UNITED
STATESSECURITIES AND EXCHANGE COMMISSIONWashington,
D.C. 20549

_________________

FORM
10-K



_________________

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

For
the fiscal year ended: June 30, 2012

or

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

For
the transition period from: _______ to ______

_________________

HYDROMER, INC.

(Exact
name of registrant as specified in its charter)

_________________

|New Jersey                        | 000-31238    | 22-2303576         
|--------------------------------- | ------------ | -------------------
|(State or Other Jurisdiction      | (Commission  | (I.R.S. Employer   
|of Incorporation or Organization) | File Number) | Identification No.)

35 Industrial Parkway, Branchburg New
Jersey 08876-3424(Address of Principal Executive Offices) (Zip Code)

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

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

None

Title of each className of each exchange
on which registered

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

Common
Stock Without Par Value

Title
of each class

Name
of each exchange on which registered



_________________

Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes  o     No  þ



Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes  o     No  þ



Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ     No  o



Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  þ     No  o



Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     þ

Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company.

|Large accelerated filer  o | Accelerated filer  o | Non-accelerated filer  o | Smaller reporting company  þ
|-------------------------- | -------------------- | ------------------------ | ----------------------------

Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act).     Yes  o     No  þ



The aggregate market value of the voting stock held by non-affiliates of the Registrant at September 18, 2012
was approximately $3,059,423







The
number of shares of Registrant's Common Stock outstanding on September 18, 2012 was 4,772,318.

Portions
of the Audited Financial Statements for the year ended June 30, 2012 are incorporated by reference in Part II of this
report. Portions of the Proxy Statement of Registrant date November 6, 2012 are incorporated by reference in Part III of this
report.















FORWARD-LOOKING STATEMENTS



This Form 10-K report contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements include, among other things, business strategy and expectations concerning industry conditions, market
position, future operations, margins, profitability, liquidity and capital resources. Forward-looking statements generally can
be identified by the use of terminology such as “may,” “will,” “expect,” “intend,”
“estimate,” “anticipate” or “believe” or similar expressions or the negatives thereof. These
expectations are based on management’s assumptions and current beliefs based on currently available information. Although
the Company believes that the expectations reflected in such statements are reasonable, it can give no assurance that such expectations
will be correct. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the
date of this report on Form 10-K and the Company does not have any obligation to update the forward-looking statements. The Company’s
operations are subject to a number of uncertainties, risks and other influences, many of which are outside its control, and any
one of which, or a combination of which, could cause its actual results of operations to differ materially from the forward-looking
statements.





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, commercial, cosmetics and animal health markets.



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.



The Company owns several process and applications
patents for Hydromer® coatings (“Hydromer”). These polymers become extremely lubricious (slippery) when
wet. Techniques have been developed for grafting or applying this substance onto 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 continues to actively evaluate other
new market opportunities for its polymer technology specifically in neurology and cardiology.



The Company also owns various trademarks, including
AQUAMERE®, a cosmetic intermediate with water resistant film forming properties; AQUATRIX®, a cosmetic
hydrogel; BIOSEARCH®, medical device product lines; Dermaseal®, a dermal barrier film product for
the prevention of contact dermatitis; DRAGONHYDE®, hoof enhancement products; HYDROMER®, hydrophilic
and hydrophobic coatings; Sea-Slide®, a coating for watercraft hulls; and T-HEXX®, a barrier teat
dip product group for the prevention of mastitis in dairy animals.



The Company’s patents are typically broad
based, having a multitude of different applications across various industries. Accordingly, the Company currently operates in the
medical, commercial, cosmetics and animal health markets.



MEDICAL

From its inception in 1980 to mid-1984,
the Company was primarily engaged in R&D activities related to Hydromer

Coating used on medical
devices. Since then and until the acquisition of BMPI, the Company’s business in the medical field consisted of the
sale of lubricious coatings and the licensing of its lubricious coating technologies. With the acquisition of BMPI in
February 2000, the Company was able to offer a horizontally integrated breadth of services including medical device
manufacturing, contract coating, equipment building and design, and R&D servicing. However, in 2009, the Company sold
most of its OEM medical device product lines in order to focus on its coatings technologies, effectively exiting the OEM
medical device manufacturing business.



The Company’s coatings technologies include
its hydrophilic lubricious coatings, biostatic/anti-microbial coatings, cell anti-mitosis and anti-thrombogenic coatings and more
recently, cell adhesion promoting coatings. During the fiscal year ending June 30, 2009, the Company launched two new coatings:
a cell adhesion promoting coating and our third generation anti-microbial coating.



HYDROMER Coatings: Lubricious / Anti-microbial
/ Anti-thrombogenic / Cell mitosis / Cell Adhesion

When treated with a Hydromer lubricious
polymer, 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 can also be coated on complex surfaces and on the inside walls of devices, unlike the treatments by major competition.
The Company believes that the polymer-water interface of its Hydromer coatings provides surface lubricity superior to the quality
of other currently marketed silicone-based lubricants to treat medical devices.









Drugs and other substances can be readily incorporated
into Hydromer coatings, both in a bound and unbound fashion, allowing for controlled release from the device for therapeutic purposes
or the creation of permanent biocidal or biostatic surfaces (anti-microbial coatings).



Certain Hydromer coatings have been shown in
numerous studies to reduce the risk of thrombogenesis or clot formation on devices. Such anti-thrombogenic coatings can be applied
to cardiovascular stents, oxygenators, blood warmers, hemodialysis equipment, intravenous catheters and much more.



In 2006, the Company introduced new technology
on its cell anti-mitosis coatings which decreases cell proliferation and cell adhesion and prevents platelet adhesion. This coating
appears to have the attributes needed for a cardiovascular stent to combat restenosis and late stage thrombosis. In vitro (lab)
studies have yielded positive results. Leveraging on this new technology, the Company developed a coating that promotes cell proliferation,
but better epithelization.



The Company recently entered into a Research
and License Agreement on its new Cell Adhesion coating. It is being evaluated for use on cardiovascular absorbable devices.



Stand-still and License/Supply and Support
Agreements

A portion of the Company's revenues is
derived from stand-still and license agreements. Stand-still 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 stand-still agreements can also provide the customers the right to subsequently enter into
a license or supply and support agreement with the Company and to market the product(s) treated with Hydromer, which typically
provides the Company an initial flat fee, followed by periodic royalty payments or support fees based on sales.



Supply and Support Agreements

In order to avail our customers of a continued
material source or technical support on our products, certain supply or support agreements may be entered into. Depending on the
specific requirements of each agreement, the Company would provide continued support in terms of product availability or technical
know-how.



