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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON D. C. 20549

                                   FORM 10-KSB

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

                     For the fiscal year ended June 30, 2005

                         Commission File Number 0-10683

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


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


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


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

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

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


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

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

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

        The aggregate market value of the voting stock held by non-affiliates of
the Registrant at September 1, 2005 was approximately $5,086,336.

        The number of shares of Registrant's Common Stock outstanding on
September 1, 2005 was 4,623,942.

        Portions of the Audited Financials Statements for the year ended June
30, 2005 are incorporated by reference in Part II of this report. Portions of
the Proxy Statement of Registrant dated September 15, 2005 are incorporated by
reference in Part III of this report.


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                                     PART I

ITEM 1. BUSINESS
GENERAL
Hydromer, Inc (the "Company") is a polymer research and development company
organized as a New Jersey Corporation in 1980 for the purposes of developing
polymeric complexes for commercial use in the medical, 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(R)
coatings ("Hydromer"), which is a polymeric substance that becomes extremely
lubricious (slippery) when wet, and a technique of grafting or applying this
substance onto surfaces which may consist of a broad variety of materials,
including other polymers like polyurethane, polyvinyl chloride, and silicone
elastomers, ceramics and metals. The Company has also been issued patents for
permanent anti-fog materials, hydrophilic polyurethane foams, hydrophilic
polyurethane blends, hydrophilic polyvinylbutyral alloys, several biocompatible
hydrogels and an anti-bacterial medical material. Currently, the Company has two
patent applications pending. The Company continues to actively evaluate other
new market opportunities for its polymer technology.

The Company also owns various trademarks, including AQUADAPT(R), a medical
hydrogel, AQUAMERE(R), a water resistant film former product with cosmetic
applications, AQUATRIX(R), a cosmetic hydrogel, Dermaseal(R), a dermal barrier
film product for the prevention of contact dermatitis, Sea-Slide(R), a coating
for watercraft hulls, and T-HEXX(R), 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 and government contracts.

The Company continues to focus on its coatings technologies as the nucleus of
its participation in the medical field. As of June 30, 2005, the Company has a
patent pending on water-based lubricious coatings. The Company was granted a
patent on a radio-opaque coating in 2004.

HYDROMER(R) LUBRICIOUS COATINGS
When treated with Hydromer polymers, 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.
Hydromer has also been shown in numerous studies to reduce the risk of
thrombogenesis or clot formation on devices. Drugs and other substances can be
readily incorporated into Hydromer, both in a bound and unbounded fashion,
allowing for controlled release from the device for therapeutic purposes or the
creation of permanent biocidal or biostatic surfaces. The Company believes that
the polymer-water interface of Hydromer provides surface lubricity superior to
the quality of other currently marketed silicone-based lubricants to treat
medical devices.

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


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initial flat fee, followed by periodic royalty payments based on sales.

The Company has previously reported license agreements in effect and expiring
relating to applications of the Hydromer as follows: Annual Report on Form 10-K
for the fiscal years ended June 30, 1983 through 1996 and Form 10-KSB for fiscal
years ended 1997 through 2004.

As of June 30, 2005, the Company has license agreements with nine companies
covering the application of Hydromer coatings to the following devices: enteral
feeding products, guidewires, certain urological devices, infusion
microcatheters, central venous catheters, guiding and umbilical catheters, razor
cartridges (non-medical related), orthodontic accessories, 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

Applied Medical - certain urological and vascular devices
Becton-Dickinson - certain vascular devices with anti-microbial coatings
Corneal, Ltd. - inter-ocular lenses
Eveready - Schick / Warner / Wilkinson Sword Ltd. - razor cartridges
Gallini - certain urological devices
MXM - intraocular lens inserter systems
Nemed - inter-ocular lenses
TP Orthodontics - certain orthodontic accessories
Tyco International / Kendall HealthCare Products - certain urological devices
   and enteral feeding systems

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
does 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(R) is the Company's hydrophilic polyurethane foam technology. The
Company has 510K approvals from 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 Biosearch Medical Products subsidiary, ISO 13485 certified and FDA
registered, the Company offers 510K/CE marked medical devices. The current
product portfolio includes: bipolar coagulation probes; jejunal, enteral and
biliary catheters and stents; feeding accessories; guidewires; biofeedback
devices for fecal and urinary incontinence; and endoscopic accessories. The
Company also contract manufactures products for several large multi-national
marketers of medical devices on an OEM basis.

HYDROMER(R) 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 own
lubricious or third party coatings. The Company's knowledge in coatings
technologies allows for 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. A global client is using this service in the urology
market.

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


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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 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.

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

New food grade Anti-Fog coatings are in development for the ready-to-eat
produce, meats and bakery products. The Hydromer Food Grade Anti-Fog is
formulated with materials that are generally recognized as safe for food contact
as confirmed by independent laboratory extraction testing. In early development
are coatings for aluminum coils and cans.

COSMETICS
The Aquamere(R) 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(R) 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.

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 $3-5 billion per
year. Marketed under the T-HEXX(R) brand, initially through U.S. licensees, the
T-HEXX Barrier Dips and Sprays offer dairy farmers exceptional value and
unsurpassed protection as the first no-drip and water resistant barrier products
on the market preventing environmental 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.

The annual U.S. market for barrier 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-HEXX Barriers are
superior performers in its niche market while priced comparably or less than
barrier dip products manufactured by the leading sanitary chemical companies in
the world. Our products are compatible with existing mechanical equipment and
milking procedures and most importantly, are easily removed using traditional
pre-milking methods. Based on field tests, our product has been demonstrated to
stay on the cow teat better than the competition, protecting the cow during the
complete 8-12 hour milking cycle.

In fiscal 2002, the Company launched a complementary product, T-HEXX(R) Dry Teat
Protection Sealant, to protect cows during the non-lactation ("dry cow") period.
T-HEXX Dry is used as a non-irritating low-cost sealant


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

Patent pending and under development is a T-HEXX teat plug, which when launched,
would allow the Company 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. In fiscal 2004, the
Company initiated a claim against a former licensee and other parties citing
infringement on the Company's patented technology in this area. To date through
June 30, 2005, the Company spent approximately $253,000 ($174,000 in fiscal
2005) in direct legal costs, which has been expensed in the related year's
results. A mediation hearing held in September 2005 provided no results.
Therefore the Company is pursuing the next course of action to protect its
interests in its intellectual property.

