UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K
                        FOR ANNUAL AND TRANSITION REPORTS
                        PURSUANT TO SECTIONS 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)

[X]   Annual Report  Pursuant to Section 13 or 15(d) of the Securities  Exchange
      Act of 1934 for the year ended December 31, 2004 or

[ ]   Transition  Report  Pursuant  to  Section  13 or 15(d)  of the  Securities
      Exchange Act of 1934 for the transition period from ________ to ________.

                          Commission file Number 0-6333

                            HYDRON TECHNOLOGIES, INC.
             (Exact name of registrant as specified in its charter)

                               New York 13-1574215
                (State or other jurisdiction of (I.R.S. Employer
               incorporation or organization) Identification No.)

      2201 West Sample Road, Building 9, Suite 7B, Pompano Beach, FL 33073
      -------------------------------------------------------------- -----
               (Address of principal executive offices) (Zip Code)

       Registrant's telephone number, including area code: (954) 861-6400
                                                            --------------

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

           Securities registered pursuant to Section 12(g) of the Act:
                     Common Stock, par value $.01 per share
                     --------------------------------------
                                (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 reports),  and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained,  to the
best  of  the  Registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated by reference in Part III of this Form 10-K or any other
amendment to this Form 10-K. [ ]

      Indicate by check mark whether the registrant is an accelerated  filer (as
defined in Exchange Act Rule 12b-2). YES [ ] NO [X]

      The aggregate market value of the voting stock held by  non-affiliates  of
the Registrant was $1,226,087 based upon the closing price of $0.18 on March 28,
2005.

      Number  of  shares  of Common  Stock  outstanding  as of March  28,  2005:
9,310,336.
                    Documents Incorporated by Reference: None


                                       1
<PAGE>

<TABLE>
<CAPTION>
TABLE OF CONTENTS                                                                      PAGE
<S>               <C>                                                                   <C>
Part I
      Item 1.     Business                                                              3
      Item 2.     Properties                                                            12
      Item 3.     Legal Proceedings                                                     12
      Item 4.     Submission of Matters to a Vote of Security Holders                   13

Part II
      Item 5.     Market for Registrants Common Equity, Related
                  Stockholder Matters and Issuer Purchases of Equity Securities         14
      Item 6.     Selected Financial Data                                               18
      Item 7.     Management's Discussions and Analysis of Financial
                  Condition and Results of Operations                                   18
      Item 7A.    Quantitative and Qualitative Disclosures About Market Risk            31
      Item 8.     Financial Statements and Supplemental Data                            31
      Item 9.     Changes in and Disagreements with Accountants on
                  Accounting and Financial Disclosure                                   31
      Item 9A.    Controls and Procedures                                               31

Part III
      Item 10.    Directors and Executive Officers of the Registrant
33
      Item 11.    Executive Compensation                                                34
      Item 12.    Security Ownership of Certain Beneficial Owners and
                  Management and Related Stockholder Matters                            37
      Item 13.    Certain Relationships and Related Transactions                        38

Part IV
      Item 14.    Principal Accountant Fees and Services                                39
      Item 15.    Exhibits, Financial Statement Schedules and Reports
                  on Form 8-K                                                           39
      Report of Independent Certified Public Accountants                                42
      Financial Statements:   Balance Sheets - December 31, 2004 and 2003               43
      Statements of Operations
                  Years ended December 31, 2004, 2003, and 2002                         44
      Statements of Changes in Shareholders'
                  Equity for the Years ended December 31, 2004, 2003, and 2002          45
      Statements of Cash Flow
                  Years ended December 31 2004 2003,and 2002                            46
      Notes to Financial Statements                                                     47
      Signatures                                                                        61
      Exhibit Index                                                                     62
      Certification of Chief Officers Pursuant to Section 302 of the
            Sarbanes-Oxley Act of 2002 and Item 307 of Regulation S-K                   63
      Certification Pursuant to 18 U.S.C., Section 1350, as Adopted Pursuant to
            Section 906 of the Sarbanes-Oxley Act of 2002                               66
</TABLE>

                                       2
<PAGE>

Item 1. Business

Introduction

      Hydron  Technologies,   Inc.  ("the  Company"),  a  New  York  corporation
organized  on January 30,  1948,  maintains  its  principal  office at 2201 West
Sample  Road,  Building  9,  Suite  7B,  Pompano  Beach,  Florida  33073 and its
telephone number is (954) 861-6400.

      Hydron  Technologies,  Inc. is conducting  research and  development  into
products and medical  applications  utilizing  its patented  tissue  oxygenation
technology.  The  Company's  super-oxygenation  technology  delivers pure oxygen
through the skin to tissue depths  considered  therapeutic for wound healing and
the maintenance of tissue viability. Hydron's technology utilizes micro-bubbles,
averaging one micron in diameter,  to deliver  oxygen deep into tissue.  Applied
topically,  oxygen can now be targeted at specific  problem  areas and delivered
into  skin  and  tissue  that  is  not  receiving  sufficient  oxygen  from  the
bloodstream, essentially oxygenating from the outside in.

      The Company  also  markets a broad range of cosmetic  and oral health care
products using a moisture-attracting  ingredient (the "Hydron(R) polymer") and a
topical delivery system for active ingredients  including  pharmaceuticals.  The
Company holds U.S. and  international  patents on, what Management  believes is,
the only known cosmetically acceptable method to suspend the Hydron polymer in a
stable  emulsion  for use in  personal  care/cosmetic  products.  The Company is
developing  other  personal  care/cosmetic  products  for  consumers  using  its
patented   technology  and  would,  when  appropriate,   either  seek  licensing
arrangements  with third  parties,  or develop and market  proprietary  products
through  its own  efforts.  Management  believes  that  because of their  unique
properties, products that utilize the Hydron polymer have the potential for wide
acceptance in consumer and professional health care markets.

Liquidity

      The  Company   anticipates  that  present  working  capital  balances  and
internally  generated funds will be sufficient to meet our working capital needs
for the next three  months and maybe longer based on  management  decisions  and
order flow. Beyond that point, it will be necessary to consummate a merger, sell
selected  assets,  or obtain an infusion of capital.  The Company's  independent
accountants  issued a "going  concern"  opinion  since the Company has  incurred
significant  losses over the past five years and  generates a negative cash flow
on a monthly basis.

      On January 28, 2005,  the Company  entered  into a marketing  agreement to
license its  technology  with Clinical  Results,  Inc.,  and the Hydron  branded
products with Bioceutical Research, Inc. Any impact on cash flow is not expected
to be realized for six to nine months. In addition,  the Company has lowered its
operating  expenses by reducing  research  and  development  costs and  reducing
payroll costs.


                                       3
<PAGE>

Item 1. Business (continued)

      The  Company is  considering  several  additional  options to resolve  the
negative cash flow,  including merging with parties that have a broad channel of
distribution, forming a new private entity and transferring the operating assets
to it and selling the public shell, and selling one or more selected assets. One
of these alternatives  and/or an infusion of additional capital will be required
in order to generate the cash required in the short term.

Super-oxygenated Fluids and Compositions

      Since August 2000, the Company has been  researching  and developing a new
technology  that  provides a method for the delivery of oxygen into the skin and
tissue at depths considered medically therapeutic. In November 2003, the Company
received  patent  number  6,649,145  from the United States Patent and Trademark
Office  covering  this  exceptional  method  of  delivery;  which  bypasses  the
bloodstream.  Management anticipates that as a result of its continuing research
into   tissue    oxygenation,    the    Company's    primary   focus   will   be
developing/licensing applications or products based upon this new technology.

      Hydron's  unique  process  utilizes an existing  technology  that  infuses
liquid  with  oxygen at 20+  times  normal  levels to create a  super-oxygenated
liquid filled with  micro-bubbles of highly pressurized  oxygen.  When placed in
contact  with the  skin,  the  highly  saturated  fluid  and  micro-bubbles  are
transferred directly into the skin through osmosis and kinetic diffusion between
cells.

      Research and development  efforts to date have included  clinical testing,
in-vitro   bacteriological  testing,   micro-bubble  size  analysis,   packaging
prototypes, and stability testing. Following its successful pre-clinical test at
the University of Massachusetts Medical School,  Department of Thoracic Surgery,
the  Company  commissioned  a clinical  test on  healthy  human  subjects.  This
clinical test produced an average increase in subcutaneous tissue oxygenation of
54%.  Management believes that these tests provided the first-ever evidence that
subcutaneous  tissue could be oxygenated  from the outside in without the use of
high pressure-chamber treatment.

      This  topically  applied  oxygenated  skin  treatment  could have numerous
applications in wound healing and anti-aging skincare treatments. Although it is
unknown at this stage the significance  that topically  applied  oxygenated skin
treatment  would have on the  various  categories,  there are a large  number of
people with oxygen  deprived  ailments.  Current market research shows that each
year,  in the United  States  alone,  medical  problems  associated  with oxygen
deprivation  of the  skin and  tissues  can  affect  diabetics,  burn  patients,
individuals  with impaired  circulatory  systems,  those  suffering from chronic
wounds,  even the  viability of organs being  transported  for  transplantation.
Likewise,  medical problems  associated with anaerobic bacteria (i.e.  organisms
that thrive in the absence of oxygen) such as acne, diaper rash,  post-operative
infections,  and periodontal disease may be reduced or eliminated by application
of this technology.


                                       4
<PAGE>

Item 1. Business (continued)

      Oxygen is also an essential factor in aging as facial skin loses about 40%
of its  oxygen  carrying  capacity  by age 65 (a factor in  diminished  collagen
formulation and wrinkling).  As a result,  anti-aging/wrinkling  applications of
this  technology  may ultimately  lead to a new line of skincare  treatments and
products.

      In July 2002, the Company reached an agreement  providing it the right but
not the obligation to license existing micro-bubble machine technology from Life
International  Products, Inc. that included issuance of 325,000 shares of Hydron
stock and future royalty payments to Life  International  should the Company use
its  technology.  This  agreement  provides  Hydron with a  definitive  means to
produce  micro-bubble  liquids that are required to manufacture  future products
under Hydron's tissue oxygenation patent.

      On November  14,  2003,  the  Company  completed  a  non-brokered  private
placement  to  accredited  investors  of  2,210,000  Units at $.50 per Unit that
raised $1,105,000 for oxygenation technology research. Each Unit is comprised of
one share of Common Stock and one five-year warrant to buy one additional Common
Share at $1.00.  Such securities were not registered under the Securities Act of
1933 as amended  ("Securities  Act"),  in  reliance  on  exemptions  for private
placements of securities.  Directors Richard Banakus and Ronald J. Saul invested
in this offering along with 17 other accredited investors.  The proceeds will be
used to  advance  the  testing  and  development  of the  Company's  oxygenation
technology and support the initial  submissions  required for FDA (Food and Drug
Administration) approvals.

      A formal  Request For  Designation  (RFD) was filed with FDA in  September
2004 to request  that FDA  designate  the  MicroO2  Oxygenation  Apparatus  as a
medical device. FDA agreed in October. On January 10, 2005, the Company attended
a  Pre-Investigational  Device Exemption meeting with FDA to present the device,
however, a clear pathway for safety and clinical research requirements could not
be  determined  at that time.  It was  suggested  that filing a complete  510(k)
application   would  provide  FDA  with  an  opportunity  to  review  additional
information from Hydron.

Hydron(R) Branded Skin Care Products

      The Company has been  developing  various  consumer  products using Hydron
polymers  since 1986.  The Company's  products are designed to address  concerns
about aging, and include  Hydron(R)  skincare,  hair care, bath and body and sun
care lines. The Company currently has thirty-six  individual  products available
in the  following  product  catagories:  skin care (21  products),  hair care (6
products), bath and body (7 products) and sun care (2 products).  These products
are also packaged into  collections  and sold at a more favorable value than the
individual  products sold separately.  All of the products are available through
the Hydron catalog and web site at www.hydron.com ("Catalog").

      Management  believes that the Company's  moisturizers  and skin treatments
are unique and offer the following  competitive  benefits:  they  self-adjust to
match the skin's  optimal pH  balance  soon after they are  applied to the skin;
they  become  water-insoluble  on the  skin's  surface,  and  unlike  all  other
water-based  cremes and lotions,  are not removed by the skin's  perspiration or
plain water; they are  oxygen-permeable,  allowing the skin to breathe;  they do
not emulsify the skin's natural  moisturizing  agents, as do conventional cremes
and lotions; and they attract and hold water,  creating a cushion of moisture on
the  skin's  surface  that  promotes  penetration  of other  beneficial  product
ingredients, all while leaving no greasy after-feel.


                                       5
<PAGE>

Item 1. Business (continued)

      The Company's  products are independently  tested by dermatologist and, in
their opinion, are considered to be safe,  non-irritating and applicable to most
skin types. Products for use around the eye area are also ophthalmologist tested
and safe for contact lens wearers.  Most of the Company's  moisturizing products
are based on the Company's  patented emulsion system,  which permits the product
ingredients to deliver their intended  benefits over an extended  period of time
and in a more efficient manner.

      Management  believes  that the Hydron(R)  emulsion  system can enhance the
effectiveness of topical  over-the-counter  medications.  The emulsion system is
designed to deposit a polymer film on the skin's  surface  which has a number of
advantages over traditional lotions: it promotes hydration of the outer layer of
skin,  improves  penetration  into the skin's pores,  and has good tactility and
flexibility.  The Company  expects to continue to focus research and development
resources on proprietary technology-based products as determined by Management's
assessment of consumer demand.

      The Company  discovered that the Hydron emulsion system also adjusts pH on
the skin to match the pH of the stratum  corneum,  the skin's surface layer. The
pH range of the  emulsion  system  is ideal for  promoting  the  skin's  natural
healing  process and enzyme  production  responsible  for  rebuilding the skin's
lipid barrier.  A patent  application  was filed February 14, 2002 to cover this
technology, which also applies to a new acne treatment system.

Professional Products

The  Company  has  also  developed  and  currently  markets  a group  of  Hydron
polymer-based  products for dental  professionals  under the Hydrocryl(R)  brand
name.  These include a heat cured material used in the  manufacture of dentures,
as well as cold cure kits used in  connection  with the relining or repairing of
existing Hydrocryl or conventional  acrylic dentures that is necessitated by the
continual  changes that occur in the tissue  structure of the mouth.  Management
believes  that the  hydrophilic,  or moisture  attracting  properties,  of these
Hydron(R)   polymer-based   products  give  them  competitive   advantages  over
conventional   acrylic   dentures  and  denture  repair  kits,   which  are  not
hydrophilic.  Sales of  Hydrocryl(R)  brand name  products were minimal in 2004,
2003, and 2002.

Distribution

      The majority of the Company's  products are  currently  sold in the United
States through Hydron direct  marketing  channels  (proprietary  Catalog and the
World Wide Web site).  The  Company  also sells its  products  to private  label
customers, television retailers and, to a lesser extent, internationally through
salons and doctors offices.


                                       6
<PAGE>

Item 1. Business (continued)

      While in prior  years  television  retail  was the  primary  focus for the
marketing and distribution of the Company's  products,  Management believes that
the Company's  exclusive  agreements with  television  retailers had limited the
marketing opportunities to build its business through additional sales channels.
Under  exclusive  contracts  with  television   retailers  the  Company  neither
controlled its airtime nor the selling priorities of those television retailers,
effectively handicapping the Company's ability to influence sales trends.

      The Company began diversifying away from television retailers in 2001 with
continued focus on developing the Catalog business and the addition of a private
label customer to provide  additional cash flow.  Further,  the Company has been
pursuing  new   international   distribution   and  new   products   that  would
significantly  augment  Hydron's  direct  marketing  efforts.  This  development
includes  filing a patent in February 2002 on new acne formulas that the Company
believes provides marked performance  improvements versus other over-the-counter
products currently on the market.

Catalog Sales - The Company's full color brochure  offers personal care products
for sale directly to consumers.  The brochure also provides  information  on new
products,  educates  consumers  on  proper  skin care and  facilitates  consumer
re-ordering.  The Company sells its products on the World Wide Web and regularly
transmits  E-mail  broadcasts to its customer  base.  Catalog  sales  represents
approximately  69.1% of Hydron's  total  annual sales in 2004 and 80.5% in 2003.
The  Company is  continuing  to explore  new ways to enhance  Catalog  sales and
operations.

Private Label Contracting - Effective March 1, 2001, the Company entered into an
agreement with Reliv  International,  Inc ("Reliv") to develop and manufacture a
line of private label skin care products  under their brand name,  ReversAge(R).
Reliv is a public company  traded on NASDAQ  (symbol RELV).  Private label sales
represented  approximately 19.2% of Hydron's total annual sales in 2004 and 4.7%
in 2003.

International  - The Company  sells  products to an  Australia-based  health and
beauty products  distributor for retail sale in salon stores and medical offices
in Australia and New Zealand.  The Company also  distributes  dental products in
Spain and, to a lesser extent,  other  countries.  Although this category is not
significant  at this time,  Management  believes  that it will  expand  with the
introduction of the Company's super-oxygenated technology.

Retail - The  Company  has  established  minor  levels of  retail  distribution.
Initially,  utilizing  excess  inventory,  the  Company  has sold  product  on a
limited,  promotional  basis to several  retailers  utilizing  current packaging
configurations.  It is anticipated  that any  significant  retail effort of core
Hydron products would require investment in repackaging.

