SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON D. C. 20549

                                   FORM 10-KSB

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

                     For the fiscal year ended June 30, 2000

                         Commission File Number 0-10683

                                 HYDROMER, INC.
        -----------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

                  New Jersey                                     22-2303576
           ------------------------                          -------------------
           (State of incorporation)                           (I.R.S. Employer
                                                             Identification No.)

35 Industrial Parkway, Branchburg, New Jersey                    08876-3518
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  (Address of principal executive offices)                       (Zip Code)

Registrant's telephone number, including area code: (908) 526-2828

Securities registered pursuant to Section 12 (b) of the Act: None

Securities registered pursuant to Section 12 (g) of the Act:

                         Common Stock Without Par Value
                         ------------------------------
                                (Title of class)

     Check whether the issuer (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 (or for such shorter period that the registrant was required to file
such report(s,) and (2) has been subject to such filing requirements for the
past 90 days. Yes (X) No( )

     Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10KSB
or any amendment to this Form 10KSB (X)

     The aggregate market value of the voting stock held by non-affiliates of
the Registrant at September 1, 2000 was approximately $2,877,030.

     The number of shares of Registrant's Common Stock outstanding on September
1, 2000 was 4,598,904.

     Portions of the Audited Financials Statements for the year ended June 30,
2000 are incorporated by reference in Part II of this report. Portions of the
Proxy Statement of Registrant dated September 8, 2000 are incorporated by
reference in Part III of this report.


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                                    OVERVIEW

Hydromer, Inc (the "Company") is a polymer research and development company
organized as a New Jersey Corporation in 1980 for the purposes of developing
polymeric complexes for commercial use in the medical and industrial markets.
The company owns several process and applications patents for Hydromer(R)
coatings ("Hydromer"), which is a polymeric substance that becomes extremely
lubricious (slippery) when wet, and a technique of grafting or applying this
substance onto surfaces which may consist of a broad variety of materials,
including other polymers like polyurethane, polyvinyl chloride, and silicone
elastomers, ceramics, and metals. The company has also been issued patents for
permanent anti-fog materials, hydrophilic polyurethane foams, hydrophilic
polyurethane blends, hydrophilic polyvinylbutyral alloys, several biocompatible
hydrogels and an anti-bacterial medical material. Hydromer was also granted two
new patents this year for a dermal barrier film for the prevention of
dermatitis, sold under the Dermaseal(R) brand name and for non-leaching
Biostatic coatings. Several other patents have been filed this year. The company
continues to actively evaluate other new market opportunities for its polymer
technology.

Hydromer also owns the trademarks Sea-Slide(R), a coating for watercraft hulls,
Dermaseal(R), a dermal barrier film product for the prevention of contact
dermatitis, and T-HEXX(R), a barrier teat dip product for the prevention of
mastitis in dairy animals.

Until September 1982, approximately 99% of the outstanding common stock, without
par value (the "Common Stock", of the Company, was owned by Biosearch Medical
Products Inc. ("BMPI"), which in turn was controlled by Manfred Dyck, who is
Chief Executive Officer, a Director and the Chairman of the Board of the
Company. On September 16, 1982, BMPI distributed its shareholdings in the
Company pro rata to the holders of its common stock. In connection with this
distribution, the Company granted to BMPI an exclusive, worldwide perpetual,
royalty-free license for the use of Hydromer technology in connection with the
development, manufacture and marketing of biomedical devices for enteral feeding
applications. On February 4, 2000, Hydromer acquired all outstanding stock of
BMPI for $0.20 per share, and now manages BMP as a subsidiary of Hydromer.

                         HYDROMER(R) LUBRICIOUS COATINGS

From its inception in 1980-mid 1984, the company was primarily engaged in R&D
activities related to Hydromer coatings. The Company believes that the
polymer-water interface of Hydromer provides surface lubricity superior to the
quality of other currently marketed silicone-based lubricants to treat medical
devices. When treated with Hydromer, a medical device becomes very slippery when
wet, allowing for easy insertion into any orifice of the body, in penetration of
the skin or for device-on-device (i.e. guidewire-catheter) use. Hydromer
coatings are permanently bonded to the device unlike silicone lubricants, which
must be applied after each use and are often left behind in the bloodstream and
body cavities. Hydromer coatings also can be coated on complex surfaces and on
the inside walls of devices, unlike the treatments by major competition.
Hydromer has also been shown in numerous studies to reduce the risk of
thrombogenesis or clot formation on devices. Drugs and other substances can be
readily incorporated into Hydromer, both in a bound and unbounded fashion,
allowing for controlled release from the device for therapeutic purposes or the
creation of permanent biocidal or biostatic surfaces.

The Company has entered into three new licenses this year on Hydromer Coatings
technology for urology and orthodontics. One license, covering intra-aortic
balloon pumps was terminated to the sale of a licensee and a subsequent
elimination of the product line as a part of consolidation.

As of June 30, 2000, Hydromer has license agreements with nine different
companies covering the application of Hydromer coatings to the following
devices: enteral feeding products, guidewires, certain urological devices,
infusion microcatheters, guiding and umbilical catheters, razor cartridges,
orthodontic accessories, angioplasty balloon catheters, embolization delivery
devices, and biliary and pancreatic stents. The company is actively seeking new
license opportunities.


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The Company is focusing on expanding it global sales in markets where it has an
established presence, and is significantly increasing advertising and promotion
activities via traditional means, including an expanded tradeshow presence in
the US and Europe, and the internet to establish awareness of Hydromer
technology and capabilities in the medical device community. To facilitate this
expansion, the Company has expanded its capabilities to offer contract research
and coating services to the medical and industrial markets. The Company believes
offering prototyping, process development and small-medium scale coating/
manufacturing services is fundamental to the expansion of Hydromer coatings
business, and a strategic imperative. The medical device market continues to
undergo a bimodal shift to consolidation by very large multi-national players
and small, entrepreneurial start-up companies looking to exploit niche
opportunities or unique device designs. The Company's experience and knowledge
can significantly speed development, assessment, and market readiness for our
clients, big or small. The Company also believes that Hydromer technology has
further application with other medical products outside our current scope and
with products outside the medical field. An example is the Slick Willie(TM)
water sports binding entry system sold by RW Ski Products, coated by our
contract services group. Hydromer has purchased Biosearch Medical Products Inc.
(OTCBB: BMPI), currently a user of Hydromer coatings, to rapidly expand Hydromer
capability to offer coating services to our clients in an ISO 9001/GMP certified
and FDA registered facility.

Hydromer was granted a US patent for Non-Leaching Anti-microbial coatings and
has filed patent applications for its new non-leaching radio-opaque coating this
year. The Company has signed one development agreement for radio-opaque vascular
stents thus far for the new technology. The Company significantly upgraded its
advertising copy and promotional literature to graphically highlight the
properties and advantages of its technologies.

                        T-HEXX(R) BARRIER DIPS AND SPRAYS

The Company's new product line, T-HEXX Barrier Dips and Sprays were introduced
to the market in Fiscal Year 1999 via AST, Inc., a US licensee, which the
Company elected to move to a non-exclusive agreement in January of this year.
T-HEXX Dips were created in the laboratory using the Company's patented
film-forming hydrogel technology. T-HEXX products offer dairy farmers
exceptional value and unsurpassed protection from mastistis, a problem that
costs U.S. Dairy farmers an estimated $1.4 billion per year. The US market for
teat dips is an estimated $350 million at the farm level. T-HEXX Barriers are
the first and only no-drip, water resistant, breathable barrier products on the
market. The product has been demonstrated to stay on the cow teat better than
the competition, protecting the cow between the 8-12 hour milking cycle by
preventing bacterial infiltration of the teat end, and killing mastitis causing
bacteria for over 12 hours, yet are easy to remove using traditional milking
preparation methods. The Company has signed a license agreement with North
Country Dairy, headquartered in Vermont, to expand distribution in New York and
New England. The Company has also begun limited European sales via distributors
and a major regional manufacturer in Europe, ex US. The Company is also
examining several other license and distribution opportunities in key markets
like Western and Eastern Europe, Mexico, Australia/New Zealand, and in
underdeveloped regions in the US. The T-HEXX products are being rolled out
nationally via AST, and via new licensees expanding distributor and dealer
network. The company has invested significantly in clinical research, promotion
and advertising via print media and the Internet to support this new business.
The Company is actively working to develop and launch complementary products
into this market utilizing the company's patented technologies. Three new patent
applications have also been filed.


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HYDROMER(R) ANTI-FOG/CONDENSATION CONTROL

Hydromer Anti-Fog/Condensation Control is an optical coating for plastic (e.g.
goggles, lenses, and architectural sheet materials), which prevents the
accumulation of vision-obscuring condensation under high humidity conditions. A
patent for these products was issued to the company in 1984. The company is
selling this material in bulk to manufacturers of industrial and medical safety,
and swim goggles, aircraft windows, automotive headlight assemblies, and gauge
and meter manufacturers in the US and internationally. Improved scratch
resistant anti-fog coatings were introduced last year, and are being applied by
our contract services group for clients developing and marketing specialty lens
products. Low VOC condensation control coatings also have been developed for use
on structured plastic products like greenhouse panels.. Food Grade Anti-Fog
coatings have also been developed for ready to eat produce, meats and bakery
products. Hydromer Food Grade Anti-Fog is formulated with materials that are
generally recognized as safe for food contact. Independent laboratory extraction
testing has demonstrated that these coatings have demonstrated that the
extractables are well within levels specified by the FDA. Hydromer has also
licensed its anti-fog coating for use on adhesive backed film and non-adhesive
sheets.

AQUATRIX(TM) II HYDROGELS

Hydromer has a patent on it's chitosan-PVP hydrogel technology. Applications for
this material are being developed for wound care, implants, drug delivery, burn
care, conductive hydrogel electrodes, ultrasonic couplants and cosmetic uses
with several customers. The company is also identifying strategic partners to
offer hydrogel coating services to clients who do not have roll good coating
capability. A development agreement, with a pre-negotiated license was signed
this year to evaluate and develop Aquatrix gels for bio-surgical applications
for the head, neck and breast. The Company's hydrogel technology offers
biocompatibility, flexibility, and ease of use and processing. It also allows
for the stabilization of biomolecules, cell cultures, drugs and other active
substances without potentially damaging external energy sources. It is
absorbent, inherently self-adhesive but peels away cleanly and is naturally
soothing. Simply mixing the two parts together, requiring no heat, no chemical
cross linkers nor expensive, high energy processing to form the gel. Many
competitive technologies are much more process intensive and require external
energy to crosslink. The company believes these products are synergistic to our
existing hydrogel technologies, and offer further opportunities in electrodes
and topical actives delivery. New patent applications in this field were filed
for new gels invented in the company labs. The Company also purchased and
installed a pilot coating machine, and hired staff experienced in the field, to
facilitate the commercialization of its hydrogel technologies

AQUAMERE(TM) POLYMERS

The Aquamere series of cosmetic polymer solutions were introduced in 1988 are
protected by the polymer blends patent issued in 1987. These materials are both
aqueous and hydro-alcoholic based systems. They are also offered with cationic
and silicone grafted modifications. These formulations are sold to major
cosmetic companies worldwide for use in hair dyes, hair conditioners, oral drug
delivery, mascaras, eye shadows, sunscreens and body lotions. They are currently
in test for use in shampoos, hair styling aids, OTC dermal drug delivery and
topical disinfectants. Formulations have also been developed internally
utilizing this technology and are being offered for sale as turnkey products to
smaller marketers of personal care products. The Company also presented a paper
and poster to the cosmetic industry this year demonstrating the superior water
resistance of the technology in sunscreen products.