PRODUCTS

Coating solutions for use on medical devices, cosmetic intermediaries, hydrogels
and teat barrier dips/sprays are manufactured and sold by the Company to its
licensees and others. The Company is selling bulk quantities of anti-fog
solution to manufacturers of greenhouse panels, refrigerator 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 years ended June 30, 2005 and June 30, 2004, the
Company recognized revenues from two major customers: Johnson & Johnson's Cordis
Division and Wilson Cook Medical, Inc.

Product sales and/or royalty payments from these customers accounted for 29% and
39% of the Company's total revenues for the years ended June 30, 2005 and June
30, 2004, 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.


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

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

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 nineteen 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 than those
which are performed by the Company in terms of lubricity, complexing
capabilities, durability and cost.

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

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

1. COMMERCIALIZATION OF ITS EXISTING TECHNOLOGIES: The Company intends to expand
its efforts to market its current technology to the medical, industrial,
personal care and 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. SALE OF DEVELOPMENT SERVICES: The Company intends to continue moving its
effort away from straight technology licensing and toward contract product
development, contract manufacturing and coating services (see "5. Coating
Services"). The Company has significant expertise in polymer development and
applications. By exhibiting at an increased number of trade shows in the medical
device and cosmetic fields, the Company expects to generate interest in its
technology and products, with a view toward acting as an outside product
development arm and development supplier for companies in these fields.

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

4. LICENSING: The Company will continue its endeavors to license its technology
to current market leaders in the medical device, pharmaceutical and other
fields, whereby the Company will grant exclusive or non-exclusive rights for the
Hydromer coating treatment of existing or new products, and the development of
specific products utilizing its foam and hydrogel technology under its patents.
In return, the Company generally would earn royalties based on sales of such
treated or new products. Such licenses will usually be very narrow. The
activities leading to the consummation of a license agreement normally are
lengthy and require establishing a scientific dialogue with potential customers,
treating samples supplied by that customer with Hydromer coatings, determining
if the treatment is feasible and cost effective, testing the coated products in
a laboratory and then negotiating a mutually acceptable option agreement. An


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option fee may be paid by the customer which would give the customer exclusive
rights to use the Hydromer treatment on the specified product for a specified
period. During such period, the optionee can test market the coated product
and/or determine its ability to treat the product in its own manufacturing
process. If the customer determines that the subject product should be treated
with Hydromer coating on a commercial basis, it may either perform the Hydromer
coating treatment itself under a license agreement with the Company, through the
Company's Contract Coating unit or it may have a third party perform the
Hydromer coating treatment.

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

Business segments which are of particular interest 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 Company is focusing on expanding its global sales in markets where it has an
established presence, and is increasing advertising and promotional activities
via traditional means, including an expanded tradeshow presence in the U.S. and
Europe, and the Internet to establish awareness of its technologies and
capabilities in 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. The Company has also been
issued United States and foreign patents for a permanent anti-fog. A U.S. patent
was issued in October 1985 for a hydrophilic polyurethane foam that is expected
to have numerous medical applications. Foreign patents covering this material
were issued in July 1990. A U.S. patent for hydrophilic polymer blends, which
covers the Company's coating for boats and the cosmetic formulations, was issued
in February 1987. U.S. and foreign patents have also been issued for an
anti-bacterial medical material that can be incorporated in foam or as a
coating. The Company was issued a U.S. patent for non-leaching biostatic
coatings and three United States patents for its new composition, barrier film,
and method for preventing contact dermatitis developed by the Company's research
and development staff. The Company has two patents for Chitosan gels, which
expires in 2014. These patents are part of the new gel technology with
applications in medical, industrial, cosmetic and personal care markets. The
Company was issued three U.S. Patents for barrier teat dip compositions. One new
patent was awarded to the Company during the fiscal year ended June 30, 2004.

As of June 30, 2005, the Company has 19 U.S. patents, two U.S. applications and
various foreign counterparts. One U.S. patent, which contributed approximately
$2,000,000 in royalties annually, expired on May 6, 2005 and a second U.S.
patent which contributes approximately $65,000 in royalties annually, will
expire in the fiscal year ending June 30, 2006. It is the Company's intention to
replace any discontinuances of income stream with other sources, including new
product revenues, new service revenues and other license revenues, including
that from our patent pending water-based lubricious coatings. On September 1,
2005, the Company executed a three-year, 90-day termination notice, $3,900,000
supply agreement (excludes the value of coatings to be sold) with a global
pharmaceutical company, supplanting a majority of the royalties lost with the
one U.S. patent expiration in May 2005.

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, 2005, the Company and its subsidiary had eighty-six active
full-time employees. The Chief Executive Officer is Manfred F. Dyck, who is also
Chairman of the Board. The Company does not have a collective bargaining
agreement with any of its employees and considers its relationship with its
employees to be very good.

GOVERNMENT REGULATIONS
The uses of the Company's medical, 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


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<PAGE>

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 of
Name         Position with Company                                 Aug 31, 2005
----         ---------------------                                 ------------

Manfred F. Dyck - Chairman of the Board,
     Chief Executive Officer and President                              70

Martin C. Dyck - Executive Vice-President,
     Operations and President Biosearch
     Medical Products subsidiary                                        43

Rainer Gruening - Vice-President, Research & Development                62

John Konar - Vice-President, Quality Assurance
     and Director of Human Resources                                    56

Robert Y. Lee - Vice-President, Finance,
     Chief Financial Officer and Treasurer                              39

Robert J. Moravsik - Senior Vice-President,
     General Counsel and Secretary                                      62

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

     John Konar 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 Manufacturing from 2000 to
2001 and Director of QA from 1998 until 2004.

     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


                                       8
<PAGE>

York office of Coopers & Lybrand (currently PricewaterhouseCoopers) in their
Emerging Business Group, the Bristol Myers Squibb Internal Auditing group,
ASARCO's Southern Peru Copper Corporation and Citigroup.

     Robert J. Moravsik has been Senior Vice-President, General Counsel and
Secretary since February 2000. 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 PROCEEDINGS

     The Company is a plaintiff in a patent infringement action against a former
licensee and a distributor of veterinary products. Counter claims have been
filed against the Company alleging violation of anti-trust laws and inequitable
conduct. The Company believes that these allegations are without merit.


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

     Not applicable.




                                       9
<PAGE>

                                     PART II

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

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

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

     The Company's common stock traded at prices ranging between $ 0.80 and
$3.05 in the fiscal year 2005 and between $ 0.46 and $2.00 in the fiscal year
2004. 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, 2005 was 235. There are approximately 700 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,
2005, 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, 2005 WERE $8,486,004 AS COMPARED TO
$8,690,323 FOR THE SAME PERIOD LAST YEAR, A DECREASE OF $204,319 (-2.4%).

