**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, 2007





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




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





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**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. xYesoNo




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).


o
      Yesx
      No





State
      issuer's revenues for its most recent fiscal year: $13,872,000





The
      aggregate market value of 18,298,113 voting Common Shares held by non-affiliates
      of the issuer was approximately $10,567,160 based on the average bid and asked
      prices of the issuer’s Common Shares, $.01 par value, as reported on the NASDAQ
      Capital Market on March 24, 2008.





As
      of
      March 24, 2008, the issuer had outstanding 21,744,768 Common Shares, $.01 par
      value.





Documents
      Incorporated by reference:





(1)
            The
                Proxy Statement for the Annual Meeting of Shareholders for the year
                ending
                December 31, 2007 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: o YESxN O









**American
      Bio Medica Corporation**





**Index
      to Annual Report on Form 10-KSB**


**For
      the fiscal year ended December 31, 2007**





**PAGE****PART
                I**Item
                1.
            
            Description
                of Business
            
            1Item
                2.
            
            Description
                of Property
            
            19Item
                3.
            
            Legal
                Proceedings
            
            19Item
                4.
            
            Submission
                of Matters to Vote of Security Holders
            
            19**PART
                II**Item
                5.
            
            Market
                for Common Equity, Related Stockholder Matters and Small Business
                Issuer
                Purchases of Equity Securities
            
            20Item
                6.
            
            Management’s
                Discussion and Analysis or Plan of Operations
            
            21Item
                7.
            
            Financial
                Statements
            
            27Item
                8.
            
            Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosure
            
            27Item
                8A(T)
            
            Controls
                and Procedures
            
            27Item
                8B.
            
            Other
                Information
            
            28**PART
                III**Item
                9.
            
            Directors,
                Executive Officers, Promoters and Control Persons andCorporate
                Governance; Compliance with Section 16(a) of the Exchange
                Act
            
            29Item
                10.
            
            Executive
                Compensation
            
            29Item
                11.
            
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Shareholder Matters
            
            29Item
                12.
            
            Certain
                Relationships and Related Transactions; and Director
                Independence
            
            29Item
                13.
            
            Exhibits
            
            29Item
                14.
            
            Principal
                Accountant Fees and Services
            
            32**Signatures**
            
            
            
            S-1







*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 12.*




**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.





**Our
      Business**





We
      develop, manufacture and sell immunoassay diagnostic test kits, primarily for
      the immediate, point of collection testing (“POCT”) for drugs of abuse in urine
      and oral fluids (saliva). Our drugs of abuse screening products offer employers,
      law enforcement, government, health care, laboratory and education
      professionals, self-contained, cost effective, user friendly screening devices
      capable of accurately identifying illicit drug use within minutes.





In
      addition to the manufacture and sale of drugs of abuse screening products,
      we
      provide contract strip manufacturing services for other POCT diagnostic
      companies. While we do not currently derive a significant portion of our
      revenues from contract manufacturing, we 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.





According
      to an industry report distributed by Life Science Intelligence in 2007, the
      global POCT market will experience dramatic growth from $10.3 billion in 2005
      to
      $18.7 billion by 2011. Our
      long-term objective is to provide an extensive product portfolio to this
      expanding POCT market.





**Our
      Products**





**Rapid
      Drug Screen** **Ò** **:** Our
      primary product line, the Rapid Drug Screen, or RDS® is a patented, rapid, POCT
      kit that detects the presence or absence of 2 to 10 drugs of abuse
      simultaneously in a single urine specimen. We offer a number of standard
      configurations of the RDS and we can also produce, on special order, or if
      a
      market demands, tests that can screen for any quantity (from 2 to 10) or
      configuration of classes of drugs.





The
      RDS
      detects the following classes of drugs: cocaine (available with a cutoff level
      of either 150 ng/ml or 300 ng/ml), THC (marijuana), opiates (available with
      a
      cutoff level of either 300 ng/ml or 2000 ng/ml), 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®, 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).




1





To
      use
      our RDS 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. A positive result is
      normally confirmed by laboratory testing. We believe that this ease of use
      is a
      competitive advantage over lab products, as well as products that require the
      addition of reagents, manipulation of the test device or the utilization of
      trained professionals to understand results.





There
      have been a number of studies that have reported on the RDS’s accuracy and
      reliability, including an independent study conducted by the Department of
      Health and Human Services (“DHHS”) in 1999 (the most current study conducted by
      the DHHS on this subject matter) which ranked the RDS 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.





One
      of
      the problems that may occur in POCT for drugs of abuse 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 oral fluid drug screens 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. We also
      offer our customers the option of including within the RDS, a test strip to
      detect adulterants in the urine sample (an adulterant is a substance added
      to a
      urine specimen in an attempt to “beat” a drug test).





**Rapid
      One®:** Our
      patented Rapid One product line consists of 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 RDS.
      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 those
      situations in which the person subject to substance abuse testing is known
      to
      use a specific drug. It can also be used to enhance a RDS by means of allowing
      screening of an additional drug. The Rapid One product line consists of the
      following classes of drugs: cocaine (available with a cutoff level of either
      150
      ng/ml or 300 ng/ml), THC, opiates (available with a cutoff level of either
      300
      ng/ml or 2000 ng/ml), amphetamine, PCP, benzodiazepines, methamphetamines,
      barbiturates, tricyclic antidepressants, methadone, oxycodone, MDMA (Ecstasy),
      propoxyphene and buprenorphine.





**Rapid
      TEC®:** The
      patented Rapid TEC contains one or two drug testing strips and each of these
      strips includes 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.





**OralStat®:** Our
      OralStat is a patent-pending, innovative POCT 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. The test requires no messy saliva collection or handling.
      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 THC.




2





**Rapid
      Reader®:** The
      Rapid
      Reader is a compact, portable device that 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 POCT for drugs of abuse. The Company believes
      that
      the Rapid Reader will enable us to secure the business of customers that would
      otherwise not use a point of collection test for drugs of abuse. Presently
      we
      offer three different models of the Rapid Reader to our customers, the 210
      and
      250, which are connected to a PC via a USB port, and the 710, which is a
      stand-alone device that does not require the connection to a PC. As of the
      date
      of this report, the Rapid Reader is the only FDA cleared drug interpretation
      and
      data management system on the market.





**RDS
      InCup®:** The RDS
      InCup is an all-inclusive point of collection test for drugs of abuse 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 Company offers a number of
      standard versions of the RDS InCup and we can custom manufacture any
      configuration or combination of 2 to 12 drugs per device. The RDS InCup is
      an
      extension of the Rapid Drug Screen line of tests using the same RDS test strips
      and offers customers a fast, accurate and easy method for determining the drug
      use status of an individual. We also offer the option of the inclusion of an
      adulterant test strip in this product line.





**Rapid
      TOX®:** The
      Rapid
      TOX is a cost effective drug screen in a horizontal cassette platform that
      simultaneously detects 2 to 10 drugs of abuse in a single urine specimen. The
      Rapid TOX uses the same drug testing strip that is in the Rapid TEC (see “Rapid
      TEC” on page 2). Rapid TOX can be used by pipetting (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 point of collection
      tests for drugs of abuse, provides accurate results within minutes in an
      inexpensive, easy to use format. In January 2007, we began offering the option
      of the inclusion of an adulterant test strip in this product line.





**OralStat
      EX:** We
      announced the official launch of the OralStat EX in February 2007. The OralStat
      EX is an oral fluid point of collection test that dramatically improves the
      limits of detection over other oral fluid tests on the market and was
      specifically designed to make both point of collection testing and confirmation
      testing simple. The OralStat EX is simple to perform and the results are ready
      to read within minutes. The OralStat EX collection swab has a volume indicator
      so that the correct sample volume is collected each time, ensuring optimal
      test
      performance. The oral fluid sample is expressed into a separate transportable
      bottle containing a buffer solution, and after the initial screen has been
      performed there is ample solution remaining to send to a laboratory for
      confirmation of non-negative test results. We shipped our first order of
      OralStat EX in January 2007. The OralStat EX is being well received by our
      customers.





**Rapid
      STATTM:** We
      launched the Rapid STAT in October 2007. The Rapid STAT is an oral fluid point
      of collection test that combines the incubation benefits of the OralStat (see
      OralStat on page 2) with the Rapid TOX (see Rapid TOX on this page) cassette
      product platform. The Rapid STAT also utilizes the same sample handling
      procedure of the OralStat EX (see OralStat EX on this page), thus maximizing
      drug recovery and providing a transport container for confirmation of positive
      results. The Rapid STAT provides faster test results, making it ideal for those
      market applications, such as roadside testing, in which portability and time
      is
      crucial. In addition to these added benefits, the Rapid STAT provides even
      lower
      THC testing sensitivity, making it unrivaled in the market. We shipped our
      first
      order of Rapid STAT in October 2007 and the product is being well received
      in
      our markets, especially those markets located outside of the United
      States.




3





**Rapid
      TOX CupTM:** We
      launched the Rapid TOX Cup in October 2007. The Rapid TOX Cup is an
      all-inclusive drug testing cup. The Rapid TOX Cup doesn’t require any
      manipulation of the device; the donor simply provides a sample in the cup.
      The
      larger cup allows for easier specimen collection. A temperature strip is affixed
      to the cup to ensure specimen integrity, with the option to add an adulterant
      test strip. Results obtained with the Rapid TOX Cup can also be photocopied
      for
      record keeping purposes. Its fully integrated design permits collection, testing
      and shipment for confirmation in one device. We shipped our first order of
      Rapid
      TOX Cup in October 2007. We began offering our customers the option of including
      an adulterant strip in this product line in February 2008. The Rapid TOX Cup
      is
      being well received by our customers, especially in the
      government/corrections/law enforcement market (see page 6), in which cost
      effectiveness is a primary concern.





**Other
      products**





In
      addition to the products we manufacture, we also distribute a number of point
      of
      collection tests that detect the presence or absence of adulterants, alcohol
      and
      nicotine. These tests are manufactured by unaffiliated third parties. Two of
      these products are sold under ABMC-owned trademarks; the Rapid AlcoTECTM alcohol
      test and the Rapid CheckTM test for adulterant. We do not derive a significant
      portion of our revenues from the sale of these products.




**Contract
      Manufacturing**





We
      provide bulk strip contract manufacturing services to a number of non-affiliated
      POCT diagnostic companies. Currently we manufacture test components for the
      detection of:





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


·
            HIV
                (Human Immunodeficiency Virus: the virus that causes
                AIDS)


·
            RSV
                (Respiratory Syncytial Virus: the most common cause of lower respiratory
                tract infections in children
                worldwide)


·
            Fetal
                amniotic membrane rupture


·
            Lactoferin:
                a protein with documented anti-viral, anti-microbial, and immune
                modulating/enhancing effects


·
            Fumonisins:
                environmental toxins produced by molds that grow on agricultural
                commodities in the field or during
                storage


·
            Aflatoxins:
                potent toxic, carcinogenic, mutagenic, immunosuppressive agents,
                produced
                as secondary metabolites on a variety of food
                products


·
            DON
                (deoxynivalenol): a type B trichothecene (a biological toxin) that
                occurs
                in grains such as wheat, barley, oats, rye, and maize, rice, sorghum.
                DON
                poisonings occur both in humans and farm
                animals


·
            Ige
                (Immunoglobulin E): One of five classes of immunoglobulins made by
                humans
                that seems to protect against invading
                parasites





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





4




**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 distributors. Our direct
      sales
      team consists of highly experienced and well-trained sales professionals with
      drugs of abuse testing experience, and our distributors are unaffiliated
      entities that resell our POCT devices either as a stand-alone product or as
      part
      of a service they provide to their customers.





