**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D. C. 20549


**FORM
      10-Q**





x Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
      1934





For
      the
      quarterly period ended **June
      30, 2008**





 ̈ Transition report under Section 13 or 15(d) of the Securities Exchange Act
      of
      1934





For
      the
      transition period
      from                      
to





Commission
      File Number: **0-28666**





**AMERICAN
      BIO MEDICA CORPORATION**





(Exact
      name of registrant as specified in its charter)




**New
                York**
            **14-1702188**(State
                or other jurisdiction of
            (I.R.S.
                Employerincorporation
                or organization)
            Identification
                No.)





**122
                Smith Road, Kinderhook, New York**
            
            **12106**(Address
                of principal executive offices)
            
            (Zip
                Code)





**518-758-8158**


(Registrant's
        telephone number, including area code)





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 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 x Yes  ̈ No





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting company.
      See
      the definitions of “large accelerated filer”, “accelerated filer” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act.





Large
                accelerated filer ̈
            Accelerated
                filer ̈Non-accelerated
                filer ̈
            Smaller
                reporting companyx





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





Indicate
      the number of shares outstanding of each of the issuer's classes of common
      stock, as of the latest practicable date:




21,744,768
      Common Shares as of August 13, 2008











**American
      Bio Medica Corporation**





**Index
      to Quarterly Report on Form 10-Q**


**For
      the quarter ended June 30, 2008**





**PAGE****PART
                I – FINANCIAL INFORMATION**Item
                1.
            Financial
                Statements
            
            3Balance
                Sheets as of June 30, 2008 and December 31, 2007
            
            3Statements
                of Operations for the six months ended June 30, 2008 and June 30,
                2007
            
            4Statements
                of Operations for the three months ended June 30, 2008 and June 30,
                2007
            
            5Statements
                of Cash Flows for the six months ended June 30, 2008 and June 30,
                2007
            
            6Notes
                to Financial Statements
            
            7Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            
            13Item
                3.
            Quantitative
                and Qualitative Disclosures About Market Risk
            
            18Item
                4.
            Controls
                and Procedures
            
            18**PART
                II – OTHER INFORMATION**Item
                1.
            Legal
                Proceedings
            
            18Item
                1A.
            Risk
                Factors
            
            18Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            
            18Item
                3.
            Defaults
                Upon Senior Securities
            
            18Item
                4
            Submission
                of Matters to a Vote of Security Holders
            
            19Item
                5.
            Other
                Information
            
            19Item
                6.
            Exhibits
            
            19**Signatures**
            
            
            20





2





**PART
      I - FINANCIAL INFORMATION**





**Item
      1. Financial Statements**





**American
      Bio Medica Corporation**


**Balance
      Sheets**





**June 30,**
              **2008**
            
            **December 31,**
              **2007****(Unaudited)****ASSETS**Current
                assetsCash
                and cash equivalents
            
            $
            92,000
            
            $
            336,000Accounts
                receivable - net of allowance for doubtful accounts of $105,000 at
                both
                June 30, 2008 and December 31, 2007
            
            
            1,581,000
            
            
            1,365,000Inventory
                – net of reserve for slow moving and obsolete inventory of $250,000
                at
                both June 30, 2008 and December 31, 2007
            
            
            5,181,000
            
            
            4,994,000Prepaid
                and other current assets
            
            
            162,000
            
            
            181,000Total
                current assets
            
            
            7,016,000
            
            
            6,876,000Property,
                plant and equipment, net
            
            
            2,107,000
            
            
            2,267,000Other
                assets
            
            
            7,000
            
            
            7,000Total
                assets
            
            $
            9,130,000
            
            $
            9,150,000**LIABILITIES
                AND STOCKHOLDERS' EQUITY**Current
                liabilitiesAccounts
                payable
            
            $
            1,646,000
            
            $
            1,403,000Accrued
                expenses
            
            
            402,000
            
            
            220,000Wages
                payable
            
            
            363,000
            
            
            332,000Patent
                sublicense current
            
            
            
            
            
            50,000Line
                of credit
            
            
            566,000
            
            
            723,000Current
                portion of long term debt
            
            
            126,000
            
            
            121,000Current
                portion of unearned grant
            
            
            10,000
            
            
            10,000Total
                current liabilities
            
            
            3,113,000
            
            
            2,859,000Other
                liabilities
            
            
            102,000
            
            
            48,000Long-term
                debt
            
            
            1,043,000
            
            
            1,107,000Unearned
                grant
            
            
            40,000
            
            
            40,000Total
                liabilities
            
            
            4,298,000
            
            
            4,054,000COMMITMENTS
                AND CONTINGENCIESStockholders'
                equity:Preferred
                stock; par value $.01 per share; 5,000,000 shares authorized, none
                issued
                and outstanding at June 30, 2008 and December 31, 2007Common
                stock; par value $.01 per share; 50,000,000 shares authorized; 21,744,768
                issued and outstanding at both June 30, 2008 and December 31, 2007
            
            
            217,000
            
            
            217,000Additional
                paid-in capital
            
            
            19,267,000
            
            
            19,267,000Accumulated
                deficit
            
            
            (14,652,000
            )
            
            (14,388,000
            )Total
                stockholders’ equity
            
            
            4,832,000
            
            
            5,096,000Total
                liabilities and stockholders’ equity
            
            $
            9,130,000
            
            $
            9,150,000





*The
      accompanying notes are an integral part of the financial
      statements*




3


**American
      Bio Medica Corporation**


**Statements
      of Operations**


**(Unaudited)**





**For The Six Months Ended****June
                30****2008**
            
            **2007**Net
                sales
            
            $
            6,764,000
            
            $
            6,611,000Cost
                of goods sold
            
            
            3,719,000
            
            
            3,890,000Gross
                profit
            
            
            3,045,000
            
            
            2,721,000Operating
                expenses:Research
                and development
            
            
            316,000
            
            
            347,000Selling
                and marketing
            
            
            1,484,000
            
            
            1,516,000General
                and administrative
            
            
            1,441,000
            
            
            1,508,0003,241,000
            
            
            3,371,000Operating
                loss
            
            
            (196,000
            )
            
            (650,000
            )Other
                income (expense):Interest
                income
            
            
            2,000
            
            
            5,000Interest
                expense
            
            
            (66,000
            )
            
            (65,000
            )Other
                expense
            
            
            (4,000
            )(68,000
            )
            
            (60,000
            )**Loss
                before tax**
            
            
            (264,000
            )
            
            (710,000
            )Income
                tax**Loss
                after tax**
            
            $
            (264,000
            )
            $
            (710,000
            )**Basic
                and diluted loss per common share**
            
            $
            (0.01
            )
            $
            (0.03
            )Weighted
                average number of shares outstanding – basic & diluted
            