As of June 30, 2012, the Company has supply
and support agreements with 30 companies covering the application or availability of Hydromer coatings to the following devices:

| | · | angioplasty balloon catheters,
| | - | ------------------------------

| | · | biliary and pancreatic stents,
| | - | ------------------------------

| | · | cardiovascular implantables,
| | - | ----------------------------

| | · | cardiovascular microcatheters,
| | - | ------------------------------

| | · | central venous catheters,
| | - | -------------------------

| | · | embolization delivery devices,
| | - | ------------------------------

| | · | enteral feeding products,
| | - | -------------------------

| | · | female contraceptive devices,
| | - | -----------------------------

| | · | foley catheters,
| | - | ----------------

| | · | guidewires,
| | - | -----------

| | · | guiding and umbilical catheters,
| | - | --------------------------------

| | · | infusion microcatheters,
| | - | ------------------------

| | · | inter/intra-ocular lenses,
| | - | --------------------------

| | · | intra-occular lense inserts,
| | - | ----------------------------

| | · | liposuction devices,
| | - | --------------------

| | · | neurovascular microcatheters,
| | - | -----------------------------

| | · | PTCA catheters,
| | - | ---------------

| | · | urinary catheters,
| | - | ------------------

| | · | certain urological devices, and
| | - | -------------------------------

| | · | certain vascular devices.
| | - | -------------------------



The Company is actively seeking new licensing
opportunities and/or supply and support agreements.









Hydrogels,
Drug Delivery, Wound Dressing

Applications of the Company’s hydrogels
for wound care, implants, drug delivery, burn care, ultrasonic couplants and cosmetic uses are available but not yet commercialized.



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 or 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 internal and
topical actives delivery. The Company has a pilot coating machine to facilitate the commercialization of its hydrogel technologies.
The Company is exploring other medical and dental as well as cosmetic applications for this technology.



The Company has 510K notices to the FDA on
its hydrophilic polyurethane foam technology for medical use applications in the U.S. as well as a patent on its chitosan-PVP hydrogel
technology.



Following two years of development and human
clinical studies, it is expected that one of the Company’s Hydrogel technologies will soon be ready for market. It currently
is in the final stages of FDA review.



OEM Medical Devices

The Company offers 510K/CE marked medical devices
on an OEM basis and private label through its ISO 13485:2003 certified and FDA registered Biosearch Medical Products subsidiary.
Most recently, the Company produced bipolar coagulation probes; placement catheters, biliary stents; jejunal and enteral feeding
accessories; guidewires; biofeedback devices for fecal and urinary incontinence; and other endoscopic accessories. The bipolar
coagulation probe and biliary stent product lines were sold to Merit Medical System, Inc. in 2009, and in 2010, the Company completed
the transition period of its sales of the Jejunostomy Catheter and Nasogastric Feeding Catheter business to Forefront Medical Technology
(PTE) Ltd. Currently remaining is its biofeedback business.



HYDROMER Coating Services

The acquisition of BMPI in 2000 allowed
for the Company to realize another source of revenues: Coating Services. Utilizing the acquired medical device manufacturing know-how
and by applying its coatings technologies, the Company began offering coating services, in which the Company coats third-party
devices with its Hydromer coatings. The Company’s knowledge in coatings technologies allows it to coat various types of material,
such as silicone, stainless steel, Pebax and polypropylene cost effectively, whereas some of the competition is unable to. Global
customers are using this service in the urology, cardiology and neurovascular markets.



The Company continues to expand its activity
in coating services and is actively seeking new opportunities to provide contract development, coating and manufacturing services
to the medical, commercial and personal care industry, utilizing its Hydromer and Anti-Fog coating technology and expertise. The
Company further continues to believe that these services will enable a broader range of customers to use our materials in markets
on accelerated timelines in a more cost effective manner.



R&D and Engineering Services

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 knowledge can significantly speed development,
assessment and market readiness for our clients, large and small, through its research and development and engineering services.



The Company 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 Company will endeavor to become a “one stop” supplier of high performance
coatings and services.









The Company also has anti-microbial testing
capabilities in-house to perform crucial first developments on the performance of colonization control medical coatings, cosmetic
intermediates and mastitis control products in the T-HEXX Animal Healthcare division (see Animal Health).



INDUSTRIAL/COMMERCIAL

Hydromer Anti-Fog/Condensation
Control is an optically clear coating which prevents the accumulation of vision-obscuring condensation under high humidity conditions.
The Company is selling this material to manufacturers of greenhouse panels, refrigerator freezer doors, industrial and medical
safety and swim goggles, aircraft windows, automotive headlight assemblies and gauge and meter manufacturers in the U.S. and internationally,
including China. The Company also hasfood grade Anti-Fog coatings formulated with materials that are generally recognized
as safe for food contact as confirmed by independent laboratory extraction testing.



The Company also offers a Sea-Slidecoating
that reduces friction between the hull and water, and can be used over most anti-fouling paints. Independent testing has confirmed
that this technology significantly improves fuel economy and the hull speed of watercraft. Sea-Slide products were marketed through
HammerHead Products, Inc. until 2010 when the Company re-attained its distribution rights.



COSMETICS

The Aquamere series of the Company’s
cosmetic intermediaries are sold to major cosmetic companies worldwide for use in hair dyes, hair conditioners, 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. The Aquamere series of cosmetic polymer solutions, introduced in 1988, are both aqueous and hydro-alcoholic based
systems. They are also offered with cationic and silicone grafted modifications. Formulations have also been developed internally
utilizing this technology and are being offered for sale as turnkey products to smaller marketers of personal care products.



The Company’s Dermaseal line, a patented
film-forming hydrogel technology, 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. Dermaseal is the registered
trademark for barrier film compositions, patented in fiscal 2000 along with the method for preventing contact dermatitis. Clinical
testing has demonstrated that these compositions protect the user from the effects of contact with poison ivy, oak or sumac plant
allergens. Technical testing has also demonstrated protection from latex proteins, nickel and other contact allergens.



Changes in the regulatory environment, including
that of the European requirements of REACH (Registration, Evaluation and Authorisation of Chemicals), can adversely impact the
marketability of existing cosmetics and other products. It is the Company’s intention to meet any changes to regulatory requirements,
including reformulating where necessary.



ANIMAL HEALTH

The Company’s polymer technology
was used to launch the Company’s entry into the animal health field to combat clinical and sub-clinical mastitis, a problem
that costs U.S. dairy farmers an estimated $2 billion per year, and farmers worldwide an estimated $5 billion. Barrier dips and
sprays utilizing T-HEXX technology offered dairy farmers exceptional value and unsurpassed protection asthe
firstno-drip and water resistant barrier products on the market preventingwater containing mastitis-causing
organisms, including mycoplasma, from reaching the inner teat surface. The Company has received three patents for its unique barrier
teat dip compositions with an application on a fourth patent pending.









Theannual U.S. market forbarrier teat dips is estimated to be $100-130 million at the farm level. Barrier products containing T-HEXXtechnology
have protocol-proven active ingredients that kill mastitis-causing bacteria on contact while continuing to remain active up to
12 hours.They are superior performers in this niche market, while priced comparably to 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 traditionalpre-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.



The Company offers a complementary product,
T-HEXX DRY External 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 anti-microbial
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 do
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. Our T-HEXX DRY product is also sold under private-label, reflecting
the strength of the product.



In fiscal 2009, the Company launched a T-HEXX
DRY external teat sealant for organic dairies: T-HEXX DRY Green-S with natural actives.
The Company also launched a new product line of T-HEXX Syrup concentrated post-milking barrier teat dips which
requires just a blending with water, reducing logistics and shipping costs to our customers, while maintaining the superior performance
that existing T-HEXX products provide.



