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, 2008





Commission
File Number 0-10683





HYDROMER,
INC.


_________________________________________________________________


(Exact
name of registrant as specified in its charter)





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





35
      Industrial Parkway, Branchburg, New Jersey
            
            08876-3424(Address of
      principal executive offices)
            
            (Zip
      Code)Registrant's
      telephone number, including area code:
            
            (908)
      722-5000







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





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





Common
Stock Without Par Value


__________                  __________________________________________________________________________________________


(Title of
class)




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




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




The aggregate market value of the
voting stock held by non-affiliates of the Registrant at September 1, 2008 was
approximately $1,200,286.




The number of shares of Registrant's
Common Stock outstanding on September 1, 2008 was 4,772,318.




Portions of the Audited Financials
Statements for the year ended June 30, 2008 are incorporated by reference in
Part II of this report.  Portions of the Proxy Statement of Registrant
dated September 15, 2008 are incorporated by reference in Part III of this
report.















PART
      I







Item
1. BUSINESS


General


Hydromer,
Inc (the “Company”) is a bio-polymer research and development company organized
as a New Jersey Corporation in 1980 for the purposes of developing polymeric
complexes for commercial use in the medical, commercial, cosmetics and
veterinary sciences markets.





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





The
Company owns several process and applications patents for Hydromer® coatings
(“Hydromer”). These polymers become extremely lubricious (slippery) when
wet.   Techniques have been developed for grafting or applying
this substance onto a broad variety of materials, including other polymers like
polyurethane, polyvinyl chloride, and silicone elastomers, ceramics and
metals.  The Company has also been issued patents for permanent
anti-fog materials, hydrophilic polyurethane foams, hydrophilic polyurethane
blends, hydrophilic polyvinylbutyral alloys, several biocompatible hydrogels and
an anti-bacterial medical material.  The Company continues to actively
evaluate other new market opportunities for its polymer technology specifically
in neurology and cardiology.





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





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





MEDICAL




From its
inception in 1980 to mid-1984, the Company was primarily engaged in R&D
activities related to Hydromer coatings used on medical
devices.  Since then and until the acquisition of BMPI, the Company’s
business in the medical field consisted of the sale of lubricious coatings and
the licensing of its lubricious coating technologies.  With the
acquisition of BMPI in
February 2000, the Company now offers a horizontally integrated breadth of
services including medical device manufacturing, contract coating, equipment
building and design, and as of more recently, R&D servicing.





The
Company continues to focus on its coatings technologies as the nucleus of its
participation in the medical field, including added developments of
radio-opaque, biostatic/anti-microbial and more recently, cell anti-mitosis and
anti-thrombogenic coatings.  As of June 30, 2008, the Company
has four patents pending, one on a non-leaching anti-microbial
coating, two on anti-microbial medical hydrogels for body cavities and one
on anti-thrombogenic and cell anti-mitosis technology.  The Company
was granted a patent on water-based lubricious coatings for medical applications
and in industrial condensation control in fiscal 2006.





HYDROMER®Coatings: Lubricious /
Anti-microbial / Anti-thrombogenic /  Cell anti-mitosis /
Radio-opaque




When
treated with a Hydromer lubricious polymer, a medical device becomes very
slippery when wet, allowing for easy insertion into any orifice of the body, in
penetration of the skin or for device-on-device (i.e. guidewire-catheter)
use.  Hydromer coatings are permanently bonded to the device unlike
silicone lubricants, which must be applied after each use and are often left
behind in the bloodstream and body cavities.  Hydromer coatings can
also be coated on complex surfaces and on the inside walls of devices, unlike
the treatments by major competition.  The Company believes that the
polymer-water interface of its Hydromer coatings provides surface lubricity
superior to the quality of other currently marketed silicone-based lubricants to
treat medical devices.





Drugs and
other substances can be readily incorporated into Hydromer, 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
(anti-microbial coatings).





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





In 2006,
the Company filed for a patent on its cell anti-mitosis coatings which decreases
cell proliferation and cell adhesion and prevents platelet
adhesion.  This coating appears to have the attributes needed for a
cardiovascular stent to combat restenosis and late stage
thrombosis.  In vitro (lab) studies have yielded positive results and
in vivo (pre-clinical) studies are planned.





The
Company was awarded a patent on its radio-opaque coatings in
2003.  Hydromer’s radio-opaque coatings enhances the visibility of a
variety of substrates, including, but not limited to, stents and PTCA
balloons.







Option and License
Agreements




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





The
Company has previously reported license agreements in effect and expiring
relating to applications of the Hydromer as follows: Annual Report on Form 10-K
for the fiscal years ended June 30, 1983 through 1996 and Form 10-KSB for fiscal
years ended 1997 through 2007.





As of
June 30, 2008, the Company has license agreements with eight 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, angioplasty balloon
catheters, embolization delivery devices, inter/intra-ocular lenses and biliary
and pancreatic stents. The Company is actively seeking new licensing
opportunities.





Licensee/Application


Ay
      Tibbi Cihazlar - certain urological
devices




Applied
      Medical - certain urological and vascular
  devices




Corneal,
      Ltd. – inter-ocular lenses




Gallini
      - certain urological devices




MXM
      – intra-ocular lens inserter
systems




Nemed
      - inter-ocular lenses




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




Undisclosed
      - neurovascular and cardiovascular
catheters




Supply and Support
Agreements




In order
to avail our customers to a continued material source or of technical support on
our products, certain supply or support agreements may be entered
into.  Depending on the specific requirements of each agreement, the
Company would provide continued support in terms of product availability or
technical know-how, some including the escrow of formulas or data with
independent agents.   The Company currently has supply and/or
support agreements with Ay Tibbi Cihazlar, Cordis Corporation, CR Bard,
NeoMetrics, Inc and others.




Hydrogels, Drug Delivery,
Wound Dressing




Applications
of the Company’s Hydrogels are being developed for wound care, implants, drug
delivery, burn care, conductive hydrogel electrodes, ultrasonic couplants and
cosmetic uses for several customers.  The Company is also identifying
strategic partners to offer hydrogel coating services to clients who do not have
rolled goods coating capability and to license Hydrogel technology for cosmetic
and medical use, including drug release.





The
Company’s hydrogel technology offers biocompatibility, flexibility, and ease of
use and processing.  It also allows for the stabilization of
biomolecules, cell cultures, drugs and other active substances without
potentially damaging external energy sources.  It is absorbent,
inherently self-adhesive but peels away cleanly and is naturally
soothing.  Other than our bio-adhesives and medical coatings, which
are one part systems, to form the gel entails simply to mix the two parts
together - no heat, no chemical cross linkers nor expensive high energy
processing is required.  Many competitive technologies are much more
process intensive and require external energy to crosslink.  The
Company believes these products are synergistic to our existing hydrogel
technologies, and offer further opportunities in electrodes and internal and
topical actives delivery.  The Company has a pilot coating machine to
facilitate the commercialization of its hydrogel technologies.  The
Company is exploring other medical and dental as well as cosmetic applications
for this technology.





Aquadapt® is the
Company’s hydrophilic polyurethane foam technology.  The Company has
510K notices to the FDA for medical use applications in the U.S.  The
Company also has a patent on its chitosan-PVP hydrogel technology as well as
patents granted in 2000 and 2002 on polyaldehyde hydrogels.




OEM Medical
Devices




Through
its ISO 13485:2003 certified and FDA registered Biosearch Medical Products
subsidiary, the Company offers 510K/CE marked medical devices.  The
current product portfolio includes: bipolar coagulation probes; placement
catheters, biliary stents; jejunal and enteral feeding accessories; guidewires;
biofeedback devices for fecal and urinary incontinence; and other endoscopic
accessories.  The Company also contract manufactures products for
several large multi-national marketers of medical devices on an OEM
basis.   Under current development are umbilical vessel and
CVC/dialysis catheters.





HYDROMER®Coating
Services




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





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








R&D and Engineering
Services




The
medical device market continues to undergo a shift toward consolidation by very
large multi-national players with small, entrepreneurial start-up companies
looking to exploit niche opportunities or unique device designs.  The
Company’s experience and knowledge can significantly speed development,
assessment and market readiness for our clients, large and small, through its
research and development and engineering services.





For
example, for medical devices such as coronary stents and brain catheters, the
Company can develop the coatings, including drug eluting coatings, establish the
manufacturing and QA protocols, design and build the coating equipment, start up
scale prototype production and eventually transfer the process assisting the
customer in the transition.





The
Company believes that offering prototyping, process development and small-medium
scale coating/ manufacturing services is fundamental to the expansion of the
Hydromer coatings business, and a strategic imperative.  The Company
will endeavor to become a “one stop” supplier of high performance coatings and
services.





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





INDUSTRIAL/COMMERCIAL




Hydromer
Anti-Fog/Condensation Control is an optical coating which prevents the
accumulation of vision-obscuring condensation under high humidity
conditions.  The Company is selling this material to manufacturers of
greenhouse panels, refrigerator freezer doors, industrial and medical safety and
swim goggles, aircraft windows, automotive headlight assemblies and gauge and
meter manufacturers in the U.S. and internationally, including
China.





The
Company also offers a Sea-Slide®coating
that reduces friction between hull and water, and can be used over most
anti-fouling paints.  Independent testing has confirmed that this
technology significantly improves fuel economy and the hull speed of
watercraft.  Sea-Slide products are marketed through HammerHead
Products, Inc., via an exclusive distribution agreement.





