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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON D. C. 20549

                                   FORM 10-KSB

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

                     For the fiscal year ended June 30, 2001

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

     The aggregate market value of the voting stock held by non-affiliates of
the Registrant at September 1, 2001 was approximately $2,139,435.

     The number of shares of Registrant's Common Stock outstanding on September
1, 2001 was 4,587,987.

     Portions of the Audited Financials Statements for the year ended June 30,
2001 are incorporated by reference in Part II of this report. Portions of the
Proxy Statement of Registrant dated September 14, 2001 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 also granted
three new patents this year, one for teat dip compositions for the prevention of
mastitis in dairy cows, sold under the T-HEXX(R) Brand, one for polyaldehyde
hydrogels, and a patent protecting the technology marketed under the
Dermaseal(R) trademark. Several other patents have been filed last year. The
Company continues to actively evaluate other new market opportunities for its
polymer technology.

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

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

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.

The Company has entered into two new licenses this year on Hydromer Coatings
technology for urology and vascular catheters, and one for T-HEXX Animal Health
products.

As of June 30, 2001, Hydromer 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 significantly 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. The Company believes
offering prototyping, process development and small-medium scale coating/
manufacturing services is fundamental to the expansion of Hydromer coatings
business, and a strategic imperative. The medical device market continues to
undergo a shift toward consolidation by very large multi-national players and
small, entrepreneurial start-up

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companies looking to exploit niche opportunities or unique device designs. The
Company's experience and knowledge can significantly speed development,
assessment, and market readiness for our clients, large and small. The Company
also believes that Hydromer technology has further application with other
medical products outside our current scope and with products outside the medical
field. An example is the Slick Willie(TM) water sports binding entry system sold
by RW Ski Products, coated by our contract services group. Hydromer purchased
Biosearch Medical Products Inc.,a converter of Hydromer coated medical devices,
to rapidly expand Hydromer capability to offer coating services to our clients
in an ISO 9001/GMP certified and FDA registered facility.

The Company significantly upgraded its advertising copy and promotional
literature last year to graphically highlight the properties and advantages of
its technologies.

T-HEXX(R) BARRIER DIPS AND SPRAYS

The Company's new product line, T-HEXX Barrier Dips and Sprays were introduced
to the market in Fiscal Year 1999. 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 between the 8-12 hour milking cycle by
preventing bacterial infiltration of the teat end, and killing mastitis causing
bacteria for over 12 hours, yet are easy to remove using traditional milking
preparation methods. The Company has signed a non-exclusive license agreement
with Kleencare Hygiene, to expand distribution of T-HEXX Oro Barrier dips in
Western Europe, and a distribution agreement with Veterinary Pharmaceutical of
Hanford, CA, to expand distribution on the West Coast. The Company has also
begun limited European sales via distributors and a major regional manufacturer
in Europe, ex U.S. The Company is also examining several other license and
distribution opportunities in key markets such as Western and Eastern Europe,
Mexico, Australia/New Zealand, and in non-covered regions in the U.S. The T-HEXX
products are being rolled out nationally via new licensees expanding distributor
and dealer network. The Company has invested significantly in clinical research,
patents, promotion and advertising via print media and the Internet to support
this new business. The Company is actively working to develop and launch
complementary products into this market utilizing the Company's patented
technologies. U.S. Patent 6,203,812 was granted this year protecting the barrier
teat dip application. Two new patent applications have also been filed. .

HYDROMER(R) ANTI-FOG/CONDENSATION CONTROL

Hydromer Anti-Fog/Condensation Control is an optical coating for plastic (e.g.
goggles, lenses, and architectural sheet materials), which prevents the
accumulation of vision-obscuring condensation under high humidity conditions. A
patent for these products was issued to the Company in 1984. The Company is
selling this material in bulk to manufacturers of industrial and medical safety,
and swim goggles, aircraft windows, automotive headlight assemblies, and gauge
and meter manufacturers in the U.S. and internationally. Improved scratch
resistant anti-fog coatings were introduced in 1999, and are being applied by
our contract services group for clients developing and marketing specialty lens
products. Low VOC condensation control coatings also have been developed for use
on structured plastic products like greenhouse panels. Food grade anti-Fog
coatings have also been developed for ready to eat produce, meats and bakery
products. Hydromer Food Grade Anti-Fog is formulated with materials that are
generally recognized as safe for food contact. Independent laboratory extraction
testing has demonstrated that the extractables are well within levels specified
by the FDA. .

AQUATRIX(TM) II HYDROGELS

Hydromer has a patent on its chitosan-PVP hydrogel technology, in addition to a
new patent granted this year on polyaldehyde hydrogels. The Company is also a
licensee for two additional patents on novel hydrogel materials. Applications
for this material are being developed for wound care, implants, drug delivery,
burn care, conductive hydrogel electrodes, ultrasonic couplants and cosmetic
uses with several customers. The Company is also identifying strategic partners
to offer hydrogel coating services to clients who do not have roll good coating
capability. A development agreement, with a pre-negotiated license was signed
last year to evaluate and develop Aquatrix gels for bio-surgical applications
for the head, neck and breast. The products are still in pre-clinical testing.
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 simply to 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 require external energy

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to crosslink. The Company believes these products are synergistic to our
existing hydrogel technologies, and offer further opportunities in electrodes
and topical actives delivery. New patent applications in this field were filed
for new gels invented in the company labs.


AQUAMERE(TM) POLYMERS

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

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 as a
Hydromer(R) Poison Oak and Ivy Barrier. It is also in testing for use in broader
skin care, cosmetic, and OTC drug delivery and bovine health products.

MEDICELL(TM) FOAM PRODUCTS

Medicell is the Company's patented 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. The Company is also 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. This
technology has been demonstrated in independent testing to significantly improve
fuel economy and hull speed of watercraft. It is being marketed via an exclusive
distribution agreement with HammerHead Products, Inc., who is focusing on
increasing distribution and expanding product availability via dealers and
Internet marketing of the product.

HYDROMER(R) COATING SERVICES

The Company continued to expand its activity in Coating services in 2001,
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
ranging from medical devices to new water sports accessories to specialty eye
protection. 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 and more cost
effectively.

OEM MEDICAL DEVICES

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


OPTION AND LICENSE AGREEMENTS

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

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     The Company has previously reported license agreements in effect and
expiring relating to applications of the Hydromer as follows: (See Annual Report
on Form 10-K for the fiscal years ended June 30, 1983 through 1996 and Form
10KSB for fiscal years ended 1997 through 2000.)


LICENSEE/APPLICATION

AST - T-HEXX Barrier dips and sprays

Applied Medical - certain urological and vascular devices

Becton-Dickinson - certain vascular devices with anti-microbial coatings

Bioderm - Medicell foam technology licensed for wound care uses in the U.S.