During
fiscal 2010, the Company launched T-HEXX DRY NaturelTM External Teat Sealant, a triclosan-free external teat sealant
for dry cows, Sani-SprayTM non-barrier dips and sprays and Dragonhyde® Hoof Bath Concentrate (“Dragonhyde
HBC”). Dragonhyde HBC competes against Copper Sulfate and Formalin in hoof baths yet it does not contain such heavy metals
or carcinogenic products. An independent clinical study conducted by Cornell University and published in the August 2010 edition
of the Journal of Dairy Science concluded that Dragonhyde HBC outperformed typical Copper Sulfate and Formalin usage. A
complementary dissolvable hoof bath powder, Dragonhyde DUST is being launched in the winter/fall of 2012.



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: both domestically as well as abroad. New products
continue to be developed.



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 customers.
The Company is selling anti-fog solutions to manufacturers of greenhouse panels, refrigerator freezer doors, swim goggles, industrial
safety equipment, aircraft windows and meter covers, both in the U.S. and foreign countries. Until 2010, the Company also sold
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) medical products. The Company
does not have any significant customer concentration.



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 become 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 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.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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. This anti-fog product
has use on greenhouse panels, refrigerator freezer doors, sports goggles, windows, mirrors and other products, either by direct
application or by coating of an adhesive backed film.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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.



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 currently owns various 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
better 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 animal health 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 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, supply and support arrangements
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 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/Support Services: The Company will continue its endeavors to license
or make available 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/support fees based on sales of such treated or new products. Such agreements will usually be very narrow. The activities
leading to the consummation of an 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. A stand-still
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 defined time period. During such period, the customer 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 support 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 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 in Coating Services which
are of particular interest include 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 is continually upgrading its advertising copy and promotional literature as needed to graphically
highlight the properties and advantages of its technologies.



The same marketing tools (traditional means
of tradeshow contacts, mass mailings, advertising, promotional activities, etc.) as well as alternative methods (such as the Internet)
are used by the Company in its focus of expanding sales globally to the medical, commercial, personal care and animal health community.







Patents and Trademarks

As of June 30, 2012, the Company has
six U.S. patents, two U.S. applications and various foreign counterparts. The Company’s existing patents and patent applications
cover hydrophilic coatings and foams, hydrophilic polymer blends, anti-bacterial medical and cosmetic materials, non-leaching biostatic
coatings, barrier film and barrier teat dip and hoof bath compositions and Chitosan gels and others.



The Company owns the registered trademarks
“Aquamere”, “Aquatrix”, “Biosearch”, “Dermaseal”, “Dragonhyde”, a dragon
logo, "Hydromer", “Sea-Slide” and “T-HEXX” in the United States and other countries.



Employees

As of June 30, 2012, the Company and
its subsidiary had thirty-six 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, animal
health 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 support agreements,
it is generally the obligation of the customer to conform to any required FDA pre-market notification or other regulations. To
the Company's knowledge, all such customers who are marketing medical products are in such compliance. The Company expects to market
additional applications of Hydromer’s technologies to existing products, or products introduced by it, which may be subject
to such FDA review and/or foreign regulatory agencies’ 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 support agreements, to require the customers to obtain such approvals.



The Company contract coats 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.hydromer.com/sec and www.sec.gov.

Executive Officers



|Name            | Position
    with Company                                                               |  | Age
                                                                            as of August 31, 2012 | 
|--------------- | --------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------- | 
|                |                                                                                         |  |                                                                                                       | 
|Manfred F. Dyck | Chairman of the BoardChief Executive Officer and President                              |  | 77                                                                                                    | 
|Martin C. Dyck  | Executive Vice-President,Operations and President Biosearch Medical Products subsidiary |  | 50                                                                                                    | 
|John Konar      | Vice-President, Quality Assurance and Director of Human Resources                       |  | 63                                                                                                    | 
|Robert Y. Lee   | Vice-President, Finance, Chief Financial Officer and Treasurer                          |  | 46                                                                                                    | 



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. 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 the Company 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 Biosearch to become a contract medical coatings service
provider using proprietary technology unique to Biosearch.







John
Konar has been the Vice-President of Quality Assurance since February 2004 and Director of Human Resources since February 2000.
Mr. Konar joined Biosearch in 1986 and served as the Director of Human Resources with Biosearch from 1996 until its acquisition
by the Company in 2000, when he then assumed responsibilities for both companies. He also served, with Biosearch, as the Director
of Sales from 1996 until 2000, Director of QA from 1998 until 2004 when he was promoted to Vice-President of Quality Assurance,
and Director of Manufacturing from 2000 to 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 in the Emerging Business Group
of the New York office of Coopers & Lybrand (currently PricewaterhouseCoopers), the Bristol Myers Squibb Internal Auditing
group, ASARCO's Southern Peru Copper Corporation, now Southern Copper Corporation, part of Grupo Mexico, and Citigroup.

Item
1A. RISK FACTORS

Not
applicable.



Item
1B. UNRESOLVED STAFF COMMENTS

Not
applicable.



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 a mortgage through a bank. See the financial
statements included herein for the terms of the agreement.

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.

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



Item
3. LEGAL PROCEEDINGS

Not
applicable.



Item
4. MINE SAFETY DISCLOSURES

Not
applicable.









PART
II



Item
5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Since
January 9, 1986, reporting of trading of the Company’s Common Stock (symbol “HYDI”) has been on the National
Daily Quotation Service (commonly known as the “Pink Sheets”). For the past twenty-six years, trading in the Company’s
stock has been limited.

The
Company’s Common Stock traded at prices ranging between $0.50 and $1.25 in the fiscal year 2012 and between $0.32 and $0.99
in the fiscal year 2011. These prices may not include retail mark-ups or mark-downs or any commission to the broker dealer.

The
approximate number of holders of record of the Common Stock on September
18, 2012 was 215. There are approximately 450 individual shareholders of the Common Stock.



Item
6. SELECTED FINANCIAL DATA

Not
applicable.



Item
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



The
below discussion analyzes major factors and trends regarding the results of operations and the financial condition of the Company
as of June 30, 2012, 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, 2012 were $5,742,120 as compared to $5,515,015 for the same period last year, an increase of $227,105
(4.1%).

Product
sales and services revenues were $4,600,948 for the 2012 fiscal year as compared to $4,548,066 the prior fiscal year, a 1.2% increase
or $52,882.

License
royalties and contract payments were $1,141,172 in fiscal 2012, compared to $966,949 the year before.

Management
Comment: Growth in the medical polymer sales as well ascontract coating services (a combined 6.5% over the prior
fiscal year) was offset by a net flat growth level to the remaining product sales groups. While we expected growth from
the Animal Health Division this past fiscal year, continued price sensitivity in a time mired by a depressed farming/dairy market
lead to lower sales abroad which negated the growth in the U.S. With continual sales and marketing (advertising, tradeshows, etc),
new product launches (Dragonhyde DUST, new barrier dips) distribution agreements and market penetration, we expect
resumption of growth next fiscal year. New contract coating customers this past fiscal year contributed to the growth as reported
above. However we expect continued conversion of existing contract coating service customers into polymer [product] sales customers.
As such, we anticipate a gradual reduction to our services income with an offsetting increase in polymer sales for our [human]
medical division.

Through
one of our customers, one of our hydrogel technologies continues under FDA review. When clearance is
granted, we expect an increase to our license royalties and contract payments revenues. New agreements this year and the effectiveness
of recurring payments from agreements entered into in previous years accounted for the increase in fiscal 2012. Offsetting part
of this year’s increase is the deferral of Technology Transfer documentation sales over the life of its respective supply
and support agreement.



