SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON D. C. 20549

                                   FORM 10-KSB

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

                     For the fiscal year ended June 30, 2003

                         Commission File Number 0-10683

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

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

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

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

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

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

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

     Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such report(s) and (2) has been subject to such filing requirements for the past
90 days. Yes [X] No [ ]

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

     The aggregate market value of the voting stock held by non-affiliates of
the Registrant at September 1, 2003 was approximately $2,119,786.

     The number of shares of Registrant's Common Stock outstanding on September
1, 2003 was 4,587,987.

     Portions of the Audited Financials Statements for the year ended June 30,
2003 are incorporated by reference in Part II of this report. Portions of the
Proxy Statement of Registrant dated September 15, 2003 are incorporated by
reference in Part III of this report.


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                                     PART I

Item 1.  BUSINESS
General

Hydromer, Inc (the "Company") is a polymer research and development company
organized as a New Jersey Corporation in 1980 for the purposes of developing
polymeric complexes for commercial use in the medical and industrial markets.
The Company owns several process and applications patents for Hydromer(R)
coatings ("Hydromer"), which is a polymeric substance that becomes extremely
lubricious (slippery) when wet, and a technique of grafting or applying this
substance onto surfaces which may consist of a broad variety of materials,
including other polymers like polyurethane, polyvinyl chloride, and silicone
elastomers, ceramics and metals. The Company has also been issued patents for
permanent anti-fog materials, hydrophilic polyurethane foams, hydrophilic
polyurethane blends, hydrophilic polyvinylbutyral alloys, several biocompatible
hydrogels and an anti-bacterial medical material. The Company was granted a new
patent this year, one in July 2003 and has one additional patent application
pending. The Company continues to actively evaluate other new market
opportunities for its polymer technology.

The Company also owns various trademarks, including Sea-Slide(R), a coating for
watercraft hulls, Dermaseal(R), a dermal barrier film product for the prevention
of contact dermatitis, AQUAMERE(TM), a water resistant film former product with
cosmetic applications and T-HEXX(R), a barrier teat dip product for the
prevention of mastitis in dairy animals.

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

HYDROMER(R) LUBRICIOUS COATINGS

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

As of June 30, 2003, the Company has license agreements with ten different
companies covering the application of Hydromer coatings to the following
devices: enteral feeding products, guidewires, certain urological devices,
infusion microcatheters, central venous catheters, guiding and umbilical
catheters, razor cartridges, orthodontic accessories, angioplasty balloon
catheters, embolization delivery devices and biliary and pancreatic stents. The
Company is actively seeking new license opportunities.

The Company is focusing on expanding its global sales in markets where it has an
established presence, and is increasing advertising and promotion activities via
traditional means, including an expanded tradeshow presence in the U.S. and
Europe, and the Internet to establish awareness of Hydromer technology and
capabilities in the medical device community. To facilitate this expansion, the
Company has expanded its capabilities to offer contract research and coating
services to the medical and industrial markets through its acquisition of
Biosearch Medical Products Inc. With the acquisition of BMPI in February 2000,
the Company offers an ISO 9001/GMP certified and FDA registered capability.

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

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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. Furthermore, our Hydromer
technology has further application with other medical products outside our
current scope and with products outside the medical field. Our latest example is
our T-Hexx(R) Barrier Dips and Sprays used in the agricultural field.

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

T-HEXX (R) BARRIER DIPS AND SPRAYS

The Company's latest product line, T-HEXX Barrier Dips and Sprays were
introduced to the market in Fiscal Year 1999. T-HEXX Dips were created using the
Company's patented film-forming hydrogel technology. T-HEXX products offer dairy
farmers exceptional value and unsurpassed protection from mastitis, a problem
that costs U.S. Dairy farmers an estimated $1.4 billion per year. The U.S.
market for teat dips is an estimated $350 million at the farm level. T-HEXX
Barriers are the first and only no-drip, water resistant, breathable barrier
products on the market. The product has been demonstrated to stay on the cow
teat better than the competition, protecting the cow during the 8-12 hour
milking cycle by preventing bacterial infiltration of the teat end, and killing
mastitis causing bacteria, including mycoplasma, for over 12 hours, yet is easy
to remove using traditional milking preparation methods.

In fiscal 2002, the Company launched a complementary product, T-Hexx(R) Dry Teat
Protection Sealant, for cows not in lactation, providing for a low-cost,
effective protection against mastitis and mycoplasma. T-Hexx(R) Dry provides for
long-lasting protection of between 3 to 7 days during the dry-off and the
critical pre-calving period.

The Company has invested significantly in clinical research, patents, promotion
and advertising via print media and the Internet to support this business. The
Company has three patents for barrier teat dip compositions.

HYDROMER(R) ANTI-FOG/CONDENSATION CONTROL

Hydromer Anti-Fog/Condensation Control is an optical coating which prevents the
accumulation of vision-obscuring condensation under high humidity conditions.
The Company is selling this material in bulk to manufacturers of greenhouse
panels, refrigerator doors, industrial and medical safety, swim goggles,
aircraft windows, automotive headlight assemblies and gauge and meter
manufacturers in the U.S. and internationally. New food grade Anti-Fog coatings
are being developed for the ready-to-eat produce, meats and bakery products. The
Hydromer Food Grade Anti-Fog is formulated with materials that are generally
recognized as safe for food contact as confirmed by independent laboratory
extraction testing.

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

Hydromer has a patent on its chitosan-PVP hydrogel technology in addition to new
patents granted in 2000 and 2002 on polyaldehyde hydrogels. Applications for
this material are being developed for wound care, implants, drug delivery, burn
care, conductive hydrogel electrodes, ultrasonic couplants and cosmetic uses
with several customers. The Company is also identifying strategic partners to
offer hydrogel coating services to clients who does not have rolled goods
coating capability and to licensing Hydrogel technology for cosmetic and medical
use, including drug release.

The Company's hydrogel technology offers biocompatibility, flexibility, and ease
of use and processing. It also allows for the stabilization of biomolecules,
cell cultures, drugs and other active substances without potentially damaging
external energy sources. It is absorbent, inherently self-adhesive but peels
away cleanly and is naturally soothing. To form the gel entails to simply mix
the two parts together - requiring no heat, no chemical cross linkers nor
expensive high energy processing. Many competitive technologies are much more
process intensive and requires external energy to crosslink. The Company
believes these products are synergistic to our existing hydrogel technologies,
and offer further opportunities in electrodes and topical actives delivery.

AQUAMERE(TM) POLYMERS

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

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DERMASEAL(R) BARRIER FILMS

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

MEDICELL(TM) FOAM PRODUCTS

Medicell is the Company's hydrophilic polyurethane foam technology, patented in
1986. In 1999, the Company licensed this technology for medical use in the U.S.
The licensee received 510K approvals from the FDA to market their products. As
of August 27, 2003, the Company obtained all rights under that 510K. The Company
is exploring other medical, dental and cosmetic applications for this
technology.

