SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549



FORM 10-Q



QUARTERLY REPORT UNDER SECTION 13
OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934



For the quarter ended September
30, 2011



Commission File Number 0-10683



HYDROMER, INC.

(Exact name of registrant as specified
in its charter)









|New
    Jersey                                 | 22-2303576                              
|---------------------------------------------- | ----------------------------------------
|(State
    of incorperation)                   | (I.R.S.
    Employer Identification No.)
|35
    Industrial Pkwy, Branchburg, New Jersey | 08876-3424                              
|(Address
    of principal executive offices)   | (Zip
    Code)                          





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



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



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



Common
Stock Without Par Value

(Title
of class)

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

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

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



|Class  | Outstanding
    at September 30, 2011
|------ | -------------------------------------
|Common | 4,772,318                            



FORWARD-LOOKING STATEMENTS



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









HYDROMER, INC.





INDEX TO FORM 10-Q

September 30, 2011





|Part 1     | Financial Statements                                                                                  |     |  |  |  |     |  |    
|---------- | ----------------------------------------------------------------------------------------------------- | --- |  |  |  | --- |  | ---
|Item 1     | Condensed Consolidated Financial Statements                                                           |     |  |  |  |     | 
|           | Condensed Consolidated Balance Sheets as of September
    30, 2011 and June 30, 2011                  |     |  |  |  |     |  |    
|           | Condensed Consolidated Statement of Operations for
    three months ended September 30, 2011 and 2010 |     |  |  |  |     |  | 4  
|           | Condensed Consolidated Statement of Cash Flows for
    three months ended September 30, 2011 and 2010 |     |  |  |  |     |  | 5  
|           | Notes to Condensed Consolidated Financial Statements                                                  |     |  |  |  |     |  | 6  
|Item 2     | Management's Discussion and Analysis of the Financial
    Condition and Results of Operations         | 8  
|Item
    3 | Quantitative and Qualitative Disclosures about Market Risk                                            | N/A
|Item 4     | Controls and Procedures                                                                               |     |  |  |  |     |  | 9  
|           |                                                                                                       |     |  |  |  |     |  |    
|Part 2     | Other Information                                                                                     |     |  |  |  |     |  |    
|Item 1     | Legal Preceedings                                                                                     |     |  |  |  |     |  |    
|Item 2     | Change in Securities                                                                                  |     |  |  |  |     |  | N/A
|Item 3     | Default of Senior Securities                                                                          |     |  |  |  |     |  | N/A
|Item 4     | Submission of Motion to Vote of Security Holders                                                      |     |  |  |  | N/A
|Item5      | Other Informaiton                                                                                     |     |  |  |  |     |  |    
|Item6      | Exhibits                                                                                              |     |  |  |  |     |  |    





EXHIBIT INDEX





|Exhibit No. |  | Description of Exhibit                                     |  |  |  |  |  |   
|----------- |  | ---------------------------------------------------------- |  |  |  |  |  | --
|31.1        |  | SEC Section 302 Certification – CEO certification          |  |  |  |  |  | 10
|31.2        |  | SEC Section 302 Certification – CFO certification          |  |  |  |  |  | 11
|32.1        |  | Certification of Manfred F. Dyck, Chief Executive Officer, |  |  |  |  |  | 12
|            |  | pursuant to 18 U.S.C. Section 1350                         |  |  |  |  |  |   
|32.2        |  | Certification of Robert Y. Lee, Chief Financial Officer,   |  |  |  |  |  | 12
|            |  | pursuant to 18 U.S.C. Section 1350                         |  |  |  |  |  |   















Part I – Condensed Consolidated Financial
Statements

Item # 1



HYDROMER, INC. and CONSOLIDATED SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE
SHEETS





|                                                                                                                                                               | September 30,
        2011