Total
Expenses for the year ended June 30, 2012 were $6,137,466, higher by 0.7% ($41,153) than the 2011 fiscal year results
of $6,096,313.

Cost
of Goods Sold was $1,675,527 for fiscal 2012 as compared to $1,590,776 for fiscal 2011. Operating Expenses were $4,245,615 and
$4,626,341, for the years ended June 30, 2012 and 2011, respectively. Other Expenses added $203,085 to expenses for fiscal 2012
as compared to $206,258 for fiscal 2011. An Income Tax Provision of $13,239 is recorded for fiscal 2012 as compared with an Income
Tax Benefit of $327,062 for fiscal 2011.

Management
Comment:We continue our road to profitability by combining revenue growth with
cost control. While the year over year expenses were higher by 0.7%, expenses were actually 4.7% lower when excluding Income Taxes.
On operating expenses alone, it was lower by $380,726 (or 8.2%) against the prior year.

Cost
of Goods Sold for fiscal 2012 was $84,751 (5.3%) higher than the preceding year. This increase was a result from both a higher
volume of products sold as well as the product mix: of lower margin products. The improvement in Operating Expenses ($380,726)
includes savings attributed to personnel reductions following the divestiture of the Biosearch OEM medical product lines in 2009-10,
a reduction back to normal levels of sales and marketingexpense (as compared to fiscal 2011)
and lower utilities costs. The revenue increases and net expense reductions lead to a lower pre-tax loss ($382,107) for fiscal
2012 when compared to the $908,360 pre-tax loss in fiscal 2011. Despite a pre-tax loss, a net Income Tax Provision of $13,239
is recognized for the year, due to a $105,564 increase in valuation allowances against Deferred Tax Assets (a non-cash charge).
If these Deferred Tax Assets are realized in future years, the reversal of the valuation allowance would result in income at that
point.









Among
all of this activity, we continue our “reinvestment”: Research & Development expenditures (primarily salaries
and benefits) and funding to the patent and trademark estate, the costs of which are included in the Company’s Operating
Expenses. Although these costs translate to minimal value in the current period, they provide for improvement in future results,
for example from new product development to the protection of intellectual property rights, accordingly they are regarded as “re-investment”
costs. These expenditures represented 19.1% and 18.6% of total Operating Expenses (or $809,021 and $859,044) for the years ended
June 30, 2012 and 2011, respectively.

A
Net Loss of $395,346 ($0.08 per share) is reported for the 2012 fiscal year compared with a Net Loss of $581,298 ($0.12 per share)
for the 2011 fiscal year.

Management
Comment: The Company has made tremendous progress following the cancellation and subsequent replacement of a significant Supply
and Support Agreement (effective January 1, 2009) that reduced revenues and cash by $780,000 annually and the sale of OEM medical
product lines which contributed pre-tax income. The Company expects to return to profitability from revenue growth (from new products
and market penetration) and expense control. Impacting this year’s results was the $105,564 additional valuation reserve,
a non-cash charge.

Liquidity
and Capital Resources

Working
Capital as of June 30, 2012 was $859,122 compared against $1,196,607 the prior year or lower by $337,485.

Compared
against June 30, 2011, the June 30, 2012 cash and cash equivalent balance was lower by $221,719 and short-term investments lower
by $50,000.

Management
Comment: Cash Used in Operating Activities was $3,849 and the cash used for property and equipment and intangibles (the patent
estate and trademarks) totaled $163,471. Repayment of the Company’s mortgage utilized $54,399 towards debt reduction.

Item
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not
applicable.



Item
8. 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, 2012,” which information is incorporated herein by reference.

Item
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not
applicable.



Item
9A. CONTROLS AND PROCEDURES

Disclosure
Controls and Procedures

Under
the supervision and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer,
we evaluated the effectiveness of the design and operation of the disclosure controls and procedures (as such term is defined
in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Disclosure controls and procedures
are the controls and other procedures that we designed to ensure that we record, process, summarize and report in a timely manner
the information we must disclose in reports that we file with or submit to the Securities and Exchange Commission under the Exchange
Act. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, our disclosure controls
and procedures were effective as of the end of the period covered by this report.

Internal
Control over Financial Reporting

Our
management is responsible for establishing and maintaining adequate internal control over financial reporting. This internal control
system was designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation
and fair presentation of published financial statements.

All
internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to
be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Management
assessed the effectiveness of the Company’s internal control over financial reporting as of June 30, 2012. In making this
assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control—Integrated Framework.

Based
on our assessment, we believe that, as of June 30, 2012, the Company’s internal control over financial reporting is effective
based on those criteria.

There
are two deficiencies, which are not required to be disclosed but which management has elected to disclose, within the Company’s
internal control over financial reporting:

·Segregation of Duties (control deficiency)

Due
to the size of the Company, there is a lack of a proper segregation of duties, including that of the Chief Financial Officer.

·Reporting Controls over Inventory (control deficiency)

The
Company lacks a perpetual inventory system to adequately account for inventory transactions and to report inventory. Full physical
inventory counts are conducted at year-end allowing for any misstatement to be inconsequential.







Management’s
report on Internal Control over Financial Reporting was not subject to attestation by the Company’s independent registered
accounting firm under Section 404(b) of the Sarbanes-Oxley Act pursuant to the rules of the Securities and Exchange Commission.



Item
9B. OTHER INFORMATION

Not
applicable.



PART III



Item
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

For
information concerning this item, see "Item 1. Business - Executive Officers" and pages 3 through 11 in the Proxy Statement
filed with respect to the 2012 Annual Meeting of Shareholders (the “Proxy Statement”), which information is incorporated
herein by reference.



Item
11. EXECUTIVE COMPENSATION

For
information concerning this item, see page 10 of the Proxy Statement, which information is incorporated herein by reference.



Item
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

For
information concerning this item, see page 11 of the Proxy Statement, which information is incorporated herein by reference.



Item
13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

For
information concerning this item, see pages 5 through 11 of the Proxy Statement, which information is incorporated herein by reference.

Item
14. PRINCIPAL ACCOUNTING FEES AND SERVICES

For
information concerning this item, see page 11 of the Proxy Statement, which information is incorporated herein by reference.











PART IV



Item
15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(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

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













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.





|Date:
August 15, 2012 | Hydromer Inc.                        
|--------------------- | -------------------------------------
|                      | By: /s/ Robert Y. Lee                
|                      | Robert Y. LeeChief Accounting Officer





|Date:
August 15 , 2012 | Hydromer Inc.                                                                                   
|---------------------- | ------------------------------------------------------------------------------------------------
|                       | By: /s/ Manfred F. Dyck                                                                         
|                       | Manfred F. Dyck President, Principal
     Executive      Officer, Chairman of Board of Directors







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:







|Signature            |  | Title                                                                  |  | Date            
|-------------------- |  | ---------------------------------------------------------------------- |  | ----------------
|/s/ Manfred F. Dyck  |  | President, Principal Executive Officer, Chairman of Board of Directors |  | August 15, 2012 
|/s/ Ursula M. Dyck   |  | Director                                                               |  | August 15, 2012 
|/s/ Robert H Bea     |  | Director                                                               |  | August 15 , 2012
|/s/Maxwell Borrow    |  | Director                                                               |  | August 15, 2012 
|/s/ Dieter Heinemann |  | Director                                                               |  |                 
|/s/ Michael F. Ryan  |  | Director                                                               |  | August 15, 2012 
|/s/ Fredrick L. Perl |  | Director                                                               |  |                 
|/s/ George A. Ziets  |  | Director                                                               |  |                 
|                     |  |                                                                        |  |                 















INDEX TO 2012
10-K CERTIFICATIONS

|Exhibit | 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.  













