant to option agreements entered into in 1991 and 1994
(the "Options"). After expiration of the Rights Offering, 317,406 shares of
Common Stock remain subject to the options.
In July 1997, motions to dismiss the action were brought independently on
behalf of the plaintiffs and the defendants, respectively. Common to both
motions was the ground that the claims are moot. Plaintiffs' motion included
a petition for an award of attorneys' fees and expenses. On April 23, 1998,
the Chancery Court dismissed the action with prejudice and awarded plaintiffs'
attorneys $74,600, representing a portion of the requested fees, and $26,128
for expenses.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - none.
(b) During the quarter ended March 31, 1998 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
May 12, 1998 /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)
(Principal Accounting Officer)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 111
<SECURITIES> 0
<RECEIVABLES> 5518
<ALLOWANCES> 249
<INVENTORY> 7604
<CURRENT-ASSETS> 1086
<PP&E> 29637
<DEPRECIATION> 18175
<TOTAL-ASSETS> 31033
<CURRENT-LIABILITIES> 7577
<BONDS> 8000
<COMMON> 145
0
0
<OTHER-SE> 3764
<TOTAL-LIABILITY-AND-EQUITY> 31033
<SALES> 10307
<TOTAL-REVENUES> 10307
<CGS> 7355
<TOTAL-COSTS> 7355
<OTHER-EXPENSES> 2778
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 413
<INCOME-PRETAX> (150)
<INCOME-TAX> (28)
<INCOME-CONTINUING> (122)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (122)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