Licensing - Effective January 28, 2005, the Company entered into a non-exclusive
licensing  agreement  with  Clinical  Results,  Inc.  ("CRI"),  which allows for
certain Hydron cosmetic  skincare product  technologies sold and manufactured by
CRI, to be offered to third parties under  private label  contracts.  Payment to
Hydron includes royalties based on wholesale sales by CRI to its customers.  The
cosmetic   technologies  include  the  patented  Hydron  polymer  and  sunscreen
technology,  patented line smoothing  technology and  patent-pending  emulsifier
technology.


                                       7
<PAGE>


Item 1. Business (continued)

      Effective January 28, 2005 Hydron has licensed Bioceutical Research,  Inc.
("BRI")  the  non-exclusive  right to  market  Hydron  and  Hydronamins  branded
products to retail  accounts,  including drug stores,  mass-merchandisers,  club
stores, and salon/spa accounts. BRI will pay Hydron royalties on wholesale sales
while undertaking responsibility for manufacturing, marketing, and sales.

Research and Development

      During the last two years, the Company's research and development  efforts
advanced  groundbreaking  research into  oxygenated  wound  treatments,  healing
enhancement,  and  skin  care  that may  provide  anti-aging  treatments.  Where
possible,  the Company may license these  technologies  to other  companies with
expertise in specific applications of the Company's super-oxygenated technology.
Research and development efforts include product formulation,  clinical testing,
packaging design and prototypes,  extensive product safety and stability testing
conducted by medical professionals,  efficacy studies to support product claims,
and consumer research.

      The  Company   continues  to  concentrate   research  and  development  on
additional Hydron(R)  super-oxygenated products, as well as on other proprietary
technology-based  products as determined by Management's  assessment of consumer
demand.  The Company's  research and development  efforts during 2004 focused on
accumulating  data for Food and Drug  Administration  (FDA)  application for the
Company's oxygenation application.

      Management  has  completed  development  of an  acne  ingredient  delivery
system.  The  technology  allows for acidic  ingredients  to be delivered to the
skin's  stratum  corneum at  neutral  pH (~6.8 to 7.0)  where it then  gradually
adjusts  to  match  the pH of the  stratum  corneum  below  5.5.  This  delivery
technique  avoids the irritation and burning  associated with  traditional  acne
treatments that deliver  ingredients at pH values as low as 2.0. The Company has
patents pending on this technology in the US and major international markets.

      In the  current  acne  market,  medicinal  treatments  can  often  be more
irritating  and  elicits  more  redness  than the  skin  condition  itself.  The
Company's  new  system  significantly   reduces  the  harshness  and  irritation
associated with such products.

      Charles Fox, a consultant  and a former member of the  Company's  Board of
Directors from September 1997 to October 1998, leads the Company's  research and
development  efforts.  Mr. Fox was formerly director of product  development for
Warner Lambert  Company's  personal products division and was a former president
of the Society of Cosmetic Chemists.
Patented Technology


                                       8
<PAGE>


Item 1. Business (continued)

      The Company  strongly  believes that technology and patent  protection are
essential to  providing a sound  foundation  for a new product.  The Company was
granted a U.S. patent on its new super-oxygenation  technology in November 2003.
This  patent  covers the  process of  applying a liquid  containing  pure oxygen
micro-bubbles  to the  surface of the skin such that the oxygen  penetrates  the
skin  and  oxygenates  the  underlying  tissue.  The  Company  has  applied  for
international patents in approximately 29 countries, which are in various stages
of review as of December 31, 2004. The Company expects these patent applications
to be approved over the next 12 months.

      The Company was granted  U.S.  Patent No.  4,883,659,  dated  November 28,
1989, and U.S. Patent No. 5,039,516, dated August 13, 1991, which cover a stable
moisturizing  emulsion  containing an unusual  emulsifying agent, as well as the
Hydron  polymer and a unique  combination  of  ingredients.  These  patents have
expiration dates of November 28, 2006 and August 13, 2008, respectively.  During
1999 the Company was granted U.S.  Patent No.  5,879,684 for its "Line Smoothing
Complex"  formula.  This product has been clinically  shown to reduce fine lines
and wrinkles.  The patent has an expiration date of April 11, 2017. In addition,
the Company has registered several trademarks relating to its cosmetic products.

      The Company has also received  patent  protection  for its  emulsification
process  in  several  countries  to  facilitate  distribution  and sale of these
products outside of the United States. The Hydron polymer,  utilized in cosmetic
emulsions,  creates a thin moisture-attracting  film that is non-greasy;  is not
dissolved  by  sebaceous  oils or  perspiration;  does not  emulsify  the skin's
natural  oils  and  humectants;  and  allows  the skin to  breathe.  The film is
insoluble  in water and  resistant  to rub-off,  but can easily be removed  with
cleanser and water.

      The Company  subsequently  discovered that the Hydron emulsion system also
adjusts  pH on the skin to  match  the pH of the  stratum  corneum,  the  skin's
surface  layer.  It is evident in recent skin  research that the pH range of the
emulsion  system is  essential in  contributing  to the skin's  natural  healing
process and the enzyme  production  responsible  for rebuilding the skin's lipid
barrier. The Company filed a patent application related to acid based ingredient
delivery,  including acne  ingredients,  in February  2003.  The  application is
pending.

Manufacturing and Raw Materials

      Hydron polymer-based products are manufactured exclusively for the Company
by independent third parties. The Company has used principally two manufacturers
of cosmetic  products  because of the quality of their production and reasonable
costs. To date, contract manufacturing has allowed the Company to meet inventory
requirements in a timely manner.  All raw material and packaging  components for
the Company's  consumer and professional  product lines are readily available to
the Company from a variety of sources.

      The Company is not dependent  upon any sole  manufacturer  or supplier for
any of its raw materials or ingredients.


                                       9
<PAGE>

Item 1. Business (continued)

Agreement with GP Strategies Corporation

      Under the terms of an agreement  with GP Strategies  Corporation  ("GPS"),
the Company has an exclusive  worldwide  license to  manufacture,  market or use
non-prescription products that include the Hydron polymer in the consumer field,
including  in  connection  with  cosmetic  products  and certain  personal  care
products,  and in the oral  health  field,  including  dentures.  Under  the GPS
Agreement,  GPS retains the exclusive right to  manufacture,  sell or distribute
any prescription drug or medical device made with the Hydron polymer, other than
in the oral health field. In addition,  under the GPS Agreement, the Company and
GPS may each  manufacture,  sell,  and use  non-prescription  drug products that
include the Hydron  polymer as an active  ingredient,  that are not  included in
their respective exclusive fields.

      Under the GPS  Agreement,  GPS also  licenses to the Company the trademark
Hydron for use in connection with the manufacture, marketing and use of products
using Hydron polymers as permitted under the GPS Agreement.

      Under  the  terms  of the GPS  Agreement,  the  Company  and GPS are  each
required to pay to the other a royalty of five percent (5%) of their  respective
net sales of Hydron  polymer  products,  except for sales of  certain  specified
non-prescription  drug  products  utilizing  the  Hydron  polymer  as an  active
ingredient to third parties.  Where the seller receives an up-front license fee,
royalty or similar  payment  the seller  shall pay the other  party a royalty of
twenty-five  percent (25%) of such  payments.  GPS has assigned its rights under
the GPS  Agreement  to  Valera  Pharmaceuticals  (formerly  known  as  Hydro-Med
Sciences,  Inc.) (Valera).  An aggregate of $29,132 was accrued and unpaid as of
December 31, 2004.  This amount is adequate to cover any royalties that might be
payable  through that date.  For the years ended  December 31, 2004,  2003,  and
2002, the Company has accrued royalty expenses of approximately $36,331, $0, and
$0,  respectively.  No royalty  expenses  were  required in 2003 and 2002 as the
definition of applicable  products was changed creating a surplus  accrual.  The
Company has not received any royalty payments, or been advised of any sales that
would entitle it to royalty payments.

Limited Liability Partnership

      In August 2004, The Company  established Hydron Royalty Partners,  LLLP, a
limited liability limited  partnership,  to fund existing royalty obligations in
consideration  for the right to receive  future  royalty  receipts  from  Valera
Pharmaceuticals,  Inc. Hydron Technologies,  Inc., the general partner, assigned
its rights in the Valera Agreement to the Partnership.  The Partnership  assumed
the existing  liability for prior period royalties  ($127,984) and will annually
pay the first  $30,000 of any future  royalties  due to Valera  through  2008 in
return for the right to receive any future royalties that may be due from Valera
on their new products.  The Company,  as general  partner,  holds 50.001% of the
partnership  interests,  and the limited partnership  interests represent in the
aggregate the remaining 49.999%.


                                       10
<PAGE>

Item 1. Business (continued)

Inventory

      The  Company  did not have  any  backorder  of firm  booked  orders  as of
December 31, 2004 and generally delivers its orders within two weeks of the date
orders are booked.  Although  the  Company's  business in not  seasonal,  orders
placed by Hydron's private label customers and television retailers fluctuate on
a monthly and quarterly basis.  Orders placed by the Company's Catalog customers
are generally shipped within two business days of the placement of the order.

      Most items can be produced within a 90-day period. Finished good inventory
will  average  between  6 - 12 months of  sales.  Packaging  components  must be
printed in larger quantities and the level of those types of items may exceed 12
months of sales.  The  inventory  level of the Hydron  polymer  exceeds  several
years' supply and it is stored in two locations to ensure availability.

Government Regulation

      The  Company's  oxygenation  process uses pure oxygen,  which is a natural
substance and is not controlled.  However, the containers, devices used, and the
handling of oxygen require the Food and Drug  Administration's  approval  (FDA).
The Company  complies with the Federal  Food,  Drug and Cosmetic Act ("FDC Act")
and  must  comply  with  the  labeling  requirements  of the FDC  Act,  the Fair
Packaging and Labeling Act ("FPL Act"),  and the  regulations  thereunder.  Many
products and applications that are derived from Hydron's oxygenation  technology
will be considered  medical in nature and FDA approval will be required for this
area.  New skin care  products and most of the Company's  existing  products are
"cosmetics"  as that term is defined  under the FDC Act.  Some of the  Company's
products  (i.e.  its topical  analgesic and products that contain a sunscreen or
Triclosan) are also classified as over-the-counter drugs.

      Additional  regulatory  requirements for existing products include certain
labeling  requirements,  registration of the manufacturer and semi-annual update
of the drug  list.  Management  believes  that it is in  compliance  with  these
requirements   and  that  it  faces  no  material  costs  associated  with  such
compliance.

Competition

      The skin care business is characterized by vigorous competition throughout
the world. Product recognition,  quality, performance and price have significant
influence  on   customers'   choices  among   competing   products  and  brands.
Advertising,  promotion,  merchandising,  the pace  and  timing  of new  product
introductions,  and  line  extensions  also  have a  significant  impact  on the
consumer buying decisions. The Company competes against a number of marketers of
skin care products,  many of which have substantially greater resources than the
Company.  Although  the  Company is in  competition  with all skin care  brands,
direct competition in electronic  retailing and catalog sales includes Principal
Secret,  ProActiv,  Physician's Advice,  Susan Lucci,  Signature Club A, Marilyn
Miglin, Dr. Graff, and Serious Skin Care.


                                       11
<PAGE>

Item 1. Business (continued)

Seasonality

      The  Company's   results  of  operations   are  not  subject  to  seasonal
fluctuations.

Employees

      The Company  satisfies its human resource  needs  utilizing an outsourcing
firm that provides all  administrative  services relating to payroll,  personnel
and employee  benefits.  Management  continues to hire,  fire, set pay rates and
supervise  its  staff.  This  arrangement  enables  the  Company  to reduce  its
administrative  and benefits  costs  relating to employees.  The Company,  as of
December 31, 2004, had seven full time positions.

Item 2. Properties

      The Company  maintains  its offices at 2201 West Sample Road,  Building 9,
Suite 7B,  Pompano Beach,  Florida 33073.  The lease on this office space (3,750
square  feet)   expires   August  31,  2005  and  requires  a  monthly  rent  of
approximately  $5,588,  including  taxes and common area  expenses.  The Company
expects to renew the lease on a short-term basis. Other properties are available
at comparable monthly rental, if required.

Item 3. Legal Proceedings

      The Company is not a party to, and its property is not the subject of, any
material pending legal proceedings.


                                       12
<PAGE>

Item 4. Submission of Matters to a Vote of Security Holders

      A Meeting of the  Shareholders  of the Company  was held on  November  15,
2004, in Boca Raton,  Florida (the "Meeting").  At the Meeting, the shareholders
of the Company  voted on  proposals  to (i) elect a Board of four  directors  to
serve  until  the  Company`s  next  meeting  of  shareholders  and  until  their
successors  are elected and  qualified;  (ii) approve the  Company's  2003 Stock
Plan;  and  (iii)  to  ratify  the  appointment  of  DaszkalBolton  LLP  as  the
independent  auditors of the Company for the year ended  December  31,2004.  The
results of the voting appointed the following Directors:

      Richard Banakus
      Joshua Rochlin
      Karen Gray
      Ronald J. Saul

      The  Shareholders  also approved the adoption of the Company's  2003 Stock
Plan and ratified the Audit  Committee's  selection of DaszkalBolton  LLP as the
Company's  independent  Certified Public Accountants for the year ended December
31, 2004.


                                       13
<PAGE>

                                     PART II

Item 5. Market for Registrants Common Equity, Related Stockholder Matters and
        Issuer Purchases of Equity Securities

Market Information

      The  Company's  Common  Stock  is  quoted  on the OTC  Bulletin  Board,  a
regulated quotation service for over-the-counter securities not listed or traded
on NASDAQ or a  national  securities  exchange,  under the symbol  HTEC.OB.  The
following  tables  indicate  the high and low closing  prices for the  Company's
Common Stock as reported by the OTC Bulletin Board.

                                       High          Low
                                     Closing       Closing
                                      Price         Price
                                     -------       -------
                   2004
               --------------
               Fourth Quarter         $0.45         $0.16
               Third Quarter           0.42          0.27
               Second Quarter          0.80          0.37
               First Quarter           0.82          0.57

                   2003
               -------------
               Fourth Quarter         $0.80         $0.42
               Third Quarter           0.80          0.57
               Second Quarter          0.53          0.20
               First Quarter           0.39          0.20


      As of September 16, 2004, there were  approximately  4,268 shareholders of
record of the Company's  Common Stock. The number of shareholders of record will
decline as the Company's  transfer  agent has notified the Company of its intent
to transfer shares,  held in the name of shareholders  that it has not been able
to locate,  to the proper  authorities in compliance with state law requirements
relating to unclaimed property.

Dividends and Dividend Policy

      The Company does not contemplate  paying  dividends in the near-term.  The
Board of  Directors  will  determine  the payment of  dividends in the future in
light  of  conditions  then  existing,  including  the  Company's  earnings  and
financial condition.

Recent Sales of Unregistered Securities

      On December  10,  2002,  the Company  completed  the sale in a  non-broker
transaction to accredited  investors of 1,750,000 units,  comprised of one share
of Common  Stock  and one  option to  purchase  one share of Common  Stock at an
exercise price of $.20 per share for a three-year  period commencing on the date
of  issuance.  The  purchase  price  for each unit was $.20  resulting  in gross
proceeds to the Company of $350,000.


                                       14
<PAGE>

Item 5. Market for Registrants Common Equity, Related Stockholder Matters and
        Issuer Purchases of Equity Securities (continued)

      In addition,  on November 14, 2003,  the Company  completed  the sale in a
non-brokered  transaction to accredited investors of 2,230,000 units,  comprised
of one  share  of its  Common  Stock  and  one  common  stock  purchase  warrant
exercisable  for one share of Common Stock at an exercise  price of $1 per share
for a five-year  period  commencing on the date of issuance.  The purchase price
for each unit was $.50 resulting in gross proceeds to the Company of $1,105,000.

      In each case,  the Company did not  register the sale of the units and the
component  shares of Common  Stock,  and options  and  warrants or the shares of
Common  Stock  issuable  upon  exercise of the  warrants  and options  under the
Securities Act in reliance on the exemption from  registration  provided by Rule
506 of Regulation D and Section 4(2) of the Securities Act.

      In  connection  with the  sales of these  units,  the  Company  agreed  to
register the shares of Common Stock and the shares of Common Stock issuable upon
exercise of the warrants and options included in the units. The Company prepared
the necessary  registration  statement and received notice from the Security and
Exchange Commission that it was declared effective on July 22, 2004.

      The Company has used the proceeds from the sales of these units  primarily
for  certain  R&D  and  other  expenses  relating  to  the  development  of  its
oxygenation technology, and general working capital requirements.

Equity Compensation Plan Information

      The  following  table  summarizes  share  information  about the Company's
equity  compensation  plans,  including  the  company's  Stock Option Plan ("the
Plan") and non-plan equity compensation agreements as of December 31, 2004:



                                       15
<PAGE>

Item 5. Market for Registrants Common Equity, Related Stockholder Matters and
        Issuer Purchases of Equity Securities (continued)

<TABLE>
<CAPTION>
                                            Number of Securities                                              Number of Securities
                                               to be Issued                   Weighted-Average               Remaining Available for
                                             Upon Exercise of                Exercise Price of               Future Issuance Under
                                            Outstanding Options,            Outstanding Options,            Equity Compensation
           Plan Category                    Warrants and Rights             Warrants and Rights                Plans
---------------------------------  --------------------------------- ---------------------------  -------------------------------
<S>                                              <C>                             <C>                            <C>
Equity compensation plans
approved by security holders                     1,340,500                       $ 0.39                         (1)

Equity Compensation
plans not approved
by security holders                                 25,000                       $ 0.22                         (1)

                                            ---------------
                       Total                     1,365,500                       $ 0.39
                                            ===============
</TABLE>

(1)   The 2003 Stock Plan was approved at the  November 15, 2004  sharteholders'
      meeting.  The aggregate number of shares that may be issued under the Plan
      can not exceed 15% of the total  outstanding  shares.  As of December  31,
      2004,  the number of Securities  for future  issuance under the 2003 Stock
      Plan was 381,550 and 58,600 for all previous plans.

