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                       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, 2004

                         Commission File Number 0-10683

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


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

35 Industrial Parkway, Branchburg, New Jersey                   08876-3424
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  (Address of principal executive offices)                      (Zip Code)

Registrant's telephone number, including area code:           (908) 722-5000
                                                        ------------------------

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 10-KSB
or any amendment to this Form 10-KSB (X)

     The aggregate market value of the voting stock held by non-affiliates of
the Registrant at September 1, 2004 was approximately $2,920,996.

     The number of shares of Registrant's Common Stock outstanding on September
1, 2004 was 4,597,987.

     Portions of the Audited Financials Statements for the year ended June 30,
2004 are incorporated by reference in Part II of this report. Portions of the
Proxy Statement of Registrant dated September 15, 2004 are incorporated by
reference in Part III of this report.


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                                     PART I


ITEM 1. BUSINESS


GENERAL

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, agricultural, cosmetics
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. The
Company was granted a new patent this past fiscal year, and has two additional
patent applications pending. The Company continues to actively evaluate other
new market opportunities for its polymer technology.

The Company also owns various trademarks, including AQUADAPT(TM), a medical
hydrogel, AQUATRIX(R), a cosmetic hydrogel, Sea-Slide(R), a coating for
watercraft hulls, Dermaseal(R), a dermal barrier film product for the prevention
of contact dermatitis, AQUAMERE(TM), a water resistant film former product with
cosmetic applications 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 the
Company's current Chief Executive Officer, Director and the Chairman of the
Board. 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, the Company acquired all outstanding stock of
BMPI for $0.20 per share, and now manages BMPI as a subsidiary.


HYDROMER(R) LUBRICIOUS COATINGS

From its inception in 1980 to 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.

As of June 30, 2004, the Company has license agreements with eleven different
companies covering the application of Hydromer coatings to the following
devices: enteral feeding products, guidewires, certain urological devices,
infusion microcatheters, central venous catheters, guiding and umbilical
catheters, razor cartridges, orthodontic accessories, angioplasty balloon
catheters, embolization delivery devices, inter-ocular lenses and biliary and
pancreatic stents. The Company is actively seeking new license opportunities.

The Company is focusing on expanding its global sales in markets where it has an
established presence, and is increasing advertising and promotional activities
via traditional means, including an expanded tradeshow presence in the U.S. 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 through its acquisition of
Biosearch Medical Products Inc. With the acquisition of BMPI in February 2000,
the Company offers an ISO 9001/GMP certified and FDA registered capability.

The Company further believes that offering prototyping, process development and
small-medium scale coating/ manufacturing services is fundamental to the
expansion of the Hydromer coatings business, and a strategic imperative. The
medical device market continues to undergo a shift toward consolidation by very
large multi-national players with small, entrepreneurial start-up companies
looking to exploit niche opportunities or unique device designs. The Company's
experience and


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knowledge can significantly speed development, assessment and market readiness
for our clients, large and small. Furthermore, our Hydromer technology has
further application with other medical products outside our current scope and
with products outside the medical field. One such example is the T-Hexx(R)
Barrier Dips and Sprays used in the agricultural field.

The Company is continually upgrading its advertising copy and promotional
literature as needed to graphically highlight the properties and advantages of
its technologies.


HYDROMER(R) ANTI-FOG/CONDENSATION CONTROL

Hydromer Anti-Fog/Condensation Control is an optical coating which prevents the
accumulation of vision-obscuring condensation under high humidity conditions.
The Company is selling this material in bulk to manufacturers of greenhouse
panels, refrigerator doors, industrial and medical safety, swim goggles,
aircraft windows, automotive headlight assemblies and gauge and meter
manufacturers in the U.S. and internationally, including China. China is one of
our growing markets and we are optimistic that such growth would continue in the
forthcoming years. New food grade Anti-Fog coatings are in development for the
ready-to-eat produce, meats and bakery products. The Hydromer Food Grade
Anti-Fog is formulated with materials that are generally recognized as safe for
food contact as confirmed by independent laboratory extraction testing. In early
development are coatings for aluminum coil and can.


AQUADAPT(TM) MEDICAL FOAM PRODUCTS

Aquadapt (formerly known as Medicell(TM)) is the Company's hydrophilic
polyurethane foam technology, patented in 1986. The Company has 510K approvals
from the FDA for medical use in the U.S. The Company is exploring other medical,
dental and cosmetic applications for this technology.


AQUAMERE(TM) POLYMERS

The Aquamere series of cosmetic polymer solutions were introduced in 1988 and
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.


AQUATRIX(R) II COSMETIC AND AQUADAPT(TM) MEDICAL HYDROGELS

Hydromer has a patent on its chitosan-PVP hydrogel technology in addition to new
patents granted in 2000 and 2002 on polyaldehyde hydrogels. 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 does not have rolled goods
coating capability and to licensing Hydrogel technology for cosmetic and medical
use, including drug release.

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. Other than our bio-adhesives and medical
coatings, which are one part systems, to form the gel entails simply to mix the
two parts together - no heat, no chemical cross linkers nor expensive high
energy processing is required. 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 internal and topical actives delivery.
The Company has a pilot coating machine to facilitate the commercialization of
its hydrogel technologies.


DERMASEAL(R) BARRIER FILMS

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 other skin
care products. It is also being tested for use in broader skin care, cosmetic
and OTC drug delivery.


SEA-SLIDE(R) BOAT COATINGS

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 U.S.
patent covering this coating and other potential uses was issued in 1987.
Independent testing has confirmed that this technology significantly improves
fuel economy and the hull speed of watercraft. Sea-Slide is marketed through
HammerHead Products, Inc., via an exclusive distribution agreement.


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T-HEXX(R) BARRIER DIPS AND SPRAYS

The Company's entry into the Animal Health field, via its T-HEXX Barrier Dips
and Sprays, came in Fiscal Year 1999 through U.S. licensees. The T-HEXX Dips
were created using the Company's patented film-forming hydrogel technology. The
Company has received three patents for its unique barrier teat dip compositions
with an application on a fourth patent pending.

T-HEXX Barrier Products offer dairy farmers exceptional value and unsurpassed
protection from clinical and sub-clinical mastitis, a problem that costs U.S.
Dairy farmers an estimated $3-5 billion per year. The annual U.S. market for
barrier teat dips is estimated to be $100-130 million at the farm level. T-HEXX
Barriers Products, the first no-drip and water resistant barrier products on the
market, prevents environmental water containing mastitis-causing organisms,
including mycoplasma, from reaching the teat surface. Our formulations contain
protocol-proven active ingredients that kill mastitis-causing bacteria within 30
seconds of contact while continuing to remain active up to 12 hours later.
T-HEXX Barriers are superior performers in its niche market while priced
comparably or less than barrier dip products manufactured by the leading
sanitary chemical companies in the world. Our products are compatible with
existing mechanical equipment and milking procedures and most importantly, are
easily removed using traditional pre-milking methods. Based on field tests, our
product has been demonstrated to stay on the cow teat better than the
competition, protecting the cow during the complete 8-12 hour milking cycle.

In fiscal 2002, the Company launched a complementary product, T-HEXX(R) Dry Teat
Protection Sealant, to protect cows during the non-lactation ("dry cow") period.
T-HEXX Dry is used as a non-irritating low-cost sealant during the dry-off and
the critical pre-calving period where it is estimated that over 50% of new
mastitis cases are believed to start. T-HEXX Dry is the first dry cow dip
product with an antimicrobial that remains on the teat for 3-7 days. Clinical
studies show that T-HEXX Dry is impervious to National Mastitis Council (NMC)
recognized mastitis-causing organisms for seven days, yet is comparably priced
to existing dry cow teat sealants that does not offer such protection. Our
product is suggested to be used on cows just prior to their release to the dry
cow pen, in conjunction with existing antibiotic therapy or internal teat
sealants. In fiscal 2004, two customers launched our Dry product under their
private-label name, reflecting the strength of our product.

The Company has invested significantly in clinical research, patents, promotion,
vendor partnerships and advertising via print media, trade shows and the
Internet to support this business and continues to do so. In fiscal 2004, the
Company initiated a claim against a former licensee and other parties citing
infringement on the Company's patented technology in this area. To date through
June 30, 2004, the Company spent approximately $79,000, which has been expensed
in the current year's results, on its claims to protect its interests. This
action, including the discovery process, is in progress.


HYDROMER(R) COATING SERVICES

The Company continues to expand its activity in Coating services, 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 U.S. and Europe to promote these
services and is currently working on several projects with medical devices. A
major client is now using this service in the urology markets. The Company
continues to believe that these services will enable a broader range of
customers to use our materials in market on accelerated timelines in a more cost
effective manner.