Boston Scientific (Van-Tec and Sci Med) - guidewires and certain urological
       devices

CR Bard - certain urological devices

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

Cordis Endovascular Systems - infusion microcatheters

Gallini - certain urological devices

Kleencare Hygiene - T-HEXX Oro Barrier Dip

North Country Dairy - T-HEXX Barrier Dips and Sprays

Pfizer-Schick / Warner / Wilkinson Sword Ltd. - razor cartridges

TP Orthodontics - certain orthodontic accessories

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


PRODUCTS

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

     The Company's processes utilize various chemicals purchased from a number
of companies. The Company's primary suppliers are Dock Resins Corporation,
Newark, NJ; General Polymers, Charlotte, NC; Lenape Industries, Inc.
Philadelphia, PA; and Pekay Industries, Farmingdale, NJ. The Company has no
long-term contracts with any of its suppliers and believes that there are
adequate alternative sources of supply available for all raw materials that it
currently uses.



DEPENDENCE UPON CUSTOMERS

     The Company derives 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 year ended June 30, 2001 the Company
recognized revenues from two major customers.

     The Company sold products and collected royalty income representing more
than 10% of its total revenues for the years ended June 30, 2001 and June 30,
2000, from Johnson & Johnson's Cordis Division and Wilson Cook Medical, Inc..



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.
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;

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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. The
Company's most recent patent in coating involves the covalent bonding of
infection resistant materials into the coating, providing a non-leaching,
anti-infective surface. The Company has also filed patents for covalently bonded
radio-opaque polymeric compositions to improve the radio-opacity of materials
without needing high solid loading, metal plating or ion implantation for
applications like stents and vascular catheters.

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



RESEARCH AND DEVELOPMENT

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



COMPETITION

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

     The Company owns process and applications patents for Hydromer coatings
(see "Patents and Trademarks" below), 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 Hydromer, in terms of lubricity, complexing
capabilities, durability and cost.

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



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

2. SALE OF DEVELOPMENT SERVICES: The Company intends to continue moving its
effort away from straight


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technology licensing and toward contract product development, contract
manufacturing and coating services (see "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 the a third party perform the Hydromer coating treatment.

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

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

     The Company owns both a United States process patent and an applications
patent for Hydromer, which have expired in August 1997 and March 1998,
respectively. The Company has granted to BMPI an exclusive, royalty-free license
of the Hydromer process with respect to enteral feeding products. In addition,
there are currently 17 U.S. patents, 5 U.S. applications and various foreign
counterparts. Management believes that the protection afforded by the Hydromer
patents will be a significant factor in the Company's ability to market its
products. Anticipating patent expiration, the Company has focused on licensing
and developing products based upon its newer technologies. The Company has also
been issued United States and foreign patents for a permanent anti-fog. A U. S.
patent was issued in October 1985 for a hydrophilic polyurethane foam that is
expected to have numerous medical applications. Foreign patents covering this
material were issued in July 1990. A U. S. patent for hydrophilic polymer
blends, which covers the Company's coating for boats and the cosmetic
formulations, was issued in February 1987. U.S. and foreign patents have also
been issued for an anti-bacterial medical material that can be incorporated in
foam or as a coating. The Company was issued U.S. patent 6,054,504 for
non-leaching biostatic coatings. The Company has received three United States
patents for its new composition, barrier film, and method for preventing contact
dermatitis developed by the Company's research and development staff. The
Company has received a patent for Chitosan gels, which expires in 2014. This
patent is part of the new gel technology with applications in medical,
industrial, cosmetic and personal care markets. The Company also is a licensee
of two additional hydrogel technologies for exclusive worldwide use. The Company
was issued U.S. Patent 6,203,812 for barrier teat dip compositions. Four other
patent applications for composition to prevent mastitis, for new hydrogels and
for non-leachable radio-opaque polymeric coatings are pending.

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


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EMPLOYEES

     As of June 30, 2001, the Company and its subsidiary had sixty-three
full-time employees. The Chief Executive Officer is Manfred F. Dyck, who is also
Chairman of the Board. The Company does not have a collective bargaining
agreement with any of its employees and considers its relationship with its
employees to be excellent.



GOVERNMENT REGULATIONS

     The uses of the Company's medical, 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.



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, 2001 - 66


Martin C. Dyck - Executive Vice President, Operations
     and President Biosearch Medical Products
     subsidiary Age at August 31, 2001 - 39

Joseph A. Ehrhard, Jr. - Executive Vice President, Sales
     and Marketing Age at August 31, 2001 - 35

Rainer Gruening - Vice President, Research & Development
     Age at August 31, 2001 - 58

Robert Y. Lee - Vice President, Finance, Chief Financial
     Officer and Treasurer
     Age at August 31, 2001 - 35

Robert J. Moravsik - Senior Vice-President, General
     Counsel and Secretary
     Age at August 31, 2001 - 59



     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. since 1975.


     Martin C. Dyck was promoted to Executive Vice President, Operations in June
2001. He was Vice President of Operations since February 2000 when Hydromer
purchased Biosearch Medical Products. Mr. Dyck is President of BMPI and has been
employed by the Company in various capacities since 1986.


                                       8
<PAGE>

     Joseph A. Ehrhard, Jr., was promoted to Executive Vice-President, Sales and
Marketing in May 2001. He was Vice-President of New Business and R&D of the
Company since February 1998. Prior to joining Hydromer, Mr. Ehrhard was Director
of R&D for the Golden Cat Division of Ralston-Purina in St. Louis, Mo. Mr.
Ehrhard was previously Director of R&D in Worldwide Absorbent Products and
Materials Research for Johnson & Johnson in New Jersey. From June 1987 through
January 1995, he was in R&D at Procter & Gamble Company, most recently as
Section Head of Global New Technology Development in Personal Cleansing in
Cincinnati, OH.

     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
15 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 14 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.

     Certain manufacturing and quality assurance functions of the Company are
located at 35 Columbia Road, Branchburg, NJ. The Company is adding approximately
10,400 square feet at is primary location where it will consolidate all of its
operations in 2002.

     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.



                                     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. The Company's common stock
traded at prices ranging between $0.50 and $2.13 in the fiscal year 2001 and
between $0.56 and $3.00 in fiscal year 2000. 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, 2001 was 277. There are approximately 700 individual shareholders of the
common stock.


                                       9
<PAGE>

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,
2001, 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, 2001 WERE $5,721,289 AS COMPARED TO
$3,933,111 FOR THE SAME PERIOD LAST YEAR OR A GROWTH OF 45.5%.