COSMETICS




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





The
Company’s Dermaseal® line, a
patented film-forming hydrogel technology, is currently being sold to major
cosmetic companies as a base for foundations and other skin care
products.  It is also being tested for use in broader skin care,
cosmetic and OTC drug delivery.  Dermaseal is the registered trademark
for barrier film compositions, patented in fiscal 2000 along with the method for
preventing contact dermatitis.  Clinical testing has demonstrated that
these compositions protect the user from the effects of contact with poison ivy,
oak or sumac plant allergens.  Technical testing has also demonstrated
protection from latex proteins, nickel and other contact allergens.





In 2006,
the Company added a unique anti-microbial polymer to its product
line.  When used for beauty cosmetics, contamination and infections
can be reduced.





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





VETERINARY
SCIENCES




In Fiscal
Year 1999, the Company’s polymer technology was used to launch the Company’s
entry into the Animal Health field to combat clinical and sub-clinical mastitis,
a problem that costs U.S. Dairy farmers an estimated $2 billion per year. 
Marketed under the T-HEXX® brand,
initially through U.S. licensees, the T-HEXXBarrier
Dips and Sprays offer dairy farmers exceptional value and unsurpassed protection
asthe
firstno-drip
and water resistant barrier products on the market preventingenvironmental
water containing mastitis-causing organisms, including mycoplasma, from reaching
the teat surface.  The Company has received three patents for its
unique barrier teat dip compositions with an application on a fourth patent
pending.





Theannual
U.S. market forbarrier
teat dips is estimated to be $100-130 million at the farm level.  The T-HEXX Barrier products
contain protocol-proven active ingredients that kill mastitis-causing bacteria
within 30 seconds of contact while continuing to remain active up to 12 hours
later.T-HEXXBarriers are superior
performers in its niche market, while priced comparably or less than barrier dip
products manufactured by the leading sanitary chemical companies in the
world.  Our products are compatible with existing mechanical equipment
and milking procedures and most importantly, are easily removed using
traditionalpre-milking
methods.  Based on field tests, our product has been demonstrated to
stay on the cow teat better than the competition, protecting the cow during the
complete 8-12 hour milking cycle.








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





Patent
pending and under development, for a customer, is a teat plug, which when
launched, would allow the Company (directly and/or indirectly) to provide
complete protection against mastitis for the entire bovine working
cycle.





The
Company has invested significantly in clinical research, patents, promotion,
vendor partnerships and advertising via print media, trade shows and the
Internet to support this business and continues to do so.  Legal
action was initiated against a former licensee and other parties in fiscal 2004
on the basis of infringement of the Company’s patented
technology.  Settlement was made in early calendar 2006 with all
parties, authenticating both the validity of the technology as well as ownership
of such.





Products




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





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





Dependence
Upon Customers




The
Company derives its revenues from two primary business segments: (1) polymer
research and the products derived there from, and (2) the sales of medical
products.  During the fiscal year ended June 30, 2008 and June 30,
2007, Johnson & Johnson’s Cordis Division was a significant customer to the
Company.  For the fiscal year ended June 30, 2007, Cook Endoscopy,
formerly Wilson Cook Medical, Inc., was also a major customer.




Product
sales and/or royalty payments and support fees from these customers accounted
for 24% and 28% of the Company’s total revenues for the years ended June 30,
2008 and June 30, 2007, respectively.





Potential
Applications




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





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




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




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




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




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




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




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




3.  Cross-link Density Can be
Controlled.  The Hydromer hydrophilic polymer coating, through
controlled cross-linking, has been further developed into a special anti-fog
coating.  Such a coating is (a) resistant to fogging under a wide
range of temperature/humidity conditions; (b) transparent and has heat/light
stability; (c) long lasting, i.e., will not chip or peel and offers more scratch
resistance than do most commercial plastics; (d) inert to most commercial glass
cleaners; (e) less prone to static dirt pickup; and (f) applicable by dip, spray
or roll coating.  This anti-fog product has use on greenhouse panels,
refrigerator freezer doors, sports goggles, windows, mirrors and other products,
either by direct application or by coating of an adhesive backed
film.








Research
and Development




The
Company's research and development activities presently are, and during the next
year are expected to be devoted primarily to the development and enhancement of
the products described above and to the design and development of new products,
either for its own account, jointly with another company or strictly as a
sub-contractor.  The Company sponsors all of such activities from its
own internal funding or through charges to the contracting
company.  The major portion of R&D expenses was applied toward
salaries and other expenses of personnel employed on a regular basis in such
work.







Competition




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





The
Company currently owns seventeen process and applications patents for Hydromer
coatings (see "Patents and Trademarks").  Although the medical
products market is highly competitive, the Company does not believe that there
is any other product available which performs functions significantly better in
terms of lubricity, complexing capabilities, durability and cost.





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





Marketing




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




1.  Commercialization of its existing
technologies: The Company intends to expand its efforts to market its
current technology to the medical, industrial, personal care and veterinary
sciences 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.  Saleof Development Services: The
Company intends to continue moving its effort away from straight technology
licensing and toward contract product development, contract manufacturing and
coating services (see “5. Coating Services”).  The Company has
significant expertise in polymer development and applications.  By
exhibiting at an increased number of trade shows in the medical device 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 defined time period.  During such period, the optionee
can test market the coated product and/or determine its ability to treat the
product in its own manufacturing process.  If the customer determines
that the subject product should be treated with Hydromer coating on a commercial
basis, it may either perform the Hydromer coating treatment itself under a
license agreement with the Company, through the Company’s Contract Coating unit
or it may have a third party perform the Hydromer coating
treatment.




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





Business
segments in Coating Services which are of particular interest include medical
devices (catheters and guidewires) and transparencies (lenses, face
shields).  Contacts will be pursued in conjunction with marketing of
Hydromer coatings, at trade shows, in mass mailings and advertisement in
appropriate trade publications.  The Company is continually upgrading
its advertising copy and promotional literature as needed to graphically
highlight the properties and advantages of its technologies.








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





Patents
and Trademarks




Management
believes that the protection afforded by the Hydromer patents will be a
significant factor in the Company's ability to market its
products.  Anticipating patent expiration, the Company has focused on
licensing and developing products based upon its newer
technologies.







As an
example, one U.S. patent that contributed approximately $2,100,000 in annual
royalties from four licensees expired on May 6, 2005.  Although the
Company had a new patent on superior technology available, the Company was
successful in reaching supply and/or support agreements with the four former
licensees recovering an approximate $1,500,000 annually.  These new
supply/support agreements have varying terms and cancellation
provisions.





It is the
Company’s practice to replace any discontinuances of income stream with other
sources, including new product revenues, new service revenues and other license
or contract revenues.





As of
June 30, 2008, the Company has 17 U.S. patents, four U.S. applications and
various foreign counterparts.  The Company’s existing patents covers
hydrophilic coatings and foams, hydrophilic polymer blends, anti-bacterial
medical and cosmetic materials, non-leaching biostatic coatings, barrier film
and barrier teat dip compositions and its method for preventing contact
dermatitis, permanent anti-fogs, Chitosan gels and others.







One new
patent was awarded to the Company during the fiscal year ended June 30,
2006.  This patent covers the application of water based surface
modifications for use in lubricity, anti-microbial, drug release, hydrogel,
radio-opaque, animal care and unique anti-fog/anti-frost
applications.





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





Employees




As of
June 30, 2008, the Company and its subsidiary had seventy-three active full-time
employees.  The Chief Executive Officer is Manfred F. Dyck, who is
also Chairman of the Board.  The Company does not have a collective
bargaining agreement with any of its employees and considers its relationship
with its employees to be very good.




Government
Regulations




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





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





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





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





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











Executive
Officers




The
      executive officers of the Company are as
  follows:


Age
      as ofName
            Position with Company
            31-Aug-08Manfred
      F. Dyck -
            Chairman
      of the Board, Chief Executive Officer and President
            73Martin
      C. Dyck -
            Executive
      Vice-President, Operations and President Biosearch Medical Products
      subsidiary46Rainer
      Gruening -
            Vice-President,
      Intellectual Property
            65John
      Konar –
            Vice-President,
      Quality Assurance and Director of Human Resources
            59Robert
      Y. Lee –
            Vice-President,
      Finance, Chief Financial Officer and Treasurer
            42Robert
      J. Moravsik -
            Senior
      Vice-President, General Counsel and Secretary
            65




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




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




Rainer Gruening joined the Company as
Vice-President of Research and Development in June 2001, and in May 2006 became
VP of Intellectual Property.  With a Ph.D. in Chemistry from the
University of Marburg in Germany, his background includes service with Bayer
AG/Deutsche Solvay Werke, Troy, G+G International and AM Cosmetics in areas
including international regulatory affairs, coatings technology and
anti-microbials.  Mr. Gruening authored and/or co-authored 17 patents
and 35 publications on synthesis and formulation of anti-microbials for paint
and coatings, cosmetics, personal care products, medical coatings, adhesives,
marine anti-fouling and metal working fluids and developed dossiers, safety
assessments and GMP documentation.  Additionally, he implemented
FDA/CTFA, European and Japanese compliance requirements for raw materials and
formulation restrictions.




John Konar has been the Vice-President
of Quality Assurance since February 2004 and Director of Human Resources since
February 2000.  Mr. Konar joined Biosearch in 1986 and served as the
Director of Human Resources with Biosearch from 1996 until its acquisition by
the Company in 2000, when he then assumed responsibilities for both
companies.  He also served, with Biosearch, as the Director of Sales
from 1996 until 2000, Director of QA from 1998 until 2004 when promoted to VP of
QA, and Director of Manufacturing from 2000 to 2001.