DERMASEAL(R)

The Company received additional patents in FY 2000 for barrier film composition
and method for preventing contact dermatitis. The company has registered the
trademark Dermaseal for these compositions. Clinical testing demonstrates that
these compositions protect the user from the effects of contact with poison ivy,
oak or sumac plant allergens. Technical testing also demonstrates protection
from latex proteins, nickel, and other contact allergens. Dermaseal is currently
being sold to major cosmetic companies as a base for foundations, and as a
Hydromer(R) Poison Oak and Ivy Barrier. It is also in testing for use in broader
skin care, cosmetic, and OTC drug delivery and bovine health products.


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MEDICELL(TM)

Medicell is the Company's patented hydrophilic polyurethane foam technology,
patented in 1986. This year, the Company licensed this technology for Medical
use in the US. The licensee received 510K approvals from the FDA to market their
products and has been selling them into the dressing market for a year. The
Company is also exploring other medical, dental and cosmetic applications for
this technology.

SEA- SLIDE(R)

Sea-Slide is a Hydromer-based drag reducing coating that reduces friction
between hull and water, and can be used over most anti-fouling paints. A US
patent covering this coating and other potential uses was issued in 1987. This
technology has been demonstrated in independent testing to significantly improve
fuel economy and hull speed of watercraft. It is being marketed via an exclusive
distribution agreement with HammerHead Products, Inc., who is focusing on
increasing distribution and expanding product availability via dealers and
Internet marketing of the product.

HYDROMER(R) COATING SERVICES

The Company expanded its activity in Coating services in 2000, actively seeking
opportunities to provide contract development, coating and manufacturing
services to the medical, industrial and personal care industry, utilizing its
Hydromer and Anti-Fog coating technology and expertise. The Company has expanded
its exhibition at major medical shows in the US and Europe to promote these
services, and is currently working on several projects ranging from medical
devices to new water sports accessories to specialty eye protection. The Company
believes these services will enable a broader range of customers to use our
materials in market on accelerated timelines and more cost effectively.

OEM MEDICAL DEVICES

Through its Biosearch Medical Products subsidiary, the Company now also offers
510k/CE marked medical devices utilizing Hydromer technology on an OEM basis to
medical device marketers. The current product portfolio includes: bipolar
coagulation probes; jejunal, enteral and bilary catheters and stents; feeding
accessories; guidewires; biofeedback devices for fecal and urinary incontinence;
and endoscopic accessories. The company also contract manufacturers products for
several large multi-national marketers of medical devices.


OPTION AND LICENSE AGREEMENTS

     A substantial portion of the Company's revenues in prior years have been
derived from option and license agreements. The option agreements have in
general provided that the customers pay to the Company a flat fee in exchange
for the right during a limited period of time (i) to use the Hydromer process to
determine whether the customer's products lend themselves to treatment with the
process and (ii) to test market such products. The option agreements have also
given the customers the right subsequently to enter into a license agreement
with the Company. At the customer's option, a license agreement with respect to
the marketing of a product treated with Hydromer may then be entered into,
providing for payment to the Company of an initial flat fee, followed by
periodic royalty payments based on sales.

     The Company has previously reported license agreements in effect and
expiring relating to applications of the Hydromer as follows: (See Annual Report
on Form 10-K for the fiscal years ended June 30, 1983 through 1996 and Form
10KSB for fiscal year ended 1997.)


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LICENSEE/APPLICATION

AST T-HEXX Barrier dips and sprays

Applied Medical certain urological and vascular devices.

Bioderm Medicell foam technology licensed for wound care uses in US

Cordis Endovascular Systems infusion microcatheters.

CR Bard certain urological devices

Film Specialties, Inc. use of anti-fog on adhesive backed film and certain
non-adhesive backed sheets.

Gallini certain urological devices

North Country Dairy T-HEXX Barrier Dips and Sprays

Tyco International/ Kendall HealthCare Products certain urological devices and
enteral feeding systems

TP Orthodontics certain orthodontic accessories.

Circon Surgitek (Division of Maxxim Corporation and formally Surgitek which was
a Division of Cabot Medical) guidewires, urinary stents.

Boston Scientific (Van-Tec and Sci Med) guide wires and certain urological
devices.

Wilkinson Sword Ltd. razor cartridges.

PRODUCTS

     Coating solutions for use on medical devices, cosmetic raw materials, and
hydrogels are manufactured and sold by the Company to its licensees and others.
The Company is selling bulk quantities of anti-fog solution to manufacturers of
swim goggles, industrial safety equipment, aircraft windows and meter covers,
both in the U. S. and foreign countries. The Company now also sells OEM medical
devices through its Biosearch Medical products subsidiary.

     The Company's processes utilize various chemicals purchased from a number
of companies. The Company's primary suppliers are Elco Solvents, Inc. Avenel,
NJ, CenterChem, Stamford, CT and TR Metro Chemical, Inc. of Ridgefield, NJ. The
Company has no long-term contracts with any of its suppliers and believes that
there are adequate alternative sources of supply available for all raw materials
that it currently uses.

DEPENDENCE UPON CUSTOMERS

     The Company derives substantially all of its revenues from one business
segment, i.e. polymer research and products derived there from. During the
fiscal year ended June 30, 1998, the Company recognized revenues from two major
customers.

     The Company sold products and collected royalty income representing more
than 10% of its total revenues for the year ended June 30, 1998 and June 30,
1999, from Johnson & Johnson, Cordis Division and Warner Lambert.

POTENTIAL APPLICATIONS

     The Company continues to explore other applications of the complexing
capabilities of polymeric substances, such as anti-microbial agents. The Company
currently is working on further applications of its patented technologies to
existing products of other companies, including cosmetics, wound dressings,
personal care and a wide variety of medical devices. These products and
applications are in the preliminary development stage and are subject to
substantial further development before their feasibility can be verified.

     On the basis of its market analyses, as well as laboratory and in-vitro
testing of certain applications of Hydromer, the Company believes that
Hydromer's potential product applications, classified with reference to salient
Hydromer characteristics, are as follows:

1. Low Coefficient of Friction. Hydromer is a hydrophilic coating which when
contacted by water becomes extremely lubricious. The Company believes that this
unique feature would prove beneficial to any medical device that is inserted
into the body. Medical products that would so benefit include:

urinary products -    urethral catheters, stents and urinary drainage systems;

rectal products -     enemas, rectal tubes, examination gloves and proctoscopy
                      devices (disposable);

nasal/oral products - suction catheters, oxygen catheters and endotracheal
                      tubes;

cardiovascular and -  grafts, cardiac assist catheters heart-lung tubing,
related products      stents.


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2. Ability to be Complexed with Other Functional Chemicals. The Hydromer
hydrophilic polymer coating can be complexed with other chemicals. For example,
Hydromer coating complexed with iodine forms an effective anti-microbial
barrier. The Company believes that this unique feature would lend itself to
application on a wide variety of currently marketed medical products, including
Foley catheters, wound drains, wart and corn dressings, burn dressings,
intravenous catheters, surgical dressings and adhesive bandages. The Company's
most recent patent in coating involves the covalent bonding of infection
resistant materials into the coating, providing a non-leaching, anti-infective
surface. The Company has also filed patents for covalently bonded radio-opaque
polymeric compositions to improve the radio-opacity of materials without needing
high solid loading, metal plating or ion implantation.

3. Cross-link Density Can be Controlled. The Hydromer hydrophilic polymer
coating, through controlled cross-linking, has been further developed into a
special anti-fog coating. Such a coating is (a) resistant to fogging under a
wide range of temperature/humidity conditions; (b) transparent and has
heat/light stability; (c) long lasting, i.e., will not chip or peel and offers
more scratch resistance than do most commercial plastics; (d) inert to most
commercial glass cleaners; (e) less prone to static dirt pickup; and (f)
applicable by dip, spray or roll coating. A U. S. Patent for this material was
issued to the Company in August 1984. This anti-fog product has use on sports
goggles, windows, mirrors and other products, either by direct application or by
coating of an adhesive backed film. Food grade versions are available for
packaging of fresh ready-to-eat produce, meats and deli-foods.

RESEARCH AND DEVELOPMENT

     The Company's research and development activities presently are, and during
the next year are expected to be devoted primarily to the development and
enhancement of the products described above and to the design and development of
new products. The Company sponsored all of such activities. The major portion of
such expenses was applied toward salaries and other expenses of personnel
employed on a regular basis in such work. See "Employees" below.

COMPETITION

     The Company considers the most significant competitive factors in its
market for its patented coatings to be product capability and performance
(including reliability and ease of use), in addition to price and terms of
purchase.

     The Company owns process patent and applications patents for Hydromer
coatings (see "Patents and Trademarks" below) two of which expired in Fiscal
1998, one U.S. patent remaining in effect until 2005. Although the medical
products market is highly competitive, the Company does not believe that there
is any other product available, which performs functions significantly
comparable to those, which are performed by Hydromer, in terms of lubricity,
complexing capabilities, durability and cost.

     While management believes the Company has a strong position in the market
for medical device coatings in which it competes, and that its hydrophilic foam,
anti-fog coatings and hydrogel products are technologically superior to other
products in the market, there can be no assurance that alternatives, with
similar properties and applications, could not be developed by other companies.
The Company is aware that there are other similar technologies available and/or
being developed by others. The industry in which the Company competes is
characterized by rapid technological advances and includes competitors that
possess significantly greater financial resources and research and manufacturing
capabilities, larger marketing and sales staffs and longer established
relationships with customers than the Company does at present or will for the
foreseeable future.


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MARKETING

     The Company markets its products and services through five principal means:

1. Commercialization of its existing technologies: The Company will expand its
efforts to market its currently marketed technology to the medical, industrial
and personal care markets. The Company has expanded its capabilities to
prototype and manufacture for customers to demonstrate the value of Hydromer
technology. The Company will also seek opportunities to apply its technology in
new applications where the technology will offer a benefit. Further, the Company
will seek customers for technologies that have been developed but are not
currently generating revenue capitalize on the technology that has been created
through its R&D efforts, and to expand the application of current technologies.

2. Sale of Development Services: The Company intends to continue moving its
effort away from straight technology licensing and toward contract product
development and contract manufacturing. The Company has significant expertise in
polymer development and applications. By exhibiting at an increased number of
trade shows in the medical device and cosmetic fields, the Company expects to
generate interest in its technology and products, with a view toward acting as
an outside product development arm and development supplier for companies in
these fields.