OEM MEDICAL DEVICES

Through its Biosearch Medical Products subsidiary, the Company 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 biliary catheters and stents; feeding accessories;
guidewires; biofeedback devices for fecal and urinary incontinence; and
endoscopic accessories. The Company also contract manufactures products for
several large multi-national marketers of medical devices.


OPTION AND LICENSE AGREEMENTS

A substantial portion of the Company's revenues is derived from option and
license agreements. Option agreements provide customers the right for a finite
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 gives the customers
the right to subsequently enter into a license agreement with the Company and to
market product(s) treated with Hydromer, which typically provides the Company 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: Annual Report on Form 10-K
for the fiscal years ended June 30, 1983 through 1996 and Form 10-KSB for fiscal
years ended 1997 through 2004.


LICENSEE/APPLICATION

ACMI Corp. (formerly known as Circon Surgitek;
  Division of Maxxim Corporation) - guidewires, urinary stents


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Applied Medical - certain urological and vascular devices
Becton-Dickinson - certain vascular devices with anti-microbial coatings
Boston Scientific (Van-Tec and Sci Med) - guidewires and certain urological
  devices
CR Bard - certain urological devices
Cordis Endovascular Systems - infusion microcatheters
Corneal, Ltd. - inter-ocular lenses
Everready - Schick / Warner / Wilkinson Sword Ltd. - razor cartridges
Gallini - certain urological devices
TP Orthodontics - certain orthodontic accessories
Tyco International / Kendall HealthCare Products - certain urological devices
  and enteral feeding systems


PRODUCTS

Coating solutions for use on medical devices, cosmetic intermediaries, hydrogels
and teat barrier dips/sprays 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 greenhouse panels, refrigerator doors, swim
goggles, industrial safety equipment, aircraft windows and meter covers, both in
the U.S. and foreign countries. The Company also sells OEM medical devices
through its Biosearch Medical Products subsidiary.

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 its revenues from two primary business segments: (1) polymer
research and the products derived there from, and (2) the sales of medical
products. During the fiscal years ended June 30, 2004 and June 30, 2003, the
Company recognized revenues from two major customers: Johnson & Johnson's Cordis
Division and Wilson Cook Medical, Inc.

Product sales and/or royalty payments from these customers accounted for 39% of
the Company's total revenues for both of the years ended June 30, 2004 and June
30, 2003, respectively.


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, including vascular stents.
Some of 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 related products - grafts, cardiac assist catheters
  heart-lung tubing, stents.

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
vascular stents, Foley catheters, wound drains, wart and corn dressings, burn
dressings, intravenous catheters, surgical dressings and adhesive bandages. One
of the Company's recent patents in the coating area, issued in April 2000,
involves the covalent bonding of infection resistant materials into the coating,
providing a non-leaching, anti-infective surface. The Company was also granted a
patent in July 2003 for covalently bonded radio-opaque polymeric compositions to
improve the radio-opacity of materials without needing high solid loading, metal
plating or ion implantation for applications like stents and vascular catheters.

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
first issued to the Company in August 1984 (patent expired). This anti-fog
product has use on greenhouse panels, refrigerator doors, 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.


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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, either for its own account, jointly with another company or
strictly as a sub-contractor. The Company sponsors all of such activities from
its own internal funding or through charges to the contracting company. The
major portion of R&D 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 over twenty process and applications patents for Hydromer
coatings (see "Patents and Trademarks"). 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 the Company 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.


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

1.   COMMERCIALIZATION OF ITS EXISTING TECHNOLOGIES: The Company intends to
expand its efforts to market its current technology to the medical, industrial,
personal care and agricultural 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, contract manufacturing and coating services (see "5. Coating
Services"). 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, through the Company's Contract Coating unit or it may have 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


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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 the Company has
particular expertise.

Business segments which are of particular interest are medical devices
(catheters and guidewires) 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.


PATENTS AND TRADEMARKS

Management believes that the protection afforded by the Hydromer patents 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
were 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. 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 a U.S. patent for non-leaching biostatic
coatings and 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 two patents for Chitosan gels, which
expires in 2014. These patents are part of the new gel technology with
applications in medical, industrial, cosmetic and personal care markets. The
Company was issued three U.S. Patents for barrier teat dip compositions. One new
patent was awarded to the Company during the fiscal year ended June 30, 2004.

As of June 30, 2004, the Company has 21 U.S. patents, two U.S. applications and
various foreign counterparts. A patent for non-leachable radio-opaque polymeric
coatings was issued in July 2003. Two U.S. patents will expire in the upcoming
fiscal year (ending June 30, 2005). The Company collected approximately $2.1
million in royalties from one of these patents in fiscal 2004 (there was no
active royalty yielding license on the other patent). A third patent expires the
year following. It is the Company's intention to replace any discontinuances of
income stream with other sources, including new product revenues, new service
revenues and other license revenues, including that from our patent pending
water-based lubricious coatings.

The Company owns the trademarks "Aquadapt", "Aquamere", "Aquatrix", "Dermaseal",
"Hydromer", "Sea-Slide" and "T-HEXX" in the United States and other countries.


EMPLOYEES

As of June 30, 2004, the Company and its subsidiary had eighty-eight active
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 very good.


GOVERNMENT REGULATIONS

The uses of the Company's medical, agricultural 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 through its Biosearch Medical Products
subsidiary ("Biosearch"), whose activities 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.

The Company's electronically filed reports are available at WWW.SEC.GOV.


                                       7
<PAGE>

EXECUTIVE OFFICERS

     The executive officers of the Company are as follows:

                                                                Age as of
Name                    Position With Company                  Aug 31, 2004
----                    ---------------------                  ------------

Manfred F. Dyck - Chairman of the Board,
     Chief Executive Officer and President                          69

Martin C. Dyck - Executive Vice-President,
     Operations and President Biosearch
     Medical Products subsidiary                                    42

Rainer Gruening - Vice-President, Research & Development            61

John Konar - Vice-President, Quality Assurance
     and Director of Human Resources                                55

Robert Y. Lee - Vice-President, Finance,
     Chief Financial Officer and Treasurer                          38

Robert J. Moravsik - Senior Vice-President,
     General Counsel and Secretary                                  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 was
President of Biosearch Medical Products Inc. ("BMPI") from 1975 until 1998 and a
Director of Biosearch Medical Products Inc. from 1975 until 2000.

     Martin C. Dyck has been Executive Vice-President, Operations since June of
2001. He was previously Vice-President of Operations since February 2000 when
Hydromer purchased Biosearch Medical Products. Mr. Dyck has been President of
Biosearch since 1998, a position which he still maintains. Mr. Dyck has been
employed by Biosearch since 1986 and has served in various capacities including
Director of New Product Development, where he developed several new medical
devices and authored six FDA 510(k) pre-market submissions. After becoming
President of Biosearch in 1998, Mr. Dyck changed the focus of BMPI to become a
contract medical coatings service provider using proprietary technology unique
to Biosearch.

     Rainer Gruening joined the Company as Vice-President of Research and
Development in June 2001. With a Ph.D. in Chemistry from the University of
Marburg in Germany, his background includes service with Bayer AG/Deutsche
Solvay Werke, Troy, G+G International and AM Cosmetics in areas including
international regulatory affairs, coatings technology and anti-microbials. Mr.
Gruening authored and/or co-authored 16 patents and 35 publications on synthesis
and formulation of anti-microbials for paint and coatings, cosmetics, personal
care products, adhesives, marine anti-fouling and metal working fluids and
developed dossiers, safety assessments and GMP documentation. Additionally, he
implemented FDA/CTFA, European and Japanese compliance requirements for raw
materials and formulation restrictions.

     John Konar was promoted to Vice-President of Quality Assurance in February
2004 while continuing his role as Director of Human Resources, a position he
held since 1996 with Biosearch before its acquisition by Hydromer in 2000, and
for both companies thereafter. With Biosearch, he was previously Director of QA
from 1998 and Director of Sales from 1996 until 2000. Mr. Konar joined Biosearch
in 1986 and also served as Director of Manufacturing of Biosearch from
2000-2001.

     Robert Y. Lee joined the Company in the capacities of Vice-President of
Finance, Chief Financial Officer and Treasurer in June 2001. He earned a MBA in
Finance and International Business, and a Bachelors of Science in Accounting and
Information Systems, both from New York University's Stern School of Business.
His professional experience includes tenure with the New York office of Coopers
& Lybrand (currently PricewaterhouseCoopers) in their Emerging Business Group,
the Bristol Myers Squibb Internal Auditing group, ASARCO's Southern Peru Copper
Corporation and Citigroup.

     Robert J. Moravsik has been Senior Vice-President, General Counsel and
Secretary since February 2000. Prior to his promotion, he was Vice-President and
General Counsel since April 1998. He also serves in the same capacity for
Biosearch Medical Products, Inc. an 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. He is an attorney admitted in the
state of New Jersey and New York.