     Product sales and services revenues were $6,185,622 for the 2005 fiscal
year as compared to $6,167,822 the prior fiscal year, a 0.3% increase or
$17,800.

     License royalties and option payments were $2,300,382 in fiscal 2005, down
8.8% from fiscal 2004's results of $2,522,501.

MANAGEMENT COMMENT: Delayed customer orders negated the fiscal 2005 growth from
our contract coating services and cosmetics line. During fiscal 2004, we had
$327,000 in private label sales against a delay in the current year's orders to
fiscal 2006. The Company also had $525,000 in engineering services in fiscal
2004, the project in which has been put on indefinite hold by the customer.
While we look to recapture the delayed private label sales going forward, we
supplanted the other drop in revenues from fiscal 2004 to fiscal 2005 through
other projects and higher sales.

     The Company's patent 4,642,267 (`267), the subject of four licenses with a
total annual royalty income of approximately $2.1 million, expired on May 6,
2005. Lost royalties arising from the expiration of this patent was
approximately $214,000 to fiscal 2005. On September 1, 2005, the Company entered
into a supply agreement with one of the licensees on a three-year $100,000 per
month agreement, effective with the expiration of the related `267 patent. This
agreement has a renewal option and is subject to cancellation with 90-days
notice. The Company is also working with two other licensees on agreements post
the `267 royalty licenses.

TOTAL EXPENSES FOR THE YEAR ENDED JUNE 30, 2005 WERE $8,216,753, DOWN $242,234
OR 2.9% FROM FISCAL YEAR 2004'S RESULTS OF $8,458,987.

     Cost of Goods Sold was $3,228,875 for fiscal 2005 as compared to $3,059,932
for fiscal 2004. Operating expenses were $4,767,818 and $4,720,864, for the
years ended June 30, 2005 and 2004, respectively. The Provision for Income taxes
was $110,065 for the twelve months ended June 30, 2005 and $317,519 for the
twelve months ended June 30, 2004. Fiscal 2004 included a $252,000 impairment of
goodwill charge.

MANAGEMENT COMMENT: Although product and services revenues were flat between
fiscal 2004 and fiscal 2005, the Cost of Sales was higher for fiscal 2005
primarily due to the higher costs of labor and fringe benefits. Operating
expenses includes Employee costs and General expenses whose change between the
fiscal years offset each other. In fiscal 2004, Employee costs were higher due
to accrued bonuses arising from the strong year against the Board approved
budget. The favorable year-on-year variance resulting from the lower employee
costs to fiscal 2005 was offset by higher legal expenses relating to the patent
infringement claim the Company initiated against a former licensee and other
parties.

     Based on the evaluation of the Company's carrying value of goodwill,
created from the acquisition of Biosearch in 2000, an impairment of goodwill of
$252,000 was warranted for the year ended June 30, 2004. There was no required
charge for the year ended June 30, 2005. This charge in fiscal 2004 did not
provide for a current tax benefit resulting in a higher tax provision. In
addition, for fiscal 2005, we had a tax provision adjustment reducing our
current year's tax expense.


                                       10
<PAGE>

NET INCOME FOR THE 2005 FISCAL YEAR WAS $269,251 COMPARED TO $231,336 FOR THE
2004 FISCAL YEAR, AN INCREASE OF $37,915 (16.4%).

     Net Income of $269,251 or $0.06 per share is reported for fiscal 2005 as
compared with Net Income of $231,336 or $0.05 per share for fiscal 2004.

MANAGEMENT COMMENT: Although total revenues were lower by $204,319 (2.4% off the
previous fiscal year), total expenses were lower by $242,234. Lower charges to
fiscal 2005 (including the 2004 non-recurring goodwill impairment charge) more
than offset the lower revenues. We continue to pursue additional revenue
opportunities while seeking cost reduction initiatives.

LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL AS OF JUNE 30, 2005 WAS $2,554,220, UP FROM $1,670,604 THE PRIOR
YEAR.

     Working capital increased during the 2005 fiscal year due to the mortgage
cash-out refinance in which an additional $1,103,586 was made available to the
Company for working capital needs, short-term investments and acquisitions.

MANAGEMENT COMMENT: We continue our re-investment back into the Company to
support future growth of our business. The Company's Operating Assets and
Liabilities (receivables, inventories, payables and accrued liabilities), net,
were essentially unchanged from the previous year end, the primary change being
the collection of receivables converted into higher inventory levels. Cash
generated from operations (net income plus depreciation and amortization) plus
the increase in our Deferred Revenues balance was used to fund the current
period's Capital expenditures and patent estate in anticipation of future
returns.

     Management believes that the cash position along with short-term
borrowings, will provide for sufficient funds to maintain its current level of
operations.


ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     For information concerning this item, see pages F-1 through F-8 of the
"Audited Financial Statements for the year ended June 30, 2005," which
information is incorporated herein by reference.


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

     Not applicable.




                                       11
<PAGE>

                                    PART III


ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     For information concerning this item, see "Item 1. Business - Executive
Officers" and pages 3 through 9 in the Proxy Statement filed with respect to the
2005 Annual Meeting of Shareholders (the "Proxy Statement"), which information
is incorporated herein by reference.


ITEM 10. EXECUTIVE COMPENSATION

     For information concerning this item, see page 7 of the Proxy Statement,
which information is incorporated herein by reference.


ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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


                                     PART IV

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

(A)  1. FINANCIAL STATEMENTS:

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

(A)  2. FINANCIAL STATEMENT SCHEDULES:

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

(A)  3. EXHIBITS (NOT INCLUDED)

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

(B)  CURRENT REPORTS ON FORM 8-K:

     The Company filed a Form 8-K on July 6, 2005 announcing a loan agreement
dated June 30, 2005.


                                       12
<PAGE>

POWER OF ATTORNEY

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

                                   SIGNATURES

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

HYDROMER, INC.