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




Robert J. Moravsik has been Senior
Vice-President, General Counsel and Secretary since February 2000.  He
holds a B.S. in Aerospace Engineering, an M.S. in Computer Science and a
Doctorate in Law.  He was Vice-President and General Counsel since
April 1998.  He also serves in the same capacity for Biosearch Medical
Products, Inc. an affiliated company since 1987.  Prior to that, he
was Vice-President and General Counsel to Fisher Stevens, Inc., a subsidiary of
the Bureau of National Affairs.  He is an attorney admitted in the
state of New Jersey and New York.





Item
2. PROPERTIES




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




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




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




Item 3.
            LEGAL
      PROCEEDINGSNot
      applicable.


Item 4.
            SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERSNot
      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 twenty-one years, trading in the
Company’s stock has been limited.




On February 13, 2002 the Company became
a listed security on the Boston Stock Exchange (“BSE”) under the trading symbol
“HDO” until the BSE ceased trading activities in 2007.  Hydromer
remains listed as “HYDI” on the OTC reporting services.




The Company’s common stock traded at
prices ranging between $0.51 and $2.25 in the fiscal year 2008 and between $0.70
and $2.60 in the fiscal year 2007.  These prices may not include
retail mark-ups or mark-downs or any commission to the broker
dealer.




The approximate number of holders of
record of the Common Stock on September 1, 2008 was 230.  There are
approximately 600 individual shareholders of the common stock.








Item 6.
            MANAGEMENT
      DISCUSSION AND ANALYSIS




The below
discussion analyzes major factors and trends regarding the results of operations
and the financial condition of the Company as of June 30, 2008, 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, 2008 were $8,010,324 as compared to $8,099,485 for
the same period last year, a decrease of $89,161 (1.1%).




Product
sales and services revenues were $6,422,557 for the 2008 fiscal year as compared
to $6,462,823 the prior fiscal year, a 0.6% decrease or $40,266.




License
royalties and contract payments were $1,587,767 in fiscal 2008, down 3.0% from
fiscal 2007’s results of $1,636,662.




Management Comment: Continued
sales growth in coating services and the T-HEXX® Animal Health business line as
offset by temporary lower sales in OEM medical device sales reflected a flat
product and services revenues line over the years.





Total
Expenses for the year ended June 30, 2008 were $7,832,858, an improvement of
4.5% or $373,251 lower than the 2007 fiscal year results of
$8,206,109.




Cost of
Goods Sold was $3,044,157 for fiscal 2008 as compared to $3,138,820 for fiscal
2007.  Operating expenses were $4,622,893 and $4,958,433, for the
years ended June 30, 2008 and 2007, respectively.  Stock based
compensation, a non-cash expense, added $55,400 to expenses in fiscal
2007.  There was a Provision for Income Taxes of $13,255 in fiscal
2008 compared with a Benefit from Income Taxes of $101,002 in fiscal
2007.




Management Comment:For fiscal
2008, there was a product mix change in revenue lines: higher service revenues
and an increase in sales from the higher profit margin T-HEXX product line, as
compared with fiscal 2007 which included higher lower-margin OEM product
sales.




A
reduction in staffing, primarily in Research and Development, resulted in lower
Operating Expenses for fiscal 2008.  The Company’s investment into
Research and Development (primarily salaries and benefits) was $790,006 and
$1,073,879, or 17.1% and 21.7% of total Operating Expenses, for the years ended
June 30, 2008 and 2007, respectively, lower due to normal attrition (resignation
and retirement) and job eliminations (due to changes to R&D requirements /
scope / direction).  In addition, continued investment into the patent
estate, added $190,765 and $170,599 in amortization expense to operating
expenses for the years ended June 30, 2008 and 2007, respectively.  In
the fiscal 2008, there was also a $126,420 charge-off of previously paid patent
expenses which management determined to be impaired as the related discounted
future cash flows was deemed to be below the current carrying
value.  These patents, though, will continue to be maintained and
supported.




The
Company accounts for stock and stock options issued for services and
compensation to employees under Statement of Financial Accounting Standards
(“SFAS”) No. 123(r).  For non-employees, the fair market value of
the Company's stock on the date of stock issuance or option/grant is used.
 The Company determined the fair market value of the options issued under
the Black-Scholes Pricing Model.  Under the provisions of SFAS
No. 123(r), share-based compensation cost is measured at the grant date,
based on the fair value of the award, and is recognized as an expense over the
employee's requisite service period (generally the vesting period of the equity
grant).  For the fiscal year ended June 30, 2007, a non-cash expense
of $55,400 was recognized for Stock-Based Compensation.  For the year
ended June 30, 2008, a cash expense of $9,000 was realized in lieu of granting
stock options subject to the accounting treatment of SFAS No.
123(r).




A
provision for Income Taxes of $13,255 in fiscal 2008 is compared with a Income
Tax Benefit of $101,002 for the year ended June 30, 2007.   The
benefit of the net R&D tax credits recorded (after valuation allowances)
reduced the current tax provision.





Net
Income of $177,466 is reported for the 2008 fiscal year compared with a Net Loss
of $106,624 for the 2007 fiscal year.




Net
Income of $177,466 or $0.04 per share is reported for fiscal 2008 as compared
with a Net Loss of $106,624 or $0.02 per share for fiscal 2007.




Management Comment: Although
revenues were essentially flat, the product mix change along with reduced
operating expenses resulted in the improvement to the net results.








Liquidity
and Capital Resources




Working
Capital as of June 30, 2008 was $833,477, up from $701,205 the prior
year.




Working
Capital generated from operations (net income), with add-backs for depreciation
and amortization expense and non-cash charges (write-down of patent costs),
during the 2008 fiscal year, was used to fund capital expenditures and the
patent estate in addition to towards mortgage obligations.




Management Comment: A return
to a solid year of results after the rebuilding year of fiscal 2006 and the near
break-even year of fiscal 2007 (which included a non-cash expense of $55,400)
reflects an improved working capital position.  Re-investment back
into the Company, primarily in terms of R&D (mostly personnel costs on
development projects to which a majority of the expected revenue returns are in
future years) and to our patent estate, along with capital expenditures, all to
support future growth of our business, totaled $1,225,909 during the fiscal year
ended June 30, 2008.  Scheduled reduction of long-term debt was
$215,401 and the paydown of the Line of Credit facility (short-term borrowings)
used $224,123.








Item 7.
            FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA




For information concerning this item,
see pages F-1 through F-8 of the “Audited Financial Statements for the year
ended June 30, 2008,” which information is incorporated herein by
reference.








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






Item
      8a.
            DISCLOSURE
      CONTROLS AND PROCEDURES


Changes in Internal Control over
Financial Reporting




There were no changes to our Company’s
internal control over financial reporting that occurred during the period that
has materially affected, or is reasonably likely to materially affect the
Company’s internal control over financial reporting.





Management’s
Report on Internal Control over Financial Reporting




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





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





Management
assessed the effectiveness of the Company’s internal control over financial
reporting as of June 30, 2008.  In making this assessment, we used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control—Integrated Framework.





Based on
our assessment, we believe that, as of June 30, 2008, the Company’s internal
control over financial reporting is effective based on those
criteria.





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


·
            Segregation
      of Duties (control deficiency)




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




·
            Reporting
      Controls over Inventory (significant
deficiency)




The
Company lacks a perpetual inventory system to adequately account for inventory
transactions and to report inventory, leading it to be reasonably possible that
financial statements are misstated during interim periods.  Full
physical inventory counts are conducted at year-end allowing for any
misstatement to be inconsequential.





This
annual report does not include an attestation report of the Company’s
independent registered public accounting firm regarding internal control over
financial reporting.  Management’s report was not subject to
attestation pursuant to rules promulgated by the Securities and Exchange
Commission.







PART
      III


Item 9.
            DIRECTORS
      AND EXECUTIVE OFFICERS OF THE
REGISTRANT




For information concerning this item,
see "Item 1. Business - Executive Officers" and pages 3 through 11 in the Proxy
Statement filed with respect to the 2008 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 9 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 10 of the Proxy Statement, which
information is incorporated herein by reference.








Item 12.
            CERTAIN
      RELATIONSHIPS AND RELATED
TRANSACTIONS




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








PART
      IV


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




(a)
1. Financial Statements:




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




(a)
2. Financial Statement Schedules:




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




(a)
3. Exhibits (not included)




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




(b)
Current Reports on Form 8-K:


The Company filed five Form 8-K’s
during the year ended June 30, 2008.  Each 8-K reported press releases
issued by the Company: (1) Entering into 4.5 Year Coating Services Agreement,
(2) Entering into a 5 Year Supply Agreement for Anti-Fog Coating, (3) Entering
into a Supply and Support Agreement for Nelaton Catheter Coatings, (4) Entering
into Coating Services Agreement on Stent Placement Catheters, and (5) Entering
into a Royalty generating Coatings Supply agreement for Neurovascular and
Cardiovascular catheters.

























































POWER OF
ATTORNEY





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





SIGNATURES





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





HYDROMER,
INC.