            
            21,744,768
            
            
            21,728,193





*The
      accompanying notes are an integral part of the financial
      statements*




4




**American
      Bio Medica Corporation**


**Statements
      of Operations**


**(Unaudited)**





**For The Three Months Ended****June
                30****2008**
            
            **2007**Net
                sales
            
            $
            3,465,000
            
            $
            3,436,000Cost
                of goods sold
            
            
            1,847,000
            
            
            1,974,000Gross
                profit
            
            
            1,618,000
            
            
            1,462,000Operating
                expenses:Research
                and development
            
            
            178,000
            
            
            178,000Selling
                and marketing
            
            
            716,000
            
            
            825,000General
                and administrative
            
            
            758,000
            
            
            835,0001,652,000
            
            
            1,838,000Operating
                loss
            
            
            (34,000
            )
            
            (376,000
            )Other
                income (expense):Interest
                income
            
            
            1,000
            
            
            1,000Interest
                expense
            
            
            (31,000
            )
            
            (38,000
            )Other
                expense(30,000
            )
            
            (37,000
            )**Loss
                 before tax**
            
            
            (64,000
            )
            
            (413,000
            )Income
                tax**Loss
                after tax**
            
            $
            (64,000
            )
            $
            (413,000
            )**Basic
                and diluted loss per common share**
            
            $
            (0.00
            )
            $
            (0.02
            )Weighted
                average number of shares outstanding – basic & diluted
            
            
            21,744,768
            
            
            21,736,526





*The
      accompanying notes are an integral part of the financial
      statements*




5





**American
      Bio Medica Corporation**


**Statements
      of Cash Flows**


**(Unaudited)**





**For The Six Months Ended****June****2008**
            
            **2007****Cash
                flows from operating activities:**Net
                loss
            
            $
            (264,000
            )
            $
            (710,000
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Depreciation
            
            
            181,000
            
            
            232,000Loss
                on disposal of fixed assets
            
            
            4,000Non-cash
                compensation expense
            
            
            
            
            
            26,000Changes
                in:Accounts
                receivable
            
            
            (216,000
            )
            
            (242,000
            )Inventory
            
            
            (187,000
            )
            
            66,000Prepaid
                and other current assets
            
            
            19,000
            
            
            (76,000
            )Accounts
                payable
            
            
            243,000
            
            
            (39,000
            )Accrued
                expenses
            
            
            182,000
            
            
            (112,000
            )Other
                liabilities
            
            
            4,000Wages
                payable
            
            
            31,000
            
            
            50,000Net
                cash used in operating activities
            
            
            (3,000
            )
            
            (805,000
            )**Cash
                flows from investing activities:**Purchase
                of property, plant and equipment
            
            
            (25,000
            )
            
            (564,000
            )Net
                cash used in investing activities
            
            
            (25,000
            )
            
            (564,000
            )**Cash
                flows from financing activities:**Proceeds
                from exercise of options
            
            
            
            
            
            23,000Debt
                payments
            
            
            (59,000
            )
            
            (46,000
            )Proceeds
                from debt financing
            
            
            
            
            
            539,000Proceeds
                from line of credit
            
            
            523,000
            
            
            800,000Line
                of credit payments
            
            
            (680,000
            )
            
            (228,000
            )Net
                cash (used in) / provided by financing activities
            
            
            (216,000
            )
            
            1,088,000**Net
                decrease in cash and cash equivalents**
            
            
            (244,000
            )
            
            (281,000
            )Cash
                and cash equivalents - beginning of period
            
            
            336,000
            
            
            641,000**Cash
                and cash equivalents - end of period**
            
            $
            92,000
            
            $
            360,000**Supplemental
                disclosures of cash flow information**Cash
                paid during period for interest
            
            $
            66,000
            
            $
            65,000Purchase
                of property, plant and equipment, financing through capitallease
            
            
            
            
            $
            $
                16,000




*The
      accompanying notes are an integral part of the financial
      statements*


6


Notes
      to
      financial statements





June
      30,
      2008





**Note
      A - Basis of Reporting**





The
      accompanying unaudited financial statements of American Bio Medica Corporation
      (the “Company”) have been prepared in accordance with generally accepted
      accounting principles in the United States of America for interim financial
      information and in accordance with the instructions to Form 10-Q and Regulation
      S-X. Accordingly, they do not include all information and footnotes required
      by
      generally accepted accounting principles for complete financial statement
      presentation. In the opinion of management, the financial statements include
      all
      normal, recurring adjustments, which are considered necessary for a fair
      presentation of the financial position of the Company at June 30, 2008, and
      the
      results of its operations for the three and six month periods ended June 30,
      2008 and June 30, 2007, and cash flows for the six month periods ended June
      30,
      2008 and 2007.





Operating
      results for the three and six months ended June 30, 2008 are not necessarily
      indicative of results that may be expected for the year ending December 31,
      2008. Amounts at December 31, 2007 are derived from the Company’s audited
      financial statements. For further information, refer to the audited financial
      statements and notes thereto included in the Company’s Annual Report on Form
      10-KSB for the fiscal year ended December 31, 2007.





During
      the six months ended June 30, 2008, there were no significant changes to the
      Company's critical accounting policies, which are included in the Company's
      Annual Report on Form 10-KSB for the year ended December 31, 2007.




The
      preparation of these financial statements requires the Company to make estimates
      and judgments that affect the reported amounts of assets, liabilities, revenues
      and expenses, and related disclosure of contingent assets and liabilities.
      On an
      on-going basis, the Company evaluates its estimates, including those related
      to
      product returns, bad debts, inventories, income taxes, warranty obligations,
      and
      contingencies and litigation. The Company bases its estimates on historical
      experience and on various other assumptions that are believed 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.





These
      unaudited financial statements have been prepared assuming that the Company
      will
      continue as a going concern and, accordingly, do not include any adjustments
      that might result from the outcome of this uncertainty. The Company's
      independent registered public accounting firm's report of the financial
      statements included in the Company's Annual Report on Form 10-KSB for the year
      ended December 31, 2007, contained an explanatory paragraph regarding the
      Company's ability to continue as a going concern.





**Recently
      Adopted Accounting Standards**





In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
      No. 157”). SFAS No. 157 established a common definition for fair value to be
      applied to U.S. GAAP guidance requiring use of fair value, established a
      framework for measuring fair value, and expanded disclosure about such fair
      value measurements. SFAS No. 157 became effective for our financial assets
      and
      liabilities on January 1, 2008.  The FASB has deferred the implementation
      of the provisions of SFAS No. 157 relating to certain nonfinancial assets and
      liabilities until January 1, 2009. SFAS No. 157 did not materially affect how
      we
      determine fair value.