Hydromer,
Inc. & Subsidiary



Consolidated
Financial Statements



June
30, 2012 and 2011













Report
of Independent Registered Public Accounting Firm







To the Board of Directors and

Stockholders of Hydromer, Inc. & Subsidiary



We have audited the accompanying balance sheets
of Hydromer, Inc. & Subsidiary as of June 30, 2012 and 2011 and the related statements of operations, stockholders’ equity
and cash flows for each of the years in the two-year period ended June 30, 2012. Hydromer, Inc. & Subsidiary’s management
is responsible for these financial statements. 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 audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company
is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included
consideration of internal controls over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over
financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, 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 financial position of Hydromer, Inc. & Subsidiary as of June 30, 2012
and 2011, and the results of its operations and its cash flows for each of the years in the two-year period ended June 30, 2012
in conformity with accounting principles generally accepted in the United States of America.





Rosenberg
Rich Baker Berman & Company





Somerset, New Jersey

November 9, 2012





Hydromer,
Inc. & Subsidiary



Consolidated
Financial Statements



June
30, 2012 and 2011







|Financial Statements                            | Page      
|----------------------------------------------- | ----------
|                                                |           
|Consolidated Balance Sheets                     | F-1       
|                                                |           
|Consolidated Statements of Operations           | 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













Hydromer, Inc. & Subsidiary

Consolidated Balance Sheets



|                                                                                                                                                         | June 30, |            
|-------------------------------------------------------------------------------------------------------------------------------------------------------- | -------- | -----------
|.                                                                                                                                                        | 2012     | 2011       
|Assets                                                                                                                                                   |          |            
|Current Assets:                                                                                                                                          |          |            
|Cash and cash equivalents                                                                                                                                | $        | 280,878    
|Short-term
    investments                                                                                                                               |          | -.         
|Trade
    receivables less allowance for doubtful accounts of $17,918 and       $5,622 as of June 30, 2012
    and 2011, respectively                    |          | 993,378    
|Inventory                                                                                                                                                |          | 309,369    
|Prepaid
    expenses                                                                                                                                     |          | 207,207    
|Deferred
    tax asset                                                                                                                                   |          | -.         
|Other                                                                                                                                                    |          | 3,485      
|Total Current Assets                                                                                                                                     |          | 1,794,317  
|                                                                                                                                                         |          |            
|Property
    and equipment, net                                                                                                                          |          | 2,682,221  
|Deferred
    tax asset, non-current                                                                                                                      |          | 1,267,311  
|Intangible
    Assets, net                                                                                                                               |          | 761,519    
|Other
    assets                                                                                                                                         |          | 20,358     
|Total Assets                                                                                                                                             | $        | 6,525,726  
|                                                                                                                                                         |          |            
|Liabilities
    and Stockholders’ Equity                                                                                                                 |          |            
|Current
    Liabilities:                                                                                                                                 |          |            
|Accounts
    payable                                                                                                                                     | $        | 385,113    
|Accrued
    expenses                                                                                                                                     |          | 342,361    
|Current
    portion of capital leases                                                                                                                    |          | 16,499     
|Current
    portion of deferred revenue                                                                                                                  |          | 135,323    
|Current
    portion of mortgage payable                                                                                                                  |          | 55,899     
|Total Current Liabilities                                                                                                                                |          | 935,195    
|                                                                                                                                                         |          |            
|Deferred
    tax liability                                                                                                                               |          | 251,758    
|Long-term
    portion of capital leases                                                                                                                  |          | -.         
|Long-term
    portion of deferred revenue                                                                                                                |          | 145,593    
|Long-term
    portion of mortgage payable                                                                                                                |          | 2,656,239  
|Total Liabilities                                                                                                                                        |          | 3,988,785  
|Contingencies
        
        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; 4,783,235 shares issued and 4,772,318 shares outstanding as of June 30,
    2012 and 2011 |          | 3,721,815  
|Contributed
    capital                                                                                                                                  |          | 633,150    
|Accumulated
    deficit                                                                                                                                  |          | (1,811,884)
|Treasury
    stock, 10,917 common shares at cost                                                                                                         |          | (6,140)    
|Total
    Stockholders’ Equity                                                                                                                           |          | 2,536,941  
|Total
    Liabilities and Stockholders’ Equity                                                                                                           | $        | 6,525,726  
|                                                                                                                                                         |          |            

See notes to the consolidated financial statements.





Hydromer, Inc. & Subsidiary

Consolidated Statements of Operations

|                                                         |   |                            
|-------------------------------------------------------- | - | ---------------------------
|                                                         |   | Year
        Ended June 30,
|                                                         |   | 2012                       
|Revenues                                                 |   |                            
|Sale of products                                         | $ | 3,202,162                  
|Service revenues                                         |   | 1,398,786                  
|Royalties
    and Contract Revenues                      |   | 1,141,172                  
|Total
    Revenues                                       |   | 5,742,120                  
|Expenses                                                 |   |                            
|Cost of Sales                                            |   | 1,675,527                  
|Operating Expenses                                       |   | 4,245,615                  
|Other Expenses, net                                      |   | 203,085                    
|Provision for (Benefit from) Income Taxes                |   | 13,239                     
|Total
    Expenses                                       |   | 6,137,466                  
|Net
    Loss                                             | $ | (395,346)                  
|Loss Per
    Common Share                                | $ | (0.08)                     
|Weighted
    Average Number of Common Shares Outstanding |   | 4,772,318.                 

There
was no impact to earnings per share from dilutive securities under the treasury stock method of computing dilutive earnings pershare.



See notes to the consolidated financial statements.













Hydromer, Inc. & Subsidiary

Consolidated Statements of Stockholders’
Equity

|                          |              |   |             |   |             |   |                |  |        |  
|------------------------- | ------------ | - | ----------- | - | ----------- | - | -------------- |  | ------ | -
|                          | Common Stock |   | Contributed |   | Accumulated |   | Treasury Stock |  |        |  
|                          | Shares       |   | Amount      |   | Capital     |   | Deficit        |  | Shares |  
|Balance June 30, 2010     | 4,783,235    | $ | 3,721,815   | $ | 633,150     | $ | (835,240)      |  | 10,917 | $
|Net Loss                  |              |   |             |   |             |   | (581,298)      |  |        |  
|Balance June 30, 2011     | 4,783,235    | $ | 3,721,815   | $ | 633,150     | $ | (1,416,538)    |  | 10,917 | $
|Net Loss                  |              |   |             |   |             |   | (395,346)      |  |        |  
|Balance
    June 30, 2012 | 4,783,235    | $ | 3,721,815   | $ | 633,150     | $ | (1,811,884)    |  | 10,917 | $
|                          |              |   |             |   |             |   |                |  |        |  
|                          |              |   |             |   |             |   |                |  |        |  

See notes to the consolidated financial statements.





