FORM 10-KSB

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

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

For the fiscal year ended December 31, 2005

|_| TRANSITION  REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES  EXCHANGE ACT
OF 1934

For the transition period -------------- to -------------------

Commission File Number: 0-28666

                         American Bio Medica Corporation
                 (Name of Small Business Issuer in its charter)

              New York                                  14-1702188
(State or other jurisdiction of              (IRS Employer Identification No.)
 incorporation or organization)

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

Issuer's telephone number (800) 227-1243

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

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

                         Common Shares, $0.01 Par value

                         Common Share Purchase Warrants
                               Title of each class

      Check  whether the issuer:  (1) filed all reports  required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 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. |X| Yes |_|
No

      Check if there is no disclosure  of delinquent  filers in response to Item
405 of  Regulation  S-B  contained  in  this  form,  and no  disclosure  will be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |X|

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

      State issuer's revenues for its most recent fiscal year: $13,015,000

      The  aggregate  market value of  17,885,613  voting  Common Shares held by
non-affiliates of the issuer was approximately  $17,384,816 based on the average
bid and asked prices of the issuer's Common Shares,  $.01 par value, as reported
on the NASDAQ SmallCap Market on March 27, 2006.

         As of March 27, 2006, the issuer had outstanding 21,359,768 Common
Shares, $.01 par value.

         The aggregate market value of 1,257,000 Common Share Purchase Warrants
held by non-affiliates of the issuer was approximately $175,980 based on the
average bid and asked price of the issuer's Common Share Purchase Warrants, as
reported on the NASDAQ SmallCap Market on March 27, 2006.

<PAGE>

      As of March 27, 2006, the issuer had  outstanding  1,269,500  Common Share
Purchase Warrants.

      Documents Incorporated by reference:

      (1)   The Proxy Statement for the Annual Meeting of  Shareholders  for the
            year ending December 31, 2005 in Part III of this Form 10-KSB
      (2)   Other documents  incorporated by reference on this report are listed
            in the Exhibit Reference Table

         Transition Small Business Disclosure Format:  |_| YES   |X| NO

<PAGE>

                         American Bio Medica Corporation

                      Index to Annual Report on Form 10-KSB
                   For the fiscal year ended December 31, 2005

<TABLE>
<CAPTION>
PART I.                                                                          PAGE
                                                                                 ----

<S>                                                                               <C>
         Item 1.  Description of Business                                          1
         Item 2.  Description of Property                                         17
         Item 3.  Legal Proceedings                                               17
         Item 4.  Submission of Matters to a Vote of Security Holders             17

PART II

         Item 5.  Market for Common Equity and Related Shareholder
                  Matters                                                         17
         Item 6.  Management's Discussion and Analysis or Plan of
                  Operations                                                      18
         Item 7.  Financial Statements                                            26
         Item 8.  Changes In and Disagreements With Accountants on
                  Accounting and Financial Disclosure                             26
         Item 8A. Controls and Procedures                                         26
         Item 8B. Other Information                                               26

PART III

         Item 9.  Directors, Executive Officers, Promoters and Control Persons;
                  Compliance with Section 16(a) of the Exchange Act               27
         Item 10. Executive Compensation                                          27
         Item 11. Security Ownership of Certain Beneficial Owners and             27
                  Management                                                      27
         Item 12. Certain Relationships and Related Transactions                  27
         Item 13. Exhibits and Reports on Form 8-K                                27
         Item 14. Principal Accountant Fees & Services                            29

Signatures                                                                       S-1
</TABLE>

<PAGE>

      This Form 10-KSB may contain certain forward-looking statements within the
meaning  of the  Private  Securities  Litigation  Reform  Act of 1995.  For this
purpose any statements  contained in this Form 10-KSB that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the  foregoing,  words  such as  "may",  "could",  "should",  "will",  "expect",
"believe"  "anticipate",  "estimate" or "continue" or comparable  terminology is
intended to identify  forward-looking  statements.  It is important to note that
our actual  results  could differ  materially  from those  anticipated  from the
forward-looking   statements  depending  on  various  important  factors.  These
important  factors include our history of losses,  the uncertainty of acceptance
of current and new products in our markets,  competition in our markets, and the
other factors discussed in our "Risk Factors" found on page 11.

PART I

      ITEM 1. DESCRIPTION OF BUSINESS

Business Development

      Our Company was  incorporated on April 2, 1986 under the laws of the State
of New York under the name American  Micro Media,  Inc. On September 9, 1992, we
filed an  amendment  to our  Articles  of  Incorporation  to change  our name to
American  Bio  Medica  Corporation  ("ABMC"  or "the  Company").  Our  principal
business office is located at 122 Smith Road,  Kinderhook,  New York,  12106. We
also have a research & development  ("R&D") and production  facility  located at
603 Heron Drive, Unit #3, Logan Township, New Jersey, 08085.

      In November  2001, we purchased our facility  located in  Kinderhook,  New
York from Avoba, Inc. for $950,000.  Included in the purchase were the facility,
its contents and 107 acres of land surrounding the facility.  In March 2003, the
Company  sold  approximately  85 acres of land at its  Kinderhook  facility to a
third party.

Our Business

      We  develop,  manufacture  and market  immunoassay  diagnostic  test kits,
primarily for the immediate,  point of collection ("POC") screening for drugs of
abuse. Our drugs of abuse screening products offer health care, law enforcement,
government,  industrial  safety  and  education  professionals,  self-contained,
one-step  screening  devices  capable  of  identifying  illicit  drug use within
minutes.  In  addition to our  manufacture  and  distribution  of drugs of abuse
screening  products,  in late  2001  we also  began  performing  contract  strip
manufacturing  for other POC  diagnostic  companies.  While we do not  currently
derive a significant portion of our revenues from contract manufacturing,  we do
expect to continue to explore additional  applications for our technology and as
a result contract  manufacturing  could become a greater portion of our revenues
in the future. The overall immunoassay market is continually growing; in fact it
is projected that in 2006, the revenues from immunoassay testing are expected to
reach $17.6 billion.  Our long-term objective is to provide an extensive product
portfolio to this expanding immunoassay market.

Our Products

      Rapid Drug Screen(R): We manufacture the Rapid Drug Screen, or RDS(R), our
primary product line. The Rapid Drug Screen is a patented,  rapid,  POC test kit
that detects the presence or absence of drugs of abuse in a urine  specimen.  We
market the RDS as easy to-use,  cost-effective  and highly reliable.  There have
been a number of studies that have reported on the Rapid Drug Screen's  accuracy
and  reliability,  including the Rosita Roadside Study conducted in Europe which
rated the Rapid Drug  Screen  products  "Very Good" for user  friendliness,  the
highest rating given to any of the products in the study.  In addition,  a study
conducted by the Department of Health and Human  Services  ranked the Rapid Drug
Screen the most accurate  multi-drug device for all drugs when compared to GC/MS
(Gas  Chromatography/Mass  Spectrometry),  a  laboratory  test  consisting  of a
combination of two microananlytical  techniques: GC, a separation technique, and
MS, an identification technique.

                                       1
<PAGE>

      We produce several versions (panels) of the Rapid Drug Screen.  Each panel
screens  for  a  specified   number  of  drugs  (up  to  10  classes  of  drugs)
simultaneously.  We can also  custom  produce  panels for the  screening  of any
quantity  or  combination  of the  following  classes  of  drugs:  cocaine,  THC
(marijuana),  opiates,  amphetamine,  PCP,  benzodiazepines,   methamphetamines,
barbiturates,  tricyclic antidepressants,  methadone, MDMA (Ecstasy) (an illegal
designer drug),  oxycodone (a synthetic  opiate found in several  legitimate and
effective pain medications,  including  OxyContin(R),  but is being used by drug
abusers to create a heroin-like  high),  propoxyphene (a mild narcotic analgesic
structurally  related  to  methadone  that can be habit  forming  and  therefore
abused) and buprenorphine (a drug being used in a new office-based treatment for
addiction to  prescription  pain  relievers  and other opiate  drugs,  including
heroin).

      To use our Rapid Drug Screen product,  an individual slides a panel into a
self-contained, disposable, urine-filled cup and within minutes accurate results
are shown on the panel.  A single line in the test  window  indicates a positive
reading,  and a double  line  indicates a negative  reading for the  presence of
drugs.  We believe  that this ease of use is a  competitive  advantage  over lab
products, as well as products that need to add reagents,  manipulate the test or
utilize trained professionals to understand results.

      One of the problems that may occur in POC drug testing is fraud or evasion
practiced  by the person being  tested.  The most  prevalent  method of avoiding
adverse  test results is the  substitution,  by the person  being  tested,  of a
hidden  "clean"  urine  sample,  which  he or  she  brings  to  the  test.  As a
consequence, each of our urine drug screens contains a temperature sensor, which
helps prevent the  substitution  of another urine sample.  A substituted  sample
would normally be of a lower temperature than a sample produced from the body on
the spot.  In  addition,  both our  urine and  saliva-based  drug  screens  (See
"OralStat"  on page 3)  contain  a control  line,  designed  to assure  the test
administrator  that the test is  working  properly  and  that the  reagents  are
present and not  destroyed  by any outside  agent.  Should the control  line not
appear,  the  administrator  is  instructed  to void the test  and  re-test  the
individual by obtaining another sample. A positive result is normally  confirmed
by laboratory testing.

      Our Rapid Drug  Screen is  currently  marketed in the  following  standard
configurations:  two different 2-panel tests, three different 3 panel tests, two
different 4 panel tests,  four different 5 panel tests, one 8 panel tests, one 9
panel test and two different 10 panel tests.

      o     Two panel tests,  designed for the  criminal  justice and  education
            markets that screen for cocaine and THC or methamphetamines and THC.

      o     Three panel tests,  designed for various non-clinical  markets, that
            screen for THC, cocaine and opiates;  THC, cocaine and amphetamines;
            or THC, cocaine and methamphetamines.

      o     Four  panel  tests,   designed  for  various  non-clinical  markets,
            including corporate/workplace and the criminal justice markets, that
            screen for cocaine,  THC, opiates and alternatively  amphetamines or
            methamphetamines.

      o     Five panel tests, designed for the corporate/workplace  market, that
            screen for the "SAMHSA 5" (SAMHSA stands for the Substance Abuse and
            Mental  Health  Services   Administration,   an  Agency  of  the  US
            Department of Health and Human Services): cocaine, THC, opiates, PCP
            and  amphetamine  and  2  additional  versions  of  this  test  with
            methamphetamines  or  benzodiazepines  replacing  PCP. An additional
            standard  configuration of THC, cocaine,  opiates,  methamphetamines
            and oxycodone is also available.

      o     An eight panel test, designed for the clinical market, primarily for
            hospitals  and  physicians,  that screens for the "SAMHSA 5" (listed
            above), plus benzodiazepines, methamphetamines and barbiturates.

      o     A nine panel test,  also  designed  for the  clinical  market,  that
            screens  for drugs of abuse from the eight  panel  test,  as well as
            tricyclic antidepressants.

                                       2
<PAGE>

      o     Ten panel  test,  designed  for  specific  workplace  markets,  that
            screens for the drugs of abuse from the eight panel test, as well as
            methadone and propoxyphene or as well as methadone and oxycodone.

      We can also produce, on special order, or if a market demands,  tests that
can  screen for any  quantity  (from two - ten) or  configuration  of classes of
drugs.  In 2004,  we redesigned  the graphics on the front of our RDS cards.  We
removed the drug names from the card and began  printing their  abbreviation  on
the testing strips themselves.  This enables us to produce custom configurations
more efficiently,  more cost-effectively and enables us to supply special orders
to our customers even faster.

      Rapid One(R):  We manufacture the Rapid One product line which consists of
14 single drug  tests,  each of which  screens for the  presence or absence of a
single drug of abuse in a urine  specimen.  The Rapid One product line  utilizes
the same technology as the Rapid Drug Screen. It includes a single dip platform,
an  identification  and date area,  and does not  require the use of pipettes or
reagents.  The Rapid  One is  designed  for  correctional  facilities  and other
markets  where the person  subject to substance  abuse testing is known to use a
specific  drug.  It can also be used to enhance a Rapid Drug  Screen by means of
allowing screening of an additional drug. The Rapid One product line consists of
the following 14 classes of drugs: cocaine, THC (marijuana),  opiates (available
at  either  300  ng/ml  or  2000  ng/ml),  amphetamine,   PCP,  benzodiazepines,
methamphetamines, barbiturates, tricyclic antidepressants, methadone, oxycodone,
MDMA (Ecstasy), propoxyphene and buprenorphine.

      Rapid  TEC(R):  In August 2001, we launched a new version of the Rapid One
called the Rapid TEC, in which one  individual  drug testing strip would include
the  chemistry to detect more than one class of drug.  The Rapid TEC is designed
for those customers who require a less expensive  product but still need to test
for more  than one  drug of  abuse  utilizing  one  urine  sample.  The  Company
currently offers the following versions of the Rapid TEC:

      o     Rapid TEC-2: screens for THC and cocaine
      o     Rapid TEC-3: screens for THC, cocaine and methamphetamines
      o     Rapid TEC-5: screens for
                  THC, cocaine, opiates, amphetamines and benzodiazepines; or
                  THC, cocaine, amphetamine, PCP and opiates 300
                  THC, cocaine, opiates 300, methamphetamines and
                  benzodiazepines

      In July 2005, we launched a new enhanced  product,  the Rapid TOX(TM) (see
Rapid TOX on page 4), which utilizes the same drug testing strip that is used in
the Rapid TEC.  In late 2005,  we  discontinued  the Rapid  TEC-4  platform  and
replaced it with the same  configuration  in the Rapid TOX platform.  Throughout
2006, we intend to begin to phase out the Rapid TEC-2 and Rapid TEC-3  platforms
and offer the same configurations in the Rapid TOX platform. We plan to continue
to offer the Rapid  TEC-5  tests  throughout  2006,  as market  demand for these
configurations in the Rapid TEC format remains relatively high.

      OralStat(R):  In July  2004,  we  began  manufacturing  and  marketing  an
oral-fluid  based  point  of  collection  device  called  the  OralStat  (we had
previously  licensed a product from ANSYS  Technologies,  Inc. that we also sold
under the  trademark of  OralStat).  Manufacturing  the  OralStat  enables us to
better control costs,  quality and delivery to our customers.  Our OralStat is a
patent-pending,  innovative  POC testing  system for the  detection  of drugs of
abuse in oral fluids.  The  technology of OralStat  provides test results within
minutes with enhanced  sensitivity and detection  comparable to laboratory based
oral  fluids  tests.  OralStat  can  simultaneously  test for six  drugs in each
device.  Currently,  the assays  available  on the  OralStat  are  amphetamines,
methamphetamine, benzodiazepine, cocaine, methadone, opiates, PCP and marijuana.

      The  test  requires  no  messy  saliva  collection  or  handling.  Pending
submission for FDA 510(k) clearance (see "Government Regulations" on page 10 for
a  description  of FDA  510(k)  clearance),  the  product  is  labeled  and made
available "for forensic use only",  which means for use in legal  determinations
only; it is not intended or promoted for a health or medical use or purpose. Our
OralStat has been well received by both current and new customers.

                                       3
<PAGE>

      Rapid  Reader(TM):  In 2003,  we conceived  the Rapid  Reader,  a compact,
portable device that, when connected to any computer,  captures a picture of the
test results on an ABMC drug screen using a  high-resolution  camera.  The Rapid
Reader's  proprietary  software  analyzes this image and interprets the results.
The information is then sent to a data management system, which enables the user
to interpret,  store, transmit and print the drug test results. The Rapid Reader
system  can only be used to  interpret  and  record  the  results  of ABMC  drug
screens. As this product virtually  eliminates human error in the interpretation
and recording of drug screen  results and allows secure  electronic  sharing and
storing of test results,  the Rapid Reader may alleviate  concerns any potential
customer may have about using POC drug tests.  The Company does not expect sales
of the Rapid Reader alone to materially  impact sales,  rather it will enable us
to secure the business of customers that would otherwise not use a POC drug test
thereby increasing sales of the Company's drug screens.

      In February  2004, we shipped our first order of Rapid Reader  devices and
since that time,  the Rapid Reader  continues to be well received by current and
new customers.

      In July 2005, the Rapid Reader received FDA 510(k)  clearance,  making the
Rapid Reader the first 510(k) cleared  all-inclusive drug screen  interpretation
and data management  system. The FDA 510(k) clearance allows the Rapid Reader to
be marketed  and sold to the  clinical  market  (see  "Clinics,  Physicians  and
Hospitals"  on page 7). We also  believe the FDA 510(k)  clearance  could have a
positive  impact on other  markets  as well since  many  non-clinical  customers
prefer to utilize devices that are FDA-cleared.

      RDS InCup(TM):  In July 2004, we began  manufacturing and shipping the RDS
InCup, a new product for the drugs of abuse testing market.  The RDS InCup is an
all-inclusive  POC urine drug test that  incorporates  collection and testing of
the sample in a single device.  Once the donor provides a sample the results are
available  within a few minutes  without any  manipulation  of the sample or the
device.

      The RDS InCup is an extension of the Rapid Drug Screen line of tests using
the same FDA Cleared RDS test strips and offers  customers a fast,  accurate and
easy method for determining the drug use status of an individual.  The RDS InCup
continues to be well received by customers in our core markets.

      The Company offers the following standard versions of the RDS InCup: two 2
panel tests,  three 3 panel tests,  two 4 panel tests, six 5 panels tests, one 6
panel  test,  one 7 panel test,  one 8 panel test,  one 10 panel test and one 12
panel test. In addition to these standard panels, we can custom  manufacture any
configuration or combination of 2 to 12 drugs per device.

      Rapid  TOX(TM):  In July 2005, we launched the Rapid TOX, a cost effective
drug screen in a horizontal cassette platform that simultaneously detects two to
ten drugs of abuse in a urine specimen.  Rapid TOX can be used by pipetting,  or
dropping,  a urine specimen into a channel in the cassette,  or the cassette can
be dipped into a urine  specimen.  Each  channel  contains a single drug testing
strip  that  contains  the  chemistry  to detect  more than one class of drug of
abuse.  Each Rapid TOX device contains one or two channels.  Rapid TOX, like our
other  POC  drug  screens,  provides  accurate  results  within  minutes  in  an
inexpensive, easy to use format.

      We shipped  our first order of Rapid TOX devices in  September  2005.  The
initial  feedback we are receiving  from our  customers and potential  customers
indicates that the Rapid TOX should be well received in our core markets.

      Other products

      In addition to the products we manufacture, we also distribute a number of
POC tests that detect the presence or absence of adulterants and alcohol.  These
tests are manufactured by unaffiliated third parties.  Two of these products are
sold under ABMC-owned  trademarks;  the Rapid AlcoTEC alcohol test and the Rapid
Check  test  for  adulterant  (an  adulterant  is a  substance  added to a urine
specimen  in an attempt to "beat" a drug test).  We do not derive a  significant
portion of our revenues from the sale of these products.

                                       4
<PAGE>

Contract Manufacturing

      Through the fiscal year ending  December 31, 2005,  we provided bulk strip
contract  manufacturing  services to a number of  non-affiliated  POC diagnostic
companies. Currently we manufacture test components for the detection of:

o     TB (Tuberculosis;  a highly contagious disease responsible for more deaths
      than  any  other  infectious   disease   according  to  the  World  Health
      Organization);

o     HIV (Human Immunodeficiency Virus; the virus that causes AIDS);

o     RSV  (Respiratory   Syncytial  Virus;  the  most  common  cause  of  lower
      respiratory tract infections in children worldwide); and

o     Fetal amniotic membrane rupture.

      We do not  currently  derive a  significant  portion of our revenues  from
contract manufacturing.