/s/ Manfred F. Dyck         President, Principal Executive    September 12, 2005
-------------------         Officer, Chairman of the Board
Manfred F. Dyck             of Directors


/s/ Robert Y. Lee           Chief Accounting Officer           September 9, 2005
-----------------
Robert Y. Lee

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

/s/ Manfred F. Dyck         President, Principal Executive    September 12, 2005
-------------------         Officer, Chairman of the Board
Manfred F. Dyck             of Directors


/s/ Robert H. Bea           Director                          September 9, 2005
-----------------
Robert H. Bea


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


/s/ Ursula M. Dyck          Director                          September 13, 2005
------------------
Ursula M. Dyck


/s/ Dieter Heinemann        Director                          September 12, 2005
--------------------
Dieter Heinemann


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


/s/ Frederick L. Perl       Director                          September 12, 2005
---------------------
Frederick L. Perl, MD


/s/ Michael F. Ryan         Director                          September 12, 2005
-------------------
Michael F. Ryan, PhD


                                       13

<PAGE>

                           HYDROMER, INC. & SUBSIDIARY

                        CONSOLIDATED FINANCIAL STATEMENTS

                             JUNE 30, 2005 AND 2004

<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




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

We have audited the accompanying balance sheets of Hydromer, Inc. and Subsidiary
as of June 30, 2005 and 2004 and the related statements of income, stockholders'
equity and cash flows for each of the years in the two year period ended June
30, 2005. These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hydromer, Inc. and Subsidiary
as of June 30, 2005 and 2004, and the results of its operations and its cash
flows for each of the two in the two-year period ended June 30, 2005 in
conformity with accounting principles generally accepted in the United States of
America.


                                           Rosenberg Rich Baker Berman & Company


Bridgewater, New Jersey
September 6, 2005

<PAGE>

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

                             JUNE 30, 2005 AND 2004






                                                                         Page

Financial Statements

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

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

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

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

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

<PAGE>
<TABLE>
<CAPTION>

                                              HYDROMER, INC. & SUBSIDIARY
                                              CONSOLIDATED BALANCE SHEETS

                                                                                               June 30,
                                                                                      2005                  2004
---------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>                  <C>
ASSETS
Current Assets:
     Cash and cash equivalents..................................................  $  1,376,656          $    142,476
     Trade receivables less allowance for doubtful accounts of $32,753 and
         $10,727 as of June 30, 2005 and 2004, respectively.....................     1,220,258             1,715,309
     Inventory..................................................................     1,094,927               808,989
     Prepaid expenses...........................................................       126,762               124,799
     Deferred tax asset.........................................................        91,989               141,798
     Other......................................................................        14,841                32,638
---------------------------------------------------------------------------------------------------------------------
Total Current Assets............................................................     3,925,433             2,966,009
Property and equipment, net.....................................................     3,276,258             2,921,560
Intangible Assets, net..........................................................       780,140               676,291
Goodwill........................................................................       238,172               238,172
---------------------------------------------------------------------------------------------------------------------
Total Assets                                                                      $  8,220,003          $  6,802,032
=====================================================================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
     Accounts payable...........................................................  $    466,993          $    524,917
     Short-term borrowings......................................................       206,663               131,010
     Accrued expenses ..........................................................       280,944               246,019
     Bonus payable..............................................................        77,267               187,635
     Current portion of deferred revenue.. .....................................       161,317                26,000
     Current portion of mortgage payable .......................................       178,029                91,507
     Income tax payable.........................................................             -                88,317
---------------------------------------------------------------------------------------------------------------------
Total Current Liabilities.......................................................     1,371,213             1,295,405
Deferred tax liability..........................................................       243,864               191,500
Long-term portion of deferred revenue...........................................       176,979               104,000
Long-term portion of mortgage payable ..........................................     2,295,292             1,363,723
---------------------------------------------------------------------------------------------------------------------
Total Liabilities                                                                    4,087,348             2,954,628
---------------------------------------------------------------------------------------------------------------------

Contingencies                                                                                -                     -

Stockholders' Equity
     Preferred stock - no par value, authorized 1,000,000 shares, no shares
         issued and outstanding                                                              -                     -
     Common stock - no par value, authorized 15,000,000 shares;
         as of June 30, 2005, 4,634,859 shares issued and 4,623,942 shares
         outstanding; as of June 30, 2004, 4,608,904 shares issued and 4,597,987
         shares outstanding.....................................................     3,631,615             3,615,615
     Contributed capital........................................................       577,750               577,750
     Accumulated deficit........................................................       (70,570)             (339,821)
     Treasury stock, 10,917 common shares at cost...............................        (6,140)               (6,140)
---------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity                                                           4,132,655             3,847,404
---------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity                                        $  8,220,003          $  6,802,032
=====================================================================================================================
SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>

                                                          F-1
<PAGE>
<TABLE>
<CAPTION>

                                              HYDROMER, INC. & SUBSIDIARY
                                           CONSOLIDATED STATEMENTS OF INCOME


                                                                                               Year Ended
                                                                                       2005                  2004
--------------------------------------------------------------------------------  -----------------------------------
<S>                                                                               <C>                  <C>
REVENUES
     Sale of products...........................................................  $  4,855,913         $   4,869,506
     Service revenues...........................................................     1,329,709             1,298,316
     Royalties, options and licenses............................................     2,300,382             2,522,501
--------------------------------------------------------------------------------  -----------------------------------
         TOTAL REVENUES.........................................................     8,486,004             8,690,323
--------------------------------------------------------------------------------  -----------------------------------

EXPENSES
         Cost of Sales..........................................................     3,228,875             3,059,932
         Operating Expenses.....................................................     4,767,818             4,720,864
         Impairment of Goodwill.................................................             -               252,000
         Other Expenses.........................................................       109,995               108,672
         Provision for Income Taxes.............................................       110,065               317,519
--------------------------------------------------------------------------------  -----------------------------------

         TOTAL EXPENSES.........................................................     8,216,753             8,458,987
--------------------------------------------------------------------------------  -----------------------------------

         NET INCOME ............................................................  $    269,251          $    231,336
================================================================================  ===================================

         Earnings Per Common Share..............................................  $       0.06          $       0.05

         Earnings Per Common Share - Assuming Dilution..........................  $       0.06          $       0.05

Weighted Average Number of
         Common Shares Outstanding..............................................     4,614,500             4,595,214

Weighted Average Number of
         Common Shares Outstanding - Assuming Dilution..........................     4,781,500             5,062,405

================================================================================  ===================================
       SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.