Equity Compensation Plans Approved by Shareholders

      The 1993 Nonemployee  Director Stock Option Plan ("1993 Plan") was adopted
by the Board of Directors on December 22, 1993,  approved by the shareholders on
July 19, 1994 and  approved,  as amended,  by the  shareholders  on December 17,
1997.  The purpose of the 1993 Plan is to assist the Company in  attracting  and
retaining  key  directors  who are  responsible  for  continuing  the growth and
success of the Company.  No options were granted  under the 1993 Plan during the
year ended December 31, 2004.

      On November  10, 1997,  the Board of Directors of the Company  adopted the
1997  Nonemployee  Director  Stock  Option  Plan  ("1997  Plan").  This plan was
approved by the  shareholders on December 17, 1997. The purpose of the 1997 Plan
is  to  assist  the  Company  in  attracting  and  retaining   experienced   and
knowledgeable  nonemployee  directors  who  will  continue  to work for the best
interests of the Company.

      The  1997  Plan  provides   nonqualified  stock  options  for  nonemployee
directors  to purchase an  aggregate  of 100,000  shares of Common  Stock,  with
grants of options to  purchase  2,000  shares to each  nonemployee  director  on
October 1, 1997,  grants of options  to  purchase  2,000  shares on each May 1st
thereafter  (starting in 1999),  and grants of options to purchase  2,000 shares
upon election or appointment of any new non-employee directors.  The options are
not exercisable for a one-year period and are to be granted at an exercise price
equal to the  average  fair  market  value of the  Common  Stock  during the ten
business days preceding the day of the grant of the option.

      The 1997 Plan also provides  nonqualified  stock  options for  nonemployee
directors who serve on committees of the Board of Directors. The options are not
exercisable  for a one-year  period and are to be granted at an  exercise  price
equal to the  average  fair  market  value of the  Common  Stock  during the ten
business  days  preceding  the day of the grant of the option.  No options  were
granted under this provision of the 1997 Plan during the year ended December 31,
2004.


                                       16
<PAGE>

Item 5. Market for Registrants Common Equity, Related Stockholder Matters and
        Issuer Purchases of Equity Securities (continued)

      During  August  1999,  the  Company  agreed to grant an option to purchase
18,000  shares of the  Company`s  common  stock to each of the five  individuals
comprising the Board of Directors, subject to shareholders' approval at the next
annual meeting at an exercise price of $.64065 per share.

      In August  2001,  the Company  agreed to increase  the options  granted to
Board members each year. Subject to shareholders approval, the Company agreed to
grant options to purchase a total of 20,000 shares of the Company's common stock
to each of the five individuals comprising the Board of Director, beginning with
the  calendar  year 2000.  Each Board  Member will  receive  options to purchase
18,000 shares of common stock at an exercise  price of $.20157 for their service
in 2000 and options to  purchase  20,000  shares of common  stock at an exercise
price of $.4275 for their  service in 2001,  $.3155 for their  services in 2002,
$.2430 for their  services in 2003, and $.5945 for services in 2004. On November
15, 2004, the  Shareholders'  approved a new 2003 Stock Plan that ratified these
actions by the Board of Directors.

      On November 19, 2003, the Board approved, subject to shareholder approval,
the 2003 Stock Plan (the "2003 Plan").  The  shareholders  approved this plan on
November 15, 2004. The 2003 Plan permits the grant of nonqualified and incentive
stock options, as well as restricted stock purchases.  The form of the equity is
left up to the  discretion  of the  committee of the Board (or the Board,  if no
committee) at the time of each grant.  This 2003 Plan is designed to consolidate
and replace two Stock Option Plans,  which have  expired;  the 1993 Stock Option
Plan and the 1997  Non-employee  Director  Stock Option Plan. The purpose of the
2003 Plan is to assist the Company in attracting,  retaining, and motivating key
employees, officers, directors, and consultants by offering selected individuals
an opportunity to acquire a proprietary interest in the success of the Company.

Equity Compensation Plans Not Approved by Shareholders

      The Company has agreements with several consultants who provide financial,
business,  and technical  advice to the Company in connection with the research,
development,  marketing and promotion of its products and other matters. As part
of their compensation,  these consultants were granted warrants and nonqualified
stock  options  to  purchase  shares  of the  Company's  common  stock at prices
representing the fair market value of the shares at the date of grant.


                                       17
<PAGE>

Item 6. Selected Financial Data

<TABLE>
<CAPTION>
                                              Years Ended December 31,
                                  2004            2003          2002            2001          2000
                               -----------    -----------    -----------    -----------    -----------
<S>                            <C>            <C>            <C>            <C>            <C>
Net Sales                      $ 1,185,416    $ 1,219,710    $ 1,671,641    $ 2,132,717    $ 2,203,847
Operating (Loss)                  (874,437)      (835,294)      (905,868)      (748,243)      (946,771)
Interest (expense) - net             3,749       (101,562)         1,028          9,198         20,945
Net (Loss)                        (855,879)      (936,856)      (904,840)      (758,696)      (923,632)
Basic & Diluted Earnings
    (Loss) per Common Share          (0.09)         (0.13)         (0.17)         (0.15)         (0.19)
Total Assets                     1,120,422      1,743,087      1,468,549      2,036,182      2,800,515
Total Shareholders' Equity       393,775        1,168,500        887,606      1,382,944      2,141,640
</TABLE>

Item 7. Management's Discussions and Analysis of Financial Condition and Results
        of Operations

Overview

      In November 2003, the Company was granted a patent on its new  oxygenation
technology that provides a method for delivering oxygen into the skin and tissue
at depths considered  medically  therapeutic.  This unique  technology  utilizes
topical  applications,  eliminating  reliance  on the blood  steam.  Preliminary
research was conducted at the University of  Massachusetts  and Florida Atlantic
University  and the process to obtain FDA  approval  was  initiated.  Management
plans to  research  additional  medical  applications  once  Hydron  obtains FDA
approval.

      The Company raised $1.1 million in December 2003 in a non-brokered private
placement exempt from registration  under the Securities Act to fund the initial
research  and initiate the lengthy FDA  approval  process.  As research  results
begin to quantify the broad  applications of this technology and the FDA hurdles
are  passed,  Management  anticipates  that Hydron  will  attract key  strategic
partners and new investment money will become available. Management also expects
that product development will accelerate in medical areas such as wound and burn
treatment,  and skin care applications such as scar reduction,  acne, and diaper
rash treatment, oral health, etc.

      In 2002 the Company  virtually  eliminated  sales made through  television
retailers,  having terminated the exclusive  relationship with HSN in late 2001,
and as  revenues  derived  from  resales  by QVC to  prior  customers  declined.
Management  expects  that in 2005  and  beyond,  an  increasing  portion  of the
Company's  skin care sales will be  generated  from direct  marketing  utilizing
direct  response  mail,  the  Company's  catalog,  and web site,  and  licensing
arrangements.  Management  also  expects  that  the  Company  will  generate  an
increasing  portion  of its  revenues  from  sales made  through  private  label
partners and will look for other  opportunities  to sell the Company's  products
through similar arrangements.  Management  anticipates  introducing new cosmetic
products based on its oxygenation technology,  which it believes will open doors
for new distribution.  However,  the types and timing of the introduction of new
cosmetic products will depend upon, the results of further clinical testing.


                                       18
<PAGE>

Item 7. Management's Discussions and Analysis of Financial Condition and Results
        of Operations (continued)

      In August 2004, Hydron  Technologies,  Inc. (Hydron),  as general partner,
formed Hydron Royalty  Partners,  LLLP  (Partners) a Limited  Liability  Limited
Partnership  for the  purpose  of funding  existing  royalty  obligations  and a
portion of future royalty obligations in consideration of sharing future royalty
income that may arise from Hydron's agreement with Valera Pharmaceuticals,  Inc.
(Valera).  Partners has completed a  non-brokered  private  placement of Limited
Partnership  Interest to ten accredited  investors  including Hydron's Chairman,
Richard  Banakus and a Hydron  Director,  Ronald J. Saul.  Each limited  partner
invested $30,000 or an aggregate of $300,000 for a 49.999% interest of Partners.
The  establishment of the Partners allowed Hydron to meet its current and future
royalty  obligations and retain the possibility of a significant  royalty income
stream opportunity.

      The Company's current revenue base will not support the overhead cost of a
public  company  and/or the  research  and  development  needed to  advance  its
oxygenation  technology  through the FDA approval process.  Management  believes
that the  Company's  survival and success is  dependent  upon one or more of the
following   events:   its  ability  to  merge  with  another  company  that  has
distribution  channels and sales  volume into retail  markets;  reduce  overhead
costs  associated  with a public  company  by forming a new  private  entity and
transferring the operating  assets to it and selling the public shell;  sell one
or more of the Company's non-operating assets; attract additional capital.

Results of Operations - 2004 versus 2003

      Total net sales for 2004 were  $1,185,416,  a decrease  of $34,294 or 2.8%
from net sales of  $1,219,710  for the year ended  December 31, 2003.  Skin care
product net sales for 2004 were  $1,046,452,  a decrease of $18,691 or 1.8% from
sales of  $1,065,143  in 2003.  Professional  product  net  sales  for 2004 were
$18,522,  an  increase  of $205 or 1.1% from sales of  $18,317 in 2003.  Freight
revenues  for 2004 were  $118,617,  a decrease  of $11,207 or 8.6% from  freight
revenues of $129,824 in 2003.

      Skin care product  sales  consist  primarily of catalog  sales and private
label sales.  During 2004,  direct marketing catalog sales decreased by $163,205
or 16.6% from $982,240 in 2003 to $819,035 in 2004.  Private label sales in 2004
were  $227,416,  an increase of $170,360 or 298.6% from  private  label sales of
$57,056 in 2003.  These  sales tend to  fluctuate  from year to year as purchase
orders  cover more than one year's  supply and every  product in the line is not
purchased every year. Skin care product sales to retail stores were less than 1%
of sales in 2004 and 2003.

      Professional  sales consist of dental products sold to dental labs for use
in manufacturing dentures. As noted above, net sales of dental products for 2004
were $18,522, an increase of $205 or 1.1% from sales of $18,317 in 2003.

      Over 98% of the  Company's  products  are sold in the United  States.  The
Company sells skin care  products in Australia and dental  products in Spain and
Canada.  These sales are not material at this time and represented 1.1% and 1.2%
of total sales for 2004 and 2003, respectively.


                                       19
<PAGE>

Item 7. Management's Discussions and Analysis of Financial Condition and Results
        of Operations (continued)

      Cost of sales was  $525,317  for 2004, a decrease of $59,869 or 10.2% from
cost of sales of  $585,186  for 2003.  Cost of sales was 44.3% of total sales in
2004  compared to 48.0% in 2003.  The  decrease in the cost of sales  percentage
reflects tighter control of inventory levels and favorable  inventory  valuation
adjustment.  Cost of sales for private  label sales was in direct  proportion to
the  sales  level.  The  Company  monitors  its  inventory  levels  closely  and
writes-down any inventory in excess of a one-year supply.  Cost of sales include
charges of $59,412 in 2004 to adjust  inventories to a one-year supply valued at
the lower of cost or realizable value on a FIFO basis.  Similar charges for 2003
were $156,762.  Cost increases are not material to catalog sales and the private
label  contracts  provide for a pass through of any cost  increases  incurred in
that segment.

      The Company's  overall gross profit margin increased  slightly to 55.7% of
net sales for 2004 versus  52.0% for 2003.  This  reflects  the costs  discussed
above,  less the relative mix of higher margin catalog sales versus lower margin
private label sales.

      Royalty  expenses in 2004 were $36,331 and $0 in 2003. No accrued  royalty
expenses  were required in 2003 as the  definition  of  applicable  products was
changed  creating a surplus  accrual.  An  aggregate  of $29,132 was accrued and
unpaid as of December 31, 2004.  This amount is adequate to cover any  royalties
that might be payable through December 2004.

      Research and development ("R&D") expenses reflect the Company's efforts to
identify  new  product  opportunities,  develop and  package  the  products  for
commercial sale, perform appropriate efficacy and safety tests, conduct consumer
panel  studies and focus groups,  and the costs  associated  with  obtaining FDA
product approval.  R&D expenses in 2004 were $279,965,  an increase of $181,397,
or 184.0% from R&D expenses of $98,568 in 2003. This increase is due principally
to the Company's  efforts in preparing  the support data on its FDA  oxygenation
application. The amount of R&D expenses per year varies, depending on the nature
of the  development  work,  as well as the  number  and type of  products  under
development at such time.

      Selling,  general  and  administrative  ("SG&A")  expenses  in  2004  were
$1,184,323,  representing  an increase  of $6,112 or 0.5% from SG&A  expenses of
$1,178,211 in 2003.  Advertising and promotional  expenses in 2004 were $61,631,
an  increase of $9,627 or 18.5% from  advertising  and  promotional  expenses of
$52,004 in 2003. Sales  commissions in 2004 were $11,290,  an increase of $9,476
or  522.4%  from  sales  commissions  of  $1,814 in 2003.  The  increased  sales
commissions  reflect the  increase  in private  label  sales and  commission  on
existing in-house orders that were paid when a broker/commission arrangement was
terminated.  Professional  expenses  (legal and audit) were $123,451 in 2004, an
increase of $18,195 or 17.3% from the $105,256 incurred in 2003. The increase in
professional fees was costs associated with the registration  statement filed in
July and the proxy  statement  for the  shareholders  meeting held  November 15,
2004.  Payroll  expense was  $441,809 in 2004, a decrease of $2,384 or 0.5% from
$444,193 in 2003.  All other  expenses  were  $546,142 for 2004,  and  decreased
$28,802 or 5.0% from $574,944 in 2003.


                                       20
<PAGE>

Item 7. Management's Discussions and Analysis of Financial Condition and Results
        of Operations (continued)

      Depreciation and amortization  expense was $33,917 for 2004, a decrease of
$159,122 or 82.4% from  $193,039 in 2003.  The  decrease  was  primarily  due to
intangible  assets  becoming  fully  amortized  by  mid-2003.   Fully  amortized
intangible assets of $5,370,000 were written off in 2003.

      Net interest income was $3,749 in 2004 compared to net interest expense of
$101,562 in 2003.  Interest expense for 2003 included  $102,500 that represented
the fair value of stock  options  granted  under an  interest-free  bridge  loan
obtained  from two  Company  Directors.  The Company  maintains  a  conservative
investment  strategy  with  respect to its cash  balances,  deriving  investment
income primarily from U.S. Treasury securities.

      Minority  interest in net loss in 2004 was $14,809  compare to $0 in 2003.
This  minority  interest  is  created  from  a  consolidated  limited  liability
partnership, Hydron Royalty Partners, LLLP, established by the Company in August
2004 (see Limited Liability Partnership, Item 1. Business).

      The Company had a net loss of $855,879, representing a decrease of $80,977
or 8.6% from the net loss of  $936,856  for 2003,  primarily  as a result of the
factors discussed above.

Results of Operations - 2003 versus 2002

      Total net sales for 2003 were $1,219,710,  a decrease of $451,931 or 27.0%
from net sales of  $1,671,641  for the year ended  December 31, 2002.  Skin care
products  net sales for 2003 were  $1,071,819,  a decrease  of $426,565 or 28.5%
from sales of $1,498,384 in 2002.  Professional  product net sales for 2003 were
$18,067,  a decrease of $12,041 or 40.0% from sales of $30,108 in 2002.  Freight
revenues  for 2003 were  $129,823,  a decrease  of $13,325 of 9.3% from  freight
revenues of $143,149 in 2002.

      Skin care product  sales  consist  primarily of catalog  sales and private
label sales.  During 2003,  direct marketing catalog sales decreased by $164,499
or 14.3% from  $1,146,989  in 2002 to  $982,490  in 2003.  The  Company  did not
promote to historical  customer lists from QVC and HSN as it did in 2002.  These
activities  were part of the  termination  agreements that expired in 2002. As a
result, the promotional costs as well as the sales dollars were below those seen
in 2002.  Private  label  sales in 2003 were  $57,056,  a decrease of $74,152 or
56.5% from such sales of $131,208 in 2002.  These sales tend to  fluctuate  from
year to year as  purchase  orders  cover more than one year's  supply,  and each
product in the line is not  purchased  every  year.  In  addition,  new  product
introductions  are not  necessarily  made by the private label  customers  every
year. A new product was introduced in 2002, but not in 2003. Skin cares sales to
retail stores were less than 1% of sales in 2003.  Retail store sales  decreased
$194,584 or 96.8% from  $201,010 in 2002 to $6,426 in 2003,  reflecting  minimal
follow-up orders by retail stores after heavily discounted  introductory  offers
in 2002.