7




In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities Including an Amendment of SFAS No.
      115” (“SFAS No. 159”). This new standard permits entities to choose to measure
      many financial instruments and certain warranty and insurance contracts at
      fair
      value on a contract-by-contract basis. SFAS No. 159 became effective on January
      1, 2008. We have not elected the fair value option for any of our existing
      financial instruments on the effective date and have not determined whether
      or
      not we will elect this option for any eligible financial instruments we acquire
      in the future.





In
      December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS
      No. 141(R)”) and SFAS No. 160, “Noncontrolling Interests in Consolidated
      Financial Statements” (“SFAS No. 160”). Effective for the Company as of January
      1, 2009, SFAS No. 141(R) requires the acquiring entity in a business combination
      to recognize all (and only) the assets acquired and liabilities assumed in
      the
      transaction; establishes the acquisition-date fair value as the measurement
      objective for all assets acquired and liabilities assumed; and requires the
      acquirer to disclose to investors and other users all of the information they
      need to evaluate and understand the nature and financial effect of the business
      combination. Effective January 1, 2009, SFAS No. 160 requires all entities
      to
      report noncontrolling (minority) interests in subsidiaries as equity in the
      consolidated financial statements. Moreover, SFAS No. 160 eliminates the
      diversity that currently exists in accounting for transactions between an entity
      and noncontrolling interests by requiring they be treated as equity
      transactions. Management is evaluating the impact of adopting SFAS No. 141(R)
      and SFAS No. 160, if any, on the Company’s financial statements.





In
      March
      2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
      and Hedging Activities – an Amendment of FASB Statement No. 133” (“SFAS No.
      161”). SFAS No. 161 expands the disclosure requirements in SFAS No. 133,
      regarding an entity’s derivative instruments and hedging activities. SFAS No.
      161 is effective on January 1, 2009. Management is evaluating the impact of
      adopting SFAS No. 161, if any, on the Company’s financial
      statements.





In
      May
      2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
      Accounting Principles” (“SFAS No. 162”). SFAS No. 162 identifies the sources of
      accounting principles and the framework for selecting the principles to be
      used
      in the preparation of financial statements of nongovernmental entities that
      are
      presented in conformity with generally accepted accounting principles (GAAP)
      in
      the United States (the GAAP hierarchy). SFAS No. 162 shall be effective 60
      days
      following the SEC’s approval of the Public Company Accounting Oversight Board
      (PCAOB) amendments to AU Section 411, “The Meaning of Present Fairly in
      Conformity With Generally Accepted Accounting Principles”. Management is
      evaluating the impact of adopting SFAS No. 162, if any, on the Company’s
      financial statements.





In
      May
      2008, the FASB issued FASB Statement No. 163, “Accounting for Financial
      Guarantee Insurance Contracts” (“SFAS No. 163”), which clarifies how FASB
      Statement No. 60, “Accounting and Reporting by Insurance Enterprises”, applies
      to financial guarantee insurance contracts issued by insurance enterprises.
      The
      standard is effective for financial statements issued for fiscal years beginning
      after December 15, 2008, including interim periods in that year. Management
      is
      evaluating the impact of adopting SFAS No. 163, if any, on the Company’s
      financial statements.





**Note
      B – Net Loss Per Common Share**





Basic
      net
      loss per share is calculated by dividing the net loss by the weighted average
      number of outstanding common shares during the period. Diluted net loss per
      share includes the weighted average dilutive effect of stock options and
      warrants.




8




Potential
      common shares outstanding as of June 30, 2008 and 2007:





**June 30,**
              **2008**
            
            **June 30,**
              **2007****Warrants**
            
            
            150,000
            
            
            150,000**Options**
            
            
            3,768,080
            
            
            3,968,080





For
      the
      three and six months ended June 30, 2008 and June 30, 2007, the number of
      securities not included in the diluted EPS because the effect would have been
      anti-dilutive was 3,918,080 and 4,118,080 respectively.





**Note
      C – Litigation**





The
      Company has been named in legal proceedings in connection with matters that
      arose during the normal course of its business, and that in the Company’s
      opinion are not material. While the ultimate result of any litigation cannot
      be
      determined, it is management’s opinion, based upon consultation with counsel,
      that it has adequately provided for losses that may be incurred related to
      these
      claims. If the Company is unsuccessful in defending any or all of these claims,
      resulting financial losses could have an adverse effect on the financial
      position, results of operations and cash flows of the Company. ****





**Note
      D – Reclassifications**





Certain
      items have been reclassified to conform to the current
      presentation.





**Note
      E – Lines of Credit and Long Term Debt**





On
      November 6, 2006, the Company obtained a real estate mortgage related to its
      facility in Kinderhook, New York. The loan through First Niagara Financial
      Group
      (“FNFG”) is in the amount of $775,000 and has a term of 10 years with a 20 year
      amortization. The interest rate is fixed at 7.50% for the first 5 years.
      Beginning with year 6 and through the end of the loan term, the rate changes
      to
      2% above the Federal Home Loan Bank of New York 5 year term, 15 year
      Amortization Advances Rate. The Company’s monthly payment is $6,293 and payments
      commenced on January 1, 2007, with the final payment being due on December
      1,
      2016. The loan is collateralized by the Company's facility in Kinderhook, New
      York and its personal property. The amount outstanding on this mortgage was
      $749,000 and $758,000 at June 30, 2008 and December 31, 2007,
      respectively.




The
      Company has a line of credit with FNFG. Although the terms of this line of
      credit have recently been amended (see the latter part of this Note E for an
      update on the terms of this line of credit), upon entering into the line of
      credit, the maximum amount available under the line of credit was $875,000
      and
      it was not to exceed 70% of accounts receivable less than 60 days. The interest
      rate was .25% above the FNFG prime rate. The Company was required to maintain
      certain financial covenants such as net worth (stockholders’ equity) greater
      than $5 million and working capital greater than $4 million. Further, the
      Company was required to maintain a minimum Debt Service Coverage Ratio of not
      less than 1.2:1.0 measured at each fiscal year end beginning December 31, 2006.
      Debt Service Coverage Ratio was defined as Net Operating Income divided by
      annual principal and interest payments on all loans relating to subject
      property. Although certain terms related to this line of credit have changed,
      there continues to be no requirement for annual repayment of all principal
      on
      this line of credit; it is payable on demand. The purpose of the line of credit
      remains to be to provide working capital.





The
      Company obtained an additional line of credit from FNFG for $75,000 during
      the
      first quarter of 2006. The line of credit was to be used exclusively for
      payments on a sublicense agreement entered into during the first quarter of
      2006. This additional line of credit has been combined with the line of credit
      described in the preceding paragraph, and its terms have also been amended
      (see
      further in this Note E for an update on the terms of the combined line of
      credit). The interest rate was .50% above the FNFG prime rate. Principal could
      be repaid at any time and borrowed again as needed.