ITEM 2. PROPERTIES

     In June 1998, the Company purchased the building and land at 35 Industrial
Parkway, Branchburg, NJ from Biosearch Medical Products, then an affiliated
party. The facility, currently its sole facility, is secured by mortgages
through banks. See the financial statements included herein for the terms of the
agreements.

     In 2002, the Company completed its 10,400 square feet expansion at its
primary location of 35 Industrial Parkway. This allowed the Company to
consolidate certain manufacturing and quality assurance functions operations
formerly located on leased space at 35 Columbia Road, Branchburg, NJ.

     The expanded facility will be adequate for the Company's operations for the
foreseeable future.


ITEM 3. LEGAL PROCEEDINGS

                                 Not applicable


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

                                 Not applicable.



                                       8
<PAGE>

                                     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 fifteen
years, trading in the Company's stock has been limited.

     On February 13, 2002 the Company became a listed security on the Boston
Stock Exchange ("BSX") under the trading symbol "HDO". Hydromer remains listed
as "HYDI" on the OTC reporting services.

     The Company's common stock traded at prices ranging between $ 0.46 and
$2.00 in the fiscal year 2004 and between $0.40 and $0.95 in the fiscal year
2003. 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 August
31, 2004 was 249. There are approximately 550 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,
2004, 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, 2004 WERE $8,690,323 AS COMPARED TO
$6,373,203 FOR THE SAME PERIOD LAST YEAR, AN INCREASE OF $2,317,120 (36.4%).

     Product sales and services were $6,167,822 for the 2004 fiscal year
compared to $4,162,737 in the prior fiscal year, a growth of 48.2% or
$2,005,085.

     License royalties and option payments were $2,522,501 in fiscal 2004, up
14.1% from fiscal 2003's results of $2,210,466.

MANAGEMENT COMMENT: Record revenues were achieved from the Company's continued
focus on research and development initiatives and marketing. Specifically, the
growth in product sales and services during fiscal year 2004 came from new
development projects, co-marketing programs in our T-Hexx product line and
growth in our contract coating services and medical device manufacturing
businesses. There are opportunities for the Company to convert the 2004
development projects into licensing agreements or contract coating services in
the future.

GROSS PROFIT FOR THE YEAR ENDED JUNE 30, 2004 WAS $5,630,391, UP $1,506,287 OR
36.5% OVER FISCAL YEAR 2003'S RESULTS OF $4,124,104.

     Gross profit (Revenues less Cost of Goods Sold) was 64.8% of total
revenues, including royalty income, for fiscal 2004 as compared to 64.7% for
fiscal 2003. Direct costs, as a percentage of product and services sales only,
were 49.6% for fiscal 2004 as compared to 54.0% for the fiscal year ended June
30, 2003.

MANAGEMENT COMMENT: Gross margin on total revenues held consistent from fiscal
2003 to fiscal 2004. There was an improvement in the gross margin on
non-royalty, option and license revenues in fiscal 2004 due to the increased
contribution of the higher profit margin development services included in
services revenues. However, the higher growth rate of product and services
revenues of 48.2% as compared to the 14.1% growth in royalty, option and license
income, which is included in gross profit at 100%, kept the gross margin on
total revenues steady.

OPERATING EXPENSES FOR THE YEAR ENDED JUNE 30, 2004, WAS $4,720,864 AS COMPARED
WITH $3,796,101 FOR THE SAME PERIOD THE YEAR BEFORE, AN INCREASE OF $924,763
(24.4%).

     Employee Costs (including for selling, general and administrative and R&D)
were $3,465,472 for the year ended June 30, 2004 as compared to $2,661,769 for
the same period last year, an increase of $803,703 or 24.4%.

MANAGEMENT COMMENT: Our reinvestment for future growth is reflected here. This
past fiscal year, we have added two scientists, two engineers and two QA
specialists. This increase to our personnel base, and more importantly in R&D,
is an investment to both the current years' results and well as anticipated
results in the forthcoming years to come. Also included in the 2004 Employee
costs are $187,635 in bonuses accrued against the Board approved Bonus plan for
exceeding the Board's expectation for fiscal 2004.

INCOME BEFORE TAXES OF $548,855 IS REPORTED FOR THE 2004 FISCAL YEAR AS COMPARED
TO $203,088 THE YEAR BEFORE, AN INCREASE OF $345,767 (170.3%).

     Other Expenses were $108,672 in fiscal 2004 as compared to $124,915 for the
same period last year. In addition, fiscal 2004 had a charge for the impairment
of goodwill of $252,000.

MANAGEMENT COMMENT: Lower interest costs from both the refinanced fixed rate
loan (refinanced in October 2003 from an adjustable rate loan with an 8% floor
to a 6.52% ten year fixed loan) and the variable rate second mortgage reduced
our interest expense by approximately $12,795 in fiscal 2004 when compared with
fiscal 2003. Also included in the Expenses was a $252,000 non-cash charge for
the impairment of goodwill taken in fiscal


                                       9
<PAGE>

2004. The value of goodwill, created from the acquisition of Biosearch Medical
Products, Inc in February 2000, was reviewed during the year and it was
determined that, after realization of a few years of synergy savings and added
revenues from new business opportunities, the current carrying value exceeded
its fair value, resulting in the charge. This adjustment allows the Company to
proceed with its normal operations without this impairment affecting subsequent
years results.

NET INCOME FOR THE 2004 FISCAL YEAR WAS $231,336 COMPARED TO $133,826 FOR 2003
FISCAL YEAR, AN INCREASE OF $97,510 (72.9%).

     For the 2004 year, there was a Provision for Income Taxes of $317,519 as
compared with $69,262 the prior fiscal year.

MANAGEMENT COMMENT: The Company's effective tax rate was 57.9% as compared with
34.1% for fiscal 2003. Although the non-cash write-off for the impairment of
goodwill created a deferred tax asset with an indefinite life, realization of
such was limited warranting a 100% valuation allowance which in essence resulted
in no net tax benefit from the charge. This impacted the Company's effective tax
rate by an additional 18.4%.


LIQUIDITY AND CAPITAL RESOURCES

WORKING CAPITAL AS OF JUNE 30, 2004 WAS $1,670,604, UP $307,375 FROM THE PRIOR
YEAR.

     Working capital increased during the 2004 fiscal year primarily from an
increase in receivables and a decrease in inventories. The net decreases to
accounts payable, short term borrowings and accrued expenses combined were
offset by the decrease in the deferred tax asset.

MANAGEMENT COMMENT: We continue to see an increase in working capital from the
continued growth of our business. This year's change in working capital reflects
the strength of our financial position. Our working capital as of June 30, 2004
has the fiscal year's increase in sales shown in a higher cash balance, higher
receivables, lower inventories and a lower short-term borrowings balance. The
Bonus Payable is based on the Company's exceeding of the Board's expectation via
the Board approved bonus plan.

     Management believes that the cash position will further be replenished
based on its projections of future income, and along with short-term borrowings,
will provide for sufficient funds to maintain its current level of operations.


ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     For information concerning this item, see pages F-1 through F-8 of the
"Audited Financial Statements for the year ended June 30, 2004," which
information is incorporated herein by reference.


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

                                 Not applicable.



                                       10
<PAGE>

                                    PART III


ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     For information concerning this item, see "Item 1. Business - Executive
Officers" and pages 3 through 10 in the Proxy Statement filed with respect to
the 2004 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 7 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 8 and 9 of the Proxy
Statement, which information is incorporated herein by reference.


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     During the past fiscal year, there have been no related party transactions.


                                     PART IV

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

(A) 1. FINANCIAL STATEMENTS:

     The financial statements 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 filed a Form 8-K on May 13, 2004 containing a press release
commenting on the financial statements filed with the SEC on May 12, 2004.



                                       11
<PAGE>

POWER OF ATTORNEY
-----------------

     The Company and each person whose signature appears below hereby appoint
Manfred F. Dyck and Robert Y. Lee 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.


HYDROMER, INC.

/s/ Manfred F. Dyck        President, Principal Executive     September 10, 2004
-------------------        Officer, Chairman of the Board
Manfred F. Dyck            of Directors


/s/ Robert Y. Lee          Chief Accounting Officer           September 10, 2004
-----------------
Robert Y. Lee


     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:


/s/ Manfred F. Dyck        President, Principal Executive     September 10, 2004
-------------------        Officer, Chairman of the Board
Manfred F. Dyck            of Directors


/s/ Robert H. Bea          Director                           September 10, 2004
-----------------
Robert H. Bea


/s/ Maxwell Borow          Director                           September 13, 2004
-----------------
Maxwell Borow, MD


/s/ Ursula M. Dyck         Director                           September 10, 2004
------------------
Ursula M. Dyck


/s/ Dieter Heinemann       Director                           September 11, 2004
--------------------
Dieter Heinemann


/s/ Klaus J.H. Meckeler    Director                           September 15, 2004
-----------------------
Klaus J.H. Meckeler, MD


/s/ Frederick L. Perl      Director                           September 12, 2004
---------------------
Frederick L. Perl, MD


/s/ Michael F. Ryan        Director                           September 13, 2004
-------------------
Michael F. Ryan, PhD


                                       12
<PAGE>

                           HYDROMER, INC. & SUBSIDIARY

                        CONSOLIDATED FINANCIAL STATEMENTS

                             JUNE 30, 2004 AND 2003

<PAGE>

                          Independent Auditors' Report


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, 2004 and 2003 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 the standards of the Public Company
Accounting Oversight Board (United States). 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, 2004 and 2003, and the consolidated results of their
operations and cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.