Our Markets

      Corporate/Workplace

      Our direct  sales  force and our  inside  sales  representatives  sell our
products to this market.  We also have a nationwide  network of distributors and
administrators  of workplace drug testing  programs that sell our drugs of abuse
product line in this market.  We believe that the market for  utilization of POC
drug screens for pre-employment and random employee testing is expanding.

      o     The Office of National  Drug Control  Policy  reported in their most
            recent report  (December  2004) titled "The  Economic  Costs of Drug
            Abuse in the United  States" that the economic cost of drug abuse in
            2002 was  estimated to be $180.9  billion,  increasing  5.34 percent
            annually since 1992. This value represents both the use of resources
            to  address  health  and crime  consequences  as well as the loss of
            potential  productivity  from disability,  death and withdrawal from
            the legitimate workforce.

      o     By far the largest  component  of the  economic  cost noted above is
            loss  of  productivity  at  $128.6  billion.   Productivity   losses
            represent work in the labor market and in household  production that
            was never  performed,  but could reasonably be expected to have been
            performed absent the impact of drug abuse.

      o     According to the 2004 SAMHSA  National Survey on Drug Use and Health
            released in September  2005, of the 16.4 million  illicit drug users
            aged 18 or older in 2004,  12.3 million (75.2 percent) were employed
            either full or part time.

      Not only are there  financial  benefits of drug  testing,  but a drug-free
environment is a safer one.  Incentives  encourage  employers to adopt Drug Free
Workplace  Programs.  Drug testing is an integral part of a Drug Free  Workplace
Program.  In some states,  there are  workman's  compensation  and  unemployment
insurance premium  reductions,  tax deductions and other incentives for adopting
these programs. The Drug Free Workplace Act requires employers receiving federal
contracts  of  $100,000  or more to enact a Drug  Free  Workplace  program  (the
Federal  Acquisition  Streamlining Act of 1994 raised the threshold of contracts
covered  by the  Drug  Free  Workplace  Act  from  $25,000  to  those  exceeding
$100,000).

      Government, Corrections and Law Enforcement

      Our  direct  and  inside  sales  teams  sell our drugs of abuse  screening
products in this market.  This market includes  federal,  state and county level
agencies, including correctional facilities,  pretrial agencies, probation, drug
courts and parole  departments  at the  federal  and state  levels and  juvenile
correctional facilities.

                                       5
<PAGE>

      According  to the  Bureau of  Justice  Statistics  ("BOJ"),  the number of
adults in the correctional population has been increasing.  As of year-end 2004,
nearly 7 million  people,  or 3.2 percent of all U.S. adult  residents,  were on
probation,  in jail or prison,  or on parole.  Of this nearly 7 million  people,
approximately 2 million were inmates in federal and state prisons or local jails
and  approximately 5 million were individuals on probation or parole.  According
to the  Federal  Bureau  of  Prisons,  more  than  half  of the  federal  prison
population was sentenced as drug offenders.

      According to the BOJ, the number of arrests for drug abuse  violations has
also been increasing. In 2004 alone, there were 1,745,700 arrests for drug abuse
violations.  Drug  abuse  violations  are  defined  as state  or local  offenses
relating to the unlawful  possession,  sale, use,  growing,  manufacturing,  and
making of  narcotic  drugs  including  opium or cocaine  and their  derivatives,
marijuana,   synthetic  narcotics,  and  dangerous  nonnarcotic  drugs  such  as
barbiturates.

      Almost all persons (99%) on parole or probation,  and a significant number
of those individuals within federal, state and local correctional facilities and
jails,  have one or more  conditions to their sentence  required by the court or
probation agency including  periodic drug testing and substance abuse treatment.
Our products are aimed at this and other similar markets.

      Rehabilitation Centers

      Our direct sales team and our network of distributors sell our products in
this market.  This market for our  products  includes  people in  treatment  for
substance  abuse.  There is a high  frequency  of  testing in this  market.  For
example,  in many residence  programs,  patients are tested each time they leave
the facility and each time they return.  In  outpatient  programs,  patients are
generally tested on a weekly basis.

      International Markets

      We sell our products  primarily  through  distributors in this market.  We
have entered into  distribution  agreements with companies in several  countries
and are pursuing a course of multinational  distribution of our products through
both clinical and non-clinical  distribution companies. As of December 21, 2005,
we had 27 distributors or customers representing 29 foreign countries.

      Clinics, Physicians, and Hospitals

      This market includes  emergency rooms,  physician  offices,  hospitals and
clinics and  rehabilitation  facilities  associated with hospitals.  In December
2004,  the Drug Abuse  Warning  Network  estimated  that in the third and fourth
quarters of 2003, there were 627,923 episodes,  with an average of 1.7 drugs per
episode,  in  emergency  departments  in the United  States in which  drugs were
mentioned.  Our Rapid Drug  Screen  nine panel test is used in this market as it
provides fast and accurate  results when time is critical.  We continue to focus
our  efforts  on  obtaining  an  exclusive  distribution   relationship  with  a
multinational diagnostics company focused on the clinical POC testing market.

      Consumer/Over-the-Counter

      Our drugs of abuse screening products are not currently available for sale
in this market,  as we have not yet received the necessary  marketing  clearance
from  FDA.  In  December   2003,   FDA  issued  a  revised  draft  guidance  for
manufacturers  of drug abuse  screening  tests that updated two  previous  draft
guidances  published  in 2000 thereby  clarifying  current FDA thinking for both
laboratory and non-laboratory  (workplace,  sports,  insurance, and home) tests.
The Company  continues to evaluate  these  guidelines  to  determine  whether to
obtain the required marketing clearance to sell in this market in the future.

                                       6
<PAGE>

      Educational Market

      According to the  December  2005  University  of Michigan  Monitoring  the
Future  study,  15.5% of 8th  graders,  29.8% of 10th  graders and 38.4% of 12th
graders  had used an  illicit  drug  within  the 12 months  prior to the  study.
Furthermore,  the study  reported  that over half  (50.4%) of young  people have
tried an illicit  drug by the time they  finish  high  school.  We  believe  our
products could be an integral part of helping  schools test due to their ease of
use and immediate, accurate results.

      In June 2002, the Supreme Court, ruled that public middle and high schools
can require  drug tests for  students in  extracurricular  activities  including
athletics,  band,  choir, and other activities  without  violating their privacy
rights.  Drug tests can be  required  without  any  suspicion  of drug use,  and
applies to  students in grades 7 through 12 who sign up for  activities  such as
sports,   cheerleading,   band,   academic  teams,  and  other   extracurricular
activities.  Students  can be tested at the  start of the  school  year and then
randomly  throughout  the year.  It is our  opinion  that,  with this  decision,
schools  will be more likely to  implement a  drug-testing  program.  We did not
focus  considerable  sales  and  marketing  efforts  in this  market  in 2005 so
therefore  sales in this market are  currently  minimal.  The Company may expend
more efforts in the future and may therefore see more significant  sales in this
market in the future.

      Additional Markets

      We believe that the Department of Transportation ("DOT") and the federally
regulated markets could be a future market for our products.  Presently, the DOT
market is not available to any point of collection drug of abuse testing device.
Federal law requires that anyone with a commercial  driver's license be randomly
tested  for use of drugs of abuse  and that  certified  laboratories  be used in
these testing situations.  We believe that there is potential for growth in this
market as the regulatory  agencies are considering  implementing  new guidelines
that will permit the use of point of collection drug testing devices.

Product Distribution

      We have a two-pronged  distribution  strategy that focuses both on growing
business through our direct sales team and with valued third party  distribution
partners.  We sell our products  primarily through a staff of highly experienced
and well-trained sales professionals with drugs of abuse testing experience.  In
addition we sell through third party distribution channels.

      Our direct sales force  consists of a vice president of sales & marketing,
a national sales director,  two national account managers,  seven regional sales
managers,   an  international   sales  manager  and  a  staff  of  inside  sales
representatives.  They call on  non-clinical  accounts  directly and support our
worldwide distribution network. We also employ a marketing manager and a product
manager.  We intend to promote  our  products  through  direct  mail  campaigns,
selected  advertising,  participation  at high profile  trade shows,  use of key
point of collection advocate consultants and other marketing activities.

      We  have  entered  into   non-exclusive,   non-clinical   domestic  market
distribution  agreements,  as well as exclusive and  non-exclusive  non-domestic
market distribution agreement,  with a number of distributors.  These agreements
permit our distributors to sell non-competitive  products of other manufacturers
and permit us to sell our test kits to other distributors within and outside the
territory of each  distributor,  except in those  instances  in which  exclusive
distribution  rights may have been granted.  The  agreements  are  cancelable by
either us or the distributor upon 30 days written notice.

      We will continue to recruit and utilize third party distribution  partners
for select markets,  including  corporate/workplace,  government/corrections/law
enforcement,  international  and education,  in addition to selling  directly in
these  markets  and to key  customers.  We intend to enter  into a  distribution
agreement  with a  multinational  diagnostics  company for sales to the clinical
market.

                                       7
<PAGE>

Competition

      Competition  to our point of collection  urine-based  products  comes from
point of collection tests developed by companies including,  but not limited to,
Varian Inc.,  Medtox  Scientific,  Inc.,  Biosite  Diagnostics,  and a number of
smaller diagnostic companies in the urine point of collection testing market and
OraSure Technologies, Inc. in the saliva point of collection testing market.

      These and other competitors have longer operating histories than we do and
significantly  greater  financial,  technical and marketing  resources  than us.
Currently  the pricing of our  products  are cost  competitive,  however,  these
competitors  can devote  substantially  more  resources  than we can to business
development and may adopt more aggressive pricing policies.

      We compete on the following factors:

            o     effectiveness of pricing;

            o     quality of product;

            o     ease and user-friendliness of services; and

            o     timeliness of product delivery.

      Competitors' point of collection urine tests generally use a collection or
delivery method different than our point of collection urine tests. Our products
do not require pipetting of the specimen,  adding or mixing of reagents or other
manipulation of the device by the user.

      Aside from point of collection  urine tests  offering  immediate  results,
some of our competitors  offer  traditional  laboratory  testing,  where a urine
sample is sent to a  laboratory  for  analysis,  and hair  testing  where a hair
sample is sent to a  laboratory  for  analysis.  These forms of drug testing are
more expensive and take longer to produce results than our products.

      We also face  competition  in the point of collection  saliva test market.
While  saliva-based  drug tests have  limitations  relative to  detection  time,
generally  detecting  traces of drugs of abuse in a 3 to 18 hour window compared
to one to three days for urine-based  testing,  this shorter window of detection
can be useful in some  market  segments,  such as  post-accident  testing in the
workplace.  Our  main  competitor  in  the  saliva  testing  market  is  OraSure
Technologies,  Inc.  OraSure's  saliva  testing  product  is a  laboratory-based
product, not a point of collection test like our OralStat device (See "OralStat"
on page  3).  As  stated  above,  laboratory-based  testing  is  generally  more
expensive  than point of collection  testing and it takes longer to get the test
results.   Therefore,   we   feel   we  have  a   competitive   advantage   over
laboratory-based  products.  Some of our competitors in the saliva-based testing
market, including OraSure Technologies,  Inc, have been promoting their products
longer and therefore, have more experience in marketing saliva-based products to
the appropriate segment(s).

      There are a number of companies  with products that are  competitive  with
our Rapid Reader device. These companies have also been promoting their products
longer and have more  experience  in the drug  testing data  management  market.
However,  it is our opinion  that our Rapid Reader is unrivaled in the market as
not only does it store,  transmit and print the results of our drug tests but it
also  interprets  the  results  of our drug  tests,  virtually  eliminating  the
possibility of human error. In addition,  our Rapid Reader is currently the only
all  inclusive  drug screen  interpretation  and data  management  system 510(k)
cleared by FDA (see  "Government  Regulations" on page 10 for description of FDA
510(k) clearance).

Manufacturing

      We own a 30,000 square foot facility in Kinderhook, New York, which houses
assembly  and  packaging  of our  products  in addition  to  administration.  We
continue to contract-out the printing and manufacture of specimen cup components
of the Rapid Drug Screen.

      We manufacture  all of our own  individual  test strips and we manufacture
test  strips  for  HIV,  Tuberculosis,   RSV  and  fetal  membrane  rupture  for
unaffiliated third parties.  We do not manufacture the Rapid Reader product.  We
lease a 9,200 square foot R&D and  production  facility in Logan  Township,  New
Jersey that houses research and development and bulk strip manufacturing.

                                       8
<PAGE>

      Our present manufacturing  equipment is sufficient to produce 200,000 drug
test kits per month,  assuming one shift per day,  five days per week. As of the
date of this  report,  we are running two shifts per day, 5 days a week.  In the
fiscal year ending  December 31, 2005,  we sold  approximately  3.6 million test
kits.  Our  facilities in Kinderhook,  New York and Logan  Township,  New Jersey
would allow us to increase our production  capacity if additional  personnel are
hired and more equipment is installed.  We could further increase  capacity with
additional  shifts.  We expect to add  additional  assembly/packaging  personnel
and/or  equipment as production  needs  increase.  (See Item 2.  Description  of
Property on page 18).

      We currently have  approximately  68 suppliers who provide us with the raw
materials  necessary to  manufacture  our drug  testing  strips and our drugs of
abuse screening products. (See Risk Factors beginning on page 11).

Patents and Trademarks/Licenses

      To date, we have been granted 24 patents  related to the Rapid Drug Screen
and/or Rapid One product  lines,  including 4 U.S.  design patents and 5 utility
patents.  We currently have 9 United States patent  applications,  and 4 foreign
patent applications pending.

      We have registered the "Rapid Drug Screen" trademark in the United States,
Canada,  Mexico, Chile, Europe and Russia. We have also registered Rapid One and
its logo,  Rapid TEC and its logo, RDS,  OralStat and our corporate logos in the
United States. We have 4 additional trademark applications pending in the United
States.  There can be no assurance that the additional patents and/or trademarks
will be granted or that, if granted,  they will withstand challenge.  (See "Risk
Factors - Intellectual Property Rights" on page 15).

Research and Development

      Our R&D efforts are continually  focused on enhancing  and/or  maintaining
the performance and  reliability of our drug testing strips.  In addition,  this
fiscal year, our R&D team completed development of our Rapid TOX device. The R&D
team also continued the development process on contract manufacturing  projects.
Our R&D expenditures  were $683,000 for the fiscal year ending December 31, 2005
and $606,000 for the fiscal year ending December 31, 2004.

Government Regulations

      The  development,  testing,  manufacture  and  sale of our  drugs of abuse
screening products and possible additional  biomedical products,  are subject to
regulation by the United States and foreign regulatory agencies. Pursuant to the
Federal  Food,   Drug,  and  Cosmetic  Act,  and  the  regulations   promulgated
thereunder,   the  FDA  regulates  the   pre-clinical   and  clinical   testing,
manufacture,  labeling,  distribution and promotion of medical  devices.  If the
Company fails to comply with applicable requirements it may be subject to fines,
injunctions,  civil penalties,  recall or seizure of products,  total or partial
suspension  of  production,  failure  of  the  government  to  grant  pre-market
clearance or pre-market approval for devices, withdrawal of marketing clearances
or approvals and criminal prosecution.

      Our  products  fall under the  category  of 510(k)  submissions  to FDA. A
510(k) is a premarketing  submission made to FDA to demonstrate  that the device
to be marketed is as safe and effective, that is, substantially equivalent, to a
legally  marketed device that is not subject to premarket  approval.  Applicants
must compare their 510(k) device to one or more similar devices currently on the
U.S. market and make and support their substantial equivalency claims. A legally
marketed  device is a device  that was  legally  marketed  prior to May 28, 1976
(preamendments device), or a device that has been reclassified from Class III to
Class II or I, or a device which has been found to be  substantially  equivalent
to  such a  device  through  the  510(k)  process,  or one  established  through
Evaluation of Automatic Class III Definition.  The legally marketed device(s) to
which  equivalence is drawn is known as the  "predicate"  device(s).  Applicants
must submit descriptive data and, when necessary,  performance data to establish
that their device is substantially equivalent to a predicate device.

                                       9
<PAGE>

      Although FDA clearance is not required for  non-clinical  markets (such as
corporate/workplace  and  government/corrections),  it is required  for clinical
markets (such as hospitals and physicians).  The Company  continues to explore a
relationship with a multinational diagnostics company to distribute our products
in this  market.  When such a  relationship  is  established,  we  believe  that
clinical  markets  could  become  a major  marketplace  for our  drug  screening
products.

      We have received 510(k)  clearance for our 9 panel Rapid Drug Screen test.
With  this  approval  and  the  approvals  obtained  related  to our  Rapid  One
dipsticks, we can offer a variety of combinations to meet customer requirements,
both in multiple panel tests and individual  Rapid One tests.  In addition,  the
testing  strips  contained in the RDS InCup are the same as those testing strips
contained within the RDS.  Therefore,  the RDS InCup can be offered in a variety
of combinations to meet customer requirements.

      In November  2004, we received our third 510(k)  clearance  related to our
Rapid TEC product line (we  previously  received  clearances  in 2002 and 2003).
With this third  clearance  ABMC can provide  clinical  customers  with  various
configurations of 2 to 14 classes of drugs of abuse.

      In July 2005 we received 510(k)  clearance on our Rapid Reader, a personal
computer peripheral that interprets,  scans,  transmits,  records and stores the
results  of ABMC drug  screens.  This was the first  all-inclusive  drug  screen
result  interpretation and data management system that received 510(k) clearance
from FDA. The clearance  allows ABMC to provide the Rapid Reader to customers in
clinical markets.

      We have  submitted an application  for 510(k)  clearance for our Rapid TOX
product  line  to  FDA  and  are  currently   awaiting  FDA's  decision  on  the
application.  The  OralStat has not received  510(k)  clearance  from FDA and is
currently available for "forensic use only".

      Furthermore,  in order to sell our products in Canada after November 2003,
the  Company   must   comply  with   ISO13485,   the   International   Standards
Organization's Directive for Quality Systems for Medical Devices (MDD or Medical
Device Directive), and in order to sell our products in the European Union after
November  2003,  the Company  must obtain CE marking  for our  products  (in the
European Union, a "CE" mark is affixed to the product for easy identification of
quality products). Collectively, these standards are similar to the U.S. Federal
Regulations enforced by FDA, and are a reasonable assurance to the customer that
the  manufacturing  of our products is conducted in a consistent  manner to help
ensure that  quality,  defect-free  goods are  produced.  As of the date of this
report, we have received approval and the right to bear the CE mark on our Rapid
Drug  Screen,  Rapid One,  Rapid TEC and  OralStat  products,  meaning  that our
products  comply  with the  essential  requirements  of the In Vitro  Diagnostic
Directive  98/79/EC and may be legally  marketed  within the European  Union and
display the CE Mark.  We  received  our  ISO13485  compliance  certification  in
October  2004 and we are in the  process of  acquiring  the  license to sell our
products in Canada.

Employees

      Currently, we have approximately 129 employees, of which 115 are full-time
and 14 are part-time. None of our employees are covered by collective bargaining
agreements, and we believe our relations with our employees are good.

Risk Factors

We have a limited operating  history,  which may make it difficult to accurately
forecast our future revenues and other operating results.

                                       10
<PAGE>

      We began selling our drugs of abuse  screening  products in 1996 and began
providing contract manufacturing services for other companies in late 2001. As a
result, we have only a limited operating history upon which one may evaluate our
business and prospects.  Our limited  operating history may make it difficult or
impossible for analysts or investors to accurately forecast regarding our future
revenues  and other  operating  results  and the price of our  securities  could
decline substantially.

We have a history of incurring net losses.