SEA-SLIDE(R) BOAT COATINGS

Sea-Slide is a Hydromer-based drag reducing coating that reduces friction
between hull and water, and can be used over most anti-fouling paints. A U.S.
patent covering this coating and other potential uses was issued in 1987.
Independent testing has confirmed that this technology significantly improves
fuel economy and the hull speed of watercraft. Sea-Slide is marketed through
HammerHead Products, Inc., via an exclusive distribution agreement.

HYDROMER(R) COATING SERVICES

The Company continues to expand its activity in Coating services, actively
seeking opportunities to provide contract development, coating and manufacturing
services to the medical, industrial and personal care industry, utilizing its
Hydromer and Anti-Fog coating technology and expertise. The Company has expanded
its exhibition at major medical shows in the U.S. and Europe to promote these
services and is currently working on several projects with medical devices. A
major client is now using this service in the urology markets. The Company
continues to believe that these services will enable a broader range of
customers to use our materials in market on accelerated timelines in a more cost
effective manner.


OEM MEDICAL DEVICES

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


Option and License Agreements

A substantial portion of the Company's revenues is derived from option and
license agreements. Option agreements provides customers the right for a finite
period of time (i) to use the Hydromer process to determine whether the
customer's products lend themselves to treatment with the process and (ii) to
test market such products. The option agreements have also given the customers
the right to subsequently enter into a license agreement with the Company and to
the market product(s) treated with Hydromer, which typically provides the
Company an initial flat fee, followed by periodic royalty payments based on
sales.

The Company has previously reported license agreements in effect and expiring
relating to applications of the Hydromer as follows: Annual Report on Form 10-K
for the fiscal years ended June 30, 1983 through 1996 and Form 10-KSB for fiscal
years ended 1997 through 2003.


Licensee/Application

Applied Medical - certain urological and vascular devices
Becton-Dickinson - certain vascular devices with anti-microbial coatings
Boston Scientific (Van-Tec and Sci Med) - guidewires and certain urological
     devices
CR Bard - certain urological devices
ACMI Corp. (formerly known as Circon Surgitek; Division of Maxxim Corporation) -
     guidewires, urinary stents
Cordis Endovascular Systems - infusion microcatheters
Gallini - certain urological devices
Energizer Holdings, Inc. - Schick / Warner / Wilkinson Sword Ltd. - razor
     cartridges
TP Orthodontics - certain orthodontic accessories
Tyco International / Kendall HealthCare Products - certain urological devices
     and enteral feeding systems

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Products

Coating solutions for use on medical devices, cosmetic intermediaries, hydrogels
and teat barrier dips/sprays are manufactured and sold by the Company to its
licensees and others. The Company is selling bulk quantities of anti-fog
solution to manufacturers of greenhouse panels, refrigerator doors, swim
goggles, industrial safety equipment, aircraft windows and meter covers, both in
the U. S. and foreign countries. The Company also sells OEM medical devices
through its Biosearch Medical Products subsidiary.

The Company has no long-term contracts with any of its suppliers and believes
that there are adequate alternative sources of supply available for all raw
materials that it currently uses.


Dependence Upon Customers

The Company derives its revenues from two primary business segments: (1) polymer
research and the products derived there from, and (2) the sales of medical
products. During the fiscal years ended June 30, 2003 and June 30, 2002, the
Company recognized revenues from two major customers: Johnson & Johnson's Cordis
Division and Wilson Cook Medical, Inc.

Product sales and/or royalty payments from these customers accounted for 39% and
42% of the Company's total revenues for the years ended June 30, 2003 and June
30, 2002, respectively.


Potential Applications

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

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

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

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

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

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

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

2.   Ability to be Complexed with Other Functional Chemicals. The Hydromer
hydrophilic polymer coating can be complexed with other chemicals. For example,
Hydromer coating complexed with iodine forms an effective anti-microbial
barrier. The Company believes that this unique feature would lend itself to
application on a wide variety of currently marketed medical products, including
vascular stents, Foley catheters, wound drains, wart and corn dressings, burn
dressings, intravenous catheters, surgical dressings and adhesive bandages. One
of the Company's recent patents in the coating area, issued in April 2000,
involves the covalent bonding of infection resistant materials into the coating,
providing a non-leaching, anti-infective surface. The Company has also filed
patents for covalently bonded radio-opaque polymeric compositions to improve the
radio-opacity of materials without needing high solid loading, metal plating or
ion implantation for applications like stents and vascular catheters. This
patent application was granted by the U.S. Patent Office on July 29, 2003.

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

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Research and Development

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


Competition

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

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

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


Marketing

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

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

2.   Sale of Development Services: The Company intends to continue moving its
effort away from straight technology licensing and toward contract product
development, contract manufacturing and coating services (see "5. Coating
Services"). The Company has significant expertise in polymer development and
applications. By exhibiting at an increased number of trade shows in the medical
device and cosmetic fields, the Company expects to generate interest in its
technology and products, with a view toward acting as an outside product
development arm and development supplier for companies in these fields.

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

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

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cost. The Company will pursue large volume projects if they fall within a
technical area where the Company has particular expertise.

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


Patents and Trademarks

Management believes that the protection afforded by the Hydromer patents will be
a significant factor in the Company's ability to market its products.
Anticipating patent expiration, the Company has focused on licensing and
developing products based upon its newer technologies. The Company has also been
issued United States and foreign patents for a permanent anti-fog. An U. S.
patent was issued in October 1985 for a hydrophilic polyurethane foam that is
expected to have numerous medical applications. Foreign patents covering this
material were issued in July 1990. An U.S. patent for hydrophilic polymer
blends, which covers the Company's coating for boats and the cosmetic
formulations, was issued in February 1987. U.S. and foreign patents have also
been issued for an anti-bacterial medical material that can be incorporated in
foam or as a coating. The Company was issued an U.S. patent for non-leaching
biostatic coatings and three United States patents for its new composition,
barrier film, and method for preventing contact dermatitis developed by the
Company's research and development staff. The Company has two patents for
Chitosan gels, which expires in 2014. These patents are part of the new gel
technology with applications in medical, industrial, cosmetic and personal care
markets. The Company was issued three U.S. Patents for barrier teat dip
compositions. One new patent was awarded to the Company during the fiscal year
ended June 30, 2003.

As of June 30, 2003, the Company has 20 U.S. patents, two U.S. application and
various foreign counterparts. A patent for non-leachable radio-opaque polymeric
coatings was issued in July 2003, with one U.S. application still pending.

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


Employees

As of June 30, 2003, the Company and its subsidiary had sixty-nine active
full-time employees. The Chief Executive Officer is Manfred F. Dyck, who is also
Chairman of the Board. The Company does not have a collective bargaining
agreement with any of its employees and considers its relationship with its
employees to be very good.


Government Regulations

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

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

The Company manufactures medical products through its Biosearch Medical Products
subsidiary ("Biosearch"), whose activities come under the jurisdiction of the
FDA. It is the policy of the Company to use the FDA regulations as guidelines
during manufacturing of Hydromer coatings.

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

The Company's electronically filed reports are available at www.sec.gov.