                                              HYDROMER, INC. & SUBSIDIARY
                                    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
================================================================================================================================

                                     Common Stock         Contributed    Accumulated       Treasury Stock
                                ------------------------                                ----------------------
                                  Shares       Amount        Capital       Deficit       Shares      Amount         Total
                                -----------  -----------    ----------    -----------   ---------   ----------   -------------

Balance June 30, 2003             4,598,904  $ 3,608,118    $  577,750    $ (571,157)      10,917   $    6,140   $   3,608,571
    Exercise of Stock Options        10,000        7,497                                                                 7,497
    Net Income                                                               231,336                                   231,336
                                -----------  -----------    ----------    -----------   ---------   ----------   -------------

Balance June 30, 2004             4,608,904  $ 3,615,615    $  577,750    $ (339,821)      10,917   $    6,140   $   3,847,404
    Exercise of Stock Options        25,955       16,000                                                                16,000
    Net Income                                                               269,251                                   269,251
                                -----------  -----------    ----------    -----------   ---------   ----------   -------------

BALANCE JUNE 30, 2005             4,634,859  $ 3,631,615    $  577,750    $  (70,570)      10,917   $    6,140   $   4,132,655
                                ===========  ===========    ==========    ===========   =========   ==========   =============

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

                                                          F-2
<PAGE>
<TABLE>
<CAPTION>

                                                 HYDROMER, INC. & SUBSIDIARY
                                            CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                                                                  Year Ended June 30,
                                                                                                2005               2004
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                       <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net Income........................................................................   $      269,251      $     231,336
     Adjustments to reconcile net income to net cash provided by operating activities
       Depreciation and amortization...................................................          279,738            253,568
       Impairment of Goodwill..........................................................                -            252,000
       Deferred income taxes...........................................................          102,173            205,000
       Changes in Assets and Liabilities
         Trade receivables.............................................................          495,051           (521,784)
         Inventory.....................................................................         (285,938)           171,412
         Prepaid expenses..............................................................           (1,963)            (1,431)
         Other assets..................................................................           24,570            (16,063)
         Accounts payable and accrued liabilities......................................         (133,367)           308,479
         Deferred revenues.............................................................          208,296            130,000
         Income taxes payable..........................................................          (95,090)            71,817
----------------------------------------------------------------------------------------------------------------------------
             Net Cash Provided by Operating Activities.................................          862,721          1,084,334
----------------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Cash purchases of property and equipment..........................................         (560,277)          (371,322)
     Cash payments on Patents and Trademarks...........................................         (178,008)          (123,202)
----------------------------------------------------------------------------------------------------------------------------
             Net Cash Used for Investing Activities....................................         (738,285)          (494,524)
----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
     Net borrowings/(payments) against Line of Credit..................................           75,653           (466,276)
     Proceeds from long-term borrowings................................................        1,990,000            555,000
     Repayment of long-term borrowings.................................................         (971,909)          (641,231)
     Proceeds from the issuance of common stock........................................           16,000              7,497
----------------------------------------------------------------------------------------------------------------------------
             Net Cash Provided by (Used for) Financing Activities......................        1,109,744           (545,010)
----------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS:                                                     1,234,180             44,800
Cash and Cash Equivalents at Beginning of Period.......................................          142,476             97,676
----------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period.............................................   $    1,376,656      $     142,476
============================================================================================================================

                Cash paid during the year for:
                         Interest                                                         $      115,216      $     112,302
                         Income taxes                                                     $      102,500      $      32,100


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

                                                             F-3

<PAGE>

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


1.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

        Hydromer, Inc. & Subsidiary (the "Company") is a polymer research and
development company based in Branchburg, New Jersey. The Company develops
polymer complexes for commercial markets in 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. As of June 30, 2005, there were no short-tem investments.

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, 2005 and 2004 were $69,665 and $50,296, respectively.
One new patent was approved during the year ended June 30, 2004.

GOODWILL

        Goodwill represents the excess of the purchase price of Biosearch
Medical Products, Inc. over the fair market value of their net assets at the
date of acquisition and through June 30, 2002, was amortized on the straight
line method over 40 years. The Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS, on July 1,
2002 in which goodwill is no longer amortized but tested for impairment on at
least an annual basis. The carrying value is reviewed if the facts and
circumstances, such as significant declines in sales, earnings or cash flows or
material adverse changes in the business climate, suggest that it may be
impaired. If this review indicates that goodwill will not be recoverable, the
impairment is determined by comparing the carrying value of goodwill to fair
value. Fair value can be determined based on quoted market values, discounted
cash flows or appraisals. The Company uses the present value of expected future
cash inflows method.

        During the year ended June 30, 2004, the Company determined that the
carrying amount of the goodwill exceeded its fair value by $252,000. A goodwill
impairment loss was recognized for that difference. For the year ended June 30,
2005, the Company determined that the fair value exceeded the carrying amount of
the goodwill. Accordingly, there was no goodwill impairment charge required for
the year ended June 30, 2005.

LONG-LIVED ASSETS

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

REVENUE RECOGNITION

        Revenues from product and services sales are recognized at the time of
shipment or services rendered provided that collection of the resulting
receivable is probable. Revenues from royalties are recognized upon the sale of
certain products by licensees with whom the Company has licensing agreements.
Deferred revenues are recorded when agreements 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 $47,267 and $26,978 for the years ended June 30, 2005
and 2004, respectively.

RESEARCH AND DEVELOPMENT

        Research and development costs are charged to operations when incurred
and are included in operating expenses. The amounts charged to expense for the
years ended June 30, 2005 and 2004 were approximately $1,040,110 and $670,154,
respectively.

STOCK-BASED COMPENSATION

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

INCOME TAXES

        Income taxes are provided for the tax effects of transactions reported
in the financial statements and consist of taxes currently due plus deferred
taxes related primarily to differences between the bases of assets and
liabilities for financial and income tax reporting. The deferred tax assets and
liabilities represent the future tax return consequences of those differences,
which will either be taxable or


                                       F-4
<PAGE>

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


deductible when the assets and liabilities are recovered or settled. Deferred
taxes also are recognized for operating losses that are available to offset
future federal and state income taxes.

EARNINGS PER SHARE

        Earnings per share, in accordance with the provisions of 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 2005 presentation.

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

2.      NEW ACCOUNTING PRONOUNCEMENTS

        In December 2004, the Financial Accounting Standards Board issued SFAS
No. 123(R), SHARE-BASED PAYMENT, which establishes standards for transactions in
which an entity exchanges its equity instruments for goods or services. This
standard requires an issuer to measure the cost of employee services received in
exchange for an award of equity instruments based on the grant-date fair value
of the award. This eliminates the exception to account for such awards using the
intrinsic method previously allowable under APB No. 25. In March 2005, the SEC
released Staff Accounting Bulletin 107, SHARE-BASED PAYMENT, which expresses
views of the SEC Staff about the application of SFAS No. 123(R). In April 2005
the SEC issued a rule that SFAS No. 123(R) will be effective for public entities
that file as small business issuers--as of the beginning of the first interim or
annual reporting period that begins after December 15, 2005. The adoption of
SFAS No. 123(R) requires all equity compensation to be expensed during the
related periods.