/s/ Manfred F.
      Dyck
            President,
      Principal Executive Officer,
            August
      23, 2006Manfred
      F. Dyck
            Chairman
      of the Board of Directors/s/ Robert Y.
      Lee
            Chief
      Accounting Officer
            August
      23, 2006Robert
      Y. Lee





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





/s/ Manfred F.
      Dyck
            President,
      Principal Executive Officer,
            August
      23, 2006Manfred
      F. Dyck
            Chairman
      of the Board of Directors/s/ Robert H.
      Bea
            Director
            August
      23, 2006Robert
      H. Bea/s/ Maxwell
      Borow
            Director
            August
      23, 2006Maxwell
      Borow, MD/s/ Ursula M.
      Dyck
            Director
            August
      23, 2006Ursula
      M. Dyck/s/ Dieter
      Heinemann
            Director
            August
      10, 2006Dieter
      Heinemann/s/ Klaus J.H.
      Meckeler
            Director
            August
      23, 2006Klaus
      J.H. Meckeler, MD/s/ Frederick L.
      Perl
            Director
            August
      23, 2006Frederick
      L. Perl, MD/s/ Michael F.
      Ryan
            Director
            August
      23, 2006Michael
      F. Ryan, PhD








































Hydromer,
Inc. & Subsidiary
 
 Consolidated
Financial Statements
 
 June
30, 2008 and 2007
 
                                     
  
 
 
 
 
 
 REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 
 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, 2008 and 2007, and the related statements of income,
stockholders’ equity, and cash flows for years then ended.  Hydromer
Inc. & Subsidiary’s management is responsible for these financial
statements.  Our responsibility is to express an opinion on these
financial statements based on our audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  The
company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting.  Our audit included
consideration of internal controls over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the company’s
internal control over financial reporting. Accordingly, we express no such
opinion.  An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.  We
believe that our audits provide a reasonable basis for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Hydromer Inc. & Subsidiary as
of June 20, 2008 and 2007, and the results of its operations and its cash flows
for the years then ended in conformity with accounting principles generally
accepted in the United States of America.
 
 
 /s/
Rosenberg Rich Baker Berman & Company
 
 
 Bridgewater,
New Jersey
 September
22, 2008
 
 
                        
 
 
 
 Hydromer,
Inc. & Subsidiary
 Index
to the Consolidated Financial Statements
 June
30, 2008 and 2007
 
 
 
 
 
 PageFinancial
      StatementsConsolidated
      Balance Sheets
                
                F-1Consolidated
      Statements of Income
                
                F-2Consolidated
      Statements of Stockholders’ Equity
                
                F-2Consolidated
      Statements of Cash Flows
                
                F-3Notes
      to the Consolidated Financial Statements
                
                F-4
      to F-8
 
 
                               Hydromer,
Inc. & Subsidiary
 Consolidated
Balance Sheets
 June
      30,2008
                
                
                2007AssetsCurrent
      Assets:Cash
      and cash equivalents
                
                
                $
                108,403
                
                
                $
                146,338Trade
      receivables less allowance for doubtful accounts of $79,790
      and
                  $62,044
      as of June 30, 2008 and 2007, respectively
                
                
                
                1,100,388
                
                
                
                1,121,752Inventory
                
                
                
                1,022,660
                
                
                
                956,711Prepaid
      expenses
                
                
                
                149,726
                
                
                
                122,653Deferred
      tax asset
                
                
                
                8,976
                
                
                
                8,976Other
                
                
                
                7,147
                
                
                
                11,279Total Current
      Assets
                
                
                
                2,397,300
                
                
                
                2,367,709Property
      and equipment, net
                
                
                
                3,339,270
                
                
                
                3,295,992Deferred
      tax asset, non-current
                
                
                
                620,157
                
                
                
                609,730Intangible
      Assets, net
                
                
                
                820,858
                
                
                
                910,303Total Assets
                
                
                $
                7,177,585
                
                
                $
                7,183,734Liabilities
      and Stockholders’ EquityCurrent
      Liabilities:Accounts
      payable
                
                
                $
                595,412
                
                
                $
                537,338Short-term
      borrowings
                
                
                
                289,973
                
                
                
                514,096Accrued
      expenses
                
                
                
                345,480
                
                
                
                358,301Current
      portion of Capital Leases
                
                
                
                13,095
                
                
                
                -Current
      portion of deferred revenue
                
                
                
                88,051
                
                
                
                32,215Current
      portion of mortgage payable
                
                
                
                230,160
                
                
                
                215,394Income
      tax payable
                
                
                
                1,652
                
                
                
                9,160Total Current
      Liabilities
                
                
                
                1,563,823
                
                
                
                1,666,504Deferred
      tax liability
                
                
                
                281,398
                
                
                
                261,958Long-term
      portion of Capital Leases
                
                
                
                65,310
                
                
                
                -Long-term
      portion of deferred revenue
                
                
                
                49,461
                
                
                
                62,978Long-term
      portion of mortgage payable
                
                
                
                1,647,873
                
                
                
                1,878,040Total Liabilities
                
                
                
                3,607,865
                
                
                
                3,869,480Contingencies
                  
                  Stockholders’
      Equity
                
                
                
                -
                
                
                
                -Preferred
      stock – no par value, authorized 1,000,000 shares, no shares
                  issued and
      outstanding
                
                
                
                -
                
                
                
                -Common
      stock – no par value, authorized 15,000,000 shares;
                  as of June 30, 2008, 4,783,235
      shares issued and 4,772,318 shares outstanding; as of June 30,
                  2007,
      4,698,825 shares issued and 4,687,908shares
      outstanding
                
                
                
                3,721,815
                
                
                
                3,643,815Contributed
      capital
                
                
                
                633,150
                
                
                
                633,150Accumulated
      deficit
                
                
                
                (779,105
                )
                
                
                (956,571
                )Treasury
      stock, 10,917 common shares at cost
                
                
                
                (6,140
                )
                
                
                (6,140
                )Total
      Stockholders’ Equity
                
                
                
                3,569,720
                
                
                
                3,314,254Total
      Liabilities and Stockholders’ Equity
                
                
                $
                7,177,585
                
                
                $
                7,183,734See
      notes to the consolidated financial
statements.
   F -
1
 Hydromer,
Inc. & Subsidiary
 Consolidated
Statements of Income
 Year
      Ended June 30,2008
              
              
              2007RevenuesSale of
products
              
              $
              4,667,992
              
              
              $
              4,937,790Service
revenues
              
              
              1,754,565
              
              
              
              1,525,033Royalties
      and Contract Revenues
              
              
              1,587,767
              
              
              
              1,636,662Total
      Revenues
              
              
              8,010,324
              
              
              
              8,099,485ExpensesCost of Sales
              
              
              3,044,157
              
              
              
              3,138,820Operating
    Expenses
              
              
              4,622,893
              
              
              
              4,958,433Stock Based
      Compensation
              
              
              -
              
              
              
              55,400Other Expenses,
    net
              
              
              152,553
              
              
              
              154,458Provision for (Benefit from)
      Income Taxes
              
              
              13,255
              
              
              
              (101,002
              )Total
      Expenses
              
              
              7,832,858
              
              
              
              8,206,109Net
      Income (Loss)
              
              $
              177,466
              
              
              $
              (106,624
              )Earnings
      (Loss) Per Common Share
              
              $
              0.04
              
              
              $
              (0.02
              )Weighted
      Average Number of Common Shares Outstanding
              
              
              4,748,699
              
              
              
              4,655,280There
      was no impact to earnings per share from dilutive securities in
      2008
                under
      the treasury stock method of computing dilutive earnings per
      share.
                For
      2007, common stock equivalents were not included in computing diluted
      earnings per share as their effect would be
  anti-dilutive.See
      notes to the consolidated financial
statements.
 
 
   
 
 
 Hydromer,
Inc. & Subsidiary
 Consolidated
Statements of Stockholders’ Equity
  Common
      Stock
              
              
              Contributed
              
              
              Accumulated
              
              Treasury
      StockShares
              
              
              Amount
              
              
              Capital
              
              
              Deficit
              
              Shares
              
              
              Amount
              
              
              TotalBalance
      June 30, 2006
              4,655,081
              
              $
              3,639,315
              
              $
              577,750
              
              $
              (849,947
              )
              10,917
              
              $
              (6,140
              )
              $
              3,360,978Stock Based
      Compensation
              
              
              
              
              
              
              55,400
              
              
              
              
              
              
              
              
              
              
              55,400Exercise
      of Stock Options
              43,744
              
              
              4,500
              
              
              
              
              
              
              
              
              
              
              
              
              
              4,500Net
      Loss
              
              
              
              
              
              
              
              
              
              (106,624
              )
              
              
              
              
              
              
              (106,624
              )Balance
      June 30, 2007
              4,698,825
              
              $
              3,643,815
              
              $
              633,150
              
              $
              (956,571
              )
              10,917
              
              $
              (6,140
              )
              $
              3,314,254Exercise of Stock
      Options
              54,410
              
              
              18,000
              
              
              
              
              
              
              
              
              
              
              
              
              
              18,000Stock
      Subscription
              30,000
              
              
              60,000
              
              
              
              
              
              
              
              
              
              
              
              
              
              60,000Net
      Income
              
              
              
              
              
              
              
              
              
              177,466
              
              
              
              
              
              
              
              177,466Balance
      June 30, 2008
              4,783,235
              
              $
              3,721,815
              
              $
              633,150
              
              $
              (779,105
              )
              10,917
              
              $
              (6,140
              )
              $
              3,569,720See
      notes to the consolidated financial
statements.
 