                                       21
<PAGE>

Item 7. Management's Discussions and Analysis of Financial Condition and Results
        of Operations (continued)

      Professional  sales consist of dental products sold to dental labs for use
in manufacturing dentures. As noted above, net sales of dental products for 2003
were  $18,067,  a decrease of $12,041 or 40.0% from sales of $30,108 in 2002. In
2002 our customers  increased their backroom stock after the Company experienced
delays in filling orders when one of the required  components was  discontinued.
Sales in 2003 reflect a more normal buying pattern for our existing customers.

      Over 98% of the  Company's  products  are sold in the United  States.  The
Company sells skin care  products in Australia and dental  products in Spain and
Canada.  These sales are not material at this time and represented 1.2% and 1.7%
of total sales for 2003 and 2002, respectively.

      Cost of sales was  $585,186 for 2003, a decrease of $178,172 or 23.3% from
cost of sales of  $763,358  for 2002.  Cost of sales was 48.0% of total sales in
2003  compared to 45.7% in 2002.  The  increase in the cost of sales  percentage
reflects the cost ($8,475)  incurred to replace  private label products that had
not sealed properly and slightly higher inventory valuation adjustments,  offset
by the fact that high margin catalog sales represented a larger portion of total
sales in 2003 (80.5%) than they did in 2002  (68.5%).  Cost of sales for private
label  sales was in direct  proportion  to the sales  level  after  taking  into
account  the charge for the  replacement  products.  The  Company  monitors  its
inventory  levels closely and  writes-down any inventory in excess of a one-year
supply.  Cost of sales include charges of $156,762 in 2003 to adjust inventories
to a one-year  supply valued at the lower of cost or realizable  value on a FIFO
basis.  Similar charges for 2002 were $128,893.  Cost increases are not material
to catalog sales, and the private label contracts  provide for a pass through of
any cost increases incurred in that segment.

      The Company's  overall gross profit margin decreased  slightly to 52.0% of
net sales for 2003 versus  54.3% for 2002.  This  reflects  the costs  discussed
above less the relative mix of higher  margin  catalog sales versus lower margin
private label sales.

      Royalty  expenses  in 2003 and 2002 were $0. No accrued  royalty  expenses
were required as the  definition of applicable  products was changed  creating a
surplus accrual.  An aggregate of $127,437 was accrued and unpaid as of December
31, 2003.  This amount is adequate to cover any royalties  that might be payable
through December 2003.

      Research and development ("R&D") expenses reflect the Company's efforts to
identify  new  product  opportunities,  develop and  package  the  products  for
commercial  sale,  perform  appropriate  efficacy and safety tests,  and conduct
consumer panel studies and focus groups.  R&D expenses in 2003 were $98,568,  an
increase  of  $30,311,  or 44.4% from R&D  expenses  of  $68,257  in 2002.  This
increase is due  principally  to the Company's  R&D work on its new  oxygenation
technology.  The amount of R&D expenses per year varies, depending on the nature
of the  development  work,  as well as the  number  and type of  products  under
development at such time.

      Selling,  general  and  administrative  ("SG&A")  expenses  in  2003  were
$1,178,211,  representing  a decrease of $251,959 or 17.6% from SG&A expenses of
$1,430,170  in 2002.  Sales  commissions  for 2003 were  $1,816,  a decrease  of
$55,385 or 96.8% from $57,201 in 2002. Sales  commissions were primarily related


                                       22
<PAGE>

Item 7. Management's Discussions and Analysis of Financial Condition and Results
        of Operations (continued)

to  retails  sale  introductions  in 2002 and  decreased  in line with the lower
retail sales in 2003. Legal expenses were $63,504 in 2003, a decrease of $65,983
or 51.0% from the $129,487  incurred in 2002.  The legal costs for 2002 included
the  one-time  cost  associated  with  the  Life  International  Products,  Inc.
licensing agreement for machine technology that creates micro-bubbles in liquids
and legal  costs  associated  with the  Company's  new  oxygenation  technology.
Payroll  expense  was  $444,193  in 2003,  a  decrease  of  $45,647 of 9.3% from
$489,840 in 2002.  This  decrease  was  primarily  due to the  elimination  of a
managerial position in order to control operating costs. Warehousing expense was
$37,210 in 2003,  a decrease  of $27,857 or 42.8% from the  $65,067  incurred in
2002. This decrease reflects Management's efforts to reduce inventory levels and
streamline the product line.  Promotion expense in 2003 was $52,129,  a decrease
of $25,205 or 32.6% from  $77,334 in 2002.  This  decrease was  principally  the
elimination of direct marketing  activities to historical QVC and HSN customers.
Postage expense was $74,977 in 2003, a decrease of $14,973 of 16.6% from $89,950
in 2002.  This decrease was  principally  the postage cost  associated  with the
marketing activities to QVC and HSN customers.  All other expenses were $504,382
for 2003 and decreased $16,909 of 3.2% from $521,291 in 2002.

      Depreciation and amortization expense was $193,039 for 2003, a decrease of
$122,685 or 38.9% from  $315,724 in 2002.  The  decrease  was  primarily  due to
intangible  assets  becoming  fully  amortized  by  mid-2003.   Fully  amortized
intangible assets of $5,370,000 were written off in 2003.

      Net interest  expense was $101,562 in 2003 compared to net interest income
of $1,028 in 2002.  Interest expense for 2003 included $102,500 that represented
the fair value of stock  options  granted  under an  interest-free  bridge  loan
obtained  from two  Company  Directors.  The Company  maintains  a  conservative
investment  strategy  with  respect to its cash  balances,  deriving  investment
income primarily from U.S. Treasury securities.

      The  Company  had a net loss of  $936,856,  representing  an  increase  of
$32,016 or 3.5% from the net loss of $904,840  for 2002,  a result  primarily of
the factors discussed above.

Results of Operations - 2002 versus 2001

      Total net sales for 2002 were $1,671,641, a decrease of $461,076 or 21.6%,
from net sales of  $2,132,717  for the year ended  December 31, 2001.  Skin care
products  net sales for 2002 were  $1,498,384,  a decrease  of $467,743 or 23.8%
from $1,966,127 in 2001.  Professional products net sales for 2002 were $30,108,
an increase of $10,922 or 56.9% from $19,186 in 2001.  Freight revenues for 2002
were $143,149, a decrease of $4,255 or 2.9% from freight revenues of $147,404 in
2001.

      Skin care product sales consist of catalog sales,  television  retail, and
private label sales.  During 2002,  direct  marketing  catalog  sales  decreased
slightly by $31,263 or 2.6% from $1,178,252 in 2001 to $1,146,989. The reduction
in  catalog  sales  resulted  primarily  from an  increase  in sales  made  with
promotional discounts.  Television retail sales in 2002 were $19,177, a decrease


                                       23
<PAGE>

Item 7. Management's Discussions and Analysis of Financial Condition and Results
        of Operations (continued)

of  $328,454  or  94.5%  from  $347,631  in  2001.  The  decrease  reflects  the
termination  of the HSN  agreement in late 2001,  as well as declining  revenues
received from repeat sales by QVC to prior purchasers of the Company's products.
Sales to television  retailers  represented 1.1% of the Company's sales in 2002,
down from 16.3% in 2001.  Private label sales were $131,208 in 2002, a reduction
of $271,349 or 67.4% from sales of  $402,557  in 2001,  primarily  the result of
pipeline fill shipped to the customer in the second half of 2001.

      Professional  sales consist of dental products sold to dental labs for use
in  manufacturing  dentures.  Dental  product  sales in 2002  were  $30,108,  an
increase of $10,922 or 56.9% from $19,186 in 2001.  This increase  resulted when
customers increased their backroom stock after the Company experienced delays in
filling orders in 2002, when one of its required components was discontinued. It
took several  months for the Company to certify a new  manufacturer  and qualify
the component for insertion in its dental product.

      Over 97% of the  Company's  products  are sold in the United  States.  The
Company sells skin care  products in Australia and dental  products in Spain and
Canada.  In 2001, the Company also sold skin products to a pilot  distributor in
Taiwan, but that business was not continued in 2002. International sales are not
material at this time and represented  1.7% and 2.5% of total sales for 2002 and
2001, respectively.

      Cost of sales was  $763,358 for 2002, a decrease of $179,302 or 19.0% from
cost of sales of  $942,660  for 2001.  Cost of sales was 45.7% of total sales in
2002  compared to 44.2% in 2001.  The  increase in the cost of sales  percentage
reflects an  increase in the cost of  shipments  to our  customers  that was not
passed on in the customer's  billings.  Shipping cost in 2002 were $174,911,  an
increase of $3,731 or 2.2% from $171,180 in 2001. In 2002, 81.8% of the shipping
costs were billed to customers  compare to 86.1% in 2001.  The Company  monitors
its inventory levels closely and writes-down any inventory in excess of one-year
supply.  Cost of sales include charges of $128,893 in 2002 to adjust inventories
to one-year  supply  valued at the lower of cost or  realizable  value on a LIFO
basis.  Similar charges for 2001 were $154,594.  Cost increases are not material
to catalog sales and the private label  contracts  provide for a pass through of
any cost increases incurred in that segment.

      The Company's  overall gross profit margin decreased  slightly to 54.3% of
net sales for 2002 versus 55.8% for 2001, as the increased  shipping  costs were
not reflected in the customer billings. The gross profit margin of catalog sales
decreased  slightly to 80.3% in 2002 from 81.9% in 2001 as the result of the mix
of products and collections sold.

      Royalty  expenses in 2002 were $0,  representing  a decrease of $86,574 or
100%, from royalty  expenses of $86,574 in 2001. No royalty expense was required
in 2002 as the definition of applicable  products was changed creating a surplus
accrual.  An  aggregate  of $127,437  was accrued and unpaid as of December  31,
2002.  This  amount is  adequate  to cover any  royalties  that might be payable
through December 2002.


                                       24
<PAGE>

Item 7. Management's Discussions and Analysis of Financial Condition and Results
        of Operations (continued)

      R&D  expenses  reflect  the  Company's  efforts to  identify  new  product
opportunities,  develop and package the products for  commercial  sale,  perform
appropriate efficacy and safety tests, conduct consumer panel studies, and focus
groups. R&D expenses in 2002 were $68,257,  an increase of $9,935 or 17.0%, from
R&D  expenses of $58,322 in 2001.  The amount of R&D  expenses  per year varies,
depending on the nature of the development work during each year, as well as the
number and type of products under development at such time.

      SG&A expenses in 2002 were  $1,430,170,  representing a slight increase of
$2,054 or 0.1%, from SG&A expenses of $1,432,224 in 2001. Sales  commissions for
2002 were $57,201,  a substantial  increase of $51,079 from $6,122 in 2001. This
increase was  directly  related to  commission  paid during the  Company's  2002
promotional  program to  introduce  its product line to several  retail  chains.
Employee  payroll and benefits  were $577,435 in 2002, an increase of $41,380 or
7.7% from $536,055 in 2001.  Payroll  increased 5.0% and the remaining  increase
reflected the escalating cost of medical  benefits.  Insurance  expense for 2002
was $99,880, an increase of $22,674 or 29.4% from $77,206 in 2001. This increase
is directly  related to the increased cost of Directors and Officers  insurance.
All other SG&A expenses in 2002 were  $695,654,  a decrease of $117,187 or 14.4%
from $812,841 in 2001. This decrease includes reductions in royalties, legal and
audit fees, computer technology services and travel expenses.

      Depreciation and amortization in 2002 was $315,724,  a decrease of $45,456
or 12.6% from $361,180 in 2001. This decrease relates to the depreciation of the
leasehold  improvements  associated with the Company's previous office facility.
The  lease  on  that  facility  expired  September  2001  and the  offices  were
relocated.

      Interest and investment income in 2002 was $1,028, a decrease of $8,170 or
88.8%,  from  interest  income of $9,198 in 2001,  due  primarily  to lower cash
balances  resulting from the factors  discussed above.  The Company  maintains a
conservative  investment  strategy with respect to its cash  balances,  deriving
investment income primarily from U.S. Treasury securities.

      The Company had a net loss for 2002 of $904,840,  representing an increase
of $146,144 or 19.3% from the net loss of $758,696 for 2001, a result  primarily
of the factors discussed above.

Liquidity and Capital Resources

      The  Company   anticipates  that  present  working  capital  balances  and
internally  generated funds will be sufficient to meet our working capital needs
for the next three  months and maybe longer based on  management  decisions  and
order flow. Beyond that point, it will be necessary to consummate a merger, sell
selected  assets,  or obtain an infusion of capital.  The Company's  independent
accountants  issued a "going  concern"  opinion  since the Company has  incurred
significant  losses over the past five years and  generates a negative cash flow
on a monthly basis. The Company's working capital was approximately  $457,023 at
December  31,  2004,  including  cash  and  cash  equivalents  of  approximately
$339,679.  Cash used by  operating  activities  during the twelve  months  ended
December  31,  2004 was  $901,006  and $42,141 was  invested  in  equipment  and
patents. This was offset by proceeds from financing activities of $318,103


                                       25
<PAGE>

Item 7. Management's Discussions and Analysis of Financial Condition and Results
        of Operations (continued)

      The Company does not have any material debt,  long-term  capital leases or
long-term  operating  leases.  The lease on the current office facility  expires
August  31,  2005 and the  Company  expects  to renew the lease on a  short-term
basis.  The only capital  lease  expires  February 4, 2005 with total  remaining
payments  after  December  31, 2004 of $770.  There are no capital  expenditures
under  construction  and no long-term  commitments  other than royalty  payments
under an  agreement  with GP  Strategies  Corporation  (See Note 5 to  Financial
Statements).  The  Company  does not have any  lines  of  credit.  There  are no
purchase order commitments that exceed 90 days.

      The Company completed a non-brokered  private placement of 1,750,000 Units
at $.20  per  Unit  ($350,000),  on  December  10,  2002 to  several  accredited
investors.  Each  Unit  is  comprised  of one  share  of  common  stock  and one
three-year option to buy one additional common share at $.20. As of December 31,
2004 all 1,750,000 options are outstanding.

      On November  14,  2003,  the  Company  completed  a  non-brokered  private
placement  of  2,210,000  Units  at $.50  per Unit  ($1,105,000)  to  accredited
investors. Each Unit is comprised of one share of Common Stock and one five-year
warrant to buy one  additional  common share at $1.00.  As of December 31, 2004,
all 2,210,000 warrants are outstanding.

      The  Company   registered  these  outstanding  shares  and  the  4,481,500
underlying  shares  of  outstanding  warrants/options  with the  Securities  and
Exchange Commission  effective July 22, 2004. The  warrants/options are a future
source of capital for the Company and could  generate up to  $2,560,000  if they
are exercised.

      The Company's  independent  accountants  issued a "going concern"  opinion
since the Company has incurred  significant  losses over the past five years and
generates a negative cash flow on a monthly basis. The ability of the Company to
continue  as a going  concern  is  dependent  upon  increasing  sales,  managing
operating expenses and obtaining additional equity financing.

      Management's  plan  includes  implementing  one or more  of the  following
elements:

      o     Conducting   merger   negotiations  with  third  parties  that  have
            distribution  networks in place. The synergies,  combined sales, and
            reduced overhead would create a solid operational  foundation with a
            solid financial position.

      o     Forming a new private entity and  transferring  the operating assets
            to it and selling the public shell to one of the interested parties.


                                       26
<PAGE>

Item 7. Management's Discussions and Analysis of Financial Condition and Results
        of Operations (continued)

      o     Selling one or more of the non-operating assets.

      o     Obtaining  an infusion of capital  that will  sustain the  Company's
            operation until the newly  established  licensing  arrangements  can
            produce positive cash flow.

      o     Continuing to reduce overhead and operating cost.

      There can be no assurances that  Management's  Plan will be successful and
the Company's actual results could differ materially.  No estimate has been made
to the financial  statements to account for the possibility that the plan may be
unsuccessful.

Change in Accounting Principle and New Accounting Pronouncements

      In  December  2002,  the  FASB  issued  SFAS  No.  148,   "Accounting  for
Stock-Based  Compensation  - Transition  and  Disclosure" - an amendment of FASB
Statement No. 123 "Accounting and Disclosure of Stock-Based Compensation".  SFAS
No. 148 amends SFAS No. 123 to provide  alternative  methods of transition for a
voluntary  change to the fair value based method of accounting  for  stock-based
employee   compensation.   In  addition,   SFAS  No.148  amends  the  disclosure
requirements  of SFAS No. 123 to require  prominent  disclosures  in both annual
interim  financial  statements  about the method of accounting  for  stock-based
employee compensation and the effect of the method used on reported results. The
disclosure requirements of SFAS No. 148 have been implemented in Note 1 and Note
9  to  the  accompanying   financial  statements,   and  the  interim  reporting
requirements  were adopted in the first interim  period in 2003.  Management has
not  determined  whether the Company  will  undertake a change to the fair value
method in the near future.  As our supplemental  disclosure in Note 1 and Note 9
indicates,  our adoption of the fair value  provisions of SFAS No. 123 would not
have a negative effect on our Income Statements.

      In January 2003,  the FASB issued FASB  Interpretation  No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities,  an Interpretation of ARB No. 51,"
FIN 46 requires  certain  variable  interest  entities to be consolidated by the
primary  beneficiary of the entity if the equity  investors in the entity do not
have the  characteristics  of a  controlling  financial  interest or do not have
sufficient  equity at risk for the  entity to  finance  its  activities  without
additional  subordinated  financial  support  from  other  parties.  FIN  46  is
effective immediately for all new variable interest entities created or acquired
after January 31, 2003. For variable interest entities created or acquired prior
to  February  1, 2003,  the  provisions  of FIN 46 must be applied for the first
interim or annual period  beginning  after June 15, 2003. The adoption of FIN 46
did not have a material  impact on the  Company's  financial  position or on its
results of operations.