      Since  inception  in 1992  through  the fiscal  transition  period  ending
December  31,  2001,  we incurred net losses.  We began  earning  profits in the
fiscal year ending  December  31, 2002 and  continued to be  profitable  through
December  31, 2004.  However,  in the fiscal year ending  December 31, 2005,  we
incurred a net loss of $376,000. As of December 31, 2005, we have an accumulated
deficit of $13.5 million. We expect to continue to make substantial expenditures
for sales and marketing,  product development and other purposes. Our ability to
achieve  profitability  in the future  will  primarily  depend on our ability to
increase  sales  of  our  products,   reduce  production  and  other  costs  and
successfully  introduce  new  products  and  enhanced  versions of our  existing
products into the marketplace. There can be no assurance that we will be able to
increase our revenues at a rate that equals or exceeds expenditures. Our failure
to do so will result in our incurring additional losses.

Our products  are sold in limited  markets and the failure of any one of them to
achieve  widespread  market acceptance would  significantly  harm our results of
operation.

      We offer a number of drugs of abuse  screening  products  that are sold in
limited markets,  and we currently derive most of our revenues from sales of our
drugs  of  abuse  screening  product  line.  To  attain  break-even  results  of
operations,  given  current  levels  of  operating  expenses,  we  must  achieve
approximately $3.3 million in quarterly revenues from our products. In addition,
the  markets  in which  we sell our  products  are cost  competitive.  If we are
required  to lower our prices to our  customers,  our  revenue  levels  could be
negatively  impacted which would adversely  affect our gross profit margins.  If
our  products  do not achieve and  maintain  this level of revenue,  or maintain
certain gross profit margins,  our results of operations  would be significantly
harmed.

      In  addition,  we only began  selling our drugs of abuse  product  line in
1996, and cannot yet predict  whether they will gain further  widespread  market
acceptance.  Achieving  market  acceptance  for  our  drug  tests  will  require
substantial  marketing  efforts and  expenditure of significant  funds to inform
potential  distributors  and  customers  of  the  distinctive   characteristics,
benefits and  advantages  of our test kits.  A number of our products  have only
recently been  introduced  in the  marketplace  (with our most recent  additions
being the  OralStat  and RDS InCup,  introduced  in July 2004 and the Rapid TOX,
introduced  in July  2005).  We have no  history  upon  which to base  market or
customer acceptance of these products.  Introduction of the OralStat,  RDS InCup
and Rapid TOX have required,  and may continue to require substantial  marketing
efforts and expenditure of funds.

      Due to the  variety  and  complexity  of the  environments  in  which  our
customers operate,  our products may not operate as expected.  This could result
in cancelled orders, delays and increased expenses. In addition,  the success of
competing   products  and  technologies,   pricing  pressures  or  manufacturing
difficulties  could  further  reduce  our  profitability  and the  price  of our
securities.

If we fail  to  keep up with  technological  factors  and  fail to  develop  our
products, we may be at a competitive disadvantage.

      The point of collection drug testing market is highly competitive. Several
companies  produce  drug tests  that  compete  directly  with our drugs of abuse
product line, including Varian, Inc., Biosite Diagnostics and Medtox Scientific,
Inc. in the urine point of collection  testing market and OraSure  Technologies,
Inc. in the saliva  point of  collection  testing  market.  As new  technologies
become  introduced  into  the  point of  collection  testing  market,  we may be
required  to commit  considerable  additional  efforts,  time and  resources  to
enhance our current product portfolio or develop new products.  Our success will
depend upon new products  meeting  targeted  product costs and  performance,  in
addition to timely  introduction into the marketplace.  We are subject to all of
the risks inherent in product development,  which could cause material delays in
manufacturing.

                                       11
<PAGE>

We rely on third parties for raw materials  used in our drugs of abuse  products
and in our contract manufacturing processes.

      We currently have  approximately  68 suppliers who provide us with the raw
materials  necessary to  manufacture  our drug  testing  strips and our drugs of
abuse  screening  products.  For  most of our  raw  materials  we have  multiple
suppliers however, there are a few chemical raw materials for which we only have
one supplier. The loss of one or more of these suppliers, the non-performance of
one or more of their  materials  or the lack of  availability  of raw  materials
could suspend our manufacturing  process related to our drugs of abuse products.
This interruption of the manufacturing  process could impair our ability to fill
customers'  orders  as they are  placed,  which  would  put us at a  competitive
disadvantage.

      Furthermore,  we rely on a number of third  parties  for supply of the raw
materials  necessary  to  manufacture  the test  components  we  supply to other
diagnostic companies under contract manufacturing agreements.  For most of these
raw materials we have multiple suppliers  however,  there are a few chemical raw
materials for which we only have one supplier.  The loss of one or more of these
suppliers could suspend the strip  manufacturing  process and this  interruption
could impair our ability to perform contract manufacturing services.

We have a significant  amount of raw material and "work in process" inventory on
hand  that  may  not  be  used  in  the  next  twelve  months  if  the  expected
configuration of sales orders are not received at our projected levels.

      We currently have approximately  $2.043 million in raw material components
for the  manufacture of our product at December 31, 2005. The  non-chemical  raw
material components may be retained and used in production  indefinitely and the
chemical raw materials  components have lives in excess of 20 years. In addition
to  the  raw  material  inventory,  we  have  approximately  $2.049  million  in
manufactured  testing strips,  or other "work in process"  inventory at December
31, 2005. The  components of this work in process  inventory have lives of 12-18
months.  If sales orders received are not for devices that would utilize the raw
material components, or if product developments make the raw materials obsolete,
we may be required to dispose of the unused raw  materials.  In addition,  since
the components of the work in process  inventory have lives of 12-18 months,  if
sales  orders  within the next 12-18 months are not for devices that contain the
components of the work in process  inventory,  we may need to discard the unused
work in process  inventory.  In 2004,  we  established  a $100,000  reserve  for
obsolete or slowing moving  inventory.  In 2006, we increased this reserve by an
incremental  $150,000.  There  can be no  assurance  that this  reserve  will be
adequate for 2006 and/or that it will not have to be increased.

We depend on our Research &  Development  ("R&D")  team for product  development
and/or product enhancement.

      Product  development  and/or  enhancement  are  performed by our R&D team.
There  can be no  assurance  that  our R&D team can  successfully  complete  the
enhancement  of our current  products  and/or  complete the  development  of new
products.  Furthermore,  the loss of one or more  members  of our R&D team could
result in the  interruption  or  termination of new product  development  and/or
current  product  enhancement,  affecting our ability to provide new or improved
products to the marketplace, which would put us at a competitive disadvantage.

Our products must be cost  competitive  and perform to the  satisfaction  of our
customers.

      Cost  competitiveness  and satisfactory  product performance are essential
for success in the point of  collection  drug  testing  market.  There can be no
assurance  that  new  products  we may  develop  will  meet  projected  price or
performance objectives. In fact, price competition is increasing in the point of
collection testing markets as additional foreign (i.e. non-U.S. based companies)
manufacturers enter the market.  Foreign  manufacturers have lower manufacturing
costs  and  therefore  can  offer  their  products  at a lower  cost than a U.S.
manufacturer.  These lower costs include but are not limited to costs for labor,
materials, regulatory compliance and insurance.

                                       12
<PAGE>

      Moreover,  there can be no assurance that unanticipated  problems will not
arise  with  respect  to  technologies  incorporated  into our test kits or that
product defects,  affecting product performance,  will not become apparent after
commercial  introduction  of our additional  test kits. In the event that we are
required to remedy defects in any of our products after commercial introduction,
the costs to us could be significant, which could have a material adverse effect
on our revenues or earnings.

We face  significant  competition  in the  drug  testing  market  and  potential
technological obsolescence.

      We face competition  from other  manufacturers of drugs of abuse screening
products such as Varian,  Inc., Medtox Scientific,  Inc. and Biosite Diagnostics
in the urine point of collection testing market and OraSure Technologies, Inc in
the saliva point of collection  testing market.  These competitors are more well
known and have far greater financial resources than us. The markets for drugs of
abuse screening products and related products are highly competitive.  There can
be no  assurance  that  other  companies  will not  attempt to develop or market
products  directly  competitive  with our drugs of abuse product line. We expect
other companies to develop technologies or products, which will compete with our
products.

Possible inability to hire and retain qualified personnel.

      We will need  additional  skilled,  sales  and  marketing,  technical  and
production  personnel  to grow the  business.  If we fail to retain our  present
staff or hire additional qualified personnel our business could suffer.

We depend on key personnel to manage our business effectively.

      We are dependent on the expertise and experience of our senior  management
such  as Stan  Cipkowski,  Chief  Executive  Officer,  Keith  E.  Palmer,  Chief
Financial Officer,  Martin Gould, Chief Scientific Officer and Todd Bailey, Vice
President,  Sales &  Marketing  for our  future  success.  The  loss of  Messrs.
Cipkowski,  Palmer, Gould and/or Bailey could negatively impact our business and
results of  operations.  We do not  maintain  key man  insurance  for any of our
management  employees  and  there  can be no  assurance  that any of our  senior
management will continue their employment.

Failure to effectively  manage our growth and expansion could  adversely  affect
our business and operating results.

      We anticipate  expansion of our  operations in the future.  Any failure to
manage our growth  effectively will result in less efficient  operations,  which
could adversely affect our operating and financial results.

      To effectively manage our growth, we must, among other things:

      o     accurately  estimate the number of employees we will require and the
            areas in which they will be required;
      o     upgrade  and  expand  our  office   infrastructure  so  that  it  is
            appropriate for our level of activity;
      o     manage expansion into additional geographic areas; and o improve and
            refine our operating and financial systems.

      We  expect  to  devote  considerable  resources  and  management  time  to
improving our operating and financial  systems to manage our growth.  Failure to
accomplish any of these  objectives would impede our ability to deliver products
and services in a timely fashion,  fulfill existing  customer orders and attract
and retain new customers; these impediments would have a material adverse effect
on our financial condition, results of operations and cash flows.

                                       13
<PAGE>

Any adverse  changes in our regulatory  framework  could  negatively  impact our
business.

      Approval from FDA is not  currently  required for the sale of our products
in non-clinical  markets,  but is required in the clinical and  over-the-counter
("OTC") markets.  Although our drugs of abuse products have met FDA requirements
for professional use, we have not obtained OTC clearance from FDA. The workplace
market is one of our primary  markets and if any  additional  FDA  clearance  is
required to sell in this market,  this additional cost may cause us to raise the
price of our  products  making it  difficult  to  compete  with  other  point of
collection  products or laboratory based testing,  thereby negatively  impacting
our revenues.  Furthermore, there can be no assurance that if we are required to
apply for additional FDA clearances  they will be granted.  If such clearance is
not granted, we would be unable to sell our products in the workplace market and
our revenues would be negatively impacted.  Although we are currently unaware of
any changes in regulatory  standards related to the clinical and OTC markets, if
regulatory  standards  were to change in the future,  there can be no  assurance
that FDA will grant us the approvals, if and when we apply for them, required to
comply with the changes.

We rely on intellectual property rights, and we may not be able to obtain patent
or other protection for our technology, products or services.

      We rely on a combination of patent, copyright,  trademark and trade secret
laws,  confidentiality  procedures  and  contractual  provisions  to protect our
proprietary technology, products and services. We also believe that factors such
as  the  technological  and  creative  skills  of  our  personnel,  new  product
developments,  frequent product  enhancements and name recognition are essential
to  establishing  and  maintaining  our  technology  leadership  position.   All
personnel  are  bound by  non-disclosure  agreements.  If  personnel  leave  our
employment,  in some  cases we would be  required  to protect  our  intellectual
property  rights  pursuant to common law theories,  which may be less protective
than provisions of employment, non-competition or non-disclosure agreements.

      We seek to  protect  our  proprietary  products  under  trade  secret  and
copyright laws, which afford only limited protection.  We currently have a total
of 24 U.S. and foreign  patents  relating to the Rapid Drug Screen  and/or Rapid
One product line. We have additional patent  applications  pending in the United
States,  and other  countries,  related to our drugs of abuse products.  We have
trademark  applications  pending in the United States.  Certain  trademarks have
been registered in the United States and in other countries.

      Despite  our  efforts  to protect  our  proprietary  rights,  unauthorized
parties may  attempt to copy  aspects of our  products or to obtain  information
that we regard as proprietary. For example, our sales were adversely affected in
fiscal 2000 and fiscal 2001 (year ending April 30, 2001) as a result of sales of
products  similar to ours.  In April of 1999,  we filed suit in a federal  court
against Phamatech,  Inc. of California,  a former supplier of ours, and numerous
other parties to stop these sales. We incurred significant legal fees attempting
to enforce our patents.  In April 2001, we settled with  Phamatech and all other
defendants in this lawsuit.

      We may be required to incur  significant costs to protect our intellectual
property rights in the future.  In addition,  the laws of some foreign countries
do not ensure that our means of protecting our proprietary  rights in the United
States  or  abroad  will be  adequate.  Policing  and  enforcement  against  the
unauthorized  use of our intellectual  property rights could entail  significant
expenses and could prove  difficult  or  impossible.  Additionally,  there is no
assurance  that  the  additional  patents  will be  granted  or that  additional
trademarks will be registered.

Potential  issuance and  exercise of new  warrants  and exercise of  outstanding
warrants could adversely affect the value of our securities.

                                       14
<PAGE>

      In  connection  with our sale of 1,408,450  common  shares for  $2,000,000
($1.42 per share) in a private placement to Seaside Partners,  L.P.  ("Seaside")
on April 28,  2000,  we issued a 5 year  warrant to Seaside to purchase  953,283
common shares of our stock at an exercise price of $1.17 per share.  To settle a
penalty owed to Seaside because of a late effective registration  statement,  we
adjusted the exercise price of the 953,283 warrant shares from $1.17 to $0.95 in
February  2001. In November 2003, the Seaside  warrant was  transferred  and the
common shares  underlying the exercise of the warrants and respective rights and
obligations  under the Common Stock  Purchase  Agreement were assigned to Steven
Grodko  ("Grodko").  Throughout the fiscal year ending December 31, 2004, Grodko
exercised a total of 553,283 warrants, leaving a balance of 400,000 warrants. In
October 2005 the Company  entered into an Extension  Agreement and  registration
letter  agreement  with  Grodko in which the  Company  extended  the term of the
warrant.  The Grodko warrant will now expire on October 28, 2006. (the Extension
Agreement and registration  letter agreement are filed as Exhibits 4.18 and 4.19
respectively to this Annual Report on Form 10-KSB).

      In May 2001, we issued a 5 year warrant to purchase  200,000 common shares
of our stock at an exercise price of $1.50 per share to Brean Murray & Co., Inc.
("Brean Murray") as compensation for their services as a financial advisor.

      On August 22, 2001, we issued  warrants  ("Private  Placement  Warrants"),
exercisable  during a 54 month period  beginning  February 22, 2002, to purchase
1,274,500  common shares of our stock at an exercise price of $1.05 per share in
connection with the private  placement of 2,549,000  shares of common stock (the
1,274,500  warrants issued in connection with the August 2001 private  placement
trade on the National  Association of Securities  Dealers  Automated  Quotations
("NASDAQ")  SmallCap  Market and may be  hereafter  referred to as the  "trading
warrants").  We also issued, on August 22, 2001, warrants,  exercisable during a
54 month period  beginning  February  22,  2002,  to purchase a total of 203,920
common  shares of our stock at an  exercise  price of $1.20 per share,  of which
warrants  to purchase  152,940  common  shares  were  issued to Brean  Murray as
compensation  for their  services as  placement  agent and  warrants to purchase
12,745 common shares were issued to Axiom Capital Management,  Inc., warrants to
purchase  5,735  common  shares  were  issued to Jeffrey  Goldberg,  warrants to
purchase  16,250  common  shares were  issued to Barry  Zelin,  and  warrants to
purchase  16,250  common  shares were issued to David L. Jordon,  each for their
services as  sub-agents  of Brean  Murray.  In the fiscal year end  December 31,
2004,  2,500 trading  warrants were exercised and in fiscal year ending December
31, 2005, 2,500 trading warrants were exercised,  leaving a balance of 1,269,500
trading warrants.

      On  December  2, 2003,  we issued a warrant,  exercisable  during a 5 year
period  beginning  December 2, 2003,  to purchase  300,000  common shares of our
stock at an exercise price of $1.15 per share to Brean Murray as compensation as
our financial  advisor.  In June 2004, we amended the December 2, 2003 Financial
Advisory Agreement with Brean Murray and Brean Murray surrendered 150,000 of the
300,000 warrants to purchase common stock (a copy of this amendment was filed as
Exhibit  10.19.1  to the  Company's  Form 10QSB for the  quarter  ended June 30,
2004).

      If the  Grodko  warrant,  the  Brean  Murray  warrants,  and  the  Private
Placement  warrants  are  exercised,  the common  shares  issued  will be freely
tradable,  increasing the total number of common shares issued and  outstanding.
If these  shares are  offered  for sale in the public  market,  the sales  could
adversely  affect the  prevailing  market price by lowering the bid price of our
securities.  The exercise of any of these warrants could also materially  impair
our  ability  to raise  capital  through  the future  sale of equity  securities
because  issuance  of the common  shares  underlying  the  warrants  would cause
further  dilution  of our  securities.  The  warrants  are subject to or contain
certain  anti-dilution  protection that may result in the issuance of additional
shares  under some  circumstances  including,  but not limited  to,  paying of a
dividend, subdivision of our outstanding shares into a greater number of shares,
combination  of our  outstanding  shares  into a smaller  number of  shares,  an
issuance  of shares of common  stock by  reclassification  or in the case of the
Brean Murray and Grodko  warrants,  a sale of our common  shares,  or a security
convertible  into  common  shares,  for  consideration  per share  less than the
exercise price of the warrants.

Potential  issuance  and  exercise of new options  and  exercise of  outstanding
options could adversely affect the value of our securities.

                                       15
<PAGE>

      The Board of  Directors  of the Company has adopted 4  Nonstatutory  Stock
Option Plans providing for the granting of options to employees,  directors, and
consultants  (see Note H[2]).  As of December  31,  2005,  there were  4,268,080
options  issued and  outstanding  under all four plans  combined.  The Company's
Board of Directors accelerated the vesting periods of all outstanding options to
vest 100% on December  14, 2005  therefore  as of December  31, 2005 all options
issued and outstanding,  or 4,268,080 were exercisable. As of December 31, 2005,
there were 9,500 options  available for issuance  under the Fiscal 2000 Plan and
664,420 options  available for issuance under the Fiscal 2001 Plan. There are no
options  available for issuance  under either the Fiscal 1997 Plan or the Fiscal
1998 Plan and there are no options issued and outstanding  under the Fiscal 1997
Plan As options  expire or are  cancelled  under the Fiscal 1997 and Fiscal 1998
Plan, they are not re-issued.

      If these  options are  exercised,  the common shares issued will be freely
tradable,  increasing the total number of common shares issued and  outstanding.
If these  shares are  offered  for sale in the public  market,  the sales  could
adversely  affect the  prevailing  market price by lowering the bid price of our
securities.  The exercise of any of these options could also  materially  impair
our  ability  to raise  capital  through  the future  sale of equity  securities
because issuance of the common shares underlying the options would cause further
dilution  of our  securities.  The  options  are  subject to or contain  certain
anti-dilution  protection  that may result in the issuance of additional  shares
under some circumstances  including, but not limited to, paying of a dividend in
common shares,  a declaration of a dividend  payable in a form other than common
shares in an amount that has a material effect on the price of common shares,  a
combination   or   consolidation   of  the   outstanding   common   shares   (by
reclassification  or  otherwise)  into a  lesser  number  of  common  shares,  a
recapitalization, a spin-off or a similar occurrence.