                                           ROSENBERG RICH BAKER BERMAN & Company

Bridgewater, New Jersey
August 20, 2004

<PAGE>

                           HYDROMER, INC. & SUBSIDIARY
                 INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

                             JUNE 30, 2004 AND 2003





                                                                          Page

Financial Statements

        Consolidated Balance Sheets...............................        F-1

        Consolidated Statements of Income.........................        F-2

        Consolidated Statements of Stockholders' Equity...........        F-2

        Consolidated Statements of Cash Flows.....................        F-3

        Notes to the Consolidated Financial Statements............    F-4 to F-8

<PAGE>

<TABLE>
<CAPTION>
                                       HYDROMER, INC. & SUBSIDIARY
                                       CONSOLIDATED BALANCE SHEETS

                                                                                          June 30,
                                                                                  2004               2003
--------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>                <C>
ASSETS
Current Assets:
  Cash and cash equivalents................................................   $    142,476       $     97,676
  Trade receivables less allowance for doubtful accounts of $10,727 and
     $15,097 as of June 30, 2004 and 2003, respectively....................      1,715,309          1,193,525
  Inventory................................................................        808,989            980,401
  Prepaid expenses ........................................................        124,799            123,368
  Deferred tax asset.......................................................        141,798            316,798
  Other....................................................................         32,638             16,575
--------------------------------------------------------------------------------------------------------------
Total Current Assets.......................................................      2,966,009          2,728,343

Property and equipment, net................................................      2,921,560          2,745,148

Intangible Assets, net.....................................................        676,291            611,749
Goodwill...................................................................        238,172            490,172
---------------------------------------------------------------------------------------------------------------
Total Assets                                                                  $  6,802,032       $  6,575,412
===============================================================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Accounts payable.........................................................   $    524,917       $    454,783
  Short-term borrowings....................................................        131,010            597,286
  Accrued expenses ........................................................        246,019            195,311
  Bonus payable............................................................        187,635                  -
  Current portion of deferred revenue.. ...................................         26,000                  -
  Current portion of mortgage payable .....................................         91,507            101,234
  Income tax payable.......................................................         88,317             16,500
---------------------------------------------------------------------------------------------------------------
Total Current Liabilities..................................................      1,295,405          1,365,114
Deferred tax liability.....................................................        191,500            161,500
Long-term portion of deferred revenue......................................        104,000                  -
Long-term portion of mortgage payable .....................................      1,363,723          1,440,227
---------------------------------------------------------------------------------------------------------------
Total Liabilities                                                                2,954,628          2,966,841
---------------------------------------------------------------------------------------------------------------

Stockholders' Equity
  Preferred stock - no par value, authorized 1,000,000 shares, no shares
     issued and outstanding                                                              -                  -
  Common stock - no par value, authorized 15,000,000 shares;
     as of June 30, 2004, 4,608,904 shares issued and 4,597,987 shares
     outstanding; as of June 30, 2003, 4,598,904 shares issued and
     4,587,987 shares outstanding..........................................      3,615,615          3,608,118
  Contributed capital......................................................        577,750            577,750
  Accumulated deficit......................................................       (339,821)          (571,157)
  Treasury stock, 10,917 common shares at cost.............................         (6,140)            (6,140)

---------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity                                                       3,847,404          3,608,571
---------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity                                    $  6,802,032       $  6,575,412
===============================================================================================================
SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

                                                     F-1
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                      HYDROMER, INC. & SUBSIDIARY
                                   CONSOLIDATED STATEMENTS OF INCOME

                                                                                         Year Ended
                                                                                  2004               2003
---------------------------------------------------------------------------- ---------------------------------
<S>                                                                           <C>                <C>
REVENUES
  Sale of products.........................................................   $  4,869,506       $  3,937,294
  Service revenues.........................................................      1,298,316            225,443
  Royalties, options and licenses..........................................      2,522,501          2,210,466
---------------------------------------------------------------------------- ---------------------------------

       TOTAL REVENUES......................................................      8,690,323          6,373,203
---------------------------------------------------------------------------- ---------------------------------

EXPENSES
      Cost of Sales........................................................      3,059,932          2,249,099
      Operating Expenses...................................................      4,720,864          3,796,101
      Impairment of Goodwill...............................................        252,000                  -
      Other Expenses.......................................................        108,672            124,915
      Provision for Income Taxes...........................................        317,519             69,262
---------------------------------------------------------------------------- ---------------------------------
      TOTAL EXPENSES.......................................................      8,458,987          6,239,377
---------------------------------------------------------------------------- ---------------------------------
      NET INCOME ..........................................................   $    231,336       $    133,826
============================================================================ =================================

      Earnings Per Common Share............................................   $       0.05       $       0.03

      Earnings Per Common Share - Assuming Dilution........................   $       0.05       $       0.03

Weighted Average Number of
      Common Shares Outstanding............................................      4,595,214          4,587,987

Weighted Average Number of
      Common Shares Outstanding - Assuming Dilution........................      5,062,405          4,733,320
============================================================================ =================================
      SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>


<TABLE>
<CAPTION>
                                               HYDROMER, INC. & SUBSIDIARY
                                     CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
==============================================================================================================================

                                     Common Stock         Contributed    Accumulated       Treasury Stock
                                ------------------------                                ----------------------
                                  Shares       Amount        Capital       Deficit       Shares      Amount         Total
                                -----------  -----------    ----------    -----------   ---------   ----------   -------------
<S>                              <C>         <C>            <C>           <C>              <C>      <C>          <C>
Balance June 30, 2002            4,598,904   $ 3,608,118    $  577,750    $  (704,983)     10,917   $    6,140   $   3,474,745

  Net Income                                                                  133,826                                  133,826

                                -----------  -----------    ----------    -----------   ---------   ----------   -------------
Balance June 30, 2003            4,598,904   $ 3,608,118    $  577,750    $  (571,157)     10,917   $    6,140   $   3,608,571

  Exercise of Stock Options         10,000         7,497                                                                 7,497
  Net Income                                                                  231,336                                  231,336

                                -----------  -----------    ----------    -----------   ---------   ----------   -------------
BALANCE JUNE 30, 2004            4,608,904   $ 3,615,615    $  577,750    $  (339,821)     10,917   $    6,140   $   3,847,404
                                ===========  ===========    ==========    ===========   =========   ==========   =============

==============================================================================================================================
SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>

                                      F-2

<PAGE>

<TABLE>
<CAPTION>


                                      HYDROMER, INC. & SUBSIDIARY
                                 CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                         Year Ended
                                                                                  2004               2003
--------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net Income...............................................................   $    231,336       $    133,826
  Adjustments to reconcile net income to net cash provided by
    operating activities
    Depreciation and amortization..........................................        194,908            178,398
    Impairment of Goodwill.................................................        252,000                  -
    Deferred income taxes..................................................        205,000             52,562
    Changes in Assets and Liabilities
       Trade receivables...................................................       (521,784)           (62,098)
       Inventory...........................................................        171,412             (7,821)
       Prepaid expenses....................................................         (1,431)             4,365
       Patents and Trademark...............................................        (64,542)           (81,165)
       Other assets........................................................        (16,063)            (5,475)
       Accounts payable and accrued liabilities............................        308,479           (124,585)
       Deferred revenues...................................................        130,000                  -
       Income taxes payable................................................         71,817             16,500
--------------------------------------------------------------------------------------------------------------

          Net Cash Provided by Operating Activities........................        961,132            104,507
--------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Cash purchases of property and equipment.................................       (371,322)          (137,025)
--------------------------------------------------------------------------------------------------------------

          Net Cash Used for Investing Activities...........................       (371,322)          (137,025)
--------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net (payments)/borrowings against Line of Credit.........................       (466,276)            97,286
  Proceeds from long-term borrowings.......................................        555,000                  -
  Repayment of long-term borrowings........................................       (641,231)           (78,240)
  Proceeds from the issuance of common stock...............................          7,497                  -
--------------------------------------------------------------------------------------------------------------

          Net Cash (Used for) Provided by Financing Activities.............       (545,010)            19,046
--------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:                               44,800            (13,472)
Cash and Cash Equivalents at Beginning of Period...........................         97,676            111,148
--------------------------------------------------------------------------------------------------------------

Cash and Cash Equivalents at End of Period.................................   $    142,476       $     97,676
==============================================================================================================

          Cash paid during the year for:

                  Interest                                                    $    112,302       $    125,642
                  Income taxes                                                $     32,100       $          -

     SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

                                                    F-3
</TABLE>

<PAGE>

                           HYDROMER, INC. & SUBSIDIARY
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


1.      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 both the United States and abroad
for the medical, cosmetics, agricultural and industrial fields. The Company
obtains patent rights on certain products from which royalty revenues are
received. Its wholly owned subsidiary, Biosearch Medical Products, Inc., a U.S.
based corporation, is an OEM manufacturer for various medical products companies
as well as the manufacturer of its own line of endoscopic products sold to
hospitals, domestically and internationally, through a network of dealers. The
Company also offers R&D, engineering and contract coating services in its array
of capabilities.