9




On
      January 22, 2007, the Company entered into a Term Note with FNFG in the amount
      of $539,000 (the “Note”, and, together with the combined line of credit, the
      term note and the mortgage, the “Credit Facilities”). The term of the Note is 5
      years with a fixed interest rate of 7.17%. The Company’s monthly payment is
      $10,714 and payments commenced on February 1, 2007, with the final payment
      being
      due on January 1, 2012. The Company has the option of prepaying the Note in
      full
      or in part at any time during the term without penalty. The loan is secured
      by
      Company assets now owned or hereafter acquired. The proceeds received were
      used
      for the purchase of automation equipment to enhance the Company's manufacturing
      process in its New Jersey facility. The amount outstanding on this Note was
      $406,000 and $455,000 at June 30, 2008 and December 31, 2007, respectively.





On
      May
      22, 2008, the Company entered into a Forbearance Agreement (the “Agreement”)
      with FNFG (See Current Report on Form 8-K filed with the Securities and Exchange
      Commission (the “Commission”) on May 28, 2008). The Agreement addressed the
      Company’s noncompliance, as of December 31, 2007, with the minimum debt service
      coverage ratio covenant, and the Company’s default as of March 31, 2008, and
      likely default as of June 30, 2008, with respect to the minimum net worth and
      minimum net working capital covenants (“Defaults”) set forth in loan documents
      related to the Company’s lines of credit and mortgage with FNFG (the “Loan
      Documents”). Under the terms of the Agreement, FNFG agreed to forbear from
      exercising the rights and remedies, which it could have exercised by reason
      of
      the Defaults. The Agreement amended the Loan Documents to reduce FNFG’s total
      lending commitment on the Company’s lines of credit from $950,000 to $750,000,
      and combined the Company’s two lines of credit referenced above (as so combined,
      the “Line of Credit”). The aggregate outstanding balance on the Line of Credit
      was $566,000 as of June 30, 2008 and the combined balance of the two separate
      lines of credit as of December 31, 2007 was $723,000. During the forbearance
      period, interest accrued on the Line of Credit and Note at the rate of prime
      plus 2% per annum, an increase from the original prime plus .25% under the
      Loan
      Documents. Interest accruing on the real estate mortgage during the forbearance
      period remained unchanged at the fixed rate of 7.5%.





FNFG’s
      forbearance was subject to the condition that the Company fall short of the
      minimum net worth covenant of $5,000,000 by no more than $500,000, and fall
      short of the minimum net working capital covenant of $4,000,000 by no more
      than
      $400,000, and the further condition that the Company show a net loss no greater
      than $225,000 at April 30, 2008, $200,000 at May 31, 2008 and $175,000 at June
      30, 2008. The Company did comply with the net loss condition at April 30, 2008,
      but did not comply with the net loss condition at May 31, 2008 and June 30,
      2008. The Company’s independent registered public accounting firm did not review
      the financial results used for determining compliance with the net loss
      condition for April or May 2008.





The
      Agreement expired July 31, 2008. On August 7, 2008, the Company entered into
      an
      amendment (the “Amendment”) to the Loan Documents, effective as of August 1,
      2008. The Loan Documents, as amended by the Amendment, set forth the
      understanding between the Company and FNFG related to the Credit Facilities.





The
      Amendment reduces the interest rate on the Line of Credit to prime plus 1%.
      The
      maximum amount available under the Line of Credit remains unchanged at $750,000,
      and the maturity date of the Line of Credit has been extended to April 1,
      2009.





The
      Amendment also revises the financial covenants required to be maintained by
      the
      Company under the Letter Agreement. Under the Amendment, the Company’s monthly
      net loss must not exceed $75,000 during any month and, while any loans or
      commitments are outstanding and due FNFG, the Company must maintain a minimum
      debt service coverage ratio of 1.10x, to be measured at December 31, 2008.
      The
      minimum debt service coverage ratio is defined as net income plus interest
      expense plus depreciation plus expense related to the amortization of derivative
      securities divided by required principal payments over the preceding twelve
      months plus interest expense.




10





In
      the
      event of default, the Company will be subject to an interest rate of prime
      plus
      6% under its line of credit, any default or breach by the Company of any of
      the
      terms, covenants and conditions set forth in the Letter Agreement or in any
      Loan
      Document shall constitute a default under the Letter Agreement, and all other
      Loan Documents, and FNFG may declare all sums outstanding under the Credit
      Facilities due and payable without notice or demand.





Under
      the
      Loan Documents, as amended by the Amendment, the Company is also required to
      sell at least $500,000 in subordinated debentures by September 1, 2008, on
      terms
      consistent with a term sheet agreed to between the Company and Cantone Research,
      Inc. of Tinton Falls, New Jersey (“Cantone”) for the private placement of an
      issue of 10% Subordinated Convertible Debentures, Series A (the “ Series
      A
      Debentures ,
      see
      Note J – Subsequent Event).





On
      May 8,
      2007, the Company purchased a copier through an equipment lease with RICOH
      in
      the amount of $17,000. The term of the lease is 5 years with an interest rate
      of
      14.11%. The amount outstanding on this lease was $14,000 and $15,000 at June
      30,
      2008 and December 31, 2007, respectively.





**Note
      F –Sublicense Agreement**




On
      February 28, 2006, the Company entered into a non-exclusive Sublicense Agreement
      (the “Agreement”) with an unaffiliated third party related to certain patents
      allowing us to expand our contract manufacturing operations. Under this
      Sublicense Agreement, the Company must pay a non-refundable fee of $175,000
      over
      the course of 2 years, of which $75,000 was paid in the first quarter of 2006
      and $50,000 was paid in the first quarter of 2007. The remaining $50,000 was
      paid in the first quarter of 2008. The Company is also required to pay royalties
      for products it manufactures that fall within the scope of these patents. The
      Company was not obligated to pay any royalties in 2006 or 2007. Beginning with
      the year ended December 31, 2007, the Company is obligated to pay a $20,000
      minimum annual royalty (“MAR”) that can be applied against royalties on sales of
      products that fall within the scope of the sublicensed patents in the fiscal
      year ending December 31, 2008. The first MAR payment was made in January 2008
      and there were not any sales of products made in the six months ended June
      30,
      2008 that would be applied against the MAR.