As
      of the
      date of this report, our direct sales force consists of a vice president of
      sales & marketing, 6 regional sales managers, a director of government
      sales, 2 international sales directors and a staff of 5 inside sales
      representatives. They call on non-clinical accounts directly and support our
      worldwide distribution network. We also employ an assistant to the vice
      president of sales & marketing, a product manager, a marketing assistant, an
      inside sales manager, a national account trainer, a national account customer
      service representative and 4 customer service representatives. We 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-clinical domestic market distribution agreements with a number
      of distributors. The majority of these agreements do not allow the distributor
      to sell product that is competitive with our products, however a small number
      of
      our domestic distributors are allowed to sell a competitive product if certain
      minimum annual sales volume requirements of our products are met. The domestic
      distributors do not have exclusive rights to sell our products in any particular
      state or market within the United States. All of our domestic distribution
      agreements allow us to sell our products to other distributors within the United
      States.





We
      have
      also entered into non-domestic market distribution agreement with a number
      of
      foreign distributors. Some of these agreements are exclusive in that the
      distributor has been granted the exclusive right to sell our products in certain
      markets or territories outside the United States. When exclusive distribution
      rights have been granted, the distributor is not allowed to sell competitive
      products. When there are no exclusive rights granted, the non-domestic
      distributors may be allowed to sell competitive product if certain minimum
      annual sales volume requirements of our products are met non-domestic
      distribution agreement. The majority of our non-domestic distribution agreements
      are exclusive. Our domestic and non-domestic distribution agreements are
      generally cancelable by either the distributor or us, with or without cause,
      upon either 30 or 60 days written notice.





We
      will
      continue to recruit and utilize third party distributors in addition to selling
      directly in these markets and to key customers.





**Our
      Markets**





*Corporate/Workplace* **





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





·
            In
                their December 2004 report (the most recent reported related to this
                subject matter) titled “The Economic Costs of Drug Abuse in the United
                States”, the Office of National Drug Control Policy reported 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.




5




·
            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.




·
            According
                to the 2006 SAMHSA (Substance Abuse Mental Health Services Administration)
                National Survey on Drug Use and Health released in September 2007,
                most
                drug users are employed. Of the 17.9 million current illicit drug
                users
                aged 18 or older in 2006, 13.4 million, or 74.9% 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. Government 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
      the
      Government, Corrections and Law Enforcement 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.





·
            According
                to the Bureau of Justice Statistics (“BOJ”), the number of adults in the
                correctional population has been increasing. In 2006, over 7.3 million
                people in the United States were on probation, in jail or prison,
                or on
                parole. Of this 7.3 million people, approximately 2.3 million were
                inmates
                in federal and state prisons or local jails and just over 5 million
                were
                individuals on probation or parole.




·
            According
                to the BOJ, the number of arrests for drug abuse violations has also
                been
                increasing. In 2006 alone, there were approximately 1.9 million arrests
                for drug abuse violations.Drug
                abuse violationsare 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 non-narcotic drugs such as
                barbiturates.




·
            According
                to the Federal Bureau of Prisons, as of December 29, 2007, 53.6%
                of the
                federal prison population was sentenced as drug
                offenders.





A
      significant number of individuals on parole or probation, or within federal,
      state and local correctional facilities and jails, have one or more conditions
      to their sentence required by the court or probation agency which included
      periodic drug testing and substance abuse treatment. Our products are aimed
      at
      this and other similar markets.





6





*Rehabilitation
      Centers*





Our
      direct sales team and our network of distributors sell our products in the
      Rehabilitation Center 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 the International market. We
      have
      entered into distribution agreements (exclusive and non-exclusive) 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 31, 2007, we had 21 distributors or customers
      representing 29 foreign countries.




*Clinics,
      Physicians, and Hospitals*





The
      Clinic, Physician and Hospital market includes emergency rooms, physician
      offices, hospitals and clinics and rehabilitation facilities associated with
      hospitals. In March 2007, the Drug Abuse Warning Network (a public health
      surveillance system that monitors drug-related visits to hospital emergency
      department and drug-related deaths investigated by medical examiners and
      coroners) estimated that over 1.4 million emergency department visits were
      associated with drug misuse or abuse. Our products are ideal for this market
      as
      they provide accurate results when time is critical. In August 2006, we
      announced that we entered into a non-exclusive Supply Agreement with Nanogen
      (NASDAQ:NGEN) under which Nanogen will market our point of collection drug
      tests, under their own brand name, to customers in hospital-related markets.
      In
      October 2007, we shipped our first order of product to Nanogen and they launched
      the product in November 2007. As of the date of this report, it is too early
      to
      predict the impact that sales of this product will have on our sales in the
      Clinic, Physician and Hospital market.




*Educational
      Market*





According
      to the December 2007 University of Michigan Monitoring the Future study, 13%
      of
      8 th graders,
      28% of 10 th graders
      and 36% of 12 th graders
      had used an illicit drug within the 12 months prior to the study. Furthermore,
      the study reported that approximately half 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 implement testing programs due to their ease
      of
      use and immediate, accurate results.





In
      June
      2002, the Supreme Court ruled that public middle and high schools could 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 this decision aids schools in making the decision to implement
      a
      drug-testing program. We have not yet focused considerable sales and marketing
      efforts in the Educational market therefore sales in this market are currently
      minimal. The Company may expand its efforts in the future and derive more
      significant sales from this market in the future.





*Consumer/Over-the-Counter*





Our
      point
      of collection drug tests are not currently available for sale in this market,
      as
      we have not yet received the necessary marketing clearance from the Food and
      Drug Administration (“FDA”). In December 2003, FDA issued a revised draft
      guidance for manufacturers of drug abuse screening tests that updated two
      previous draft guidance documents published in November 2000 thereby clarifying
      current FDA thinking for both laboratory and non-laboratory (workplace, sports,
      insurance, and home) tests. As of the date of this report, there has not been
      any further revised draft guidance since December 2003. The Company continues
      to
      evaluate these draft guidelines to determine whether to obtain the required
      marketing clearance to sell in this market in the future.




7





*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 testing devices for drugs of
      abuse.





**Competition**





We
      compete on the following factors:




·
            pricing;




·
            quality
                of product;




·
            ease
                and user-friendliness of products;
                and




·
            customer
                and technical support services





*Pricing* :
      The
      pricing structure within the point of collection drug testing market is highly
      competitive and currently our products are cost competitive. Pricing pressures
      increase significantly when comparing our product pricing with the pricing
      of
      point of collection drug tests manufactured outside of the United States. In
      order to meet the price pressure caused primarily by these foreign manufacturers
      (see Risk Factor, “Cost Competitive” on page 14), ABMC continues to evaluate all
      aspects of its manufacturing and assembly processes to identify any areas of
      cost savings to improve gross margins, in addition to evaluating new, lower
      cost
      product alternatives for its customers. In fact, the Rapid TOX Cup was launched
      in 2007 to address these price pressures.





*Quality* :
      There
      have been a number of studies that have reported on the accuracy and reliability
      of ABMC products. A study was conducted by the Department of Health and Human
      Services in 1999 (as of the date of this report, this is still the most current
      government issued study) and in that study the RDS was ranked 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
      microanalytical techniques: GC, a separation technique, and MS, an
      identification technique. Another study conducted in 2003 on the Rapid One
      test
      for Oxycodone conducted by the Greater Los Angeles VA Healthcare System found
      that “only the.....Rapid One OXY test demonstrated 100% reliability.”





*Ease
      and user-friendliness:* Competitors’
      point of collection drug tests generally use a collection or delivery method
      different than our point of collection drug tests. Our urine based products
      do
      not require pipetting (dropping) of the specimen, adding or mixing of reagents
      or other manipulation of the device by the user (in fact, even our Rapid TOX
      (see page 3) product offers the option of dipping the test into the urine
      specimen rather than pipetting the specimen). In The Rosita Roadside Study
      conducted in Europe in 1999, the RDS products were ranked “Very Good” for user
      friendliness, the highest rating given to any of the products in the
      study.





*Customer
      and technical support:* Customer
      and technical support are becoming more important in the point of collection
      drug testing market as individuals being tested become more knowledgeable about
      how to “beat” a drug test. Questions related to test administration, drug cross
      reactivity, drug metabolism, and other such matters are becoming areas in which
      clarification is sometimes needed by customers using these devices. ABMC
      provides its customers with continuous customer and technical support 24 hours
      a
      day. Most of our competitors do not offer such service to their customers.




8





*Point
      of collection urine based drug tests*





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, including some
      manufacturers located outside of the United States.





*Point
      of Collection saliva based drug tests*





Competition
      to our point of collection saliva-based products come from point of collection
      tests developed by companies including, but not limited to OraSure Technologies,
      Inc. (“OraSure”) and Varian, 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 2) and laboratory tests are more expensive and it
      takes longer to receive the test results.





*Laboratory
      Testing*





Aside
      from point of collection tests offering immediate results, some of our
      competitors offer traditional laboratory testing, where a sample is sent to
      a
      laboratory for analysis. Laboratory-based testing is generally more expensive
      than point of collection testing and it takes longer to receive the test
      results.





*Hair
      Testing*





Some
      competitors offer hair testing where a hair sample is sent to a laboratory
      for
      analysis. This form of drug testing is also more expensive and it takes longer
      to receive the results. The detection period for hair testing is also quite
      limited in that it does not detect recent illicit drug usage.





*Rapid
      Reader Competition*





There
      are
      a number of companies with products that are competitive with our Rapid Reader
      device. 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**





Our
      facility in Kinderhook, New York houses assembly and packaging of our products
      in addition to the company’s administration. We continue to outsource the
      printing and manufacture of plastic components used in our products. We
      manufacture all of our own individual test strips and we manufacture test strips
      for unaffiliated third parties (see “Contract Manufacturing on page 4) at our
      R&D and bulk manufacturing facility in Logan Township, New Jersey. We
      contract with a third party for the manufacture of the Rapid Reader product.




9





**Patents
      and Trademark** **s/Licenses**





To
      date,
      we hold 25 patents related to the Rapid Drug Screen, Rapid One and OralStat
      products, including 4 U.S. design patents and 6 utility patents. We currently
      have 11 United States patent applications pending, and 5 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, InCup, Rapid AlcoTEC, Rapid Reader,
      Rapid TOX, our website domain and our corporate logos in the United States.
      We
      have 5 additional trademark applications pending in the United
      States.





On
      February 28, 2006, we entered into a non-exclusive Sublicense Agreement with
      an
      unaffiliated third party related to certain patents allowing us to expand our
      contract manufacturing operations. Under this Sublicense Agreement, we must
      pay
      a non-refundable fee of $175,000 over the course of 2 years, of which $75,000
      was paid in the first quarter of 2006 and $50,000 was paid in the first quarter
      of 2007. The remaining $50,000 was paid in the first quarter of 2008. We are
      also required to pay royalties for products we manufacture that fall within
      the
      scope of these patents. (See Note I[4] on page F-19)





On
      March
      29, 2006, we entered into a royalty agreement with Integrated Bio Technology
      Corporation (“IBC”). IBC is the owner of the RSV test and previously purchased
      the tests from ABMC for resale to IBC’s distributor, via a contract
      manufacturing agreement. At December 31, 2005, IBC had outstanding amounts
      due
      to ABMC totaling approximately $119,000. To address this outstanding balance,
      and to streamline the delivery of product to IBC’s distributor, we agreed to
      work directly with IBC’s distributor to receive orders, manufacture product and
      execute all invoicing and collection directly from the distributor. On January
      1, 2006, the Company began paying a royalty equal to 20% of total sales to
      IBC.
      We only pay 25% of royalties earned during the first two years, with the
      remaining 75% applied to amounts currently owed to ABMC by IBC. From the
      inception of the agreement with IBC through December 31, 2007, ABMC manufactured
      and sold approximately $912,000 of the RSV tests to IBC’s distributor. The
      royalties earned on these sales are approximately $182,000, of which $119,000
      has been applied to the prepaid royalty, leaving a zero balance due from IBC
      as
      of December 31, 2007.