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Executive Officers

     The executive officers of the Company are as follows:

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

Manfred F. Dyck - Chairman of the Board, Chief Executive Officer and President
     Age at August 31, 2003 - 68

Martin C. Dyck - Executive Vice-President, Operations and President Biosearch
     Medical Products subsidiary
     Age at August 31, 2003 - 41

Rainer Gruening - Vice-President, Research & Development
     Age at August 31, 2003 - 60

Robert Y. Lee - Vice-President, Finance, Chief Financial Officer and Treasurer
     Age at August 31, 2003 - 37

Robert J. Moravsik - Senior Vice-President, General Counsel and Secretary
     Age at August 31, 2003 - 60

     Manfred F. Dyck has been Chairman of the Board of the Company since June
1983 and a Director of the Company since its inception. Mr. Dyck served as Chief
Executive Officer of the Company from its inception until October 1986, and as
of August 1989, reassumed the duties of Chief Executive Officer. Mr. Dyck was
President of Biosearch Medical Products Inc. ("BMPI") from 1975 until 1998 and a
Director of Biosearch Medical Products Inc. from 1975 until 2000.

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

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

     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 experience includes over 16 years of professional experience in various
growing capacities, including three years at the NY office of Coopers and
Lybrand with their Emerging Business Group, two years with the Bristol Myers
Squibb Internal Auditing group, five years with ASARCO's Southern Peru Copper
Corporation and three years with Citigroup.

     Robert J. Moravsik has been Senior Vice-President, General Counsel and
Secretary since February 2000. Prior to his promotion, he was Vice-President and
General Counsel since April 1998. He also serves in the same capacity for
Biosearch Medical Products, Inc. an affiliated company since 1987. Prior to
that, he was Vice-President and General Counsel to Fisher Stevens, Inc., a
subsidiary of the Bureau of National Affairs.


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 primary 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 at 35 Columbia Road, Branchburg, NJ.

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


Item 3.  LEGAL PROCEEDINGS

     Not applicable


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

     Not applicable.

                                        8
<PAGE>

                                     PART II

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

     Prior to January 9, 1986, the Company's Common Stock was traded in the
over-the-counter market on the National Association of Securities Dealer's
Automated Quotation System (NASDAQ) under the symbol "HYDI". Subsequent to
January 9, 1986, reporting of trading was transferred to the National Daily
Quotation Service (commonly known as the "Pink Sheets"). For the past fifteen
years, trading in the Company's stock has been limited.

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

     The Company's common stock traded at prices ranging between $0.40 and $0.95
in the fiscal year 2003 and between $0.41 and $1.75 in the fiscal year 2002.
These prices may not include retail mark-ups or mark-downs or any commission to
the broker dealer.

     The approximate number of holders of record of the Common Stock on August
31, 2003 was 249. There are approximately 600 individual shareholders of the
common stock.


Item 6.  MANAGEMENT DISCUSSION AND ANALYSIS

     The below discussion analyzes major factors and trends regarding the
results of operations and the financial condition of the Company as of June 30,
2003, 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, 2003 were $6,373,203 as compared to
$5,786,068 for the same period last year.

     Product sales and services were $4,162,737 for the 2003 fiscal year
compared to $3,593,681 in the prior fiscal year, a growth of 15.8% or $569,056.

     License royalties and option payments were $2,210,466 in fiscal 2003, up
0.8% from fiscal 2002's results of $2,192,387.

Management Comment: Despite the continued state of the sluggish economy, our
revenues grew as a result of our continued research and development initiatives
and focus on marketing. Specifically, the growth in product sales and services
during fiscal year 2003 came from the introduction of our new anti-fog
condensation control coating solution, market penetration and awareness of our
T-Hexx barrier dips and sprays and growth in our contract coating services
business.


Gross Profit for the year ended June 30, 2003 was $4,124,104, up $301,628 or
7.9% over fiscal year 2002's results of $3,822,476.

     Direct costs, as a percentage of product sales, were 54.0% for fiscal 2003
as compared to 54.6% for the fiscal year ended June 30, 2002. Overall gross
profit, including royalty income, was 64.7% for fiscal 2003 as compared to 66.1%
for fiscal 2002.

Management Comment: Gross margin as a percentage to both product and services
sales as well as to total revenues were essentially flat between the years.
Royalty, option and license revenues are included in gross profit at 100%.


Operating Income for the year ended June 30, 2003, was $328,003 as compared with
$51,398 for the same period the year before, an increase of $276,605.

     Selling, general and administrative and research and development costs were
$3,796,101 for the year ended June 30, 2003 as compared to $3,771,078 for the
same period last year or an increase of 0.7%.

Management Comment: Although total SG&A expenses were flat year over year, we
increased our marketing expenditures, R&D expenditures and personnel investment.
Reduced occupancy costs from the consolidation of our operating facilities
offset the increase in interest costs.


Income before taxes of $203,088 is reported for the 2003 fiscal year as compared
to a Loss before income taxes of $39,407 the prior year.

     Other Expenses was $124,915 in fiscal 2003 as compared to $90,805 for the
same period last year.

Management Comment: Higher interest costs from the completed new addition as
well as higher short-term borrowings increased our interest expense by $34,110.
The new addition was completed during the fiscal 2002 period where $15,128 of
interest was capitalized. Lower occupancy costs under Operating expenses offset
the higher mortgage interest from the new addition.

                                        9
<PAGE>

Net Income for the 2003 fiscal year was $133,826 compared to $186,098 for 2002
fiscal year, a decrease of $52,272.

     For the 2003 year, there was a Provision for Income Taxes of $69,262 as
compared to an Income Tax Benefit of $225,505 for the prior fiscal year.

Management Comment: The Company's effective tax rate was 34.1% for fiscal 2003
as impacted by Net Operating Loss and R&D tax credits and other timing
differences. In fiscal 2002, there was a recognition of $230,360 in deferred
income tax benefits from an adjustment in valuation allowances.


Liquidity and Capital Resources

Working Capital as of June 30, 2003 was $1,363,229, up $55,477 from the prior
year.

     Working capital increased during the 2003 fiscal year primarily from an
increase in receivables. Decreases to accounts payable and accrued expenses were
offset by an increase in the short-term borrowings.

Management Comment: We continue to see an increase in working capital from the
continued growth of our business. Demand for our products requires our near-term
investment in inventories, typically through credit. The increase in sales
generates higher current receivables.

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


Item 7.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     For information concerning this item, see pages F-2 through F-10 of the
"Audited Financial Statements for the year ended June 30, 2003," which
information is incorporated herein by reference.


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

     Not applicable.



                                    PART III

Item 9.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     For information concerning this item, see "Item 1. Business - Executive
Officers" and pages 3 through 10 in the Proxy Statement filed with respect to
the 2003 Annual Meeting of Shareholders (the "Proxy Statement"), which
information is incorporated herein by reference.


Item 10. EXECUTIVE COMPENSATION

     For information concerning this item, see page 6 of the Proxy Statement,
which information is incorporated herein by reference.


Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     For information concerning this item, see page 8 of the Proxy Statement,
which information is incorporated herein by reference.


Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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



                                     PART IV

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

(a) 1. Financial Statements:

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

(a) 2. Financial Statement Schedules:

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

(a) 3. Exhibits (not included)

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

(b) Current Reports on Form 8-K:

     The Company has not filed any Current Reports on Form 8-K during the
quarter ended June 30, 2003.