Hydromer, Inc. & Subsidiary

Consolidated Statements of Cash Flows



|                                                                                |   | Year Ended June 30,
|------------------------------------------------------------------------------- | - | -------------------
|                                                                                |   | 2012               
|Cash
    Flows From Operating Activities:                                       |   |                    
|Net
    Loss                                                                    | $ | (395,346)          
|Adjustments
    to reconcile net loss to net cash used in operating activities: |   |                    
|Depreciation
    and amortization                                               |   | 431,891            
|Deferred
    income taxes                                                       |   | 9,239              
|Changes
    in Assets and Liabilities                                           |   |                    
|Trade receivables                                                               |   | (218,625)          
|Inventory                                                                       |   | 135,235            
|Prepaid expenses                                                                |   | 6,476              
|Other assets                                                                    |   | (10,296)           
|Accounts payable and accrued liabilities                                        |   | 30,809             
|Deferred revenues                                                               |   | 10,868             
|Income taxes payable                                                            |   | (4,100)            
|Net
    Cash Used in Operating Activities                                       |   | (3,849)            
|Cash
    Flows From Investing Activities:                                       |   |                    
|Cash
    purchases of property and equipment                                    |   | (56,305)           
|Cash
    payments on Patents and Trademarks                                     |   | (157,166)          
|Cash
    purchases of short-term investments                                    |   | -.                 
|Maturity
    of short-term investments                                          |   | 50,000             
|Net
    Cash (Used in) Provided by Investing Activities                         |   | (163,471)          
|Cash
    Flows From Financing Activities:                                       |   |                    
|Repayment of long-term borrowings                                               |   | (54,399)           
|Net
    Cash Used in Financing Activities                                       |   | (54,399)           
|                                                                                |   |                    
|Net
    Decrease in Cash and Cash Equivalents:                                  |   | (221,719)          
|Cash
    and Cash Equivalents at Beginning of Period                            |   | 502,597            
|Cash
    and Cash Equivalents at End of Period                                  | $ | 280,878            



|                               |   |         |   |        
|------------------------------ | - | ------- | - | -------
|Cash paid during the year for: |   |         |   |        
|Interest                       | $ | 193,762 | $ | 197,210
|Income taxes                   | $ | 4,100   | $ | 4,160  



See 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,
animal health and industrial fields. Also in its array of capabilities, the Company offers R&D services and through its wholly
owned subsidiary, Biosearch Medical Products, Inc. (“Biosearch”), engineering services and contract coating services.
The Company obtains patent rights on certain products from which royalty revenues can be received.

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 investments with original maturities of three months or less.

Short-Term
Investments

Short-term
investments consist of investments other than cash and cash equivalents with original maturities of greater than three months
and less than one year. Short-term investments as of June 30, 2011 was $50,000, comprising of a bank CD with an interest rate
of 0.345%.

Accounts
Receivables

Accounts
receivable are uncollateralized, non-interest-bearing customer obligations due under normal trade terms requiring payment typically
within 30 days from the invoice date, or in the case of royalties or contract payments (see Revenue Recognition), usually 45 days
from the end of a calendar quarter. Trade accounts receivable are stated at the amount billed to the customer; royalties and contract
revenues are estimated until reported by the licensee / contractual party. Payments of accounts receivable are allocated to the
specific invoices identified on the customer's remittance advice or, if unspecified, are applied to the oldest unpaid invoices.
The carrying amount of accounts receivable is reduced by a valuation allowance that reflects the Company's best estimate of the
amounts that may not be collected. This estimate is based on reviews of all balances in excess of 90 days past due from the invoice
date. Based on this assessment of current credit worthiness, the Company estimates the portion, if any, of the balance that will
not be collected. Management also considers the need for additional general reserves and reviews its valuation allowance on a
quarterly basis.

Fair
Value Measurements

Accounting
Standards Codification (“ASC”) 820-10, Fair Value Measurements, defines fair value, establishes a framework
for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements.
Fair value is defined under ASC 820-10 as the exchange price that would be received for an asset or paid to transfer a liability
(an exit price) in the principal or the most advantageous market for an asset or liability in an orderly transaction between participants
on the measurement date. Valuation techniques used to measure fair value under ASC 820-10 must maximize the use of observable
inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on the levels of inputs,
of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the
following:

|• |  | Level 1 - Quoted prices in active markets for identical assets or liabilities.
|- |  | ------------------------------------------------------------------------------

|• |  | Level 2 - Inputs other than Level 1 that are observable, either directly or
indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs
that are observable or corroborated by observable market data or substantially the full term of the assets or liabilities.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|• |  | Level 3 - Unobservable inputs that are supported by little or no market activity and
that are significant to the value of the assets or liabilities.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------

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, which includes a reasonable portion of labor costs for equipment built in-house, 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

Registration
and maintenance costs associated with the filing and registration of patents are prepaid and amortized over its remaining life
of the patent, not to exceed 20 years. Costs associated with patents which are not approved or abandoned are expensed in the period
in which such patents are not approved or abandoned. The annual maintenance fees associated with existing patents are expensed
over 12 months and are included in Prepaid Expenses. The Research and Development costs associated with the patented technology
are expensed as incurred and are not capitalized.

Long-Lived
Assets

The
Company assesses long-lived assets for impairment as required under ASC 360-10, 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 when services are 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. Contract Revenues, which includes payments from Stand Still, Supply or Support
agreements that are typically based on time frames, are recognized in the periods to which it pertains. Deferred revenues are
recorded when agreements call for payment ahead of when the amounts are earned. In multiple element arrangements, revenue is allocated
to each separate unit of accounting and each deliverable in an arrangement is evaluated to determine whether it represents separate
units of accounting. A deliverable constitutes a separate unit of accounting when it has standalone value and there is no general
right of return for the delivered elements. In instances when the aforementioned criteria are not met, the deliverable is combined
with the undelivered elements and the allocation of the arrangement consideration and revenue recognition is determined for the
combined unit as a single unit of accounting. Allocation of the consideration is determined at arrangement inception on the basis
of each unit’s relative selling price.

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 $48,152 and $110,745 for the years ended June 30, 2012 and 2011, respectively.

Research
and Development

Research
and development costs, primarily employee salaries and benefits, are charged to operations when incurred and are included in Operating
Expenses. The amounts charged to expense for the years ended June 30, 2012 and 2011 were $596,974 and $654,952, respectively.

Stock
Based Compensation

The
Company accounts for stock and stock options issued for services and compensation to employees under ASC 718-10. For non-employees,
the fair market value of the Company's stock on the date of stock issuance or option/grant is used. The Company determines the
fair market value of the options issued under the Black-Scholes Pricing Model. Under the provisions of ASC 718-10, share-based
compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the
employee's requisite service period (generally the vesting period of the equity grant). There were no such stock option grants
issued during the years ended June 30, 2012 and June 30, 2011.

Foreign
Currency Translation

The
Company’s functional currency is the United States Dollar. The Company accounts for foreign currency translation pursuant
to Financial Accounting Standards Board (“FASB”) ASC 830-20, Foreign Currency Transactions.   All assets
and liabilities are translated into United States dollars using the rates prevailing at the end of the period.  Revenues
and expenses are translated using the average exchange rates prevailing throughout the period.  Unrealized foreign exchange
amounts resulting from translations at different rates according to their nature are included in accumulated other comprehensive
income or loss.  Recognized foreign currency transaction gains and losses are recognized in the operations.