      In May  2003,  the FASB  issued  SFAS No.  150,  "Accounting  for  Certain
Financial Instruments with Characteristics of both Liabilities and Equity." SFAS
150 requires that certain financial  instruments,  which under previous guidance
were  accounted  for as equity,  must now be accounted for as  liabilities.  The
financial  instruments  affected include mandatorily  redeemable stock,  certain
financial instruments that require or may require the issuer to buy back some of
its shares in exchange for cash or other assets and certain obligations that can
be  settled  with  shares  of stock.  SFAS 150 is  effective  for all  financial
instruments  entered  into or modified  after May 31,  2003.  Otherwise  it will
become  effective at the beginning of the first interim period  beginning  after
June 15,  2003.  The  Company  does not  anticipate  that the  adoption  of this
statement  will have any  material  impact on the balance  sheet or statement of
operations.


                                       27
<PAGE>

Item 7. Management's Discussions and Analysis of Financial Condition and Results
        of Operations (continued)

      In  December  2003,  the SEC issued SAB No.  104.  SAB No. 104  revises or
rescinds  portions  of the  interpretive  guidance  included  in Topic 13 of the
codification of staff  accounting  bulletins in order to make this  interpretive
guidance consistent with current authoritative  accounting and auditing guidance
and SEC rules and  regulations.  It also  rescinds  the Revenue  Recognition  in
Financial  Statements  Frequently Asked Questions and Answers document issued in
conjunction  with  Topic  13.  Selected  portions  of that  document  have  been
incorporated  into Topic 13. The adoption of SAB No. 104 did not have a material
impact on the Company's financial position, results of operations or cash flows.

      In July 2004,  the  Emerging  Issues  Task Force  ("EITF")  published  its
consensus on Issue No. 03-1, "The Meaning of Other-Than-Temporary Impairment and
its  Application  to Certain  Investments."  EITF Issue No. 03-1  addresses  the
meaning of other  than  temporary  impairment  and its  application  to debt and
equity  securities  within the scope of SFAS No.  115,  certain  debt and equity
securities  within the scope of SFAS No. 124, and equity securities that are not
subject to the scope of SFAS No. 115 and accounted for under the equity  method.
In September  2004, the FASB issued FASB Staff  Position  ("FSP") EITF Issue No.
03-1-1,  which  delays  the  effect  date for the  recognition  and  measurement
guidance in EITF Issue No. 03-1. In addition, the FASB has issued a proposed FSP
to consider  whether  further  application  guidance is necessary for securities
analyzed  for  impairment  under EITF issue No. 03-1.  The Company  continues to
assess the potential  impact that the adoption of the proposed FSP could have on
our financial statements.

      In  December  2004,   the  FASB  issued  SFAS  No.  123  (Revised   2004),
"Share-Based  Payment," that addresses the  accounting for  share-based  payment
transactions in which a Company receives  employee  services in exchange for (a)
equity  instruments of the Company or (b) liabilities that are based on the fair
value of the Company's equity instruments or that may be settled by the issuance
of such equity  instruments.  SFAS No. 123R  addresses all forms of  share-based
payment  awards,  including  shares issued under employee stock purchase  plans,
stock options,  restricted stock and stock  appreciation  rights.  SFAS No. 123R
eliminates  the ability to account  for  share-based  compensation  transactions
using APB Opinion No. 25,  "Accounting for Stock Issued to Employees",  that was
provided in Statement 123 as originally  issued.  Under SFAS No. 123R  companies
are required to record  compensation  expense for all share based  payment award
transactions  measured at fair value.  This  statement is effective for quarters
ending after June 15,  2005.  The Company has not yet  determined  the impact of
applying the various provisions of SFAS No. 123R.


                                       28
<PAGE>

Item 7. Management's Discussions and Analysis of Financial Condition and Results
        of Operations (continued)

      In November  2004, the FASB issued SFAS No. 151  "Inventory  Costs".  This
Statement amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing",  to
clarify the accounting for abnormal amounts of idle facility  expense,  freight,
handling costs,  and wasted  material  (spoilage).  In addition,  this Statement
requires that allocation of fixed production overhead to the costs of conversion
be based on the normal capacity of the production facilities.  The provisions of
this Statement will be effective for the Company  beginning with its fiscal year
ending  2005.  The  Company  is  currently  evaluating  the  impact  of this new
standard,  but believes that it will not have a material impact on the Company's
financial position, results of operations or cash flows.

      In December 2004, the FASB issued SFAS No. 153 "Exchanges of  Non-monetary
Assets - an amendment of APB Opinion No. 29". This Statement amended APB Opinion
No.  29 to  eliminate  the  exception  for  non-monetary  exchanges  of  similar
productive  assets and  replaces it with a general  exception  for  exchanges of
non-monetary  assets  that do not  have  commercial  substance.  A  non-monetary
exchange  has  commercial  substance  if the future cash flows of the entity are
expected to change  significantly  as a result of the  exchange.  The Company is
currently evaluating the impact of this new standard,  but believes that it will
not have a material  impact upon the Company's  financial  position,  results of
operations or cash flows.

      Shipping and handling  billings  and costs have been  reclassified  in the
2002 financial  statements to conform to the 2004 and 2003  financial  statement
presentation  and the  provisions  of  Emerging  Issues  Task  Force No. 00 -10,
"Accounting for Shipping and Handling Fees and Costs".  These  reclassifications
have no effect  on  reported  net  income.  In 2002,  the  Company  reclassified
$143,149 of shipping  fees to net sales and $174,911 to cost of sales.  Selling,
general and administrative expenses were reduced accordingly.

      The  effect  of  inflation  has  not  been  significant  upon  either  the
operations or financial condition of the Company.

Cautionary Statement Regarding Forward Looking Statements

      The  statements  contained in this Report on Form 10-K that are not purely
historical are 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,  including  statements  regarding  the  Company's   expectations,   hopes,
intentions,  beliefs or  strategies  regarding  the future,  including,  without
limitation,  it's plans regarding distribution and marketing of its products and
the  development,  acquisition  and marketing of new products.  Forward  looking
statements  include  the  Company's   liquidity,   anticipated  cash  needs  and
availability, and the anticipated expense levels under the heading "Management's
Discussion and Analysis of Financial  Condition and Results of Operations."  All
forward  looking  statements  included in this document are based on information
available to the Company on the date of this report,  and the Company assumes no
obligation to update any such forward looking statement. It is important to note
that the Company's  actual results could differ  materially from those expressed
or implied in such forward-looking statements.


                                       29
<PAGE>

Item 7. Management's Discussions and Analysis of Financial Condition and Results
        of Operations (continued)

Application of Critical Accounting Estimates

      The  preparation  of  financial  statements  requires  management  to make
estimates and judgments that affect the reported amounts of assets, liabilities,
sales and expenses, and related disclosure of contingent assets and liabilities.
On an ongoing basis,  management  evaluates  these  estimates,  including  those
related to bad debts, inventories, investments, intangible assets, income taxes,
restructuring,   and  contingencies  and  litigation.   Management  bases  these
estimates  on  historical  experience  and on  various  other  assumptions  that
management  believes to be reasonable  under the  circumstances,  the results of
which form the basis for making  judgments  about the carrying  values of assets
and liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or conditions.

      Management  believes  the  following  critical  accounting  estimates  are
significant in preparation of our financial statements.

Allowance for Sales Returns

      The  Company  records  product  sales  when  persuasive   evidence  of  an
arrangement  exists,  shipment has occurred,  the price to the buyer is fixed or
determinable,  and collectibility is reasonably assured.  Catalog sales are sold
on a cash basis with a 30-day  guarantee.  Returns  have been less than  $10,000
annually  for the last five  years.  A  provision  is made at the time sales are
recognized for the estimated cost of product warranties. Private label sales are
sold on account and are  collected in 30 to 45 days. If there is a production or
packaging problem, the Company would correct the problem and replace the product
sold. To minimize that possibility,  the Company inspects all production batches
before they are packaged to insure quality, efficacy, and consistency.

Inventory Valuation

      Shifting  sales  from one item in our  product  line to another or minimum
production  requirements  may  create a  situation  where  inventory  levels  of
specific  items may  exceed  the  annual  sales of that  item.  This can  create
inventory levels in excess of net realizable value. Management regularly reviews
inventory quantities on hand and, where necessary, records provisions for excess
and obsolete  inventory based on either estimated  forecast of product demand or
historical  usage of the  product.  If sales do not  materialize  as  planned or
decline  below  historic  levels,  management  increases  the reserve for excess
(quantities  in excess of one year's sales) and obsolete  inventory.  This would
reduce earnings and cash flows.


                                       30
<PAGE>

Item 7. Management's Discussions and Analysis of Financial Condition and Results
        of Operations (continued)

      Packaging  changes are planned far in advance in order to limit the impact
of out-dated or obsolete  components.  Private  label  customers are required to
prepay the cost of  packaging  materials  in order to take  advantage  of volume
discounts and protect the Company from any sudden packaging changes.

Item 7A. Quantitative and Qualitative Disclosure About Market Risk

      The  Company  does not have any  exposure  to  market  risk as it does not
engage in any activities with derivative financial instruments,  other financial
instruments,  or  derivative  commodity  instruments,  other than the  temporary
investment  of  available  cash in U.S.  Treasury  instruments,  cash,  and cash
equivalent instruments having a similar risk profile.

Item 8. Financial Statements and Supplementary Data

      The  Financial  Statements  of the  Company are  contained  in this report
following Item 14.

Item  9.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
Financial Disclosure

      None.

Item 9A. Controls and Procedures

      As of the end of the period covered by this annual report (the "Evaluation
Date"),  the Company has carried out an evaluation,  under the  supervision  and
with the participation of management,  including its Chief Operating Officer and
Chief Financial Officer, of the effectiveness of the design and operation of the
Company's  disclosure  controls and  procedures  pursuant to SEC Rule  13a-15(b)
under the  Securities  Exchange Act of 1934,  as amended (the  "Exchange  Act").
Based upon that  evaluation,  the Chief  Operating  Officer and Chief  Financial
Officer  concluded  that the Company's  disclosure  controls and  procedures (as
defined in SEC Rule 13a-15(e) are effective as of the Evaluation Date.

      There have been no significant  changes in the Company's internal controls
or in other factors that could significantly affect internal controls subsequent
to the date that the Company carried out is evaluation.

      Disclosure  controls and procedures are controls and other procedures that
are  designed  to  ensure  that  information  required  to be  disclosed  in the
Company's  reports or submitted  under the Exchange Act is recorded,  processed,
summarized  and  reported,  within the time  period  specified  in the rules and
procedures  required  pursuant to the  Exchange  Act.  Disclosure  controls  and
procedures,  include,  without  limitation,  controls and procedures designed to
ensure that information  required to be disclosed in the Company's reports filed
under the Exchange Act is accumulated and communicated to


                                       31
<PAGE>

Item 9A. Controls and Procedures (continued)

management,  including the company's Chief Executive Officer and Chief Financial
Officer, to allow timely decisions regarding required disclosure.

      It should be noted that any system of controls,  however well designed and
operated,  can provide only  reasonable,  and not absolute,  assurance  that the
objectives  of the system  will be met. In  addition,  the design of any control
system is based in part upon  assumptions  about the likelihood of future events
and may fail to reveal  information  that  would  require  disclosure  if events
deviate from the assumptions made by Management.


                                       32
<PAGE>

                                    PART III

Item 10. Directors and Executive Officers of the Registrant

Identification of Directors and Executive Officers

Listed  below are the  directors  and  executive  officers  of the Company as of
December 31, 2004:

      Name                    Position
      ----                    --------
      Richard Banakus         Director, Chairman and Interim President
      Karen Gray              Director
      Joshua Rochlin          Director
      Ronald J. Saul          Director
      Terrence S. McGrath     Chief Operating Officer
      William A. Lauby        Chief Financial Officer

Business Experience

      Richard  Banakus,  age 58, has served as a director of the  Company  since
June 1995 and as Interim President of the Company since September 19, 1997. From
April  1991 to the  present,  Mr.  Banakus  has  been a  private  investor  with
interests in a number of privately and publicly held  companies.  From July 1988
through  March 1991,  he was managing  partner of Banyan  Securities,  Larkspur,
California, a securities brokerage firm that he founded.

      Joshua  Rochlin,  age 38,  has served as  director  of the  Company  since
January 2000. Mr. Rochlin  joined Marc Ecko  Enterprises,  a producer of fashion
based streetwear and accessories,  in June 2004 as the Vice President,  Strategy
and Special  Projects.  He was Senior Vice President of Business  Development at
GoAmerica,  a wireless  Internet service  provider,  from 1999 to 2004. Prior to
joining  GoAmerica,  Mr. Rochlin was the founder and Chief Executive  Officer of
MyCalendar.com, LLC from December 1998 to December 1999. He previously served as
an  associate  for the law firm of Rubin Baum Levin  Constant & Friedman  in New
York City from February 1995 to December 1998.

      Karen Gray, age 46, has served as a director of the Company since December
1997 and was a consultant to the Company on marketing and communications matters
from  November 1996 to December  1999.  Ms. Gray has over 17 years of management
experience  in  marketing  communications  in various  capacities  with  various
companies.  From 1993 to  November  1996,  Ms.  Gray  served as Vice  President,
Corporate  Communications,  of the Company. From June 1992 to November 1993, Ms.
Gray served as President of MarCom Associates,  Inc., a marketing communications
company that she founded.

      Ronald J. Saul,  age 57, has served as a  director  of the  company  since
January 2003.  From  September 1992 to the present Mr. Saul has been a financial
consultant. From October 1985 through August 1992 Mr. Saul was the Treasurer and
Vice President of National  Intergroup,  a multi company holding  company.  From
November 1970 to


                                       33
<PAGE>

Item 10. Directors and Executive Officers of the Registrant (continued)

September  1985, Mr. Saul held various  accounting and financial  positions with
National Intergroup Inc. and its successor company National Steel Corporation.

      Terrence S. McGrath,  age 47, has served as Chief Operating Officer of the
Company since January 2000. Mr. McGrath has more than 20 years' marketing, brand
management  and  sales  experience  in a  diverse  range of  consumer  goods and
cosmetic  categories  including  Procter & Gamble Toiletries  Division,  Noxell,
makers of Cover Girl and Noxzema  products  where he specialized in new category
product  development;  The  Isaly  Klondike  Company  where  he  served  as Vice
President  Marketing  for Klondike  Ice Cream;  and Pioneer  Products,  where he
served  as Vice  President  Marketing  and  Sales  for  Betty  Crocker  licensed
products.

      William A.  Lauby,  age 61, has served as Chief  Financial  Officer of the
Company since March 2000.  Mr. Lauby has over 20 years'  experience in companies
that  manufacture and market consumer  products,  including The Seven-Up Company
and Isaly Klondike Company.  He held the position of Chief Financial Officer for
these companies as well as for a pension and welfare organization.  He is a CPA,
obtaining his experience with Ernst & Young.

Director and Officer Resignations

      Mr.  Joshua  Rochlin has  resigned  from the Board of  Directors of Hydron
Technologies,  Inc. effective March 31, 2005 due to his increased commitments at
Marc Ecko Enterprises.  In addition,  William A. Lauby has resigned his position
as Chief  Financial  Officer  effective  march 30, 2005 in order to pursue other
career  possibilities and to be closer to his family.  The Principal  Accounting
Officer  position  will be contracted  for the short term until the  operational
alternatives are solidified.

Compliance with Section 16(A) of the Securities Exchange Act of 1934

      The Company's  officers,  directors and beneficial owners of more than 10%
of any class of its equity securities  registered  pursuant to Section 12 of the
Securities Exchange Act of 1934 ("Reporting Persons") are required under the Act
to file  reports  of  ownership  and  changes  in  beneficial  ownership  of the
Company's equity securities with the Securities and Exchange Commission.  Copies
of those reports must also be furnished to the Company. Based solely on a review
of the copies of reports  furnished  to the  Company  pursuant  to the Act,  the
Company  believes  that  during the year ended  December  31,  2004;  all filing
requirements applicable to Reporting Persons were complied with.

Item 11. Executive Compensation

      The following  table sets forth  information  for the years ended December
31, 2004, 2003 and 2002 with respect to all compensation  awarded to, earned by,
or paid to the Company's Chief Executive  Officer,  Chief Operating  Officer and
Chief Financial Officer. None of the Company's other executive officers received
salary and bonus  payments in excess of $100,000  during the year ended December
31, 2004.