  
 F -
2
 Hydromer,
Inc. & Subsidiary
 Consolidated
Statements of Cash Flows
 
 Year
      Ended June 30,2008
              
              
              2007Cash
      Flows From Operating Activities:Net
      Income (Loss)
              
              $
              177,466
              
              
              $
              (106,624
              )Adjustments
      to reconcile net income (loss) to net cash provided by (used for)
      operating activitiesDepreciation
      and amortization
              
              
              434,055
              
              
              
              405,868Impairment
      of Intangibles
              
              
              126,420
              
              
              
              -Stock
      Based Compensation
              
              
              -
              
              
              
              55,400Deferred
      income taxes
              
              
              9,013
              
              
              
              (111,404
              )Changes
      in Assets and LiabilitiesTrade receivables
              
              
              21,364
              
              
              
              76,337Inventory
              
              
              (65,949
              )
              
              
              31,375Prepaid expenses
              
              
              (29,278
              )
              
              
              (2,012
              )Other assets
              
              
              6,337
              
              
              
              228,669Accounts payable and accrued
      liabilities
              
              
              45,253
              
              
              
              (113,414
              )Deferred revenues
              
              
              42,319
              
              
              
              (126,924
              )Income taxes
    payable
              
              
              (7,508
              )
              
              
              99,496Net
      Cash Provided by (Used for) Operating Activities
              
              
              759,492
              
              
              
              436,767Cash
      Flows From Investing Activities:Cash
      purchases of property and equipment
              
              
              (208,801
              )
              
              
              (154,788
              )Cash
      payments on Patents and Trademarks
              
              
              (227,102
              )
              
              
              (230,640
              )Net
      Cash Used for Investing Activities
              
              
              (435,903
              )
              
              
              (385,428
              )Cash
      Flows From Financing Activities:Net
      (payments)/borrowings against Line of Credit
              
              
              (224,123
              )
              
              
              (142,159
              )Repayment
      of long-term borrowings
              
              
              (215,401
              )
              
              
              (202,207
              )Proceeds
      from the issuance of common stock
              
              
              78,000
              
              
              
              4,500Net
      Cash Used for Financing Activities
              
              
              (361,524
              )
              
              
              (339,866
              )Net
      Decrease in Cash and Cash Equivalents:
              
              
              (37,935
              )
              
              
              (288,527
              )Cash
      and Cash Equivalents at Beginning of Period
              
              
              146,338
              
              
              
              434,865Cash
      and Cash Equivalents at End of Period
              
              $
              108,403
              
              
              $
              146,338
 Cash paid during the year
      for:Interest
              
              $
              169,847
              
              
              $
              191,004Income taxes
              
              $
              9,338
              
              
              $
              -See
      notes to the consolidated financial statements
 
             
  F -
3
  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 bio-polymer research and development
company based in Branchburg, New Jersey.  The Company develops polymer
complexes for commercial markets in both the United States and abroad for the
medical, cosmetics, veterinary sciences and industrial fields.  The
Company obtains patent rights on certain products from which royalty revenues
are received.  Its wholly owned subsidiary, Biosearch Medical
Products, Inc., a U.S. based corporation, is an OEM manufacturer for various
medical products companies as well as the manufacturer of its own line of
endoscopic products sold to hospitals, domestically and internationally, through
a network of dealers.  The Company also offers R&D, engineering
and contract coating services in its array of capabilities.
  Principles
of Consolidation
 The
consolidated financial statements include the accounts of Hydromer, Inc. and its
wholly owned subsidiary.  All significant intercompany balances and
transactions have been eliminated.
  Cash
and Cash Equivalents
 Cash and
cash equivalents consist of short-term investments with original maturities of
three months or less.
  Short-Term
Investments
 Short-term
investments consist of investments other than cash and cash equivalents with
original maturities of greater than three months and less than one
year.  There were no short-term investments as of June 30, 2008 and
June 30, 2007.
  Accounts
Receivables
 Accounts
receivable are uncollateralized, non-interest-bearing customer obligations due
under normal trade terms requiring payment typically within 30 days from the
invoice date, or in the case of royalties or contract payments (see Revenue
Recognition), usually 45 days from the end of a calendar
quarter.  Trade accounts receivable are stated at the amount billed to
the customer; royalties and contract revenues are estimated until reported by
the licensee / contractual party.  Payments of accounts receivable are
allocated to the specific invoices identified on the customer's remittance
advice or, if unspecified, are applied to the oldest unpaid invoices.  The
carrying amount of accounts receivable is reduced by a valuation allowance that
reflects the Company's best estimate of the amounts that may not be collected.
 This estimate is based on reviews of all balances in excess of 90 days
past due from the invoice date.  Based on this assessment of current credit
worthiness, the Company estimates the portion, if any, of the balance that will
not be collected.  Management also considers the need for additional
general reserves and reviews its valuation allowance on a quarterly
basis.
  Inventories
 Inventories
are valued at the lower of cost, determined by the first-in, first-out method,
or market and include appropriate amounts of labor and overhead.
  Depreciation
 The cost
of property and equipment, which includes a reasonable portion of labor costs
for equipment built in-house, is depreciated on a straight-line method over the
estimated useful lives of the assets: 5-10 years for machinery and equipment,
3-5 years for furniture and office equipment and 40 years for the
building.  When assets are retired or otherwise disposed of, the cost
and related accumulated depreciation are removed from the accounts, and any
resulting gain or loss is reflected in income for the period.  Repairs
and maintenance which do not extend the useful lives of the related assets are
expensed as incurred.
  Patents
  Expenses
associated with patents are prepaid and amortized over the expected life of the
patent, typically 20 years.  Prepaid expenses associated with patents
which are not approved or abandoned are expensed in the period in which such
patents are not approved or abandoned.  Maintenance fees associated
with existing patents are written off over 12 months.  Amortization
expense for the years ended June 30, 2008 and 2007 were $190,765 and $170,599,
respectively.
  Long-Lived
Assets
  The
Company assesses long-lived assets for impairment as required under Statement of
Financial Accounting Standards (“SFAS”)  No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets.  The Company reviews for
impairment whenever events or circumstances indicate that the carrying amount of
these assets may not be recoverable.  The Company assesses these
assets for impairment based on estimated future cash flows from these
assets.
  Under
this criteria, for the year ended June 30, 2008, $126,420 of cumulated Patent
costs were charged off.
  Revenue
Recognition
 Revenues
from product and services sales are recognized at the time of shipment or
services rendered provided that collection of the resulting receivable is
probable.  Revenues from royalties are recognized upon the sale of
certain products by licensees with whom the Company has licensing
agreements.  Contract Revenues, which includes payments from Option,
Supply or Support agreements that are typically based on time frames, are
recognized in the periods to which it pertains.  Deferred revenues are
recorded when agreements call for payment ahead of when the amounts are
earned.
  Shipping
and Handling Charges
 The
Company includes costs of shipping and handling billed to customers in Revenues
and the related expense of shipping and handling costs in Cost of
Sales.
  Advertising
 Advertising
costs are expensed as incurred except for tangible assets, such as printed
advertising materials, which are expensed as consumed.  Advertising
expense was $16,804 and $22,939 for the years ended June 30, 2008 and 2007,
respectively.
  Research
and Development
 Research
and development costs, primarily employee salaries and benefits, are charged to
operations when incurred and are included in operating expenses.  The
amounts charged to expense for the years ended June 30, 2008 and 2007 were
approximately $790,006 and $1,073,879, respectively.
  Stock
Based Compensation
 The
Company accounts for stock and stock options issued for services and
compensation to employees under SFAS No. 123(r).  For non-employees,
the fair market value of the Company's stock on the date of stock issuance or
option/grant is used.  The Company determined the fair market value of
the options issued under the Black-Scholes Pricing Model.  Under the
provisions of SFAS No. 123(r), share-based compensation cost is measured at the
grant date, based on the fair value of the award, and is recognized as an
expense over the employee's requisite service period (generally the vesting
period of the equity grant).
 
 F -
4
  Income
Taxes
 Income
taxes are provided for the tax effects of transactions reported in the financial
statements and consist of taxes currently due plus deferred taxes related
primarily to differences between the bases of assets and liabilities for
financial and income tax reporting.   The deferred tax assets and
liabilities represent the future tax return consequences of those differences,
which will either be taxable or deductible when the assets and liabilities are
recovered or settled.  Deferred taxes are also recognized for
operating losses that are available to offset future federal and state income
taxes.
  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
common stock shares outstanding during the period.
  Use
of Estimates
 The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting
period.  Actual results could differ from those
estimates.
  Reclassification
 Certain
amounts previously reported have been reclassified to conform to the 2008
presentation.
 
 
 2.  CONCENTRATION
OF CREDIT AND BUSINESS RISK
  The
Company is exposed to additional credit and business risks due to its
concentration of activity with certain parties.  For example, at times
throughout the year, the Company may maintain certain bank accounts in excess of
FDIC insured limits.
  In
addition, the Company provides credit in the normal course of business to
customers.  Ongoing credit evaluations of its customers are performed,
and allowances for doubtful accounts are based on factors surrounding the credit
risk of specific customers, historical trends and other
information.
  For the
year ended June 30, 2008, the Company collected Contract Revenues totaling 15%
of its total revenues from one customer, Cordis Neurovascular
Systems.  There was no outstanding accounts receivable from Cordis
Neurovascular at June 30, 2008.
  During
the fiscal year ended June 30, 2007, Cordis Neurovascular Systems and Cook
Endoscopy accounted for 15% and 13%, respectively, of total
revenues.  Accounts receivable from these customers accounted for 17%
of total accounts receivable at June 30, 2007.
 