**Research
      and Development**





Our
      R&D efforts are continually focused on enhancing and/or maintaining the
      performance and reliability of our drug testing strips. During 2007, our R&D
      team completed development of the OralStat EX, the Rapid STAT and the Rapid
      TOX
      Cup, as well as continuing to make enhancements to our OralStat point of
      collection test for drugs of abuse in oral fluids. The R&D team also
      continued the development process on contract manufacturing projects. Our
      R&D expenditures were $669,000 for the fiscal year ended December 31, 2007,
      compared to $606,000 ($25,000 of which was borne directly by a customer) for
      the
      fiscal year ended December 31, 2006 .





**Government
      Regulations**





The
      development, testing, manufacture and sale of our point of collection drugs
      test
      and possible additional testing devices for other substances or conditions,
      are
      subject to regulation by the United States and foreign regulatory agencies.
      Pursuant to the Federal Food, Drug, and Cosmetic Act, and associated
      regulations, FDA regulates the pre-clinical and clinical testing, manufacture,
      labeling, distribution and promotion of medical devices. If ABMC fails to comply
      with applicable requirements, we 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.




10





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.





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).





We
      have
      received 510(k) clearance for our:




·
            9
                panel RDS 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.




·
            Rapid
                TEC product line allowing ABMC to provide clinical customers with
                various
                configurations of 2 to 14 classes of drugs of abuse.




·
            Rapid
                Reader in July 2005. 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.




·
            Rapid
                TOX in May 2006. The clearance allows ABMC to provide the Rapid TOX
                to
                customers in clinical markets.




·
            Test
                for Cocaine at a detection level of 150 ng/ml in June 2006. ABMC
                had
                previously received clearance to detect Cocaine at 300 ng/ml. This
                new
                clearance allows ABMC to provide its customers in the clinical market
                with
                a more sensitive point of collection drug test for Cocaine as well
                as the
                original detection level of 300
                ng/ml.




·
            Test
                for Buprenorphine in August 2006. The clearance allows ABMC to provide
                the
                test for Buprenorphine to customers in the clinical
                market.





In
      October 2007, we filed 510(k) clearance applications for Methamphetamine,
      Amphetamine and MDMA at a detection level of 500 ng/ml (these drugs currently
      have active 510(k) clearances but at different detection levels) and an
      application for our new Rapid TOX Cup. As of the date of this report, we have
      not yet received clearance from FDA for these products.





ABMC
      has
      not yet submitted its OralStat or Rapid STAT to FDA for 510(k) clearance.
      Pending submission for FDA 510(k) clearance, the OralStat and Rapid STAT are
      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. As of the date of this report, no point of collection oral fluid
      test has received FDA 510(k) marketing clearance.





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, InCup 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, 2003
      compliance certification in August 2006 and in 2007 we received our ISO 9001,
      2000 compliance certification. We have also acquired the license to sell our
      RDS, Rapid One and Rapid TEC products in Canada. We have submitted for, and
      are
      currently awaiting the approval of Rapid TOX for CE certification in Europe
      and
      a license to sell the Rapid TOX product in Canada.




11





The
      Clinical Laboratory Improvement Amendments (CLIA) of 1988 established quality
      standards for laboratory testing to ensure the accuracy, reliability and
      timeliness of patient test results regardless of where the test was performed.
      As a result, those using CLIA waived tests are not subject to the more stringent
      and expensive requirements of moderate or high complexity laboratories. In
      2007,
      ABMC filed its initial application for a CLIA waiver for our Rapid Drug Screen,
      Rapid One and Rapid TOX point of collection drug test product lines. The waiver
      would apply to all 14 drugs that the Company’s tests currently detect, in
      addition to two different cut-off levels for its Opiate and Cocaine tests.
      CLIA
      waived tests are recognized by FDA to be so simple to use and so accurate that
      there is little risk of error. CLIA waived tests are the most widely used tests
      in the clinical market (hospitals and physicians), and are in-demand for
      occupational health markets. As of the date of this report, we have not yet
      received the CLIA waiver.





Due
      to
      the nature of the manufacture of our point of collection tests and the material
      used in such manufacture, ABMC does not incur any material costs or effects
      associated with compliance with environmental laws.




**Employees**





Currently,
      we have approximately 124 employees, of which 117 are full-time and 7 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 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. In the fiscal year end December 31, 2006, we reported net income
      of
      $196,000. Again in fiscal year ending December 31, 2007, we incurred a net
      loss
      of $990,000. As of December 31, 2007, we have an accumulated deficit of
      $14,388,000. 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.




12





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





We
      offer
      a number of point of collection tests for drugs of abuse that are sold in
      limited markets, and we currently derive most of our revenues from sales of
      our
      point of collection tests for drugs of abuse. Based upon actual results in
      2007
      and given current levels of operating expenses, we must achieve approximately
      $4.1 million in quarterly revenues to attain break-even results of operations.
      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 began selling our RDS and Rapid One point of collection tests
      for
      drugs of abuse in 1996 (later than most of our primary competitors). Achieving
      continued market acceptance for our drug tests requires substantial marketing
      efforts and the expenditure of significant funds to inform potential customers
      and distributors 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 Rapid TOX introduced
      in July 2005 and the OralStat EX, the Rapid STAT and the Rapid TOX Cup all
      introduced in 2007). We have no history upon which to base market or customer
      acceptance of these products. Introduction of these new products has required,
      and may continue to require substantial marketing efforts and expenditure of
      funds.





**If
      we fail to keep up with technological factors or 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. and
      Varian, 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.





**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 85 suppliers who provide us with the raw materials
      necessary to manufacture our point of collection drug testing strips and our
      point of collection tests for drugs of abuse. 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.




13





**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 $2.3 million in raw material components for the
      manufacture of our products at December 31, 2007. 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 $2.5 million in manufactured
      testing strips, or other “work in process” inventory at December 31, 2007. The
      components of this work in process inventory have lives of 12-24 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 12-24 months, if
      sales
      orders within the next 12-24 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. Beginning in 2004, we established a reserve for
      obsolete or slow moving inventory. In late 2005, we increased this reserve
      to
      $250,000. There can be no assurance that this reserve will be adequate for
      2008
      and/or that it will not have to be increased.





**We
      depend on our 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.





Due
      to
      the variety and complexity of the environments in which our customers operate,
      our products may not operate as expected, unanticipated problems may arise
      with
      respect to the technologies incorporated into our test kits or product defects
      affecting product performance may become apparent after commercial introduction
      of new test kits we put on the market. 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. Any of these issues 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.




One
      of
      our customers accounted for approximately 9.3% of the total sales of the Company
      for the fiscal year ended December 31, 2007. Although we have entered into
      a
      written purchase agreement with this customer, this customer does not have
      any
      minimum purchase obligations and could stop buying our products with 90 days
      notice. A reduction, delay or cancellation of orders from this customer or
      the
      loss of this customer could reduce the Company’s revenues and profits. The
      Company cannot provide assurance that this customer or any of its current
      customers will continue to place orders, that orders by existing customers
      will
      continue at current or historical levels or that the Company will be able to
      obtain orders from new customers.




14





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





We
      face
      competition from other manufacturers of point of collection tests for drugs
      of
      abuse. Manufacturers such as Varian, Inc., Medtox Scientific, Inc., Biosite
      Diagnostics and OraSure Technologies, Inc. are better known and some have far
      greater financial resources than us. In addition to these competitors there
      are
      a number of smaller privately held companies as well as foreign manufacturers
      that serve as our competitors. The markets for point of collection tests for
      drugs of abuse are highly competitive. Currently the pricing of our products
      is
      cost competitive, however competing on a cost basis against foreign
      manufacturers becomes more difficult as costs to produce our products in the
      United States continue to increase. Furthermore, some of our competitors can
      devote substantially more resources than we can to business development and
      they
      may adopt more aggressive pricing policies. 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, Martin Gould, Chief Scientific Officer
      and
      Todd Bailey, Vice President, Sales & Marketing for our future success. The
      loss of Messrs. Cipkowski, Gould and/or Bailey could negatively impact our
      business and results of operations. We currently maintain key man insurance
      for
      Messrs. Cipkowski and Gould. Although we have employment agreements in place
      with Messrs. Cipkowski and Gould 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:





·
            accurately
                estimate the number of employees we will require and the areas in
                which
                they will be required;




·
            upgrade
                and expand our office infrastructure so that it is appropriate for
                our
                level of activity;




·
            manage
                expansion into additional geographic areas;
                and




·
            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.




15


**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 point of collection drug tests have met FDA requirements for
        professional use, we have not obtained OTC clearance or a CLIA waiver from
        FDA.
        The workplace and government/corrections/law enforcement markets are currently
        our primary markets and if any additional FDA clearance is required to sell
        in
        these markets, 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(s) is/are
        not
        granted, we would be unable to sell our products in the workplace and/or
        government/corrections/law enforcement markets, and our revenues would be
        negatively impacted. Although we are currently unaware of any changes in
        regulatory standards related to any of our 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. Our 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 25 U.S. and
        foreign
        patents relating to the RDS, Rapid One and OralStat products. We have additional
        patent applications pending in the United States, and other countries, related
        to our point of collection drug tests. We have trademark applications pending
        in
        the United States. Certain trademarks have been registered in the United
        States
        and in other countries. There can be no assurance that the additional patents
        and/or trademarks will be granted or that, if granted, they will withstand
        challenge.
 
 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. 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.
 
 **Potential
        issuance and exercise of new options and warrants and exercise of outstanding
        options and warrants could adversely affect the value of our
        securities.**
 
 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 Notes H [1] and H [2] on page F-15). As of December 31, 2007, there
        were
        3,968,080 options issued and outstanding under all four plans combined. In
        the
        fiscal year ended December 31, 2005, the Company’s Board of Directors
        accelerated the vesting periods of all outstanding options not yet fully
        vested
        to vest 100% on December 14, 2005. As of December 31, 2007 3,968,080 options
        were exercisable. As of December 31, 2007, there were 9,500 options available
        for issuance under the Fiscal 2000 Plan and 739,420 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 either the Fiscal 1997 Plan or the Fiscal
        1998 Plan.
  16
 
 As
        of
        December 31, 2007, there were 150,000 warrants outstanding and exercisable.
        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
        these
        options or 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 options or 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 options and
        warrants would cause further dilution of our securities. The options and
        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 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,
        or in the case of the 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.
 
 **Substantial
        resale of restricted securities may depress the market price of our
        securities.**
 
 There
        are
        4,018,155 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’s financial statements for the fiscal year ended December 31, 2007 have
        been prepared assuming the Company will continue as a going concern. 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 such equity financing
        may result in further dilution to existing shareholders.
  17
 
 **Our
        ability to retain and attract market makers is important to the continued
        trading of our securities.**
 
 Our
        common shares trade on the NASDAQ Capital Market under the symbol “ABMC”. In the
        event that the market makers cease to function as such, public trading of
        our
        securities will be adversely affected or may cease entirely.
  **If
        we fail to meet the continued listing requirements of the NASDAQ Capital
        Market,
        our securities** **could
        be delisted.**
 
 Our
        securities are listed on the NASDAQ Capital Market. The NASDAQ Stock Market's
        Marketplace Rules impose requirements for companies listed on the NASDAQ
        Capital
        Market to maintain their listing status, including but not limited to 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 (“SEC”) on November 13, 2007). Continued failure to meet the
        minimum bid requirements may result in delisting of the Company’s
        securities.
 