Substantial resale of restricted  securities may depress the market price of our
securities.

      There are 4,369,655  common shares  presently issued and outstanding as of
the date hereof that are  "restricted  securities" as that term is defined under
the Securities Act of 1933, as amended, (the "Securities Act") and in the future
may be sold in compliance  with Rule 144 of the Securities Act, or pursuant to a
Registration  Statement filed under the Securities Act. Rule 144 provides that a
person  holding  restricted  securities for a period of one year or more may, in
any  three  month  period,  sell  those  securities  in  unsolicited   brokerage
transactions or in  transactions  with a market maker, in an amount equal to the
greater of one percent of our  outstanding  common shares or the average  weekly
trading  volume  for the  prior  four  weeks.  Sales of  unrestricted  shares by
affiliates  of the  Company  are also  subject to the same  limitation  upon the
number of shares that may be sold in any three-month period. Investors should be
aware  that  sales  under  Rule 144 or 144(k),  or  pursuant  to a  registration
statement  filed under the Act,  may depress the market  price of our  Company's
securities in any market that may develop for such shares.

We may need additional funding for our existing and future operations.

      The Company  believes that its current cash  balances,  and cash generated
from future operations will be sufficient to fund operations for the next twelve
months.  This  estimate  is based on  certain  assumptions  and  there can be no
assurance  that  unanticipated  costs  will  not  be  incurred.  Future  events,
including  the  problems,   delays,  expenses  and  difficulties  which  may  be
encountered  in  establishing  and  maintaining  a  substantial  market  for our
products,  could  make cash on hand  insufficient  to fund  operations.  If cash
generated  from  operations is  insufficient  to satisfy the  Company's  working
capital and  capital  expenditure  requirements,  the Company may be required to
sell  additional   equity  or  debt  securities  or  obtain   additional  credit
facilities.  There can be no assurance  that such financing will be available or
that the Company will be able to complete financing on satisfactory terms, if at
all. Any financing may result in further dilution to existing shareholders.

Our ability to retain and attract  market  makers is important to the  continued
trading of our securities.

      Our common  shares  trade on the NASDAQ  SmallCap  Market under the symbol
"ABMC",  and our common stock  purchase  warrants  trade on the NASDAQ  SmallCap
Market under the symbol  "ABMCW".  In the event that the market  makers cease to
function as such, public trading in our securities will be adversely affected or
may cease entirely.

                                       16
<PAGE>

If we fail to meet the continued  listing  requirements  of the NASDAQ  SmallCap
Market, our securities could be delisted.

      Our securities are listed on the NASDAQ SmallCap Market.  The NASDAQ Stock
Market's  Marketplace  Rules impose  requirements  for  companies  listed on the
NASDAQ  SmallCap  Market to maintain  their listing  status,  including  minimum
common  share bid price of $1.00,  and  $2,500,000  in  shareholders'  equity or
$500,000  in net income in the last fiscal  year.  As of the date of this report
our common shares are trading below the minimum bid  requirement  and our common
shares have traded at levels lower than the minimum bid  requirement  within the
last twelve months (see Current Report on Form 8-K filed with the Securities and
Exchange Commission on March 23, 2006).

      Delisting  could  reduce the ability of  investors to purchase or sell our
securities as quickly and as  inexpensively  as they have done  historically and
could  subject  transactions  in  our  securities  to  the  penny  stock  rules.
Furthermore, failure to obtain listing on another market or exchange may make it
more difficult for traders to sell our  securities.  Broker-dealers  may be less
willing or able to sell or make a market in our securities  because of the penny
stock  disclosure  rules.  Not maintaining a listing on a major stock market may
result in a decrease in the trading price of our securities due to a decrease in
liquidity and less interest by institutions  and individuals in investing in our
securities.  Delisting from the NASDAQ  SmallCap  Market would also make it more
difficult for us to raise capital in the future.

      ITEM 2. DESCRIPTION OF PROPERTY

      In November 2001, we purchased our  Kinderhook,  New York facility and the
surrounding  107 acres.  We obtained a mortgage  from Hudson  River Bank & Trust
Company (now First Niagara Bank) in the amount of $360,000, a loan in the amount
of $240,000 from the New York State Business Development  Corporation and a loan
from the Columbia Economic Development Corporation in the amount of $120,000. On
March 31, 2003 the Company sold approximately 85 acres of land at its Kinderhook
headquarters for $150,000.

      On August 20, 2002, we combined a lease for 4,000 square feet of space and
a lease  for  5,200  square  feet of space  into one  lease  for our New  Jersey
facility. The total average monthly cost of the combined spaces is $5,300, which
includes  a monthly  base  rental  of $4,317  along  with  taxes and  additional
occupancy costs.

      ITEM 3. LEGAL PROCEEDINGS

      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.

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

      None.

PART II

      ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS

      Our common shares trade on the National  Association of Securities Dealers
Automated  Quotation System Small Cap Market (NASDAQ  SmallCap) under the symbol
ABMC and our common stock  purchase  warrants  ("warrants")  trade on the NASDAQ
SmallCap under the symbol ABMCW. The following table sets forth the high and low
sale prices of our securities as reported by the NASDAQ  SmallCap Market for the
periods indicated.

                                       17
<PAGE>

 Common Shares

   Fiscal year ending December 31, 2005                        High       Low
   --------------------------------------                    --------   --------

        Quarter ending December 31, 2005                     $   1.26   $   1.01
        Quarter ending September 30, 2005                    $   1.11   $   0.78
        Quarter ending June 30, 2005                         $   1.00   $   0.72
        Quarter ending March 31, 2005                        $   1.64   $   0.84

   Fiscal year ending December 31, 2004                        High       Low
   --------------------------------------                    --------   --------

        Quarter ending December 31, 2004                     $   1.25   $   0.85
        Quarter ending September 30, 2004                    $   1.19   $   0.90
        Quarter ending June 30, 2004                         $   1.28   $   0.90
        Quarter ending March 31, 2004                        $   2.14   $   1.15

    Warrants

   Fiscal year ending December 31, 2005                        High       Low
   --------------------------------------                    --------   --------

        Quarter ending December 31, 2005                     $   0.28   $   0.05
        Quarter ending September 30, 2005                    $   0.32   $   0.18
        Quarter ending June 30, 2005                         $   0.40   $   0.02
        Quarter ending March 31, 2005                        $   0.60   $   0.08

   Fiscal year ending December 31, 2004                        High       Low
   --------------------------------------                    --------   --------

        Quarter ending December 31, 2004                     $   0.32   $   0.09
        Quarter ending September 30, 2004                    $   0.38   $   0.15
        Quarter ending June 30, 2004                         $   1.28   $   0.12
        Quarter ending March 31, 2004                        $   1.21   $   0.04

      As of March 27,  2006,  there  were  approximately  4,500  holders  of our
securities. As of March 27, 2006 there were outstanding 21,359,768 common shares
and 1,269,500 warrants. The Company has not declared any dividends on our common
shares and does not expect to do so in the foreseeable future.

      On March 27, 2006,  the last  reported sale price for our common shares as
reported on the NASDAQ SmallCap Market was $0.95 per share and the last reported
sale price of our warrants was $0.03 per warrant.  Average daily trading  volume
on our common shares and warrants  during the  three-month  period from December
27,  2005 to March  27,  2006 was  approximately  48,291  common  shares  and 51
warrants respectively.

      Recent sales of unregistered securities

      None

      ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

      The  Private  Securities  Litigation  Reform  Act of 1995  provides a safe
harbor for forward-looking  statements. In order to comply with the terms of the
safe harbor,  the Company  notes that except for the  description  of historical
facts  contained  herein,  this Form  10-KSB  contains  certain  forward-looking
statements that involve risks and uncertainties as detailed herein and from time
to time in the Company's filings with the Securities and Exchange Commission and
elsewhere.  Such statements are based on Management's  current  expectations and
are subject to a number of factors and  uncertainties,  which could cause actual
results  to differ  materially  from  those,  described  in the  forward-looking
statements.  These factors include, among others: (a) the Company's fluctuations
in sales and operating results,  risks associated with international  operations
and regulatory,  competitive and contractual risks and product development;  (b)
the ability to achieve strategic  initiatives,  including but not limited to the
ability  to  achieve  sales  growth  across  the  business  segments  through  a
combination of enhanced sales force, new products, and customer service; and (c)
acquisitions.

                                       18
<PAGE>

Critical Accounting Policies and Estimates

      American Bio Medica  Corporation's  ("ABMC's")  discussion and analysis of
its  financial  condition  and  results  of  operations  are based  upon  ABMC's
financial  statements,  which have been prepared in accordance  with  accounting
principles  generally accepted in the United States of America.  The preparation
of these financial statements requires ABMC 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,
ABMC evaluates its estimates,  including those related to product  returns,  bad
debts,  inventories,  income taxes, warranty obligations,  and contingencies and
litigation.  ABMC 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.

      ABMC believes the following critical  accounting  policies affect its more
significant  judgments and estimates  used in the  preparation  of its financial
statements.  ABMC records  estimated  reductions to revenue for customer returns
and allowances  based on historical  experience.  If market  conditions  were to
decline, ABMC may take actions to increase customer incentive offerings possibly
resulting in an incremental  reduction of gross margins. ABMC recognizes revenue
upon shipment to customers.  ABMC maintains allowances for doubtful accounts for
estimated  losses resulting from the inability of its customers to make required
payments.  If the financial  condition of ABMC's  customers were to deteriorate,
resulting  in an  impairment  of  their  ability  to make  payments,  additional
allowances  may be  required.  ABMC  writes  down its  inventory  for  estimated
obsolescence or unmarketable  inventory equal to the difference between the cost
of inventory and the net realizable  value based upon  assumptions  about future
demand and market  conditions.  If actual market  conditions  are less favorable
than those  projected by management,  additional  inventory  write-downs  may be
required.  ABMC records a valuation  allowance to reduce its deferred tax assets
to the  amount  that is more  likely  than not to be  realized.  While  ABMC has
considered  future taxable income and ongoing  prudent and feasible tax planning
strategies in assessing the need for the valuation allowance,  in the event ABMC
were to  determine  that it would be able to realize its  deferred tax assets in
the future in excess of its net recorded  amount,  an adjustment to the deferred
tax asset would increase income in the period such determination was made.

      The Company currently  accounts for share-based  payments to our employees
using the intrinsic  value method;  therefore our results of operations have not
included  the  recognition  of  compensation  expense for the  issuance of stock
option awards.  In December  2004, the FASB issued SFAS No. 123 (revised  2004),
Share-Based Payment, ("SFAS No. 123(R)"),  which amends SFAS No. 123, Accounting
for Stock-Based  Compensation,  ("SFAS No. 123"), and supersedes APB Opinion No.
25,  Accounting  for  Stock  Issued  to  Employees.  SFAS  No.  123(R)  requires
compensation  expense to be  recognized  for all  share-based  payments  made to
employees based on the fair value of the award at the date of grant, eliminating
the intrinsic value alternative allowed by SFAS No. 123. Generally, the approach
to  determining  fair value under the  original  pronouncement  has not changed.
However, there are revisions to the accounting guidelines  established,  such as
accounting for  forfeitures,  which will change our  accounting for  stock-based
awards in the future.

      SFAS No.  123(R)  must be  adopted in the first  interim or annual  period
beginning  after  December  15, 2005.  We adopted SFAS No.  123(R) on January 1,
2006. The Company  accelerated the vesting of all  outstanding  stock options to
December 14, 2005. The impact of this  acceleration is illustrated in note A[13]
to the  financial  statements.  The amount of expense  included in the pro-forma
income or expense,  in note A[13] to the financial  statements,  that would have
been  recognized in 2006 and after,  is $185,000.  Had we applied the fair-value
criteria  established by SFAS No. 123(R) to previous  stock option  grants,  the
impact to our  results  of  operations  would  have  approximated  the impact of
applying  SFAS No.  123,  which was a reduction  to net income of  approximately
$770,000 before acceleration and $955,000 after acceleration,  in 2005, $995,000
in 2004,  and  $1,018,000  in 2003.  Due to the  acceleration  of vesting of all
outstanding  options during the fourth quarter of 2005, we do not anticipate any
compensation  expense for stock options  issued and  outstanding at December 31,
2005 to reduce our 2006 net income.

                                       19
<PAGE>

      SFAS No. 123(R) also requires the benefits of tax  deductions in excess of
recognized  compensation  cost to be reported as a financing  cash flow,  rather
than as an  operating  cash flow as  required  under  current  literature.  This
requirement  will reduce our net  operating  cash  inflows and  increase our net
financing cash flows in periods after  adoption.  The impact that this change in
reporting  will have on future periods cannot be determined at this time because
the benefit  recognized is dependent upon  attributes  that vary for each option
exercise.

Results of operations  for the twelve months ended December 31, 2005 as compared
to the twelve months ended December 31, 2004

      Net sales  increased to $13.0 million for the twelve months ended December
31, 2005 as compared to $12.2 million for the twelve  months ended  December 31,
2004, representing an increase of $800,000 or 6.6%. The increase is attributable
to the  addition  of 6 regional  sales  managers in late 2004 and early 2005 and
several  distribution  agreements  entered  into in  South  America  and  Europe
intended to increase  international sales. Direct sales represented 74% of sales
in 2005 compared to 67% in 2004.

      During the twelve months ended  December 31, 2005,  the Company  continued
its program to market and distribute its primary product, the Rapid Drug Screen,
together with its oral fluid test  (OralStat),  InCup,  Rapid TEC, and its newly
introduced  cassette  product  (Rapid  TOX).  As  a  result  of  this  continued
marketing,  the Company signed an agreement with a German  distributor to expand
our sales in Europe,  signed an agreement with a distributor in Spain and signed
a number  of  additional  sales  related  agreements.  To  further  enhance  the
Company's  portfolio of products,  the Company introduced its Rapid TOX cassette
based  product,  and  received  FDA 510(k)  clearance on our Rapid TEC-4 and our
Rapid Reader.  We also submitted a 510(k)  application for clearance on our test
for  Buprenorphine,  a drug  required for many European  contracts.  We have not
received a decision on that application as of the date of this report.

      The Company continued its contract manufacturing  operations entering into
agreements to  manufacture a test for the detection of ruptured  fetal  amniotic
membrane and began to evaluate  another  point of  collection  HIV test.  FDA is
currently  evaluating  the previously  developed test for HIV. In addition,  the
Company  continued  manufacturing  a  test  for  the  detection  of  Respiratory
Syncytial  Virus  ("RSV"),  a juvenile  respiratory  disease.  The RSV  contract
accounted for approximately $138,000 in 2005 and $309,000 in revenues during the
third and fourth  quarters of 2004.  The Company  reached an agreement  with the
third party that  developed the RSV test  initially and the  distributor  of the
test in December 2005.  Under the terms of the agreement ABMC will work directly
with the distributor to streamline the manufacturing, production and delivery of
the RSV and pay a royalty to the third party that initially developed the test.

      Cost of goods sold for the twelve months ended  December 31, 2005 was $7.0
million or 54% of net sales as  compared  to $5.6  million or 46.1% of net sales
for the twelve months ended December 31, 2004.  Included in the cost of sales in
2005  are  inventory   disposals  of  approximately   $225,000   resulting  from
enhancements  of  existing  products  during  2005,  specifically  OralStat.  An
additional  $45,000 of aging Rapid TEC  inventory  components  were  disposed of
during 2005 with the  introduction  of the Rapid TOX  product  during the fourth
quarter of 2005.  Further,  the  introduction of our Rapid TOX product  required
additional  expenditures  in labor and overhead to manufacture  and assemble the
initial working inventory prior to the product's introduction.  This resulted in
increases in manufacturing  and assembly expense causing an increase in the cost
of sales during the fourth quarter.  Reliance on outside  assembly to supplement
in-house   production   during  times  of  increased  demand  for  product  also
contributed to higher cost of sales during 2005. The Company spent approximately
$300,000 more in 2005 than in 2004 for contract  labor to help  manufacture  and
assemble  product.  Improvements  in  manufacturing  and  assembly  in 2006  are
expected to reduce this  reliance on outside labor and control  costs.  Finally,
the Company  increased its reserve for slow moving and obsolete  inventory  from
$100,000,  established in 2004, to $250,000 at the end of 2005. This increase is
consistent with the increased  diversity of products currently being offered and
sales  dynamics,  including  shifts to lower cost or  substitute  products  from
existing  products  resulting  in residual  stocks of inventory  components  for
products for which demand has declined. In aggregate $425,000 or, 6%, of cost of
goods sold  relates to  necessary  disposals  and an increase in the reserve for
slow moving and obsolete inventory during 2005.

                                       20
<PAGE>

      Costs of raw materials,  with the exception of some  petroleum  by-product
based  components,   remained   relatively   unchanged  during  2005.  With  the
introduction  of several new  products,  material  costs have  increased  in the
aggregate and the Company is required to maintain higher  inventory to stock all
necessary  components.  Labor costs and overhead  associated with  manufacturing
have increased  during the twelve months ended December 31, 2005 but pricing has
remained  relatively  consistent to allow the Company to be  competitive  in the
marketplace.  The  increase in labor cost stems from the greater  diversity  and
complexity  of the new  products  and the  reliance on  temporary  resources  to
increase output capacity.

      Operating  expenses  for the year ended  December  31, 2005  increased  by
$137,000 compared to 2004.  Increases of $77,000 in Research and Development and
$366,000 in Selling and Marketing were offset by decreases of $66,000 in General
and  Administrative  expense  and  $240,000  of  employee  severance  costs that
occurred  in the first  quarter of 2004 but did not recur in 2005.  Included  in
2004 operating  expenses is $225,000 of professional fees (accounting and legal)
related  to  the  Company's  investigation  into  allegations  identified  in an
anonymous letter received by its former  independent  accountants in February of
2004. As part of ABMC's response,  an independent  counsel performed an internal
investigation  and found no evidence to support  any of the  allegations  in the
anonymous letter.  The employee  severance costs included cash payments totaling
$210,000 to 5 employees,  one of whom was an officer,  and  non-cash  charges of
$30,000  related to the  retention  of options by an officer of the Company that
resigned in January 2004. The professional fees related to the investigation are
included in General and Administrative expenses and pertain to incremental legal
and accounting fees.

      Other income in 2005 is due to $15,000 of income from a grant  received by
the Company in 2002,  2003 and 2005.  The original  grant was received  from the
Columbia Economic Development Corporation in two parts and totaled $75,000 as of
December 31, 2004.  The Company  received a final  installment of $25,000 in the
first quarter of 2005. Under the terms of the grant, the Company is obligated to
return a portion of the grant if the employee levels in the Kinderhook  facility
fall below 45 employees at any time during the year. The portion of the grant to
be  repaid  declined  from 100% in 2002 to 90% in 2003 to 80% in 2004 and 70% in
2005,  and is expected to decline an  additional  10% each year until 2013.  The
employment  at the  Kinderhook  facility  did not drop below 45 employees at any
time during 2005 or 2004.