3. Joint Development: The Company will continue to seek joint development
programs, co-marketing programs and other business arrangements with potential
partners.

4. Licensing: The Company will continue its endeavors to license its technology
to current market leaders in the medical device, pharmaceutical, and other
fields, whereby the Company will grant exclusive or non-exclusive rights for the
Hydromer coating treatment of existing or new products, and the development of
specific products utilizing its foam and hydrogel technology under its patents.
In return, the Company generally would earn royalties based on sales of such
treated or new products. Such licenses will usually be very narrow. The
activities leading to the consummation of a license agreement normally are
lengthy and require establishing a scientific dialogue with potential customers,
treating samples supplied by that customer with Hydromer coatings, determining
if the treatment is feasible and cost effective, testing the coated products in
a laboratory and then negotiating a mutually acceptable option agreement. An
option fee may be paid by the customer which would give the customer exclusive
rights to use the Hydromer treatment on the specified product for a specified
period. During such period, the optionee can test market the coated product
and/or determine its ability to treat the product in its own manufacturing
process. If the customer determines that the subject product should be treated
with Hydromer coating on a commercial basis, it may either perform the Hydromer
coating treatment itself under a license agreement with the Company or it may
have the a third party perform the Hydromer coating treatment.

     5. Coating Services The Company will serve the customer who needs products
coated with lubricious or anti-fog coatings in production runs that are
economically feasible without substantial investments in fixturing and
automation. Typically this would be prototypes or runs of low volume, high value
products. Higher volume products could be accommodated if they were physically
small and did not require extensive fixturing or because for technical reasons
they could not be automated and were of high enough value to warrant the added
cost. The company will pursue large volume projects if they fall within a
technical area where Hydromer has particular expertise.

Business segments which are of particular interest are medical devices,
(catheters and guide wires), and transparencies (lenses, face shields). Contacts
will be pursued in conjunction with marketing of Hydromer coatings, at trade
shows, in mass mailings and advertisement in appropriate trade publications. The
company will endeavor to become a "one stop" supplier of high performance
coatings and services.


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PATENTS AND TRADEMARKS

     There are currently 15 US patents, 2 US applications, 21 patents licensed
from other parties and various foreign counter parts. Management believes that
the protection afforded by the Hydromer patents goes well into the year 2000 and
will be a significant factor in the Company's ability to market its products.
Anticipating patent expiration, the Company has focused on licensing and
developing products based upon its newer technologies. The Company has also been
issued United States and foreign patents for a permanent anti-fog. A U. S.
patent was issued in October 1985 for a hydrophilic polyurethane foam that is
expected to have numerous medical applications. Foreign patents covering this
material issued in July 1990. A U. S. patent for hydrophilic polymer blends,
which covers the Company's coating for boats and the cosmetic formulations, was
issued in February 1987. A U. S. Patent has been received for Hydrophilic
Polyvinylbutyral Alloys was issued in July 1989 and foreign applications are
pending. This patent protects the condensation control coatings that have been
developed for greenhouses and food packaging. U.S. and foreign patents have also
been issued for an anti-bacterial medical material that can be incorporated in
foam or as a coating. The Company was issued US patent 6,054,504 for
non-leaching biostatic coatings. The Company has received three United States
patents for its new composition, barrier film, and method for preventing contact
dermatitis developed by the company's research and development staff. The
Company has received a patent for Chitosan gels, which expires in 2014. This
patent is part of the new gel technology with applications in medical,
industrial, cosmetic and personal care markets. The company has also licensed
two additional hydrogel technologies for exclusive worldwide use. A patent for a
new hydrogel was recently granted (6,121,375). Two new patent applications from
composition to prevent mastitis and for non-leachable radio-opaque polymeric
coatings have been filed.

     The Company owns the registered trademarks "Hydromer", "Dermaseal" and
"T-HEXX" in the United States and other countries.

EMPLOYEES

     As of June 30, 2000, the Company and its subsidiary had fifty-four
full-time employees. The chief executive officer is Manfred F. Dyck, who is also
Chairman of the Board. The Company does not have a collective bargaining
agreement with any of its employees and considers its relationship with its
employees to be excellent.

GOVERNMENT REGULATIONS

     The uses of the Company's medical and cosmetic products come under the
jurisdiction of the FDA, as well as other federal, state and local agencies, and
similar agencies in other countries.

     In connection with the Company's license agreements, it is generally the
obligation of the licensee to conform to any required FDA pre-market
notification or other regulations. To the Company's knowledge, all such
licensees who are marketing FDA regulated licensed products are in such
compliance. The Company may in the future desire to market additional
applications of Hydromer to existing products, or products introduced by it,
which may be subject to such FDA approval procedures as proof of safety and
effectiveness of the applications or products, or adherence to prescribed design
standards. There can be no assurance that such approvals would be forthcoming or
of compliance with such standards. Any such failure to obtain approvals or
non-compliance might have a significant adverse effect on the Company. However,
the Company intends to make every effort to obtain all necessary approvals and
to comply with such standards, and in the case of its licensed applications, to
require the licensees to obtain such approvals.

     The Company manufactures medical products via its Biosearch Medical
Products subsidiary, and therefore its activities within Biosearch come under
the jurisdiction of the FDA. It is the policy of the Company to use the FDA
regulations as guidelines during manufacturing of Hydromer coatings.

     The Company is also subject to federal and state regulations dealing with
occupational health and safety and environmental protection. It is the policy of
the Company to comply with these regulations and be responsive to its
obligations to its employees and the public.


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<PAGE>


EXECUTIVE OFFICERS

     The executive officers of the Company are as follows:

Name                                  Position with Company
----                                  ---------------------

Manfred F. Dyck          Chairman of the Board, Chief Executive Officer and
                         President Age at September 1, 2000 - 65

Robert J. Moravsik       Senior Vice President, General Counsel and Secretary
                         Age at September 1, 2000 - 58


Martin C. Dyck           Vice President, Operations and President Biosearch
                         Medical Products Subsidiary Age at September 1, 2000 -
                         38

Joseph A. Ehrhard, Jr.   Vice President, New Business Development and R&D. Age
                         at September 1, 2000 - 34

Robert C. Keller         Principal Accounting Officer and Treasurer Age at
                         September 1,2000 - 61

     Manfred F. Dyck has been Chairman of the Board of the Company since June
1983 and a Director of the Company since its inception. Mr. Dyck served as Chief
Executive Officer of the Company from its inception until October 1986, and as
of August 1989, reassumed the duties of Chief Executive Officer. Mr. Dyck has
been President and a Director of Biosearch Medical Products Inc. since 1975.

     Martin C. Dyck has been Vice President of Operations since February when
Hydromer purchased Biosearch Medical Products. Mr. Dyck was president of
Biosearch and has been employed by the Company in various capacities since 1986.

     Joseph A. Ehrhard, Jr., has been Vice-President of New Business and R&D
since February 1998. Prior to joining Hydromer, Mr. Ehrhard was Director of R&D
for the Golden Cat Division of Ralston-Purina in St. Louis, Mo. Mr. Ehrhard was
previously Director of R&D in Worldwide Absorbent Products and Materials
Research for Johnson & Johnson in New Jersey. From June 1987 through January
1995, he was in R&D at Procter & Gamble Company, most recently as Section Head
of Global New Technology Development in Personal Cleansing in Cincinnati, OH.

     Robert C. Keller has been Principal Accounting Officer since June 1999. He
was also Chief Accounting Officer of Biosearch Medical Products since joining
them in 1995. Prior to that he was the Accounting Manager for Mailing Services
Inc. since 1985.

     Robert J. Moravsik has been Vice-President and General Counsel since April
1998. He also serves in the same capacity for Biosearch Medical Products, Inc.
and affiliated company since 1987. Prior to that he was Vice-President and
General Counsel to Fisher Stevens, Inc., a subsidiary of the Bureau of National
Affairs.

ITEM 2. PROPERTIES

     The Company currently has two facilities located in New Jersey. The
manufacturing and quality assurance functions of the Company are located at 35
Columbia Road, Branchburg, New Jersey. The Company signed a five-year lease with
a party not affiliated with the Company for the Branchburg facility.

     In June 1998, the company purchased the building and land at 35 Industrial
Parkway for expansion. The new facility is secured by a mortgage with a bank and
is partially occupied by the Biosearch Medical Products subsidiary, the prior
owner of the facility. The Company has located its Research and Development as
well as its administrative staff to the new facility. See the financial
statements included herein for the terms of the agreements.

     The Company is presently planning an addition of 10,200 square feet to its
building in Branchburg to accommodate its chemical production and quality
control operation. This additional space will replace space which it is renting.
Completion is expected to occur in mid 2001.


                                       10
<PAGE>


ITEM 3. LEGAL PROCEEDINGS

     Not applicable

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

     Not applicable.

                                     PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
        MATTERS

     Prior to January 9, 1986, the Company's Common Stock was traded in the
over-the-counter market on the National Association of Securities Dealer's
Automated Quotation System (NASDAQ) under the symbol HYDI. Subsequent to January
9, 1986, reporting of trading was transferred to the National Daily Quotation
Service (commonly known as the "Pink Sheets"). For the past twelve years,
trading in the Company's stock has been limited. The Company has been informed
by individual investors of trades at prices ranging between $2.75 and $.5950 in
the fiscal year 1999-2000 and between $1.625 and $.6875 in fiscal year
1998-1999. Prices for the 1997-1998 fiscal year ranged between $1.875 and $.1875
according to the National Quotation Bureau. These prices may not include retail
mark-ups or mark-downs or any commission to the broker dealer.

     The approximate number of holders of record of the Common Stock on
September 1, 2000 was 300. There are approximately 800 individual shareholders
of the common stock.


ITEM 6. MANAGEMENT DISCUSSION AND ANALYSIS


     The below discussion analyzes major factors and trends regarding the
results of operations and the financial condition of the Company as of June 30,
2000, and its results of operations for the prior fiscal period. It should be
read in conjunction with the Financial Statements and Notes thereto.

REVENUES FOR THE YEAR ENDED JUNE 30, 2000 WERE $3,933,111 AS COMPARED TO
$2,842,922 FOR THE SAME PERIOD LAST YEAR OR A GROWTH OF 38.4%.

     Product sales were $1,867,484 for the 1999-2000 fiscal year compared to
$1,268,713 in the prior fiscal year, a growth of 47.2% or $598,771.

     License royalties were $2,065,627 in fiscal 1999-2000, up 31.2% over fiscal
1999's results of $1,574,209.