                                       10
<PAGE>

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

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

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.

<TABLE>
<CAPTION>
HYDROMER, INC.

<S>                         <C>                                         <C>
/s/ MANFRED F. DYCK         President, Principal Executive Officer,     September 17, 2003
-------------------         Chairman of the Board of Directors
Manfred F. Dyck

/s/ ROBERT Y. LEE           Chief Accounting Officer                    September 17, 2003
-----------------
Robert Y. Lee

     Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:

/s/ MANFRED F. DYCK         President, Principal Executive Officer,     September 17, 2003
-----------------------     Chairman of the Board of Directors
Manfred F. Dyck

/s/ ROBERT H. BEA           Director                                    September 17, 2003
-----------------------
Robert H. Bea

/s/ MAXWELL BOROW           Director                                    September 17, 2003
-----------------------
Maxwell Borow, MD

/s/ URSULA M. DYCK          Director                                    September 17, 2003
-----------------------
Ursula M. Dyck

/s/ DIETER HEINEMANN        Director                                    September 17, 2003
-----------------------
Dieter Heinemann

/s/ KLAUS J.H. MECKELER     Director                                    September 17, 2003
-----------------------
Klaus J.H. Meckeler, MD

/s/ FREDERICK L. PERL       Director                                    September 17, 2003
-----------------------
Frederick L. Perl, MD

/s/ MICHAEL F. RYAN         Director                                    September 17, 2003
-----------------------
Michael F. Ryan, PhD
</TABLE>


                                       11
<PAGE>

                           HYDROMER, INC. & SUBSIDIARY
                        CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2003 AND 2002
<PAGE>


                          Independent Auditors' Report


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



We have audited the accompanying consolidated balance sheets of Hydromer, Inc. &
Subsidiary as of June 30, 2003 and 2002 and the related consolidated statements
of income, stockholders' equity, and cash flows for the years then ended. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Hydromer, Inc. &
Subsidiary as of June 30, 2003 and 2002, and the consolidated results of their
operations and cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.


                                   Rosenberg Rich Baker Berman & Company


Bridgewater, New Jersey
August 15, 2003

<PAGE>

                           HYDROMER, INC. & SUBSIDIARY
                 INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2003 AND 2002



                                                                            Page

Financial Statements

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

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

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

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

   Notes to the Consolidated Financial Statements ................   F-4 to F-10
<PAGE>

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


                                                                                         June 30,
                                                                                --------------------------
                                                                                   2003            2002
                                                                                --------------------------
<S>                                                                             <C>             <C>
Assets

Current Assets

  Cash and cash equivalents ...............................................     $   97,676      $  111,148

  Trade receivables less allowance for doubtful accounts of
   $15,097 and $5,303 in 2003 and 2002, respectively ......................      1,193,525       1,131,427

  Inventory ...............................................................        980,401         972,580

  Prepaid expenses ........................................................        123,368         127,733

  Deferred tax asset ......................................................        316,798         306,360

  Other ...................................................................         16,575          11,100
----------------------------------------------------------------------------------------------------------
     Total Current Assets .................................................      2,728,343       2,660,348

Property and Equipment, net ...............................................      2,745,148       2,786,521

Patents, net ..............................................................        574,238         488,173

Trademarks, net ...........................................................         37,511          42,411

Goodwill, net .............................................................        490,172         490,172
----------------------------------------------------------------------------------------------------------
     Total Assets .........................................................     $6,575,412      $6,467,625
==========================================================================================================

Liabilities and Stockholders' Equity

Current Liabilities

  Accounts payable ........................................................     $  454,783      $  580,614

  Short-term borrowings ...................................................        597,286         500,000

  Accrued expenses ........................................................        195,311         194,065

  Current portion of mortgage payable .....................................        101,234          77,917

  Income tax payable ......................................................         16,500              --
----------------------------------------------------------------------------------------------------------
     Total Current Liabilities ............................................      1,365,114       1,352,596

Deferred tax liability ....................................................        161,500          98,500

Long term portion of mortgage payable .....................................      1,440,227       1,541,784
----------------------------------------------------------------------------------------------------------
     Total Liabilities ....................................................      2,966,841       2,992,880
----------------------------------------------------------------------------------------------------------

Commitments & Contingencies

Stockholders' Equity

  Preferred stock - no par value, authorized 1,000,000 shares, no shares
   issued and outstanding .................................................             --              --

  Common stock - no par value, authorized shares 15,000,000, issued
   4,598,904 shares and outstanding 4,587,987 shares ......................      3,608,118       3,608,118

  Contributed capital .....................................................        577,750         577,750

  Accumulated deficit .....................................................       (571,157)       (704,983)

  Treasury stock, 10,917 common shares at cost ............................         (6,140)         (6,140)
----------------------------------------------------------------------------------------------------------
     Total Stockholders' Equity ...........................................      3,608,571       3,474,745
----------------------------------------------------------------------------------------------------------
     Total Liabilities and Stockholders' Equity ...........................     $6,575,412      $6,467,625
==========================================================================================================
</TABLE>

See notes to the consolidated financial statements.


                                       F-1
<PAGE>

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


                                                                                    Year Ended June 30,
                                                                                --------------------------
                                                                                   2003            2002
                                                                                --------------------------
 <S>                                                                            <C>             <C>
Revenues

  Sales of products and services ............................................   $4,162,737      $3,593,681

  Royalties, options and licenses ...........................................    2,210,466       2,192,387
----------------------------------------------------------------------------------------------------------
     Total Revenues .........................................................    6,373,203       5,786,068

Cost of Sales ...............................................................    2,249,099       1,963,592
----------------------------------------------------------------------------------------------------------
Gross Profit ................................................................    4,124,104       3,822,476

Operating Expenses ..........................................................    3,796,101       3,771,078
----------------------------------------------------------------------------------------------------------
Operating Income ............................................................      328,003          51,398
----------------------------------------------------------------------------------------------------------
Other Income (Expense)

  Interest income ...........................................................          266           2,816

  Interest expense ..........................................................     (125,875)        (95,321)

  Other income ..............................................................          694           1,700
----------------------------------------------------------------------------------------------------------
Total Other Income (Expense) ................................................     (124,915)        (90,805)
----------------------------------------------------------------------------------------------------------
Income (Loss) Before Provision for (Benefit from) Income Taxes ..............      203,088         (39,407)

Provision for (Benefit from) Income Taxes ...................................       69,262        (225,505)
----------------------------------------------------------------------------------------------------------
Net Income ..................................................................   $  133,826       $ 186,098
==========================================================================================================
Earnings Per Common Share ...................................................   $      .03       $     .04
==========================================================================================================
Earnings Per Common Share - Assuming Dilution ...............................   $      .03       $     .04
==========================================================================================================
Weighted Average Number of Common Shares Outstanding ........................    4,587,987       4,587,987
==========================================================================================================
Weighted Average Number of Common Shares Outstanding - Assuming Dilution ....    4,733,320       4,587,987
==========================================================================================================
</TABLE>

See notes to the consolidated financial statements.