     Product sales were $3,402,943 for the 2001 fiscal year compared to
$1,867,484 in the prior fiscal year, a growth of 82.2% or $1,535,459.

     License royalties were $2,318,346 in fiscal 2001, up 12.2% over fiscal
2000's results of $2,065,627.

MANAGEMENT COMMENT: Fiscal year 2001 reflects the first complete year of results
included for Biosearch Medical Products, Inc. ("Biosearch" or "BMPI"). Sales
included for Biosearch, which was acquired in February 2000, was $2,252,000 for
the 2001 fiscal year as compared with $891,000 for the 2000 fiscal year.
Excluding the results of Biosearch, product sales increased $174,000 or 18% over
2000. Continued strong demand is the primary factor for the increase in sales.

     In fiscal 2001, option revenues were recognized from two development
agreements for its newest technology in hydrogels and radio-opaque medical
coatings for use in biosurgery and vascular stenting, respectively. Three new
licensees were signed this year, one for the T-HEXX business in the Europe,
continuing our success in expanding our product presence globally.


GROSS PROFIT FOR THE YEAR ENDED JUNE 30, 2001 WAS $3,897,854, UP 23.0% OVER
FISCAL YEAR 2000'S RESULTS OF $3,169,824.

     Direct costs, as a percentage of product sales, were 53.6% for fiscal 2001
as compared to 40.9% for the fiscal year ended June 30, 2000. Overall gross
profit, including royalty income, was 68.1% for fiscal 2001 as compared to 80.6%
for fiscal 2000, or an increase of $728,030.

MANAGEMENT COMMENT: The decrease in gross margin and increase in direct costs as
a percentage of product sales reflect an increase in revenue mix toward
chemicals sales and OEM product sales via the Biosearch subsidiary. The majority
of the increase in overall gross profit was the increase in product and
technology sales, which were up $1,535,000, contributing $475,000 of the gross
profit increase.


OPERATING INCOME FOR THE YEAR ENDED JUNE 30, 2001, WAS $361,016 VS. $166,200 FOR
THE SAME PERIOD LAST YEAR, OR A INCREASE OF 117.2%.

     Selling, general and administrative and research and development costs were
$3,536,838 for the year ended June 30, 2001 as compared to $3,003,624 for the
same period last year or an increase of 17.8%.

MANAGEMENT COMMENT: Included in the 2001 year is a full year of Operating
Expenses for the Biosearch subsidiary of $750,000. This compares with $498,000
included in the 2000 fiscal year which covered the period after its acquisition
of February 4 to June 30, 2000. On a pro-forma basis, Operating Expenses for
Biosearch for the entire 2000 fiscal year was $1,803,000 which would represent
an 18% decrease on a consolidated basis realized in fiscal year 2001. This
decrease against pro-forma is primarily a result from the synergies and savings
created from the elimination of overlapping cost structures.


INCOME BEFORE TAXES IS $310,507 FOR THE CURRENT YEAR, UP 45.6% OVER PRIOR YEAR'S
RESULTS OF $213,221.

     Income before taxes increased 45.6% in the 2001 fiscal year as compared
with the prior year reflecting the first full year inclusion of Biosearch's
contributions. Other Expenses was $50,509 in fiscal 2001 as compared to $47,021
in Other Income for the same period last year. Fiscal 2000 included $65,598 in
rental income from BMPI prior to it being acquired by the Company.

MANAGEMENT COMMENT: Excluding the related party rental income from BMPI prior to
its acquisition, on a pro-forma basis, fiscal 2000 would have reflected Other
Expenses of $19,000. This includes interest income of $44,000 in fiscal 2000.
Interest income in fiscal 2001 was $11,000, lower due to the use of cash in
February 2000 for the acquisition of Biosearch.


NET INCOME FOR THE 2001 FISCAL YEAR WAS $397,156 COMPARED TO $130,958 FOR 2000
FISCAL YEAR, AN INCREASE OF 203.3%.

     For the 2001 year, an Income Tax Benefit of $86,649 was recognized as
compared to an Income Tax Provision of $82,263 for the prior fiscal year.

MANAGEMENT COMMENT: The 2001 year reflects a full year inclusion of the results
of the Biosearch division along with increased revenues of the Company. The


                                       10
<PAGE>

2001 results also includes $78,000 of Research and Development Tax Credits
utilized against the 2001 Income Tax Provision and the realization of $113,000
as an adjustment to the valuation allowance against our deferred tax assets.


LIQUIDITY AND CAPITAL RESOURCES

WORKING CAPITAL AS OF JUNE 30, 2001 WAS $1,238,192, UP $219,388 FROM THE PRIOR
YEAR.

     Working capital increased during the 2001 fiscal year from an increase in
the cash balance of $55,950 along with increases primarily in receivables and
inventories offset by an increase in accounts payable and the short-term
borrowings.

MANAGEMENT COMMENT: The increase in working capital represents the continued
growth of our business. Demand for our products requires our near-term
investment in inventories through credit. The increase in sales generates higher
current receivables. In addition, the construction of the Company's facility
expansion requires utilization of cash on a temporary basis until replenished by
a draw against the construction loan.

     Management believes that the cash position will further be replenished
based on its projections of future income which will generate sufficient funds
to maintain its current level of operations.

     Fiscal year 2001 represents the finalization of its structure building and
acquisition initiated in 1999. This initiative, aimed at exploiting the
capabilities of the Company, in products, technology and management, allows
Hydromer to take advantage of its patented technologies by focusing on
commercialization and licensing of its technologies to companies that offer
significant revenue opportunities for the Company, both present and in the
future. The Company will also continue to evaluate and pursue future
opportunities where its existing and to be developed technologies lead.



ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     For information concerning this item, see pages 2 through 10 of the
"Audited Financial Statements for the year ended June 30, 2001," which
information is incorporated herein by reference.



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

                                 Not applicable.


                                    PART III


ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT


     For information concerning this item, see "Item 1. Business - Executive
Officers" and pages 1 through 3 in the Proxy Statement filed with respect to the
2001 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.


                                       11
<PAGE>



                                     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, 2001.