(unaudited) | June 30,
        2011
|-------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------- | ---------------------
|Assets                                                                                                                                                         |                                         |                      
|Current Assets:                                                                                                                                                |                                         |                      
|Cash and cash equivalents                                                                                                                                      | $                                       | 440,704              
|Short-term investments                                                                                                                                         |                                         | 50,000               
|Trade receivables less allowance for doubtful accounts of $9,809 and $5,622 as of September 30, 2011 and June 30, 2011, respectively                           |                                         | 815,670              
|Inventory                                                                                                                                                      |                                         | 384,807              
|Prepaid expenses                                                                                                                                               |                                         | 176,773              
|Deferred tax asset                                                                                                                                             |                                         | 159,910              
|Other                                                                                                                                                          |                                         | 11,203               
|Total Current Assets                                                                                                                                           |                                         | 2,039,067            
|                                                                                                                                                               |                                         |                      
|Property and equipment, net                                                                                                                                    |                                         | 2,820,336            
|Deferred tax asset, non-current                                                                                                                                |                                         | 1,196,704            
|Intangible assets, net                                                                                                                                         |                                         | 801,053              
|Total Assets                                                                                                                                                   | $                                       | 6,857,160            
|                                                                                                                                                               |                                         |                      
|Liabilities and Stockholders’ Equity                                                                                                                           |                                         |                      
|Current Liabilities:                                                                                                                                           |                                         |                      
|Accounts payable                                                                                                                                               | $                                       | 403,166              
|Accrued expenses                                                                                                                                               |                                         | 351,184              
|Current portion of capital lease                                                                                                                               |                                         | 18,687               
|Current portion of deferred revenue                                                                                                                            |                                         | 69,911               
|Current portion of mortgage payable                                                                                                                            |                                         | 52,617               
|Total Current Liabilities                                                                                                                                      |                                         | 895,565              
|Deferred tax liability                                                                                                                                         |                                         | 294,012              
|Long-term portion of capital lease                                                                                                                             |                                         | 11,058               
|Long-term portion of deferred revenue                                                                                                                          |                                         | 109,504              
|Long-term portion of mortgage payable                                                                                                                          |                                         | 2,700,923            
|Total Liabilities                                                                                                                                              |                                         | 4,011,062            
|Stockholders’ Equity                                                                                                                                           |                                         |                      
|Preferred stock – no par value, authorized 1,000,000 shares, no shares. issued and outstanding                                                                 |                                         | -                    
|Common stock – no par value, authorized 15,000,000 shares; 4,783,235 shares issued and 4,772,318 shares outstanding as of September 30, 2011 and June 30, 2011 |                                         | 3,721,815            
|Contributed capital                                                                                                                                            |                                         | 633,150              
|Accumulated deficit                                                                                                                                            |                                         | (1,502,727)          
|Treasury stock, 10,917 common shares at cost                                                                                                                   |                                         | (6,140)              
|Total Stockholders’ Equity                                                                                                                                     |                                         | 2,846,098            
|Total Liabilities and Stockholders’ Equity                                                                                                                     | $                                       | 6,857,160            
|                                                                                                                                                               |                                         |                      















See accompanying notes







HYDROMER, INC. and CONSOLIDATED SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS

(UNAUDITED)







|                                                             |   | Three Months Ended
        September 30, |  
|------------------------------------------------------------ | - | ---------------------------------------- | -
|                                                             |   | 2011                                     |  
|Revenues                                                     |   |                                          |  
|Sale of products                                             | $ | 757,050                                  | $
|Service revenues                                             |   | 350,399                                  |  
|Royalties and contract revenues                              |   | 341,148                                  |  
|Total Revenues                                               |   | 1,448,597                                |  
|Expenses                                                     |   |                                          |  
|Cost of Sales                                                |   | 416,012                                  |  
|Operating Expenses                                           |   | 1,105,325                                |  
|Other Expenses                                               |   | 51,259                                   |  
|Benefit from Income Taxes                                    |   | (37,810)                                 |  
|Total Expenses                                               |   | 1,534,786                                |  
|Net Loss                                                     | $ | (86,189)                                 | $
|Loss Per Common Share                                        | $ | (0.02)                                   | $
|Weighted Average Number of
        Common Shares Outstanding |   | 4,772,318                                |  













































See accompanying notes.



There was no impact to earnings per share from
dilutive securities

as the resultant would have been anti-dilutive.







HYDROMER, INC. and CONSOLIDATED SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS

(UNAUDITED)





|                                                                           |   | Three months Ended
        September 30,
|-------------------------------------------------------------------------- | - | ----------------------------------------
|                                                                           |   | 2011                                    
|Cash Flows From Operating Activities:                                      |   |                                         
|Net Loss                                                                   | $ | (86,189)                                
|Adjustments to reconcile net loss to net cash used in operating activities |   |                                         
|Depreciation and amortization                                              |   | 111,978                                 
|Deferred income taxes                                                      |   | (37,810)                                
|Changes in Assets and Liabilities:                                         |   |                                         
|Trade receivables                                                          |   | (40,917)                                
|Inventory                                                                  |   | 59,797                                  
|Prepaid expenses                                                           |   | 14,243                                  
|Other assets                                                               |   | 2,344                                   
|Accounts payable and accrued liabilities                                   |   | 53,625                                  
|Deferred income                                                            |   | (90,633)                                
|Net Cash Used in Operating Activities                                      |   | (13,562)                                
|                                                                           |   |                                         
|Cash Flows From Investing Activities:                                      |   |                                         
|Cash purchases of property and equipment                                   |   | (22,273)                                
|Cash payments on patents and trademarks                                    |   | (13,061)                                
|Redemption of matured short-term investments                               |   | -                                       
|Net Cash (Used in) Provided by Investing Activities                        |   | (35,334)                                
|                                                                           |   |                                         
|Cash Flows From Financing Activities:                                      |   |                                         
|Repayment of long-term borrowings                                          |   | (12,997)                                
|Net Cash Used in Financing Activities                                      |   | (12,997)                                
|                                                                           |   |                                         
|Net (Decrease) Increase in Cash and Cash Equivalents:                      |   | (61,893)                                
|Cash and Cash Equivalents at Beginning of Period                           |   | 502,597                                 
|Cash and Cash Equivalents at End of Period                                 | $ | 440,704                                 





























See accompanying notes.