 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 Capital Market would also make it more
        difficult for us to raise capital in the future. ****
 
 **We
        may incur significant increased costs as a result of operating as a public
        company, and our management will be required to** **devote** **substantial
        time to new compliance initiatives.**
 
 We
        may
        incur significant legal, accounting and other expenses as a result of our
        required compliance with certain regulations. More specifically, the
        Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act"), as well as new rules
        subsequently implemented by the SEC, have imposed various new requirements
        on
        public companies. Our management and other personnel will need to devote
        a
        substantial amount of time to these compliance initiatives. Moreover, these
        rules and regulations are expected to increase our legal and financial
        compliance costs and may make some activities more time-consuming and costly.
  The
        Sarbanes-Oxley Act requires, among other things, that we maintain effective
        internal controls for financial reporting and disclosure controls and
        procedures. In particular, in our fiscal year ended December 31, 2007,
        management was required to perform system and process evaluation and testing
        on
        the effectiveness of our internal controls over financial reporting, as required
        by Section 404 of the Sarbanes-Oxley Act. Commencing in our fiscal year ended
        December 31, 2008, our independent registered public accounting firm will
        report
        on the effectiveness of our internal controls over financial reporting, as
        required by Section 404 of the Sarbanes-Oxley Act.
  18
 
 Our
        testing, or the subsequent testing by our independent registered public
        accounting firm may reveal deficiencies in our internal controls over financial
        reporting that are deemed to be material weaknesses. Our compliance with
        Section
        404 may require that we incur substantial accounting expense and expend
        significant management efforts. We currently do not have an internal audit
        group, and we may need to hire additional accounting and financial staff
        with
        appropriate public company experience and technical accounting knowledge
        to
        ensure compliance with these regulations.
 
 Moreover,
        if we are not able to comply with the requirements of Section 404 in a timely
        manner, or if we or our independent registered public accounting firm identifies
        deficiencies in our internal controls over financial reporting that are deemed
        to be material weaknesses, the market price of our stock could decline, and
        we
        could be subject to sanctions or investigations by the SEC or other regulatory
        authorities, which would require additional financial and management
        resources.
 
 **ITEM
        2. DESCRIPTION OF P** **ROPERTY**
 
 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 Financial Group (“FNFG”)) 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 November 6, 2006, we
        refinanced our loans with these three entities and obtained a new loan through
        FNFG, in the amount of $775,000. In addition to the payoff of these previous
        loans, we received proceeds of $154,000 after closing costs and accrued
        interest, to be used to refinance other existing debt (See Current Report
        on
        Form 8-K filed with the SEC on November 9, 2006).
 
 In
        August
        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. In
        December 2006, we obtained an additional 5,200 square feet of leased space.
        The
        total monthly cost of the combined 14,400 square feet is $7,143.
 
 **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.
  19
 **PART
          II**
 
 **ITEM
        5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS
        ISSUER PURCHASES OF EQUITY SECURITIES**
 
 *Market
        Information*
 
 Our
        common shares trade on the National Association of Securities Dealers Automated
        Quotation System Capital Market (NASDAQ Capital Market) under the symbol
        ABMC.
 
 From
        January 1, 2006 through August 21, 2006 our common stock purchase warrants
        (“warrants”) traded on the NASDAQ Capital Market under the symbol ABMCW. The
        common stock purchase warrants expired on August 22, 2006 and ceased trading.
 
 The
        following table sets forth the high and low sale prices of our securities
        as
        reported by the NASDAQ Capital Market for the periods indicated.
  Common
        Shares
  Fiscal
                  year ending December 31, 2007
              
              High
              
              LowQuarter
                  ending December 31, 2007
              
              $
              1.00
              
              $
              0.36Quarter
                  ending September 30, 2007
              
              $
              1.43
              
              $
              0.94Quarter
                  ending June 30, 2007
              
              $
              1.31
              
              $
              0.90Quarter
                  ending March 31, 2007
              
              $
              1.33
              
              $
              0.89
  Fiscal
                  year ending December 31, 2006
              
              High
              
              LowQuarter
                  ending December 31, 2006
              
              $
              0.99
              
              $
              0.87Quarter
                  ending September 30, 2006
              
              $
              1.03
              
              $
              0.85Quarter
                  ending June 30, 2006
              
              $
              1.17
              
              $
              0.87Quarter
                  ending March 31, 2006
              
              $
              1.15
              
              $
              0.87
 
 Warrants
 
 Fiscal
                  year ending December 31, 2006
              
              High
              
              LowQuarter
                  ending December 31, 2006
              
              
              NA
              
              
              NAQuarter
                  ending September 30, 2006(1)
              
              $
              0.17
              
              $
              0.01Quarter
                  ending June 30, 2006
              
              $
              1.00
              
              $
              0.03Quarter
                  ending March 31, 2006
              
              $
              0.40
              
              $
              0.03
  (1)
                Notes
                    trading July 1, 2006 through August 21, 2006. Common stock purchase
                    warrants that had been trading expired on August 22, 2006. Actual
                    last
                    date of trading due to expiration was August 17,
                    2006.
 *Holders*
 
 As
        of
        March 24, 2008, there were approximately 4,500 holders of our securities.
        As of
        March 24, 2008, there were outstanding 21,744,768 common shares.
  20
 
 *Dividends*
 
 The
        Company has not declared any dividends on our common shares and does not
        expect
        to do so in the foreseeable future. Future earnings, if any, will be retained
        for use in the Company's business.
 
 *Securities
        authorized for issuance under equity compensation plans*
 
 The
        Board
        of Directors of the Company has adopted 4 Nonstatutory Stock Option Plans
        that
        have subsequently been approved by the shareholders, providing for the granting
        of options to employees, directors, and consultants. As of December 31, 2007,
        there were 3,968,080 options issued and outstanding under all four plans
        combined. As of December 31, 2007, there were 748,920 options available for
        issuance under the plans.
 
 On
        December 2, 2003, under a Financial Advisory Agreement, the Company issued
        a 5
        year warrant to purchase 150,000 common shares of ABMC stock at an exercise
        price of $1.15 to Brean Murray & Co.
 
 The
        following table summarizes this information as of December 31, 2007, with
        respect to compensation plans (including individual compensation arrangements)
        under which our common stock is authorized for issuance:
 
 Plan
                  Category
              
              Number
                  of securities to be issued upon exercise of outstanding
                  options,
                warrants
                  and rights
              
              Weighted-average
                  exercise price of outstanding options,
                warrants
                  and rights
              
              Number
                  of securities remaining available for future issuance
                under
                  equity compensation plans (excluding securities
                reflected
                  in column (a))(a)
              
              (b)
              
              (c)Equity
                  Compensation Plans approved by security holders
              
              
              3,968,080
              
              $
              1.32
              
              
              748,920Equity
                  Compensation Plans not approved by security holders
              
              
              150,000
              
              $
              1.15
              
              
              NA
  **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 SEC 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.*
  21
  **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.
 
 In
        December 2004, the FASB issued SFAS No. 123 (revised 2004), *Share-Based
        Payment,* (“SFAS No. 123(R)”), which amended SFAS No. 123, *Accounting
        for Stock-Based Compensation* ,
        (“SFAS
        No. 123”) *,* and
        superseded APB Opinion No. 25, *Accounting
        for Stock Issued to Employees.* SFAS No. 123(R) required 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. We adopted
        SFAS No. 123(R) on January 1, 2006.
 
 On
        December 14, 2005, the Company accelerated the vesting date of all outstanding
        stock options issued prior to that date that were not yet fully vested, to
        that
        date.
  SFAS No. 123(R)
        also required 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
        may
        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.
  22
 
 **Results
        of operations for the twelve months ended December 31, 2007 as compared to
        the
        twelve months ended December 31, 2006**
 
 Net
        sales
        increased to $13,872,000 million for the twelve months ended December 31,
        2007,
        compared to $13,838,000 million for the twelve months ended December 31,
        2006,
        representing an increase of $34,000 or less than 1%. The slight increase
        is
        attributable to increases in national account and international sales, which
        were offset by decreases in criminal justice and contract manufacturing sales.
 
 The
        decrease in criminal justice sales is a result of price pressure in the market
        due to competition with foreign manufacturers. To address this issue, the
        Company launched the Rapid TOX Cup in October 2007 to provide criminal justice
        customers with a lower cost alternative in an all-inclusive cup format. The
        Company anticipates the Rapid TOX Cup to have a positive impact on its criminal
        justice sales in 2008. Contract manufacturing sales contributed $357,000,
        or
        2.6% of net sales in 2007 compared to $824,000, or 6% of net sales in 2006.
        This
        decrease in contract manufacturing sales is primarily a result of timing
        of the
        receipt of orders from the Company’s RSV contract manufacturing customer. The
        Company does not expect this decline in contract manufacturing sales to
        continue.
 
 During
        the twelve months ended December 31, 2007, 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 Rapid TOX. To further
        enhance the Company’s portfolio of products and to continue to meet the market
        needs for alternative tests and test methods, in 2007 we launched 3 new
        products, the OralStat EX, the Rapid STAT and the Rapid TOX Cup. In October
        2007, we also submitted two 510(k) clearance applications; one for an additional
        detection level in our methamphetamine, amphetamine and MDMA tests and one
        for
        our Rapid TOX Cup.
 
 Cost
        of
        goods sold for the twelve months ended December 31, 2007 were $8,141,000,
        or
        58.7% of net sales compared to $7,035,000, or 50.8% of net sales for the
        twelve
        months ended December 31, 2006. The increase in cost of goods sold is due
        to
        increases in the average cost of labor and overhead during 2007, stemming
        from
        the greater diversity and complexity of new products as well as increases
        in
        some materials costs. Also affecting cost of goods sold in the twelve months
        ended December 31, 2007 are disposals of certain inventory components
        manufactured during the introduction of the new Rapid TOX product in the
        fourth
        quarter of 2005, inventory disposals of expired products, and disposals of
        components as a result of product improvements. The Company has a reserve
        of
        $250,000 for slow moving and obsolete inventory and the Company believes
        this
        reserve is currently adequate.
 
 Operating
        expenses for the fiscal year ended December 31, 2007 remained relatively
        unchanged, increasing $35,000, or less than 1%, to $6,587,000, or 47.5% of
        net
        sales compared to $6,552,000, or 47.3% of net sales for the fiscal year ended
        December 31, 2006. Increases of $63,000 in research and development and $206,000
        in general and administrative expenses were off set by a decrease of $234,000
        in
        selling and marketing expenses.
 
 The
        Company earned other income equal to $10,000 in 2007 attributable to a grant,
        having also earned $10,000 in 2002, 2003, 2005 and 2006. 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, to 70% in 2005, to 60% in 2006 and to 50% in 2007,
        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
        2007
        or 2006. This other income was offset by a loss of $1,000 on disposal of
        computer equipment in 2007.
  23
 
 Research
        and development (“R&D”)
 
 R&D
        expenses for the twelve months ended December 31, 2007 were $669,000, or
        4.8% of
        net sales compared to $606,000, or 4.4% of net sales at December 31, 2006.
        This
        represents an increase of $63,000 or 10.4%. The increase in research and
        development expense was as a result of increases in salaries and facilities’
costs offset partially by savings in consulting fees and compliance costs.
        Further, in the twelve months ended December 31, 2006, the Company received
        $25,000 for an initial evaluation of its manufacture of products for Nanogen,
        Inc., whom we entered into a supply agreement with in August 2006. This $25,000
        was included as a reduction of expense in R&D during 2006; this was
        non-recurring in 2007. In 2007, the R&D group focused on: the final
        development of the OralStat EX, the Rapid STAT and the Rapid TOX Cup as well
        as
        finalizing development of tests for new detection levels of methamphetamine,
        amphetamine and MDMA, and evaluating several new contract manufacturing
        opportunities.
 