                                       34
<PAGE>

Item 11. Executive Compensation (continued)

                           SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
                                           Annual Compensation                           Long-Term Compensation
                                    ---------------------------------    ----------------------------------------------
                                                                                   Awards                  Payouts
                                                                         ----------------------------------------------
                                                                                         Securities
   Name and Principal                                    Other Annual   Restricted       Under- Lying        LTIP        All Other
        Position             Year      Salary    Bonus   Compensation   Stock Award(s)   Options/ SARs       Payouts    Compensation
------------------------------------------------------------------------------------------------------------------------------------
<S>                           <C>      <C>         <C>         <C>            <C>           <C>                <C>
Richard Banakus, Chairman     2004     $ 10,530    --          --             --            198,500            --             --
                           ---------------------------------------------------------------------------------------------------------
                              2003     $ 10,530    --          --             --                --             --             --
                           ---------------------------------------------------------------------------------------------------------
                              2002     $  6,000    --          --             --                --             --             --
------------------------------------------------------------------------------------------------------------------------------------
Terrence S. McGrath, COO      2004     $125,000    --          --             --            425,000            --             --
                           ---------------------------------------------------------------------------------------------------------
                              2003     $125,000    --          --             --                --             --             --
                           ---------------------------------------------------------------------------------------------------------
                              2002     $125,000    --          --             --                --             --             --
------------------------------------------------------------------------------------------------------------------------------------
William A. Lauby, CFO         2004     $110,000    --          --             --            225,000            --             --
                           ---------------------------------------------------------------------------------------------------------
                              2003     $110,000    --          --             --                --             --             --
                           ---------------------------------------------------------------------------------------------------------
                              2002     $110,000    --          --             --                --             --             --
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

      During  2004,  the members of the Board were  granted  options to purchase
20,000 shares of the Company's  common stock for  participation on the Company's
Board of  Directors  and an  additional  5,000 shares if they were on a Board of
Directors committee.

      The Board of Directors had approved in prior years the issuance of 178,500
options to  Chairman,  Richard  Banakus,  425,000  options to COO,  Terrence  S.
McGrath and 225,000 options to CFO, William A. Lauby, subject to the approval of
the 2003 Stock Plan. The  shareholders at the November 15, 2004 meeting approved
the 2003 Stock Plan.  Therefore  theses options are reflected as being issued in
2004.

      The  following  table sets forth  certain  information  relating to option
exercises  effected  during the year ended  December 31, 2004,  and the value of
options held as of such date by the Company's  Chief  Executive  Officer and all
other persons who were  executive  officers of the Company and its  subsidiaries
for the year ended December 31, 2004. The Company does not have any  outstanding
stock appreciation rights.


                                       35
<PAGE>

Aggregate  Option  Exercises  for the Year Ended  December 31, 2004 and Year End
Option Values

Item 11. Executive Compensation (continued)

<TABLE>
<CAPTION>
                                                                Number of
                                                          securities underlying      Value(1) of unexercised
                                                           unexercised options        In-the-money options
                                                           at December 31, 2004       at December 31, 2004
Name                  Shares Acquired     Value ($)            Exercisable/              Exercisable/
                        On Exercise      Realized(2)          Unexercisable              Unexercisable
<S>                       <C>              <C>                    <C>                        <C> <C>
Richard Banakus           -0-              -0-                    1,875,500(3)               $0/-0-
Terence S. McGrath        -0-              -0-                    425,000                  $36,000/-0-
William A. Lauby          -0-              -0-                    225,000                    $0/-0-
</TABLE>
Employment Agreement

      There were no employment contracts in 2004, 2003, and 2002.

Compensation of Directors

      Employees of the Company who also serve as  directors  are not entitled to
any additional  compensation  for such service,  except for Mr. Richard Banakus,
Chairman of the Board,  because of his status as Interim President.  The Company
does not have a written employment agreement with Mr. Banakus.

      Nonemployee  directors  and Mr.  Banakus  receive an annual fee of $5,000,
accrued  quarterly.  During 2004, each of Messrs.  Richard Banakus,  Karen Gray,
Joshua  Rochlin,  and  Ronald J. Saul  earned  $5,000  for  their  service  as a
director.  As of December 31, 2004, unpaid  directors' fees total  approximately
$81,000.

----------
(1) Total value of  unexercised  options is based upon the closing price ($0.18)
of Common Stock as reported by NASDAQ on December 30, 2004.

(2) Value  realized in dollars is the amount that the  shareholder  is deemed to
have  received  as the  result  of the  exercise  of  options,  based  upon  the
difference  between  the fair  market  value of the Common  Stock as reported by
NASDAQ on the date of exercise and the exercise price of the options.

(3) Includes  1,250,000  unexercised  options purchased in the Company's private
placement completed December 10, 2002; 200,000 unexercised warrants purchased in
the Company's Private Placement completed November 13, 2003; and 125,000 options
received in a bridge loan  agreement  with the Company dated August 4, 2003; and
300,500 options received through the Company's Stock Option Plans.


                                       36
<PAGE>

Item 12.  Security  Ownership of Certain  Beneficial  Owners and  Management and
          Related Stockholder Matters

      The  following  table sets  forth  information  as of  December  31,  2004
regarding (i) the share  ownership of the Company by each person who is known to
the Company to be the record or beneficial  owner of more than five percent (5%)
of the Common Stock,  (ii) the share  ownership of each director of the Company,
(iii) the Chief Executive Officer of the Company and each other most highly paid
executive  officer of the Company  who earned in excess of  $100,000  during the
year ended December 31, 2004, and (iv) the share ownership of the Company of all
directors and executive officers of the Company, as a group (six persons).

Name and Address of       Amount and Nature of         Approximate
Beneficial Owner          Beneficial Ownership      Percent of Class

Richard Banakus               3,680,740(4)                32.8%
2201 W. Sample Road
Bldg. 9, Ste. 7B
Pompano Beach, FL 33073

Karen Gray                      141,000(5)                 1.5%
2201 W. Sample Road
Bldg. 9, Ste. 7B
Pompano Beach, FL 33073

Joshua Rochlin                  140,000(6)                 1.5%
2201 W. Sample Road
Bldg. 9, Ste. 7B
Pompano Beach, FL 33073

Ronald J. Saul                1,329,740(7)                13.4%
2201 W. Sample Road
Bldg. 9, Ste. 7B
Pompano Beach, FL 33073

----------
(4) Consists of 1,767,740  shares held  directly and 1,913,000  shares  issuable
upon exercise of options and warrants.

(5) Consists of 3,000  shares held  directly and 138,000  shares  issuable  upon
exercise of options.

(6) Consists of 140,000 shares issuable upon exercise of options.

(7) Consists of 704,740  shares held directly and 625,000  shares  issuable upon
exercise of options and warrants.


                                       37
<PAGE>

Item 12.  Security  Ownership of Certain  Beneficial  Owners and  Management and
          Related Stockholder Matters (continued)

Name and Address of       Amount and Nature of         Approximate
Beneficial Owner          Beneficial Ownership      Percent of Class

Terrence S. McGrath            425,000(8)                  4.4%
2201 W. Sample Road
Bldg. 9, Ste. 7B
Pompano Beach, FL 33073

William A. Lauby               226,000(9)                  2.4%
2201 W. Sample Road
Bldg. 9, Ste. 7B
Pompano Beach, FL 33073

All directors and
executive officers
as a group (6 persons)        5,942,480(10)               46.5%

Item 13. Certain Relationships and Related Transactions

No applicable transactions.

----------
(8) Consists of 425,000 shares issuable upon exercise of options.

(9) Consists of 1,000  shares held  directly and 225,000  shares  issuable  upon
exercise of options.


(10) Consists of 2,476,480  shares held directly and 3,466,000  shares  issuable
upon exercise of options.


                                       38
<PAGE>

                                     PART IV

Item 14. Principle Accountant Fees and Services

      The following  table sets forth the aggregate fees billed by the Company's
principal accountant, DaszkalBolton LLP.

                                                    2004         2003
                                                  ---------    ---------
      Audit fees                                  $  29,568    $  40,199
      Audit-related fees                              1,150           --
      Tax fees (Tax compliance and planning)          7,500        7,000
      All ther fees                                      --           --
                                                  ---------    ---------
                                                  $  38,218    $  47,199
                                                  =========    =========

      Under the procedures of the Company's audit committee, prior to engagement
of the Company's auditors to provide audit services and non-audit services,  the
audit  committee  considers  whether the  provisions of such  services  would be
compatible  with  maintaining  the  independence  of  the  Company's   principal
accountants,  and  has  determined  that  the  provision  of  such  services  is
compatible with such accountants' independence.

Item 15. Exhibits, Financial Statement Schedules and reports on Form 8-K

(a)(1) Financial Statements
The  following  financial  statements  required by Item 8 follow Item 14 of this
Report:

                                                                        Page

Reports of Independent Certified Public Accountants                     41

Financial Statements:
      Balance Sheets
      December 31, 2004 and 2003                                        42

      Statements of Operations
      Years ended December 31, 2004, 2003, and 2002                     43

      Statements of Changes in Shareholders'
      Equity for the Years ended December 31, 2004, 2003, and 2002      44

      Statements of Cash Flow
      Years ended December 31, 2004, 2003, and 2002                     45

      Notes to Financial Statements                                     46 - 59


                                       39
<PAGE>

Item  15.  Exhibits,  Financial  Statement  Schedules  and  reports  on Form 8-K
(continued)

(a)(2) All financial  schedules are omitted as the required  information  is not
present,  is not in significant  amounts sufficient to require submission of the
schedules  or because the  information  required  is  included in the  Financial
Statements or notes thereto.

(a)(3) Exhibits

3.1   Restated  Certificate  of  Incorporation  of  Dento-Med  Industries,  Inc.
      ("Dento-Med"),  as filed with the  Secretary of State of New York on March
      4, 1981.(11v

3.2   Certificate of Amendment of the Certificate of  Incorporation of Dento-Med
      as filed with the Secretary of State of New York on September 7, 1984.(12)

3.3   By-laws of the Company, as amended March 17, 1988.(13

3.4   Certificate of Change of Dento-Med as filed with the Secretary of State of
      New York on July 14, 1988.(12)

3.5   Certificate of Amendment of the Restated  Certificate of  Incorporation of
      Dento-Med,  as filed with the  Secretary  of State of New York on November
      14, 1988.(14)

3.6   Certificate of Amendment of the Restated  Certificate of  Incorporation of
      Dento-Med,  as filed with the  Secretary  of State of New York on July 30,
      1993.(15)

3.7   Certificate of Amendment of the Restated  Certificate of  Incorporation of
      Hydron  Technologies,  Inc.,  as filed with the  Secretary of State of New
      York on April 10, 2002.(12)

4.1   Non-Qualified Stock Option Plan.(16)

4.2   Registration  Rights  Agreement dated July 11, 2002, by and between Hydron
      Technologies, Inc. and Life International Products, Inc.(12

4.3   Warrant  Agreement  dated November 14, 2003 between  Hydron  Technologies,
      Inc. and the parties named therein.(12)

10.1  Subscription   Agreement   dated   November   22,  2002   between   Hydron
      Technologies, Inc. and the subscribers named therein.12

10.2  Subscription   Agreement   dated   September   31,  2003  between   Hydron
      Technologies, Inc. and the subscribers named therein.(12)

----------

(11) Incorporated by reference to the Company's report on Form 10-K for the year
ended December 31, 1985.

(12)  Incorporated  by  reference  to the  Company's  report  on Form S-3  filed
February 11, 2004.

(13) Incorporated by reference to the Company's report on Form 10-K for the year
ended December 31, 1987.

(14) Incorporated by reference to the Company's report on Form 10-K for the year
ended December 31, 1988.

(15) Incorporated by reference to the Company's report on Form 10-K for the year
ended December 31, 1993.

(16) Incorporated by reference to the Company's report on Form 10-K for the year
ended December 31, 1986.


                                       40
<PAGE>

Item  15.  Exhibits,  Financial  Statement  Schedules  and  reports  on Form 8-K
(continued)

10.3  Agreement dated July 11, 2002 between Hydron  Technologies,  Inc. and Life
      International Products, Inc.(12)

10.4  1997 Nonemployee Director Stock Option Plan.(17)

10.5  Bridge Loan Term Sheet for Interim Loans Between Hydron Technologies,  Inc
      and Members of the Board of Directors.(12)

10.6  2003 Stock Plan(18)

      herewith).

(b) Reports on Form 8-K
      -Current Report on Form 8-K, dated  September 30, 2004 reporting item 8.01
            Other Events; formed a Limited Liability Limited Partnership

----------
(17)  Incorporated by reference to the Company's  Definitive  Proxy Statement on
Schedule 14A for the year ended December 31, 1996.

(18)  Incorporated by reference to the Company's  Definitive Proxy Statement for
the year ended December 31, 2003.


                                       41
<PAGE>

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
Hydron Technologies, Inc.

      We have audited the  accompanying  balance sheets of Hydron  Technologies,
Inc. as of December 31, 2004 and 2003, and the related statements of operations,
changes in  shareholders'  equity and cash flows for each of the three  years in
the  period  ended  December  31,  2004.  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 audit in  accordance  with the  standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain  reasonable  assurance about whether the
financial  statements  are  free  of  material  misstatement.  The  Company  has
determined  that it is not required to have, nor were we engaged to perform,  an
audit of its  internal  control over  financial  reporting.  Our audit  included
consideration  of  internal  control  over  financial  reporting  as a basis for
designing audit  procedures that are appropriate in the  circumstances,  but not
for the purpose of expressing an opinion on the  effectiveness  of the Company's
internal  control  over  financial  reporting.  Accordingly,  we express no such
opinion. An audit also includes examining,  on a test basis, evidence supporting
the  amounts  and  disclosures  in  the  financial  statements,   assessing  the
accounting  principles  used, and significant  estimates made by management,  as
well as evaluating the overall financial statement presentation. We believe that
our audit provides 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 Hydron Technologies, Inc. at
December 31, 2004 and 2003,  and the results of their  operations and their cash
flows for each of the three  years in the  period  ended  December  31,  2004 in
conformity with accounting principles generally accepted in the United States of
America.

      The  accompanying  financial  statements  have been prepared  assuming the
Company will continue as a going concern.  The Company  experienced  losses from
operations in 2004, 2003 and 2002. These matters raise  substantial  doubt about
the Company's ability to continue as a going concern. Management has implemented
direct marketing  techniques to increase the more profitable  catalog sales, add
new customers,  and take advantage of new channels of distribution  (see Note 13
to  Financial   Statements).   The  financial  statements  do  not  include  any
adjustments that might result from the outcome of this uncertainty.


/s/: DaszkalBolton LLP
----------------------
Boca Raton, Florida
March 23, 2005


                                       42
<PAGE>

                            HYDRON TECHNOLOGIES, INC.

                      Condensed Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                              December 31,
                                                                          2004            2003
                                                                      ------------    ------------
<S>                                                                   <C>             <C>
                                               ASSETS
Current Assets
Cash and cash equivalents                                             $    339,679    $    964,723
Trade accounts receivable                                                    9,614          10,191
Inventories                                                                481,996         520,032
Prepaid expenses and other current assets                                   67,190          34,422
                                                                      ------------    ------------
Total current assets                                                       898,479       1,529,368

Property and equipment, less accumulated
depreciation of $209,329 and $204,361 at
2004 and 2003, respectively                                                 12,673          17,641
Deposits                                                                    19,587          19,587
Deferred product costs, less accumulated
amortization of $162,135 and $133,186 at
2004 and 2003, respectively                                                189,683         176,491

                                                                      ------------    ------------
Total Assets                                                          $  1,120,422    $  1,743,087
                                                                      ============    ============

                                LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable                                                      $     90,440    $     42,229
Loans payable                                                                  751           4,803
Royalties payable                                                           29,132         127,437
Deferred revenues                                                           91,180         165,164
Accrued liabilities                                                        229,953         234,954
                                                                      ------------    ------------
Total current liabilities                                                  441,456         574,587

Commitments and contingencies                                                   --              --
Minority interest in consolidated partnership                              285,191              --

Shareholders' equity
Preferred stock - $.01 par value
5,000,000 shares authorized; no shares issued
or outstanding                                                                  --              --
Common stock - $.01 par value
30,000,000 shares authorized; 9,320,336 shares issued and 9,310,336
shares outstanding at 2004; 9,320,336 shares issued and 9,260,136
shares
outstanding at 2003                                                         93,203          93,203
Additional paid-in capital                                              20,736,049      21,086,237
Accumulated deficit                                                    (20,427,661)    (19,571,782)
Treasury stock, at cost; 10,000 at 2004
and 60,200 shares at 2003                                                   (7,816)       (439,158)
                                                                      ------------    ------------
Total Shareholders' equity                                                 393,775       1,168,500

                                                                      ------------    ------------
Total liabilities and shareholders equity                             $  1,120,422    $  1,743,087
                                                                      ============    ============
</TABLE>

      See accompanying notes to condensed consolidated financial statements


                                       43

<PAGE>


                            HYDRON TECHNOLOGIES, INC.
                 Condensed Consolidated Statement of Operations

<TABLE>
<CAPTION>
                                                            Year ended December 31,
                                                       2004           2003           2002
                                                   -----------    -----------    -----------
<S>                                                <C>            <C>            <C>
Net Sales                                          $ 1,185,416    $ 1,219,710    $ 1,671,641
Cost of sales                                          525,317        585,186        763,358
                                                   -----------    -----------    -----------
Gross profits                                          660,099        634,524        908,283

Expenses
Royalty expense                                         36,331             --             --
Research and development                               279,965         98,568         68,257
Selling, general & administration                    1,184,323      1,178,211      1,430,170
Depreciation & amortization                             33,917        193,039        315,724
                                                   -----------    -----------    -----------
Total expenses                                       1,534,536      1,469,818      1,814,151

                                                   -----------    -----------    -----------
Operating loss                                        (874,437)      (835,294)      (905,868)

Interest income (Loss) - net of interest expense         3,749       (101,562)         1,028
                                                   -----------    -----------    -----------
Loss before income taxes                              (870,688)      (936,856)      (904,840)

Minority interest in net loss                           14,809             --             --
Income taxes expense                                        --             --             --
                                                   -----------    -----------    -----------
Net loss                                           $  (855,879)   $  (936,856)   $  (904,840)
                                                   ===========    ===========    ===========

Basic and diluted loss per share
Net loss per common share                          $     (0.09)   $     (0.13)   $     (0.17)
                                                   ===========    ===========    ===========

Weighted average shares
outstanding (basic and diluted)                      9,272,789      7,340,766      5,201,369
                                                   ===========    ===========    ===========
</TABLE>

      See accompanying notes to condensed consolidated financial statements


                                       44
<PAGE>

                            HYDRON TECHNOLOGIES, INC.