MANAGEMENT COMMENT: In fiscal 1999-2000, the Company completed its restructure
of its commercial operations into strategic business units focusing on our core
technologies and their applications in medical, industrial, cosmetic and
personal care, and the animal health business unit with T-HEXX products. The
Company also completed the acquisition of Biosearch Medical Products, Inc.
(BMP), adding approximately $891,000 in product sales revenue to the Company
since February. Our licensee's sales with our products are increasing,
indicating their continued acceptance and the approval of Hydromer technologies,
and the resultant royalty income. Four new licensees were signed this year,
three in medical coating, and one for T-HEXX business in the U.S. The Company
also entered into two development agreements for its newest technology in
hydrogels and radio-opaque medical coatings for use in biosurgery and vascular
stenting respectively. The Company continued to expand and refine our
distributor network globally, increasing advertising and promotion efforts to
grow the business segments it competes in. The planned shutdown of the Company
due to Y2K and slowdowns by its customers in anticipation of Y2K led to some
softness in product sales, in particular with one client in medical solutions
who had built significant product inventories in the prior year in anticipation
of logistics issues.


GROSS PROFIT FOR THE YEAR ENDED JUNE 30, 2000 WAS $3,169,824, UP 25.4% OVER
FISCAL YEAR 1998-1999'S RESULTS OF $2,528,120.


                                       11
<PAGE>


     Direct costs, as a percentage of product sales, were 40.9% for fiscal
1999-2000 as compared to 24.8% for the fiscal year ended June 30, 1999. Overall
gross profit, including royalty income, was 80.6% for fiscal 1999-2000 as
compared to 88.7% for fiscal 1998-1999, or an increase of $641,704.

MANAGEMENT COMMENT: The decrease in gross margin and increase in direct costs as
a percentage of product sales reflect an increase in revenue mix toward
chemicals sales and OEM product sales via the Biosearch subsidiary. The majority
of the increase in overall gross profit was the increase in product and
technology sales, which were up $598,771. Profits from product sales (revenues
minus direct costs) were up only $150,286 reflecting the effect of increased
chemical product sales and the costs of BMP product sales, in addition to a
write down of slow moving and obsolete inventory of $ 95,143.

OPERATING INCOME FOR THE YEAR ENDED JUNE 30, 2000, WAS $166,200 VS. $402,162 FOR
THE SAME PERIOD LAST YEAR, OR A DECREASE OF 58.7%.

     Selling, general and administrative and research and development costs were
$3,003,624 for the year ended June 30, 2000 as compared to $2,125,958 for the
same period last year or an increase of 41.3%.

MANAGEMENT COMMENT: The increase in SG&A is primarily due to instituting the
company's strategic business unit staffing and upgrading staff capabilities in
the R&D and manufacturing group. The investment in Marketing via increased trade
promotion and advertising has increased significantly to facilitate the growth
of the business. The acquisition of BMP and the costs associated with
manufacturing services have required the Company to increase its management
staffing. The Company believes that OEM customers confidence in continuity of
product supply of Biosearch OEM products has improved since the acquisition.
Additionally, the company has invested in upgrades to facilities and equipment
to support prototyping coating of hydrogel samples, in addition to upgrading its
computer systems to be Y2K compatible and Windows based, and continuing to
expand its analytical capabilities by purchasing state-of-the art equipment for
the labs. The Company also incurred one-time expenses related to Y2K as per its
preparedness plan. Finally, the company has invested significantly in increased
traditional print media advertising, trade show promotion in the US and Europe,
and internet advertising to establish the Company's products and capabilities in
the medical device, consumer, industrial and animal health markets.

INCOME BEFORE TAXES IS $213,221 FOR THE CURRENT YEAR, DOWN 56.3% OVER PRIOR
YEAR'S RESULTS OF $487,523.

     Operating expenses increased 41.3% in fiscal 1999-2000 versus the previous
period reflecting an increase in investments in capabilities, equipment,
staffing, and advertising and promotional activities, and the costs and overhead
associated with the acquisition of Biosearch. Other Income is $47,021 for fiscal
1999-2000 as compared to $85,361 for the same period last year.

MANAGEMENT COMMENT: The Company's strong cash position entering the year
generated interest income of $44,090 for the fiscal year ended June 30, 2000 as
compared to $36,739 for the same period last year. The additional income
reflecting residual rental income from space leased at the main facility to
Biosearch Medical Products, Inc, prior to consolidation in February 2000.

NET INCOME FOR THE FISCAL YEAR 1999-2000 WAS $130,958 COMPARED TO $317,322 FOR
FISCAL YEAR 1998-1999, OR A DECREASE OF 58.7%.

     A write down of slow moving and obsolete inventory related to Hydromer
Poison Ivy and Oak, obsolete BMP products and increased reserves for doubtful
accounts resulted in $99,405 negative impact to earnings, in addition to
increased costs associated with the Biosearch acquisition.

MANAGEMENT COMMENT: The one time write down of slow moving and obsolete
inventory will protect the company from future charges to earnings associated
with it. The Company is making its best efforts to liquidate this inventory and
hopes to recover a significant percentage of its value. The infrastructure from
the combined Hydromer and Biosearch operations is required to develop
significant coating services business using the Company's technology.


                                       12
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

     WORKING CAPITAL AS OF JUNE 30, 2000 WAS $1,018,804, DOWN $850,801 FROM
PRIOR YEAR.

     On February 4, 2000, the Company acquired Biosearch Medical Products for
$0.20 per share. Cash balances, at the end of the fiscal year, are $18,239, down
$1,252,056, from the prior year.

MANAGEMENT COMMENT: The Company acquired $624,000 in assets and $578,000 in
liabilities in the acquisition of Biosearch. The Company paid outstanding
Biosearch liabilities of $404,954. The Company, as part of the Biosearch
acquisition also increased its inventory position by over $230,000 to support
the Biosearch business, further decreasing its cash reserve. The Company has
subsequently obtained a commitment for a line of credit and a construction loan
to finance construction of 10,200 square feet of additional space and
improvements of the Industrial Parkway facility in anticipation of consolidation
of the leased Columbia Road facility in 2001, and the related overhead savings
on a going basis. Management believes that cash position will be replenished
based on its projections of future income, and it will generate sufficient funds
to maintain its current level of operations.

     Fiscal year 1999-2000 was a year of continued structure building and
acquisition aimed at exploiting the capabilities of the Company - in products,
technology and management. Hydromer is poised to take advantage of its patented
technologies by focusing on commercialization and licensing its technologies to
companies that offer significant revenue opportunities for the Company, now and
in the future.

ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     For information concerning this item, see pages 2 through 12 of the
"Audited Financial Statements for the year ended June 30, 1999," which
information is incorporated herein by reference.



ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

     Not applicable.

                                    PART III

ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     For information concerning this item, see "Item 1. Business - Executive
Officers" and pages 1 through 3 of the Proxy Statement filed with respect to the
1997 Annual Meeting of shareholders (the "Proxy Statement"), which information
is incorporated herein by reference.

ITEM 10. EXECUTIVE COMPENSATION

     For information concerning this item, see page 3 of the Proxy Statement,
which information is incorporated herein by reference.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     For information concerning this item, see pages 2 through 4 of the Proxy
Statement, which information is incorporated herein by reference.

ITEM 12. CERTAIN RELATIONSHIPS AND  RELATED TRANSACTIONS

     For information concerning this item, see pages 2 through 4 of the Proxy
Statement, which information is incorporated herein by reference.


                                       13
<PAGE>


                                     PART IV

ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(A) 1. FINANCIAL STATEMENTS:

     The financial statement of the Company incorporated by reference in this
Report are listed in the attached Index to the Financial Statements and
Supplementary Data.

(A) 2. FINANCIAL STATEMENT SCHEDULES:

     The financial statement schedules of the Company filed in this Report are
listed in the attached Index to Financial Statements and Supplementary Data.

(A) 3. EXHIBITS (NOT INCLUDED)

     The exhibits required to be filed as part of this Report are listed in the
attached Index to Exhibits.

(B) CURRENT REPORTS ON FORM 8-K:

     The Company has not filed any Current Reports on Form 8-K during the
quarter ended June 30, 1997.


                                       14
<PAGE>


POWER OF ATTORNEY

     The Company and each person whose signature appears below hereby appoint
Manfred F. Dyck and Robert J. Moravsik as attorneys-in-fact with full power of
substitution, severally, to execute in the name and on behalf of the registrant
and each such person, individually and in each capacity stated below, one or
more amendments to the annual report which amendments may make such changes in
the report as the attorney-in-fact acting deems appropriate and to file any such
amendment to the report with the Securities and Exchange Commission.

                                   SIGNATURES

     Pursuant to the requirements of Section 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.

<TABLE>

HYDROMER, INC.
<S>                                 <C>                                         <C>
/s/ Manfred F. Dyck                 President, Principal Executive Officer,     September 22, 2000
----------------------------        Chairman of the Board of Directors
Manfred F. Dyck

/s/ Robert C. Keller                Principal Accounting Office                 September 22, 2000
---------------------------         Chief Accounting Officer
Robert C. Keller
</TABLE>

     Pursuant to the requirements of the Securities and 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:
<TABLE>
<S>                                 <C>                                         <C>
/s/ Manfred F. Dyck                 President, Principal Executive Officer,     September 22, 2000
---------------------------------   Chairman of the Board of Directors
Manfred F. Dyck


/s/ Ursula M. Dyck                  Director                                    September 22, 2000
---------------------------------
Ursula M. Dyck


/s/ Dieter Heinemann                Director                                    September 22, 2000
---------------------------------
Dieter Heinemann


/s/ Maxwell Borow                   Director                                    September 22, 2000
---------------------------------
Maxwell Borow


/s/ Robert H. Bea                   Director                                    September 22, 2000
---------------------------------
Robert H. Bea


/s/ Klaus J.H. Meckeler M.D.        Director                                    September 22, 2000
---------------------------------
Klaus J.H. Meckeler


/s/ Frederick L.Pearl M.D.          Director                                    September 22, 2000
---------------------------------
Frederick L. Pear


/s/ Gaylord E. McKissick VMD, PhD   Director                                    September 22, 2000
---------------------------------
Gaylord E. McKissick
</TABLE>

                                       15
<PAGE>


                                 HYDROMER, INC.
                       INDEX TO THE FINANCIAL STATEMENTS
                             JUNE 30, 2000 AND 1999

                                                                        Page

Independent Auditors' Report .....................................      F-1

Financial Statements
     Balance Sheets ..............................................      F-2
     Statements of Income ........................................      F-3
     Statements of Stockholders' Equity ..........................      F-4
     Statements of Cash Flows ....................................      F-5
     Notes to the Financial Statements ...........................   F-6 - F13


<PAGE>


               I N D E P E N D E N T  A U D I T O R S '  R E P O R T


To the Board of Directors and Stockholders of
Hydromer, Inc. & Subsidiary

     We have audited the accompanying consolidated balance sheets of Hydromer,
Inc. & Subsidiary as of June 30, 2000 and 1999 and the related consolidated
statements of income, stockholders' equity, and cash flows for the years then
ended. 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 audits.

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

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Hydromer, Inc.
& Subsidiary as of June 30, 2000 and 1999, and the consolidated results of their
operations and cash flows for the years then ended in conformity with generally
accepted accounting principles.