 Selling
        and marketing
 
 Selling
        and marketing expenses were $3,091,000 or 22.3% of net sales in 2007 compared
        to
        $3,325,000, or 24.0% of net sales in 2006, a decrease of $234,000, or 7.0%.
        The
        savings in selling and marketing expenses is primarily a result of savings
        in
        salary and royalty expenses, which were offset by increases in commission
        expense, and advertising and trade show expense. In late 2006, the Company’s
        regional sales staff was diminished due to attrition and some planned
        reductions; the number of regional sales staff did not increase in 2007.
        The
        Company’s intention is to increase the number of individuals in its inside sales
        group to focus on developing more smaller workplace customers, although the
        number of individuals in its inside sales group didn’t increase at the end of
        year ended December 31, 2007 from the year ended December 31, 2006. As of
        December 31, 2007, the Company employed 15 sales professionals in total,
        comprised of a vice president of sales & marketing, 6 regional sales
        representatives, 1 director of government sales, 5 inside sales representative
        and 2 international sales representatives.
  General
        and administrative
  General
        and administrative expenses were $2,827,000, or 20.4% of net sales in 2007
        compared to $2,621,000, or 18.9% of net sales in 2006, representing an increase
        of $206,000 or 7.9%. The increase in general and administrative expense is
        primary as a result of increases in regulatory consulting costs associated
        with
        our application for a CLIA waiver for our products, along with increases
        in
        investor relations expense and salaries which were offset by savings in outside
        service fees, and communication costs.
 
 Non-cash
        compensation in 2007 and 2006 stems from the amortization of expense of options
        issued to two employees in 2006, the Company’s former Chief Financial Officer
        and the Vice President of Product Development. Non-cash compensation totaled
        $26,000 in 2007 and $37,000 in 2006.
 
 Management
        believes that the amount of research and development, selling and marketing
        and
        general and administrative costs may increase as the Company creates the
        necessary infrastructure to continue: to develop new products and enhance
        its
        current products to meet the changing needs of the point of collection testing
        markets, to grow our contract manufacturing operations, promote our products
        in
        our markets, and to institute changes necessary to comply with various new
        public company reporting requirements including but not limited to requirements
        related to internal controls over financial reporting.
 
 **LIQUIDITY
        AND CAPITAL RESOURCES AS OF DECEMBER 31, 2007**
 
 The
        Company's cash requirements depend on numerous factors, including product
        development activities, penetration of the direct sales market, market
        acceptance of our new products, and effective management of inventory levels
        in
        response to sales forecasts. The Company expects to devote capital resources
        to
        continue 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’s
        financial statements for the fiscal year ended December 31, 2007 have been
        prepared assuming the Company will continue as a going concern. The Company
        believes that our 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.
  24
 
 The
        Company’s working capital decreased $839,000 to $4,017,000 at December 31, 2007,
        compared to $4,856,000 million at December 31, 2006. The Company has
        historically satisfied net working capital requirements through cash from
        operations and occasional proceeds from the exercise of stock options and
        warrants (approximately $623,000 since 2002). The last private placement
        of
        equity securities with institutional investors took place in August 2001.
        Net
        loss of $990,000 in 2007 compared to net income of $196,000 in 2006, together
        with increases in accounts receivable, prepaid expenses, and decrease in
        accrued
        expenses were offset by an increase in accounts payable and wages payable,
        resulting in cash used in operations of $605,000 for the twelve months ending
        December 31, 2007. The primary uses of cash in 2007 were the purchase of
        inventory components and approximately $706,000 of property, plant and
        equipment. 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, 2007 and December 31, 2006, the Company had cash and cash
        equivalents of $336,000 and $641,000 respectively. In addition, the Company
        has a revolving line of credit in the maximum amount of $875,000 with First
        Niagara Financial Group, Inc. ("FNFG"). The line is not to exceed 70% of
        accounts receivable less than 60 days. The purpose of the line of credit
        is to
        provide working capital. The
        interest rate is .25% above the FNFG prime rate. The Company is required
        to
        maintain certain financial covenants such as net worth (stockholders’ equity)
        greater than $5 million and working capital greater than $4 million. Further,
        the Company is required to maintain a minimum Debt Service Coverage Ratio
        of not
        less than 1.2:1.0 measured at each fiscal year end beginning December 31,
        2006.
        Debt Service Coverage Ratio is defined as Net Operating Income divided by
        annual
        principal and interest payments on all loans relating to subject property.
        The
        Company meets the stockholder’s equity and working capital financial covenants
        as of December 31, 2007 however at December 31, 2007, we did not meet the
        Debt
        Service Coverage Ratio covenant. There is no requirement for annual repayment
        of
        all principal on this line of credit; it is payable on demand at any time.
        The
        amount outstanding on this line of credit was $690,000 at December 31, 2007
        and
        $164,000 at December 31, 2006.
 
 The
        Company obtained an additional line of credit from FNFG for $75,000 during
        the
        first quarter of 2006. The line of credit is to be used exclusively for payments
        on a sublicense agreement entered into during the first quarter of 2006.
        The
        interest rate is .50% above the FNFG prime rate and principal may be repaid
        at
        any time and borrowed again as needed. There is no requirement for repayment
        of
        all principal annually on this line of credit. The amounts outstanding on
        this
        line of credit at December 31, 2007 were $33,000 and $12,000 at December
        31,
        2006. Both lines are 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.
 
 On
        November 6, 2006, the Company closed on a real estate mortgage refinancing
        related to its facility in Kinderhook, New York. The new loan through First
        Niagara Financial Group (“FNFG”) is in the amount of $775,000 and has a term of
        ten (10) years with a twenty (20) year amortization. The interest rate is
        fixed
        at 7.50% for the first five (5) years. Beginning with year six (6) and through
        the end of the loan term, the rate changes to 2% above the Federal Home Loan
        Bank of New York five (5) year term, fifteen (15) year Amortization Advances
        Rate. The loan is collateralized by the Company's 30,000 square foot facility
        in
        Kinderhook, New York and its personal property. The Company's monthly payment
        is
        $6,293 and payments commenced on January 1, 2007, with the final payment
        being
        due on December 1, 2016. The Company received proceeds of $154,000 after
        closing
        costs and accrued interest, the balance being a refinance of existing debt.
        The
        cash received was for improvements to the Kinderhook, New York property,
        including repaving of the driveway and parking lot and replacing the roof.
  25
 
 Prior
        to
        this refinancing, the Company financed the acquisition of its Kinderhook,
        New
        York facility through a real estate mortgage loan with FNFG, a real estate
        mortgage loan with New York Business Development Corporation (“NYBDC”), and a
        real estate mortgage loan with Columbia Economic Development Corporation
        (“CEDC”). All three of these mortgage loans were paid in full as part of this
        refinancing.
 
 On
        January 22, 2007, the Company entered into a Term Note (the “Note”) with FNFG in
        the amount of $539,000. The term of the note is five (5) years with a fixed
        interest rate of 7.17%. The Company's monthly payment is $10,714 and payments
        commenced on February 1, 2007, with the final payment being due on January
        1,
        2012. The Company has the option of prepaying the Note in full or in part
        at any
        time during the term without penalty. There were no closing costs associated
        with this Note. The loan is secured by Company assets now owned or to be
        acquired. The
        amount outstanding on this Note was $455,000 at December 31, 2007.
 
 The
        Company received proceeds of $23,000 from the exercise of options during
        2007.
 
 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 2004, the FASB issued FAS No. 123 (revised 2004), "Share-Based
        Payment", ("FAS No. 123(R)"), which amended FAS No. 123, "Accounting for
        Stock-Based Compensation", and superseded APB Opinion No. 25, "Accounting
        for
        Stock Issued to Employees". FAS No. 123(R) required 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 FAS No. 123. FAS No. 123(R) required adoption in the
        first interim or annual period beginning after December 15, 2005. The statement
        allowed companies to adopt its provisions using either the modified prospective
        method or the modified retrospective method. ABMC adopted FAS 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. On December
        14,
        2005 the Company accelerated the vesting of all outstanding stock options
        that
        were not yet fully vested, to that date. Options granted to two employees
        during
        the second quarter of 2006 were accounted for in accordance with FAS No.
        123(R).
        FAS 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 may 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.
  26
 
 In
        June
        2006, the FASB issued FIN 48, “Accounting for Uncertainty in Income Taxes—an
        Interpretation of FASB Statement No. 109”. This Interpretation clarified the
        accounting for uncertainty in income taxes recognized in an enterprise’s
        financial statements in accordance with FASB Statement No. 109, “Accounting for
        Income Taxes” *.* The
        Company adopted FIN48 on January 1, 2007 and it did not have a significant
        effect on its financial statements.
 
 In
        September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS No.
        157”). SFAS No. 157 established a common definition for fair value to be applied
        to U.S. GAAP guidance requiring use of fair value, established a framework
        for
        measuring fair value, and expanded disclosure about such fair value
        measurements. This Statement is effective for fiscal years beginning after
        November 15, 2007, and interim periods within those fiscal years. The Company
        does not believe that the adoption of FAS No. 157 will have a significant
        effect
        on its financial statements.
 
 In
        February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
        Financial Assets and Financial Liabilities Including an Amendment of SFAS
        No.
        115 ” (SFAS No. 159). This new standard permits entities to choose to measure
        many financial instruments and certain warranty and insurance contracts at
        fair
        value on a contract-by-contract basis. This standard is effective for fiscal
        years beginning after November 15, 2007. While the Company is currently
        evaluating the provisions of SFAS No. 159, the Company does not expect the
        adoption of this statement to have a material impact on its consolidated
        financial statements.
 
 In
        December 2007, the FASB issued SFAS No. 141(R), “Business Combinations,” and
        SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements.”
Effective for the Company as of January 1, 2009, SFAS No. 141(R) requires
        the
        acquiring entity in a business combination to recognize all (and only) the
        assets acquired and liabilities assumed in the transaction; establishes the
        acquisition-date fair value as the measurement objective for all assets acquired
        and liabilities assumed; and requires the acquirer to disclose to investors
        and
        other users all of the information they need to evaluate and understand the
        nature and financial effect of the business combination. SFAS No. 160 requires
        all entities to report noncontrolling (minority) interests in subsidiaries
        as
        equity in the consolidated financial statements. Moreover, SFAS No. 160
        eliminates the diversity that currently exists in accounting for transactions
        between an entity and noncontrolling interests by requiring they be treated
        as
        equity transactions. Management is evaluating the impact of adopting SFAS
        No.
        141(R) and SFAS No. 160, if any, on the Company’s financial
        statements.
 
 **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**
 
 None.
 
 **ITEM
        8A(T)**  **CONTROLS
        AND PROCEDURES**
 
 *Evaluation
        of Disclosure Controls and Procedures*
  Management
        has reviewed the effectiveness of our "disclosure controls and procedures"
        (as
        defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e))
        as
        of the end of the period covered by this report and have concluded that the
        disclosure controls and procedures are effective to ensure that material
        information relating to the Company is recorded, processed, summarized, and
        reported in a timely manner.
  27
 
 *Changes
        in Internal Control Over Financial Reporting*
 
 There
        have been no changes in the Company's internal control over financial reporting
        during the last quarterly period covered by this report that have materially
        affected, or are reasonably likely to materially affect, the Company's internal
        control over financial reporting.
 