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


                                        Common Stock                                       Treasury Stock
                                  -------------------------  Contributed   Accumulated  ---------------------
                                     Shares       Amount       Capital       Deficit     Shares     Amount        Total
                                  ----------- ------------- ------------ -------------- -------- ------------ -------------
<S>                                <C>          <C>          <C>          <C>            <C>       <C>         <C>
Balance June 30, 2001 .........    4,598,904    $3,608,118   $  577,750   $ (891,081)    10,917    $  (6,140)  $3,288,647

Net Income ....................                                              186,098                              186,098
---------------------------------------------------------------------------------------------------------------------------
Balance June 30, 2002 .........    4,598,904    $3,608,118   $  577,750   $ (704,983)    10,917    $  (6,140)  $3,474,745

Net Income ....................                                              133,826                              133,826
---------------------------------------------------------------------------------------------------------------------------
Balance June 30, 2003 .........    4,598,904    $3,608,118   $  577,750   $ (571,157)    10,917    $  (6,140)  $3,608,571
===========================================================================================================================
</TABLE>

See notes to the consolidated financial statements.


                                       F-2
<PAGE>

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


                                                                             Year Ended June 30,
                                                                         --------------------------
                                                                            2003            2002
                                                                         --------------------------
<S>                                                                      <C>             <C>
Cash Flows From Operating Activities

  Net Income ........................................................    $  133,826      $  186,098

  Adjustments to Reconcile Net Income to Net Cash Provided by
   (Used for) Operating Activities

     Depreciation and amortization ..................................       178,398         168,345

     Deferred income taxes ..........................................        52,562        (207,860)

     Gain on the sale of equipment ..................................            --          (1,500)

  Changes in Assets and Liabilities

     Trade receivables ..............................................       (62,098)        (23,551)

     Inventory ......................................................        (7,821)       (249,281)

     Prepaid expenses ...............................................         4,365          24,442

     Patents and trademark ..........................................       (81,165)       (104,151)

     Other assets ...................................................        (5,475)         43,419

     Accounts payable and accrued liabilities .......................      (124,585)        (68,300)

     Income taxes payable ...........................................        16,500            (200)
---------------------------------------------------------------------------------------------------
       Net Cash Provided by (Used for) Operating Activities .........       104,507        (232,539)
---------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities

  Cash purchases of property and equipment ..........................      (137,025)       (971,683)

  Proceeds from the sale of equipment ...............................            --           1,500
---------------------------------------------------------------------------------------------------
       Net Cash Used for Investing Activities .......................      (137,025)       (970,183)
---------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities

  Net borrowings against Line of Credit .............................        97,286         399,980

  Proceeds from long-term borrowings ................................            --         896,329

  Repayment of long-term borrowings .................................       (78,240)        (56,628)
---------------------------------------------------------------------------------------------------
       Net Cash Provided by Financing Activities ....................        19,046       1,239,681
---------------------------------------------------------------------------------------------------
Net (Decrease) Increase in Cash and Cash Equivalents ................       (13,472)         36,959

Cash and Cash Equivalents at Beginning of Year ......................       111,148          74,189
---------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year ............................    $   97,676      $  111,148
===================================================================================================


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

  Cash paid during the year for:

     Interest .......................................................    $  125,642      $   90,601

     Income taxes ...................................................    $       --      $    4,700
</TABLE>

See notes to the consolidated financial statements.


                                       F-3
<PAGE>

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


1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

     Hydromer, Inc. & Subsidiary (the "Company") is a polymer research and
development company based in Branchburg, New Jersey. The Company develops
polymer complexes for commercial markets in the medical and industrial fields,
primarily in the United States. The Company obtains patent rights on certain
products from which royalty revenues are received. Its wholly owned subsidiary,
Biosearch Medical Products, Inc., is a U.S. based corporation whose principal
lines of business are in contract manufacturing and distributing, under its own
label of medical devices. The Company is an OEM manufacturer for various medical
products companies and manufactures and distributes its own line of endoscopic
products to hospitals, through a network of dealers, both domestic and
international.

Principles of Consolidation

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

Cash and Cash Equivalents

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

Inventories

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

Depreciation

     The cost of property and equipment is depreciated on a straight-line method
over the estimated useful lives of the assets: 5-10 years for machinery and
equipment, 3-5 years for furniture and office equipment and 40 years for the
building. When assets are retired or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts, and any resulting gain
or loss is reflected in income for the period. Repairs and maintenance which do
not extend the useful lives of the related assets are expensed as incurred.

Patents

     Expenses associated with patents are prepaid and amortized over the
expected life of the patent, typically 20 years. Prepaid expenses associated
with patents which are not approved or abandoned are expensed in the period in
which such patents are not approved or abandoned. Maintenance fees associated
with existing patents are written off over 12 months. Amortization expense for
the years ended June 30, 2003 and 2002 were $40,729 and $36,636, respectively.
In addition, in fiscal 2002, there was a write-off of $29,220 in patent expenses
for outdated technology which was charged directly to expense. During the year
ended June 30, 2003, there was one new patent approved.

Income Taxes

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

Earnings Per Share

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

Goodwill

     Goodwill represents the excess of the purchase price of Biosearch Medical
Products, Inc. over the fair market value of their net assets at the date of
acquisition and through June 30, 2002 was amortized on the straight line method
over 40 years. The Company adopted SFAS No. 142, Goodwill and Other Intangible
Assets, on July 1, 2002 in which goodwill is no longer amortized but tested for
impairment on at least an annual basis. The carrying value is reviewed if the
facts and circumstances, such as significant declines in sales, earnings or cash
flows or material adverse changes in the business climate, suggest that it may
be impaired. If this review indicates that goodwill will not be recoverable, as
determined based on the estimated undiscounted cash flows of the entity
acquired, impairment is measured by comparing the carrying value of goodwill to
fair value. Fair value is determined based on quoted market values, discounted
cash flows or appraisals. In addition, the Company assesses long-lived assets
for impairment (see "Long-Lived Assets" below). Amortization expense charged to
operations for June 30, 2002 was $15,960.

     The pro forma results of operations, assuming that provisions of SFAS No.
142 were applied, are as follows for the respective years ended June 30,

                                                   2003       2002
                                                 -------------------

Net Income (as reported) .....................   $133,826   $186,098

  Add back amortization for Goodwill .........        --      15,960
--------------------------------------------------------------------
Adjusted Net Income ..........................   $133,826   $202,058
====================================================================

Basic Income per Share (as reported) .........   $   0.03   $   0.04

  Add back amortization for Goodwill .........         --         --
--------------------------------------------------------------------
Adjusted Basic Income per Share ..............   $   0.03   $   0.04
====================================================================

Long-Lived Assets

     The Company assesses long-lived assets for impairment under SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. (See Footnote
#2, "New Accounting Pronouncements".) 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.


                                       F-4
<PAGE>

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


Advertising

     Advertising costs are expensed as incurred except for tangible assets, such
as printed advertising materials, which are expensed as consumed. Advertising
expense was $40,271 and $38,499 for the years ended June 30, 2003 and 2002,
respectively.

