Hydromer : FY21_Annual Report - Hydromer, Inc_OTCMKTS_Final -Restated-

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Table of Contents

Message from our CEO ......................................................................................................................................................	2
Message from our COO......................................................................................................................................................	7
Year-EndSales & Marketing Highlights.........................................................................................................................	9
Year-EndFinancial Highlights ........................................................................................................................................	10
About our Company..........................................................................................................................................................	13
Hydromer's New Headquarters Facilities.....................................................................................................................	14
Medical & Healthcare Applications and Products......................................................................................................	15
Industrial Applications and Products ...........................................................................................................................	16
Greener Alternatives .........................................................................................................................................................	17
Contract Services...............................................................................................................................................................	18
Patents and Trademarks .................................................................................................................................................	19
Business Approach through Agreements and Contracts .........................................................................................	19
Competition Strategy ........................................................................................................................................................	21
Marketing Strategy............................................................................................................................................................	22
Statement of Income ......................................................................................................................................................	25
Balance Sheet ...................................................................................................................................................................	26
Statement of Cash Flows................................................................................................................................................	27
Statement of Changes in Stockholders' Equity...........................................................................................................	28
Notes to the Consolidated Financial Statements .......................................................................................................	29
Management Discussion and Analysis (MD&A)...............................................................................................................	37

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Peter M. von Dyck, CEO

Message from our CEO

Dear Hydromer, Inc. Shareholders,

I am pleased to present to you our Company's Annual

Report for Fiscal Year 2021.

Throughout the Fiscal Year 2021, the COVID-19 pandemic negatively impacted our ability to generate steady business with new customers, and adversely affected our recurring business with core customers. Most of our customers reported their larger plants and offices around the globe were on

lockdowns, with most of their workforce either working from home or with significantly reduced capacity. Our business-to-business (B2B) healthcare customers also reported reduced sales during the fiscal year of medical devices coated with Hydromer's proprietary formulations as regulations implemented at hospitals and clinics globally to address the COVID-19 pandemic delayed the execution of most medical procedures that typically utilize such devices.

Nonetheless, we gained several new customers during in the fiscal year which have potential for future recurring revenue opportunities. Although in fiscal year 2020 we won a distribution deal for hand sanitizer, we noticed that the major producers of hand sanitizer that were unable to sustain the initial demand for the product, subsequently were able to scale-up production and enforced longstanding agreements directly with hospitals and distributors, thus deepening the barrier of entry to that market for smaller players such as, our First Responder™ hand sanitizer.

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We also noticed consumers' increasing preference for "gel-like" type of sanitizer products and therefore, we introduced our plant-based EscenciaProtect™ line of sanitizing products which showed a significant reduction in growth of COVID-19 virus in recent testing done by the external "Institute for Antiviral Research" lab at the University of Utah. The testing shows statistically significant reduction in the growth of the COVID-19 virus, and we are awaiting to receive clearance from the Food and Drug Administration (FDA) for this new "alcohol-free" product line to commence distribution to the consumers' market.

Simultaneously, we diligently worked to secure new markets and distribution channels for the "alcohol-based" sanitizer which we successfully sold $2.0M in Fiscal Year 2020. Thus, our "alcohol-based" line of sanitizer products is featured on key platforms such as STOCKD®, one of the nation's leading healthcare purchasing sites owned by Premier®, a leading healthcare improvement company, uniting an alliance of approximately 3,600 U.S. hospitals and 120,000 other providers in healthcare.

Towards the second half of Fiscal Year 2021, several of our core business customers started to show some signs of recovery from the economic impact of the COVID-19 pandemic, as hospitals and patients reestablished standard business activities, and certain elective medical procedures started to be scheduled across the globe. For this reason, our leadership team decided to shift from pursuing the new hand sanitizer business to focus instead on our core business, investing in the systematic implementation of manufacturing and operating efficiencies operating in the upmost cost-effective environment.

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During Fiscal Year 2021, our industry faced the unanticipated polar storm that descended into the U.S. gulf coast in February 2021, which caused substantial disruptions and delays in the distribution of polymers raw materials and supplies needed to manufacture our plastic medical and industrial devices.

Additional challenges also impacted our business partners in Asia where trade tariffs implemented by governments of the U.S. and other Countries around the world resulted in additional costs assessed to the supply chain, which in turn increased the overall price of our coating formulations for our customers to import to Asia from the U.S. Total revenues for the fiscal year were further negatively impacted by this array of unanticipated events.

To better monitor the ongoing economic effects of the COVID-19 pandemic on our finances and operations, in November 2020 the Company's board of directors appointed a special "board of directors' subcommittee" that meet with the executive leadership team on a weekly basis to help oversee the financial matters of the company, while sales revenues had been adversely impacted by the effects of COVID-19, the disruptions in the supply chain, and the loss of business due to import tariffs. The subcommittee was initially intended to function for a limited period of 13-weeks, however, due to the valuable information and insight on the Company's day-to-day operations and business strategy shared during the sessions, the meetings remain in effect to this day. Through those exercises, we have implemented required cost reduction strategies, and have made changes to restructure our operating costs footprint to overcome the present trying times, and to withstand future volatile market conditions.

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