                                       12
<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 13, 2001
-------------------
Manfred F. Dyck                         Chairman of the Board of Directors

/s/ Robert Y. Lee                       Chief Accounting Officer                             September 13, 2001
-----------------
Robert Y. Lee
</TABLE>

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

<TABLE>
<CAPTION>

<S>                                     <C>                                                  <C>
/s/ Manfred F. Dyck                     President, Principal Executive Officer,              September 13, 2001
-------------------
Manfred F. Dyck                         Chairman of the Board of Directors

/s/ Robert H. Bea                       Director                                             September 13, 2001
-----------------
Robert H. Bea

/s/ Maxwell Borow                       Director                                             September 13, 2001
-----------------
Maxwell Borow, MD

/s/ Ursula M. Dyck                      Director                                             September 13, 2001
------------------
Ursula M. Dyck

/s/ Dieter Heinemann                    Director                                             September 13, 2001
--------------------
Dieter Heinemann

/s/ Gaylord E. Mckissick                Director                                             September 13, 2001
------------------------
Gaylord E. McKissick, VMD, PhD

/s/ Klaus J.h. Meckeler                 Director                                             September 13, 2001
-----------------------
Klaus J.H. Meckeler, MD

/s/ Frederick L. Perl                   Director                                             September 13, 2001
---------------------
Frederick L. Perl, MD

</TABLE>

                                       13

<PAGE>

                          C O M P A N Y P R O F I L E

Hydromer is an innovative technology-focused company engaged in the business of
inventing, developing, patenting, licensing, manufacturing and selling
hydrophilic polymer based products for commercial markets. Hydromer also
provides OEM medical device manufacturing and highly specialized medical coating
services to industry through its FDA registered and ISO 9000 certified Biosearch
Medical Products subsidiary. The goal of Hydromer is to be the leading provider
of hydrophilic surface modifications and specialty hydrophilic polymers to
industry. While maintaining its industry leadership position in permanent
lubricious coatings for medical devices, Hydromer constantly strives to create
new, value added technologies and to build upon its current technologies -
successfully expanding its technology and product base to include radio-opaque,
drug delivery and infection resistant coatings, anti-fog and condensation
control coatings for optical plastics and packaging, water resistant film
formers for cosmetics, pharmaceutical and animal health products, unique
hydro-gels for medical, biosurgical and cosmetic applications, and barrier films
for the protection of skin from allergens.

<PAGE>

<TABLE>
<CAPTION>
                    S E L E C T E D F I N A N C I A L D A T A

                                                          6/30/01          6/30/00         6/30/99
                                                    -------------------------------------------------
<S>                                                    <C>              <C>             <C>
Revenue ...........................................    $5,721,289       $3,933,111      $2,842,922
   Sales ..........................................    $3,402,943       $1,867,484      $1,268,713
   Royalties ......................................    $2,318,346       $2,065,627      $1,574,209
Gross Profit ......................................    $3,897,854       $3,169,824      $2,528,120
Pre-Tax Income ....................................      $310,507         $213,221        $487,523
Net Income ........................................      $397,156         $130,958        $317,322
Income per Common Share ...........................         $0.09            $0.03           $0.07
Shares used in Computation ........................     4,587,987        4,587,987       4,443,932
Cash Dividends Paid ...............................           ---         $137,967        $131,368
Total Assets ......................................    $5,087,846       $4,258,607      $4,245,185
Stockholder Equity ................................    $3,288,647       $2,891,491      $2,898,500
</TABLE>

<PAGE>

                        C H A I R M A N ' S M E S S A G E

Dear Shareholders,

     I am happy to report that in fiscal 2000-2001, Hydromer recorded net income
of $397,156 (up 203.3%) or $0.09 per share (up 200.0%), on revenues of
$5,721,289 (up 45.5%), as compared with net income of $130,958 or $.03 per
share, on revenues of $3,933,111 recorded in fiscal year 1999-2000.

     Gross Profits were up $728,030 or 23% to $3,897,854 from $3,169,824 last
year reflecting strong growth in product sales and services, and the impact of a
full year of revenues from the Biosearch subsidiary ("BMP"). Net income was up
$266,198 versus last year as the Company generated new revenues, benefited from
the realization of tax benefits and worked to reduce costs through the combined
operations.

     During fiscal 2000-2001, three new patents were granted on our polymer
technology, one for our T-HEXX(R) Barrier Teat Dip technology, one for new
polyaldehyde hydrogels, and a third extending our technology for our Dermaseal
skin protectant technology. Additionally, three new patents were applied for on
new developments. New filings are pending for several other new technologies
developed in the Company labs. The Company's patent estate comprises of 17 U.S.
patents along with 5 U.S. applications and various foreign counterparts.

     The Company continues to concentrate its product development and marketing
efforts in the area of biomedical device coatings, condensation control,
veterinary healthcare products, hydrogels for the rapidly developing field of
biotechnology and site specific drug delivery, and on cosmetic intermediates.

     Several of our patents have broad applicability into these areas. The
Company is concentrating in developing new technologies which are much more
specific for biotech, interventional cardiology/neurology medical devices and
veterinary healthcare products. In Fiscal 2001-2002 we will launch an addition
to our T-HEXX(R) mastitis prevention line for dairy cows, T-HEXX(R) Dry(TM)
barrier dip for the prevention of dry cow mastitis, into the U.S. and Mexican
market. The patent pending radio-opaque coatings for improving fluoroscopic
visualization continues to make progress. The Company is presently working on a
unique process for coating small, intricate metallic devices like stents,
reproducibly and reliably, with a goal to commercially develop this capability
to enable our participation in the rapidly emerging drug eluting stent market.
The acquisition of BMP has worked well. The Company has secured two new coating
service programs with major device manufacturers, and have several others
pending. The Company also delivered a significant turnkey project to a client
with custom built manufacturing equipment, installed at the customer's
facilities.

     Our BMP facility is FDA registered and ISO certified, which, together with
our coating, converting, and extrusion capabilities, allows us to quote on
domestic and international product developments. Our facilities expansion will
be completed shortly, adding over 10,000 sq ft of manufacturing space.

     A very strong patent estate and rapidly expanding manufacturing and service
structure allows us to develop the global market for our products on many
different fronts. We believe that our future looks very bright and we are
grateful that our employees share this vision. Soon we hope to tell our story to
the international financial community here as well as abroad which should be of
benefit to not only the Company but to our shareholders.

     As such, we believe that Hydromer is poised for growth.