 *Management’s
        Report on Internal Control Over Financial Reporting*
 
 Management
        is responsible for establishing and maintaining adequate internal control
        over
        financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the
        Securities Exchange Act of 1934, as amended. The Company’s internal control over
        financial reporting is designed to provide reasonable assurance regarding
        the
        reliability of financial reporting and the preparation of financial statements
        for external purposes in accordance with generally accepted accounting
        principles. The Company’s internal control over financial reporting includes
        those policies and procedures that:
 
 (i)
        pertain to the maintenance of records that, in reasonable detail, accurately
        and
        fairly reflect the transactions and dispositions of the assets of the
        Company;
 
 (ii)
        provide reasonable assurance that transactions are recorded as necessary
        to
        permit preparation of financial statements in accordance with generally accepted
        accounting principles, and that receipts and expenditures of the Company
        are
        being made only in accordance with authorization of Management; and
 
 (iii)
        provide reasonable assurance regarding prevention or timely detection of
        unauthorized acquisition, use or disposition of the Company’s assets that could
        have a material effect on the financial statements.
 
 Because
        of inherent limitations, internal control over financial reporting may not
        prevent or detect misstatements. Also, projections of any evaluation of
        effectiveness to future periods are subject to risk that controls may become
        inadequate because of changes in conditions, or the degree of compliance
        may
        deteriorate.
 
 Management
        assessed the effectiveness of the Company’s internal control over financial
        reporting as of December 31, 2007. In making this assessment, management
        used
        the criteria set forth by the Committee of Sponsoring Organization of the
        Treadway Commission (COSO) in Internal Control-Integrated Framework. Based
        on
        that assessment, Management has concluded that the Company’s internal control
        over financial reporting was effective as of December 31, 2007.
 
 This
        Form
        10-KSB does not include an attestation report of the Company's registered
        public
        accounting firm regarding internal control over financial reporting.
        Management's report was not subject to attestation by the company's registered
        public accounting firm pursuant to temporary rules of the Securities and
        Exchange **** Commission
        that permit the Company to provide only Management's report in this annual
        report.
 
 **ITEM
        8B. OTHER INFORMATION**
 
 None.
 
 28




**PART
      III**





**ITEM
              9.**
            **DIRECTORS,
                EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERNANCE;
                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, 2007, under the captions “Discussion of Proposal Recommended by
      Board”, “Directors that are not Nominees”, “Additional Executive Officers and
      Senior Management”, “Section 16(a) Beneficial Ownership Reporting Compliance”,
“Code of Ethics”, “Audit Committee” and “Audit Committee Financial Expert” 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 Shareholders for the fiscal year ending
      December 31, 2007, 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 within Item 5. **** Market
      for Common Equity and Related Stockholders Matters earlier in this Annual Report
      on Form 10-KSB and in our definitive Proxy Statement with respect to the Annual
      Meeting of Shareholders for the fiscal year ending December 31, 2007, under
      the
      caption “Security Ownership of Management and Certain Beneficial Owners” and is
      incorporated herein by reference.





**ITEM
              12.**
            **CERTAIN
                RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
                INDEPENDENCE**




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, 2007, under the caption “Certain Relationships and Related
      Transactions” and “Independent Directors”, and is incorporated herein by
      reference.





**ITEM
              13.**
            **EXHIBITS**





(a)
            Exhibits





**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)




29


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 Grodko4.19
            
            Registration
                Letter Agreement by and between the Company and Steven
                Grodko10.3
            
            Term
                Note with First Niagara Bank(11)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)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(12)10.24
            
            Employment
                contract between the Company and Keith E. Palmer(12)10.25
            
            Amendment
                No 4 dated October 9, 2006/Lease of New Jersey facility(13)




30





10.26
            
            Amendment
                No. 5 dated January 19, 2007/Lease of New Jersey facility(13)10.27
            
            Employment
                contract between the Company and Stan Cipkowski(a)(14)10.28
            
            Employment
                contract between the Company and Martin Gould(a)(14)10.29
            
            Employment
                contract between the Company and Keith E. Palmer(a)(14)10.30
            
            Employment
                contract between the Company and Stefan Parker(a)(15)31.1
            
            Rule
                13a-14(a)/15d-14(a) Certification of the Chief Executive
                Officer31.2
            
            Rule
                13a-14(a)/15d-14(a) Certification of the Chief Financial
                Officer32.1
            
            Section
                1350 Certification of the Chief Executive Officer32.2
            
            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.
 
 (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.
 
 (11)
                  Filed
                      as the exhibit number listed to the Company’s Form 8-K filed on January
                      24, 2007 and incorporated herein by
                      reference.
 
 (12)
              Filed
                  as the exhibit number listed to the Company’s Form 10-KSB filed on March
                  31, 2006 and incorporated herein by
                  reference.
 
 (13)
              Filed
                  as the exhibit number listed to the Company’s Form 10-KSB filed on March
                  29, 2007 and incorporated herein by reference.
 
 (14)
              Filed
                  as the exhibit number listed to the Company’s Form 10-QSB filed on August
                  13, 2007 and incorporated herein by
                  reference.
 
 (15)
              Filed
                  as the exhibit number listed to the Company’s Form 8-K filed on August 24,
                  2007 and incorporated herein by
                  reference.




31




**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, 2007, under the caption “Independent Public Accountants”, and is
      incorporated herein by reference.




32


**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 CORPORATIONBy
            /s/ 
Stefan
              ParkerStefan
              ParkerChief
                Financial Officer
              (Principal
                Accounting Officer)
              Executive
                Vice President, Finance


Date**:**March
        28,
        2008


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 28, 2008 **:**




/s/
              Stan Cipkowski
            
            Chief
              Executive Officer & DirectorStan Cipkowski
            
            (Principal
              Executive Officer)/s/
              Edmund Jaskiewicz
            
            Chairman
              and PresidentEdmund Jaskiewicz/s/
              Richard P. Koskey
            
            DirectorRichard P. Koskey/s/
              Daniel W. Kollin
            
            DirectorDaniel W. Kollin/s/
              Anthony G. Costantino
            
            DirectorAnthony G. Costantino/s/
              Carl A. Florio
            
            DirectorCarl A. Florio/s/
              Jean Neff
            
            DirectorJean Neff/s/
              Stefan Parker
            
            Chief
              Financial OfficerStefan
                Parker
            
            (Principal
              Financial Officer)
              Executive
                Vice President, Finance




S-1


**AMERICAN
          BIO MEDICA CORPORATION**


**INDEX
      TO FINANCIAL STATEMENTS AND NOTES TO FINANCIAL STATEMENTS**




**PAGE**Report
                  of Independent Registered Public Accounting Firm
              
              
              F-2Balance
                  Sheets
              
              
              F-3Statements
                  of Operations
              
              
              F-4Statements
                  of Changes in Stockholders’ Equity
              
              
              F-5Statements
                  of Cash Flows
              
              
              F-6Notes
                  to Financial Statements
              
              
              F-7
 F-1


**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, 2007 and 2006, 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. The Company is not
      required to have, nor were we engaged to perform, an audit of its internal
      control over financial reporting. Our audits include consideration of internal
      control over financial reporting as a basis for designing audit procedures
      that
      are appropriate in the circumstances, but not for the purpose of expressing
      an
      opinion on the effectiveness of the Company’s internal controls over financial
      reporting. Accordingly, we express no such opinion. An audit also includes
      examining, on a test basis, evidence supporting the amounts and disclosures
      in
      the financial statements, assessing the accounting principles used and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe that our 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, 2007 and 2006, 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.





The
      accompanying financial statements have been prepared assuming that the Company
      will continue as a going concern. As discussed in Note A to the financial
      statements, in 2007 the Company suffered a significant net loss, generated
      negative cash flows from operations, and at December 31, 2007 is not
      in compliance with certain financial covenants required under its line
      of credit obligation. These factors raise substantial doubt about its ability
      to
      continue as a going concern. Management's plans in regard to these matters
      are
      also described in Note A. The financial statements do not include any
      adjustments that might result from the outcome of this uncertainty.




/s/ UHY
              LLPAlbany,
                New York
              March
                26, 2008


F-2




AMERICAN
      BIO MEDICA CORPORATION




**Balance
      Sheets**




**December
                  31,**
                **2007**
            
            **December
                31,**
              **2006****ASSETS**Current
                assets
            
            
            
            ********Cash
                and cash equivalents
            
            $
            336,000
            
            $
            641,000Accounts
                receivable - net of allowance for doubtful accounts of $105,000 at
                December 31, 2007 and 2006
            
            
            1,365,000
            
            
            1,313,000Inventory
                - net of reserve for slow moving and obsolete inventory of $250,000
                at
                December 31, 2007 and 2006
            
            
            4,994,000
            
            
            4,859,000Prepaid
                and other current assets
            
            
            181,000
            
            
            165,000Total
                current assets
            
            
            6,876,000
            
            
            6,978,000Property,
                plant and equipment, net
            
            
            2,267,000
            
            
            1,982,000Other
                assets
            
            
            7,000
            
            
            57,000Total
                assets
            
            $
            9,150,000
            
            $
            9,017,000**LIABILITIES
                AND STOCKHOLDERS' EQUITY**Current
                liabilitiesAccounts
                payable
            
            $
            1,403,000
            
            $
            1,091,000Accrued
                expenses
            
            
            220,000
            
            
            509,000Wages
                payable
            
            
            332,000
            
            
            269,000Patent
                sublicense current
            
            
            50,000
            
            
            50,000Line
                of credit
            
            
            723,000
            
            
            176,000Current
                portion of long term debt
            
            
            121,000
            
            
            17,000Current
                portion of unearned grant
            
            
            10,000
            
            
            10,000Total
                current liabilities
            
            
            2,859,000
            
            
            2,122,000Patent
                sublicense non-current
            
            
            
            
            
            50,000Other
                liabilities
            
            
            48,000Long-term
                debt
            
            
            1,107,000
            
            
            758,000Unearned
                grant
            
            
            40,000
            
            
            50,000Total
                liabilities
            
            
            4,054,000
            
            
            2,980,000COMMITMENTS
                AND CONTINGENCIESStockholders'
                equity:Preferred
                stock; par value $.01 per share; 5,000,000 shares authorized, none
                issued
                and outstanding at December 31, 2007 and December 31, 2006Common
                stock; par value $.01 per share; 50,000,000 shares authorized; 21,744,768
                issued and outstanding at December 31, 2007 and 21,719,768 shares
                issued
                and outstanding at December 31, 2006
            
            
            217,000
            
            
            217,000Additional
                paid-in capital
            
            
            19,267,000
            
            
            19,218,000Accumulated
                deficit
            
            
            (14,388,000
            )
            
            (13,398,000
            )Total
                stockholders’ equity
            
            
            5,096,000
            
            
            6,037,000Total
                liabilities and stockholders’ equity
            
            $
            9,150,000
            
            $
            9,017,000


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


F-3




AMERICAN
      BIO MEDICA CORPORATION




**Statements
      of Operations**




**For
                the Year Ended December 31,**
              **2007**
            
            **For
                the Year Ended December 31,**
              **2006**Net
                sales
            
            $
            13,872,000
            
            $
            13,838,000Cost
                of goods sold
            
            
            8,141,000
            
            
            7,035,000Gross
                profit
            
            
            5,731,000
            
            
            6,803,000Operating
                expenses:Research
                and development
            