Research and development

      Research and  development  ("R&D")  expenses  for the twelve  months ended
December 31, 2005 were $683,000,  or 5.2% of net sales,  an increase of $77,000,
or 12.8%, compared to $606,000, or 5.0% of net sales for the twelve months ended
December 31, 2004.  The increase in expense is due  primarily to the addition of
another  technician  in the R&D group during the year.  The R&D group focused on
development  of  new  tests  for   Buprenorphine,   improvements   to  OralStat,
development  of our new cassette  product Rapid TOX, and evaluation of a new HIV
test for a second contract manufacturing  customer. The Company has historically
transferred to R&D,  efficiencies or inefficiencies  in manufacturing  labor and
overhead costs. The amount of expense transferred was based upon an average cost
to produce a single strip. Under typical operating  circumstances employees were
expected to perform  manufacturing  operations  to meet  increases in demand for
product and R&D functions  when demand  declined.  The premise for this practice
was the  limited  space and  number of  employees  in the  Company's  New Jersey
facility.  The Company  discontinued this practice commencing January 1, 2005 as
the R&D functions  have become more  formalized  and the allocation of resources
between the  manufacturing  and R&D  departments  have become more defined.  The
additional  expense  incurred  in  manufacturing  based  upon  output was offset
between  manufacturing  and R&D. During 2004, due to increased  production,  R&D
expenses  were  reduced by $110,000.  The  non-recurrence  of this  reduction to
expense  coupled  with  increases  in  depreciation   for  the  newly  completed
renovations in the R & D section of the New Jersey facility offset by reductions
in salaries and wages,  consulting fees, and supplies resulted in an increase of
$77,000 in R&D in 2005 compared to 2004.

                                       21
<PAGE>

Selling and marketing

      Selling and  marketing  expense was $3.184  million for 2005,  or 24.5% of
revenue compared to $2.818 million in 2004, or 23.0% of revenue,  an increase of
$366,000 or 13.0%.  The  increase in expense is  primarily  due to  increases in
salaries and benefits resulting from the addition of sales personnel, travel and
entertainment  expense,  marketing  consulting fees,  marketing supplies,  sales
support materials, advertising and promotion and depreciation expense related to
equipment and software  additions  and  upgrades.  Increases in these areas were
offset by decreases in internet service costs, and sales commissions,  resulting
from a change to the sales commission structure implemented in 2004. The Company
continued to expand its sales force  during  2005.  At the end of 2004 and early
2005 the domestic regional sales managers were increased to eleven (though three
of the newly added  regional  sales  managers left the Company during the fourth
quarter of 2005). The Company has replaced two of these individuals,  one in the
northeast and one in the south,  and has reassigned  another  individual  from a
marketing  support  position to a regional  sales position in the western United
States.  Three  additional  inside sales  professionals  were added in late 2005
bringing the total to seven.  Further, a director of clinical sales and contract
manufacturing  development  was added in  January  2005.  We  currently  have an
international  regional  sales  manager  focusing on South and Central  American
sales  and  an  international  sales   representative  based  in  the  Company's
headquarters  in  Kinderhook  supporting   distributors  in  various  countries,
including but not limited to the United Kingdom,  Australia, New Zealand, Spain,
Portugal,  Germany and  Malaysia.  In January 2006 the Company  named one of its
existing  regional  sales  managers  our national  sales  manager to oversee and
manage growth of each of seven assigned sales regions.

General and administrative

      General and  administrative  expense  decreased  $66,000 or 2.6% to $2.518
million  in the  twelve  months  of 2005  compared  to the same  period in 2004.
Driving this decrease in expense were savings in warehouse  operating  expenses,
special counsel fees,  accounting fees,  consulting fees,  outside service fees,
and bad debts.  These savings were partially offset by increases in salaries and
wages,  director's  fees and expenses,  patents and licenses,  travel,  investor
relations  expense and quality control expense.  Increases in salaries and wages
are due to the addition of a Controller. Increases in investor relations expense
stem from an  agreement  entered  into during the third  quarter of 2005 with an
investor  relations firm (a copy of this agreement is filed as an Exhibit to the
Company's  amended  quarterly  report on Form  10-QSB/A  for the  period  ending
September  30, 2005).  The agreement  includes cash payments of $9,000 per month
and the issuance of 75,000 shares of common  stock.  The common stock was issued
during December 2005 and resulted in a non-cash expense of $88,000.

      Included  in general  and  administrative  expense in 2004 is  $225,000 of
professional fees (accounting and legal) related to the Company's  investigation
into  allegations  identified  in an  anonymous  letter  received  by its former
independent  accountants  in February of 2004.  As part of ABMC's  response,  an
independent counsel performed an internal investigation and found no evidence to
support any of the allegations in the anonymous letter. Also included in general
and administrative  expense in 2004 are non-cash service fees totaling $199,000,
stemming from a contract  entered into in the fourth  quarter of 2003 with Brean
Murray & Co.,  Inc.  This  contract  provided for the  performance  of financial
advisory  services  by Brean  Murray & Co.,  Inc. in  exchange  for  warrants to
purchase  300,000  shares of common  stock and a monthly cash payment (a copy of
this  agreement  was filed as an  Exhibit to the  Company's  10-KSB for the year
ending  December 31, 2003).  In June 2004, at the request of the Company,  Brean
Murray & Co., Inc. agreed to surrender  150,000 of the  aforementioned  warrants
and require no monthly  cash  payment in  conjunction  with the  agreement.  The
Company  released Brean Murray & Co., Inc. from any further  financial  advisory
services  obligations  (a copy of this  agreement was filed as an Exhibit to the
Company's 10-QSB for the period ended June 30, 2004).

                                       22
<PAGE>

      Management believes that the amount of research and development,
selling and marketing costs and general and administrative costs may increase as
the Company creates the necessary infrastructure to promote the achievement of
the Company's worldwide drug test marketing and sales goals, furthers its
penetration of the direct sales market, leverages new product initiatives, and
institutes changes necessary to comply with financial and disclosure controls as
necessitated by new regulatory requirements.

LIQUIDITY AND CAPITAL RESOURCES AS OF DECEMBER 31, 2005

      The Company's  cash  requirements  depend on numerous  factors,  including
product development  activities,  penetration of the direct sales market, market
acceptance of its new products,  and effective management of inventory levels in
response to sales forecasts.  The Company expects to devote capital resources to
continue its product  development,  expand  manufacturing  capacity and continue
research and  development  activities.  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
additional  borrowings,  subject to market  and other  conditions.  The  Company
believes  that its current cash  balances,  together  with cash  generated  from
future  operations  will be  sufficient to fund  operations  for the next twelve
months.  If cash  generated  from  operations  is not  sufficient to satisfy the
Company's working capital and capital expenditure requirements,  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.

      The  Company's  working  capital  decreased  $72,000 to $4.636  million at
December  31,  2005,  as  compared  to  December  31,  2004.   The  Company  has
historically  satisfied its net working capital  requirements  through cash from
proceeds  from  private  placements  of  equity  securities  with  institutional
investors. In 2005, the Company used $372,000 in operations compared to $134,000
provided by operations in 2004.  The primary uses of cash during 2005 were a net
loss of  $376,000,  the  purchase  of  inventory  components,  the  purchase  of
approximately $133,000 of property, plant and equipment and interest payments on
debt totaling $71,000.  Including in operating  results  contributing to the net
loss are  increased  spending in Selling and  Marketing of  $366,000,  increased
investment in R&D of $77,000,  inventory  disposals of $225,000,  an increase in
the inventory reserve of $150,000,  and investor  relations expense of $131,000.
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.

      At December 31, 2005 and 2004,  the Company had cash and cash  equivalents
of $446,000 and $995,000,  respectively.  In addition the Company has a $350,000
revolving  line of credit bearing an interest rate of prime plus .25% secured by
all of the assets and personal property of the Company,  wherever  located,  now
owned or hereafter  acquired,  including accounts  receivable,  contract rights,
health  care  insurance  receivables,   chattel  paper,  inventory,   equipment,
instruments, including promissory notes, investment property, documents, deposit
accounts,  general  intangibles,  including  payment  intangibles and supporting
obligations.  At  December  31, 2005 and 2004,  the  Company had no  outstanding
balance on this line of credit.

      The  Company  received  proceeds  of  $3,000  for the  exercise  of  2,500
warrants,  as well as the final  installment  of  $25,000  from a grant from the
Center for Economic Development during 2005.

      The Company's  primary  expected  short-term  capital and working  capital
needs  are:  to  make   improvements   to  its   manufacturing   and  production
capabilities,  maintenance  of  adequate  inventory  levels to support  expected
sales,  continued support of its research and development programs,  seeking new
distribution  opportunities and focusing sales efforts on high potential sectors
of the drugs of abuse testing market.

Effect of Recent Accounting Pronouncements

      In December 2003, the Financial Accounting Standards Board ("FASB") issued
Statement  of Financial  Accounting  Standards  ("SFAS") No. 132R ("FAS  132R"),
"Employers' Disclosures about Pensions and Other Postretirement  Benefits".  The
statement  provides  disclosures  requirements for defined benefit pension plans
and other post-retirement  benefit plans. The statement was effective for annual
financial  statements  with fiscal years ending after December 15, 2003, and for
interim periods  beginning after December 15, 2003. The Company adopted FAS 132R
during the year ended  December 31, 2004.  The adoption of FAS 132R did not have
any impact on the Company's operating results or financial position.

                                       23
<PAGE>

      In December 2003, the FASB published a revision to Interpretation  No. 46,
"Consolidation  of Variable  Interest  Entities" ("FIN 46R"), to clarify some of
the provisions of the original  interpretation,  and to exempt certain  entities
from its requirements. Under the revised guidance, there are new effective dates
for companies that have interests in structures that are commonly referred to as
special-purpose  entities.  The rules are effective in financial  statements for
periods  ending  after  March 15,  2004.  FIN 46R did not impact  the  Company's
operating  results or financial  position  because the Company does not have any
variable interest entities.

      In March 2004, the Emerging Issues Task Force ("EITF") reached a consensus
on Issue No. 03-1,  "The  Meaning of  Other-Than-Temporary  Impairments  and Its
Application  to  Certain  Investments"  ("EITF  03-1").  EITF  03-1  provides  a
three-step   impairment   model  for   determining   whether  an  investment  is
other-than-temporarily  impaired  and  requires  the Company to  recognize  such
impairments  as  an  impairment  loss  equal  to  the  difference   between  the
investment's  cost and fair  value  at the  reporting  date.  The  guidance  was
effective for the Company  during the first quarter of fiscal 2005. The adoption
of EITF  03-1 did not  impact  the  Company's  operating  results  or  financial
position.

      In May  2004,  the FASB  issued  Staff  Position  106-2,  "Accounting  and
Disclosure  Requirements Related to the Medicare Prescription Drug,  Improvement
and  Modernization  Act of 2003"  ("FAS  106-2),  providing  final  guidance  on
accounting for the Medicare Prescription Drug, Improvement and Modernization Act
of 2003 ("the Act").  The Company adopted the provisions of FAS 106-2 during the
year ended  December  31,  2004.  FASB Staff  Position  106-2 did not impact the
Company's operating results or financial position.

      In November  2004,  the FASB issued  SFAS No. 151  "Inventory  Costs -- An
Amendment of ARB No. 43, Chapter 4" ("FAS 151"). FAS 151 clarifies that abnormal
amounts of idle facility expense, freight, handling costs and spoilage should be
expensed as incurred  and not included in  overhead.  Further,  FAS 151 requires
that allocation of fixed and production  facilities overhead to conversion costs
should be based on normal capacity of the production facilities.  The provisions
in FAS 151 are  effective  for  inventory  costs  incurred  during  fiscal years
beginning  after  June 15,  2005.  The  adoption  of FAS 151 did not  impact the
Company's operating results or financial position.

      In November  2004,  the FASB issued SFAS No. 153 "Exchanges of Nonmonetary
Assets -- An  Amendment of APB Opinion No. 29" ("FAS 153").  The  provisions  of
this statement  were  effective for  nonmonetary  asset  exchanges  occurring in
fiscal periods  beginning  after June 15, 2005.  This  statement  eliminates the
exception to fair value for exchanges of similar  productive assets and replaces
it  with a  general  exception  for  exchange  transactions  that  do  not  have
commercial substance -- that is, transactions that are not expected to result in
significant  changes in the cash flows of the reporting entity.  The adoption of
FAS 153 did not impact the Company's operating results or financial position.

      In  November  2004,  the  FASB's  Emerging  Issues  Task  Force  reached a
consensus on Issue No. 03-13,  "Applying the  Conditions in Paragraph 42 of FASB
Statement  No. 144 in  Determining  Whether to Report  Discontinued  Operations"
("EITF  03-13").  The guidance should be applied to a component of an enterprise
that is either  disposed  of or  classified  as held for sale in fiscal  periods
beginning after December 15, 2004. The adoption of EITF 03-13 did not impact the
Company's operating results or financial position.

      In  December   2004,  the  FASB  issued  Staff  Position  No.  FAS  109-2,
"Accounting  and  Disclosure  Guidance  for the  Foreign  Earnings  Repatriation
Provision  within the American Jobs Creation Act of 2004" ("FAS  109-2").  Staff
Position  No. FAS 109-2  requires  the Company to disclose  the total  effect on
income tax expense (or benefit) for amounts that have been recognized  under the
repatriation  provision.  For annual financial statements,  any effect should be
shown  separately in the same place (either on the face of the income  statement
or in the  footnotes)  that the  amounts  of  current  and  deferred  taxes  are
disclosed for the period.  The adoption of Staff  Position No. FAS 109-2 did not
impact the Company's operating results or financial position.

                                       24
<PAGE>

      In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based
Payment,  ("SFAS  No.  123(R)"),  which  amends  SFAS No.  123,  Accounting  for
Stock-Based  Compensation,  ("SFAS No. 123"), and supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees.  SFAS No. 123(R) requires compensation
expense to be recognized for all share-based payments made to employees based on
the fair  value of the award at the date of  grant,  eliminating  the  intrinsic
value  alternative  allowed  by  SFAS  No.  123.  Generally,   the  approach  to
determining  fair  value  under  the  original  pronouncement  has not  changed.
However, there are revisions to the accounting guidelines  established,  such as
accounting for  forfeitures,  which will change our  accounting for  stock-based
awards in the future.

      SFAS No.  123(R)  must be  adopted in the first  interim or annual  period
beginning after December 15, 2005. The statement  allows  companies to adopt its
provisions using either of the following transition alternatives:

      (i) The modified  prospective method,  which results in the recognition of
      compensation  expense using SFAS 123(R) for all share-based awards granted
      after the effective date and the recognition of compensation expense using
      SFAS  123  for all  previously  granted  share-based  awards  that  remain
      unvested at the effective date; or

      (ii) The  modified  retrospective  method,  which  results in applying the
      modified prospective method and restating prior periods by recognizing the
      financial statement impact of share-based  payments in a manner consistent
      with the pro forma  disclosure  requirements of SFAS No. 123. The modified
      retrospective  method  may be applied to all prior  periods  presented  or
      previously reported interim periods of the year of adoption.

      The Company  adopted SFAS No. 123(R) on January 1, 2006 using the modified
prospective method.  Because we previously accounted for share-based payments to
our employees using the intrinsic  value method,  our results of operations have
not included the recognition of  compensation  expense for the issuance of stock
option awards.  The Company  accelerated  the vesting of all  outstanding  stock
options to December 14, 2005. The impact of this  acceleration is illustrated in
note 13 to the  financial  statements.  The  amount of expense  included  in the
pro-forma  income or expense in note 13 to the financial  statements  that would
have  been  recognized  in 2006  and  after  is  $185,000.  Had we  applied  the
fair-value  criteria  established  by SFAS No.  123(R) to previous  stock option
grants,  the impact to our results of  operations  would have  approximated  the
impact  of  applying  SFAS No.  123,  which  was a  reduction  to net  income of
approximately  $770,000 before  acceleration and $955,000 after  acceleration in
2005, $995,000 in 2004, $1,018,000 in 2003 and $881,000 in 2002. SFAS No. 123(R)
also   requires  the  benefits  of  tax   deductions  in  excess  of  recognized
compensation  cost to be reported as a  financing  cash flow,  rather than as an
operating cash flow as required under current literature.  This requirement will
reduce our net operating  cash inflows and increase our net financing cash flows
in periods after adoption. The impact that this change in reporting will have on
future periods cannot be determined at this time because the benefit  recognized
is dependent upon attributes that vary for each option exercise.

      In May 2005,  the FASB issued FAS No. 154.  "Accounting  Changes and Error
Corrections"  which  replaced  APB  Opinion  No.  20 and FASB  Statement  No. 3,
"Reporting Accounting Changes in Interim Financial Statements",  and changes the
requirements  for the  accounting  for and  reporting of a change in  accounting
principle  ("FAS No. 154").  This statement is effective for accounting  changes
and  corrections  of errors made in fiscal years  beginning  after  December 15,
2005. FAS No. 154 requires retrospective application to prior periods' financial
statements of changes in accounting  principle,  unless it is  impracticable  to
determine  either the  period-specific  effects or the cumulative  effect of the
change. This Statement defines retrospective application as the application of a
different  accounting principle to prior accounting periods as if that principle
had  always  been  used or as the  adjustment  of  previously  issued  financial
statements  to  reflect  a change  in the  reporting  entity.  FAS No.  154 also
requires that a change in  depreciation,  amortization,  or depletion method for
long-lived,  non-financial  assets be  accounted  for as a change in  accounting
estimate  effected by a change in  accounting  principle.  The Company  does not
believe that the adoption of FAS No. 154 will have a  significant  effect on its
financial statements.

                                       25
<PAGE>

      ITEM 7. FINANCIAL STATEMENTS

      The Company's Financial Statements are set forth beginning on page F-1.

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

      On  August  10,   2004,   PricewaterhouseCoopers   LLP   resigned  as  the
Registrant's  independent registered public accounting firm. (See Form 8-K filed
August 10, 2004, as amended and incorporated herein by reference.)

      On  October  14,  2004  the  Registrant  engaged  UHY LLP to  serve as the
Registrant's  independent  registered public accounting firm for the fiscal year
ending December 31, 2004. (See Form 8-K filed October 18, 2004, and incorporated
herein by reference.)

      ITEM 8A. CONTROLS AND PROCEDURES

      On February  14,  2006,  American  Bio Medica  Corporation  carried out an
evaluation,  under  the  supervision  and with the  participation  of the  Chief
Financial Officer and the Chief Executive Officer, to evaluate the effectiveness
of the disclosure  controls and  procedures (as defined in Rule 13a-15(e)  under
the Securities Exchange Act of 1934, as amended ("Exchange Act")). Based on that
evaluation,  the Chief Financial  Officer and the Chief  Executive  Officer have
concluded  that  American  Bio  Medica  Corporation's  disclosure  controls  and
procedures as of December 31, 2005,  are effective  for  recording,  processing,
summarizing, and reporting information that is required to be disclosed in their
reports under the Exchange Act, as amended, within the time periods specified in
the Securities and Exchange Commission's rules and forms.

      Based upon an evaluation  performed  during the first quarter of 2006, the
Chief Financial Officer and the Chief Executive Officer concluded that there was
a material  deficiency in internal  control over financial  reporting during the
quarter ending  September 30, 2005.  Specifically,  typographical  errors in the
quantity of inventory  reported to Company  headquarters  by the  Company's  New
Jersey  manufacturing  facility for the quarter  ending  September 30, 2005 were
discovered by the CFO on January 30, 2006.  The CFO  discussed  this matter with
the Audit Committee and the Company's independent accountants.

      To remediate this deficiency,  as of the date of this report,  the Company
has

      (1)   reviewed  all  procedures  for  the  compilation  and  reporting  of
            inventory information with the individuals responsible for reporting
            inventory in the New Jersey manufacturing facility;
      (2)   required  financial  compilation  and  reporting  in the New  Jersey
            office  to be  reviewed  by the New  Jersey  manufacturing  facility
            operations   manager   prior  to   transmittal   to  the   Company's
            headquarters; and
      (3)   employed analytical  procedures for the CFO and Controller to review
            changes in  quantities  or value of  inventory  in excess of 25% for
            reasonableness.

      The  Company  continues  to  evaluate  additional  measures  that  may  be
necessary to remediate this deficiency. Except as set forth above, there were no
changes in American Bio Medica  Corporation's  internal  controls over financial
reporting  during the  fourth  quarter  that have  materially  affected,  or are
reasonably  likely to  materially  affect,  American  Bio  Medica  Corporation's
internal control over financial reporting.