     Respectfully submitted,

     Manfred F. Dyck
     --------------------------
     Manfred F. Dyck
     Chairman and President


<PAGE>

                           HYDROMER, INC. & SUBSIDIARY
                 INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2001 AND 2000

                                                                           Page

Independent Auditors' Report ...........................................    F-1
Financial Statements
     Consolidated Balance Sheets .......................................    F-2
     Consolidated Statements of Income .................................    F-3
     Consolidated Statements of Stockholders' Equity ...................    F-3
     Consolidated Statements of Cash Flows .............................    F-4
     Notes to the Consolidated Financial Statements ....................  F5-F9

<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, 2001 and 2000 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, 2001 and 2000, 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.
[GRAPHIC OMITTED]


                                       /s/ Rosenberg Rich Baker Berman & Company
                                       ----------------------------------------
                                       Rosenberg Rich Baker Berman & Company


Bridgewater, New Jersey
August 30, 2001

<PAGE>

                           HYDROMER, INC. & SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                                          June 30,
                                                                                                  ------------------------
                                                                                                    2001             2000
                                                                                                  ------------------------
<S>                                                                                               <C>           <C>
ASSETS
Current Assets
     Cash and cash equivalents ................................................................   $   74,189    $   18,239
     Trade receivables less allowance for doubtful accounts of  $10,192 and
       $23,578 in 2001 and 2000, respectively .................................................    1,107,876     1,000,239
     Inventory ................................................................................      723,299       485,835
     Prepaid expenses .........................................................................      152,175       131,264
     Deferred tax asset .......................................................................       76,000            --
     Other ....................................................................................       54,519        33,574
-----------------------------------------------------------------------------------------------------------------------------
         Total Current Assets .................................................................    2,188,058     1,669,151
     Property and equipment, net ..............................................................    1,967,314     1,801,180
     Patents, net .............................................................................      377,848       245,277
     Trademarks ...............................................................................       48,585        37,661
     Goodwill, net ............................................................................      506,041       505,338
-----------------------------------------------------------------------------------------------------------------------------
         Total Assets .........................................................................   $5,087,846    $4,258,607
=============================================================================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
     Accounts payable .........................................................................   $  623,428    $  470,294
     Short-term borrowings ....................................................................      100,020            --
     Accrued expenses .........................................................................      169,551       113,226
     Current portion of mortgage payable ......................................................       56,667        56,667
     Income tax payable .......................................................................          200        10,160
-----------------------------------------------------------------------------------------------------------------------------
         Total Current Liabilities ............................................................      949,866       650,347
     Deferred tax liability ...................................................................       76,000        36,769
     Long term portion of mortgage payable ....................................................      723,333            --
     Other long term liabilities ..............................................................       50,000       680,000
-----------------------------------------------------------------------------------------------------------------------------
         Total Liabilities ....................................................................    1,799,199     1,367,116
-----------------------------------------------------------------------------------------------------------------------------

COMMITMENTS AND 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 as of June 30,
      2001, 6,000,000 as of June 30, 2000, 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 ......................................................................     (891,081)   (1,288,237)
     Treasury stock, 10,917 common shares at cost .............................................       (6,140)       (6,140)
-----------------------------------------------------------------------------------------------------------------------------
         Total Stockholders' Equity ...........................................................    3,288,647     2,891,491
-----------------------------------------------------------------------------------------------------------------------------
                  Total Liabilities and Stockholders' Equity ..................................   $5,087,846    $4,258,607
=============================================================================================================================
</TABLE>
SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

                                      F-2
<PAGE>

                           HYDROMER, INC. & SUBSIDIARY
                        CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                                                     Year Ended June 30,
                                                                                                  ------------------------
                                                                                                    2001             2000
                                                                                                  ------------------------
<S>                                                                                               <C>           <C>
REVENUES
     Sales of products and services ..........................................................    $3,402,943    $1,867,484
     Royalties, options and licenses .........................................................     2,318,346     2,065,627
-----------------------------------------------------------------------------------------------------------------------------
 .............................................................................................     5,721,289     3,933,111
Cost of Sales ................................................................................     1,823,435       763,287
-----------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT .................................................................................     3,897,854     3,169,824
Operating Expenses ...........................................................................     3,536,838     3,003,624
-----------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME .............................................................................       361,016       166,200
-----------------------------------------------------------------------------------------------------------------------------
Other Income (Expense)
     Rental income ...........................................................................            --        65,598
     Interest income .........................................................................        10,801        44,090
     Interest expense ........................................................................       (63,188)      (63,268)
     Other income ............................................................................         1,878           601
-----------------------------------------------------------------------------------------------------------------------------
Total Other Income (Expense) .................................................................       (50,509)       47,021
-----------------------------------------------------------------------------------------------------------------------------
Income Before Provision for (Benefit from) Taxes .............................................       310,507       213,221
Provision for (Benefit from) Income Taxes ....................................................       (86,649)       82,263
-----------------------------------------------------------------------------------------------------------------------------
NET INCOME ...................................................................................    $  397,156    $  130,958
=============================================================================================================================
EARNINGS PER COMMON SHARE ....................................................................    $      .09    $      .03
=============================================================================================================================
Earnings Per Common Share - Assuming Dilution ................................................    $      .08    $      .03
=============================================================================================================================
Weighted Average Number of Common Shares Outstanding .........................................     4,587,987     4,587,987
=============================================================================================================================
SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

<CAPTION>

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                                   Common Stock           Contributed     Accumulated        Treasury Stock
                              ----------------------                                       ------------------
                              Shares         Amount         Capital         Deficit        Shares       Amount        Total
-------------------------------------------------------------------------------------------------------------------------------
<S>                         <C>            <C>             <C>           <C>               <C>        <C>           <C>
Balance June 30, 1999 ..... 4,598,904      $3,608,118      $577,750      $(1,281,228)      10,917     $(6,140)      $2,898,500
Dividends Paid ............        --              --            --         (137,967)          --          --         (137,967)
Net Income ................        --              --            --          130,958           --          --          130,958
-------------------------------------------------------------------------------------------------------------------------------
Balance June 30, 2000 ..... 4,598,904      $3,608,118      $577,750      $(1,288,237)      10,917     $(6,140)      $2,891,491
Net Income ................        --              --            --          397,156           --          --          397,156
-------------------------------------------------------------------------------------------------------------------------------
Balance June 30, 2001 ..... 4,598,904      $3,608,118      $577,750      $  (891,081)      10,917     $(6,140)      $3,288,647
===============================================================================================================================
</TABLE>

SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

                                      F-3
<PAGE>

                           HYDROMER, INC. & SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                     Year Ended June 30,
                                                                                                  ------------------------
                                                                                                    2001             2000
                                                                                                  ------------------------
<S>                                                                                               <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES
     Net Income ...............................................................................   $  397,156    $  130,958
     Adjustments to Reconcile Net Income to Net Cash Provided (Used)
      By Operating Activities
         Depreciation and amortization ........................................................      151,947       126,123
         Deferred income ......................................................................           --       (46,855)
         Deferred income taxes ................................................................      (36,769)       12,001
     Changes in Assets and Liabilities
         Trade receivables ....................................................................     (107,637)     (418,019)
         Inventory ............................................................................     (237,464)     (495,096)
         Prepaid expenses .....................................................................      (20,911)     (263,505)
         Patents and trademark ................................................................     (143,495)     (114,131)
         Other assets .........................................................................      (20,945)       25,205
         Accounts payable and accrued liabilities .............................................      209,459       901,565
         Other liabilities ....................................................................       50,000            --
         Income taxes payable .................................................................       (9,960)      (24,840)
-------------------------------------------------------------------------------------------------------------------------------
              Net Cash Provided (Used) by Operating Activities ................................      231,381      (166,594)
-------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
     Cash purchases of property and equipment .................................................     (302,124)     (316,826)
     Cash paid for goodwill and assets of Biosearch ...........................................      (16,660)     (574,000)
-------------------------------------------------------------------------------------------------------------------------------
              Net Cash Used in Investing Activities ...........................................     (318,784)     (890,826)
-------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
     Proceeds from borrowings .................................................................      200,020            --
     Repayment of borrowings ..................................................................      (56,667)      (56,669)
     Dividends paid ...........................................................................           --      (137,967)
-------------------------------------------------------------------------------------------------------------------------------
              Net Cash Provided (Used) by Financing Activities ................................      143,353      (194,636)
-------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents ..........................................       55,950    (1,252,056)
Cash and Cash Equivalents at Beginning of Year ................................................       18,239     1,270,295
-------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year ......................................................   $   74,189    $   18,239
===============================================================================================================================


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year for:
         Interest .............................................................................   $   67,277    $   63,268
         Income taxes .........................................................................       30,000    $   86,750

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

                                      F-4
<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. On February 4, 2000 the
Company purchased all of the common stock of Biosearch Medical Products, Inc.
For accounting purposes the transaction was recorded as a purchase and the
results of operations of Biosearch Medical Products, Inc. are included in the
consolidated financial statements from the date of acquisition. Biosearch
Medical Products, Inc. is a U.S. based corporation whose principal lines of
business are in contract manufacturing and distributing, under its own label of
medical devices. The Company is an OEM manufacturer for various medical products
companies and manufactures and distributes its own line of endoscopic products
to hospitals, through a network of dealers, both domestic and international.

PRINCIPLES OF CONSOLIDATION

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

CASH AND CASH EQUIVALENTS

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

INVENTORIES

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

DEPRECIATION

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

PATENTS

     Expenses associated with 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. Three new patents were
approved for the year ended June 30, 2001 and two new patents were approved in
the prior fiscal year. Amortization expense for the years ended June 30, 2001
and 2000 were $20,722 and $7,599, respectively.

INCOME TAXES

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

GOODWILL

     Goodwill represents the excess of the purchase price of Biosearch Medical
Products, Inc. over the fair market value of their net assets at the date of
acquisition and is being amortized on the straight line method over 40 years.
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 under
Statement of Financial Accounting Standards ("SFAS") No. 121,(Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.)
Under those rules, goodwill associated with assets acquired in a purchase
business combination is included in impairment evaluations when events or
circumstances indicate that the carrying amount of those assets may not be
recoverable. Amortization expense charged to operations for June 30, 2001 and
2000 was $15,957 and $5,319, respectively.

EARNINGS PER SHARE

     Earnings per share, in accordance with the provisions of 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. For the year
ended June 30, 2000 common stock equivalents were not included in computing
diluted earning per share since their effects would be antidilutive.

ADVERTISING

     Advertising costs are expensed as incurred except for tangible assets, such
as printed advertising materials, which are expensed as consumed. Advertising
expense was $49,019 and $84,033 for the years ended June 30, 2001 and 2000,
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, 2001 and 2000 were approximately $258,000 and $663,000,
respectively.

REVENUE RECOGNITION

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

                                      F-5
<PAGE>

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

USE OF ESTIMATES

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

2. CONCENTRATION OF CREDIT AND BUSINESS RISK

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

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

     The Company sold products and collected royalty income representing
approximately 37% of its total revenues for the year ended June 30, 2001 to two
customers, Cordis Neurovascular Systems and Wilson Cook Medical, Inc. who
individually accounted for 22% and 15%, respectively, of total revenues.
Accounts receivable from these customers accounted for 43% of total accounts
receivable at June 30, 2001.

     During fiscal year ended June 30, 2000 Cordis Neurovascular Systems and
Wilson Cook Medical, Inc. accounted for 32% and 13%, respectively, of total
revenues. Accounts receivable from these customers accounted for 48% of total
accounts receivable at June 30, 2000.

3. INVENTORY

     Inventory consists of:
                                              June 30,
                                        -------------------
                                          2001       2000
                                        -------------------
Finished goods ......................   $130,795  $  73,262
Work in process .....................    397,575    234,106
Raw materials .......................    194,929    178,467
-------------------------------------------------------------
 ....................................   $723,299  $ 485,835
=============================================================

4. PROPERTY AND EQUIPMENT

     Property and equipment consists of the following:

                                              June 30,
                                        ---------------------
                                          2001        2000
                                        ---------------------
Land .................................  $  472,410 $  472,410
Building .............................     854,469    841,116
Construction in progress .............     183,234         --
Machinery and equipment ..............   2,861,496  2,767,546
Furniture and fixtures ...............     493,065    485,993
Leasehold improvements ...............     109,075    109,075
---------------------------------------------------------------
                                         4,973,749  4,676,140
Less accumulated depreciation
 and amortization ....................  (3,006,435)(2,874,960)
---------------------------------------------------------------
                                        $1,967,314 $1,801,180
===============================================================

     Depreciation expense charged to operations was $119,369 and $102,040 for
the years ended June 30, 2001 and 2000, respectively. Amortization expense
charged to operations was $16,621 and $24,083 for the years ended June 30, 2001
and 2000, respectively.

     The Company is constructing a 10,400 square foot addition to the existing
building occupied by the Company. A $1,000,000 construction loan has been
secured for this expansion which is expected to be completed in 2002.

     Interest capitalized for the year ended June 30, 2001 was $4,089.

5. LONG-TERM DEBT AND CREDIT FACILITY

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

     In addition, the Company has a construction loan not to exceed $1,000,000
for its building expansion. The loan bears interest at 1% over the bank's base
rate, floating during the construction period and payable on a monthly basis.
The full principal will mature on January 11, 2003 and is to be repaid with a
permanent mortgage. Upon completion of the construction and receipt of a final
certificate of occupancy, the balance outstanding under the construction loan
will be converted to a permanent second mortgage with a fifteen year term at an
interest rate of 2.75% over the three year U.S. Treasury rate, fixed for three
years and adjusted each three years using the same rate. Payments of principal
and interest will be due monthly until maturity. The loans are secured by a
second mortgage covering the real property and all improvements, an assignment
of all leases and rents covering the subject property subordinated to the first
mortgage, and assignment of all plans, specifications, approvals and
construction contracts. The loan carries a prepayment penalty during the
construction loan phase of 2% in year one unless refinanced with the bank, and
during the permanent loan phase of 2% in year one and 1% in year two.