 
 
 3.   INVENTORY
  Inventory
consists of:
 June
      30,2008
              
              
              2007Finished
      goods
              
              $
              349,581
              
              
              $
              325,159Work
      in process
              
              
              277,847
              
              
              
              182,092Raw
      materials
              
              
              395,232
              
              
              
              449,460$
              1,022,660
              
              
              $
              956,711
 
 
 
 4.   PROPERTY
AND EQUIPMENT
  Property
and equipment consists of the following:
 June
      30,2008
              
              
              2007Land
              
              $
              472,410
              
              
              $
              472,410Building
              
              
              2,188,603
              
              
              
              2,155,295Machinery
      and equipment
              
              
              4,188,868
              
              
              
              4,022,393Equipment
      under capital leases
              
              
              87,120
              
              
              
              -Furniture
      and fixtures
              
              
              552,143
              
              
              
              551,8427,489,144
              
              
              
              7,201,940Less:
      Accumulated
                depreciation and
      amortization
              
              
              (4,144,573
              )
              
              
              (3,905,948
              )Accumulated
                depreciation on capital
      leases
              
              
              (5,301
              )
              
              
              -Property
      and Equipment, net
              
              $
              3,339,270
              
              
              $
              3,295,992
  Depreciation
expense, including that on assets under capitalized leases, charged to
operations, was $243,928 and $236,269 for the years ended June 30, 2008 and
2007, respectively.
 
 
 
 5.   INTANGIBLE
ASSETS
  Intangible
Assets are comprised of the following:
 June
      30,2008
                
                
                2007Patents
                
                $
                1,240,177
                
                
                $
                1,241,944Trademarks
                
                
                78,502
                
                
                
                76,051Less:  Accumulated
      amortization
                
                
                (497,821
                )
                
                
                (407,692
                )Intangible
      Assets, net
                
                $
                820,858
                
                
                $
                910,303
 During
the year ended June 30, 2008, $126,420 of Patent costs was deemed impaired and
charged off to Operating Expenses as the discounted future cash flows relating
to these patents were deemed below that of its carrying value.  The
Company continues to maintain and support these patents despite their carrying
value having been written down.
  Future
amortization of the Intangible Assets, as of June 30, 2008, are as
follows:
 Year ending June
      30,2009
              
              $
              125,4872010
              
              
              76,5032011
              
              
              74,9262012
              
              
              73,0202013
              
              
              72,398Thereafter
              
              
              398,524$
              820,858
 
 
 
 6.   LONG-TERM
DEBT AND CREDIT FACILITY
  As of
June 30, 2008, the Company’s facility was financed by two ten-year mortgage
notes: a $555,000 first Mortgage and a $1,990,000 second mortgage, bearing fixed
interest rates of 6.52% and 6.38 %, respectively.  These notes were
secured by the real estate and improvements, and all rents from leases
subsequently entered into, amortized with monthly payments.  As of
June 30, 2008, the book value of the real estate and improvements was
$2,259,229.  An appraisal was conducted in July 2008 reflected a
market value of $4,250,000.
  F -
5
  Both of
the mortgages were refinanced in September 2008 (see Footnote 16. SUBSEQUENT
EVENTS).  The new borrowing is a twenty-five year $2,900,000 mortgage,
bearing a five-year fixed interest rate of 6.75%, reset every five years at
2.75% over the then New York Federal Home Loan Bank 5/20 Amortizing Advance
Rate.  This note is secured by the real estate and improvements, and
all rents from leases subsequently entered into, amortized with monthly
payments.
  As of
June 30, 2008, the Company also had a revolving line of credit agreement,
secured by all trade receivables and inventories, which allows borrowings of up
to $525,000 as of June 30, 2008.  The line bore interest, payable
monthly at LIBOR plus 3.75%, which as of June 30, 2008 was
6.22%.  This line matures on September 30, 2008, which would be repaid
from the proceeds of the Company mortgage refinancing in September 2008 (see
Footnote 16. SUBSEQUENT EVENTS).  As of June 30, 2008 and 2007,
$289,973 and $514,096, respectively, were outstanding on the line of
credit.
 
 Long-term
debt is comprised of the following:
 June
      30,2008
              
              
              2007Mortgage
      note
              
              $
              338,720
              
              
              $
              390,075Second
      Mortgage Loan
              
              
              1,539,313
              
              
              
              1,703,359Less:  Current
      Maturities
              
              
              (230,160
              )
              
              
              (215,394
              )Long-term
      Debt,
                Net of Current
      Maturities
              
              $
              1,647,873
              
              
              $
              1,878,040
  Maturities
of the long-term debt are as follows:
 Year ending June 30,
              
              As
      of June 30, 20082009
              
              $
              230,1602010
              
              
              245,6012011
              
              
              262,0562012
              
              
              279,4392013
              
              
              298,335Thereafter
              
              
              562,442$
              1,878,033
 
 
 
 
 7.   FAIR
VALUE OF FINANCIAL INSTRUMENTS
  The
carrying amount of cash and cash equivalents, accounts receivable, accounts
payable and accrued expenses approximates fair value because of the short
maturity of these instruments.  The fair value of the Company’s
long-term debt approximates its carrying value as it is based on or about 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.
 
 
  8.   INCOME
TAXES
 The
income tax provision (benefit) is comprised of the following:
 Federal
                
                
                State
                
                
                TotalYear
      Ended June 30, 2008Current
                
                $
                -
                
                
                $
                4,160
                
                
                $
                4,160Deferred
                
                
                (23,123
                )
                
                
                32,218
                
                
                
                9,095$
                (23,123
                )
                
                $
                36,378
                
                
                $
                13,255Year
      Ended June 30, 2007Current
                
                $
                -
                
                
                $
                9,160
                
                
                $
                9,160Deferred
                
                
                (138,962
                )
                
                
                28,800
                
                
                
                (110,162
                )$
                (138,962
                )
                
                $
                37,960
                
                
                $
                (101,002
                )
  The
Company’s deferred tax asset and liability as presented in the Company’s
financial statements are comprised of the following temporary
differences:
 June
      30,2008
              
              
              2007Deferred
      Tax AssetNet Operating
      Losses
              
              $
              219,700
              
              
              $
              307,306Adjustment of
      Goodwill
              
              
              196,069
              
              
              
              196,069Research & Development
      Credits
              
              
              520,970
              
              
              
              384,402Valuation
      allowance
              
              
              (307,606
              )
              
              
              (269,071
              )Total Deferred Tax
      Assets
              
              
              629,133
              
              
              
              618,706Deferred
      Tax LiabilityDepreciation
              
              
              (281,398
              )
              
              
              (261,958
              )Total Deferred Tax
      Liability
              
              $
              (281,398
              )
              
              $
              (261,958
              )
  Deferred
taxes are recognized for temporary differences between the bases of assets and
liabilities for financial statement and income tax purposes.  The
differences relate primarily to depreciable assets (using accelerated
depreciation methods for income tax purposes).  The Company’s
adjustment to Goodwill in 2004 and 2006 created a deferred tax asset, which
although has an indefinite life, has been fully reserved for as realization of
its benefit is unlikely.
  The
Company has net operating loss carry forwards of approximately $315,828 and
$1,119,787 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, 2027 and June 30, 2015 for Federal and State tax purposes,
respectively.  In addition, the Company has Research and Development
Tax Credits of approximately $370,149 and $150,822 for Federal and State tax
purposes, respectively, which expires in various years through June 30, 2028 and
June 30, 2015, respectively.
  The
Company’s provision for income taxes differs from applying the statutory U.S.
federal income tax rate to the income before income taxes.  The
primary differences result from providing for state income taxes, generation of
allowable tax credits and from deducting certain expenses for financial
statement purposes but not for federal income tax purposes.
  A reconciliation between taxes
computed at the federal statutory rate and the consolidated effective tax rate
follows:
 June 30,2008
                
                
                
                2007Federal
      statutory tax rate
                
                
                34.0
                %
                
                
                (34.0)
                %State
      income tax - net of federaltax
      benefit
                
                
                13.9
                
                
                
                (22.0)R
      & D credits
                
                
                (71.6)
                
                
                
                (18.2)Adjustment
      in valuationallowance
                
                
                20.2
                
                
                
                20.5Permanent
      and other differences
                
                
                10.5
                
                
                
                5.17.0
                %
                
                
                (48.6)
                %
  F -
6
 9.   STOCK
OPTIONS AND AWARDS
  On
February 22, 2000 the Board of Directors approved an option plan that granted
each director 2,000 options for each meeting attended, awarded at the annual
meeting at the 5-day market price average.
  Open
options under this plan awarded to the Board of Directors are as
follows:
 Issuance
                  Date
                Options
      Issued
                Exercise
      Price
                ExpirationDate
                Options
      ExercisedNov
      19, 2003
                52,000
                $1.10
                Nov
      19, 2008
                -Nov
      17, 2004
                56,000
                $2.10
                Nov
      17, 2009
                -Nov
      16, 2005
                62,000
                $0.95
                Nov
      16, 2010
                -Nov
      15, 2006
                50,000
                $1.18
                Nov
      15, 2011
                -
 There
were no other stock option issuances during the 2007 fiscal year.
  During
the 2008 fiscal year, 30,000 five year options, at a $3.00 exercise price, were
granted as part of a Stock Subscription.
  A summary of activity under the plan
for the years ending June 30, 2008 and 2007 are as follows:
 Common Stock Options
      OutstandingWeighted
      AverageShares
                
                
                Exercise PriceBalance,
      June 30, 2006
                
                
                402,000
                
                
                $
                1.04Granted
                
                
                50,000
                
                
                
                1.18Exercised
                
                
                (70,000
                )
                