Research and Development

     Research and development costs are charged to operations when incurred and
are included in operating expenses. The amounts charged to expense for the years
ended June 30, 2003 and 2002 were approximately $417,395 and $400,463,
respectively.

Stock-Based Compensation

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

Revenue Recognition

     Revenues from product sales are recognized at the time of shipment 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.

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.

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.  NEW ACCOUNTING PRONOUNCEMENTS

     In August 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.
This statement addresses financial accounting and reporting for the impairment
or disposal of long-lived assets. SFAS 144 supercedes SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of, and provides guidance on classification and accounting for such assets when
held for sale or abandonment. SFAS 144 is effective for fiscal years beginning
after December 15, 2001. The adoption of SFAS No. 144 did not have a material
effect on the Company's consolidated results of operations or financial
position.

     In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections.
This statement rescinds SFAS No. 4, Reporting Gains and Losses from
Extinguishment of Debt, and an amendment of that statement, SFAS No. 44,
Accounting for Intangible Assets of Motor Carriers, and SFAS No. 64,
Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. This
statement amends SFAS No. 13, Accounting for Leases, to eliminate
inconsistencies between the required accounting for sales-leaseback transactions
and the required accounting for certain lease modifications that have economic
effects that are similar to sales-leaseback transactions. Also, this statement
amends other existing authoritative pronouncements to make various technical
corrections, clarify meanings, or describe their applicability under changed
conditions. Provisions of SFAS No. 145 related to the rescissions of SFAS No. 4
were effective for the Company on November 1, 2002 and provisions affecting SFAS
No. 13 were effective for transactions occurring after May 15, 2002. The
adoption of SFAS No. 145 did not have a material impact on our consolidated
financial statements.

     In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. This statement covers restructuring type
activities beginning with plans initiated after December 31, 2002. Activities
covered by this standard that are entered into after that date will be recorded
in accordance with the provisions of SFAS No. 146. The adoption of SFAS No. 146
did not have an impact on our consolidated financial position or results of
operations.

     In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation - Transaction and Disclosure, which provides alternative methods of
transition for a voluntary change to fair value based method of accounting for
stock-based employee compensation as prescribed in SFAS 123, Accounting for
Stock-Based Compensation. Additionally, SFAS No. 148 required more prominent and
more frequent disclosures in financial statements about the effects of
stock-based compensation. The provisions of this statement are effective for
fiscal years ending after December 15, 2002, with early application permitted in
certain circumstances. The Company has adopted the disclosure provisions in
these consolidated financial statements as described later on under "Stock
Options and Awards" (footnote #9).

     In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"),
Guarantor's Accounting and Disclosure Requirements for Guarantees, including
Indirect Guarantees of Indebtedness of Others. FIN 45 requires a company, at the
time it issues a guarantee, to recognize an initial liability for the fair value
of obligations assumed under the guarantees and elaborates on existing
disclosure requirements related to guarantees and warranties. The initial
recognition requirements are effective for the Company during the third quarter
ending March 31, 2003. The adoption of FIN 45 did not have an impact on our
consolidated financial position or results of operations.

     In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.
FIN 46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the entity do not


                                       F-5
<PAGE>

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


have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 is
effective for all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or acquired prior to
February 1, 2003, the provisions of FIN 46 must be applied for the first interim
or annual period beginning after June 15, 2003. The adoption of FIN 46 did not
have an impact on our consolidated financial position or results of operations.


3.  CONCENTRATION OF CREDIT AND BUSINESS RISK

     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.

     The Company sold products and collected royalty income representing
approximately 39% of its total revenues for the year ended June 30, 2003 to two
customers, Cordis Neurovascular Systems and Wilson Cook Medical, Inc. who
individually accounted for 23% and 16%, respectively, of total revenues.
Accounts receivable from these customers accounted for 44% of total accounts
receivable at June 30, 2003.

     During the fiscal year ended June 30, 2002, Cordis Neurovascular Systems
and Wilson Cook Medical, Inc. individually accounted for 25% and 17%,
respectively, of total revenues. Accounts receivable from these customers
accounted for 37% of total accounts receivable at June 30, 2002.


4.  INVENTORY

     Inventory consists of:

                                          June 30,
                                    --------------------
                                      2003        2002
                                    --------------------

Finished goods .................    $215,035    $195,013

Work in process ................     304,230     360,489

Raw materials ..................     461,136     417,078
--------------------------------------------------------
     Total Inventories .........    $980,401    $972,580
========================================================


5.  PROPERTY AND EQUIPMENT

     Property and equipment consists of the following:


                                                       June 30,
                                             ----------------------------
                                                 2003            2002
                                             ----------------------------

Land ....................................    $    472,410    $    472,410

Building ................................       1,869,188       1,845,072

Machinery and equipment .................       2,907,497       2,807,248

Furniture and fixtures ..................         703,243         690,583
-------------------------------------------------------------------------

  Property and equipment, gross .........       5,952,338       5,924,388

Less accumulated depreciation and
 amortization ...........................      (3,207,190)     (3,137,867)
-------------------------------------------------------------------------
Property and equipment, net .............    $  2,745,148    $  2,786,521
=========================================================================

     Depreciation expense charged to operations was $178,398 and $147,756 for
the years ended June 30, 2003 and 2002, respectively. Amortization expense
charged to operations was $4,629 for the year ended June 30, 2002.

     In fiscal year 2002, the Company completed construction of a 10,400 square
foot expansion to the existing building occupied by the Company through use of a
$1,000,000 construction loan. Interest capitalized for the year ended June 30,
2002 was $15,128.


6.  LONG-TERM DEBT AND CREDIT FACILITY

     The Company's facility is financed by a mortgage note bearing interest at a
rate of 2% over the bank's fully absorbed five year cost of funds, adjusted
every five years. The interest rate for the current five year period through
June 30, 2008 is 8%. The note is due in equal monthly installments of $4,722
plus interest through June 1, 2013 and is secured by the land, building,
machinery and equipment and all rents from leases currently and subsequently
entered into. On this loan, the Company did not meet the covenant of additional
indebtedness and the Minimum Debt Service Coverage Ratio. This facility is in
process of being refinanced (see more in the Subsequent Events footnote #14).

     The Company has a second loan on the facility which was converted from a
construction loan. The construction loan, which was not to exceed $1,000,000 for
the Company's building expansion, converted to a permanent loan in December
2002. The construction loan bore interest at the Wall Street Journal's published
Prime Rate plus 1/2%, floating during the period and payable on a monthly basis.
The current permanent mortgage has a term of fifteen years at an interest rate
of the Wall Street Journal's published Prime Rate plus 1%, fixed annually.
Payments of principal and interest will be due monthly until maturity. The
permanent loan is secured by a second mortgage covering the real property and
all improvements and an assignment of all leases and rents covering the subject
property, subordinated to the first mortgage. This loan carries a prepayment
penalty of 2% during the first year and 1% in year two.

     In addition, the Company has a revolving line of credit agreement with a
bank, which allows borrowings up to $750,000, secured by all receivables and
inventories. The line bears interest at LIBOR plus 3.15% payable monthly through
maturity on July 31, 2003. This line was renewed for another year at the same
terms.