     The Company's primary 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 first five year period 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.

     Long-term debt is comprised of the following:
                                             June 30,
                                         ------------------
                                          2001        2000
                                         ------------------
Mortgage note .........................  $680,000  $736,667
Construction Loan .....................   100,000        --
     Less:  Current Maturities ........   (56,667)  (56,667)
--------------------------------------------------------------
Long-term Debt, Net of Current
 Maturities ...........................  $723,333  $680,000
==============================================================

                                      F-6
<PAGE>

     Total maturities of long term debt are as follows:

Year ended June 30,
--------------------------------------------------------------------------------
     2002......................................     $56,667
     2003......................................    156,667
     2004......................................     56,667
     2005......................................     56,667
     2006......................................     56,667
     Thereafter................................    396,665
--------------------------------------------------------------------------------
                                                          $780,000
================================================================================

6. FAIR VALUE OF FINANCIAL INSTRUMENTS

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

LIMITATIONS

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

7. INCOME TAXES

     The income tax provision (benefit) is comprised of the following:
                                     Federal     State     Total
                                      --------------------------
YEAR ENDED JUNE 30, 2001
CURRENT..................         $  14,239      8,545     22,784
DEFERRED.................          (109,433)        --   (109,433)
--------------------------------------------------------------------------------
                                  $ (95,194)     8,545    (86,649)
================================================================================
Year Ended June 30, 2000
Current..................           $63,661     $6,601    $70,262
Deferred.................            12,001         --     12,001
--------------------------------------------------------------------------------
                                     $75,662    $6,601    $82,263
================================================================================

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

                                                 June 30,
                                            -----------------
                                            2001        2000
                                            -----------------
Deferred Tax Asset
     Net Operating Losses..............     $ 66,981   $   --
     Research & Development Credits....        9,019       --
--------------------------------------------------------------------------------
         Total Deferred Tax Assets.....       76,000       --
================================================================================
Deferred Tax Liability
     Depreciation......................      (76,000)   (36,769)
--------------------------------------------------------------------------------
         Total Deferred Tax Liability          $(76,000)  $(36,769)
================================================================================
     Deferred taxes are recognized for temporary differences between the bases
of assets and liabilities for financial statement and income tax purposes. The
differences relate primarily to depreciable assets (using accelerated
depreciation methods for income tax purposes).

     The Company's provision (benefit) for income taxes differs from applying
the statutory U.S. federal income tax rate to the income before income taxes.
The primary differences result from providing for state income taxes,
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 follows:

                                                 June 30,
                                               ----------------
                                               2001        2000
                                               ----------------
Federal statutory tax rate.............        34.0%      34.0%
State income tax - net of federal
 tax benefit...........................         2.8        5.0
R & D credits..........................       (26.0)       --
Adjustment in valuation allowance......       (37.6)       --
Permanent and other differences........        (1.9)      (0.4)
--------------------------------------------------------------------------------
                                              (28.7)%     38.6 %
================================================================================
     Those amounts have been presented in the Company's financial statements
as follows:
                                                  June 30,
                                             ------------------
                                             2001          2000
                                             ------------------
Current deferred tax asset.............     $384,450   $458,793
Valuation allowance....................     (308,450)  (458,793)
Non current deferred tax liability.....      (76,000)   (36,769)
--------------------------------------------------------------------------------
Net Deferred Tax (Liability) Asset.....     $     --   $(36,769)
================================================================================
     The Company has net operating loss carry forwards of approximately $475,000
and $3,547,000 for Federal and State tax purposes respectively. These net
operating loss carry forwards may be used to reduce federal and state taxable
income and tax liabilities in future years and expire in various years through
June 30, 2005 and June 30, 2019 for State and Federal tax purposes,
respectively. In addition, the Company has Research and Development Tax Credit
carryovers of approximately $46,000 and $107,000 as of June 30, 2001 and 2000,
respectively.

8. STOCK OPTIONS AND AWARDS

     On January 22, 1998 the Board of Directors authorized two stock option
plans: 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 increase in the
market value per share for each year. These options would be equally divided by
the number of participants in each plan. As of June 30, 2001, there were four
participants between both plans. The plans were effective July 1, 1998. The
market cap of the Company on June 30, 2001 and 2000 was $7,799,578 and
$2,867,492, respectively.

                                      F-7
<PAGE>


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

     On June 30, 1999, 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. These options vest 20%
immediately and 10% per quarter over two years. At June 30, 2001, 80,900 options
were exercisable as a result of 16,180 options being canceled due to the
termination of one of the officers. These options expire in June 2004.

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

     On January 22, 1998 the Board of Directors approved an option plan for
active directors that would give each active director of the Company 5,000
options to purchase common stock of the Company. On November 11, 1999 25,000
stock options were granted under this plan at $0.80 per share. On February 22,
2000 the plan was amended to award the Board of Directors 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.

     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 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.

     On November 11, 1999 the Company granted 15,000
stock options to a Senior executive as part of his employment contract. The
options are priced at $1 per share and vest 1/3 each year starting June 30,
2000. These options expire on November 11, 2004.

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



                                             Common Stock
                                          Options Outstanding
                                           -----------------
                                                Shares
                                           -----------------
Balance, June 30, 1999..................       125,900
     Granted............................        50,000
     Exercised..........................           --
     Canceled...........................           --
--------------------------------------------------------------------------------
Balance, June 30, 2000..................        175,900
     Granted............................         62,000
     Exercised..........................             --
     Canceled...........................             --
--------------------------------------------------------------------------------
Balance, June 30, 2001..................        237,900
================================================================================
Shares exercisable at June 30, 2001.....        229,080
Weighted average fair value of options
 granted during 2001....................      $   0.55
Weighted average fair value of options
 granted during 2000....................      $   0.88

     Following is a summary of the status of options outstanding at June 30,
2001:

                               Outstanding Options
--------------------------------------------------------------------------------
                                    Weighted
                                     Average            Weighted
                                    Remaining           Average
     Exercise                      Contractual         Exercise
    Price Range       Number          Life              Price
--------------------------------------------------------------------------------
  $0.55 - $1.00      237,900       3.3 years            $0.83

9. 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 contribution to the plan during the years
ended June 30, 2001 and 2000 were $14,000 and $7,000, respectively.

10. LEASES

     The Company leases a facility under an operating lease which expires August
31, 2001. Total rental expense for the years ended June 30, 2001 and 2000 were
$105,000 and $101,875, respectively. The lease calls 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, 2001.