      ITEM 8B. OTHER INFORMATION

      None.

                                       26
<PAGE>

PART III

      ITEM 9. DIRECTORS,  EXECUTIVE  OFFICERS,  PROMOTERS,  AND CONTROL PERSONS;
              COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

      The information required by this item is contained in our definitive Proxy
Statement with respect to our Annual Meeting of Shareholders for the fiscal year
ending December 31, 2004, under the captions  "Security  Ownership of Management
and  Certain  Beneficial  Owners",  "Directors,  Executive  Officers  and Senior
Management", "Audit Committee", "Audit Committee Financial Expert", "Election of
Directors--Nominees", "Section 16(a) Beneficial Ownership Reporting Compliance",
and "Code of Ethics" and is incorporated herein by reference.

      ITEM 10. EXECUTIVE COMPENSATION

      The information required by this item is contained in our definitive Proxy
Statement with respect to our Annual Meeting of Shareholder  for the fiscal year
ending December 31, 2005,  under the caption  "Executive  Compensation",  and is
incorporated herein by reference.

      ITEM 11. SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND MANAGEMENT
               AND RELATED STOCKHOLDER MATTERS

      The information required by this item is contained in our definitive Proxy
Statement with respect to the Annual Meeting of Shareholders for the fiscal year
ending December 31, 2005,  under the caption  "Security  Ownership of Management
and Certain Beneficial Owners", and is incorporated herein by reference.

      ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The information required by this item is contained in our definitive Proxy
Statement with respect to the Annual Meeting of Shareholder  for the fiscal year
ending December 31, 2005, under the caption "Certain  Relationships  and Related
Transactions", and is incorporated herein by reference.

      ITEM 13. EXHIBITS

      (a) Exhibits

                                       27
<PAGE>

Number                        Description of Exhibits

3.5         Bylaws(1)
3.50        Amended and Restated Bylaws(5)
3.6         Fifth  amendment  to the  Certificate  of  Incorporation  (filed  as
            Exhibit 3.6 to the  Company's  Form SB-2 filed on November  21, 1996
            and incorporated herein by reference)
3.7         Sixth amendment to the Certificate of Incorporation(5)
4.2         Investor Registration Rights Agreement, dated August 22, 2001, among
            American Bio Medica Corporation and the investors(4)
4.3         Placement  Agent  Registration  Rights  Agreement,  dated August 22,
            2001, among American Bio Medica  Corporation and the placement agent
            and its sub-agents(4)
4.4         Form of Warrant  Agreement  and Warrant  among  American  Bio Medica
            Corporation and the investors(4)
4.5         Form of Warrant  Agreement  and Warrant  among  American  Bio Medica
            Corporation and the placement agent and its sub-agents(4)
4.6         Fiscal  1997  Nonstatutory  Stock  Option Plan (filed as part of the
            Company's  Proxy  Statement  for its Fiscal 1997 Annual  Meeting and
            incorporated herein by reference) (a)
4.7         Services  Agreement  dated  September  7,  2005 by and  between  the
            Company and Barretto Pacific Corporation(10)
4.8         Stock Grant  Agreement  dated  September  7, 2005 by and between the
            Company and Barretto Pacific Corporation(10)
4.14        Fiscal  1998  Nonstatutory  Stock  Option Plan (filed as part of the
            Company's  Proxy  Statement  for its Fiscal 1998 Annual  Meeting and
            incorporated herein by reference) (a)
4.15        Fiscal  2000  Nonstatutory  Stock  Option Plan (filed as part of the
            Company's  Proxy  Statement  for its Fiscal 2000 Annual  Meeting and
            incorporated herein by reference) (a)
4.16        Common Stock Purchase  Agreement dated April 28, 2000 by and between
            the Company and Seaside Partners, L.P.(2)
4.17        Fiscal  2001  Nonstatutory  Stock  Option Plan (filed as part of the
            Company's  Proxy  Statement  for its Fiscal 2002 Annual  Meeting and
            incorporated herein by reference) (a)
4.18        Extension Agreement by and between the Company and Steven Grodko
4.19        Registration  Letter Agreement by and between the Company and Steven
            Grodko
10.6        Contract of Sale dated May 19, 1999/Kinderhook, New York facility(2)
10.7        Agreement  of  Lease  dated  May  13,   1999/Kinderhook,   New  York
            facility(2)
10.8        Lease dated August 1, 1999/New Jersey facility(2)
10.9        Amendment  dated March 23, 2001 to Lease  dated  August 1,  1999/New
            Jersey facility(3)
10.10       Amended  Contract  of Sale  dated  May,  2001/Kinderhook,  New  York
            facility(3)
10.11       Financial  Advisory Agreement dated May 2, 2001 by and between Brean
            Murray & Co., Inc. and the Company(3)
10.12       Employment contract between the Company and Robert L. Aromando,  Jr.
            (a)(3)
10.13       Employment contract between the Company and Stan Cipkowski (a)(3)
10.14       Employment contract between the Company and Douglas Casterlin (a)(3)
10.15       Employment contract between the Company and Keith E. Palmer (a)(3)
10.16       Warrant Agreement dated November 15, 2001 by and between the Company
            and Hudson River Bank & Trust Company(5)
10.17       Amendment No.3 dated August 20, 2002/New Jersey facility(6)
10.18       Employment contract between the Company and Gerald A. Moore (a)(6)
10.19       Financial  Advisory  Agreement dated December 2, 2003 by and between
            Brean Murray & Co., Inc and the Company(7)
10.19.1     Settlement letter dated June 21, 2004 by and between Bran  Murray &
            Co., Inc and the Company(8)

                                       28
<PAGE>

10.20       Contract of Sale/land-Kinderhook, NY facility(7)
10.21       Employment contract between the Company and Stan Cipkowski(a),(7)
10.22       Employment contract between the Company and Stan Cipkowski(a),(9)
10.23       Employment contract between the Company and Stan Cipkowski
10.24       Employment contract between the Company and Keith E. Palmer
32.1        Section 1350 Certification of the Chief Executive Officer
32.2        Section 1350 Certification of the Chief Financial Officer

a)    indicates an employee  benefit plan,  management  contract or compensatory
      plan or arrangement in which a named executive officer participates.

(1)   Filed as the exhibit  number listed to the  Company's  Form 10-SB filed on
      November 21, 1996 and incorporated herein by reference.

(2)   Filed as the exhibit  number listed to the Company's  Form 10-KSB filed on
      August 11, 2000 and incorporated herein by reference.

(3)   Filed as the exhibit  number listed to the Company's  Form 10-KSB filed on
      August 13, 2001 and incorporated herein by reference.

(4)   Filed as the  exhibit  number  listed to the  Company's  Form S-3 filed on
      September 26, 2001 and incorporated herein by reference.

(5)   Filed as the exhibit  number listed to the Company's  Form 10-KSB filed on
      April 15, 2002 and incorporated herein by reference.

      t 0 6 (6) Filed as the exhibit  number listed to the Company's Form 10-KSB
filed on March 31, 2003 and incorporated herein by reference.

(7)   Filed as the exhibit  number listed to the Company's  Form 10-KSB filed on
      May 10, 2004 and incorporated herein by reference.

(8)   Filed as the exhibit  number  listed to the  Company's  Form 10-QSB  filed
      August 10, 2004 and incorporated herein by reference.

(9)   Filed as the exhibit  number listed to the Company's  Form 10-QSB filed on
      November 12, 2004 and incorporated herein by reference.

(10)  Filed as the exhibit  number listed to the Company's  Form 10-QSB filed on
      November  8,  2005 and  subsequently  amended  on Form  10-QSB/A  filed on
      February 24, 2006 and incorporated herein by reference.

      ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

      The information required by this item is contained in our definitive Proxy
Statement with respect to the Annual Meeting of Shareholder  for the fiscal year
ending December 31, 2005, under the caption  "Independent  Accountants",  and is
incorporated herein by reference.

                                       29
<PAGE>


AMERICAN BIO MEDICA CORPORATION

SIGNATURES

      In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned  thereunto duly
authorized.

                                        AMERICAN BIO MEDICA CORPORATION

                                               By /s/ Keith E. Palmer
                                               ---------------------------------
                                               Keith E. Palmer
                                               Chief Financial Officer
                                               (Principal Accounting Officer)
                                               Executive Vice President, Finance

Date: March 31, 2006

      In accordance  with the Exchange Act, this report has been signed below by
the  following  persons  on  behalf  of the  registrant  and  in the  capacities
indicated on March 31, 2006:

/s/ Stan Cipkowski                            Chief Executive Officer & Director
------------------------------------
Stan Cipkowski                                (Principal Executive Officer)

/s/ Edmund Jaskiewicz                         Chairman and President
 Edmund Jaskiewicz

/s/Richard P. Koskey                          Director
------------------------------------
 Richard P. Koskey

/s/ Daniel W. Kollin                          Director
------------------------------------
 Daniel W. Kollin

/s/ Anthony G. Costantino                     Director
---------------------------
Anthony G. Costantino

/s/ Carl A. Florio                            Director
------------------------------------
Carl A. Florio

/s/ Keith E. Palmer                           Chief Financial Officer
------------------------------------
Keith E. Palmer                               (Principal Financial Officer)
                                              Executive Vice President, Finance

                                       S-1
<PAGE>

INDEX

                                                                            PAGE

   FINANCIAL STATEMENTS

      Report of Independent Registered Public Accounting Firm                F-2

      Balance sheets                                                         F-3

      Statements of operations                                               F-4

      Statements of changes in stockholders' equity                          F-5

      Statements of cash flows                                               F-6

      Notes to financial statements                                          F-7

                                      F-1
<PAGE>

             Report of Independent Registered Public Accounting Firm



To the Stockholders and Board of Directors of
American Bio Medica Corporation

We  have  audited  the  accompanying  balance  sheets  of  American  Bio  Medica
Corporation  as of December  31, 2005 and 2004,  and the related  statements  of
operations,  changes in  stockholders'  equity and cash flows for the years then
ended  These  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of American Bio Medica Corporation
as of December 31, 2005 and 2004, and the results of its operations and its cash
flows  for the  years  then  ended  in  conformity  with  accounting  principles
generally accepted in the United States of America.



/s/ UHY LLP



Albany, New York
February 10, 2006


                                      F-2
<PAGE>

AMERICAN BIO MEDICA CORPORATION


      Balance Sheets

<TABLE>
<CAPTION>
                                                                                  December 31,     December 31,
                                                                                      2005            2004
                                    ASSETS
 Current assets
<S>                                                                                <C>             <C>
     Cash and cash equivalents                                                  $    446,000    $    995,000
     Accounts receivable - net of allowance for doubtful accounts of $105,000
      at December 31, 2005 and 2004                                                1,370,000       1,108,000
      Inventory - net of reserve for slow moving and obsolete inventory of
      $250,000 at December 31, 2005 and $100,000 at 2004                           4,444,000       4,338,000
     Prepaid expenses                                                                109,000         121,000
                                                                                ------------    ------------
     Total current assets                                                          6,369,000       6,562,000

  Property, plant and equipment, net                                               1,562,000       1,808,000
  Other assets                                                                         7,000           5,000
                                                                                ------------    ------------

      Total Assets                                                              $  7,938,000    $  8,375,000
                                                                                ============    ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY
  Current liabilities
     Accounts payable                                                           $  1,380,000    $  1,358,000
      Accrued expenses                                                               130,000         176,000
      Wages payable                                                                  177,000         243,000
      Note payable                                                                     7,000          44,000
     Current portion of long term debt                                                29,000          27,000
      Current portion of unearned grant                                               10,000           6,000
                                                                                ------------    ------------
      Total current liabilities                                                    1,733,000       1,854,000

  Long-term debt                                                                     592,000         629,000
  Unearned grant                                                                      60,000          54,000
                                                                                ------------    ------------
      Total liabilities                                                            2,385,000       2,537,000

Commitments and contingencies

  Stockholders' equity:
      Preferred stock; par value $.01 per share; 5,000,000 shares authorized,
        none issued and outstanding
     Common stock; par value $.01 per share; 50,000,000 shares
        authorized; 21,359,768 shares issued and outstanding at
        December 31, 2005 and
        21,282,268 shares issued and outstanding at December 31, 2004                214,000         213,000
     Additional paid-in capital                                                   18,853,000      18,763,000
                   Accumulated deficit                                           (13,514,000)    (13,138,000)
                                                                                ------------    ------------

                   Total stockholders' equity                                      5,553,000       5,838,000
                                                                                ------------    ------------

                   Total liabilities and stockholders' equity                   $  7,938,000    $  8,375,000
                                                                                ============    ============

The accompanying notes are an integral part of the financial statements.
</TABLE>

                                      F-3
<PAGE>

AMERICAN BIO MEDICA CORPORATION

      Statements of Operations

<TABLE>
<CAPTION>
                                                       For the Year Ended    For the Year Ended
                                                          December 31,         December 31,
                                                              2005                 2004

<S>                                                        <C>                 <C>
   Net sales                                               $ 13,015,000        $ 12,241,000

   Cost of goods sold                                         6,970,000           5,647,000
                                                           ------------        ------------

   Gross profit                                               6,045,000           6,594,000
                                                           ------------        ------------

   Operating expenses:
      Research and development                                  683,000             606,000
      Selling and marketing                                   3,184,000           2,818,000
       General and administrative                             2,518,000           2,584,000
       Employee severance                                                           240,000
                                                           ------------        ------------

   Operating income (loss)                                     (340,000)            346,000
                                                           ------------        ------------

   Other income (expense):
      Other income                                               15,000              14,000
      Interest income                                             5,000               8,000
       Interest expense                                         (55,000)            (53,000)
                                                           ------------        ------------

   Income (loss) before tax                                    (375,000)            315,000

   Income tax                                                     1,000              49,000
                                                           ------------        ------------

   Net income (loss) after tax                            $    (376,000)       $    266,000

                                                           ============        ============

   Basic and diluted income (loss) per common share        $       (.02)       $        .01
                                                           ============        ============

   Weighted average number of shares outstanding - basic     21,310,000          21,187,000
   Dilutive effect of stock options and warrants                122,000             556,000
                                                           ------------        ------------
   Weighted average number of shares
   outstanding -diluted                                      21,432,000          21,743,000
                                                           ============        ============
</TABLE>

         The accompanying notes are an integral part of the financial statements

                                      F-4
<PAGE>

AMERICAN BIO MEDICA CORPORATION

      Statements of Changes in Stockholders' Equity


<TABLE>
<CAPTION>
                                           Common Stock                             Additional
                                          ----------------            Treasury       Paid-in      Accumulated
                                        Shares         Amount           Stock        Capital        Deficit           Total
                                     ------------   ------------   ------------   ------------   ------------    ------------
<S>                                    <C>          <C>            <C>            <C>            <C>             <C>
   Balance-December 31, 2003           20,664,151   $    207,000   $          0   $ 17,959,000   $(13,404,000)   $  4,762,000

   Stock Option / Warrant Exercise        618,117          6,000                       575,000                        581,000
   Warrants issued for financial
     advisory services                                                                 199,000                        199,000
   Non-cash compensation                                                                30,000                         30,000
   Net Income                                                                                         266,000         266,000
                                     ------------   ------------   ------------   ------------   ------------    ------------
   Balance-December 31, 2004           21,282,268   $    213,000   $          0   $ 18,763,000   $(13,138,000)   $  5,838,000
                                     ============   ============   ============   ============   ============    ============

   Stock Option / Warrant Exercise          2,500                                        3,000                          3,000
   Stock issued for investment
     relations advisory services           75,000          1,000                        87,000                         88,000
   Non-cash compensation
   Net (loss)                                                                                        (376,000)       (376,000)
                                     ------------   ------------   ------------   ------------   ------------    ------------
   Balance-December 31, 2005           21,359,768   $    214,000   $          0   $ 18,853,000   $(13,514,000)   $  5,553,000
                                     ============   ============   ============   ============   ============    ============
</TABLE>

The accompanying notes are an integral part of the financial statements

                                      F-5
<PAGE>

AMERICAN BIO MEDICA CORPORATION

      Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                Year Ended       Year Ended
                                                               December 31,     December 31,
                                                                   2005             2004
                                                                -----------    -----------
   Cash flows from operating activities:
<S>                                                             <C>            <C>
    Net Income                                                  $  (376,000)   $   266,000
    Adjustments to reconcile net income:
       Depreciation                                                 378,000        269,000
       Provision for bad debts                                                      51,000
       Provision for slow moving and obsolete inventory             150,000        100,000
       Compensatory stock and stock options                          88,000        229,000
       Unearned grant                                               (15,000)       (15,000)
       Changes in:
         Accounts receivable                                       (262,000)        94,000
         Other assets                                                (1,000)         9,000
         Inventory                                                 (255,000)    (1,389,000)
         Prepaid expenses                                            13,000          8,000
         Accounts payable                                            23,000        621,000
               Accrued expenses                                     (49,000)        23,000
               Wages payable                                        (66,000)      (132,000)
                                                                -----------    -----------
            Net cash provided by (used in) operating activities    (372,000)       134,000
                                                                -----------    -----------
   Cash flows from investing activities:
    Purchase of property, plant and equipment                      (133,000)      (601,000)
     Proceeds from sale of land
                                                                -----------    -----------

            Net cash used in investing activities                  (133,000)      (601,000)
                                                                -----------    -----------
   Cash flows from financing activities:
     Proceeds from stock option exercise                                            53,000
     Proceeds from warrant exercise                                   3,000        528,000
     Proceeds from convertible grant                                 25,000
     Payments on debt financing                                     (71,000)       (61,000)
                                                                -----------    -----------
       Net cash provided by (used in) financing  activities         (43,000)       520,000
                                                                -----------    -----------
       Net increase (decrease) in cash and cash equivalents        (548,000)        53,000
     Cash and cash equivalents - beginning of period                995,000        942,000
                                                                -----------    -----------
     Cash and cash equivalents - end of period                  $   446,000    $   995,000
                                                                ===========    ===========
  Supplemental disclosures of cash flow information:
   Cash paid during theyear for:
      Interest                                                  $    54,000    $    74,000

  Noncash activities:
   Note payable for purchase of equipment
                                                                                    85,000
</TABLE>

     The accompanying notes are an integral part of the financial statements

                                      F-6
<PAGE>


AMERICAN BIO MEDICA CORPORATION
Notes to Financial Statements
December 31, 2005

NOTE A - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES

The Company:

      American Bio Medica Corporation ("ABMC" or the "Company") was incorporated
in the  State  of New  York  on  April  10,  1986  and  is in  the  business  of
manufacturing, developing and marketing biomedical technologies and products.

      For the years ended  December 31, 2005 and 2004 the Company had a net loss
of  $376,000  and net income of $266,000  respectively  and had net cash used in
operating  activities  of  $372,000 in 2005 and net cash  provided by  operating
activities of $134,000 in 2004. The Company  decreased cash balances by $548,000
during the twelve months ended  December 31, 2005 and increased cash balances by
$53,000 during the twelve months ended December 31, 2004. Though sales increased
by 6.3% in 2005  compared to 2004,  the cost to  manufacture  the products  also
increased.  Some of this increase in the cost to manufacture the product was the
result of reliance  upon  outsourcing  processes  due to increases in demand and
diversity of products.  The Company  anticipates  improvements  in efficiency to
lower the costs to manufacture products as improvements are made in the assembly
processes.  As of December 31, 2005, the Company had an  accumulated  deficit of
($13,514,000).  Historically,  the Company  has been  largely  dependent  on its
ability to sell additional shares of its common stock to fund its operations.