            Condensed Consolidated Statement of Shareholders' Equity

<TABLE>
<CAPTION>

                                     Common Stock        Preferred Stock   Additional                      Treasury
                              --------------------------  --------------     Paid-in     Accumulated       Stock          Total
                                 Shares        Amount     Shares  Amount     Capital        Deficit      (at cost)        Equity
                              ------------  ------------  ------  ------  ------------   ------------   ------------   ------------
<S>                              <C>        <C>             <C>    <C>    <C>            <C>            <C>            <C>
Balance at December 31, 2001     5,035,336  $     50,353    --     $  --  $ 19,501,837   $(17,730,086)  $   (439,158)  $  1,382,946

Issuance of Common shares
for license agreement              325,000         3,250    --        --        52,000             --             --         55,250
Private placement of
common shares                    1,750,000        17,500    --        --       332,500             --             --        350,000
Compensation expense from
stock option awards                     --            --    --        --         4,250             --             --          4,250
Net loss                                --            --    --        --            --       (904,840)            --       (904,840)
                              ------------  ------------  ------  ------  ------------   ------------   ------------   ------------
Balance at December 31, 2002     7,110,336        71,103    --        --    19,890,587    (18,634,926)      (439,158)       887,606

Private placement of
common shares                    2,210,000        22,100    --        --     1,082,900             --             --      1,105,000
Compensation expense from
stock option awards                     --            --    --        --       112,750             --             --        112,750
Net loss                                --            --    --        --            --       (936,856)            --       (936,856)
                              ------------  ------------  ------  ------  ------------   ------------   ------------   ------------
Balance at December 31, 2003     9,320,336        93,203    --        --    21,086,237    (19,571,782)      (439,158)     1,168,500

Sale of Treasury Stock                  --            --    --        --      (409,188)            --        431,342         22,154
Compensation expense from
stock option awards                     --            --    --        --        59,000             --             --         59,000
Net loss                                --            --    --        --            --       (855,879)            --       (855,879)
                              ------------  ------------  ------  ------  ------------   ------------   ------------   ------------
Balance at December 31, 2004     9,320,336  $     93,203    --     $  --  $ 20,736,049   $(20,427,661)  $     (7,816)  $    393,775
                              ============  ============  ======  ======  ============   ============   ============   ============
</TABLE>

      See accompanying notes to condensed consolidated financial statements


                                       45

<PAGE>

                            HYDRON TECHNOLOGIES, INC.

                 Condensed Consolidated Statements of Cash Flow

<TABLE>
<CAPTION>
                                                                        Year ended December 31,
Operating Activities                                                 2004          2003         2002
                                                                 -----------   -----------   -----------
<S>                                                              <C>           <C>           <C>
      Net Loss                                                   $  (855,879)  $  (936,856)  $  (904,840)
      Adjustments to reconcile net loss to
      net cash used by operating activities
      Minority Interest                                              (14,809)           --            --
      Depreciation and amortization                                   33,917       193,039       315,724
      Compensation expense from stock option awards                   59,000        11,188         4,250
      Interest expense from stock option awards                           --       101,562            --

      Change in operating assets and liabilities
      Trade accounts receivables                                         577        29,809        21,444
      Inventories                                                     38,036       222,497       421,768
      Prepaid expenses and other current assets                      (32,768)        5,585         3,443
      Deposits                                                            --         1,229         7,386
      Accounts payable                                                48,211       (91,754)       17,424
      Royalties payable                                              (98,305)           --            --
      Deferred revenues                                              (73,984)       68,774       (52,256)
      Accrued liabilities                                             (5,002)       11,821       (37,460)
                                                                 -----------   -----------   -----------
      Net cash used by operating activities                         (901,006)     (383,106)     (203,117)

Investing activities
      Capital Expenditures, net                                           --       (15,308)           --
      Deferred product costs                                         (42,141)      (37,802)      (22,814)
                                                                 -----------   -----------   -----------
      Net cash used by investing activities                          (42,141)      (53,110)      (22,814)

Financing activities
      Proceeds from bridge loan                                           --       250,000            --
      Repayment of bridge loan                                            --      (250,000)           --
      Proceeds from private placement of 2,210,000 shares
      of Common Stock                                                     --     1,105,000       350,000
      Net cash provided from new loans payable                        (4,051)        4,803            --
      Proceeds from sale of Treasury Stock                            22,154            --            --
      Increase in minority interest of consolidated partnership      300,000            --            --
                                                                 -----------   -----------   -----------
      Net cash provided by financing activities                      318,103     1,109,803       350,000

                                                                 -----------   -----------   -----------
      Net increase (decrease) in cash and cash equivalents          (625,044)      673,587       124,069

      Cash and cash equivalents at beginning of period               964,723       291,136       167,067

                                                                 -----------   -----------   -----------
      Cash and cash equivalents at end of period                 $   339,679   $   964,723   $   291,136
                                                                 ===========   ===========   ===========

      Noncash investing and financing activities
      Market value of stock issued for license agreement         $        --   $        --   $    55,250
</TABLE>

      See accompanying notes to condensed consolidated financial statements


                                       46
<PAGE>


                            Hydron Technologies, Inc.

                          Notes to Financial Statements

                    December 31, 2004, 2003, and 2002

1. Description of Business and Summary of Significant Accounting Policies

Organization of Business

      Hydron(R)   Technologies,   Inc.  (the   "Company")   sells  consumer  and
professional  products,  primarily in the  personal  care/cosmetics  field.  The
Company holds the exclusive  license with GP  Strategies  Corporation  (formerly
National Patent Development  Corporation)  ("GPS") to a Hydron(R)  polymer-based
drug  delivery  system for  topically  applied,  nonprescription  pharmaceutical
products,  which the Company intends to use to develop  proprietary  products or
license to third parties.  The Company owns U.S. and international  patents on a
method to suspend the Hydron  polymer in a stable  emulsion  for use in personal
care/cosmetic products.

      The Company is also committed to the research and  development of products
and medical  applications  associated  with its proprietary  tissue  oxygenation
technology.  The  Company  owns U.S.  and  international  patents on a method to
infuse oxygen into the skin and tissue topically without using the blood stream.
The oxygenation  technology is being submitted to the Food & Drug Administration
to obtain the necessary approvals for medical applications.

      Over 98% of the Company's  products are sold in the United States directly
to the consumer  through  Catalog sales and the  internet,  and to private label
customers.  Less  than 2% of the  Company's  products  are sold  internationally
through salons and doctors' offices.

Principles of Consolidation

      The  consolidated  financial  statements  include  the  accounts of Hydron
Technologies,  Inc. and a majority owned limited liability limited  partnership,
Hydron Royalty Partners,  LLLP.  Hydron Royalty Partners,  LLLP (the "Partners")
was established in August 2004 by Hydron,  the general partner,  and ten limited
partners  for the purpose of paying  outstanding  and up to $30,000  annually of
future  royalties and licensing  obligations in return for royalty and licensing
payments due from Valera  Pharmaceuticals,  Inc. The  establishment  of Partners
allowed Hydron to meet its current and future royalty obligations and retain the
possibility of a significant royalty income stream opportunity.  All appropriate
inter-company transactions have been eliminated.

Use of Estimates

      The  preparation  of financial  statements  in conformity  with  generally
accepted  accounting  principles  requires  Management  to  make  estimates  and
assumptions that


                                       47
<PAGE>

                            Hydron Technologies, Inc.

                    Notes to Financial Statements (continued)

1.  Description  of Business  and  Summary of  Significant  Accounting  Policies
    (continued)

affect the amounts reported in the financial  statements and accompanying notes.
Actual results could differ from those estimates.

Cash and Cash Equivalents

      The  Company  considers  all highly  liquid  investments  with an original
maturity  of  three  months  or less to be cash  equivalents.  The  credit  risk
associated with cash  equivalents is considered low due to the credit quality of
the issuers of the financial instruments.

      Cash and cash  equivalents  includes  $154,180  which are  covered  by the
Federal  Deposit  Insurance  Commission  and $184,999 is invested in  short-term
money market funds consisting of U.S. Government instruments.

Concentration of Credit Risk

      Trade accounts receivable are due primarily from Reliv International, Inc.
and are usually paid to the Company  within 45 days after receipt of goods.  The
Company performs ongoing  evaluations of its significant  customers and does not
require collateral, although in some cases it requires deposits or advances.

Inventories

      Inventories  are  valued at the  lower of cost  (first-in,  first-out)  or
market, and include finished goods, packaging and raw materials.

Long-Lived Assets

      The Company reviews long-lived assets and certain identifiable intangibles
held  and  used  for  possible   impairment   whenever   events  or  changes  in
circumstances  indicate  that  the  carrying  amount  of an  asset  may  not  be
recoverable.  In evaluating the fair value and future benefits of its intangible
assets,  management performs an analysis of the anticipated  undiscounted future
net cash flows of the individual assets over the remaining  amortization period.
The Company  recognizes  an impairment  loss if the carrying  value of the asset
exceeds the expected  future cash flows.  As of December 31, 2004,  there was no
deemed impairment of long-lived assets.


                                       48
<PAGE>

                            Hydron Technologies, Inc.

                    Notes to Financial Statements (continued)

1.  Description  of Business  and  Summary of  Significant  Accounting  Policies
    (continued)

Property and Equipment

      Property and equipment,  consisting  primarily of furniture and equipment,
is carried at cost. Depreciation is computed using the straight-line method over
the  estimated  useful lives of the assets,  ranging from four to six years (see
Note 4).

Deferred Product Costs

      Deferred  product  costs  consist  primarily  of  costs  incurred  for the
purchase  and  development  of  patents  and  product  rights  (see Note 5). The
deferred  product costs are being amortized over their estimated useful lives of
five to seventeen years using the straight-line method.

Common Stock, Common Stock Options and Net Loss Per Share

      When the Company  issues  shares of common stock in exchange for services,
an expense is recognized over the period in which the services are rendered. The
expense is based upon the fair value of such  shares,  in  accordance  with FASB
statement  No.  123  using a  Black-Scholes  pricing  model,  at the  date  such
arrangements  are  consummated  or authorized by the Board of Directors,  with a
corresponding credit to capital.

      The  Company  has  elected to follow  Accounting  Principles  Board  (APB)
Opinion  No.  25,  "Accounting  for Stock  Issued  to  Employees,"  and  related
Interpretations  in  accounting  for  its  stock  options  and has  adopted  the
disclosure-only provisions of FASB Statement No. 123, "Accounting and Disclosure
of  Stock-Based  Compensation."  Accordingly,  no  compensation  cost  has  been
recognized for the Company's stock option plans.

      In  December  2002,  the  Financial   Accounting  Standards  Board  issued
Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based
Compensation-Transition  and  Disclosure."  The  Company  has elected to use the
intrinsic  value method of accounting for stock  compensation in accordance with
APB No. 25 and related  interpretations.  Had the  compensation  expense for the
stock option plan been determined  based on the fair value of the options at the
grant  date  consistent  with the  methodology  prescribed  under  Statement  of
Financial  Standards  No. 123,  "Accounting  for Stock Based  Compensation,"  at
December  31, the  Company's  net income and  earnings per share would have been
reduced to the proforma amounts indicated below:


                                       49
<PAGE>

                            Hydron Technologies, Inc.

                    Notes to Financial Statements (continued)

1.  Description  of Business  and  Summary of  Significant  Accounting  Policies
    (continued)

                                               Year ended December 31,

                                           2004         2003          2002
                                        ---------    ----------    ---------

Net loss, as reported                   $(855,879)   $ (936,856)   $(904,840)

Deduct: Total stock-based employee
compensation expense determined
under fair value-based method for all
awards, net of related tax effects       (134,000)           --      (12,500)
                                        ---------    ----------    ---------

Pro Forma net loss                      $(989,879)   $ (936,856)   $(917,340)
                                        =========    ==========    =========

Basic and diluted loss per share
As reported                             $   (0.09)   $    (0.13)   $   (0.17)
                                        =========    ==========    =========
Pro forma                               $   (0.11)   $    (0.13)   $   (0.18)
                                        =========    ==========    =========

Revenue Recognition

      The Company recognizes revenue when

      o     Persuasive evidence of an arrangement exists,

      o     Shipment has occurred,

      o     Price is fixed or determinable, and

      o     Collectibility is reasonably assured.

      Subject to these criteria,  the Company  recognizes revenue at the time of
shipment  of the  relevant  merchandise.  The  Company  offers its  customers  a
thirty-day  warranty  and  estimates  an allowance  for sales  returns  based on
historical experience with product returns.

Shipping and Handling Fees

      The Company follows the provisions of Emerging Issues Task Force Issue No.
00-10, "Accounting for Shipping and Handling Fees and Costs." Any amounts billed
to third-party customers for shipping and handling is included as a component of
revenue.  Shipping  and handling  costs  incurred are included as a component of
cost of sales.


                                       50
<PAGE>

                            Hydron Technologies, Inc.

                    Notes to Financial Statements (continued)

1.  Description  of Business  and  Summary of  Significant  Accounting  Policies
    (continued)

Cost of Sales

      Products are manufactured through third parties under contract and cost of
sales  includes  the  cost of  ingredients,  packaging  material,  assembly  and
processing costs.  Inbound freight,  internal transfers,  and component handling
costs are charged to cost of sales.  Costs  associated with shipping  product to
customers is included in cost of sales. The cost of warehousing finished product
that is available  for sale is included in selling,  general and  administrative
expenses.

Research and Development Costs

      Research  and  development  expenditures,  which  are  comprised  of costs
incurred in  performing  research  and  development  activities  are expensed as
incurred.  As of December 31, 2004,  2003, and 2002 expenses charged to Research
and Development were $279,965, $98,568, and $68,257, respectively.

Advertising

      Advertising  costs are  expensed as incurred and are included in "Selling,
general  and  administrative   expenses."   Advertising   expenses  amounted  to
approximately  $62,000,  $52,000,  and $72,000 for the years ended  December 31,
2004, 2003, and 2002, respectively.

Reclassifications

      Shipping and handling  billings  and costs have been  reclassified  in the
2002 and 2001 financial  statements to conform to the 2003  financial  statement
presentation  and the  provisions  of  Emerging  Issues  Task  Force No. 00 -10,
"Accounting for Shipping and Handling Fees and Costs".  These  reclassifications
have no effect  on  reported  net  income.  In 2002,  the  Company  reclassified
$143,149 of shipping fees to Net sales and $174,911 of shipping costs to cost of
sales. Selling, general, and administrative expenses were reduced accordingly.

2. Fair Value of Financial Instruments

      The  carrying  value of cash,  accounts  receivables,  deposits,  accounts
payable,  and other  payables  approximates  fair value  because of their  short
maturities


                                       51
<PAGE>

                            Hydron Technologies, Inc.

                    Notes to Financial Statements (continued)

3. Inventories

      At December 31, 2004 and 2003, inventories consist of the following:

                                       2004       2003
                                     --------   --------
      Finished goods                 $ 93,312   $ 90,443
      Raw materials and components    388,684    429,589
                                     --------   --------

                                     $481,996   $520,032
                                     ========   ========

      The  Company's  earnings  were  reduced for excess  inventory  by $59,412,
$156,762,  and $128,893 for the years ended  December 31, 2004,  2003, and 2002,
respectively.

4. Property and Equipment

      At December  31, 2004 and 2003,  property and  equipment  consisted of the
following:

                                         2004         2003
                                      ---------    ---------
      Furniture and equipment         $ 222,002    $ 222,002
      Less accumulated depreciation    (209,329)    (204,361)
                                      ---------    ---------

                                      $  12,673    $  17,641
                                      =========    =========

      Depreciation  for the year ended  December  31, 2004,  2003,  and 2002 was
approximately $4,968, $7,115, and $17,926, respectively.

5. Deferred Product Costs

      The Company was granted  U.S.  Patent No.  4,883,659,  dated  November 28,
1989, and U.S. Patent No. 5,039,516, dated August 13, 1991, which cover a stable
moisturizing  emulsion  containing an unusual  emulsifying agent, as well as the
Hydron  polymer and a unique  combination  of  ingredients.  These  patents have
expiration dates of November 28, 2006 and August 13, 2008, respectively.  During
1999 the Company was granted U.S.  Patent No.  5,879,684 for its "Line Smoothing
Complex"  formula.  This product has been clinically  shown to reduce fine lines
and wrinkles. The patent has an expiration date of April 11, 2017.

      It had been determined that the Hydron(R)  emulsion system also adjusts pH
on the skin to match the pH of the  stratum  corneum,  the skin  surface  layer.
Therefore,  the  Company  filed a  provisional  patent  application  related  to
acid-based  ingredient  delivery,  including acne ingredients,  in February 2002
with the corresponding  utility patent application and international  filings in
February 2003.


                                       52
<PAGE>

                            Hydron Technologies, Inc.