11. RELATED PARTY TRANSACTIONS

     Prior to the acquisition of Biosearch Medical Products, Inc. ("BMP"), the
Company and Biosearch Medical Products, Inc. were related parties since certain
shareholders held a substantial ownership interest and were members of
management in both companies. From July 1, 1999 through February 3, 2000 the
Company sold materials and services to BMP for $12,591.

                                      F-8
<PAGE>

In addition, the Company allocated occupancy costs to BMP for their share of the
expenses. Expenses charged to BMP from July 1, 1999 through February 3, 2000
totaled approximately $39,000. Total amounts owed to the Company by BMP was
$113,389 at February 3, 2000.

     In addition, BMP provided engineering and secretarial services to Hydromer,
Inc. These expenses amounted to $18,199 from July 1, 1999 to February 3, 2000.
Amounts owed to BMP at February 3, 2000 was $35,627.

12. ACQUISITION

     On February 4, 2000, the Company acquired all of the outstanding stock of
Biosearch Medical Products, Inc. for a total cost of $574,000. The excess of the
purchase price over the value of the net assets was approximately $527,000. The
following represents the unaudited proforma results of operations as if the
business combination had occurred at the beginning of the year in which the
Company was acquired.
                                                 June 30,
                                                   2000
                                                 ---------
Net Sales..............................          $5,648,258
Net Loss...............................          $ (247,025)
(Loss) per Share.......................          $     (.05)

13. EARNINGS PER SHARE

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

                                                        2001         2000
                                                        -------------------
Numerator:
   Net income, earnings per share and
    earnings per share - assuming dilution..          $ 397,156     $130,958
================================================================================
Denominator:
   Denominator for earnings per share
    weighted average shares outstanding....           4,587,987    4,587,987
   Effect of dilutive securities -
    stock options..........................              229,080       --
--------------------------------------------------------------------------------
   Denominator for earnings per share -
    assuming dilution - adjusted weighed
    average shares outstanding.............           4,817,067    4,587,987
================================================================================
Earnings per share.........................          $      .09    $     .03
================================================================================
Earnings per share - assuming dilution.....          $      .08    $     .03

14. 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, Aquatrix, Dermaseal, Hydromer
Anti-Fog/Condensation Control, Hydromer Lubricious Coatings and coating
services, Medicell, Sea-Slide and T-HEXX Barrier Dips and Sprays. All of the
Company's royalties, options and license revenues are reported in this segment.

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

     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
35.5% and 41.1% of the polymer research segment sales for the 2001 and 2000
fiscal years, respectively. Another customer accounted for 38.1% and 37.9% of
the 2001 and 2000 sales of the medical products segment, respectively.

     The Company evaluates the segments by revenues, total expenses and earning
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.

                                    Polymer     Medical
                                    Research    Products      Total
                                    --------------------------------
YEAR ENDED JUNE 30, 2001
     Revenues.................    $ 3,530,767  $2,190,522   $ 5,721,289
     Expenses.................     (3,254,670) (2,156,112)   (5,410,782)
--------------------------------------------------------------------------------
     Earnings before
      Income Taxes............    $  276,097   $   34,410   $  310,507
================================================================================
YEAR ENDED JUNE 30, 2000 A
     Revenues.................    $ 2,954,989  $  978,122   $3,933,111
     Expenses.................     (2,886,559)   (833,331)  (3,719,890)
--------------------------------------------------------------------------------
     Earnings before
      Income Taxes                $    68,430  $  144,791   $  213,221
================================================================================
a From February 4, 2000 for the medical poducts segment

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

                                              2001       2000
                                             -----------------
Domestic.............................           73%        81%
Foreign..............................           27%        19%

15. SUBSEQUENT EVENTS

     On August 29, 2001, the Board of Directors authorized two stock option
plans: 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 increase in the
market value per share for each year. These options would be equally divided by
the number of participants in each plan. As of June 30, 2001, there were six
participants between both plans. The plans were effective July 1, 2001. The
market cap of the Company on June 30, 2001 was $7,799,578.

     Under the previous two identical plans issued effective July 1, 1998, the
Board of Directors authorized 126,629 options at an exercise price of $1.46 per
share as of July 1, 2001. These options vest 20% immediately with an additional
10% each quarter over the next 8 quarters.


                                      F-9
<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).

<PAGE>

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

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

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

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

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

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

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

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

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

         10.ag Letters dated June 11, 1987 and September 22, 1987 to U. S.
Viggo, Inc. modifying License Agreement dated September 13, 1985, to cover only
central venoU.S. 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).

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

         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

<PAGE>

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

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

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

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

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

         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.

<PAGE>


<TABLE>
<CAPTION>

<S>                                          <C>                                     <C>
BOARD OF DIRECTORS                           CORPORATE OFFICERS                      CORPORATE OFFICE

MANFRED F. DYCK                              MANFRED F. DYCK                         35 Industrial Parkway
Biosearch Medical Products                   Chairman                                Branchburg, New Jersey  08876
(Chairman and CEO)                           Chief Executive Officer                 (908) 526-2828
                                             President                               In U.S. Toll Free: (877) HYDROMER

ROBERT H. BEA
Siemens Hearing Instruments, Inc.            MARTIN C. DYCK                          INTERNET
(Vice President of Quality Assurance         Executive Vice President,
and Regulatory Affairs)                      Operations                              WWW.HYDROMER.COM
                                             President of Biosearch Medical          E-mail: WEBMASTER@HYDROMER.COM
                                             Products subsidiary
MAXWELL BOROW, M.D.
Somerset Medical Center
(Chief of Surgery, retired)                  JOSEPH A. EHRHARD, JR.                  AUDITORS
                                             Executive Vice President,
                                             Sales and Marketing                     Rosenberg Rich Baker Berman and Company
URSULA M. DYCK                                                                       Bridgewater, New Jersey

                                             RAINER GREUNING, PHD
DIETER HEINEMANN                             Vice President,
Frankfurt Stock Exchange                     Research & Development                  REGISTRAR & TRANSFER AGENT
(Specialist)
                                                                                     First City Transfer Company
                                             ROBERT Y. LEE, CPA, MBA                 111 Wood Avenue South
GAYLORD MCKISSICK, V.M.D.                    Vice President Finance                  Suite 206
Bridgewater, NJ                              Chief Financial Officer                 Iselin, New Jersey  08830
                                             Treasurer                               (732) 205-4517

KLAUS K.H. MECKELER, M.D.
Somerset Medical Center                      ROBERT J. MORAVSIK
(Chief of Gastroenterology, retired)         Senior Vice President, General
                                             Counsel
                                             Secretary
FREDERICK PERL, M.D., FACOG, FACS
Somerset Medical Center
(Somerset Obstetrics and Gynecology
Associates)
</TABLE>