PRINCIPLES OF CONSOLIDATION

        The consolidated financial statements include the accounts of Hydromer,
Inc. and 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 40 years for the
building. 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 patents are prepaid and amortized over the
expected 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. Amortization expense for
the years ended June 30, 2004 and 2003 were $50,296 and $40,729, respectively.
One new patent was approved during each of the years ended June 30, 2004 and
June 30, 2003.

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 through June 30, 2002, was amortized on the straight
line method over 40 years. The Company adopted SFAS No. 142, GOODWILL AND OTHER
INTANGIBLE ASSETS, on July 1, 2002 in which goodwill is no longer amortized but
tested for impairment on at least an annual basis. The carrying value is
reviewed if the facts and circumstances, such as significant declines in sales,
earnings or cash flows or material adverse changes in the business climate,
suggest that it may be impaired. If this review indicates that goodwill will not
be recoverable, the impairment is determined by comparing the carrying value of
goodwill to fair value. Fair value is determined based on quoted market values,
discounted cash flows or appraisals. During the year ended June 30, 2004, the
Company determined that the carrying amount of the goodwill exceeded its fair
value, which was estimated based on the present value of expected future cash
inflows. Accordingly, a goodwill impairment loss of $252,000 was recognized
during the year ended June 30, 2004.

LONG-LIVED ASSETS

        The Company assesses long-lived assets for impairment as required under
SFAS No. 144, ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS.
The Company reviews for impairment whenever events or circumstances indicate
that the carrying amount of these assets may not be recoverable. The Company
assesses these assets for impairment based on estimated future cash flows from
these assets.

REVENUE RECOGNITION

        Revenues from product and services sales are recognized at the time of
shipment or services rendered provided that collection of the resulting
receivable is probable. Revenues from royalties are recognized upon the sale of
certain products by licensees with whom the Company has licensing agreements.
Deferred revenues are recorded when agreements calls for payment ahead of when
the amounts are earned.

SHIPPING AND HANDLING CHARGES

        The Company includes costs of shipping and handling billed to customers
in Revenues and the related expense of shipping and handling costs in Cost of
Sales.

ADVERTISING

        Advertising costs are expensed as incurred except for tangible assets,
such as printed advertising materials, which are expensed as consumed.
Advertising expense was $26,978 and $40,271 for the years ended June 30, 2004
and 2003, 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, 2004 and 2003 were approximately $670,154 and $417,395,
respectively.

STOCK-BASED COMPENSATION

        As permitted by SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION,
the Company has elected to follow Accounting Principle Board Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, ("APB 25") and related interpretations
in accounting for its employee stock option plans. Under APB 25, no compensation
expense is recognized at the time of option grant when the exercise price of the
Company's employee stock options equals the fair market value of the underlying
common stock on the date of grant.

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 and state income taxes.

                                      F-4

<PAGE>

                           HYDROMER, INC. & SUBSIDIARY
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


EARNINGS PER SHARE

Earnings per share, in accordance with the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share", is computed by
dividing net income by the weighted average number of common stock shares
outstanding during the period.

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.

RECLASSIFICATION

        Certain amounts previously reported have been reclassified to conform to
the 2004 presentation.

--------------------------------------------------------------------------------

2.      NEW ACCOUNTING PRONOUNCEMENTS

        In May 2003, the Financial Accounting Standards Board issued SFAS
Statement No. 150, "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity". This Statement establishes
standards for how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity. It requires
that an issuer classify a financial instrument that is within its scope as a
liability (or an asset in some circumstances). This statement is effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period beginning after June
15, 2003, except for mandatory redeemable financial instruments of nonpublic
entities, if applicable. It is to be implemented by reporting the cumulative
effect of a change in an accounting principle for financial instruments created
before the issuance date of the Statement and still existing at the beginning of
the interim period of adoption. The adoption of this statement did not have an
impact on the Company's results of operations or financial position.

--------------------------------------------------------------------------------

3.      CONCENTRATION OF CREDIT AND BUSINESS RISK

        The Company is exposed to additional credit and business risks due to
its concentration of activity with certain parties. For example, at times
throughout the year, the Company may maintain certain bank accounts in excess of
FDIC insured limits.

        In addition, 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.

        For the year ended June 30, 2004, the Company sold products and services
and collected royalty income, totaling 39% of its total revenues, to two
customers, Cordis Neurovascular Systems and Wilson Cook Medical, Inc. who
individually accounted for 24% and 15%, respectively, of the consolidated
revenues. Accounts receivable from these customers accounted for 53% of total
accounts receivable at June 30, 2004.

        During the fiscal year ended June 30, 2003 Cordis Neurovascular Systems
and Wilson Cook Medical, Inc. individually accounted for 23% and 16%,
respectively, of total revenues. Accounts receivable from these customers
accounted for 44% of total accounts receivable at June 30, 2003.

4.      INVENTORY

Inventory consists of:

--------------------------------------------------------------
                                         JUNE 30,
                                   2004           2003
                                   ----           ----
Finished goods                 $   169,779    $   215,035
Work in process                    323,423        304,230
Raw materials                      315,787        461,136
                               -----------    -----------
                               $   808,989    $   980,401
                               ===========    ===========
--------------------------------------------------------------

5.      PROPERTY AND EQUIPMENT

Property and equipment consists of the following:
--------------------------------------------------------------
                                          JUNE 30,
                                     2004          2003
                                     ----          ----
Land                            $    472,410   $   472,410
Building                           1,953,042     1,869,188
Machinery and equipment            3,189,482     2,907,497
Furniture and fixtures               708,725       703,243
                                ------------   -----------
                                   6,323,659     5,952,338
Less: Accumulated
   depreciation and
   amortization                   (3,402,099)   (3,207,190)
                                ------------   -----------
Property and Equipment, net     $  2,921,560   $ 2,745,148
                                ============   ===========
--------------------------------------------------------------

        Depreciation expense charged to operations was $194,908 and $178,398 for
the years ended June 30, 2004 and 2003, respectively.

--------------------------------------------------------------------------------

6.      INTANGIBLE ASSETS

Intangible Assets are comprised of the following:
-------------------------------------------------------------
                                            JUNE 30,
                                       2004          2003
                                       ----          ----
Patents                            $   800,334   $   682,331
Trademarks                              70,010        64,811
   Less:  Accumulated                 (194,053)     (135,393)
amortization
                                   -----------   -----------
Intangible Assets, net             $   676,291   $   611,749
                                   ===========   ===========
-------------------------------------------------------------

Amortization of the June 30, 2004 Intangible Assets are as follows:

     ------------------------------------------------------
        YEAR ENDED JUNE 30,
              2005                            $  59,029
              2006                               55,765
              2007                               54,221
              2008                               52,456
              2009                               52,241
              Thereafter                        402,579
                                              ---------
                                              $ 676,291
                                              =========
     ------------------------------------------------------

--------------------------------------------------------------------------------

7.      LONG-TERM DEBT AND CREDIT FACILITY

        The Company's facility is financed by a ten-year mortgage note bearing
interest at a 6.52% fixed rate. The note amortizes with monthly payments and is
secured by the real estate and improvements and all rents from leases
subsequently entered into.

        The Company has a second loan on the facility which was converted from a
construction loan. The construction loan which was not to exceed $1,000,000 for
its building expansion, converted to permanent loan in December 2002. The
construction loan bore interest at the Wall Street Journal's published Prime
Rate plus 1/2%, floating during the period and payable on a monthly basis. The
current permanent mortgage has a term of fifteen years at an interest rate of
the Wall Street Journal's published Prime Rate plus 1%, fixed annually. Payments
of principal and interest will be due

                                      F-5

<PAGE>

                           HYDROMER, INC. & SUBSIDIARY
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


monthly until maturity. The permanent loan is 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. This
loan carries a prepayment penalty of 1% until December 2004.