HYDROMER, INC. and CONSOLIDATED SUBSIDIARY



Notes to Condensed Consolidated
Financial Statements

Basis
of Presentation:

In the opinion of management, the accompanying
unaudited condensed financial statements include all adjustments (consisting of only normal adjustments) necessary for a fair
presentation of the results for the interim periods. These condensed financial statements, including notes, have been
prepared in accordance with the applicable rules of the Securities and Exchange Commission and do not include all of the
information and disclosures required by accounting principles generally accepted in the United States of America. The
condensed financial statements should be read in conjunction with the consolidated financial statements and other information
contained in our Annual Report of Form 10-K for the year ended June 30, 2011.





Fair Value:

Some of the Company’s financial instruments are not measured
at fair value on a recurring basis but are recorded at amounts that approximate fair value due to their liquid or short-term nature,
such as cash and cash equivalents, receivables and payables. The carrying amount of the Company’s note obligation approximates
its fair value, as the terms of the note is consistent with terms available in the market for instruments with similar risk.





In accordance with FASB ASC 820, “Fair
Value Measurements and Disclosures”, the following table represents the Company’s fair value hierarchy for its
financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2011 and June 30, 2011, respectively:



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



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





Segment Reporting:

The Company operates two primary business segments. The Company
evaluates the segments by revenues, total expenses and earnings before taxes. Corporate Overhead (primarily the salaries and benefits
of senior management, support services (Accounting, Legal, Human Resources and Purchasing) and other shared services (building
maintenance and warehousing)) are excluded from the business segments as to not distort the contribution of each segment. These
segments are the lowest levels for which identifiable cash flows are largely independent of the cash flows of other assets and
liabilities.













The results for the three months ended September 30, by segment
are:

|                      | Polymer Research | Medical
        Products | Corporate Overhead | Total      
|--------------------- | ---------------- | ------------------------ | ------------------ | -----------
|2011                  |                  |                          |                    |            
|Revenues              | $
1,092,324      | $
356,273                |                    | $
1,448,597
|Expenses              | (885,546)        | (286,360)                | $ (400,690)        | (1,572,596)
|Pre-tax Income (Loss) | $
206,778        | $
69,913                 | $ (400,690)        | $ (123,999)
|                      |                  |                          |                    |            
|2010                  |                  |                          |                    |            
|Revenues              | $
921,326        | $
334,56                 |                    | $
1,255,892
|Expenses              | (980,130)        | (246,837)                | $  (448,803)       | (1,675,770)
|Pre-tax Income (Loss) | $       (58,804) | $
87,729                 | $  (448,803)       | $ (419,878)
|                      |                  |                          |                    |            



Geographic revenues were as follows for the three months ended
September 30,

|         | 2011 | 2010
|-------- | ---- | ----
|Domestic | 66%  | 64% 
|Foreign  | 34%  | 36% 





Subsequent Events:

As reported in the June 30, 2011 10-K, a loan modification
on the Company’s mortgage was entered into on October 13, 2011, eliminating covenants and defaults for June 30, 2011 (as
a result of the net loss during the period) in exchange for the Company providing its accounts receivable and inventory as collateral.



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

















































Item #2



MANAGEMENT’S DISCUSSION AND ANALYSIS
OF THE

FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Results
of Operations



The
Company’s revenues for the quarter ended September 30, 2011 were $1,448,597, $192,705 or 15.3% higher than the $1,255,892
for the same period the previous year. Revenues are comprised of the sale of Products and Services and Royalty and Contract payments.



Product
sales were $757,050 for the quarter ended September 30, 2011 as compared to $650,404 for the same period the year before, a $106,646
(16.4%) increase: higher due to Dragonhyde® Hoof Bath Concentrate sales, a product launched in the spring of 2010
and equipment sales, a periodic activity. Higher medical polymer [coatings] sales (see Service Revenues below) were offset by
lower product sales in our Industrial Anti-fog and Cosmetic lines (timing).



Services
revenues, comprising of contract coating services, for the three months ended September 30, 2011 was $350,399 or $18,922 lower
(5.1%) than the $369,321 the corresponding period the year before. Excluding new customers, we anticipate a continued decrease
in Contract Services revenues as some customers are converting to be medical chemical polymer purchasers (for coatings applications
themselves or via a third party), some involving their purchase of our coating equipment (see Product sales above). These “converted”
customers can also allow for additional revenues from Supply and Support Agreements (see Royalty and Contract revenues following).