                                       /s/ Rosenberg Rich Baker Berman & Company

Bridgewater, New Jersey
August 30, 2000


                                      F-1
<PAGE>


                            H Y D R O M E R ,  I N C .  &  S U B S I D I A R Y

                          C O N S O L I D A T E D   B A L A N C E   S H E E T S
<TABLE>
<CAPTION>
                                                                                June 30,
                                                                        ----------------------------
                                                                           2000             1999
                                                                        ----------------------------
<S>                                                                     <C>              <C>
ASSETS
Current Assets
  Cash and cash equivalents .......................................     $    18,239      $ 1,270,295
  Trade receivables less allowance for doubtful accounts of $23,578
    and $8,831 in 2000 and 1999, respectively .....................       1,000,239          770,647
  Inventory .......................................................         485,835          210,065
  Prepaid expenses ................................................         131,264           80,018
  Other ...........................................................          33,574           11,375
----------------------------------------------------------------------------------------------------
      Total Current Assets ........................................       1,669,151        2,342,400
Property and Equipment, net .......................................       1,801,180        1,681,458
Patents, net ......................................................         245,277          168,807
Trademarks ........................................................          37,661             --
Other .............................................................            --             52,520
Goodwill, net .....................................................         505,338             --
----------------------------------------------------------------------------------------------------
      Total Assets ................................................       4,258,607        4,245,185
====================================================================================================
Liabilities and Stockholders' Equity
  Current Liabilities
  Accounts payable ................................................         470,294          145,062
  Accrued expenses ................................................         113,226          120,566
  Current portion of mortgage payable .............................          56,667           56,667
  Current portion of deferred rental income .......................            --            115,500
  Income tax payable ..............................................          10,160           35,000
----------------------------------------------------------------------------------------------------
      Total Current Liabilities ...................................         650,347          472,795
Deferred tax liability ............................................          36,769           24,768
Long term portion of mortgage payable .............................         680,000          736,669
Long term portion of deferred rental income .......................            --            112,453
----------------------------------------------------------------------------------------------------
      Total Liabilities ...........................................       1,367,116        1,346,685
----------------------------------------------------------------------------------------------------
Stockholders' Equity
  Common stock - no par value, authorized 6,000,000 shares,
    4,598,904 shares issued and 4,587,987 shares outstanding ......       3,608,118        3,608,118
  Contributed capital .............................................         577,750          577,750
  Accumulated deficit .............................................      (1,288,237)      (1,281,228)
  Treasury stock, 10,917 common shares at cost ....................          (6,140)          (6,140)
----------------------------------------------------------------------------------------------------
      Total Stockholders' Equity ..................................       2,891,491        2,898,500
----------------------------------------------------------------------------------------------------
      Total Liabilities and Stockholders' Equity ..................     $ 4,258,607      $ 4,245,185
====================================================================================================
See notes to the consolidated financial statements.
</TABLE>


                                                F-2
<PAGE>


                   H Y D R O M E R ,  I N C .  &  S U B S I D I A R Y

           C O N S O L I D A T E D   S T A T E M E N T S   O F   I N C O M E
<TABLE>
<CAPTION>
                                                             Year Ended June 30,
                                                         ----------------------------
                                                             2000            1999
                                                         ----------------------------
<S>                                                      <C>              <C>
REVENUES
  Sales of products and services ...................     $ 1,867,484      $ 1,268,713
  Royalties, options and licenses ..................       2,065,627        1,574,209
-------------------------------------------------------------------------------------
                                                           3,933,111        2,842,922
Cost of Sales ......................................         763,287          314,802
-------------------------------------------------------------------------------------
Gross Profit .......................................       3,169,824        2,528,120
Operating Expenses .................................       3,003,624        2,125,958
-------------------------------------------------------------------------------------
Operating Income ...................................         166,200          402,162
-------------------------------------------------------------------------------------
Other Income (Expense)
  Rental income ....................................          65,598          112,453
  Interest income ..................................          44,090           36,739
  Interest expense .................................         (63,268)         (65,197)
  Other income .....................................             601            1,366
-------------------------------------------------------------------------------------
Total Other Income .................................          47,021           85,361
-------------------------------------------------------------------------------------
Income Before Provision for Taxes ..................         213,221          487,523
Provision for Income Taxes .........................          82,263          170,201
-------------------------------------------------------------------------------------
Net Income .........................................     $   130,958      $   317,322
=====================================================================================
Earnings Per Common Share ..........................            $.03             $.07
=====================================================================================
Earnings Per Common Share - Assuming Dilution ......            $.03             $.07
=====================================================================================
Weighted Average Number of Common Shares Outstanding       4,598,904        4,443,932
=====================================================================================
See notes to the consolidated financial statements.
</TABLE>


                                      F-3
<PAGE>


<TABLE>

                           H Y D R O M E R ,  I N C .  &  S U B S I D I A R Y

            C O N S O L I D A T E D   S T A T E M E N T S   O F   S T O C K H O L D E R S '   E Q U I T Y
<CAPTION>
                                 Common Stock                                           Treasury Stock
                           ----------------------    Contributed    Accumulated       ------------------
                             Shares       Amount       Capital        Deficit         Shares       Amount        Total
------------------------------------------------------------------------------------------------------------------------
<S>                        <C>         <C>            <C>          <C>                <C>         <C>         <C>
Balance June 30, 1998 ...  4,378,904   $2,922,708     $577,750     $(1,467,182)       10,917      $(6,140)    $2,027,136
Dividends Paid ..........        --            --           --        (131,368)           --           --       (131,368)
Sale of Common Stock ....   220,000       685,410           --              --            --           --        685,410
Net Income ..............        --            --           --         317,322            --           --        317,322
------------------------------------------------------------------------------------------------------------------------
Balance June 30, 1999 ...  4,598,904    3,608,118      577,750      (1,281,228)       10,917       (6,140)     2,898,500
Dividends Paid ..........        --            --           --        (137,967)           --           --       (137,967)
Net Income ..............        --            --           --         130,958            --           --        130,958
------------------------------------------------------------------------------------------------------------------------
Balance June 30, 2000 ...  4,598,904   $3,608,118     $577,750     $(1,288,237)       10,917      $(6,140)    $2,891,491
========================================================================================================================
See notes to the consolidated financial statements.
------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                                           F-4
<PAGE>
<TABLE>
                           H Y D R O M E R ,  I N C .  &  S U B S I D I A R Y

                   C O N S O L I D A T E D   S T A T E M E N T S   O F   C A S H   F L O W S
<CAPTION>
                                                                                                    Year Ended June 30,
                                                                                              ----------------------------
                                                                                                    2000          1999
                                                                                              ----------------------------
<S>                                                                                           <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net Income ............................................................................     $   130,958      $   317,322
  Adjustments to Reconcile Net Income to Net Cash Provided (Used) By Operating Activities
    Depreciation and amortization .......................................................         126,123          106,220
    Deferred rental income ..............................................................         (46,855)        (112,453)
    Deferred income taxes ...............................................................          12,001          261,003
  Changes in Assets and Liabilities
    Trade receivables ...................................................................        (418,019)        (273,068)
    Inventory ...........................................................................        (495,096)         (33,934)
    Prepaid expenses ....................................................................        (263,505)          20,798
    Patents and trademark ...............................................................        (114,131)         (86,705)
    Other assets ........................................................................          25,205          (32,905)
    Accounts payable and accrued liabilities ............................................         901,565           (9,368)
    Income taxes payable ................................................................         (24,840)          35,000
--------------------------------------------------------------------------------------------------------------------------
        Net Cash Provided (Used) by Operating Activities ................................        (166,594)         191,910
--------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
  Cash purchases of property and equipment ..............................................        (316,826)        (202,468)
  Cash paid for goodwill and assets of Biosearch ........................................        (574,000)            --
--------------------------------------------------------------------------------------------------------------------------
        Net Cash Used in Investing Activities ...........................................        (890,826)        (202,468)
--------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from sale of common stock ....................................................            --            685,410
  Proceeds from borrowings ..............................................................            --               --
  Repayment of borrowings ...............................................................         (56,669)         (56,664)
  Dividends paid ........................................................................        (137,967)        (131,368)
--------------------------------------------------------------------------------------------------------------------------
        Net Cash Provided (Used) by Financing Activities ................................        (194,636)         497,378
--------------------------------------------------------------------------------------------------------------------------
Net (Decrease) Increase in Cash and Cash Equivalents ....................................      (1,252,056)         486,820
Cash and Cash Equivalents at Beginning of Year ..........................................       1,270,295          783,475
--------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year ................................................     $    18,239      $ 1,270,295
==========================================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year for:
    Interest ............................................................................     $    63,268      $    65,197
    Income taxes ........................................................................     $    86,750      $    16,000

NON-CASH DISCLOSURES OF CASH FLOW IN FORMATION
In 1998 the Company financed a portion of their acquisition of property with a
  prepaid lease to Biosearch Medical Products, Inc. for $346,500

See notes to the consolidated financial statements.
</TABLE>

                                                           F-5
<PAGE>


                 H Y D R O M E R ,  I N C .  &  S U B S I D I A R Y

                               N O T E S  T O  T H E
         C O N S O L I D A T E D  F I N A N C I A L  S T A T E M E N T S


SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

     Hydromer, Inc. & Subsidiary (The Company) is a polymer research and
development company based in Branchburg, New Jersey. The Company develops
polymer complexes for commercial markets in the medical and industrial fields
primarily in the United States. The Company obtains patent rights on certain
products from which royalty revenues are received. On February 4, 2000 the
Company purchased all of the common stock of Biosearch Medical Products, Inc.
For accounting purposes the transaction was recorded as a purchase and the
results of operations of Biosearch Medical Products, Inc. are included in the
consolidated financial statements from the date of acquisition. Biosearch
Medical Products, Inc. is a U.S. based corporation whose principal lines of
business are in contract manufacturing and distributing, under its own label of
medical devices. The Company is an OEM manufacturer for various medical products
companies and manufactures and distributes its own line of endoscopic products
to hospitals, through a network of dealers, both domestic and international.

PRINCIPLES OF CONSOLIDATION

     The consolidated financial statements include the accounts of Hydromer,
Inc. and all of its wholly owned subsidiary. All significant intercompany
balances and transactions have been eliminated.

CASH AND CASH EQUIVALENTS

     Cash and cash equivalents consist of short term investments with original
maturities of three months or less.

INVENTORIES

     Inventories are valued at the lower of cost, determined by the first-in,
first-out method, or market and include appropriate amounts of labor and
overhead.

DEPRECIATION

     The cost of property and equipment is depreciated on a straight-line method
over the estimated useful lives of the assets: 5-10 years for machinery and
equipment, 3-5 years for furniture and office equipment and the term of the
lease for leasehold improvements. When assets are retired or otherwise disposed
of, the cost and related accumulated depreciation are removed from the accounts,
and any resulting gain or loss is reflected in income for the period. Repairs
and maintenance which do not extend the useful lives of the related assets are
expensed as incurred.