        In addition, the Company has a revolving line of credit agreement with a
financial institution, which allows borrowings of up to $750,000, secured by all
trade receivables and inventories. The line bears interest at LIBOR plus 3.15%
payable monthly through maturity on July 31, 2004. As of June 30, 2004, the
interest rate was 4.51%. This line was renewed for another year at the same
terms.

Long-term debt is comprised of the following:
--------------------------------------------------------------
                                           June 30,
                                    -------------------------
                                       2004          2003
                                    ----------    ----------
Mortgage note                       $  525,530    $  566,708
Second Mortgage Loan                   929,700       974,753
    Less:  Current Maturities          (91,507)     (101,234)
                                    ----------    ----------
Long-term Debt,
    Net of Current Maturities       $1,363,723    $1,440,227
                                    ==========    ==========

--------------------------------------------------------------

Total maturities of long term debt are as follows:
    -----------------------------------------------------
    YEAR ENDED JUNE 30,
        2005                               $    91,507
        2006                                    96,941
        2007                                   102,704
        2008                                   108,645
        2009                                   115,289
        Thereafter                             940,144
                                           -----------
                                           $ 1,455,230

    -----------------------------------------------------

--------------------------------------------------------------------------------

8.      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 as it is based on or about at 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.

9.      INCOME TAXES

The income tax provision (benefit) is comprised of the following:
-----------------------------------------------------------------
                                 Federal      State      Total
                                ----------  ---------  ----------
YEAR ENDED JUNE 30, 2004
    CURRENT                     $   77,606  $  21,699  $   99,305
    DEFERRED                       174,985     43,229     218,214
                                ----------  ---------  ----------
                                $  252,591  $  64,928  $  317,519
                                ==========  =========  ==========
Year Ended June 30, 2003
    Current                     $        -  $  16,700  $   16,700
    Deferred                        58,760     (6,198)     52,562
                                ----------  ---------  ----------
                                $   58,760  $  10,502  $   69,262
                                ==========  =========  ==========

-----------------------------------------------------------------

The Company's deferred tax asset and liability as presented in the Company's
financial statements are comprised of the following temporary differences:

--------------------------------------------------------------
                                             JUNE 30,
                                         2004        2003
                                         ----        ----
Deferred Tax Asset
    Net Operating Losses              $  207,382  $  226,465
    Adjustment of Goodwill               100,800           -
    Research & Development Credits        27,500     169,584
    Valuation allowance                 (193,884)    (79,251)
                                      ----------  ----------
      Total Deferred Tax Assets          141,798     316,798
                                      ==========  ==========

Deferred Tax Liability
    Depreciation                        (191,500)   (161,500)
                                      ----------  ----------
      Total Deferred Tax Liability    $ (191,500) $ (161,500)
                                      ==========  ==========

--------------------------------------------------------------

        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 adjustment to
Goodwill in 2004 created a deferred tax asset, which although has an indefinite
life, has been fully reserved for as realization of its benefit is unlikely.

        The Company has net operating loss carry forwards of approximately
$368,000 and $914,023 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, 2010 and June 30, 2018 for State and Federal tax purposes,
respectively. In addition, the Company has Research and Development Tax Credits
for State tax purposes of approximately $27,500 which expires in various years
through June 30, 2011.

        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, generation of
allowable tax credits 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,
                                          2004        2003
                                          ----        ----
     Federal statutory tax rate           34.0 %      34.0 %
     State income tax - net of
       federal tax benefit                 6.0         7.9
     R & D credits                        (4.5)      (19.2)
     Adjustment in valuation
       allowance                          20.9         1.6
     Permanent and other differences       1.5         9.8
                                          ----        ----
                                          57.9 %      34.1 %
                                          ====        ====

     ---------------------------------------------------------

                                      F-6

<PAGE>

                           HYDROMER, INC. & SUBSIDIARY
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


10.     STOCK OPTIONS AND AWARDS

        On January 22, 1998 the Board of Directors authorized two stock option
plans effective July 1, 1998: one for the Chief Executive Officer (the "CEO")
and an identical plan for senior management. Under the plans, the CEO, and
separately, senior management, would be issued stock options, at the market
price at the date of grant, 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 each plan.

        Under these plans, 97,080 options at an exercise price of $1 per share
were granted on June 30, 1999, and 126,629 options at an exercise price of $1.46
per share were granted on August 29, 2001 as of July 1, 2001. As of June 30,
2004, the remaining unexercised 64,720 options from the 1999 issuance expired
with 105,524 options from the 2001 issuance remaining exercisable with an
expiration of June 2006.

        On August 29, 2001, the Board of Directors authorized two stock option
plans effective July 1, 2001: one for the Chief Executive Officer and an
identical plan for senior management. These plans were identical to the ones
authorized on January 22, 1998 and effective July 1, 1998. No awards were made
under these 2001 plans.

        On January 22, 1998 the Board of Directors approved an option plan that
granted each active director 5,000 common stock options annually. On October 21,
1998, 20,000 options were granted under this plan. The exercise price of $0.75
was equal to the market value at the date of grant. These options expired on
October 21, 2003 with 10,000 options exercised and 10,000 options expiring. On
November 11, 1999, 25,000 stock options were granted under this plan at $0.80
per share with an expiration of November 11, 2004.

        On February 22, 2000 the option plan for directors was amended to award
2,000 options for each meeting attended, awarded at the annual meeting at the
5-day market price average. Under the amended plan, 62,000 options were awarded
to the Board of Directors on October 24, 2000 at an exercise price of $0.55,
expiring October 23, 2005. On November 14, 2001 64,000 options were issued at an
exercise price of $1.11, expiring November 13, 2006. On November 13, 2002 80,000
options were issued at an exercise price of $0.45, expiring November 13, 2007.
52,000 options were issued at an exercise price of $1.10 on November 19, 2003
with an expiration of November 19, 2008.

        On February 3, 2000 the Company issued 10,000 stock options to a senior
executive as part of his employment contract. The options vested immediately and
are priced at $0.89 per share with an expiration of February 3, 2005.

        During the 2002 fiscal year, there were nine option grants for a total
of 123,000 shares at exercise prices ranging from $0.55 to $1.15, as determined
by their respective preceding 5-day market price average. These options vests
1/3 each year starting on the anniversary of the date of grant and expires in 5
years through May 21, 2007. 10,000 options were cancelled during fiscal 2003 due
to the resignation of an optionee.

        Aside of the 52,000 options issued to the Board of Directors on November
19, 2003, there were no other stock option issuances during the 2004 fiscal
year.

        A summary of activity under the plan for the years ending June 30, 2004
and 2003 is as follows:

--------------------------------------------------------------------------------
                                        Common Stock Options Outstanding
                                        --------------------------------
                                                       Weighted Average
                                            Shares      Exercise Price
                                            ------      --------------
        Balance, June 30, 2002             464,244         $  1.02
          Granted                           80,000            0.45
          Canceled                         (10,000)           1.10
                                          ----------       -------
        Balance, June 30, 2003             534,244         $  0.93
          Granted                           52,000            1.10
          Exercised                        (10,000)           0.75
          Canceled                         (74,720)           0.97
                                          ----------       -------
        BALANCE, JUNE 30, 2004             501,524         $  0.94
--------------------------------------------------------------------------------

Following is a summary of the status of options outstanding as of June 30, 2004:

--------------------------------------------------------------------------------
                             Outstanding Options            Exercisable Options
                                  Weighted
                                  Average        Weighted             Weighted
   Exercise                      Remaining       Average              Average
     Price                      Contractual      Exercise             Exercise
     Range           Number         Life          Price      Number    Price
     -----           ------         ----          -----      ------    -----

$0.45 - $0.69       152,000      2.5 years        $0.50     148,667    $0.50
$0.70 - $1.20       244,000      2.6 years        $1.00     213,000    $1.01
$1.21 - $1.46       105,524      2.0 years        $1.46     105,524    $1.46
                    -------      ---------        -----     -------    -----
                    501,524      2.4 years        $0.94     467,191    $0.95
--------------------------------------------------------------------------------

PRO FORMA INFORMATION

        The Company follows the disclosure only provisions of SFAS No. 123,
Accounting for Stock Based Compensation. Accordingly, no compensation expense
has been recognized for stock options issued. Had compensation expense for the
options which vested in 2004 and 2003 been determined based on the fair value at
the grant date commensurate with the provisions of SFAS No. 123, the Company's
net income and net income per share for 2004 and 2003, respectively, would have
been reflected as to the pro forma amounts indicated below:

--------------------------------------------------------------------------------
                                               2004           2003
                                            ----------     ----------
        Net Income:
                As reported                 $  231,336     $  133,826
                Pro forma                      198,610        102,626
        Basic Income per Share:
                As reported                 $     0.05     $     0.03
                Pro forma                         0.04           0.02
--------------------------------------------------------------------------------

        The fair value of each option grant is estimated on the date of grant
using the Black-Scholes pricing model with the following weighted average
assumptions for grants in 2004 and 2003, respectively: dividend yield of 0% and
0%; expected volatility of 170% and 200%; risk-free interest rate of 3.2% and
2.8%; and expected lives of 5 years in both years.