                    Notes to Financial Statements (continued)

5. Deferred Product Costs (continued)

      At December  31, 2004 and 2003  deferred  product  costs  consisted of the
following:

                                         2004        2003
                                      ---------    ---------
      Deferred product cost           $ 351,818    $ 309,677
      Less accumulated amortization    (162,135)    (133,186)
                                      ---------    ---------

                                      $ 189,683    $ 176,491
                                      =========    =========


      Deferred  product  costs  are  written  off in the  year  they  are  fully
amortized. Fully amortized deferred product cost of $5,370,00 was written off in
2003.  Amortization  for the years ended  December 31, 2004,  2003, and 2002 was
approximately  $27,296,  $185,924 and $297,798,  respectively.  Estimated future
amortization of intangible assets are as follows:

                              2005           $ 31,264
                              2006             31,264
                              2007             20,214
                              2008             16,667
                              2009             11,746
                           thereafter          78,531

6. Royalty Agreements

      From  1976  through  1989,  the  Company  and  GP  Strategies  Corporation
(formerly known as National Patent Development Corporation) ("GPS") entered into
various agreements,  wherein the Company obtained the exclusive worldwide rights
to market products using Hydron polymers in cosmetic and oral health fields, the
two fields in which the Company has  concentrated  its research and  development
efforts,  and to utilize  the  Hydron  polymer as a drug  release  mechanism  in
topically applied,  nonprescription  pharmaceutical products. The Hydron polymer
is one of the underlying technologies in substantially all of the Company's skin
care products.  GPS has the exclusive  worldwide license to market  prescription
drugs and medical devices using Hydron polymers.  Further, each has the right to
exploit products with Hydron polymers not in the other's exclusive fields.


                                       53
<PAGE>

                            Hydron Technologies, Inc.

                    Notes to Financial Statements (continued)

6. Royalty Agreements (continued)

      Under  the  terms  of the GPS  Agreement,  the  Company  and GPS are  each
required to pay to the other a royalty of five percent (5%) of their  respective
net sales of Hydron  polymer  products,  except for sales of  certain  specified
non-prescription  drug  products,  utilizing  the  Hydron  polymer  as an active
ingredient to third parties.  Where the seller receives an up-front license fee,
royalty or similar  payment  the seller  shall pay the other  party a royalty of
twenty-five  percent (25%) of such  payments.  GPS has assigned its rights under
the GPS  Agreement  to  Valera  Pharmaceuticals  (formerly  known  as  Hydro-Med
Sciences, Inc.) (Valera).

       The Company and Valera were discussing  possible ways to simplify the GPS
Agreement in 2004 but were unable to reach agreement.  As a result,  the Company
assigned its rights under the GPS Agreement to Hydron Royalty Partners,  LLLP, a
newly created  limited  liability  partnership  with the Company as the "General
Partner."  The  partnership  assumed the  existing  liability  for prior  period
royalties  ($127,984)  and will  annually pay the first $30,000 of any royalties
due to GPS and, in return, will receive any future royalties from Valera.

      An  aggregate  of $29,132 was accrued and unpaid as of December  31, 2004.
This  amount is adequate to cover any  royalties  that might be payable  through
December  2004.  For the years ended  December 31,  2004,  2003,  and 2002,  the
Company's  Statement of Operations has accrued royalty expenses of approximately
$36,000,  $0 and $0,  respectively.  No accrued  royalty expense was required in
2003 and 2002 as the  definition of applicable  products was changed  creating a
surplus  accrual.  The Company has not  received any royalty  payments,  or been
advised of any sales that would entitle us to royalty payments.

7. Accrued Liabilities

      Accrued  liabilities  represent expenses that apply to the reported period
and have not been billed by the provider or paid by the Company. At December 31,
2004 and 2003, accrued liabilities consisted of the following:

                               2004       2003
                             --------   --------
      Dividends payable      $ 83,163   $ 83,163
      Director fee payable     81,016     65,012
      Professional fees        40,754     29,712
      Other                    25,020     57,067
                             --------   --------
                             $229,953   $234,954
                             ========   ========


                                       54
<PAGE>

                            Hydron Technologies, Inc.

                    Notes to Financial Statements (continued)

8. Income Taxes

      The  Company  accounts  for income  taxes  under FASB  Statement  No. 109,
"Accounting  for  Income  Taxes"  (FASB  109).  Deferred  income  tax assets and
liabilities are determined based upon differences  between  financial  reporting
and tax bases of assets and  liabilities  and are measured using the enacted tax
rates and laws  that will be in effect  when the  differences  are  expected  to
reverse.  There has been no income  tax  expense  during the three  years  ended
December 31, 2004.

      Deferred income taxes reflect the net tax effect of temporary  differences
between the carrying  amounts of assets and liabilities for financial  reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's net deferred income taxes are as follows:

<TABLE>
<CAPTION>
                                             2004           2003          2002
                                         -----------    -----------    -----------
<S>                                      <C>            <C>            <C>
      Net operating loss carryforwards   $ 8,404,000    $ 8,015,000    $ 7,890,000
      Tax credit carry forwards              180,000        180,000        180,000
      Other                                  202,000        215,000        230,000
                                         -----------    -----------    -----------

      Deferred tax assets                  8,786,000      8,410,000      8,300,000

      Less valuation allowance            (8,786,000)    (8,410,000)    (8,300,000)
                                         -----------    -----------    -----------

      Total net deferred taxes           $        --    $        --    $        --
                                         ===========    ===========    ===========
</TABLE>

      FASB 109 requires a valuation  allowance to reduce the deferred tax assets
reported  if,  based on the weight of the  evidence,  it is more likely than not
that some portion or all of the deferred tax assets will not be realized.  After
consideration  of all the evidence,  both positive and negative,  Management has
determined  that an  $8,786,000  valuation  allowance  at  December  31, 2004 is
necessary  to reduce the deferred tax assets to the amount that will more likely
than not be realized.  The valuation allowance increased by $376,000,  $110,000,
and $161,000 in 2004, 2003, and 2002, respectively.

      As of December  31,  2004,  the Company had an unused net  operating  loss
carryforward  of  approximately  $22,116,170  available  for  use on its  future
corporate  income tax returns.  This net operating loss  carryforward  begins to
expire in December  2004  through  2024.  Pursuant to Sections 382 and 383 of he
Internal Revenue Code, annual use of any of the Company's net operation loss and
credit carry forwards may be limited if cumulative  changes in ownership of more
than 50% occur during any three year period.


                                       55
<PAGE>

                            Hydron Technologies, Inc.

                    Notes to Financial Statements (continued)

8. Income Taxes (continued)

      The  reconciliation  of income tax  rates,  computed  at the U.S.  federal
statutory tax rates, to income tax expense is as follows:

                                                        Year ended December 31,

                                                        2004     2003     2002
                                                      -------  -------  -------
      Tax at U.S. statutory rates                         -34%     -34%     -34%
      State income taxes, net of federal tax benefit       -4%      -4%      -4%
      Valuation allowance adjustments                      38%      38%      38%
                                                      -------  -------  -------
                                                            0%       0%       0%
                                                      =======  =======  =======

9. Stock Options and Warrants

      The number of shares of common stock  reserved for issuance was  5,575,500
for December 31, 2004 and 4,521,100 for 2003. This includes 2,210,000 shares for
the private placement subscription agreements completed November 14, 2003.

1997 Nonemployee Director Stock Option Plan

      During  1997,  the Company  adopted the 1997  Nonemployee  Director  Stock
Option Plan. Such plan provides grants of stock options to nonemployee directors
of the Company to  purchase  an  aggregate  of 100,000  shares of the  Company's
common stock.

      Each  nonemployee  director  shall be granted an option to purchase  2,000
shares of the Company's common stock on each May 1st throughout the term of this
plan at exercise  prices  equal to the  average of the fair market  value of the
Company's  common stock during the ten business  days  preceding the date of the
grant.  In addition,  each  nonemployee  director who sits on a committee of the
Board of  Directors  shall be  granted an option to  purchase  500 shares of the
Company's common stock under the same pricing  arrangements as above. Subject to
certain  exceptions,  no options  granted  under this plan shall be  exercisable
until one year after the date of grant.

      During  August  1999,  the Company  agreed to increase  the annual May 1st
grant to the Board members from 2,000 to 20,000  shares of the Company`s  common
stock and committee  members from 500 to 5,000.  These options expire five years
from the date of grant and all  outstanding  options are exercisable at December
31, 2004.  There are no options  available for grant under this plan at December
31, 2004.


                                       56
<PAGE>

                            Hydron Technologies, Inc.

                    Notes to Financial Statements (continued)

9. Stock Options and Warrants (continued)

           Activity with respect to these plans is as follows:

<TABLE>
<CAPTION>
                                                                                     Weighted
                                              Number of                               Average
                                                Options/             Price            Exercise
                                               Warrants            Per Share           Price
                                               --------          --------------       ---------
<S>                                           <C>                <C>                    <C>
Outstanding at December 31, 2002                223,500          $0.20 to $2.42         $0.62

               Stock options granted                 --               --                   --
               Stock options expired             (2,000)              2.42               2.42
                                              ---------
Outstanding at December 31, 2003                221,500           0.20 to 0.92           0.56

               Stock options granted          1,033,500           0.13 to 0.59           0.33
               Stock options expired            (39,500)          0.64 to 0.92           0.67
                                              ---------
Outstanding at December 31, 2004              1,215,500          $0.13 to $0.81         $0.37
                                              =========
</TABLE>

      The Board of Directors  had  approved  the issuance of 943,500  options in
prior  periods  subject to the  adoption of a new stock plan at the November 15,
2004  shareholders'  meeting.  All of these options have been reflected as being
granted in 2004.

Other Options and Warrants

      The Company completed a non-brokered  private placement of 1,750,000 Units
at $.20  per  Unit  ($350,000),  on  December  10,  2002 to  several  accredited
investors.  Each  Unit  is  comprised  of one  share  of  common  stock  and one
three-year option to buy one additional common share at $.20. As of December 31,
2004, all 1,750,000 options are outstanding.

      On November  14,  2003,  the  Company  completed  a  non-brokered  private
placement  of  2,210,000  Units  at $.50  per Unit  ($1,105,000)  to  accredited
investors. Each Unit is comprised of one share of Common Stock and one five-year
warrant to buy one  additional  Common Share at $1.00.  As of December 31, 2004,
all 2,210,000 warrants are outstanding.

      The Company has agreements with several consultants who provide financial,
business and technical  advice to the Company in  connection  with the research,
development,  marketing and promotion of its products and other matters. As part
of their compensation,  these consultants were granted warrants and nonqualified
stock  options  to  purchase  shares  of the  Company's  common  stock at prices
representing the fair market value of the shares at the date of grant.  Activity
with respect to options and warrants granted to these  consultants is summarized
below:


                                       57
<PAGE>

<TABLE>
<CAPTION>
                                                                                     Weighted
                                              Number of                               Average
                                                Options/             Price            Exercise
                                               Warrants            Per Share           Price
                                               --------          --------------       ---------
<S>                                           <C>                <C>                    <C>
Outstanding at December 31, 2002                 25,000             $ 0.22               $0.22

               Stock options granted             25,000               0.50                 0.5
                                              ---------
Outstanding at December 31, 2003                 50,000            0.22 to 0.50           0.36

               Stock options granted            100,000               0.66                0.66
                                              ---------
Outstanding at December 31, 2004                150,000          $0.22 to $0.66           $0.56
                                              =========
</TABLE>

      The Company's Statement of Operations for the year ended December 31, 2004
includes $59,000 of research and development cost representing the fair value of
options granted to the Company's FDA consultant. For the year ended December 31,
2003, interest expense includes $102,500  representing the fair value of options
granted  in  order  to  obtain  an  interest-free  bridge  loan  from two of the
Company's  Directors.  An additional  $10,250 is included in Selling,  general &
administrative  expenses  representing  the fair  value of options  granted  for
services received in the private placement  offering that closed on November 13,
2003.  For the year ended  December 31,  2002,  research  and  development  cost
include $4,250  representing  the fair value of options granted to the Company's
technical consultant.

      Pro forma  information  regarding  net  income and  earnings  per share is
required by FASB Statement No. 123, which also requires that the  information be
determined  as if the  Company  had  accounted  for its  stock  options  granted
subsequent  to December 31, 1994 under the fair value method of that  Statement.
The fair value for these  options was estimated at the date of the grant using a
Black-Scholes   option   pricing  model  with  the  following   weighted-average
assumptions for the years ended December 31, 2004, 2003, and 2002:

                                    2004              2003              2002
                                   -------           -------           -------
Risk-free interest rate               4.0%              4.0%              4.5%
Expected life                      5 years           5 years           5 Years
Expected volatility                   106%              139%              159%
Expected dividend yield                 0%                0%                0%


                                       58
<PAGE>

                            Hydron Technologies, Inc.

                    Notes to Financial Statements (continued)

9. Stock Options and Warrants (continued)

      The  Black-Scholes  option  valuation  model  was  developed  for  use  in
estimating the fair value of traded options,  which have no vesting restrictions
and are fully  transferable.  In addition,  option  valuation models require the
input of highly  subjective  assumptions  including  the  expected  stock  price
volatility.  As the Company's stock options have  characteristics  significantly
different than those of traded  options,  and because  changes in the subjective
input assumptions can materially affect the fair value estimate, in Management's
opinion,  the  existing  models do not  necessarily  provide a  reliable  single
measure of the fair value of its stock options.

      There were  1,133,500  options  granted during the year ended December 31,
2004  when  the  2003  Stock  Plan  was   approved  at  the  November  15,  2004
shareholders' meeting.  Approximately 943,500 of these options had been approved
in previous years by the Board of Directors subject to the shareholders' action.
There were no options granted during the years ended December 31, 2003 and 2002.
The weighted average  remaining  contractual life of all options  outstanding at
December 31, 2004 was 2.69 years.

10. Commitments

      The Company leases office space under a  non-cancelable  lease  agreement,
which expires in August 2005. At December 31, 2004,  the future  minimum  rental
payments  due under this  noncancelable  lease are  $30,800  for the year ending
December 31, 2005.  Net rent expense was  approximately  $66,200,  $65,300,  and
$70,000 in 2004, 2003, and 2002, respectively.

11.   Quarterly Financial Data (unaudited)

      The Company has purchased  computer  equipment  through a financing  lease
that expires in February  2005. At December 31, 2004,  the future  minimum lease
payments  due  under  this  non-cancelable  lease  are $770  for the year  ended
December 31, 2005.

<TABLE>
<CAPTION>
                                     First          Second           Third          Fourth
                                    Quarter         Quarter         Quarter         Quarter
                                   ---------       ---------       ---------       ---------
<S>                                <C>             <C>             <C>             <C>
      Net sales                    $ 386,132       $ 336,098       $ 200,975       $ 262,211
      Operating income (loss)       (165,791)       (184,808)       (253,076)       (270,762)
      Net income (loss)             (164,971)       (183,966)       (236,686)       (270,256)
      Income (loss) per share      $   (0.02)      $   (0.02)      $   (0.03)      $   (0.02)
</TABLE>


                                       59
<PAGE>

                            Hydron Technologies, Inc.

                    Notes to Financial Statements (continued)

12. Subsequent Event

      On  January  25,  2005,  the  Board of  Directors,  by  unanimous  consent
re-authorized  the issuance of 743,500 stock options from the 2003 Stock Plan to
Directors and Officers of the Company. Since the original approval date was more
than 12 months  before the  shareholder  adoption  of the 2003 Stock  Plan,  the
options had to be re-authorized to include them under the plan.

13.  Management's Plan

      The Company has incurred  significant  losses over the past five years and
generates a negative cash flow on a monthly basis. The ability of the Company to
continue  as a going  concern  is  dependent  upon  increasing  sales,  managing
operating expenses and obtaining additional equity financing.

      Management's  plan  includes  implementing  one or more  of the  following
elements:

      o     Conducting   merger   negotiations  with  third  parties  that  have
            distribution  networks in place. The synergies,  combined sales, and
            reduced overhead would create a solid operational  foundation with a
            solid financial position.

      o     Forming a new private entity and  transferring  the operating assets
            to it and selling the public shell to one of the interested parties.

      o     Selling one or more of the non-operating assets.

      o     Obtaining  an infusion of capital  that will  sustain the  Company's
            operation until the newly  established  licensing  arrangements  can
            produce positive cash flow.

      o     Continuing to reduce overhead and operating cost.

      There can be no assurances that  Management's  Plan will be successful and
the Company's actual results could differ  materially.  No adjustments have been
made to the financial  statements to account for the  possibility  that the plan
may be unsuccessful.

                                       60
<PAGE>

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.

                  Hydron Technologies, Inc.
                  (Registrant)

                  By /s/: Richard Banakus
                     -------------------------------
                  Richard Banakus, Interim President

                  Date: March 29, 2005

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


                                       61
<PAGE>

Exhibit Index                                                            Index #

Certification  of Chief Executive  Officer Pursuant to Section
302  of  the  Sarbanes-Oxley  Act  of  2002  and  Item  307 of
Regulation S-K                                                            31.1

Certification  of Chief Operating  Officer Pursuant to Section
302  of  the  Sarbanes-Oxley  Act  of  2002  and  Item  307 of
Regulation S-K                                                            31.2

Certification  of Chief Financial  Officer Pursuant to Section
302  of  the  Sarbanes-Oxley  Act  of  2002  and  Item  307 of
Regulation S-K                                                            31.3

Certification  Pursuant to 18 U.S.C,  Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                 32.1

Certification  Pursuant to 18 U.S.C,  Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                 32.2

Certification  Pursuant to 18 U.S.C,  Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                 32.3


                                       62