      The Company  believes that its current cash  balances,  and cash generated
from future operations will be sufficient to fund operations for the next twelve
months.  If cash  generated  from  operations  is  insufficient  to satisfy  the
Company's working capital and capital expenditure requirements,  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.

Significant Accounting Policies:

[1]   Cash equivalents:

      The Company considers all highly liquid debt instruments  purchased with a
maturity of three months or less to be cash equivalents.

[2]   Accounts Receivable:

      Accounts  receivable  consists of trade receivables due from customers for
the sale of our products.  Payment  terms vary on a customer by customer  basis,
and  generally  range from cash on  delivery to net,  90 days.  Receivables  are
considered past due when it has exceeded its payment terms.  Accounts receivable
have been reduced by an estimated  allowance for doubtful accounts.  We estimate
our allowance for doubtful accounts based on facts,  circumstances and judgments
regarding each  receivable.  Customer  payment history and patterns,  historical
losses, economic and political conditions,  trends and individual  circumstances
are  among  the items  considered  when  evaluating  the  collectability  of the
receivables. Accounts are reviewed regularly for collectability and those deemed
uncollectable are written off.

[3]   Inventory:

      Inventory is stated at the lower of cost or market. Labor and overhead are
determined  on an  average  cost basis and raw  materials  are  determined  on a
first-in-first-out  method. The Company has established an allowance of $250,000
for slow moving and obsolete inventory.

[4]   Income taxes:

      The Company  accounts for income taxes in  accordance  with  Statements of
Financial  Accounting  Standards  (SFAS) No. 109,  Accounting  for Income Taxes.
Deferred tax assets and liabilities are determined based on differences  between
financial  reporting and tax bases of assets and  liabilities,  and are measured
using the enacted laws and tax rates that will be in effect when the differences
are expected to reverse.  The measurement of deferred tax assets is reduced,  if
necessary,  by a valuation  allowance for any tax benefits that are not expected
to be realized. The effect on deferred tax assets and liabilities of a change in
tax rates are recognized in the period that such tax rate changes are enacted.

                                      F-7
<PAGE>

[5]   Depreciation:

      Property,  plant and equipment are depreciated on the straight-line method
over their  estimated  useful  lives;  3-5 years for  equipment and 30 years for
buildings.  Leasehold improvements and capitalized lease assets are amortized by
the straight-line method over the shorter of their estimated useful lives or the
term of the lease.

[6]   Revenue recognition:

      The Company recognizes  revenue when title transfers upon shipment.  Sales
are recorded net of discounts  and returns.  No  obligation  on the part of ABMC
exists for customer acceptance. The Company's price is fixed and determinable at
the date of sale.  The buyer has paid the  Company  or is  obligated  to pay the
Company and the obligation is not  contingent on the resale of the product.  The
buyer's  obligation  would  not be  changed  in the  event of theft or  physical
destruction  or damage to the product.  Buyers  acquiring the product for resale
(i.e.  distributor/wholesaler)  have economic substance apart from that provided
by the Company and the Company does not have significant  obligations for future
performance to directly bring about the resale of the product.  All distributors
have  economic  substance  apart from  customers  and the payment  terms are not
conditional.  The transactions  with  distributors are on terms similar to those
given  to  the  Company's  other   customers.   No  agreements  exist  with  the
distributors that offer a right of return.

[7]   Shipping and handling:

      Shipping and handling fees charged to customers are included in net sales,
and shipping and handling  costs incurred by the Company are included in cost of
sales.

[8]   Research and development:

      Research and  development  ("R&D")  costs are charged to  operations  when
incurred. These costs include salaries, benefits, travel, supplies, depreciation
of R&D equipment and other miscellaneous expenses.

[9]   Income per common share:

      Basic income per common share is  calculated by dividing net income by the
weighted average number of outstanding  common shares during the period. For the
year ended  December 31, 2005 diluted net income per share includes the dilutive
effect of  1,317,000  stock  options  and 400,000  warrants.  For the year ended
December 31, 2004,  diluted net income per share includes the dilutive effect of
334,000 stock options and 222,000 warrants.

         Potential common shares outstanding as of December 31, 2005 and


                               December 31, 2005            December 31, 2004
                               -----------------            -----------------

             Warrants                  2,223,420                   2,245,920
             Options                   4,268,080                   4,149,830

                                      F-8
<PAGE>

      For the twelve months ended December 31, 2005 the number of securities not
included in the diluted EPS,  because the effect would have been  anti-dilutive,
were  4,774,500.  For the twelve  months  ended  December 31, 2004 the number of
securities  not included in the diluted EPS,  because the effect would have been
anti-dilutive,  were  2,016,920.  The securities  would have been  anti-dilutive
because the exercise price of the securities was greater than the average market
price of the Company's common shares for each of the fiscal years ended December
31, 2005 and 2004.

[10]  Use of estimates:

      The  preparation  of financial  statements in conformity  with  accounting
principles   generally  accepted  in  the  United  States  of  America  requires
management to make estimates and assumptions that affect the reported amounts of
assets and  liabilities  and disclosure of contingent  assets and liabilities at
the date of the financial  statements  and the reported  amounts of revenues and
expenses  during the reporting  period.  Actual  results could differ from those
estimates.

[11]  Impairment of long-lived assets:

      The  Company  records  impairment  losses  on  long-lived  assets  used in
operations  when  events and  circumstances  indicate  that the assets  might be
impaired  and the  undiscounted  cash flows  estimated  to be generated by those
assets are less than the carrying amounts of those assets.

[12]  Financial Instruments:

      The carrying amounts of cash and cash equivalents,  accounts  receivable -
net, other  receivables,  accounts payable,  accrued expenses  approximate their
fair value based on the short term nature of those items.

      Estimated  fair  value  of  financial   instruments  is  determined  using
available  market  information.   In  evaluating  the  fair  value  information,
considerable  judgment is required to interpret  the market data used to develop
the  estimates.  The  use  of  different  market  assumptions  and/or  different
valuation  techniques  may have a material  effect on the  estimated  fair value
amounts.

      Accordingly,  the  estimates  of fair  value  presented  herein may not be
indicative of the amounts that could be realized in a current market exchange.

[13]  Accounting for stock-based compensation:

      ABMC has accounted for our  stock-based  compensation  using the intrinsic
value method  prescribed by APB Opinion No. 25,  Accounting  for Stock Issued to
Employees,  as amended.  Pursuant to APB Opinion No. 25, we have not  recognized
compensation cost for our stock options because the number of shares potentially
issuable and the exercise price,  which is equal to the fair market value of the
underlying  stock on the date of grant,  are fixed.  In accordance with SFAS No.
123 (revised 2004), Share Based Payment, we will begin to recognize compensation
expense for stock options on January 1, 2006. The weighted average fair value of
options  granted  during the twelve months ended  December 31, 2005 and 2004 was
approximately $0.73 and $0.98, respectively.

      The  following  schedule  reflects  the pro forma impact on net income and
earnings per common share of  accounting  for our stock option grants using SFAS
No. 123,  Accounting  for  Stock-Based  Compensation,  which would result in the
recognition of compensation expense for the fair value of stock option grants:

                                                    Year ended      Year ended
                                                   December 31,    December 31,
                                                     2005             2004
                                                ----------------- --------------

 Net Income/(loss):
       As reported                               $    (376,000)       $ 266,000
       Pro forma                                    (1,331,000)        (729,000)

 Basic and fully diluted
  income/(loss) per share
     As reported                                        $ (.02)         $   .01

      Pro forma                                         $ (.06)         $  (.03)

                                      F-9
<PAGE>


                                                      Year ended    Year ended
                                                     December 31,   December 31,
                                                         2005          2004
                                                     ------------   ------------

   Net Income, as reported                           $  (376,000)   $   266,000
    Stock-based employee compensation
    expense, determined under fair value
    based method for all awards
                                                     $  (955,000)   $  (995,000)
                                                     ------------   ------------
    Proforma net (loss)                              $(1,331,000)   $  (729,000)

                                      F-10
<PAGE>

      The fair value of our stock option grants in the table above was estimated
utilizing the Black-Scholes option-pricing model. The following weighted average
assumptions were used: dividend yield of zero percent; risk-free interest rates,
which vary for each grant,  ranging  from 4.26% to 5.34%;  expected  life of ten
years  for all  grants;  and stock  price  volatility  ranging  from 75% to 81%.
Black-Scholes  is a formula that  calculates an estimated value of stock options
based on appreciation and interest rate assumptions.  Therefore,  the fair value
calculation of a stock option using Black-Scholes is not necessarily  indicative
of the actual value of a stock option.

      The Company  accelerated the vesting of all  outstanding  stock options to
December 14, 2005.  The amount of expense  included in the  pro-forma  income or
expense  above that would have been  recognized  in 2006 and through May 2007 is
$185,000. In accordance with the new accounting  pronouncement,  ABMC will begin
recognition  of  compensation  expense  related to any new stock  option  grants
issued after January 1, 2006.

[14]  Concentration of credit risk:

      The Company  sells its drug testing  products  primarily to United  States
customers  and  distributors.  Credit is extended  based on an evaluation of the
customer's financial condition. No customer represents more than 10% of accounts
receivable-net  at  December  31,  2005 or  2004.  The  Company  establishes  an
allowance for doubtful accounts based on factors  surrounding the credit risk of
specific customers and other information.

      The Company  maintains  certain cash  balances at a financial  institution
that is federally  insured and at times the  balances  have  exceeded  federally
insured limits.

[15]  Reporting comprehensive income:

      The Company reports comprehensive income in accordance with the provisions
of SFAS No. 130, Reporting  Comprehensive Income. The provisions of SFAS No. 130
require  the  Company to report the change in the  Company's  equity  during the
period from  transactions and events other than those resulting from investments
by, and  distributions  to, the  shareholders.  For the years ended December 31,
2005 and 2004 comprehensive income was the same as net income.

[16]  Reclassifications:

      Certain items have been  reclassified from the prior years to conform with
the current year presentation.

[17]  New accounting pronouncements:

      In December 2003, the Financial Accounting Standards Board ("FASB") issued
Statement  of Financial  Accounting  Standards  ("SFAS") No. 132R ("FAS  132R"),
"Employers' Disclosures about Pensions and Other Postretirement  Benefits".  The
statement  provides  disclosures  requirements for defined benefit pension plans
and other post-retirement  benefit plans. The statement was effective for annual
financial  statements  with fiscal years ending after December 15, 2003, and for
interim periods  beginning after December 15, 2003. The Company adopted FAS 132R
during the year ended  December 31, 2004.  The adoption of FAS 132R did not have
any impact on the Company's operating results or financial position.

                                      F-11
<PAGE>

      In December 2003, the FASB published a revision to Interpretation  No. 46,
"Consolidation  of Variable  Interest  Entities" ("FIN 46R"), to clarify some of
the provisions of the original  interpretation,  and to exempt certain  entities
from its requirements. Under the revised guidance, there are new effective dates
for companies that have interests in structures that are commonly referred to as
special-purpose  entities.  The rules are effective in financial  statements for
periods  ending  after  March 15,  2004.  FIN 46R did not impact  the  Company's
operating  results or financial  position  because the Company does not have any
variable interest entities.

      In March 2004, the Emerging Issues Task Force ("EITF") reached a consensus
on Issue No. 03-1,  "The  Meaning of  Other-Than-Temporary  Impairments  and Its
Application  to  Certain  Investments"  ("EITF  03-1").  EITF  03-1  provides  a
three-step   impairment   model  for   determining   whether  an  investment  is
other-than-temporarily  impaired  and  requires  the Company to  recognize  such
impairments  as  an  impairment  loss  equal  to  the  difference   between  the
investment's  cost and fair  value  at the  reporting  date.  The  guidance  was
effective for the Company  during the first quarter of fiscal 2005. The adoption
of EITF  03-1 did not  impact  the  Company's  operating  results  or  financial
position.

      In May  2004,  the FASB  issued  Staff  Position  106-2,  "Accounting  and
Disclosure  Requirements Related to the Medicare Prescription Drug,  Improvement
and  Modernization  Act of 2003"  ("FAS  106-2),  providing  final  guidance  on
accounting for the Medicare Prescription Drug, Improvement and Modernization Act
of 2003 ("the Act").  The Company adopted the provisions of FAS 106-2 during the
year ended  December  31,  2004.  FASB Staff  Position  106-2 did not impact the
Company's operating results or financial position.

      In November  2004,  the FASB issued  SFAS No. 151  "Inventory  Costs -- An
Amendment of ARB No. 43, Chapter 4" ("FAS 151"). FAS 151clarifies  that abnormal
amounts of idle facility expense, freight, handling costs and spoilage should be
expensed as incurred  and not included in  overhead.  Further,  FAS 151 requires
that allocation of fixed and production  facilities overhead to conversion costs
should be based on normal capacity of the production facilities.  The provisions
in FAS 151 were  effective  for  inventory  costs  incurred  during fiscal years
beginning  after  June 15,  2005.  The  adoption  of FAS 151 did not  impact the
Company's operating results or financial position.

      In November  2004,  the FASB issued SFAS No. 153 "Exchanges of Nonmonetary
Assets -- An  Amendment of APB Opinion No. 29" ("FAS 153").  The  provisions  of
this statement  were  effective for  nonmonetary  asset  exchanges  occurring in
fiscal periods  beginning  after June 15, 2005.  This  statement  eliminates the
exception to fair value for exchanges of similar  productive assets and replaces
it  with a  general  exception  for  exchange  transactions  that  do  not  have
commercial substance -- that is, transactions that are not expected to result in
significant  changes in the cash flows of the reporting entity.  The adoption of
FAS 153 did not impact the Company's operating results or financial position.

      In  November  2004,  the  FASB's  Emerging  Issues  Task  Force  reached a
consensus on Issue No. 03-13,  "Applying the  Conditions in Paragraph 42 of FASB
Statement  No. 144 in  Determining  Whether to Report  Discontinued  Operations"
("EITF  03-13").  The guidance should be applied to a component of an enterprise
that is either  disposed  of or  classified  as held for sale in fiscal  periods
beginning after December 15, 2004. The adoption of EITF 03-13 did not impact the
Company's operating results or financial position.

      In  December   2004,  the  FASB  issued  Staff  Position  No.  FAS  109-2,
"Accounting  and  Disclosure  Guidance  for the  Foreign  Earnings  Repatriation
Provision  within the American Jobs Creation Act of 2004" ("FAS  109-2").  Staff
Position  No. FAS 109-2  requires  the Company to disclose  the total  effect on
income tax expense (or benefit) for amounts that have been recognized  under the
repatriation  provision.  For annual financial statements,  any effect should be
shown  separately in the same place (either on the face of the income  statement
or in the  footnotes)  that the  amounts  of  current  and  deferred  taxes  are
disclosed for the period.  The adoption of Staff  Position No. FAS 109-2 did not
impact the Company's operating results or financial position.

                                      F-12
<PAGE>

      In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based
Payment,  ("SFAS  No.  123(R)"),  which  amends  SFAS No.  123,  Accounting  for
Stock-Based  Compensation,  and  supersedes  APB Opinion No. 25,  Accounting for
Stock Issued to Employees.  SFAS No. 123(R) requires  compensation expense to be
recognized  for all  share-based  payments  made to employees  based on the fair
value  of the  award at the  date of  grant,  eliminating  the  intrinsic  value
alternative allowed by SFAS No. 123. Generally, the approach to determining fair
value under the  original  pronouncement  has not  changed.  However,  there are
revisions to the  accounting  guidelines  established,  such as  accounting  for
forfeitures,  which will change our  accounting  for  stock-based  awards in the
future.

      SFAS No.  123(R)  must be  adopted in the first  interim or annual  period
beginning after December 15, 2005. The statement  allows  companies to adopt its
provisions using either of the following transition alternatives:

            (i)   The  modified   prospective  method,   which  results  in  the
                  recognition of compensation  expense using SFAS 123(R) for all
                  share-based  awards  granted after the effective  date and the
                  recognition  of  compensation  expense  using SFAS 123 for all
                  previously granted  share-based awards that remain unvested at
                  the effective date; or

            (ii)  The modified  retrospective  method, which results in applying
                  the modified prospective method and restating prior periods by
                  recognizing  the  financial  statement  impact of  share-based
                  payments in a manner  consistent with the pro forma disclosure
                  requirements  of SFAS  No.  123.  The  modified  retrospective
                  method  may be  applied  to all  prior  periods  presented  or
                  previously reported interim periods of the year of adoption.

      The Company  adopted SFAS No. 123(R) on January 1, 2006 using the modified
prospective method.  Because we previously accounted for share-based payments to
our employees using the intrinsic  value method,  our results of operations have
not included the recognition of  compensation  expense for the issuance of stock
option awards.  The Company  accelerated  the vesting of all  outstanding  stock
options to December 14, 2005. The impact of this  acceleration is illustrated in
Note A-13 to  financial  statements.  The  amount  of  expense  included  in the
pro-forma  income or expense  in Note A-13 to the  financial  statements,  which
would have been  recognized  in 2006 and through Mary 2007 is $185,000.  Had the
Company  applied  the  fair-value  criteria  established  by SFAS No.  123(R) to
previous stock option grants, the impact to our results of operations would have
approximated  the impact of applying SFAS No. 123,  which was a reduction to net
income  of  approximately   $770,000  before  acceleration  and  $955,000  after
acceleration in 2005,  $995,000 in 2004, and $1,018,000 in 2003. SFAS No. 123(R)
also   requires  the  benefits  of  tax   deductions  in  excess  of  recognized
compensation  cost to be reported as a  financing  cash flow,  rather than as an
operating cash flow as required under current literature.  This requirement will
reduce our net operating  cash inflows and increase our net financing cash flows
in periods after adoption. The impact that this change in reporting will have on
future periods cannot be determined at this time because the benefit  recognized
is dependent upon attributes that vary for each option exercise.

                                      F-13
<PAGE>

      In May 2005,  the FASB issued FAS No. 154.  "Accounting  Changes and Error
Corrections"  which  replaced  APB  Opinion  No.  20 and FASB  Statement  No. 3,
"Reporting Accounting Changes in Interim Financial Statements",  and changes the
requirements  for the  accounting  for and  reporting of a change in  accounting
principle  ("FAS No. 154").  This  statement  shall be effective for  accounting
changes and  corrections of errors made in fiscal years beginning after December
15,  2005.  FAS No. 154 requires  retrospective  application  to prior  periods'
financial  statements  of  changes  in  accounting   principle,   unless  it  is
impracticable to determine either the period-specific  effects or the cumulative
effect of the change.  This Statement defines  retrospective  application as the
application of a different  accounting  principle to prior accounting periods as
if that principle had always been used or as the adjustment of previously issued
financial  statements to reflect a change in the reporting  entity.  FAS No. 154
also requires that a change in depreciation,  amortization,  or depletion method
for long-lived,  non-financial assets be accounted for as a change in accounting
estimate  effected by a change in  accounting  principle.  The Company  does not
believe that the adoption of FAS No. 154 will have a  significant  effect on its
financial statements.

                                      F-14
<PAGE>


NOTE B - INVENTORY

          Inventory is comprised of the following:
                                                      December 31,  December 31,
                                                         2005          2004
                                                    -----------    -----------
   Raw Materials                                    $ 2,043,000    $ 2,189,000
   Work In Process                                    2,049,000      1,967,000
   Finished Goods                                       602,000        282,000
   Reserve for slow moving and obsolete inventory
                                                       (250,000)      (100,000)
                                                    -----------    -----------

                                                    $ 4,444,000    $ 4,338,000
                                                    ===========    ===========

NOTE C - PROPERTY, PLANT AND EQUIPMENT

         In April 2004, the Company executed an $85,000 note payable with
one of its manufacturing suppliers for the partial cost of a mold to
produce the pieces needed for the Company's OralStat product. The note is a
two-year note bearing a fixed interest rate of 5% paid monthly. The mold is
included in property, plant and equipment with a value of $115,000.