**Note
      G – Integrated Biotechnology Agreement**





In
      March
      2006, the Company entered into a royalty agreement with Integrated Biotechnology
      Corporation (“IBC”). IBC is the owner of the RSV (Respiratory Syncytial Virus)
      test that the Company manufactures for one of IBC’s distributors. The agreement
      was entered into to address amounts that IBC owed to the Company at the end
      of
      fiscal year 2005, and to streamline the order and fulfillment process of IBC’s
      RSV product. All outstanding amounts due to the Company were satisfied by the
      end of the third quarter of 2007. The Company continues to work directly with
      IBC’s distributor under the agreement and pay a 20% royalty of total sales to
      IBC. During the first six months of 2008, IBC earned royalties in the amount
      of
      $40,000.





**Note
      H – Stock Option Grants**





In
      June
      2006, the Company’s Board of Directors granted a stock option to purchase 72,000
      shares of the Company’s common stock to the Company’s then Chief Financial
      Officer, and an option to purchase 3,000 shares of the Company’s common stock to
      an employee in the Company’s R&D division. Both option grants have exercise
      prices of $1.05 (the closing price of the Company’s common shares on the date of
      grant) and vested 100% on the one-year anniversary of the date of the grant
      (although the options granted to the former Chief Financial Officer expired
      in
      January 2008). In accordance with FAS 123(R), the Company recognized $63,347
      in
      non-cash compensation expense related to these grants from June 2006 through
      May
      2007. Included in the three months ended June 30, 2007 is $26,000 of this
      non-cash compensation expense.




11


**Note
      I – Employment Agreements**





The
      Company has entered into employment agreements with its Chief Executive Officer
      Stan Cipkowski, Chief Science Officer Martin R. Gould, Chief Financial Officer
      Stefan Parker and Executive Vice President of Operations Douglas Casterlin
      providing for aggregate annual salaries of $624,000. The
      agreement with Chief Executive Officer Cipkowski provides for a $206,000 annual
      salary, is for a term of one year and automatically renews unless either party
      gives advance notice of 60 days. The
      agreement with the Chief Science Officer Gould provides for a $149,000 annual
      salary, is for a term of one year and automatically renews unless either party
      gives advance notice of 60 days. The agreement with Chief Financial Officer
      Parker provides for a $120,000 annual salary, is for a term of one year and
      automatically renews unless either party gave advance notice of 60 days. The
      agreement with the Executive Vice President of Operations Casterlin provides
      for
      a $149,000 annual salary, is for a term of one year and automatically renews
      unless either party gives advance notice of 60 days. Copies of Cipkowski and
      Gould’s employment agreements were filed as exhibits to its Quarterly Report on
      Form 10-QSB filed with the Commission on August 13, 2007. A copy of Parker’s
      employment agreement was filed as an exhibit to the Company’s Current Report on
      Form 8K filed with the Commission on August 24, 2007. A copy of Casterlin’s
      employment agreement was filed as an exhibit to the Company’s Current Report on
      Form 8-K filed with the Commission on May 1, 2008.





**NOTE
      J – Subsequent Event**





On
      July
      9, 2008, the Company issued a Private Placement Memorandum related to its
      offering of the Series A Debentures (the “Offering”). Under the Offering, not
      less than $250,000 nor more than $750,000 in principal amount of the Series
      A
      Debentures are to be placed. The Series A Debentures will accrue interest at
      a
      rate of 10% per annum (payable by the Company semi-annually) and mature on
      August 1, 2012. The payment of principal and interest on the Series A Debentures
      is subordinate and junior in right of payment to all Senior Obligations, as
      defined under the Series A Debentures. Holders of the Series A Debentures will
      have a right of conversion of the principal amount of the Series A Debentures
      into shares (the “Conversion Shares”) of the common stock of the Company
      (“Common Stock”), at a conversion rate of 666.67 shares per $500 in principal
      amount of the Series A Debentures (representing a conversion price of
      approximately $0.75 per share). This conversion right can be exercised at any
      time, commencing the earlier of (a) one hundred twenty (120) days after the
      date
      of the Series A Debentures, or (b) the effective date of a Registration
      Statement to be filed by the Company with respect to the Conversion Shares.
      The
      Company has the right to redeem any Series A Debentures, which have not been
      surrendered for conversion at a price equal to the Series A Debentures’ face
      value plus $0.05 per underlying common share, or $525 per $500 in principal
      amount of the Series A Debentures. This redemption right can be exercised by
      the
      Company at any time within ninety (90) days after any date when the closing
      price of the Common Stock has equaled or exceeded $2.00 per share for a period
      of twenty (20) consecutive trading days.





As
      placement agent, Cantone will be entitled to a Placement Agent fee equal to
      7%
      of the gross principal amount of Series A Debentures sold. In addition, Cantone
      will receive warrants to purchase shares of Common Stock at the rate of 50
      shares of Common Stock for each $500 in principal amount of Series A Debentures
      placed. The warrants shall be exercisable within four (4) years of the issuance
      date. The exercise price under the Warrants shall be: (i) a price equal to
      the
      publicly traded closing price of the shares of the Common Stock on the date
      the
      minimum in principal amount of Series A Debentures is placed by Cantone and
      accepted by the Company (the “Closing Date”) with respect to the Series A
      Debentures placed on the Closing Date and (ii), a price equal to the publicly
      traded closing price of the shares of Common Stock on the date all Series A
      Debentures able to be placed are placed by Cantone, and accepted by the Company
      (the “Series A Completion Date”) with respect to the Series A Debentures placed
      after the Closing Date and up through the Series A Completion Date.




12




Pursuant
      to a Registration Rights Agreement, the Company has agreed to use reasonable
      efforts to register the Conversion Shares and the shares of Common Stock
      issuable upon exercise of the Placement Agent warrants.





The
      securities to be issued in this transaction are being sold pursuant to the
      exemption from registration afforded by Rule 506 under Regulation D ("Regulation
      D") as promulgated by the Commission under the Securities Act of 1933, as
      amended (the "1933 Act"), and/or Section 4(2) of the 1933 Act.





As
      of the
      date of this report, the Company has entered into Securities Purchase Agreements
      with investors for the sale of $608,000 of Series A 10% Subordinated Convertible
      Debentures (the “Series A Debentures”).





**Item
      2. Management's Discussion and Analysis of Financial Condition and Results
      of
      Operations**




**General**




The
      following discussion of the Company's financial condition and the results of
      operations should be read in conjunction with the Financial Statements and
      Notes
      thereto appearing elsewhere in this Quarterly Report on Form 10-Q. This
      discussion contains, in addition to historical statements, forward-looking
      statements that involve risks and uncertainties. Our actual future results
      could
      differ significantly from the results discussed in the forward-looking
      statements. Factors that could cause or contribute to such differences include,
      but are not limited to, the factors discussed in the section titled "Risk
      Factors" in our Annual Report on Form 10-KSB for the year ended December 31,
      2007. Any forward-looking statement speaks only as of the date on which such
      statement is made and we do not assume any responsibility to update any such
      forward-looking statement, nor we do intend to update any such forward-looking
      statements.