--------------------------------------------------------------------------------

11.     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. The Company determines annually, the amount of matching
contributions, which recently has been 25% on 6% of the employees' salary. The
Company's matching contribution to the plan during the years ended June 30, 2004
and 2003 were $17,000 and $15,001, respectively.


                                       F-7
<PAGE>

                           HYDROMER, INC. & SUBSIDIARY
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


12.     LEASES

        There were no material non-cancelable lease terms in excess of one year
as of June 30, 2004.

--------------------------------------------------------------------------------

13.     EARNINGS PER SHARE

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

--------------------------------------------------------------------------------
                                                        2004          2003
                                                     ----------    ----------
Numerator:
        Net income                                   $  231,366    $  133,826
                                                        =======       =======
Denominator:
        Denominator for earnings per share            4,595,214     4,587,987
        - weighted average shares
outstanding
        Effect of dilutive securities -
        stock options                                   467,191       145,333
                                                        -------       -------
        Denominator for earnings per share
        - assuming dilution - adjusted weighed
        average shares outstanding                    5,062,405     4,733,320
                                                      =========     =========

Earnings per share                                   $      .05    $      .03
                                                            ===           ===
Earnings per share - assuming dilution               $      .05    $      .03
                                                            ===           ===

--------------------------------------------------------------------------------

14.  INDUSTRY SEGMENT INFORMATION

        The Company operates two primary business segments: (1) Polymer Research
and (2) Medical Products.

        Products included in the polymer research segment are AquadaptTM,
AquamereTM, Aquatrix(R), Dermaseal(R), Hydromer(R) Anti-Fog/Condensation Control
Coatings, Hydromer(R) Lubricious Coatings, Sea-Slide(R) and T-Hexx(R) Barrier
Dips and Sprays. Research and Development services and all of the Company's
royalties, options and license revenues are reported in this segment.

        The medical products segment includes an OEM product line of bipolar
coagulation probes, jejunal, enteral and bilary catheters and stents, feeding
accessories, guidewires, biofeedback devices for fecal and urinary incontinence
and endoscopic accessories. Service revenues, including coating services and
engineering services, are included in this segment.

        Due to the multitude of products offered and the product gross margins,
the Company does not track sales volumes by products.

        The Company operates globally in its segments with several large
customers that are important to their operating results. One such customer
accounted for 29% and 34% of the polymer research segment sales for the 2004 and
2003 fiscal years, respectively. For the medical products segment, four
customers in the aggregate accounted for 71% and 75% of that segment's 2004 and
2003 sales, respectively.

        The Company evaluates the segments by revenues, total expenses and
earnings before income taxes. The Company's assets are not reviewed by business
segment. The accounting policies of these segments are described in the summary
of significant accounting policies.

        Corporate Overhead, primarily the salaries and fringes of senior
management, support services (Accounting, Legal, Human Resources and Purchasing)
and other shared services (Building maintenance and warehousing), is reflected
separately from the results of the business segments in the following:

--------------------------------------------------------------------------------
                              Polymer      Medical      Corporate
                              Research     Products*     Overhead       Total
                             ----------   ----------    ----------  ------------
YEAR ENDED JUNE 30, 2004
REVENUE                     $ 5,073,228   $ 3,617,095               $ 8,690,323
EXPENSES                     (3,105,150)   (3,381,943) $(1,402,375)  (7,889,468)
                             -----------   -----------  -----------  -----------
EARNINGS (LOSS) BEFORE
  INCOME TAXES              $ 1,968,078   $   235,152  $(1,402,375) $   800,855
                             ===========   ===========  ===========  ===========
Year Ended June 30, 2003
Revenue                     $ 4,091,049   $ 2,282,154               $ 6,373,203
Expenses                     (2,726,627)   (2,351,464) $(1,092,024)  (6,170,115)
                             -----------   -----------  -----------  -----------
Earnings (Loss) before
  Income Taxes              $ 1,364,422   $   (69,310) $(1,092,024) $   203,088
                             ===========   ===========  ===========  ===========

--------------------------------------------------------------------------------
* Excludes the Fiscal 2004 Impairment of Goodwill for $252,000 as such
charge-off is not included in the periodic reporting segment evaluations.

Geographic revenues were as follows for the years ended June 30,

                                    2004                2003
                                    ----                ----
        Domestic                     84%                 80%
        Foreign                      16%                 20%

--------------------------------------------------------------------------------

15.     CONTINGENCIES

        Royalty revenues recorded by the Company's are based on the sales of
licensee products as reported by the Company's licensees which has the risk of
being under- or over-reported. To minimize such risks, the Company's management
utilizes its knowledge and understanding of the licensee's business, the market
and other pertinent factors in assessing the validity of reported royalties. In
addition, the Company has a right to audit the amounts reported.

        Although the Company has not received any claims by licensees for their
overpayment of royalties, the Company is currently in the preliminary stages of
investigating one case of possible overpayment and one on a potential
underpayment. In neither of these cases does the Company believe that any
resulting determination would have a material impact to any reported results.

--------------------------------------------------------------------------------

16.     SUBSEQUENT EVENTS

        In July 2004, the Company renewed its $750,000 revolving line of credit
agreement. This line matures on July 31, 2005.


                                       F-8
<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).

        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).

<PAGE>

        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).

        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).

<PAGE>

        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).

        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

        10.ca   License Agreement dated July 1, 2000 between Becton Dickinson
and Company, Inc. and the Company.

        10.cb   License Agreement dated January 1, 2001 between LHS Limited and
LHS Holding Limited, English dba KLEENCARE and the Company.

<PAGE>

        10.cc   License Agreement dated April 17, 2001 between Tyco Healthcare
Group LP and the Company.

        10.cd   Construction Contract dated April 19, 2001 between REDCO
Engineering & Construction Corp and the Company.

        10.ce   Service Agreement dated April 23, 2001 between Tyco Healthcare
Group LP and the Company.

        10.cf   Loan Agreement dated June 7, 2001 between New Millenium Bank and
the Company.

        10.cg   By-Laws Articles of Incorporation.

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

        31.1    Certification of Manfred F. Dyck, Chief Executive Officer,
pursuant to Securities Exchange Act Rule 13a-14(a).

        31.2    Certification of Robert Y. Lee, Chief Financial Officer,
pursuant to Securities Exchange Act Rule 13a-14(a).

        32.1    Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by Manfred F.
Dyck, Chief Executive Officer of Hydromer, Inc.

        32.2    Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by Robert Y.
Lee, Chief Financial Officer of Hydromer, Inc.

<PAGE>

                       REFERENCES AND PERTINENT LITERATURE

Bach, A., Darby, D., Boettiger, B., Boehrer, H., Motsch, J. and Martin, E.
  "Retention of the antibiotic teicoplanin on a hydromer-coated central venous
  catheter to prevent bacterial colonization in postoperative surgical patients"
  INTENSIVE CARE MEDICINE, 1996, Vol. 22, No. 10, pp 1066-1069

Belknap, D.C., Seifert, C.F. and Petermann, M. "Administration of Medications
  Through Enteral Feeding Catheters" AMERICAN JOURNAL OF CRITICAL CARE, 1997,
  Vol. 6, No. 5, pp 382-392

Borow, M. and Crowley, J.G. "Prevention of thrombosis of central venous
  catheters" JOURNAL OF CARDIOVASCULAR Surgery, 1986, Vol. 27, No. 5, pp 571-574

Borow, M. and Crowley, J.G. "Evaluation of Central Venous Catheter
  Thrombogenicity" ACTA ANAESTHESIOLOGICA SCANDINAVIA, SUPPLEMENTUM, 1985,
  Suppl. 81, pp 59-64

Bridgett, M.J., Davies, M.C., Denyer, S.P. and Eldridge, P.R. "In vitro
  assessment of bacterial adhesion to Hydromer-coated cerebrospinal fluid
  shunts" BIOMATERIALS, 1993, Vol. 14, No. 3, pp 184-188

Bylock, A., Hultman, E., Gustavsson, B., Lindner, L.E. and Curlaru, I. "Surface
  Morphology Of Unused And Used Hydromer-Coated Intravenous Catheters" SCANNING
  ELECTRON MICROSCOPY (I), 1986, pp 157-164

Costamagna, G., Mutignani, M., Rotondano, G., Cipoletta, L., Ghezzo, L., Foco,
  A. and Zambelli, A. "Hydrophilic hydromer-coated polyurethane stents versus
  uncoated stents in malignant biliary obstruction: a randomized trial"
  GASTROINTESTINAL ENDOSCOPY, 2000, Vol. 51, No. 1, pp 8-11