            
            669,000
            
            
            606,000Selling
                and marketing
            
            
            3,091,000
            
            
            3,325,000General
                and administrative
            
            
            2,827,000
            
            
            2,621,000Operating
                income (loss)
            
            
            (856,000
            )
            
            251,000Other
                income (expense):Other
                income
            
            
            9,000
            
            
            10,000Interest
                income
            
            
            9,000
            
            
            7,000Interest
                expense
            
            
            (149,000
            )
            
            (67,000
            )**Income
                (loss) before tax**
            
            
            (987,000
            )
            
            201,000Income
                tax
            
            
            (3,000
            )
            
            (5,000
            )**Net
                income (loss) after tax**
            
            $
            (990,000
            )
            $
            196,000**Basic
                and diluted income (loss) per common share**
            
            $
            (
                0.05
            )
            $
            .01Weighted
                average number of shares outstanding - basic
            
            
            21,737,000
            
            
            21,484,000Dilutive
                effect of stock options and warrants
            
            
            
            
            
            89,000Weighted
                average number of shares outstanding -diluted
            
            
            21,737,000
            
            
            21,573,000





*The
        accompanying notes are an integral part of the financial
        statements*
  F-4
 **AMERICAN
            BIO MEDICA CORPORATION**
  **Statements
            of Changes in Stockholders’ Equity**





**Common
                Stock**
            
            **Additional**
              **Paid-in**
            
            **Accumulated****Shares**
            
            **Amount**
            
            **Capital**
            
            **Deficit**
            
            **Total****Balance-December
                31, 2005**
            
            
            **21,359,768**
            
            **$**
            **214,000**
            
            **$**
            **18,853,000**
            
            **$**
            **(13,594,000**
            **)**
            **$**
            **5,473,000**Stock
                option/Warrant exercise
            
            
            360,000
            
            
            3,000
            
            
            328,000
            
            
            
            
            
            331,000Non-cash
                compensation
            
            
            
            
            
            
            
            
            37,000
            
            
            
            
            
            37,000Net
                income
            
            
            
            
            
            
            
            
            
            
            
            196,000
            
            
            196,000**Balance-December
                31, 2006**
            
            
            **21,719,768**
            
            **$**
            **217,000**
            
            **$**
            **19,218,000**
            
            **$**
            **(13,398,000**
            **)**
            **$**
            **6,037,000**Stock
                option exercise
            
            
            25,000
            
            
            
            
            
            23,000
            
            
            
            
            
            23,000Non-cash
                compensation
            
            
            
            
            
            
            
            
            26,000
            
            
            
            
            
            26,000Net
                loss
            
            
            
            
            
            
            
            
            
            
            
            (990,000
            )
            
            (990,000
            )**Balance-December
                31, 2007**
            
            
            **21,744,768**
            
            **$**
            **217,000**
            
            **$**
            **19,267,000**
            
            **$**
            **(14,388,000**
            **)**
            **$**
            **5,096,000**




F-5




AMERICAN
      BIO MEDICA CORPORATION




**Statements
      of Cash Flows**




**Year
                  Ended**
                **December
                  31,**
                **2007**
            
            **Year
                    Ended**
                  **December
                    31,**
                  **2006****Cash
                flows from operating activities:**Net
                income/(loss)
            
            $
            (990,000
            )
            $
            196,000Adjustments
                to reconcile net income/(net loss) to net cash provided by / (used
                in)
                operating activities:Depreciation
            
            
            437,000
            
            
            376,000Loss
                on disposal of fixed assets
            
            
            1,000Compensatory
                stock options
            
            
            26,000
            
            
            37,000Unearned
                grant
            
            
            (10,000
            )
            
            (10,000
            )Changes
                in:Accounts
                receivable
            
            
            (53,000
            )
            
            58,000Inventory
            
            
            (135,000
            )
            
            (408,000
            )Prepaid
                expenses and other current assets
            
            
            (15,000
            )
            
            (8,000
            )Accounts
                payable
            
            
            312,000
            
            
            (288,000
            )Accrued
                expenses
            
            
            (289,000
            )
            
            378,000Wages
                payable
            
            
            63,000
            
            
            11,000Other
                liabilities
            
            
            48,000Net
                cash provided by (used in) operating activities
            
            
            (605,000
            )
            
            342,000**Cash
                flows from investing activities:**Purchase
                of property, plant and equipment
            
            
            (706,000
            )
            
            (803,000
            )Net
                cash used in investing activities
            
            
            (706,000
            )
            
            (803,000
            )**Cash
                flows from financing activities:**Proceeds
                from stock option exercise
            
            
            23,000
            
            
            85,000Proceeds
                from warrant exercise
            
            
            
            
            
            247,000Net
                proceeds from line of credit
            
            
            547,000
            
            
            176,000Proceeds
                from debt financing
            
            
            539,000
            
            
            775,000Payments
                on debt financing
            
            
            (103,000
            )
            
            (627,000
            )Net
                cash provided by financing activities
            
            
            1,006,000
            
            
            656,000**Net
                increase (decrease) in cash and cash equivalents**
            
            
            (305,000
            )
            
            195,000Cash
                and cash equivalents - beginning of period
            
            
            641,000
            
            
            446,000Cash
                and cash equivalents - end of period
            
            $
            336,000
            
            $
            641,000**Supplemental
                disclosures of cash flow information:**Cash
                paid during the year for:Interest
            
            $
            149,000
            
            $
            67,000**Purchase of property, plant and equipment, financing through capital
                lease
            
            $
            17,000




*The
        accompanying notes are an integral part of the financial
        statements*
  F-6


**American
        Bio Medica Corporation**
 Notes
        to
        Financial Statements
 December
        31, 2007





**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 developing,
      manufacturing, and marketing point of collection diagnostics test kits.




The
      Company’s financial statements have been prepared assuming the Company will
      continue as a going concern, which assumes the realization of assets and the
      satisfaction of liabilities in the normal course of business. For the year
      ended
      December 31, 2007 the company had a net loss of $990,000 and net cashed used
      in
      operating activities of $605,000 as compared to net income of $196,000 and
      net
      cash provided by operating activities of $342,000 in 2006. The Company’s cash
      balances decreased by $305,000 during the twelve months ended December 31,
      2007
      and increased by $195,000 during the twelve months ended December 31, 2006.
      As
      of December 31, 2007, the Company had an accumulated deficit of $14,388,000.
      During 2006 and continuing throughout this fiscal year, the Company commenced
      implementing programs to improve its financial prospects including entering
      into
      national and international distribution agreements, investing in automation
      equipment to improve process efficiencies and reduce costs and other measures
      to
      enhance profit margins. The Company anticipates improvements in efficiency
      to
      lower the costs to manufacture its products as improvements are made in the
      assembly processes. Improvements in efficiency were made in 2006, and continued
      in 2007, as the Company took steps to automate the assembly of the Company’s
      Rapid TOX product line.




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 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.





The
      Company’s history of operating cash flow deficits raises substantial doubt about
      its ability to continue as a going concern and its continued existence is
      dependent upon several factors, including its ability to raise revenue levels
      and reduce costs to generate positive cash flows, and to sell additional shares
      of the Company’s common stock to fund operations, or obtain additional credit
      facilities, if necessary. The financial statements do not include any
      adjustments relating to the recoverability and classification of recorded asset
      amounts or the amount of or classification of liabilities that might be
      necessary as a result of this uncertainty.





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 they have exceeded its payment terms.  Accounts
      receivable have been reduced by an estimated allowance for doubtful
      accounts.  The Company 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 uncollectible are written
      off.




F-7


**American
        Bio Medica Corporation**
 Notes
        to
        Financial Statements
 December
        31, 2007


**[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 is recognized in the period that such tax rate changes are enacted.




**[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, to the extent of those costs charged
      to customers, 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. Amounts received from third parties
      to perform R&D projects are recorded as a reduction to R&D
      expense.




F-8


**American
        Bio Medica Corporation**
 Notes
        to
        Financial Statements
 December
        31, 2007




**[9]**
            **Income
                (loss) per common share:**




Basic
      income or loss per common share is calculated by dividing net income or net
      loss
      by the weighted average number of outstanding common shares during the period.
      For the year ended December 31, 2006 diluted net income per share includes
      the
      dilutive effect of 1,142,000 stock options and 0 warrants.




Potential
      common shares outstanding as of December 31, 2007 and 2006:





**December
                31,**
              **2007**
            
            **December
                31,**
              **2006****Warrants**
            
            
            150,000
            
            
            150,000**Options**
            
            
            3,968,080
            
            
            3,993,080





For
      the
      twelve months ended December 31, 2007, the number of securities not included in
      the diluted loss per share was 4,118,080,as their effect was anti-dilutive.
      For
      the twelve months ended December 31, 2006 the number of securities not included
      in the diluted income per share was 3,001,080. 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 share for the fiscal year ending
      December 31, 2006.




**[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, accounts
      payable, accrued expenses, and other liabilities 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:**




In
      accordance with SFAS No. 123 (revised 2004), *Share
      Based Payment* ,
      the
      Company began 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, 2006 was $0.85. There were no options granted during
      the twelve months ending December 31, 2007.




F-9


**American
        Bio Medica Corporation**
 Notes
        to
        Financial Statements
 December
        31, 2007


Two
      employees were granted stock options on June 13, 2006, the then Chief Financial
      Officer and the Vice President of Product Development. The exercise price of
      the
      options was the same as the closing price of the stock on the day of the grant.
      The calculated fair value of the options was $.85 per option. The fair value
      of
      these stock option grants 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 5.15%; expected life of ten years for all grants;
      and stock price volatility ranging from 72% to 75%. The value of these grants
      totaled $63,000, which was amortized over the vesting period of one year from
      the date of grant. Total expense included in 2007 was $26,000 and $37,000 of
      expense was reported in 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. At December 31, 2007, two customers accounted for 15%
      and
      10.4% of our accounts receivable-net, respectively. Due to the longstanding
      nature of our relationships with these customers and contractual obligations,
      the Company is confident that it will recover these amounts.




One
      of
      our customers accounted for approximately 9.3% of the total sales of the Company
      for the fiscal year ended December 31, 2007.




At
      December 31, 2006, one customer accounted for 16% of accounts receivable-net.
      Their outstanding balance was current at December 31, 2006 and resulted from
      several large shipments in December 2006. This customer does not represent
      more
      than 10% of accounts receivable-net as of December 31, 2007. 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, 2007 and
      2006 comprehensive income was the same as net income.




**[16]**
            **Reclassifications:**




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




**[17]**
            **New
                accounting pronouncements:**




In
      December 2004, the FASB issued FAS No. 123 (revised 2004), "Share-Based
      Payment", ("FAS No. 123(R)"), which amended FAS No. 123, "Accounting for
      Stock-Based Compensation", and superseded APB Opinion No. 25, "Accounting for
      Stock Issued to Employees". FAS No. 123(R) required 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 FAS No. 123. FAS No. 123(R) required adoption in the
      first interim or annual period beginning after December 15, 2005. The statement
      allowed companies to adopt its provisions using either the modified prospective
      method or the modified retrospective method. ABMC adopted FAS No. 123(R) on
      January 1, 2006 using the modified prospective method. Because the Company
      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.
      On
      December 14, 2005 the Company accelerated the vesting of all outstanding stock
      options that were not yet fully vested, to that date. Options granted to two
      employees during the second quarter of 2006 were accounted for in accordance
      with FAS No. 123(R). FAS 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 may 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-10




**American
      Bio Medica Corporation**


Notes
      to
      Financial Statements


December
      31, 2007


In
      June
      2006, the FASB issued FIN 48, “Accounting for Uncertainty in Income Taxes—an
      Interpretation of FASB Statement No. 109”. This Interpretation clarified the
      accounting for uncertainty in income taxes recognized in an enterprise’s
      financial statements in accordance with FASB Statement No. 109, “Accounting for
      Income Taxes” *.* The
      Company adopted FIN48 on January 1, 2007 and it did not have a significant
      effect on its financial statements.