PATENTS

     Expenses associated with new patent applications are prepaid until the
patents are approved at which time they are amortized over the life of the
patent, typically 20 years. Prepaid expenses associated with patents which are
not approved or abandoned are expensed in the period in which such patents are
not approved or abandoned. Maintenance fees associated with existing patents are
written off over 12 months. At June 30, 2000 two new patents had been approved.
Amortization expense for the years ended June 30, 2000 and 1999 were $7,599 and
$2,407, respectively.

INCOME TAXES

     Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the bases of assets and liabilities for
financial and income tax reporting. The deferred tax assets and liabilities
represent the future tax return consequences of those differences, which will
either be taxable or deductible when the assets and liabilities are recovered or
settled. Deferred taxes also are recognized for operating losses that are
available to offset future federal income taxes.


                                      F-6
<PAGE>


                 H Y D R O M E R ,  I N C .  &  S U B S I D I A R Y

                               N O T E S  T O  T H E
  C O N S O L I D A T E D  F I N A N C I A L  S T A T E M E N T S  (CONTINUED)


SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

GOODWILL

     Goodwill represents the excess of the purchase price of Biosearch Medical
Products, Inc. over the fair market value of their net assets at the date of
acquisition and is being amortized on the straight line method over 40 years.
Amortization expense charged to operations for June 30, 2000 and 1999 was $5,319
and $0, respectively.

EARNINGS PER SHARE

     Earnings per share, in accordance with the provisions of Financial
Accounting Standards Board Statement No. 128, "Earnings Per Share", is computed
by dividing net income by the weighted average number of shares of common stock
outstanding during the period. For the year ended June 30, 2000 common stock
equivalents were not included in computing diluted earning per share since their
effects would be antidilutive. For the year ended June 30, 1999 common stock
equivalents were included in computing diluted earnings per share.

CONCENTRATION OF CREDIT AND BUSINESS RISK

     At times, throughout the year, the Company may maintain certain bank
accounts in excess of FDIC insured limits.

     The Company provides credit in the normal course of business to customers.
Ongoing credit evaluations of its customers are performed, and allowances for
doubtful accounts are based on factors surrounding the credit risk of specific
customers, historical trends, and other information.

ADVERTISING

     Advertising costs are expensed as incurred except for tangible assets, such
as printed advertising materials, which are expensed as consumed. Advertising
expense was $84,033 and $56,869 for the years ended June 30, 2000 and 1999,
respectively. Advertising included in prepaid expense on the balance sheet at
June 30, 2000 and 1999 were $2,228 and $0, respectively.

RESEARCH AND DEVELOPMENT

     Research and development costs are charged to operations when incurred and
are included in operating expenses. The amounts charged to expense for the years
ended June 30, 2000 and 1999 were approximately $663,000 and $431,000,
respectively.

MAJOR CUSTOMERS

     The Company sold products and collected royalty income representing
approximately 43% of its total revenues for the year ended June 30, 2000 to two
customers, Cordis Neurovascular Systems and Wilson Cook Medical, Inc. who
individually accounted for 32% and 11%, respectively, of total revenues.
Accounts receivable from these customers accounted for 48% of total accounts
receivable at June 30, 2000.

     During fiscal year ended June 30, 1999 the Company sold products and
collected royalty income representing 46% of its total revenues to two
customers, Cordis Endovascular Systems and Warner Lambert, who individually
accounted for 35% and 11%, respectively, of total revenues. Accounts receivable
from these customers accounted for 48% of total accounts receivable at June 30,
1999.

REVENUE RECOGNITION

     Revenue from product sales are recognized at the time of shipment provided
that collection of the resulting receivable is probable. Revenue from royalties
are recognized upon the sale of certain products by licensees with whom the
Company has licensing agreements.

USE OF ESTIMATES

     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.


                                      F-7
<PAGE>


                 H Y D R O M E R ,  I N C .  &  S U B S I D I A R Y

                               N O T E S  T O  T H E
  C O N S O L I D A T E D  F I N A N C I A L  S T A T E M E N T S  (CONTINUED)


INVENTORY

     Inventory consists of:
                                           June 30,
                                    ---------------------
                                      2000         1999
                                    ---------------------
Finished goods ...................  $ 73,262     $116,029
Work in process ..................   234,106           --
Raw materials ....................   178,467       94,036
---------------------------------------------------------
                                    $485,835     $210,065
=========================================================


PROPERTY AND EQUIPMENT

     Property and equipment consists of the following:

                                           June 30,
                                  -----------------------
                                      2000         1999
                                  -----------------------
Land ...........................  $  472,410   $  472,410
Building .......................     841,116      813,026
Machinery and equipment ........   2,767,546      727,323
Furniture and fixtures .........     485,993      137,792
Leasehold improvements .........     109,075      103,641
---------------------------------------------------------
                                   4,676,140    2,254,192
Less accumulated depreciation
  and amortization .............  (2,874,960)    (572,734)
---------------------------------------------------------
                                  $1,801,180   $1,681,458
=========================================================

     Depreciation expense charged to operations was $102,040 and $75,888 for the
years ended June 30, 2000 and 1999, respectively. Amortization expense charged
to operations was $24,083 and $30,332 for the years ended June 30, 2000 and
1999, respectively.

LONG-TERM DEBT

     Long-term debt is comprised of the following:

                                                       June 30,
                                                 ---------------------
                                                   2000         1999
                                                 ---------------------
Mortgage note
  Due in equal monthly installments of
  $4,722 plus interest through June 1,
  2013 secured by the land, building,
  machinery and equipment and all rents
  from leases currently and subsequently
  entered into ................................  $736,667     $793,336
  Less: Current Maturities ....................    56,667       56,667
----------------------------------------------------------------------
Long-term Debt, Net of Current Maturities        $680,000     $736,669
======================================================================

     The mortgage note bears interest at a rate of 200 basis points over the
banks fully absorbed five year cost of funds, adjusted every five years. The
interest rate for the first five year period is 8%.

     Total maturities of long term debt are as follows:

Year ended June 30,
---------------------------------------------------------
  2001 ........................................  $ 56,667
  2002 ........................................    56,667
  2003 ........................................    56,667
  2004 ........................................    56,667
  2005 ........................................    56,667
  Thereafter ..................................   453,332
---------------------------------------------------------
                                                 $736,667
=========================================================


                                       F-8
<PAGE>


                 H Y D R O M E R ,  I N C .  &  S U B S I D I A R Y

                               N O T E S  T O  T H E
  C O N S O L I D A T E D  F I N A N C I A L  S T A T E M E N T S  (CONTINUED)


FAIR VALUE OF FINANCIAL INSTRUMENTS

     The carrying amount of cash and equivalents, accounts receivable, accounts
payable and accrued expenses approximates fair value because of the short
maturity of these instruments. The fair value of the Company's long term debt
approximates its carrying value and is based on the current rates offered to the
Company for debt of the same remaining maturities with similar collateral
requirements.

LIMITATIONS

     Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instrument. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.

INCOME TAXES

     The income tax provision (benefit) is comprised of the following:

                              Federal   State     Total
                            ----------------------------
YEAR ENDED JUNE 30, 2000
  CURRENT ................. $ 63,661   $ 6,601  $ 70,262
  DEFERRED ................   12,001        --    12,001
--------------------------------------------------------
                            $ 75,662   $ 6,601  $ 82,263
========================================================
Year Ended June 30, 1999
Current ................... $(8,608)   $18,108  $  9,500
Deferred ..................  160,701        --   160,701
--------------------------------------------------------
                            $152,093   $18,108  $170,201
========================================================

     The Company's deferred tax liability is comprised of the following
temporary differences:

                                           June 30,
                                    ---------------------
                                      2000         1999
                                    ---------------------
Depreciation .....................  $(36,769)    $(24,768)
=========================================================

     Deferred taxes are recognized for temporary differences between the bases
of assets and liabilities for financial statement and income tax purposes. The
differences relate primarily to depreciable assets (using accelerated
depreciation methods for income tax purposes).

     The Company's provision for income taxes differs from applying the
statutory U.S. federal income tax rate to the income before income taxes. The
primary differences result from providing for state income taxes and from
deducting certain expenses for financial statement purposes but not for federal
income tax purposes.

     A reconciliation between taxes computed at the federal statutory rate and
the consolidated effective tax rate follows:

                                                               June 30,
                                                             --------------
                                                             2000     1999
                                                             --------------
Federal statutory tax rate                                   34.0%    34.0%
State income tax - net of federal tax benefit                 5.0      5.9
Permanent and other differences                              (0.4)    (5.0)
--------------------------------------------------------------------------
                                                             38.6%    34.9%
==========================================================================


                                       F-9
<PAGE>


                 H Y D R O M E R ,  I N C .  &  S U B S I D I A R Y

                               N O T E S  T O  T H E
  C O N S O L I D A T E D  F I N A N C I A L  S T A T E M E N T S  (CONTINUED)


     Those amounts have been presented in the Company's financial statements as
follows:

                                                    June 30,
                                             ----------------------
                                                2000         1999
                                             ----------------------
Current deferred tax asset ................  $ 458,793     $     --
Valuation allowance .......................   (458,793)          --
Non current deferred tax liability ........    (36,769)     (24,768)
-------------------------------------------------------------------
Net Deferred Tax (Liability) Asset ........  $ (36,769)    $(24,768)
===================================================================

     The Company has net operating loss carry forwards of approximately $472,000
and $3,579,000 for Federal and State tax purposes respectively. These net
operating loss carry forwards may be used to reduce federal and state taxable
income and tax liabilities in future years and expire in various years through
June 30, 2005 and June 30, 2018 for State and Federal tax purposes,
respectively.

STOCK OPTIONS AND AWARDS

     On January 22, 1998 the Board of Directors authorized a stock option plan
for senior management. Under the plan, senior management would be issued stock
options in an amount equal to 3% of the incremental market cap of the Company
divided by the stock price at June 30th in each of the next three years. The
incremental market cap of the Company is defined as the number of outstanding
shares at the end of each year multiplied by the increase in the market value
per share for each year. These options would be equally divided by the number of
participants in the plan. As of June 30, 2000, there were three participants.
The plan was effective July 1, 1998. The market cap of the company on June 30,
2000 and 1999 was $2,867,492 and $4,587,987, respectively.

     On June 30, 1999, the Board of Directors granted options to purchase 48,540
shares of common stock of the Company. The exercise price of $1 per share was
equal to the market price at the date of grant. These options vest 20%
immediately and 10% per quarter over two years. At June 30, 1999 16,180 of these
options were canceled, due to the termination of one of the officers. These
options expire in June 2004.

     On January 22, 1998 the Board of Directors also authorized a stock option
plan for the Chief Executive Officer (CEO). Under the plan, the CEO would be
issued stock options in an amount equal to 3% of the incremental market cap of
the Company divided by the stock price at June 30th in each of the next three
years. The incremental market cap of the Company is defined as the number of
outstanding shares at the end of each year multiplied by the increase in the
market value per share for each year. The plan was effective July 1, 1998. The
market cap of the company on June 30, 2000 and 1999 was $2,867,492 and
$4,587,987, respectively.