                                       F-6
<PAGE>

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


     Long-term debt is comprised of the following:

                                                 June 30,
                                         ------------------------
                                            2003          2002
                                         ------------------------

Mortgage note .......................    $  566,708    $  623,372

Permanent/Construction Loan .........       974,753       996,329
-----------------------------------------------------------------
  Total Long-term Debt ..............     1,541,461     1,619,701

  Less current maturities ...........      (101,234)      (77,917)
-----------------------------------------------------------------
Long-term Debt, net of Current
 Maturities .........................    $1,440,227    $1,541,784
=================================================================

     Total maturities of long-term debt are as follows:

Year ended June 30,
----------------------------------------------------

     2004 ..............................  $  101,234

     2005 ..............................     103,937

     2006 ..............................     106,744

     2007 ..............................     109,717

     2008 ..............................     112,866

     Thereafter ........................   1,006,963
----------------------------------------------------
  Total Long-term Debt .................  $1,541,461
----------------------------------------------------


7.  FAIR VALUE OF FINANCIAL INSTRUMENTS

     The carrying amount of cash and equivalents, accounts receivable, accounts
payable and accrued expenses approximates fair value because of the short
maturity of these instruments. The fair value of the Company's long-term debt
approximates its carrying value as it is based on the current rates offered to
the Company for debt of the same remaining maturities with similar collateral
requirements or that the difference is represented by the additional costs to
convert the debt to market rates making the two presently equivalent.

Limitations

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


8.  INCOME TAXES

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

                             Federal       State        Total
                            -----------------------------------

Year Ended June 30, 2003

Current ................    $      --    $  16,700    $  16,700

Deferred ...............       58,760       (6,198)      52,562
---------------------------------------------------------------
                            $  58,760    $  10,502    $  69,262
===============================================================

Year Ended June 30, 2002

Current ................    $  (4,671)   $ (12,974)   $ (17,645)

Deferred ...............     (162,043)     (45,817)    (207,860)
---------------------------------------------------------------
                            $(166,714)   $ (58,791)   $(225,505)
===============================================================

     The Company's deferred tax asset and liability are comprised of the
following temporary differences:

                                                     June 30,
                                              ---------------------
                                                 2003        2002
                                              ---------------------

Deferred Tax Asset

  Net Operating Losses ....................   $ 147,214   $ 151,258

  Research & Development Credits ..........     169,584     155,102
-------------------------------------------------------------------
    Total Deferred Tax Assets ............     316,798      306,360
===================================================================

Deferred Tax Liability

  Depreciation ............................    (161,500)    (98,500)
-------------------------------------------------------------------
    Total Deferred Tax Liability .........   $(161,500)   $ (98,500)
===================================================================

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

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

                                                      June 30,
                                               ----------------------
                                                  2003         2002
                                               ----------------------

Current deferred tax asset .................   $ 396,049    $ 438,056

Valuation allowance ........................     (79,251)    (131,696)
---------------------------------------------------------------------
     Total Deferred Tax Asset ..............   $ 316,798    $ 306,360
=====================================================================
Non-current Deferred Tax Liability .........   $ 161,500    $  98,500
=====================================================================


                                       F-7
<PAGE>

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


     The Company has net operating loss carry forwards of approximately $396,000
and $1,836,507 for Federal and State tax purposes, respectively. These net
operating loss carry forwards may be used to reduce federal and state taxable
income and tax liabilities in future years and expire in various years through
June 30, 2010 and June 30, 2018 for State and Federal tax purposes,
respectively. In addition, the Company has Research and Development Tax Credits
of approximately $52,521 and $117,063 which expires in various years through
June 30, 2010 and June 30, 2023 for State and Federal tax purposes,
respectively.

     The Company's provision for (benefit from) 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,
utilization 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 are as follows:

                                                     June 30,
                                                -----------------
                                                 2003       2002
                                                -----------------

Federal statutory tax rate ................      34.0%      (34.0)%

State income tax - net of federal tax
 benefit ..................................       7.9       (32.9)

Research & Development credits ............     (19.2)         --

Adjustment in valuation allowance .........       1.6      (516.8)

Permanent and other differences ...........       9.9          --
-----------------------------------------------------------------
                                                 34.1%     (583.7)%
=================================================================


9.  STOCK OPTIONS AND AWARDS

     On January 22, 1998, the Board of Directors authorized two stock option
plans effective July 1, 1998: one for the Chief Executive Officer (the "CEO")
and an identical plan for senior management. Under the plans, the CEO, and
separately, senior management, would be issued stock options in an amount equal
to 3% of the incremental market cap of the Company divided by the stock price at
June 30th in each of the next three years. The incremental market cap of the
Company is defined as the number of outstanding shares at the end of each year
multiplied by the net increase in the market value per share. These options
would be equally divided by the number of participants in each plan and vest 20%
upon issuance and 10% per quarter over the following two years.

     On June 30, 1999, under these plans, the Board of Directors granted options
to purchase 97,080 shares of common stock of the Company. The exercise price of
$1 per share was equal to the market price at the date of grant. At June 30,
2003, the options remaining exercisable were 64,720 with an expiration of June
2004.

     On August 29, 2001, the Board of Directors authorized 126,629 options under
these plans at an exercise price of $1.46 per share as of July 1, 2001. At June
30, 2003, there were 105,524 options remaining exercisable, with an expiration
of June 2006.

     On August 29, 2001, the Board of Directors authorized two stock option
plans effective July 1, 2001: one for the CEO and one for senior management.
These plans were identical to those authorized on January 22, 1998 and effective
July 1, 1998. As of June 30, 2003, there were five participants between both
plans. For year ended June 30, 2003, the market capitalization did not increase,
hence there were no awards made under this plan.

     On January 22, 1998, the Board of Directors approved an option plan for
active directors that would give each active director of the Company 5,000
options to purchase common stock of the Company. On October 21, 1998, the Board
of Directors granted options to purchase 20,000 shares of common stock under
this plan. The exercise price of $0.75 was equal to the market value at the date
of grant. These options expire on October 21, 2003. On November 11, 1999, 25,000
stock options were granted under this plan at $0.80 per share. On February 22,
2000, the plan was amended to award each director 2,000 options to purchase
common stock of the Company for each meeting attended, awarded at the annual
meeting at the 5-day market price average. Under the amended plan, 62,000
options were awarded to the Board of Directors on October 24, 2000, at an
exercise price of $0.55, expiring October 23, 2005. On November 14, 2001, 64,000
options were issued at an exercise price of $1.11, expiring November 13, 2006.
On November 13, 2002, 80,000 options were issued at an exercise price of $0.45,
expiring November 13, 2007.

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

     During the 2002 fiscal year, there were nine option grants for a total of
123,000 shares at exercise prices ranging from $0.55 to $1.15, as determined by
their respective preceding 5-day market price average. These options vest 1/3
each year starting on the anniversary of the date of grant and expires in 5
years through May 21, 2007. Due to the termination of one of the senior
executives, 97,285 options previously issued were cancelled, including 20,000
options previously authorized and granted that year upon the Company's listing
on the Boston Stock Exchange.

     Aside of the 80,000 options issued to the Board of Directors on November
13, 2002, there were no other stock option issuances during the 2003 fiscal
year.