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

3.      CONCENTRATION OF CREDIT AND BUSINESS RISK

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

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

        For the year ended June 30, 2005, the Company sold products and services
and collected royalty income, totaling 29% of its total revenues, to two
customers, Cordis Neurovascular Systems and Wilson Cook Medical, Inc. who
individually accounted for 15% and 14%, respectively, of the consolidated
revenues. Accounts receivable from these customers accounted for 22% of total
accounts receivable at June 30, 2005.

        During the fiscal year ended June 30, 2004 Cordis Neurovascular Systems
and Wilson Cook Medical, Inc. individually accounted for 24% and 15%,
respectively, of total revenues. Accounts receivable from these customers
accounted for 53% of total accounts receivable at June 30, 2004.

        The Company's patent 4,642,267 expired on May 6, 2005. This patent was
the subject of four licenses with a total annual royalty income to the Company
of approximately $2.1 million. However, the Company was able to enter into a
supply agreement with one of the licensees, valued at $1.2 million annually,
(see Footnote 16. SUBSEQUENT EVENTS) and is in discussions with two other
licensees. Two other of the Company's patents (no. 4,769,013 and 4,875,287) will
expire in June and November of 2006, respectively. Total annual royalty income
from these patents, from four licenses, approximates $0.1 million.

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

4.      INVENTORY Inventory consists of:

---------------------------------------------------------------------------
                                                        June 30,
                                                        --------
                                                   2005           2004
                                                   ----           ----
Finished goods                                 $   336,078     $   169,779
Work in process                                    314,345         323,423
Raw materials                                      444,504         315,787
                                                -----------    -----------
                                               $ 1,094,927    $    808,989
                                                ===========    ===========
---------------------------------------------------------------------------

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

5.      PROPERTY AND EQUIPMENT

Property and equipment consists of the following:
---------------------------------------------------------------------------
                                                        June 30,
                                                        --------
                                                   2005           2004
                                                   ----           ----
Land                                           $    472,410   $   472,410
Building                                          2,121,092     1,953,042
Machinery and equipment                           3,556,839     3,189,482
Furniture and fixtures                              733,595       708,725
                                                -----------    -----------
                                                  6,883,936     6,323,659
Less: Accumulated
   depreciation and amortization                 (3,607,678)   (3,402,099)
                                                -----------    -----------
Property and Equipment, net                    $  3,276,258   $ 2,921,560
                                                ===========    ===========
---------------------------------------------------------------------------

        Depreciation expense charged to operations was $205,579 and $194,908 for
the years ended June 30, 2005 and 2004, respectively.

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

6.      INTANGIBLE ASSETS

Intangible Assets are comprised of the following:
---------------------------------------------------------------------------
                                                        June 30,
                                                        --------
                                                   2005           2004
                                                   ----           ----
Patents                                        $    975,940   $    800,334
Trademarks                                           72,412         70,010
   Less:  Accumulated amortization                 (268,212)      (194,053)
                                                -----------    -----------
Intangible Assets, net                         $    780,140   $    676,291
                                                ===========    ===========
---------------------------------------------------------------------------


Future amortization of the Intangible Assets, as of June 30, 2005, are as
follows:

       -------------------------------------------------------------------
        Year ending June 30,
        --------------------

                2006                           $     67,919
                2007                                 66,376
                2008                                 63,448
                2009                                 62,108
                2010                                 42,309
                Thereafter                          477,980
                                                -----------
                                               $    780,140
                                                ===========
       -------------------------------------------------------------------


                                       F-5
<PAGE>

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


7.      LONG-TERM DEBT AND CREDIT FACILITY

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

        On June 30, 2005, the Company closed on a long-term financing facility
of $1,990,000 in the form of a second mortgage on its property. This facility
has a ten year term with a 6.38% fixed rate. $886,414 was used to pay off a
construction loan/continuing loan provided by New Millennium Bank with the
remainder put in short-term investments or to be used for working capital and
possible acquisitions. The facility was financed through Wachovia Bank, NA which
also holds a $555,000 first Mortgage on the Company's property.

        In addition, the Company has a revolving line of credit agreement with a
financial institution, which allows borrowings of up to $750,000, secured by all
trade receivables and inventories. The line bore interest, payable monthly at
LIBOR plus 3.15% until June 2005 at which was then reduced to LIBOR plus 2.25%.
As of June 30, 2005, the interest rate was 5.59%. This line had a maturity date
of July 31, 2005 which was extended until November 30, 2005 during the year at
the same terms. As of June 30, 2005 and 2004, $206,663 and $131,010 were
outstanding on the line of credit respectively.

Long-term debt is comprised of the following:
---------------------------------------------------------------------------
                                                        June 30,
                                                        --------
                                                   2005           2004
                                                   ----           ----

Mortgage note                                  $    483,321   $    525,530
Second Mortgage Loan                              1,990,000        929,700

    Less:  Current Maturities                      (178,029)       (91,507)
                                                -----------    -----------
Long-term Debt,
    Net of Current Maturities                  $  2,295,292   $  1,363,723
                                                ===========    ===========
---------------------------------------------------------------------------

Total maturities of long-term debt are as follows:
       -------------------------------------------------------------------
        Year ending June 30,
        --------------------

              2006                               $   178,029
              2007                                   202,204
              2008                                   215,393
              2009                                   230,182
              2010                                   245,604
              Thereafter                           1,401,909
                                                  ----------
                                                 $ 2,473,321
                                                  ==========
       -------------------------------------------------------------------

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

8.      FAIR VALUE OF FINANCIAL INSTRUMENTS

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

LIMITATIONS

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


                                       F-6
<PAGE>

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


9.      INCOME TAXES

The income tax provision is comprised of the following:
---------------------------------------------------------------------------
                                        Federal     State      Total
                                       ---------  ---------  ---------

YEAR ENDED JUNE 30, 2005
    CURRENT                           $    1,513 $    5,764 $    7,277
    DEFERRED                              90,843     11,945    102,788
                                       ---------  ---------  ---------
                                      $   92,356 $   17,709 $  110,065
                                       =========  =========  =========

Year Ended June 30, 2004
    Current                           $   77,606 $   21,699 $   99,305
    Deferred                             174,985     43,229    218,214
                                       ---------  ---------  ---------
                                      $  252,591 $   64,928 $  317,519
                                       =========  =========  =========
---------------------------------------------------------------------------

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,
                                                        --------
                                                   2005           2004
                                                   ----           ----
Deferred Tax Asset
    Net Operating Losses                       $    201,628   $    207,382
    Adjustment of Goodwill                          100,800        100,800
    Research & Development Credits                    9,829         27,500
    Valuation allowance                            (220,268)      (193,884)
                                                -----------    -----------
      Total Deferred Tax Assets                      91,989        141,798
                                                ===========    ===========

Deferred Tax Liability
    Depreciation                                   (243,864)      (191,500)
                                                -----------    -----------
      Total Deferred Tax Liability             $   (243,864)  $   (191,500)
                                                ===========    ===========
---------------------------------------------------------------------------

        Deferred taxes are recognized for temporary differences between the
bases of assets and liabilities for financial statement and income tax purposes.
The differences relate primarily to depreciable assets (using accelerated
depreciation methods for income tax purposes). The Company's adjustment to
Goodwill in 2004 created a deferred tax asset, which although has an indefinite
life, has been fully reserved for as realization of its benefit is unlikely.