     On June 30, 1999, the Board of Directors granted options to purchase 48,540
shares of common stock of the Company. The exercise price of $1 per share was
equal to the market price at the date of grant. These options vest 20%
immediately and 10% per quarter over two years. These options expire in June
2004.

     On January 22, 1998 the Company issued 25,000 stock options to a senior
executive as part of his employment agreement. These options vest 100% in 6
months and are priced at $0.875 per share. The Company also authorized the
issuance of 60,000 stock options to the same executive once the Company is
listed on a regional or national exchange. The options will be granted at the
rate of 20,000 shares immediately upon listing and 5,000 shares at the end of
each of the next 8 quarters from listing date. The price of the options will be
the listing price or $2.00, whichever is higher.

     On January 22, 1998 the Board of Directors approved an option plan for
active directors that would give each active director of the Company 5,000
options to purchase common stock of the Company. On November 11, 1999 25,000
stock options were granted under this plan at $.80 per share. On February 22,
2000 the plan was amended to award the Board of Directors 2000 options to
purchase common stock of the Company for each meeting attended, awarded at the
annual meeting at the 5 day market price average.

     On October 21, 1998 the Board of Directors granted options to purchase
20,000 shares of common stock under this plan. The exercise price of $.75 was
equal to the market value at the date of grant. These options expire on October
21, 2003.

     On February 3, 2000 the Company issued 10,000 stock options to a Senior
executive as part of his employment contract. The options are priced at $.89 per
share. These options expire on February 3, 2005.

     On November 11, 1999 the Company granted 15,000 stock options to a Senior
executive as part of his employment contract. The options are priced at $1 per
share and vest a each year starting June 30, 2000. These options expire on
November 11, 2004.

     A summary of activity under the plan for the years ending June 30, 2000 and
1999 is as follows:


                                      F-10
<PAGE>


                 H Y D R O M E R ,  I N C .  &  S U B S I D I A R Y

                               N O T E S  T O  T H E
  C O N S O L I D A T E D  F I N A N C I A L  S T A T E M E N T S  (CONTINUED)


                                                          Common Stock
                                                       Options Outstanding
                                                             Shares
                                                       -------------------

Balance, June 30, 1998 ................................      25,000
  Granted .............................................     117,080
  Exercised ...........................................          --
Canceled ..............................................     (16,180)
-------------------------------------------------------------------
Balance, June 30, 1999 ................................     125,900
  Granted .............................................      50,000
  Exercised ...........................................          --
  Canceled ............................................          --
-------------------------------------------------------------------
Balance, June 30, 2000 ................................     175,900
-------------------------------------------------------------------
Shares exercisable at June 30, 2000 ...................     121,040
-------------------------------------------------------------------
Weighted average fair value of options granted
  during 2000 .........................................       $ .88
===================================================================

Weighted average fair value of options granted
  during 1999 .........................................       $ .96
===================================================================

     Following is a summary of the status of options outstanding at June 30,
2000:

                        Outstanding Options
-----------------------------------------------------------
                                  Weighted
                                   Average         Weighted
                                  Remaining         Average
  Exercise                       Contractual       Exercise
 Price Range     Number             Life             Price
-----------------------------------------------------------
 .75 - 1.00      175,900          4.1 years          0.91

RETIREMENT PLAN

     The Company sponsors a qualified 401(k) plan covering substantially all
full time employees under which eligible employees can defer a portion of their
annual compensation. Effective August 1, 1998, the Company will match 25% of the
employees contribution up to 6% of salary. The Company's matching contribution
to the plan during the years ended June 30, 2000 and 1999 was $7,000.


                                      F-11
<PAGE>


                 H Y D R O M E R ,  I N C .  &  S U B S I D I A R Y

                               N O T E S  T O  T H E
  C O N S O L I D A T E D  F I N A N C I A L  S T A T E M E N T S  (CONTINUED)


LEASES

     The Company leases a facility under an operating lease. Total rental
expense for the years ended June 30, 2000 and 1999 were $101,875 and $90,000,
respectively. The lease calls for payment by the Company of all operating costs
such as utilities, maintenance, taxes and liability insurance.

     Future minimum rental payments required under operating leases that have
initial or remaining non-cancelable lease terms in excess of one year as of June
30, 2000 are as follows:

2001                                             $113,750
2002                                               10,000
---------------------------------------------------------
                                                 $123,750
=========================================================

RELATED PARTY TRANSACTIONS

     Prior to the acquisition of Biosearch Medical Products, Inc. (BMP), the
Company and Biosearch Medical Products, Inc. (BMP) were related parties since
certain shareholders held a substantial ownership interest and were members of
management in both companies. From July 1, 1999 through February 3, 2000 and
July 1, 1998 through June 30, 1999, the Company sold materials and services to
BMP for $12,591 and $19,129, respectively. In addition, the Company allocated
occupancy costs to BMP for their share of the expenses. Expenses charged to BMP
from July 1, 1999 through February 3, 2000 and July 1, 1998 through June 30,
1999 totaled approximately $39,000 and $34,000, respectively. Total amounts owed
to the Company by BMP were $113,389 and $62,131 at February 3, 2000 and June 30,
1999, respectively.

     In addition, BMP provided engineering and secretarial services to Hydromer.
These expenses amounted to $18,199 and $59,491 from July 1, 1999 to February 3,
2000 and July 1, 1998 through June 30, 1999, respectively. Amounts owed to BMP
at February 3, 2000 and June 30, 1999 were $35,627 and $6,784, respectively.

     In 1999, the Company purchased furniture and equipment from BMP for $5,000.


                                      F-12
<PAGE>


                 H Y D R O M E R ,  I N C .  &  S U B S I D I A R Y

                               N O T E S  T O  T H E
  C O N S O L I D A T E D  F I N A N C I A L  S T A T E M E N T S  (CONTINUED)


EARNINGS PER SHARE

     The following table sets forth the computation of earnings per share and
earnings per share--assuming dilution:

                                                            2000        1999
                                                         ----------------------
Numerator:
  Net income, earnings per share and earnings
  per share--assuming dilution .......................   $  130,958  $  317,322
===============================================================================
 Denominator (thousands):
  Denominator for earnings per share--
  weighted average shares outstanding ................    4,598,904   4,443,932
  Effect of dilutive securities--stock options .......           --     125,810
-------------------------------------------------------------------------------
  Denominator for earnings per share--
  assuming dilution--adjusted weighed
  average shares outstanding .........................    4,598,904   4,569,742
===============================================================================
Earnings per share ...................................    $     .03   $     .07
===============================================================================
Earnings per share--assuming dilution ................    $     .03   $     .07
================================================================================

ACQUISITION

     On February 4, 2000, the Company acquired all of the outstanding stock of
Biosearch Medical Products, Inc. for a total cost of $574,000. The excess of the
purchase price over the value of the net assets was approximately $511,000. The
following represents the unaudited proforma results of operations as if the
business combination had occurred at the beginning of the respective year in
which the Company was acquired as well as the beginning of the immediately
preceding year.

                                            June 30,
                                    -----------------------
                                        2000        1999
                                    -----------------------
Net Sales .......................   $5,648,258   $3,869,053
Net Loss ........................     (247,025)     (18,977)
-----------------------------------------------------------
(Loss) per Share ................   $     (.05)  $       --
===========================================================

SUBSEQUENT EVENTS

     On July 11, 2000 the Company entered into a revolving line of credit
agreement with a bank, which allows borrowings up to $200,000. The line bears
interest at .75% over the bank's base rate, payable monthly through maturity on
October 31, 2001. The line of credit is secured by all business assets.

     In addition, on July 11, 2000 the Company obtained a commitment for a
construction loan to build a 10,400 square foot addition to the existing
building occupied by the Company. The amount of the construction loan may not
exceed $1,000,000. The loan will bear interest at 1% over the bank's base rate,
floating during the construction period and payable on a monthly basis. The full
principal will mature 18 months from the loan commitment acceptance and be
repaid with a permanent mortgage. Upon completion of the construction and
receipt of a final certificate of occupancy, the balance outstanding under the
construction loan will be converted to a permanent second mortgage with a
fifteen year term at an interest rate of 2.75% over the three year U.S. Treasury
rate, fixed for three years and adjusted each three years using the same rate.
Payments of principal and interest will be due monthly until maturity. The loans
are secured by a second mortgage covering the real property and all
improvements, an assignment of all leases and rents covering the subject
property subordinated to the first mortgage, and assignment of all plans,
specifications, approvals and construction contracts. The loan carries a
prepayment penalty during the construction loan phase of 2% in year one unless
refinanced with the bank, and during permanent loan phase 2% in year one and 1%
in year two.


                                      F-13
<PAGE>


                                INDEX TO EXHIBITS

     3.a Certificate of Incorporation of the Company, as amended to date

     3.b By-Laws of the Company, as amended to date

     10.a Minutes of Meeting of the Board of Directors of the Company held on
March 5, 1981 with respect to stock options granted to Manfred F. Dyck
(Incorporated by reference to Exhibit 10.i to the Registration Statement).

     10.b Agreement dated August 11, 1981 between Horizon Concepts, Inc., and
the Company (Incorporated by reference to Exhibit 10.c to the Registration
Statement).

     10.c Agreement dated January 27, 1982 between Reliable Pharmaceutical
Company, Inc. and the Company (Incorporated by reference to Exhibit 10.d to the
Registration Statement).

     10.d License Agreement dated July 14, 1982 between Biosearch Medical
Products Inc. and the Company (Incorporated by reference to Exhibit 10.g to the
Registration Statement).

     10.e Management Services Agreement dated July 14, 1982 between Biosearch
Medical Products Inc. and the Company (Incorporated by reference to Exhibit 10.h
to the Registration Statement).

     10.f Amendment dated October 7, 1982 to Agreement dated January 27, 1982
between Reliable Pharmaceutical Company, Inc. and the Company, together with
letter dated October 14, 1982 from Reliable Pharmaceutical Company, Inc. to the
Company (Incorporated by reference to Exhibit 10.f to the 1983 Annual Report).

     10.g Hydromer Coating agreement dated February 11, 1983 between Pacesetter
Systems, Inc. and the Company (Incorporated by reference to Exhibit 10.g to the
1983 Annual Report).

     10.h Lease Agreement dated April 5, 1983 between Salem Realty and the
Company (Incorporated by reference to Exhibit 10.h to the 1983 Annual Report).

     10.i License Agreement dated April 25, 1983 between CardioSearch Inc. and
the Company (Incorporated by reference to Exhibit 10.i to the 1983 Annual
Report).

     10.j Trademark License Agreement dated April 25, 1983 between CardioSearch
Inc. and the Company (Incorporated by reference to Exhibit 10.j to the 1983
Annual Report).

     10.k Agreement dated August 31, 1983 between Becton, Dickinson & Company
and the Company (Incorporated by reference to Exhibit 10.l to the 1983 Annual
Report).

     10.l Current Report on Form 8-K filed May 30, 1986

     10.m Hydromer Coating License Agreement dated September 30, 1984 between
Axiom Medical, Inc. and the Company (Incorporated by reference to Exhibit 10.m
to the 1984 Annual Report).