**Overview**





During
      the year ended December 31, 2007, the Company sustained a net loss of $990,000
      from net sales of $13,872,000, and had net cash used in operating activities
      of
      $605,000. During the three months ended March 31, 2008, the Company sustained
      a
      net loss of $199,000 from net sales of $3,299,000. The Company had net cash
      provided by operating activities of $78,000 for the first three months of 2008.





During
      the six months ended June 30, 2008, the Company continued to take steps to
      improve its financial position. More specifically, beginning in April 2008
      and
      through the three months ended June 30, 2008, the Company implemented a number
      of cost cutting initiatives including, but not limited to, employee reductions
      in its selling and marketing, research and development and general and
      administrative departments. The Company also continues to make efforts, and
      take
      steps, to reduce manufacturing costs related to its products to increase the
      Company’s gross margin. Simultaneously with these efforts, the Company continues
      to focus on the development of new products to address market trends and needs.





The
      Company's continued existence is dependent upon several factors, including
      its
      ability to raise revenue levels and reduce costs to generate positive cash
      flows, and to sell additional shares of the Company's common stock to fund
      operations and/or obtain additional credit facilities, if and when
      necessary.





In
      April
      2008, the Company’s distributor in the Dominican Republic (DR), signed an
      exclusive contract with the National Network of Transportation to provide drug
      testing services for all dock personnel and all drivers delivering and receiving
      at the country's three major ports. The first 15,000 tests were shipped in
      the
      second quarter of 2008, and it is expected that a minimum of approximately
      40,000 tests will be required each year under this contract.




13




In
      June
      2008, the US Food and Drug Administration (FDA) granted the Company 510(k)
      clearance on its Rapid TOX Cup®, a patent pending drug screen in an
      all-inclusive cup platform. The clearance allows the Company to provide the
      Rapid TOX Cup to customers in clinical markets.





**Plan
      of Operations**





The
      Company’s sales strategy continues to be a focus on direct sales, while
      identifying new contract manufacturing operations and pursuing new national
      accounts. During the six months ended June 30, 2008, the Company continued
      its
      program to market and distribute its urine and oral fluid based point of
      collection tests for drugs of abuse and its Rapid Reader® drug screen results
      and data management system. Contract manufacturing operations also continued
      in
      the first half of 2008.





**Results
      of operations for the six months ended June 30, 2008 compared to the six months
      ended June 30, 2007**





**NET
      SALES:** Net
      sales
      for the six months ended June 30, 2008 were $6,764,000, compared to $6,611,000
      for the six months ended June 30, 2007. This represents an increase of 153,000,
      or 2.3%. When comparing the first half of 2008 with the first half of 2007,
      national account and contract manufacturing sales increased, however, these
      increases were offset by decreases in outside sales, in-house sales, and
      international sales. Our outside and in-house sales divisions continue to be
      affected by price pressures in the criminal justice market caused by general
      economic conditions and foreign manufacturers. International sales continued
      to
      be affected in the first half of 2008 due to the loss of one of our
      international distributors as well as decreased sales to one of our top
      distributors as a result of the slowing economy.





Our
      Rapid
      Reader® (drug screen interpretation and data management system), Rapid TOX®
(urine based testing cassette), and Rapid TOX Cup (urine based all inclusive
      testing cup) product line sales increased along with a slight increase in our
      Rapid Drug Screen® (“RDS®”)/Rapid ONE® (urine based drug test kit/dipstick) and
      Rapid STATTM (oral fluid based test device) product line sales. The Rapid TOX Cup
      and Rapid STAT product lines were officially launched in the third quarter
      of
      2007 therefore there were no sales of these product lines in the first half
      of
      2007. Increases in these product lines were offset by decreases in our OralStat®
(oral fluid based test device), Rapid TEC® (urine based multi-line dipstick),
      and RDS InCup® (urine based all inclusive testing cup) product lines. The
      Company believes that the attrition in these product lines is a result of
      customers switching from one product line to another due to either increased
      ease of use (in the case of the OralStat and Rapid STAT) or lower cost (in
      the
      case of RDS InCup and Rapid TOX Cup and Rapid TEC and Rapid TOX).





The
      Company’s contract manufacturing operations currently include the manufacture of
      a HIV test, a test for fetal amniotic membrane rupture, a test for RSV and
      other
      infectious disease and agricultural testing products. The Company also provides
      its drug testing strips to an unaffiliated third party for incorporation into
      one of the party’s tests that is used in hospitals, emergency rooms and clinics.
      Contract manufacturing sales during the first half of 2008 totaled $233,000,
      up
      from $82,000 in the same period a year ago.





**COST
      OF GOODS:** Cost
      of
      goods sold for the six months ended June 30, 2008 was $3,719,000, or 55.0%
      of
      net sales, compared to $3,890,000, or 58.8% of net sales for the six months
      ended June 30, 2007. This improvement in cost of goods is as a result of a
      one-time inventory disposal charge of $123,000 that occurred in the first
      quarter of 2007, which did not occur in the first quarter of 2008. Also
      contributing to this improvement is increased manufacturing efficiencies as
      a
      result of automation of the Company’s Rapid TOX product line and a shift in
      product sales with more sales to non-government markets at higher profit margins
      than in government sales, which are at lower profit margins.





**OPERATING
      EXPENSES:** Operating
      expenses were $3,241,000, or 47.9% of net sales in the first half of 2008,
      compared to $3,371,000, or 51.0% of net sales in the first half of 2007.
      Decreases in costs associated with our CLIA waiver application as well as the
      implementation of cost cutting initiatives in research and development, selling
      and marketing and general and administrative resulted in expense reductions
      in
      all three divisions.




14




Research
      and Development (R&D) expense





R&D
      expenses for the first half of 2008 were $316,000, or 4.7% of net sales compared
      to $347,000, or 5.2% of net sales for the same period in 2007. Savings in
      supplies and materials, travel, depreciation and telephone costs were offset
      by
      increases in salaries and employee related benefits, facilities utility costs,
      and FDA compliance costs. Effective
      June 30, 2008, the Company’s Vice President of Product Development, employed at
      an annual salary of $70,000, retired. The
      former vice president will receive a payment equal to half his annual salary,
      or
      $35,000, to be paid in three equal monthly installments of approximately $11,666
      each beginning July 31, 2008. These payments have been accrued as of June 30,
      2008. The Company does not expect to fill this position in the future,
      therefore, although there were slight increases in salaries and employee related
      benefits in the first half of 2008 when compared to the first half of 2007,
      the
      Company expects to see savings from this personnel reduction beginning in the
      third quarter of 2008. In the first half of 2008, the Company’s R&D
      department continued to focus its efforts on development of new products,
      exploration of contract manufacturing opportunities and enhancement of its
      current products.