                
                0.84Canceled
                
                
                (92,000
                )
                
                
                1.05Balance,
      June 30, 2007
                
                
                290,000
                
                
                $
                1.12Granted
                
                
                30,000
                
                
                
                3.00Exercised
                
                
                (60,000
                )
                
                
                0.45Canceled
                
                
                (10,000
                )
                
                
                0.45Balance,
      June 30, 2008
                
                
                250,000
                
                
                $
                1.53
 Following
is a summary of the status of options outstanding as of June 30,
2008:
 Outstanding Options
                
                
                Exercisable OptionsExercise
                  Price
                  Range
                
                
                Number
                
                Weighted
      Average Remaining Contractual Life
                
                Weighted
      Average Exercise
                  Price
                
                
                Number
                
                
                Weighted
      Average Exercise
                  Price$
                0.95
      - $1.45
                
                
                
                164,000
                
                2.1
      years
                
                $
                1.07
                
                
                
                164,000
                
                
                $
                1.07$
                1.46
      - $2.48
                
                
                
                56,000
                
                1.4
      years
                
                $
                2.10
                
                
                
                56,000
                
                
                $
                2.10$
                2.49
      - $3.00
                
                
                
                30,000
                
                4.1 years
                
                $
                2.10
                
                
                
                30,000
                
                
                $
                3.00250,000
                
                2.2
      years
                
                $
                1.53
                
                
                
                250,000
                
                
                $
                1.53
 Stock
Option Grants
  The
Company accounts for stock and stock options issued for services and
compensation to employees under SFAS No. 123(r).  For non-employees,
the fair market value of the Company's stock on the date of stock issuance or
option/grant is used.  The Company determined the fair market value of
the options issued under the Black-Scholes Pricing Model.  Under the
provisions of SFAS No. 123(r), share-based compensation cost is measured at the
grant date, based on the fair value of the award, and is recognized as an
expense over the employee's requisite service period (generally the vesting
period of the equity grant).
  The fair
value of the options granted during fiscal 2007 were estimated on the date of
grant using the Black-Scholes pricing model with the following weighted average
assumptions for grants: dividend yield of 0%; expected volatility of 151%;
risk-free interest rate of 6.0%; and expected life of 5 years.
 
 
 10.   RETIREMENT
PLAN
  The
Company sponsors a qualified 401(k) plan covering substantially all full time
employees under which eligible employees can defer a portion of their annual
compensation.  The Company determines annually, the amount of matching
contributions, which previously was 25% on 6% of the employees’
salary.  There were no Company matching contribution made to the plan
during the fiscal years ended June 30, 2007 or June 30, 2008.
  
 
 11.   LEASES
  The
Company acquired equipment under a long-term lease.  For financial
reporting purposes, the present value of the minimum lease payments has been
capitalized.
  Future payments under these capital
lease arrangements, which includes $20,767 in finance charges,  are as
follows:
 Year ending June 30,2009
              
              $
              20,5062010
              
              
              20,5062011
              
              
              20,5062012
              
              
              20,5062013
              
              
              17,148Thereafter
              
              
              -$
              99,172
 
 
 
 12.  EARNINGS
PER SHARE
  The
following table sets forth the computation of earnings per share:
 2008
                
                
                2007Numerator:Net income
    (loss)
                
                $
                177,466
                
                
                $
                (106,624
                )Denominator:Denominator for basic earnings per
      share
                  - weighted average shares
      outstanding
                
                
                4,748,699
                
                
                
                4,655,280Effect
      of dilutive securities - Stock Options
                
                
                18,083
                
                
                
                n/aDenominator
      for dilutive earnings per share
                  under the treasury stock
      method
                  - weighted average shares
      outstanding
                
                
                4,766,782
                
                
                
                n/aBasic
      Earnings (Loss) per share
                
                $
                0.04
                
                
                $
                (0.02
                )Dilutive
      Earnings per share
                
                $
                0.04
                
                
                
                n/a
 
 
 F -
7
 
 13.  INDUSTRY
SEGMENT INFORMATION
  The
Company operates two primary business segments: (1) Polymer Research and (2)
Medical Products.
  Products
included in the polymer research segment are Aquadapt®,
Aquamere®,
Aquatrix®,
Dermaseal®,
Hydromer®
Anti-Fog/Condensation Control Coatings, Hydromer®
Lubricious Coatings, Sea-Slide® and
T-HEXX® Barrier
Dips and Sprays.  Research and Development services and all of the
Company’s royalties and contract revenues are reported in this
segment.
  The
medical products segment includes an OEM product line of bipolar coagulation
probes, placement catheters, bilary stents, jejunal and enteral feeding
accessories, guidewires, biofeedback devices for fecal and urinary incontinence
and other endoscopic accessories.  Service revenues, including coating
services and engineering services, are included in this segment.
  Due to
the multitude of products offered and the product gross margins, the Company
does not track sales volumes by products.
  The
Company operates globally in its segments with several large customers that are
important to their operating results.  One such customer accounted for
20% and 22% of the polymer research segment sales for the 2008 and 2007 fiscal
years, respectively.  For the medical products segment, the top three
customers accounted for 66% and 69% of that segment’s 2008 and 2007 sales,
respectively.
  The
Company evaluates the segments by revenues, total expenses and earnings before
income taxes.  The Company’s assets are not reviewed by business
segment.  The accounting policies of these segments are described in
the summary of significant accounting policies.
  Corporate
Overhead, primarily the salaries and fringes of senior management, support
services (Accounting, Legal, Human Resources and Purchasing) and other shared
services (Building maintenance and warehousing), is reflected separately from
the results of the business segments in the following:
 Polymer
                
                
                Medical
                
                
                CorporateResearch
                
                
                Products
                
                
                Overhead
                
                
                TotalYear
      Ended June 30, 2008*Revenue
                
                $
                4,399,344
                
                
                $
                3,610,980
                
                
                
                
                
                $
                8,010,324Expenses
                
                
                (3,262,739
                )
                
                
                (3,053,191
                )
                
                $
                (1,503,673
                )
                
                
                (7,819,603
                )Earnings
      (Loss)  before  Income Taxes
                
                $
                1,136,605
                
                
                $
                557,789
                
                
                $
                (1,503,673
                )
                
                $
                190,721Year
      Ended June 30, 2007Revenue
                
                $
                4,250,497
                
                
                $
                3,848,988
                
                
                
                
                
                
                $
                8,099,485Expenses
                
                
                (3,524,288
                )
                
                
                (3,207,677
                )
                
                $
                (1,575,146
                )
                
                
                (8,307,111
                )Earnings
      (Loss)  before  Income Taxes
                
                $
                726,209
                
                
                $
                641,311
                
                
                $
                (1,575,146
                )
                
                $
                (207,626
                )
 * Included under the Polymer
Research segment was the non-cash impairment of intangible assets of $126,420
for fiscal 2008.
 
 Geographic
revenues were as follows for the years ended June 30,
 2008
                2007Domestic
                81%
                85%Foreign
                19%
                15%
  14.  CONTINGENCIES
  Royalty
revenues and support fees recorded by the Company are based on the sales of
products as reported by the Company’s customers, which has the risk of being
under- or over-reported.  To minimize such risks, the Company’s
management utilizes its knowledge and understanding of the customer’s business,
the market and other pertinent factors in assessing the validity of reported
royalties.  In addition, the Company may have a right to audit the
amounts reported.
  The
Company has not received any claims by its customers for possible overpayment of
royalties or support fees.
  The
Company is currently a defendant in a product liability action which is covered
within the Company’s Product Liability Insurance policy.  Management
does not expect the outcome to have a material impact to the financial
statements.
  
 
 15.  NEW
ACCOUNTING PRONOUNCEMENTS
  In
September 2006, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 157 (“SFAS 157”), Fair Value Measurements,
which defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles (“GAAP”), and expands disclosures about
fair value measurements.  SFAS 157 applies under other accounting
pronouncements that require or permit fair value measurements.  Prior to
SFAS 157, there were different definitions of fair value and limited guidance
for applying those definitions in GAAP.  Moreover, that guidance was
dispersed among the many accounting pronouncements that require fair value
measurements.  Differences in that guidance created inconsistencies that
added to the complexity in applying GAAP.  The changes to current practice
resulting from the application of SFAS 157 relate to the definition of fair
value, the methods used to measure fair value, and the expanded disclosures
about fair value measurements.  SFAS 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years.  The Company presently does not
expect the adoption of SFAS 157 to have an effect on its financial
statements.
  In
February 2007, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 159 (“SFAS 159”), The Fair Value Option for Financial
Assets and Financial Liabilities, which permits entities to choose to
measure many financial instruments and certain other items at fair value which
are not currently required to be measured at fair value.  SFAS 159 is
effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. The Company
presently does not expect the adoption of SFAS 159 to have an effect on its
financial statements.
  Management
does not believe that any other recently issued, but not yet effective
accounting pronouncements, if adopted, would have a material effect on the
accompanying financial statements.
 