        The Company has net operating loss carry forwards of approximately
$270,555 and $311,148 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, 2018 and June 30, 2010 for Federal and State tax purposes,
respectively. In addition, the Company has Research and Development Tax Credits
for State tax purposes of approximately $9,829 which expires in various years
through June 30, 2010.

        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,
                                                        --------
                                                   2005           2004
                                                   ----           ----

     Federal statutory tax rate                    34.0%          34.0%
     State income tax - net of federal
         tax benefit                                3.2            6.0
     R & D credits                                    -           (4.5)
     Adjustment to prior year accrual
         for income tax                            (8.2)             -
     Adjustment in valuation allowance                -           20.9
     Permanent and other differences                0.9            1.5
                                                   ----           ----
                                                   29.9%          57.9%
                                                   ====           ====
---------------------------------------------------------------------------

10.     STOCK OPTIONS AND AWARDS

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

        Under these plans, 97,080 options at an exercise price of $1 per share
were granted on June 30, 1999, and 126,629 options at an exercise price of $1.46
per share were granted on August 29, 2001 as of July 1, 2001. As of June 30,
2005, 105,524 options from the 2001 issuance remaining exercisable with an
expiration of June 2006.

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

        On January 22, 1998 the Board of Directors approved an option plan that
granted each active director 5,000 common stock options annually. On October 21,
1998, 20,000 options were granted under this plan. The exercise price of $0.75
was equal to the market value at the date of grant. These options expired on
October 21, 2003 with 10,000 options exercised and 10,000 options expiring. On
November 11, 1999, 25,000 stock options were granted under this plan at $0.80
per share with an expiration of November 11, 2004 in which 20,000 options were
exercised during fiscal year 2005.

        On February 22, 2000 the option plan for directors was amended to award
2,000 options for each meeting attended, awarded at the annual meeting at the
5-day market price average. Under the amended plan, 62,000 options were awarded
to the Board of Directors on October 24, 2000 at an exercise price of $0.55,
expiring October 23, 2005. On November 14, 2001 64,000 options were issued at an
exercise price of $1.11, expiring November 13, 2006. On November 13, 2002 80,000
options were issued at an exercise price of $0.45, expiring November 13, 2007.
52,000 options were issued at an exercise price of $1.10 on November 19, 2003
with an expiration of November 19, 2008. On November 17, 2004 56,000 options
were issued to the Board of Directors at an exercise price of $2.10, expiring
November 17, 2009. There were no other stock option issuances during the 2004
and 2005 fiscal years.

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

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


                                      F-7
<PAGE>

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


A summary of activity under the plan for the years ending June 30, 2005 and 2004
is as follows:

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

       Balance, June 30, 2003                    534,244      $  0.93
         Granted                                  52,000         1.10
         Exercised                               (10,000)        0.75
         Canceled                                (74,720)        0.97
                                                 --------     -------
       Balance, June 30, 2004                    501,524      $  0.94
         Granted                                  56,000         2.10
         Exercised                               (30,000)        0.83
         Canceled                                 (5,000)        0.80
                                                 --------     -------
       BALANCE, JUNE 30, 2005                    522,524      $  1.08
       -------------------------------------------------------------------

Following is a summary of the status of options outstanding as of June 30, 2005:

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

$0.45 - $0.85   167,000   1.5 years      $0.52        167,000         $0.52
$0.86 - $1.68   299,524   1.6 years      $1.20        299,524         $1.20
$1.69 - $2.10    56,000   4.4 years      $2.10         56,000         $2.10
                -------   ---------      ----         -------         -----
                522,524   1.9 years      $1.08        522,524         $1.08

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

PRO FORMA INFORMATION

        The Company follows the disclosure only provisions of SFAS No. 123,
ACCOUNTING FOR STOCK BASED COMPENSATION. Accordingly, no compensation expense
has been recognized for stock options issued. Had compensation expense for the
options which vested in 2005 and 2004 been determined based on the fair value at
the grant date commensurate with the provisions of SFAS No. 123, the Company's
net income and net income per share for 2005 and 2004, respectively, would have
been reflected as to the pro forma amounts indicated below:

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

                                                  2005         2004
                                                --------     --------
        Net Income:
            As reported                         $269,251     $231,336
            Pro forma                            209,396      198,610
        Basic Income per Share:
            As reported                         $   0.06     $   0.05
            Pro forma                               0.05         0.04
       -------------------------------------------------------------------

        The fair value of each option grant is estimated on the date of grant
using the Black-Scholes pricing model with the following weighted average
assumptions for grants in 2005 and 2004, respectively: dividend yield of 0% and
0%; expected volatility of 115% and 170%; risk-free interest rate of 4.1% and
3.2%; and expected lives of 5 years in both years.

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

11.     RETIREMENT PLAN

        The Company sponsors a qualified 401(k) plan covering substantially all
full time employees under which eligible employees can defer a portion of their
annual compensation. The Company determines annually, the amount of matching
contributions, which recently has been 25% on 6% of the employees' salary. The
Company's matching contribution made to the plan during the years ended June 30,
2005 and 2004 were $22,929 and $17,000, respectively.

12.     LEASES

        There were no material non-cancelable lease terms in excess of one year
as of June 30, 2005.

--------------------------------------------------------------------------------
13.     EARNINGS PER SHARE


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

------------------------------------------------------------------------------
                                                  2005             2004
                                              ------------     ------------
Numerator:
    Net income                               $     269,251    $     231,336
                                              ============     ============

Denominator:
   Denominator for earnings per share
     - weighted average shares outstanding      4,614,500        4,595,214
   Effect of dilutive securities -
     stock options                                167,000          467,191
                                              ------------     ------------
   Denominator for earnings per
     share assuming dilution - adjusted
     weighted average shares outstanding        4,781,500        5,062,405
                                              ============     ============

Earnings per share                           $        .06     $        .05
                                              ============     ============

Earnings per share - assuming dilution       $        .06     $        .05
                                              ============     ============
------------------------------------------------------------------------------

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

14.     INDUSTRY SEGMENT INFORMATION

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

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

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

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

        The Company operates globally in its segments with several large
customers that are important to their operating results. One such customer
accounted for 23% and 29% of the polymer research segment sales for the 2005 and
2004 fiscal years, respectively. For the medical products segment, four
customers in the aggregate accounted for 57% and 71% of that segment's 2005 and
2004 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.