Selling
      and marketing expense





Selling
      and marketing expenses in the first six months of 2008 were $1,484,000, or
      21.9%
      of net sales compared to $1,516,000, or 22.9% of net sales in the first six
      months of 2007. This decrease in expense results from reductions in sales
      salaries, sales employee related benefits and sales commissions, travel, and
      trade show expenses and dues and equipment depreciation. These decreases were
      partially offset by increases in postage, customer relations and royalty expense
      as a result of increased sales of RSV tests. The reduction in sales salaries,
      commissions and other employee related benefits were as a result of the
      reduction in sales personnel as part of the Company’s implementation of cost
      cutting initiatives.





General
      and administrative (G&A) expense





G&A
      expenses were $1,441,000, or 21.3% of net sales in the six months ended June
      30,
      2008 compared to $1,508,000, or 22.8% of net sales in the six months ended
      June
      30, 2007. Expenses in the first half of 2007 included approximately $190,000
      of
      costs associated with the Company's CLIA waiver application; these costs
      significantly decreased to $13,000 in the first half of 2008. The first six
      months of 2007 also included $26,000 in non-cash compensation expense that
      did
      not recur in the first half of 2008. Additional decreases in investor relations,
      insurance, outside service costs, and repairs and maintenance expenses were
      partially offset by increases in quality assurance, accounting and legal fees,
      patents and licenses, and bad debts.





**Results
      of operations for the three months ended June 30, 2008 compared to the three
      months ended June 30, 2007**





**NET
      SALES** :
      Net
      sales for the quarter ended June 30, 2008 were $3,465,000, compared to
      $3,436,000 for the quarter ended June 30 2007. This represents an increase
      of
      $29,000, or 1.0%. Increase in national accounts, international sales, and
      contract manufacturing were offset by decreases in outside sales and in-house
      sales. Sales to our distributors/customers in Latin America increased in the
      quarter ended June 30, 2008 and this is offset by declines in sales due to
      the loss of another international distributor.





In
      the
      second quarter of 2008, Rapid Reader, Rapid TOX, and Rapid TOX Cup product
      line
      sales increased along with a slight increase in the Rapid STAT product line
      sales. The Rapid TOX Cup and Rapid STAT product lines were officially launched
      in the third quarter of 2007 therefore there were no sales of these product
      lines in the second quarter of 2007. Increases in these product lines were
      offset by decreases in the OralStat and RDS InCup product lines. The Company
      believes that the attrition in these product lines is a result of customers
      switching from one product line to another due to either increased ease of
      use
      (in the case of the OralStat and Rapid STAT) or lower cost (in the case of
      RDS
      InCup and Rapid TOX Cup).




15




The
      Company’s contract manufacturing operations currently include the manufacture of
      a HIV test, a test for fetal amniotic membrane rupture, a test for RSV and
      other
      infectious disease and agricultural testing products. The Company also provides
      its drug testing strips to an unaffiliated third party for incorporation into
      one of the party’s tests that is used in hospitals, emergency rooms and clinics.
      Contract manufacturing sales during the second quarter of 2008 totaled $139,000,
      up from $14,000 in the same period a year ago.




**COST
      OF GOODS** :
      Cost of
      goods sold for the three months ended June 30, 2008 was $1,847,000, or 53.3%
      of
      net sales, compared to $1,974,000, or 57.5% of net sales for the three months
      ended June 30, 2007. Increased manufacturing efficiencies as a result of
      automation of the Company’s Rapid TOX product line and a shift in product sales
      with more sales to non-government markets at higher profit margins than in
      government sales (which are at lower profit margins) both contributed to this
      improvement in cost of goods. These improvements were partially offset by
      increases in material costs.





**OPERATING
      EXPENSES:** Operating expenses were $1,652,000, or 47.7% of net sales, in the second quarter
      of 2008, compared to $1,838,000, or 53.5% of net sales, in the second quarter
      of
      2007. Decreases in costs associated with our CLIA waiver application as well
      as
      the implementation of cost cutting initiatives in research and development,
      selling and marketing and general and administrative resulted in expense
      reductions in all three divisions as evidenced by the decrease in selling and
      marketing and general administrative expenses when compared to second quarter
      of
      2008. Research and development expenses were unchanged when comparing the second
      quarter of 2008 and the second quarter of 2007, as the Company will not realize
      the effect of cost reductions in this division until future
      quarters.





Research
      and development (R&D) expense





R&D
      expenses for the three months ended June 30, 2008 and 2007 were $178,000, or
      5.1% of net sales and 5.2% of net sales, respectively. Effective June 30, 2008,
      the Company’s Vice President of Product Development, employed at an annual
      salary of $70,000, retired. The former vice president will receive a payment
      equal to half his annual salary, or $35,000, to be paid in three equal monthly
      installments of approximately $11,666 each beginning July 31, 2008. These
      payments have been accrued as of June 30, 2008. The Company does not expect
      to
      fill this position in the future therefore; the Company expects to see savings
      from this personnel reduction beginning in the third quarter of 2008. In the
      three months ended June 30, 2008, the Company’s R&D department continued to
      focus its efforts on development of new products, exploration of contract
      manufacturing opportunities and enhancement of its current
      products.





Selling
      and marketing expense





Selling
      and marketing expenses were $716,000, or 20.7% of net sales, in the second
      quarter of 2008, compared to $825,000, or 24.0% of net sales, in the same period
      a year ago. This decrease in selling and marketing expense is a result of
      savings in sales salaries, sales commissions, sales related employee benefits,
      travel costs, and trade-show related expenses. These savings were partially
      offset by increases in postage, customer relations and royalty
      expense.




General
      and administrative (G&A) expense





G&A
      expense were $758,000 or 21.9% of net sales in the three months ended June
      30,
      2008 compared to $835,000, or 24.3% of net sales in the three months ended
      June
      30, 2007. Expenses in the second quarter of 2007 included approximately $190,000
      of costs associated with our CLIA waiver application; these costs significantly
      decreased to $4,000 in the second quarter of 2008. The second quarter of 2007
      also included $11,000 in non-cash compensation expense that did not recur in
      the
      second quarter of 2008. Additional decreases in investor relations, insurance,
      and repairs and maintenance were partially offset by increases in quality
      assurance, consulting fees, legal fees, patent and license fees, and bad debts.




16




**Liquidity
      and Capital Resources as of June 30, 2008**





The
      Company has working capital of $3,900,000 at June 30, 2008 compared to working
      capital of $4,017,000 at December 31, 2007. The Company has historically
      satisfied its net working capital requirements, if needed, through operations,
      cash generated by proceeds from private placements of equity securities with
      institutional investors and debt financing. The Company has never paid any
      dividends on its common shares and anticipates that all future earnings, if
      any,
      will be retained for use in the Company's business and it does not anticipate
      paying any cash dividends.