     10.n 1982 Stock Option Plan of the Company (Incorporated by reference to
Exhibit 10.m to the 1983 Annual Report).

     10.o Amendment dated June 26, 1984 to Agreement dated August 3, 1983
between Becton, Dickinson & Company and the Company (Incorporated by reference
to Exhibit 10.o to the 1984 Annual Report).

     10.p License Agreement dated July 31, 1984 between Kendall Company and the
Company (Incorporated by reference to Exhibit 10.p to the 1984 Annual Report).

     10.q License Agreement dated March 1, 1985 between Van-Tec Inc. and the
Company and Letter of Amendment thereto dated June 13, 1985 (Incorporated by
reference to Exhibit 10.o to the 1985 Annual Report).

     10.r Telex dated June 24, 1985 terminating License Agreement with
CardioSearch Inc. (Incorporated by reference to Exhibit 10.p to the 1984 Annual
Report).

     10.s Amendment dated as of December 31, 1984 to Management Services
Agreement dated July 14, 1982 between Biosearch Medical Products Inc. and the
Company (Incorporated by reference to Exhibit 10.q to the 1985 Annual Report).

     10.t Lease Renewal Agreement dated April 15, 1985 between Salem Realty and
the Company (Incorporated by reference to Exhibit 10.r to the 1985 Annual
Report).


                                       16
<PAGE>


     10.u Lease Agreement dated December 4, 1984 between Biosearch Medical
Products Inc. and the Company (Incorporated by reference to Exhibit 10.s to the
1985 Annual Report).

     10.v License Agreement dated April 11, 1986 between Axiom Medical, Inc. and
the Company (Incorporated by reference to Exhibit 10.i to the 1986 Annual
Report).

     10.w License Agreement dated September 13, 1985 between U. S. Viggo and the
Company (Incorporated by reference to Exhibit 10.c to the 1986 Annual Report).

     10.x License Agreement dated March 27, 1986 between Wilkinson Sword Limited
and the Company (Incorporated by reference to Exhibit 10.f of the 1986 Annual
Report).

     10.y Lease Renewal Agreement dated April 15, 1987 between Salem Realty and
the Company (Incorporated by reference to Exhibit 10.y to the 1987 Annual
Report).

     10.z License Agreement dated April 30, 1986 between HPK International and
the Company (Incorporated by reference to Exhibit 10.j to the 1986 Annual
Report).

     10.aa License Agreement dated August 1, 1986 between Film Specialties, Inc.
and the Company (Incorporated by reference to Exhibit 10.aa to the 1987 Annual
Report).

     10.ab Lease Renewal Agreement dated April 15, 1988 between Salem Realty and
the Company (Incorporated by reference to Exhibit 10.ab to the 1988 Annual
Report).

     10.ac License Agreement dated June 30, 1987 between Richards Medical
Company and the Company (Incorporated by reference to Exhibit 10.ac to the 1988
Annual Report).

     10.ad License Agreement dated December 1, 1987 between Mallinckrodt, Inc.
and the Company (Incorporated by reference to Exhibit 10.ad to the 1988 Annual
Report).

     10.ae Option Agreement dated January 28, 1988 between Cordis Corporation
and the Company (Incorporated by reference to Exhibit 10.ae to the 1988 Annual
Report).

     10.af Lease Agreement dated April 15, 1988 between Biosearch Medical
Products Inc. and the Company (Incorporated by reference to Exhibit 10.ag of the
1988 Annual Report).

     10.ag Letters dated June 11, 1987 and September 22, 1987 to U. S. Viggo,
Inc. modifying License Agreement dated September 13, 1985, to cover only central
venous catheters (Incorporated by reference to Exhibit 10.ag to the 1988 Annual
Report).

     10.ah Lease Renewal Agreement dated April 15, 1989 between Salem Realty and
the Company (Incorporated by reference to Exhibit 10.ah to the 1989 Annual
Report).

     10.ai Amendment dated October 1, 1988 to License Agreement dated September
13, 1985, between U. S. Viggo and the Company (Incorporated by reference to
Exhibit 10.ai to the 1989 Annual Report).

     10.aj License Agreement dated October 20, 1988 between Cordis Corp. and the
Company (Incorporated by reference to Exhibit 10.aj to the 1989 Annual Report).

     10.ak License Agreement dated March 31, 1989 between Cathlab Corp. and the
Company (Incorporated by reference to Exhibit 10.ak to the 1989 Annual Report).

     10.al Amendment dated December 1, 1988 to License Agreement dated August 1,
1986 between Film Specialties, Inc. and the Company (Incorporated by reference
to Exhibit 10.al to the 1989 Annual Report).

     10.am Finders Agreement dated August 20, 1987 between Phoenix Chemical,
Inc. and the Company (Incorporated by reference to Exhibit 10.am to the 1989
Annual Report).

     10.an License Agreement dated September 10, 1989 between the Stent Division
of Schneider and the Company (Incorporated by reference to Exhibit 10.an to the
1990 Annual Report).

     10.ao License Agreement dated March 30, 1990 between Cosmo Ikko Company and
the Company (Incorporated by reference to Exhibit 10.ao to the 1990 Annual
Report).

     10.ap License Agreement dated April 12, 1990 between Interventional
Therapeutics, Inc. and the Company and amendment dated May 7, 1990 to the
Agreement dated April 12, 1990 between Interventional Therapeutics, Inc. and the
Company (Incorporated by reference to Exhibit 10.ap to the 1990 Annual Report).


                                       17
<PAGE>


     10.aq Amended License Agreement dated January 1, 1990 between the Wilkinson
Sword group of companies and the Company (Incorporated by reference to Exhibit
10.aq the 1990 Annual Report).

     10.ar Lease Agreement dated April 15, 1990 between Salem Realty and the
Company (Incorporated by reference to Exhibit 10.ar to the 1990 Annual Report).

     10.as Amendment to the Agreement dated July 31, 1984 between Kendall
Company and the Company (Incorporated by reference to Exhibit 10.as to the 1990
Annual Report).

     10.at License Agreement dated January 11, 1991 between Biosearch Medical
Products Inc. and the Company (Incorporated by reference to Exhibit 10.at to the
1991 Annual Report).

     10.au License Agreement dated May 16, 1991 between I E Sensors and the
Company (Incorporated by reference to Exhibit 10.au to the 1991 Annual Report).

     10.av Lease Renewal Agreement dated April 15, 1991 between Salem Realty and
The Company (Incorporated by reference to Exhibit 10.av to the 1991 Annual
Report).

     10.aw License Agreement dated July 25, 1991 between Johnson & Johnson
Orthopaedics and the Company (Incorporated by reference to Exhibit 10.aw to the
1992 Annual Report).

     10.ax License Agreement dated August 19, 1991 between Navarre Laboratories
Ltd. and the Company (Incorporated by reference to Exhibit 10.ax to the 1992
Annual Report).

     10.ay Amended License Agreement dated September 15, 1991 between Boston
Scientific Corp. and the Company (Incorporated by reference to Exhibit 10.ay to
the 1992 Annual Report).

     10.az Option/License Agreement dated September 23,1991 between Elan Corp.
PLC and the Company (Incorporated by reference to Exhibit 10.az to the 1992
Annual Report).

     10.ba Lease Agreement dated November 1, 1991 between Morton Street Realty
and the Company (Incorporated by reference to Exhibit 10.ba to the 1992 Annual
Report).

     10.bb License Agreement dated August 17, 1992 between SCIMED Peripheral
Interventions, division of SCIMED Life Systems, Inc. and the Company.
(Incorporated by reference to Exhibit 10.bb to the 1993 Annual Report).

     10.bc License Agreement dated March 9, 1993 between Arrow International,
Inc. and the Company. (Incorporated by reference to Exhibit 10.bc to the 1993
Annual Report).

     10.bd License Agreement dated April 28, 1993 between St. Jude Medical, Inc.
and the Company. (Incorporated by reference to Exhibit 10.bd to the 1993 Annual
Report).

     10.be License Agreement dated November 11, 1993 between Katoh Hatsujyo
Kaisha, Ltd. and the Company. (Incorporated by reference to Exhibit 10.be to the
1994 Annual Report).

     10.bf Lease Agreement dated June 9, 1995 between Salem Realty and the
Company (Incorporated by reference to Exhibit 10.bf to the 1995 Annual Report).

     10.bg Amendment dated September 20, 1995 to License Agreement dated April
28, 1993 between St. Jude Medical, Inc. and the Company. (Incorporated by
reference to Exhibit 10.bg to the 1996 Annual Report).

     10.bh License Agreement dated April 12, 1990 between Interventional
Therapeutics and the Company was terminated effective December 22, 1995.
(Incorporated by reference to Exhibit 10.bh to the 1996 Annual Report).

     10.bi License Agreement dated May 16, 1991 between I E Sensors and the
Company was terminated effective December 31, 1995. (Incorporated by reference
to Exhibit 10.bi to the 1996 Annual Report).

     10.bj Consented to the assignment of license agreement dated April 28,1993
between St. Jude Medical, Inc. and the Company to CR Bard dated January 18,
1996. (Incorporated by reference to Exhibit 10.bj to the 1996 Annual Report).


                                       18
<PAGE>


     10.bk License Agreement dated April 30, 1986 between HPK International and
the Company was terminated effective February 19, 1996. (Incorporated by
reference to Exhibit 10.bk to the 1996 Annual Report).

     10.bl License Agreement dated June 6, 1996 between Biosearch Medical
Products Inc. and the Company. (Incorporated by reference to Exhibit 10.bl to
the 1996 Annual Report).

     10.bm License Agreement dated August 1, 1996 between Biosearch Medical
Products Inc. and the Company.

     10.bn Amended License Agreement dated September 4, 1996 between SCIMED
(Boston Scientific Corporation and the Company.

     10.bo License Agreement dated January 6, 1997 between Sherwood Davis & Geck
and the Company.

     10.bp Use permit for certain designated area dated May 4, 1997 between
Biosearch Medical Products Inc. and the Company

     10.bq Contract of sale between Biosearch Medical Products and the Company
for the sale of 35 Industrial Parkway dated 3/31/98

     10.br Note and mortgage with PNC Bank dated 6/12/98

     10.bs 3 year lease agreement with Biosearch Medical Products dated 6/12/98
for 35 Industrial Parkway

     10.bt License of technology, supply and stock purchase agreement with
C.R.Bard dated 2/25/99

     10.bu Trademark and technology license agreement with AST dated 3/9/99

     10.bv License of two gel patents from Ridge Scientific dated 11/1/98

     10.bw License and Supply agreement with Gallini SRL dated 6/28/00

     10.bx Standstill agreement with license option with IMED Pharma Inc. dated
3/30/00

     10.by License of technology with Symbiotech Medical Inc. dated 3/28/00

     10.bz License and supply agreement with TP Orthodontics Inc. dated 3/30/00

     24 Power of Attorney (see "Power of Attorney" in the Annual Report on Form
10-KSB).


                                       19