         Property, plant and equipment, at cost, are as follows:

                                                      December 31,  December 31,
                                                         2005          2004
                                                       ----------   ----------

   Land                                                $  102,000   $  102,000
   Buildings and improvements                           1,081,000    1,043,000
   Manufacturing and warehouse equipment
                                                        1,254,000    1,228,000
   Office equipment                                       350,000      333,000
                                                       ----------   ----------
                                                        2,787,000    2,706,000
   Less accumulated depreciation                        1,225,000      847,000
                                                       ----------   ----------
                                                       $1,562,000   $1,859,000
                                                       ==========   ==========

      Depreciation expense was $378,000 and $269,000 for the year ended December
31, 2005, and the year ended December 31, 2004, respectively.

                                      F-15
<PAGE>

     NOTE E - LONG TERM DEBT

              Long term debt at December 31, 2005 and December 31, 2004
consisted of the following:

<TABLE>
<CAPTION>
                                                                                                       December 31,     December 31,
                                                                                                           2005             2004
                                                                                                        ---------         ---------
   First Niagara Bank (formerly Hudson River Bank and Trust Co.): Mortgage
       payable in equal monthly installments of $3,209 including interest
       at 8.00% through January 1, 2012 with a final lump sum payment of
       $255,000 at maturity,
<S>                                                                                                     <C>              <C>
       collateralized by the building and land                                                          $ 327,000        $ 337,000
   New York Business Development Corporation: Mortgage payable in equal
       monthly installments of $1,996 including interest at 7.92% through
       January 1, 2012 with a final lump sum payment of $164,000 at
       maturity, collateralized by the building and land, equipment, and
       furniture and fixtures                                                                             218,000          224,000
   Columbia Economic Development Corporation:
       Mortgage payable in equal monthly installments of $1,159
       including interest at 3.00% collateralized by building and
       land through January 1, 2012                                                                        76,000           88,000
   Modern Mold and Tool:
   Note payable in equal monthly installments of $3,729 including interest
   at 5.00% uncollateralized through February 1, 2006
                                                                                                            7,000           51,000
                                                                                                        ---------        ---------
                                                                                                          628,000          700,000
                                                                                                        =========        =========
   Less current portion                                                                                   (36,000)         (71,000)
                                                                                                        ---------        ---------
   Non-current portion                                                                                  $ 592,000        $ 629,000
                                                                                                        =========        =========
</TABLE>

      At December 31, 2005,  the following are the  maturities of long-term debt
for each of the next five years:

                                      2006                  $      36,000
                                      2007                         31,000
                                      2008                         33,000
                                      2009                         35,000
                                      2010                         37,000
                                      Thereafter                  456,000
                                                         -----------------
                                                            $     628,000
                                                         =================

                                      F-16
<PAGE>

NOTE F - INCOME TAXES

      A  reconciliation  of the U.S.  Federal  statutory  income tax rate to the
effective income tax rate is as follows:


                                                      December 31,  December 31,
                                                         2005          2004
                                                       ----------   ----------
   Tax (benefit)/expense at federal statutory rate
                                                              34%           34%
   State tax  (benefit)/expense,  net of federal tax
   effect                                                      5             5
   Valuation allowance                                       (39)          (39)
                                                       ----------   ----------
   Effective income tax rate                                   0%            0%
                                                       ==========   ==========

      Significant  components  of  the  Company's  deferred  tax  assets  are as
follows:

                                                      December 31,  December 31,
                                                         2005          2004
                                                       ----------     ----------

   Inventory                                         $    29,000    $    28,000
   Inventory reserve                                      98,000         39,000
   Stock based compensation                               34,000        461,000
   Allowance for doubtful accounts                        41,000         41,000
   Property, plant, and equipment                       (216,000)      (171,000)
   Capital losses                                             --         46,000
   Accrued compensation                                   13,000             --
   Net operating loss carry-forward                    3,558,000      3,489,000
                                                     -----------    -----------
   Total gross deferred tax assets                     3,557,000      3,933,000
   Less valuation allowance                           (3,557,000)    (3,933,000)
                                                     -----------    -----------
   Net deferred tax assets                           $        --    $        --
                                                     ===========    ===========

      The  valuation  allowance  for deferred tax assets as of December 31, 2005
and 2004 was  $3,557,000  and  $3,933,000,  respectively.  The net change in the
valuation  allowance was a decrease of $376,000 for the year ended  December 31,
2005.

      At  December  31,  2005 the  Company  has  Federal  and New York state net
operating  loss  carry  forwards  for  income  tax  purposes  of   approximately
$9,122,000,  which begin to expire in 2009.  In assessing the  realizability  of
deferred tax assets,  management considers whether or not it is more likely than
not that some portion or all deferred tax assets will be realized.  The ultimate
realization  of deferred tax assets is dependent  upon the  generation of future
taxable income during the periods in which those  temporary  differences  become
deductible.  Management  considers the projected  future  taxable income and tax
planning strategies in making this assessment.

      The Company's  ability to utilize the operating loss carry forwards may be
subject to an annual limitation in future periods pursuant to Section 382 of the
Internal Revenue Code of 1986, as amended, if future changes in ownership occur.

                                      F-17
<PAGE>

NOTE G - OTHER INCOME

      Other  income for the years  ended 2005 and 2004 is  comprised  of amounts
earned from a grant of $100,000 received from the Columbia Economic  Development
Corporation during 2002, 2003 and 2005. The grant is convertible to a loan based
upon a percentage of the grant declining from 90% of the grant amount in 2003 to
0% in 2013.  The unearned  portion of the grant at December 31, 2005 is $70,000.
The  grant  is  convertible  to a loan  only  if the  employment  levels  in the
Kinderhook  facility  drop below 45 employees  at any time during the year.  The
employment levels in the Kinderhook facility were 75 and 74 at December 31, 2005
and 2004 respectively.

NOTE H - STOCKHOLDERS' EQUITY

[1]   Stock option plans:

      The Company  adopted the Fiscal 1997  Nonstatutory  Stock Option Plan (the
"1997 Plan"),  the Fiscal 1998 Nonstatutory  Plan (the "1998 Plan"),  the Fiscal
2000 Nonstatutory Stock Option Plan (the "2000 Plan"), and the 2001 Nonstatutory
Stock Option Plan (the "2001 Plan").  The 1997 Plan provides for the granting of
options to purchase up to 2,000,000  shares of common  stock,  the 1998 Plan and
the 2000 Plan  provide for the  granting of options to purchase up to  1,000,000
common  shares  each and the 2001 Plan  provides  for  granting  of  options  to
purchase up to 4,000,000  common  shares.  These Plans are  administered  by the
Compensation/Option  Committee of the Board of Directors,  which  determines the
terms of options  granted,  including the exercise  price,  the number of shares
subject to the option and the terms and conditions of exercise.  Options granted
under the 1997 and 1998 Plans have lives of 5 years and vest over periods from 0
to 4 years. Options granted under the 2000 and 2001 Plans have lives of 10 years
and vest over periods from 0 to 4 years.

[2]   Stock options:

      During the year ended  December  31, 2005,  the Company  issued a total of
307,000 options to purchase shares of common stock, of which 189,000 were issued
to employees and 118,000 were issued to Board members.

      Stock option activity is summarized as follows:

<TABLE>
<CAPTION>
                                                 Year Ended                   Year Ended
                                                December 31,                 December 31,
                                                    2005                         2004
                                      -------------------------------- -----------------------
                                                         Weighted                   Weighted
                                                          Average                    Average
                                                         Exercise                    Exercise
                                              Shares       Price         Shares       Price
                                             --------- ---------       ----------     -----
<S>                                          <C>                        <C>
Options outstanding at                       4,150,000                  4,722,000
beginning of year                                          $1.36                     $1.60
Granted                                        307,000     $0.91        1,022,000    $1.26
Exercised                                            0        NA          (62,000)   $0.85
Cancelled/expired                             (189,000)    $1.74       (1,532,000)   $2.08
                                             --------- ---------       ----------     -----
Options outstanding at end of year
                                             4,268,000     $1.31        4,150,000    $1.36
                                             ========= =========        =========    =====
Options exercisable
at end of year                               4,268,000     $1.31        2,707,000    $1.49
                                             ========= =========        =========    =====
</TABLE>


                                      F-18
<PAGE>

      The  following  table  presents  information  relating  to  stock  options
outstanding as of December 31, 2005:

<TABLE>
<CAPTION>

                                                 Options Outstanding                   Options Exercisable
                                              -----------------------------     ------------------------------
                                              Weighted           Weighted                            Weighted
                                              Average            Average                              Average
Range of Exercise                             Exercise          Remaining                            Exercise
      Price                  Shares            Price          Life in Years            Shares          Price
---------------         ----------------      --------        -------------     -----------------   ---------
<S>       <C>                  <C>              <C>                  <C>                <C>            <C>
  $0.85 - $0.99                1,317,000        $0.89                6.00               1,317,000      $0.89
  $1.00 - $1.49                1,773,000        $1.07                7.56               1,773,000      $1.07
  $1.50 - $1.99                  288,000        $1.65                7.01                 288,000      $1.65
  $2.00 - $3.50                  890,000        $2.31                4.00                 890,000      $2.31
                         ----------------                                       -----------------
      TOTAL                    4,268,000        $1.31                6.30               4,268,000      $1.31
                         ================                                       =================
</TABLE>


      As of December 31, 2003, there are no stock options available for issuance
under the 1997 or the 1998 Plan.  Pursuant to the plans, as of April 30, 2000 no
further options could be issued under the 1997 Plan and as of April 30, 2001, no
further  options could be issued under the 1998 Plan.  Therefore  under the 1997
and 1998 plans,  as options  expire or are  cancelled,  they are returned to the
plans without the  possibility  of being issued again.  As of December 31, 2005,
under the 1997  Plan,  1,230,625  options  have been  returned  to the plan as a
result of expirations or cancellations and will not be re-issued,  and under the
1998  Plan,  883,000  options  have  been  returned  to the plan as a result  of
expirations  or  cancellations  and will not be re-issued.  The 1997 plan has no
options  issued  and  outstanding  and  therefore  there  is  no  potential  for
additional dilution under this 1997 plan.

[3]   Warrants:

      In  connection  with our sale of 1,408,450  common  shares for  $2,000,000
($1.42 per share) in a private placement to Seaside Partners,  L.P.  ("Seaside")
on April 28,  2000,  we issued a 5-year  warrant to Seaside to purchase  953,283
common shares of our stock at an exercise price of $1.17 per share.  To settle a
penalty owed to Seaside because of a late effective registration  statement,  we
adjusted the exercise price of the 953,283 warrant shares from $1.17 to $0.95 in
February  2001. In November 2003, the Seaside  warrant was  transferred  and the
common shares  underlying the exercise of the warrants and respective rights and
obligations  under the Common Stock  Purchase  Agreement were assigned to Steven
Grodko  ("Grodko").  Throughout the fiscal year ending December 31, 2004, Grodko
exercised a total of 553,283 warrants, leaving a balance of 400,000 warrants. In
October 2005 the Company  entered into an Extension  Agreement and  registration
letter  agreement  with  Grodko in which the  Company  extended  the term of the
warrant.  The Grodko warrant will now expire on October 28, 2006. Grodko did not
exercise any additional warrants in 2005.

      On  May  2,  2001,  the  Company  issued  a  5  year  warrant  immediately
exercisable and  non-forfeitable,  to purchase 200,000 common shares of American
Bio Medica  Corporation  stock at an exercise  price of $1.50 per share to Brean
Murray & Co.,  Inc.  as  compensation  for its future  services  as a  financial
advisor to the  Company.  The warrants  were valued at $134,000  using the Black
Scholes  pricing  model and the  following  assumptions,  dividend  yield of 0%,
volatility of 95%, risk free interest rate 4.8% and expected life of 5 years and
has been  recorded as a charge to  operations  in the  transition  period ending
December 31, 2001. The closing price of American Bio Medica Corporation's common
shares on May 2,  2001,  as listed on The  National  Association  of  Securities
Dealers Automated Quotations ("NASDAQ") SmallCap Market, was $0.95 per share.

      On August 22, 2001, we issued  warrants  ("Private  Placement  Warrants"),
exercisable  during a 54 month period  beginning  February 22, 2002, to purchase
1,274,500  common shares of our stock at an exercise price of $1.05 per share in
connection with the private  placement of 2,549,000  shares of common stock (the
1,274,500  warrants issued in connection with the August 2001 private  placement
trade on the NASDAQ  SmallCap  Market and may be  hereafter  referred  to as the
"trading warrants").  We also issued, on August 22, 2001, warrants,  exercisable
during a 54 month period  beginning  February  22, 2002,  to purchase a total of
203,920 common shares of our stock at an exercise  price of $1.20 per share,  of
which  warrants to purchase  152,940 common shares were issued to Brean Murray &
Co., Inc. ("Brean Murray") as compensation for their services as placement agent
and  warrants  to purchase  12,745  common  shares were issued to Axiom  Capital
Management,  Inc.,  warrants  to  purchase  5,735  common  shares were issued to
Jeffrey Goldberg, warrants to purchase 16,250 common shares were issued to Barry
Zelin,  and warrants to purchase  16,250  common  shares were issued to David L.
Jordon,  each for their  services as sub-agents  of Brean Murray.  In the fiscal
year end December 31, 2004,  2,500 trading warrants were exercised and in fiscal
year end December 31, 2005 2,500  trading  warrants  were  exercised,  leaving a
balance of 1,269,500 trading warrants.

                                      F-19
<PAGE>

      On November 15, 2001,  the Company  issued a 4 year  warrant,  immediately
exercisable  and  non-forfeitable,  to purchase 20,000 common shares of American
Bio Medica  Corporation  stock at an exercise price of $1.00 per share to Hudson
River Bank & Trust  Company  (now First  Niagara  Bank) in  connection  with the
Company's purchase of its facility located in Kinderhook, New York. The warrants
are valued at $10,000  using the Black  Scholes  pricing model and the following
assumptions,  dividend  yield of 0.0%,  volatility of 90.8%,  risk free interest
rate of 5.1% and  expected  life of 5 years.  The closing  price of American Bio
Medica  Corporation  common shares on November 15, 2001, as listed on the NASDAQ
SmallCap Market,  was $0.85 per share.  This warrant was not exercised either in
whole, or in part, and it expired on November 15, 2005.

      On December 2, 2003,  we issued a 5 year warrant  immediately  exercisable
and  non-forfeitable,  to purchase 300,000 common shares at an exercise price of
$1.15 to Brean  Murray as  compensation  for its future  services as a financial
advisor to the Company.  In June 2004, we amended the December 2, 2003 Financial
Advisory Agreement with Brean Murray and Brean Murray surrendered 150,000 of the
300,000  warrants to purchase common stock. The warrants were valued at $281,000
using the Black Scholes  pricing model and the following  assumptions,  dividend
yield of 0.0%,  volatility  of 80.6%,  risk free interest rate 5.2% and expected
life of 5 years and $23,000 was recognized as a charge to operations in the year
ended  December 31, 2003.  The total value of these warrants was initially to be
charged ratably over twelve months from December 2003 through November 2004, the
term of the contract. An additional $70,000 was expensed in the first quarter of
2004.  However,  in conjunction  with the surrender of 150,000  warrants in June
2004,  ABMC and Brean Murray agreed that no further  services  would be provided
and all  remaining  expense  associated  with  the  valuation  of the  warrants,
$129,000,  was  recognized  during the quarter ended June 30, 2004.  The closing
price of American Bio Medica Corporation's common shares on December 2, 2003, as
listed on The NASDAQ SmallCap Market, was $1.33 per share.

NOTE I - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS

[1]   Operating leases:

      The Company leases office and  R&D/production  facilities  under operating
leases  expiring  through  August 2007. At December 31, 2005, the future minimum
rental payments under these operating  leases are $51,800 per year or $86,000 in
the aggregate.

      Rent expense was $53,000 for 2005 and $63,000 for 2004.

[2]   Employment agreements:

      In December 2005, the Company entered into new employment  agreements with
the Chief  Executive  Officer  and the Chief  Financial  Officer  providing  for
aggregate  annual  salaries of $341,000.  The agreement with the Chief Executive
Officer  provides  for a  $198,000  salary,  is  for a  term  of  one  year  and
automatically  renews unless either side gives  advance  notice of 60 days.  The
agreement with the Chief Financial Officer provides for a $143,000 salary is for
a term of one year and  automatically  renews  unless  either side gives advance
notice of 60 days.

                                      F-20
<PAGE>

[3]   Legal:

      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 J - RELATED PARTY DISCLOSURES

      During the fiscal years ended December 31, 2005 and December 31, 2004, the
Company  paid an aggregate  of $125,000  and  $113,000  respectively,  to Edmund
Jaskiewicz,  the Company's President and Chairman of the Board of Directors,  in
consideration  of his services as patent and  trademark  counsel to the Company,
services as a member of its Board of Directors,  and reimbursed expenses related
to same.

      During the fiscal  year ended  December  31,  2005,  the  Company  paid an
aggregate  of $151,000 to one of our vendors for  products  and  services.  This
amount was related to the vendor's  assembly of our products.  The spouse of our
Chief  Scientific  Officer owns 50% of this vendor,  which is a private company.
The amounts  paid to the vendor in fiscal year ended  December 31, 2004 were not
material,  as the vendor did not  provide us with the  assembly  services  noted
above in 2004.

NOTE K - FOURTH QUARTER ADJUSTMENTS

      During the fourth quarter of 2005 the Company  completed  modifications to
its oral fluids  product,  Oralstat,  and  introduced  the new technology to the
market.  In  response  to the  acceptance  of this newly  formatted  product all
remaining  components of Oralstat  that remained in inventory  were disposed of.
The value of this inventory was approximately $145,000.

      Also during the fourth  quarter the Company  introduced  its new  cassette
based  product  Rapid TOX. In response to this  introduction  and to  streamline
manufacturing by removing redundancies, the Company suspended offering its Rapid
TEC-2 and Rapid TEC-3  products.  Remaining  components in inventory,  valued at
approximately $45,000 were disposed of during the fourth quarter.

      The Company  increased its reserve for slow moving and obsolete  inventory
established in 2004 from $100,000 to $250,000 at the end of 2005.  This increase
is consistent with the increased  diversity of products  currently being offered
and sales dynamics,  including shifts to lower cost or substitute  products from
existing  products  resulting  in residual  stocks of inventory  components  for
products for which demand has declined.

      All of  these  adjustments  increased  cost of goods  sold  and  decreased
inventory  during the fourth  quarter and for the full year ending  December 31,
2005.

      Finally,  during the fourth  quarter the Company  issued  75,000 shares of
common stock to Barretto Pacific  Corporation,  an investment relations firm, to
provide investor relations services to the Company for one year. The shares were
valued at approximately $88,000 and were irrevocable.  This expense was included
in general and administrative expense in the fourth quarter of 2005.

                                      F-21
<PAGE>

NOTE L - GEOGRAPHIC INFORMATION

      Information  concerning net sales by principal  geographic  location is as
follows:

                                              Year ended            Year ended
                                             December 31,           December 31,
                                                 2005                   2004
                                            ----------------       -------------
          United States                         $ 11,897,000        $ 11,360,000
          North America (not                         602,000             621,000
          domestic)
          Europe                                     396,000             191,000
          Asia/Pacific Rim                            34,000              24,000
          South America                               86,000              45,000
                                            ----------------       -------------
                                                $ 13,015,000        $ 12,241,000
                                             ===============       =============