                                       F-8
<PAGE>

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


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

----------------------------------------------------------------------------
                            Polymer      Medical      Corporate
                            Research     Products*    Overhead       Total
                           -----------  ----------   -----------   -----------

YEAR ENDED JUNE 30, 2005
REVENUE                    $ 4,878,364  $ 3,607,640                $ 8,486,004
EXPENSES                    (3,666,651)  (3,177,170) $(1,262,867)   (8,106,688)
                           -----------  -----------  -----------   -----------
EARNINGS (LOSS)
  BEFORE INCOME TAXES      $ 1,211,713  $   430,470  $(1,262,867)  $   379,316
                           ===========  ===========  ===========   ===========


Year Ended June 30, 2004
Revenue                    $ 5,073,228  $ 3,617,095                $ 8,690,323
Expenses                    (3,105,150)  (3,381,943) $(1,402,375)   (7,889,468)
                           -----------  -----------  -----------   -----------
Earnings (Loss)
  before Income Taxes      $ 1,968,078  $   235,152  $(1,402,375)  $   800,855
                           ===========  ===========  ===========   ===========


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

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

                                2005             2004
                                ----             ----
        Domestic                  84%              84%
        Foreign                   16%              16%

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

15.     CONTINGENCIES

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

        The Company has not received any claims by licensees for possible
overpayment of royalties.

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

16.     SUBSEQUENT EVENTS

        In July 2005, the Company renewed its $750,000 revolving line of credit
agreement extending the maturity from November 30, 2005 to July 31, 2006.

        In the first quarter of the 2005/2006 fiscal year the Company entered
into two availability and supply agreements with former licensees of an expired
patent. The first agreement required the client to purchase a minimum amount of
product at $100,000/year for the first year and a lower amount for the next four
years. The second agreement carries a monthly availability fee of $100,000 for
three years at a favorable unit price. It can be terminated by the client upon a
90 day notice. Both contracts require the Company to escrow the formulas, in the
event the Company can not supply the products.


                                       F-9
<PAGE>

                                INDEX TO EXHIBITS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

<PAGE>

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

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

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

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

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

        10.cg By-Laws Articles of Incorporation.

        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.

<PAGE>

                       REFERENCES AND PERTINENT LITERATURE

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Bayston, R., Bhunda, C. and Ashraf, W. "Hydromer-coated catheters to prevent
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Belknap, D.C., Seifert, C.F. and Petermann, M. "Administration of Medications
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Borow, M. and Crowley, J.G. "Prevention of thrombosis of central venous
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Borow, M. and Crowley, J.G. "Evaluation of Central Venous Catheter
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Bridgett, M.J., Davies, M.C., Denyer, S.P. and Eldridge, P.R. "In vitro
     assessment of bacterial adhesion to Hydromer-coated cerebrospinal fluid
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Bylock, A., Hultman, E., Gustavsson, B., Lindner, L.E. and Curlaru, I. "Surface
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     SCANNING ELECTRON MICROSCOPY (I), 1986, pp 157-164

Costamagna, G., Mutignani, M., Rotondano, G., Cipoletta, L., Ghezzo, L., Foco,
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     GASTROINTESTINAL ENDOSCOPY, 2000, Vol. 51, No. 1, pp 8-11

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     for malignant biliary obstruction" ENDOSCOPY, 2004, Vol 36, No. 4, pp
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DePalma, G., Puzziello, A., Aprea, G., etc. "Ultrasound-guided endoscopic
     drainage,..., in patients with neoplastic biliary obstruction", MINERVA
     CHIR., 2004, Vol. 59, No. 4, pp 347-350

Elliott "Can Antimicrobial Central Venous catheters prevent associated
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Elliott T.S. "The prevention of central venous catheter-related sepsis" JOURNAL
     OF Chemotherapy, 2001, Vol. 13, No. 1 (1), pp 234-238

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

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

Francois, P., Vaudaux, P., Lew, D.P., Nurdin, N., Mathieu, H.J. and Descounts,
     P. "Physical and biological effects of a surface coating procedure on
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Galloway, S. and Bodenham, A. "Long-term central venous access" BRITISH JOURNAL
     OF ANAESTHESIA, 2004, Vol. 92, No. 5, pp 722-734

Garvin, J., Button, N.F., Watson-Craik, I.A. and Logan, N.A. "Observation of
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     AND ENVIRONMENTAL MICROBIOLOGY, 2000, Vol. 66, No. 2, pp 874-875

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

Gupta, S., Batra, Y.K., Puri, G.D., Panigrahi, D. and Roy, S. "Infection rates
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Hoff, B.H., Hawke, M., Fletcher, S. and Matjesko, M.J.,  "The Spectrum of
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     MICROBIOLOGY, 1995, Vol. 43, No. 2, pp 133-140

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     Biliary Obstruction with Plastic vs. Expandable Metal Stents" CLINCIAL
     GASTROENTEROLOGY HEPATITIS, 2004, No. 2, pp 273

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

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

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

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     versus bilateral endoscopic hepatic duct drainage in patients with
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     polyurethanes coated with antibiotics" INTERNATIONAL JOURNAL OF
     PHARMACEUTICS, 2004 Vol. 280, Issues 1-2, pp 173-183

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     pyrrolidone hydrogel on proliferation and cytokine expression of
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     hydrogel does not activate macrophages: potentials for transplantation
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Risbud, M.V., Hardikar, A.A., Bhat, S.V., Bhonde, R.R. "pH-sensitive
     freeze-dried chitosan-polyvinyl pyrrolidone hydrogels as controlled release
     system for antibiotic delivery" JOURNAL OF CONTROLLED RELEASE, July 2000,
     Vol. 68, pp 23-30

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     polymers to prevent in vitro microbial colonization." EUROPEAN JOURNAL OF
     CLINICAL MICROBIAL INFECTIOUS DISEASES, 1994, Vol. 13, pp 111-117

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     No. 17

<PAGE>

                       INDEX TO 2005 10-KSB CERTIFICATIONS




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

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

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

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

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


                                       14