The
      Company's cash requirements depend on numerous factors, including product
      development activities, sales and marketing efforts, market acceptance of its
      new products, and effective management of inventory levels in response to sales
      forecasts. The Company expects to devote substantial capital resources to
      continue its product development, refine manufacturing efficiencies, and support
      its direct sales efforts. The Company will examine other growth opportunities
      including strategic alliances and expects such activities will be funded from
      existing cash and cash equivalents, issuance of additional equity or debt
      securities or additional borrowings subject to market and other conditions.
      The
      Company does not believe that its current cash balances, and cash generated
      from
      future operations, will be sufficient to fund operations for the next twelve
      months. The Company may be required to sell additional equity or obtain
      additional credit facilities. There is no assurance that such financing will
      be
      available or that the Company will be able to complete financing on satisfactory
      terms, if at all.





Despite
      implementation of cost cutting initiatives in the second quarter of 2008,
      management believes that increases in research and development, selling and
      marketing and general and administrative expense may be required in the future
      as the Company continues its investment in long-term growth and creates the
      necessary infrastructure to: achieve its worldwide drug test marketing and
      sales
      goals, continue its penetration of the direct sales market, support research
      and
      development projects and leverage new product initiatives. However, management
      has taken measures to control the rate of increase of these costs to be
      consistent with the expected sales growth rate of the Company.





Net
      cash
      used in operating activities was $3,000 for the six months ended June 30, 2008,
      compared to net cash used in operating activities of $805,000 for the six months
      ended June 30, 2007. The net cash used in operating activities for the six
      months ended June 30, 2008 resulted primarily from increases in accounts
      receivable and inventory balances and offset by increases in accrued expenses,
      accounts payable and wages payable.





Net
      cash
      used in investing activities was $25,000 for the six months ended June 30,
      2008,
      compared to net cash used in investing activities of $564,000 for the six months
      ended June 30, 2007. Net cash used in both years was for investment in property,
      plant and equipment. Included in the six months ended June 30, 2007 was $270,000
      representing the cost of equipment for use in the Company’s New Jersey facility
      for the automation of the Company’s Rapid TOX product line.




Net
      cash
      used in financing activities was $216,000 for the six months ended June 30,
      2008, which consisted of debt and line of credit payments offset by proceeds
      from line of credit. Net cash provided by financing activities for the six
      months ended June 30, 2007 was $1,088,000 and consisted of proceeds of $539,000
      from a five year term note, $800,000 from the Company’s lines of credit and
      $23,000 in proceeds from the exercise of stock options. These proceeds were
      offset by debt and line of credit payments.




17




At
      June
      30, 2008, the Company had cash and cash equivalents of $92,000.





The
      Company's primary short-term capital and working capital needs relate to
      continued support of its research and development programs, focusing sales
      efforts on segments of the drugs of abuse testing market that will yield high
      volume sales, refining its manufacturing and production capabilities, and
      establishing adequate inventory levels to support expected sales.





**Item
      3. Quantitative and Qualitative Disclosures About Market
      Risk**





Not
      applicable.





**Item
      4. Controls and Procedures**





*(a)*
            *Evaluation
                of Disclosure Controls and
                Procedures*





Our
      Chief
      Executive Officer (Principal Executive Officer) and Chief Financial Officer
      (Principal Financial Officer), together with other members of management, have
      reviewed and evaluated the effectiveness of our “disclosure controls and
      procedures” (as defined in the Securities Exchange Act of 1934 Rule 13a-15(e)
      and 15d-15(e)) as of the end of the period covered by this report. Based on
      this
      review and evaluation, our Principal Executive Officer and Principal Financial
      Officer have concluded that our disclosure controls and procedures are effective
      to ensure that material information relating to the Company is recorded,
      processed, summarized, and reported in a timely manner.





*(b)
      Changes in Internal Control Over Financial Reporting*





There
      have been no changes in the Company's internal control over financial reporting
      during the last quarterly period covered by this report that have materially
      affected, or are reasonably likely to materially affect, the Company's internal
      control over financial reporting.





**PART
      II – OTHER INFORMATION**




**Item
      1. Legal Proceedings**





See
“Note
      C – Litigation” in the Notes to Financial Statements included in this report for
      a description of pending legal proceedings in which the Company is a
      party.





**Item
      1A. Risk Factors**





Not
      applicable.





**Item
      2. Unregistered Sales of Equity Securities and Use of
      Proceeds**





None.





**Item
      3. Defaults upon Senior Securities**





None.




18


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




The
      following matters were voted upon at the Company’s Annual Meeting of
      Shareholders (the “Meeting”) held at the Holiday Inn, in East Greenbush, New
      York on June 17, 2008.





PROPOSAL
      NUMBER 1 – ELECTION OF DIRECTORS





Total
                Shares in Attendance:
            
            19,958,563
            
            
            
            Outstanding
                Shares as of Record Date
              (April
                21, 2008):
            
            21,744,768Director
            
            For
            
            Percent
                of
              Votes
            
            Withheld
            
            Percent
                of
              VotesEdmund
                M. Jaskiewicz
            
            18,844,394
            
            94.4
            
            1,114,169
            
            5.6Daniel
                W. Kollin
            
            19,353,300
            
            97.0
            
            605,263
            
            3.0Jean
                Neff
            
            19,354,050
            
            97.0
            
            604,513
            
            3.0





All
      nominees for election to the Board of Directors were elected for a three year
      term ending in 2011 or until their successors are elected and duly qualified.
      In
      addition to those directors elected at the Meeting, Stan Cipkowski, Richard
      P.
      Koskey, Carl A. Florio and Anthony G. Costantino, Ph.D. continued their term
      of
      office after the Meeting.





There
      were no other matters voted upon at the Meeting.





**Item
      5. Other Information**





None.





**Item
      6. Exhibits**





31.1
            Rule
                13a-14(a)/15d-14(a) Certification of Chief Executive Officer





31.2
            Rule
                13a-14(a)/15d-14(a) Certification of Chief Financial Officer





32.1
            Certification
                of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
                as
                adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002





32.2
            Certification
                of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350,
                as
                adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002





19


SIGNATURES





In
      accordance with the requirements of the Exchange Act, the registrant has caused
      this report to be signed on its behalf by the undersigned thereunto duly
      authorized.





AMERICAN
                BIO MEDICA CORPORATION(Registrant)By:
            /s/Stefan
                ParkerChief
                Financial OfficerExecutive
                Vice President, FinancePrincipal
                Accounting Officer and duly authorized
                Officer




Dated:
      August 14, 2008




20