Royalty
and Contract revenues include royalties received and the periodic recurring payments from license, stand still and other
agreements other than for product and services. Included in Royalty and Contract revenues are revenues from support and
supply agreements which avails our customers to continued technical support and/or guaranteed access to our proprietary
coatings and may include the transfer of technical know-how (coatings procedures). Some of the royalties and support fees are
based on the net sales of the final item (to which the Hydromer technology is applied to) and are subject to the reporting of
our customers. For the quarter ended September 30, 2011, Royalty and Contract revenues were $341,148, compared to $236,167
the same period a year ago. The $104,981 improvement arose from new fees from recent supply and support agreements, as well
as amortization of deferred revenues.





Total
Expenses for the quarter ended September 30, 2011 were $1,534,786 as compared with $1,510,842 the year before, a 1.6% increase.



For
the quarter ended September 30, 2011, the Company’s Cost of Goods Sold was $416,012 as compared with $426,599 the year prior,
lower by $10,587 or 2.5%. Changes in staffing, including  reductions, offset by higher material costs resulting from the higher
product sales, accounted for the net decrease in Cost of Goods Sold.



Operating
expenses were $1,105,325 for the quarter ended September 30, 2011 as compared with $1,199,292 the year before, lower by $93,967
or 7.8%, the savings primarily coming from a lower staffing level, including in part due to the divestiture of the medical device
product lines in fiscal 2009 & 2010.



Interest
expense, interest income and other income are included in Other Expenses. Interest expense (primarily mortgage interest) for the
three months ended September 30, 2011 and September 30, 2010 were $50,652 and $51,679, respectively.



A
net loss of $86,189 ($0.02 per share) is reported for the quarter ended September 30, 2011 as compared to a net loss of $254,950
($0.05 per share) the year before.









A
revenue increase of $192,705 with only slightly higher expenses of $23,944 (including that of a lower $127,118 in Income Tax Benefits
resulted in true cost reductions of $103,174) resulted in the swing year-over-year. Continued improvements are expected coming
from achieving additional market share (increasing revenues) while expenses sees modest increases, primarily in expanded sales
and marketing costs, including that of new sales representatives.







Financial
Condition



Working
capital decreased $53,105 during the three months ended September 30, 2011.



For
the three months ended September 30, 2011, operating activities used $13,562 in net cash.



The
net loss, as adjusted for non-cash expenses of depreciation and amortization and deferred income taxes, used $12,021 in cash.
The net change in operating assets and liabilities used an additional $1,541 in cash, with the primarily activities being the
increase in trade receivables and accounts payable and accrued expenses as offset by lower inventories, prepaid assets and customer
prepayments.



Investing
activities used $35,334 and financing activities used $12,997 during the  three months ended September 30, 2011.



Investing
activities for the three months ended September 30, 2011 included $22,273 for capital expenditures and $13,061 towards the Company’s
patent estate. Reported under Financing activities was the repayment of the principal portion of the mortgage.



We
see a continued operational performance since the two significant events in 2009: the cancellation and subsequent replacement
of a significant supply & support agreement impacting revenues and cash by $780,000 annually and the sales of various medical
device product lines which reduced the subsequent contributions to profits. We believe that recovery is soon, having growth in
our T-HEXX Animal Health product line and the [human] medical division help overcome the recent shortfalls.





Item # 4



Disclosure Controls and Procedures



As of the
period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of our management,
including the Chief Executive Officer and President and the Chief Financial Officer, of the effectiveness of the design and operation
of the disclosure controls and procedures.



Based upon
this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, our disclosure controls and procedures
were effective and that there were no changes to our Company’s internal control over financial reporting that have materially
affected, or is reasonably likely to materially affect the Company’s internal control over financial reporting during the
period covered by the Company’s quarterly report.





PART II – Other Information



The Company
operates entirely from its sole location at 35 Industrial Parkway in Branchburg, New Jersey, an owned facility secured by a mortgage
through a bank.

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



Item # 6. Exhibits



Exhibit No.	Description



31.1	Rule 13a-14(a) Certification of Chief Executive
Officer and President

31.2	Rule 13a-14(a) Certification of Vice President
of Finance and Chief Financial Officer

32.1	Section 1350 Certification of Chief Executive
Officer and Chairman, President

32.2	Section 1350 Certification of Chief Financial
Officer and Vice President of Finance













SIGNATURES







Pursuant to the requirements of
the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on his behalf by the undersigned thereunto
duly authorized.







HYDROMER, INC.

/s/
Robert Y. Lee, VP



Robert Y. Lee

Principal Accounting Officer & Chief
Financial Officer







DATE: November 17, 2011