Comprehensive
Income (Loss)

The
Company applies the provisions of FASB’s ASC 220-10, Reporting Comprehensive Income, in which unrealized gains
and losses from foreign exchange translations are reported in the consolidated statements of shareholders’ deficit as comprehensive
income (loss).

As
of June 30, 2012, there was no comprehensive income (loss).







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 are also recognized for
operating losses that are available to offset future federal and state income taxes. Any interest charges on underpayment or other
assessments are recorded as interest expense. Any penalties are recorded in Operating Expenses.

Effective
January 1, 2007, the Company adopted the provisions of ASC 740-10, Accounting for Uncertainty in Income Taxes. The implementation
of ASC 740-10 had no impact on the Company’s financial statements as the Company has not recognized any uncertain income
tax positions.

Earnings
Per Share

Earnings
per share, in accordance with the provisions of ASC 260-10, 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.









2. 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.



While
there were no significant customers for the years ended June 30, 2011 and 2012, balances from two customers accounted for 27%
of the total accounts receivables as of June 30, 2012; 99% of which was collected by mid-August 2012.







3. FAIR VALUE

In accordance with ASC 820-10, the following
table represents the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a
recurring basis as of June 30, 2011 :

|as
    of June 30, 2011 | Level
    1 | Level
    2 | Level
    3 | Total       
|----------------------- | ----------- | ----------- | ----------- | ------------
|Assets                  |             |             |             |             
|Investments             | $ 50,000    | -           | -           | $
    50,000
|Total
    Assets        | $ 50,000    | -           | -           | $
    50,000
|                        |             |             |             |             
|Liabilities- n/a        | -           | -           | -           | -           





Some of the Company’s financial
instruments are not measured at fair value on a recurring basis but are recorded at amounts that approximate fair value due to
their liquid or short-term nature, such as cash and cash equivalents, receivables and payables. The carrying amount of the mortgage
is consistent with the terms available in the market for instruments with similar risk. There were no financial assets and liabilities
requiring fair value reporting as of June 30, 2012.















4. INVENTORY

Inventory consists of:



|                |  | June 30,
|--------------- |  | --------
|                |  | 2012    
|Finished Goods  |  | $       
|Work in process |  |         
|Raw materials   |  |         
|                |  | $       







5. PROPERTY AND EQUIPMENT

Property and equipment consists of the
following:

|                                                          |   | June
    30, |  
|--------------------------------------------------------- | - | ------------ | -
|                                                          |   | 2012         |  
|Land                                                      | $ | 472,410      | $
|Building                                                  |   | 2,323,016    |  
|Machinery
    and equipment                               |   | 2,287,283    |  
|Equipment
    under capital leases                        |   | 86,729       |  
|Furniture
    and fixtures                                |   | 211,518      |  
|                                                          |   | 5,380,956    |  
|Less:
    Accumulated       depreciation and amortization |   | (2,651,515)  |  
|Accumulated       depreciation on capital leases          |   | (47,220)     |  
|Property
    and Equipment, net                           | $ | 2,682,221    | $
|                                                          |   |              |  

Depreciation
expense, including that on assets under capitalized leases, charged to operations, was $220,446 and $231,347 for the years ended
June 30, 2012 and 2011, respectively.





6. INTANGIBLE ASSETS

Intangible Assets, including prepaid Patent
Costs included in Prepaid Expenses of $86,634 and $82,434 as of June 30, 2012 and 2011, respectively, are comprised of the following:

|                                |   | June
    30, |  
|------------------------------- | - | ------------ | -
|                                |   | 2012         |  
|Patents                         | $ | 1,501,522    | $
|Trademarks                      |   | 106,022      |  
|Less:  Accumulated amortization |   | (759,391)    |  
|Intangible
    Assets, net      | $ | 848,153      | $
|                                |   |              |  
|                                |   |              |  

Future amortization of Intangible Assets, as of June 30, 2012,
are as follows:

|Year
                                                                                          ending June 30, |  |  |   |         | 
|-------------------------------------------------------------------------------------------------------------- |  |  | - | ------- | 
|2013                                                                                                           |  |  | $ | 226,639 | 
|2014                                                                                                           |  |  |   | 95,417  | 
|2015                                                                                                           |  |  |   | 89,779  | 
|2016                                                                                                           |  |  |   | 88,385  | 
|2017                                                                                                           |  |  |   | 80,540  | 
|Thereafter                                                                                                     |  |  |   | 267,383 | 
|                                                                                                               |  |  | $ | 848,143 | 

Amortization expense for the years ended June
30, 2012 and 2011 were $211,445 and $200,446, respectively.







7. LEASES

The
Company acquired equipment under long-term leases. For financial reporting purposes, the present value of the minimum lease payments
has been capitalized.

Future
payments under these capital lease arrangements, which includes $640 in finance charges, are as follows:





|Year ending June 30, 2013 | $        16,499
|------------------------- | ---------------















8. LONG-TERM DEBT

As
of June 30, 2012, the Company’s facility is financed by a twenty-five year mortgage note bearing a five year fixed interest
rate of 6.75%, and then reset every five years at 2.75% over the then New York Federal Home Loan Bank 5/20 Amortizing Advance
Rate. The mortgage is secured by the real estate and improvements, accounts receivables, inventory and all rents from leases subsequently
entered into, amortized with monthly payments. As of June 30, 2012, the book value of the real estate and improvements was $2,165,985.

As
a result of the net losses for the years ended June 30, 2011 and June 30, 2012, the Company did not meet certain financial covenants
required under the loan document. Loan modifications and/or covenant waivers were issued by the lender during each year.

Although
waivers/modifications were granted by the lender, there is no certainty that future waivers/modifications would be granted.



Long-term
debt is comprised of the following:

|                                                     |  | June 30,
|---------------------------------------------------- |  | --------
|                                                     |  | 2012    
|Mortgage note                                        |  | $       
|Less: 
    Current Maturities                        |  |         
|Long-term
    Debt,        Net of Current Maturities |  | $       
|                                                     |  |         
|                                                     |  |         

Maturities of the long-term debt are as follows:

|Year ending June 30 |            | As of June 30, 20111
|------------------- | ---------- | --------------------
|                    | 2013       |                     
|                    | 2014       |                     
|                    | 2015       |                     
|                    | 2016       |                     
|                    | 2017       |                     
|                    | Thereafter |                     
|                    |            |                     
|                    |            |                     







9. INCOME TAXES

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

|                         |   | Federal   |   | State    |   | Total    
|------------------------ | - | --------- | - | -------- | - | ---------
|Year Ended June 30, 2012 |   |           |   |          |   |          
|Current                  | $ | -         | $ | 4,100    | $ | 4,100    
|Deferred                 |   | (72,881)  |   | 82,020   |   | 9,139    
|                         | $ | (72,881)  | $ | 86,120   | $ | 13,239   
|Year Ended June 30, 2011 |   |           |   |          |   |          
|Current                  | $ | -         | $ | 4,160    | $ | 4,160    
|Deferred                 |   | (314,045) |   | (17,177) |   | (331,222)
|                         | $ | (314,045) | $ | (13,017) | $ | (327,062)

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

|                                   |  | June 30,
|---------------------------------- |  | --------
|                                   |  | 2012    
|Deferred Tax
    Asset             |  |         
|Net
    Operating Losses           |  | $       
|Adjustment
    of Goodwill         |  |         
|Research
    & Development Credits |  |         
|Valuation
    Allowance            |  |         
|Total
    Deferred Tax Assets      |  |         
|                                   |  |         
|Deferred Tax
    Liability         |  |         
|Depreciation                       |  |         
|Total
    Deferred Tax Liability   |  | $       
|                                   |  |         

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 and 2006 created a deferred tax asset, which although has an indefinite life,
has been fully reserved for as realization of its benefit is unlikely.