 
 
 16.  SUBSEQUENT
EVENTS
  On
September 4, 2008, the Company refinanced it mortgages, tapping into its
available equity to borrow an additional $1.1 million in order to provide it
with the required funds to repay its maturing Line-of-Credit facility and to
provide for additional working capital.  (See Footnote
6.  LONG-TERM DEBT AND CREDIT FACILITY)
   F -
8
  INDEX
      TO EXHIBITS3.a  Certificate
      of Incorporation of the Company, as amended to date3.b  By-Laws
      of the Company, as amended to date10.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, 198610.m
      Hydromer Coating License Agreement dated September 30, 1984 between Axiom
      Medical, Inc. and the Company (Incorporated by reference to Exhibit 10.m
      to the 1984 Annual Report).10.n
      1982 Stock Option Plan of the Company (Incorporated by reference to
      Exhibit 10.m to the 1983 Annual Report).10.o
      Amendment dated June 26, 1984 to Agreement dated August 3, 1983 between
      Becton, Dickinson & Company and the Company (Incorporated by reference
      to Exhibit 10.o to the 1984 Annual Report).10.p
      License Agreement dated July 31, 1984 between Kendall Company and the
      Company (Incorporated by reference to Exhibit 10.p to the 1984 Annual
      Report).10.q
      License Agreement dated March 1, 1985 between Van-Tec Inc. and the Company
      and Letter of Amendment thereto dated June 13, 1985 (Incorporated by
      reference to Exhibit 10.o to the 1985 Annual Report).10.r
      Telex dated June 24, 1985 terminating License Agreement with CardioSearch
      Inc. (Incorporated by reference to Exhibit 10.p to the 1984 Annual
      Report).10.s
      Amendment dated as of December 31, 1984 to Management Services Agreement
      dated July 14, 1982 between Biosearch Medical Products Inc. and the
      Company (Incorporated by reference to Exhibit 10.q to the 1985 Annual
      Report).10.t
      Lease Renewal Agreement dated April 15, 1985 between Salem Realty and the
      Company (Incorporated by reference to Exhibit 10.r to the 1985 Annual
      Report).10.u
      Lease Agreement dated December 4, 1984 between Biosearch Medical Products
      Inc. and the Company (Incorporated by reference to Exhibit 10.s to the
      1985 Annual Report).10.v
      License Agreement dated April 11, 1986 between Axiom Medical, Inc. and the
      Company (Incorporated by reference to Exhibit 10.i to the 1986 Annual
      Report).10.w
      License Agreement dated September 13, 1985 between U. S. Viggo and the
      Company (Incorporated by reference to Exhibit 10.c to the 1986 Annual
      Report).10.x
      License Agreement dated March 27, 1986 between Wilkinson Sword Limited and
      the Company (Incorporated by reference to Exhibit 10.f of the 1986 Annual
      Report).10.y
      Lease Renewal Agreement dated April 15, 1987 between Salem Realty and the
      Company (Incorporated by reference to Exhibit 10.y to the 1987 Annual
      Report).10.z
      License Agreement dated April 30, 1986 between HPK International and the
      Company (Incorporated by reference to Exhibit 10.j to the 1986 Annual
      Report).10.aa
      License Agreement dated August 1, 1986 between Film Specialties, Inc. and
      the Company (Incorporated by reference to Exhibit 10.aa to the 1987 Annual
      Report).10.ab
      Lease Renewal Agreement dated April 15, 1988 between Salem Realty and the
      Company (Incorporated by reference to Exhibit 10.ab to the 1988 Annual
      Report).10.ac
      License Agreement dated June 30, 1987 between Richards Medical Company and
      the Company (Incorporated by reference to Exhibit 10.ac to the 1988 Annual
      Report).10.ad
      License Agreement dated December 1, 1987 between Mallinckrodt, Inc. and
      the Company (Incorporated by reference to Exhibit 10.ad to the 1988 Annual
      Report).10.ae
      Option Agreement dated January 28, 1988 between Cordis Corporation and the
      Company (Incorporated by reference to Exhibit 10.ae to the 1988 Annual
      Report).10.af
      Lease Agreement dated April 15, 1988 between Biosearch Medical Products
      Inc. and the Company (Incorporated by reference to Exhibit 10.ag of the
      1988 Annual Report).10.ag
      Letters dated June 11, 1987 and September 22, 1987 to U. S. Viggo, Inc.
      modifying License Agreement dated September 13, 1985, to cover only
      central venous catheters (Incorporated by reference to Exhibit 10.ag to
      the 1988 Annual Report).10.ah
      Lease Renewal Agreement dated April 15, 1989 between Salem Realty and the
      Company (Incorporated by reference to Exhibit 10.ah to the 1989 Annual
      Report).10.ai
      Amendment dated October 1, 1988 to License Agreement dated September 13,
      1985, between U. S. Viggo and the Company (Incorporated by reference to
      Exhibit 10.ai to the 1989 Annual Report).10.aj
      License Agreement dated October 20, 1988 between Cordis Corp. and the
      Company (Incorporated by reference to Exhibit 10.aj to the 1989 Annual
      Report).10.ak
      License Agreement dated March 31, 1989 between Cathlab Corp. and the
      Company (Incorporated by reference to Exhibit 10.ak to the 1989 Annual
      Report).10.al
      Amendment dated December 1, 1988 to License Agreement dated August 1, 1986
      between Film Specialties, Inc. and the Company (Incorporated by reference
      to Exhibit 10.al to the 1989 Annual Report).10.am
      Finders Agreement dated August 20, 1987 between Phoenix Chemical, Inc. and
      the Company (Incorporated by reference to Exhibit 10.am to the 1989 Annual
      Report).10.an
      License Agreement dated September 10, 1989 between the Stent Division of
      Schneider and the Company (Incorporated by reference to Exhibit 10.an to
      the 1990 Annual Report).10.ao
      License Agreement dated March 30, 1990 between Cosmo Ikko Company and the
      Company (Incorporated by reference to Exhibit 10.ao to the 1990 Annual
      Report).10.ap
      License Agreement dated April 12, 1990 between Interventional
      Therapeutics, Inc. and the Company  and amendment dated May 7,
      1990 to the Agreement dated April 12, 1990 between Interventional
      Therapeutics, Inc. and the Company (Incorporated by reference to Exhibit
      10.ap to the 1990 Annual Report).10.aq
      Amended License Agreement dated January 1, 1990 between the Wilkinson
      Sword group of companies and the Company (Incorporated by reference to
      Exhibit 10.aq the 1990 Annual Report).10.ar
      Lease Agreement dated April 15, 1990 between Salem Realty and the Company
      (Incorporated by reference to Exhibit 10.ar to the 1990 Annual
      Report).10.as
      Amendment to the Agreement dated July 31, 1984 between Kendall Company and
      the Company (Incorporated by reference to Exhibit 10.as to the 1990 Annual
      Report).10.at
      License Agreement dated January 11, 1991 between Biosearch Medical
      Products Inc. and the Company (Incorporated by reference to Exhibit 10.at
      to the 1991 Annual Report).10.au
      License Agreement dated May 16, 1991 between I E Sensors and the
      Company  (Incorporated by reference to Exhibit 10.au to the 1991
      Annual Report).10.av
      Lease Renewal Agreement dated April 15, 1991 between Salem Realty and The
      Company  (Incorporated by reference to Exhibit 10.av to the 1991
      Annual Report).10.aw
      License Agreement dated July 25, 1991 between Johnson & Johnson
      Orthopaedics and the Company (Incorporated by reference to Exhibit 10.aw
      to the 1992 Annual Report).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 Company10.bq
      Contract of sale between Biosearch Medical Products and the Company for
      the sale of 35 Industrial Parkway dated 3/31/9810.br
      Note and mortgage with PNC Bank dated 6/12/9810.bs
      3 year lease agreement with Biosearch Medical Products dated 6/12/98 for
      35 Industrial Parkway10.bt
      License of technology, supply and stock purchase agreement with C.R.Bard
      dated 2/25/9910.bu
      Trademark and technology license agreement with AST dated
      3/9/9910.bv
      License of two gel patents from Ridge Scientific dated
    11/1/9810.bw
      License and Supply agreement with Gallini SRL dated
  6/28/0010.bx
      Standstill agreement with license option with IMED Pharma Inc. dated
      3/30/0010.by
      License of technology with Symbiotech Medical Inc. dated
      3/28/0010.bz
      License and supply agreement with TP Orthodontics Inc. dated
      3/30/0010.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.10.ch
      Loan Agreement dated June 30, 2005 between Wachovia Bank, N.A. and the
      Company.24.
      Power of Attorney (see "Power of Attorney" in the Annual Report on Form
      10-KSB).31.1
      Certification of Manfred F. Dyck, Chief Executive Officer, pursuant to
      Securities Exchange Act Rule 13a-14(a).31.2
      Certification of Robert Y. Lee, Chief Financial Officer, pursuant to
      Securities Exchange Act Rule 13a-14(a).32.1
      Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
      Section 906 of the Sarbanes-Oxley Act of 2002, signed by Manfred F. Dyck,
      Chief Executive Officer of Hydromer, Inc.32.2
      Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
      Section 906 of the Sarbanes-Oxley Act of 2002, signed by Robert Y. Lee,
      Chief Financial Officer of Hydromer,
Inc.


INDEX TO 2008 10-KSB
CERTIFICATIONS











Exhibit No.
            
            Description31.1
            
            Certification of Manfred F. Dyck,
      Chief Executive Officer, pursuant to Securities Exchange Act Rule
      13a-14(a).31.2
            
            Certification of Robert Y.
      Lee, Chief Financial Officer, pursuant to Securities Exchange Act Rule
      13a-14(a).32.1
            
            Certification pursuant to 18 U.S.C.
      Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
      of 2002, signed by Manfred F. Dyck, Chief Executive Officer of Hydromer,
      Inc.32.2
            
            Certification pursuant to 18 U.S.C.
      Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
      of 2002, signed by Robert Y. Lee, Chief Financial Officer of Hydromer,
      Inc.