                                       F-8
<PAGE>

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


     A summary of activity under the plan for the years ending June 30, 2003 and
2002 is as follows:

                                        Common Stock
                                    Options Outstanding
                                    -------------------
                                              Weighted
                                               Average
                                              Exercise
                                     Shares     Price
                                    ------------------

Balance, June 30, 2001 .........    237,900    $ 0.82

  Granted ......................    333,629      1.23

  Exercised ....................         --

  Canceled .....................    107,285      1.26
-----------------------------------------------------
Balance, June 30, 2002 .........    464,244    $ 1.02

  Granted ......................     80,000      0.45

  Exercised ....................         --

Canceled .......................     10,000      1.10
-----------------------------------------------------

Balance, June 30, 2003 .........    534,244    $ 0.93
=====================================================

     Following is a summary of the status of options outstanding at June 30,
2003:

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

$0.45 - $0.55   152,000    3.5 years     $ 0.50    145,333    $ 0.49

$0.70 - $1.11   276,720    2.5 years     $ 0.96    220,720    $ 0.97

$  1.46         105,524    3.0 years     $ 1.46    105,524    $ 1.46
--------------------------------------------------------------------
                534,244    2.9 years     $ 0.93    471,577    $ 0.94
====================================================================

Pro Forma Information

     The Company follows the disclosure only provisions of SFAS No. 123,
Accounting for Stock Based Compensation. Accordingly, no compensation expense
has been recognized for stock options issued. Had compensation expense for the
options which vested in 2003 and 2002 been determined based on the fair value at
the grant date commensurate with the provisions of SFAS No. 123, the Company's
net income and net income per share for 2003 and 2002, respectively, would have
been reflected as to the pro forma amounts indicated below:

                                2003        2002
                              --------------------

Net Income:

     As reported .........    $133,826    $186,098

     Pro forma ...........     102,626     117,158

Basic Income per Share:

     As reported .........    $   0.03    $   0.04

     Pro forma ...........        0.02        0.03

     The fair value of each option grant is estimated on the date of grant using
the Black-Scholes pricing model with the following weighted average assumptions
for grants in 2003 and 2002, respectively: dividend yield of 0% and 0%; expected
volatility of 200% and 200%; risk-free interest rate of 2.8% and 4.4%; and
expected lives of 5 years in both years.


10. RETIREMENT PLAN

     The Company sponsors a qualified 401(k) plan covering substantially all
full time employees under which eligible employees can defer a portion of their
annual compensation. The Company determines annually, the amount of matching
contributions, which can be as high as 25% of the employees' contribution up to
6% of salary. The Company's matching contributions to the plan during the years
ended June 30, 2003 and 2002 were $15,001 and $14,268, respectively.


11. LEASES

     The Company leased a facility under an operating lease which expired August
31, 2001 at which point it was renewed on a month to month basis until December
2001 when the Company's facility expansion was completed. Total rental expense
for the year ended June 30, 2002 was $35,500. The lease called for payment by
the Company of all operating costs such as utilities, maintenance, taxes and
liability insurance.

     There were no non-cancelable lease terms in excess of one year as of June
30, 2003.


12. EARNINGS PER SHARE

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

                                                   2003         2002
                                                -----------------------

Numerator:

  Net income ................................   $  133,826   $  186,098
=======================================================================

Denominator:

  Denominator for earnings per share -
    weighted average shares outstanding .....    4,587,987    4,587,987

  Effect of dilutive securities -
    stock options ...........................      145,333          n/a
-----------------------------------------------------------------------

  Denominator for earnings per share -
    assuming dilution - adjusted weighted
    average shares outstanding ..............    4,733,320    4,587,987
=======================================================================

Earnings per share ..........................   $      .03   $      .04
=======================================================================

Earnings per share - assuming dilution ......   $      .03   $      .04
=======================================================================

     For the year ended June 30, 2002, common stock equivalents were not
included in computing diluted earnings per share since their effect would be
anti-dilutive.


                                       F-9
<PAGE>

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


13. INDUSTRY SEGMENT INFORMATION

     The Company operates two primary business segments: (1) polymer research
and the products derived there from, and (2) the sales of medical products.

     Major products and services for the polymer research segment include
Aquamere[TM], Aquatrix[TM], Dermaseal[RegTM], Hydromer[RegTM]
Anti-Fog/Condensation Control, Hydromer[RegTM] Lubricious Coatings and coating
services, Medicell[TM], Sea-Slide[RegTM] and T-Hexx[RegTM] Barrier Dips and
Sprays. All of the Company's royalties, options and license revenues are
reported in this segment.

     The medical products segment includes an OEM product line of bipolar
coagulation probes, jejunal, enteral and biliary catheters and stents, feeding
accessories, guidewires, biofeedback devices for fecal and urinary incontinence
and endoscopic accessories.

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

     The Company operates globally in its segments with several large customers
that are important to their operating results. One such customer accounted for
32% and 36% of the polymer research segment sales for the 2003 and 2002 fiscal
years, respectively. For the medical products segment, three customers accounted
for 78% and 74% of that segment's 2003 and 2002 sales, respectively.

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

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

<TABLE>
<CAPTION>
                         Polymer         Medical         Corporate
                         Research        Products        Overhead          Total
                       ------------------------------------------------------------

<S>                    <C>             <C>             <C>             <C>
Year Ended June 30, 2003

  Revenue ..........   $  4,091,049    $  2,282,155                    $  6,373,203

  Expenses .........     (2,726,627)     (2,351,464)   $ (1,092,024)     (6,170,115)
-----------------------------------------------------------------------------------

  Earnings
   (Loss) before
   Income Taxes ....   $  1,364,421    $    (69,310)   $ (1,092,024)   $    203,088
===================================================================================
Year Ended June 30, 2002

  Revenue ..........   $  3,461,588    $  2,324,480                    $  5,786,068

  Expenses .........     (2,633,525)     (2,164,821)   $ (1,027,129)     (5,825,475)
-----------------------------------------------------------------------------------
  Earnings (Loss)
   before Income
   Taxes ...........   $    828,063    $    159,659    $ (1,027,129)   $    (39,407)
===================================================================================
</TABLE>

     Prior year segment information has been restated to conform to the current
year presentation.

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

                                      2003      2002
                                      --------------

Domestic .........................     80%       79%

Foreign ..........................     20%       21%


14. SUBSEQUENT EVENTS

     In July 2003, the Company renewed its $750,000 revolving line of credit
agreement. This line matures on July 30, 2004.

     Also in July 2003, the Company obtained a commitment from a financial
institution to refinance its first mortgage. The refinancing process is underway
and the Company expects to close on the new loan shortly. The refinancing of
this loan will satisfy the covenants not met with the current financial
institution.


                                      F-10

<PAGE>

                                INDEX TO EXHIBITS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

         10.cg  By-Laws Articles of Incorporation.

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

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

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

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

         32.2   Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by Robert Y.
Lee, Chief Financial Officer of Hydromer, Inc.
<PAGE>
                       INDEX TO 2003 10-KSB CERTIFICATIONS
                       -----------------------------------



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

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

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

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

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