As
of June 30, 2012, the Company has net operating loss carry forwards of approximately $2,093,912 and $3,473,550 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, 2032 and June 30, 2019 for Federal and State
tax purposes, respectively. In addition, the Company has Research and Development Tax Credits of approximately $380,095 and $203,481
for Federal and State tax purposes, respectively, which expire in various years through June 30, 2032 and June 30, 2019, respectively.

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,
|--------------------------------- | ------- | ------------
|                                  |         | 2012        
|Federal statutory tax rate        | (34.0)% |             
|State income tax - net of federal
|tax Benefit                       |         | (5.2)       
|R&D credits                       | (1.8)   |             
|Adjustment in valuation           |         |             
|allowances                        |         | 18.3        
|Permanent and other differences   | 26.2    |             
|                                  |         | 3.5%        



10. STOCK OPTIONS AND AWARDS



On
February 22, 2000 the Board of Directors approved an option plan that granted each director 2,000 fully vested options for each
meeting attended, awarded at the annual meeting at the 5-day market price average.



There
were no stock option issuances during the 2011 or 2012 fiscal years as Directors waived their options earned in lieu of cash payments.

A
summary of activity under the plan for the years ending June 30, 2011 and 2012 are as follows:



|                           |           |          |  |                       | Weighted
    Average
|-------------------------- | --------- | -------- |  | --------------------- | --------------------
|                           |           | Shares   |  |                       | Exercise
    Price  
|Balance,
    June 30, 2010 | 127,000   |          |  | $           
    1.28
|                           | Cancelled | (62,000) |  |                       | 0.95                
|Balance,
    June 30, 2011 | 65,000    |          |  | $           
    1.60
|                           | Cancelled | (50,000) |  |                       | 1.18                
|Balance,
    June 30, 2012 | 15,000    |          |  | $          
    3.00 







Following is a summary of the status of options outstanding as of
June 30, 2012:







|         | Outstanding Options |             | Exercisable Options
|-------- | ------------------- | ----------- | -------------------
|         |                     | Weighted    |                    
|         |                     | Average     | Weighted           
|Exercise |                     | Remaining   | Average            
|Price    |                     | Contractual | Exercise           
|Range    | Number              | Life        | Price              
|$3.00    | 15,000              | 0.1 years   | $      3.00        



As
the stock price of the Company’s stock on June 30, 2012 was lower than the exercise prices of the outstanding and exercisable
options, there was no intrinsic value of the options.

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. There were no Company
matching contributions made to the plan during the fiscal years ended June 30, 2011 or June 30, 2012.











12.
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 Aquamere®, Aquatrix®, Dermaseal®, Dragonhyde®,
Hydromer® Anti-Fog/Condensation Control Coatings, Hydromer® Lubricious Coatings, Sea-Slide®and T-HEXX® Barrier Dips and Sprays. Research and Development services and all of the Company’s royalties
and contract revenues are reported in this segment.

The
medical products segment includes the biofeedback medical devices, contract coating services and engineering equipment sales and
services.

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

The
Company operates globally in its segments with several large customers that are important to their operating results. No single
customer accounted for more than 10% of the polymer research segment sales for the 2011 and 2012 fiscal years. For the medical
products segment, the top three customers accounted for 41% and 48% of that segment’s 2011 and 2012 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 benefits 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, 2012     |                     |                      |                     
|Revenue                      | $     4,380,701     | $    
    1,361,419  |                      | $    
    5,742,120
|Expenses                     | (3,461,149)         | (1,132,765)          | (1,530,313)          | (6,124,227)        
|Earnings
    (Loss)          |                     |                      |                     
|                             | before              |                      |                      |                     |                     
|                             | Income
    Taxes    | $       
    919,552 | $       
    228,654 | $  
    (1,530,313) | $     
    (382,107)
|                             |                     |                      |                      |                     |                     
|Year
    Ended June 30, 2011 |                     |                      |                     
|Revenue                      | $    
    4,225,184 | $    
    1,289,831  |                      | $    
    5,515,015
|Expenses                     | (3,627,262)         | (1,171,504)          | (1,624,609)          | (6,423,375)        
|Earnings
    (Loss)          |                     |                      |                     
|                             | before              |                      |                      |                     |                     
|                             | Income
    Taxes    | $       
    597,922 | $       
    118,327 | $  
    (1,624,609) | $     
    (908,360)
|                             |                     |                      |                      |                     |                     





Geographic revenues were as follows for the years ended June 30





|         | 2012 | 2011
|-------- | ---- | ----
|Domestic | 66%  | 60% 
|Foreign  | 34%  | 40% 







13. EARNINGS PER SHARE

The
following table sets forth the computation of earnings per share:



|                                                  |                                              | 2012                  | 2011         
|------------------------------------------------- | -------------------------------------------- | --------------------- | -------------
|Numerator:                                        |                                              |                      
|                                                  | Net loss                                     | $   (395,346)         | $   (581,298)
|                                                  |                                              |                       |              
|Denominator:                                      |                                              |                      
|                                                  | Denominator for basic earnings
    per share
|                                                  | - weighted average share outstanding         | 4,772,318             | 4,772,318    
|                                                  |                                              |                       |              
|Effect of dilutive securities
    - Stock Options | 0                                            | 0                    
|                                                  |                                              |                       |              
|Denominator for dilutive earnings
    per share  
|                                                  | under the treasury stock method             
|                                                  | - weighted average share outstanding         | 4,772,318             | 4,772,318    
|                                                  |                                              |                       |              
|Basic Loss per share                              | $         
    (0.08)                        | $         (
    0.12)
|Dilutive Earnings per share                       | n/a                                          | n/a                  



Common
stock equivalents (consisting of 15,000 and 65,000 stock options for the years ended June 30, 2012 and 2011, respectively) were
not included in computing diluted earnings per share as their effect would have been anti-dilutive.



14.
CONTINGENCIES

Royalty
revenues and support fees recorded by the Company are based on the sales of products as reported by the Company’s customers,
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 customer’s business, the market and other pertinent factors in assessing the validity of reported
royalties or support fees. In addition, the Company may have a right to audit the amounts reported.

The
Company has not received any claims by its customers for possible overpayment of royalties or support fees.



15.
SUBSEQUENT EVENTS

On
November 8, 2012, the Company was granted a waiver on the loan covenants not met as of June 30, 2012 for a fee of $50,000. The
amount paid will be amortized over the remaining life of the loan. The next covenant measurement date will be June 30, 2013.







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

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

|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.
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------