Craig, Silvis S. "Performance and acceptability of Entiflex enternal feeding
  tube with Hydromer lubricated lumen and mercury weight and with placement
  stylet" THERAPEUTIC GASTROINTESTINAL ENDOSCOPY, 1985, pp 185-197

Elliott "Can Antimicrobial Central Venous catheters prevent associated
  infection?" BRITISH JOURNAL OF HEMATOLOGY 1999, Vol. 107, pp 234-241

Elliott T.S. "The prevention of central venous catheter-related sepsis" JOURNAL
  OF CHEMOTHERAPY, 2001, Vol. 13, No. 1 (1), pp 234-238

Elliott T.S.J. "Role of antimicrobial central venous catheters for the
  prevention of associated infections" JOURNAL OF ANTIMICROBIAL CHEMOTHERAPY
  1999, Vol. 43, pp 441-446

Faigel, D.O. "Preventing biliary stent occlusion" GASTROINTESTINAL ENDOSCOPY,
  2000, Vol. 51, No. 1, Jan 2000

Francois, P., Vaudaux, P., Lew, D.P., Nurdin, N., Mathieu, H.J. and Descounts,
  P. "Physical and biological effects of a surface coating procedure on
  polyurethane catheter" BIOMATERIALS, 1996, Vol. 17, No. 7, pp 667-678

Garvin, J., Button, N.F., Watson-Craik, I.A. and Logan, N.A. "Observation of
  Soft Contact Lens Disinfection with Fluorescent Metabolic Stains" APPLIED AND
  ENVIRONMENTAL MICROBIOLOGY, 2000, Vol. 66, No. 2, pp 874-875

Gupta, P., Vermani, K. and Garg, S. "Hydrogels: from controlled release to
  pH-responsive drug delivery" DRUG DISCOVERY TODAY, 2002, Vol. 7, No. 10, pp
  569-579

Gupta, S., Batra, Y.K., Puri, G.D., Panigrahi, D. and Roy, S. "Infection rates
  in single- and double-lumen central venous catheters in critically ill
  patients." THE NATIONAL MEDICAL JOURNAL OF INDIA, 1995, Vol. 8, No. 3, pp
  114-117

Hoff, B.H., Hawke, M., Fletcher, S. and Matjesko, M.J., "The Spectrum of
  Thromboembolization in the Central Circulation." Anesthesiology Res. 534 MSTF
  University of Maryland 1992

Jansen, B., Goodman, L.P. and Ruiten, D. "Bacterial adherence to hydrophilic
  polymer-coated polyurethane stents" GASTROINTESTINAL ENDOSCOPY, 1993, Vol. 39,
  No. 5, pp 670-673

John, S.F., Hillier, V.F., Handley, P.S. and Derrick, M.R. "Adhesion of
  staphylococci to polyurethane and hydrogel-coated polyurethane catheters
  assayed by an improved radiolabelling technique." JOURNAL OF MEDICAL
  MICROBIOLOGY, 1995, Vol. 43, No. 2, pp 133-140

Khoury, A.E., Olson, M.E., Villari, F. and Costerton, J.W. "Determination of the
  coefficient of kinetic friction of urinary catheter materials" JOURNAL OF
  UROLOGY, 1991, Vol. 145, No. 3, pp 610-612

Kristinsson, K.G. "Adherance of staphylococci to intravascular cartheters."
  JOURNAL OF MED. MICROBIOLOGY, 1989, Vol. 28, pp 249-257

Leung, J.W., Liu, Y., Cheung, S., Chan, R.C.Y., Inciardi, J.F. and Cheng, A.F.
  "Effect of antibiotic-loaded hydrophilic stents in the prevention of bacterial
  adherence: A study of charge, discharge, and recharge concept using
  ciprofloxacin" GASTROINTESTINAL ENDOSCOPY, 2001, Vol. 53, No. 4, pp 431-437

Luque, A.G., Simonet, N.H., Ramos, M.I.V., Palacios, M.M. and Pardo, P.E.H.
  "Profilaxis de las complicaciones infecciosas de los catheteres venosos
  centrales " ESP. ANESTESIOL. REANIM., 2002, Rev No. 49, pp 17-33

Menemse, Kiremitci-Gumu Derelioglu and Arzu, Pesmen "Microbial adhesion to
  ionogenic PHEMA, PU and PP implants" BIOMATERIALS, 1996, Vol. 17, No. 4, pp
  443-449

Moss, H.S., Tebbs, S.E., Faroqui, M.H., Herbst, T., Isaac, J.L., Brown, J. and
  Elliott, T.S.J. "A central venous catheter coated with benzalkonium chloride
  for the prevention of catheter-related microbial colonization." EUROPEAN
  JOURNAL OF ANESTHESIOLOGY, 2000, Vol. 17, No. 11, pp 680

Naderi, S. and Vinci, A. "A Novel Class of Film Forming Polymers" COSMETICS AND
  TOILETRIES MANUFACTURE WORLDWIDE, 2000, Aston Publ. UK

Nurdin, N., Weilandt, E., Textor, M., Taborelli, M., Spencer, N.D. and Descouts,
  P. "Reduced frictional resistance of polyurethane catheter by means of a
  surface coating procedure" JOURNAL OF APPLIED POLYMER SCIENCE, 1996, Vol. 61,
  No. 11, pp 1939-1948

Palma, G.D., Galloro, G., Siciliano, S., Iovino, P., Catanzano, C. "Unilateral
  versus bilateral endoscopic hepatic duct drainage in patients with malignant
  hilar bilary obstruction" GASTROINTESTINAL ENDOSCOPY, 2001 Vol. 53, No. 6, pp
  547-553

Risbud, M.V., Bhonde, M.R., Bhonde, R.R. "Effect of chitosan-polyvinyl
  pyrrolidone hydrogel on proliferation and cytokine expression of endothelial
  cells" JOURNAL OF BIOMEDICAL MATTER RESEARCH, 2001, Vol. 57, pp 300-305

Risbud, M.V., Bhonde, M.R., Bhonde, R.R. "Chitosan-polyvinyl pyrrolidone
  hydrogel does not activate macrophages: potentials for transplantation
  applications" CELL TRANSPLANT, March 2001, Vol. 10, pp 195-202

Risbud, M.V., Hardikar, A.A., Bhat, S.V., Bhonde, R.R. "pH-sensitive
  freeze-dried chitosan-polyvinyl pyrrolidone hydrogels as controlled release
  system for antibiotic delivery" JOURNAL OF CONTROLLED RELEASE, July 2000, Vol.
  68, pp 23-30

Risbud, M.V., Hardikar, A.A., Bhat, S.V., Bhonde, R.R. "Growth modulation of
  fibroblasts by chitosan-polyvinyl pyrrolidone hydrogel: implications for wound
  management?" JOURNAL OF BIOSCIENCES, March 2000, Vol. 25, No. 1, pp 25-31

Schierholz, J.M., Pulverer, G. and Rump, A.F.E. "Schwierige Suche nach neuen
  Werkstoffen - Katheter Materialien" DEUTSCHES AERZTEBLATT, 1998, Vol. 95, No.
  17, A1006

Seitz, U. and Soehendra, N. "Which stents do we need? The case for plastic
  stents" ENDOSCOPY, 1998 Vol. 30, No. 9, A242-6,

Tebbs, S.E. and Elliott, T.S.J. "Modification of central venous catheter
  polymers to prevent in vitro microbial colonization." EUROPEAN JOURNAL OF
  CLINICAL MICROBIAL INFECTIOUS DISEASES, 1994, Vol. 13, pp 111-117

Wu, Gang; Wan, Changxiu; Duan, Yourong and Yue, Yilun "Researches on Surface
  Modification for Prevention of Bacterial Adhesion to Implementing
  Biomaterials" IMPLANTING JOURNAL OF BIOMEDICAL ENGINEERING, Vol. 1, No. 17

<PAGE>

                       INDEX TO 2004 10-KSB CERTIFICATIONS


  Exhibit No.       Description
  -----------       -----------

     31.1           Certification of Manfred F. Dyck, Chief Executive Officer,
                    pursuant to Securities Exchange Act Rule 13a-14(a).

     31.2           Certification of Robert Y. Lee, Chief Financial Officer,
                    pursuant to Securities Exchange Act Rule 13a-14(a).

     32.1           Certification pursuant to 18 U.S.C. Section 1350, as adopted
                    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
                    signed by Manfred F. Dyck, Chief Executive Officer of
                    Hydromer, Inc.

     32.2           Certification pursuant to 18 U.S.C. Section 1350, as adopted
                    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
                    signed by Robert Y. Lee, Chief Financial Officer of
                    Hydromer, Inc.