In
      September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS No.
      157”). SFAS No. 157 established a common definition for fair value to be applied
      to U.S. GAAP guidance requiring use of fair value, established a framework
      for
      measuring fair value, and expanded disclosure about such fair value
      measurements. This Statement is effective for fiscal years beginning after
      November 15, 2007, and interim periods within those fiscal years. The Company
      does not believe that the adoption of FAS No. 157 will have a significant effect
      on its financial statements.




In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities Including an Amendment of SFAS No.
      115 ” (SFAS No. 159). This new standard permits entities to choose to measure
      many financial instruments and certain warranty and insurance contracts at
      fair
      value on a contract-by-contract basis. This standard is effective for fiscal
      years beginning after November 15, 2007. While the Company is currently
      evaluating the provisions of SFAS No. 159, the Company does not expect the
      adoption of this statement to have a material impact on its consolidated
      financial statements.




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




**NOTE
      B - INVENTORY**




Inventory
      is comprised of the following:




December
                31, 2007
            
            December
                31, 2006Raw
                Materials
            
            $
            2,264,000
            
            $
            1,841,000Work
                In Process
            
            
            2,547,000
            
            
            2,485,000Finished
                Goods
            
            
            433,000
            
            
            783,000Reserve
                for slow moving and obsolete inventory
            
            
            (250,000
            )
            
            (250,000
            )$
            4,994,000
            
            $
            4,859,000




F-11




**American
        Bio Medica Corporation**
 Notes
        to
        Financial Statements
 December
        31, 2007
  **NOTE
        C - PROPERTY, PLANT AND EQUIPMENT**




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




December
                31,2007
            
            December
                31,2006Land
            
            $
            102,000
            
            $
            102,000Buildings
                and improvements
            
            
            1,396,000
            
            
            1,288,000Manufacturing
                and warehouse equipment
            
            
            2,364,000
            
            
            1,815,000Office
                equipment
            
            
            376,000
            
            
            378,0004,238,000
            
            
            3,583,000Less
                accumulated depreciation
            
            
            1,971,000
            
            
            1,601,000$
            2,267,000
            
            $
            1,982,000





Depreciation
      expense was $437,000 and $376,000 for the years ended December 31, 2007 and
      2006, respectively.




**NOTE
      D - LONG TERM DEBT**




Long-term
      debt at December 31, 2007 and December 31, 2006 consisted of the
      following:





December
                31, 2007
            
            December
                31, 2006**First
                Niagara Bank:**Mortgage
                payable in equal monthly installments of $6,293 including interest
                at
                7.50% through December 1, 2016 with a final lump sum payment of $534,000
                at maturity, collateralized by the building, land and personal
                property.
            
            $
            758,000
            
            $
            775,000Term
                note payable in equal monthly installments of $10,714 including interest
                at 7.17% through January 1, 2012 with a final lump sum payment of
                $11,440
                at maturity, collateralized by the Company’s existing and future
                assets.
            
            
            455,000**RICOH:**Capital
                lease payable in equal monthly installment of $390 including interest
                at
                14.11% through May 1, 2012
            
            
            15,0001,228,000
            
            
            775,000Less
                current portion
            
            
            (121,000
            )
            
            (17,000
            )Non-current
                portion
            
            $
            1,107,000
            
            $
            758,000





F-12


**American
        Bio Medica Corporation**
 Notes
        to
        Financial Statements
 December
        31, 2007




At
      December 31, 2007, the following are the maturities of long-term debt for each
      of the next five years:




2008
            
            
            121,0002009
            
            
            130,0002010
            
            
            140,0002011
            
            
            151,0002012
            
            
            39,000Thereafter
            
            
            647,000$
            1,228,000





On
      November 6, 2006, the Company closed on a real estate mortgage refinancing
      related to its facility in Kinderhook, New York. The new loan through First
      Niagara Financial Group (“FNFG”) is in the amount of $775,000 and has a term of
      ten (10) years with a twenty (20) year amortization. The interest rate is fixed
      at 7.50% for the first five (5) years. Beginning with year six (6) and through
      the end of the loan term, the rate changes to 2% above the Federal Home Loan
      Bank of New York five (5) year term, fifteen (15) year Amortization Advances
      Rate. The loan is collateralized by the Company's facility in Kinderhook, New
      York and its personal property. The Company received proceeds of $154,000 after
      closing costs and accrued interest. The cash received was for improvements
      to
      the Kinderhook, New York property, including paving of the driveway and parking
      lot and replacing the roof.




Prior
      to
      this refinancing, the Company financed the acquisition of its Kinderhook, New
      York facility through a real estate mortgage loan with FNFG, a real estate
      mortgage loan with New York Business Development Corporation (“NYBDC”), and a
      real estate mortgage loan with Columbia Economic Development Corporation
      (“CEDC”). All three of these mortgage loans were paid in full as part of this
      refinancing.




On
      January 22, 2007, the Company entered into a Term Note (the “Note”) with FNFG in
      the amount of $539,000. The term of the note is five (5) years with a fixed
      interest rate of 7.17%. Company has the option of prepaying the Note in full
      or
      in part at any time during the term without penalty. There were no closing
      costs
      associated with this Note. The loan is secured by Company assets now owned
      or to
      be acquired. The
      amount outstanding on this Note was $455,000 at December 31, 2007.




On
      May 8,
      2007, the Company purchased a copier through an equipment lease with RICOH
      in
      the amount of $17,000. The term of the lease is five (5) years with an interest
      rate of 14.11%.




**NOTE
      E - LINES OF CREDIT**




The
      Company has available two lines of credit with First Niagara Financial Group,
      Inc. ("FNFG"). The
      first
      line has a maximum line of $875,000 and is not to exceed 70% of accounts
      receivable less than 60 days. The
      interest rate is .25% above the FNFG prime rate. The Company is required to
      maintain certain financial covenants such as net worth (stockholders’ equity)
      greater than $5 million and working capital greater than $4 million. Further,
      the Company is required to maintain a minimum Debt Service Coverage Ratio of
      not
      less than 1.2:1.0 measured at each fiscal year end beginning December 31, 2006.
      Debt Service Coverage Ratio is defined as Net Operating Income divided by annual
      principal and interest payments on all loans relating to subject property.
      The
      Company meets the stockholder’s equity and working capital financial covenants
      as of December 31, 2007, however, at December 31, 2007, the Company did not
      meet
      the Debt Service Coverage Ratio covenant. There is no requirement for annual
      repayment of all principal on this line of credit; it is payable on demand
      at
      any time. The amount outstanding on this line of credit was $690,000 at December
      31, 2007 and $164,000 at December 31, 2006.




F-13


**American
        Bio Medica Corporation**
 Notes
        to
        Financial Statements
 December
        31, 2007




The
      second line of credit was obtained during the first quarter of 2006 for the
      limited purpose of paying amounts associated with a sublicense agreement
      executed during the first quarter. This line is for a maximum of $75,000 with
      an interest
      rate of .50% above the FNFG prime rate and principal may be repaid at any time
      and borrowed again as needed. There is no requirement for repayment of all
      principal annually on this line of credit. The amount outstanding on this line
      of credit was $33,000 at December 31, 2007 and $12,000 at December 31, 2006.




**NOTE
      F - INCOME TAXES**




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





**Year
                Ended**
              **December
                31, 2007**
            
            **Year
                Ended**
              **December
                31, 2006**Tax
                (benefit)/expense at federal statutory rate
            
            
            34
            %
            
            34
            %State
                tax (benefit)/expense, net of federal tax effect
            
            
            5
            
            
            5Valuation
                allowance
            
            
            (39
            )
            
            (39
            )Effective
                income tax rate
            
            
            0
            %
            
            0
            %





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





**Year
                Ended**
              **December
                31, 2007**
            
            **Year
                Ended December 31, 2006**Inventory
            
            $
            31,000
            
            $
            30,000Inventory
                reserve
            
            
            98,000
            
            
            98,000Stock
                based compensation
            
            
            1,384,000
            
            
            1,382,000Allowance
                for doubtful accounts
            
            
            41,000
            
            
            41,000Property,
                plant, and equipment
            
            
            (87,000
            )
            
            (95,000
            )Accrued
                compensation
            
            
            33,000
            
            
            (9,000
            )Net
                operating loss carry-forward
            
            
            3,602,000
            
            
            3,308,000Total
                gross deferred tax assets
            
            
            5,102,000
            
            
            4,755,000Less
                valuation allowance
            
            
            (5,102,000
            )
            
            (4,755,000
            )Net
                deferred tax assets
            
            $
            0
            
            $
            0





Certain
      2006 gross deferred tax assets and related valuation allowances previously
      reported have been restated in 2007.  This restatement had no net
      effect on the Company's 2006 financial position, results of operations or
      cash flows.





F-14


**American
        Bio Medica Corporation**
 Notes
        to
        Financial Statements
 December
        31, 2007


The
      valuation allowance for deferred tax assets as of December 31, 2007 and December
      31, 2006 was $5,102,000 and $4,755,000, respectively. The net change in the
      valuation allowance was an increase of $347,000 for the year ended December
      31,
      2007.




At
      December 31, 2007, the Company has Federal and New York state net operating
      loss
      carry forwards for income tax purposes of approximately $9,236,000, which will
      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.




**NOTE
      G - OTHER INCOME**




Other
      income for the years ended 2007 and 2006 is comprised of amounts earned from
      a
      grant of $100,000 received from the Columbia Economic Development Corporation
      during 2002, 2003, 2005 and 2006. 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, 2007 is $50,000.
      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 81 and 87 at December 31, 2007 and
      December 31, 2006 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, 2007, the Company did not issue any options to
      purchase shares of common stock.




F-15


**American
        Bio Medica Corporation**
 Notes
        to
        Financial Statements
 December
        31, 2007


Stock
      option activity for the years ended December 31, 2007 and December 31, 2006
      is
      summarized as follows:





**Year
                Ended**
              **December
                31,**
              **2007**
            
            **Year
                Ended**
              **December
                31,**
              **2006****Shares**
            
            **Weighted
                Average Exercise Price**
            
            **Shares**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**Options
                outstanding at beginning of year
            
            
            3,993,000
            
            $
            1.32
            
            
            4,268,000
            
            $
            1.31Granted
            
            
            0
            
            
            NA
            
            
            75,000
            
            $
            1.05Exercised
            
            
            (25,000
            )
            $
            0.94
            
            
            (100,000
            )
            $
            0.85Cancelled/expired
            
            
            0
            
            
            NA
            
            
            (250,000
            )
            $
            1.31Options
                outstanding at end of year
            
            
            3,968,000
            
            $
            1.32
            
            
            3,993,000
            
            $
            1.32Options
                exercisable at end of year
            
            
            3,968,000
            
            $
            1.32
            
            
            3,918,000
            
            $
            1.32




The
      following table presents information relating to stock options outstanding
      as of
      December 31, 2007:




**Options
                Outstanding**
            
            **Options
                Exercisable****Range
                  of Exercise**
                **Price**
            
            **Shares**
            
            **Weighted**
                    **Average**
                    **Exercise**
                    **Price**
            
            **Weighted**
                    **Average**
                    **Remaining**
                    **Life
                      in Years**
            
            **Shares**
            
            **Weighted**
                    **Average**
                    **Exercise**
                    **Price**$0.85
                - $0.99
            
            
            1,117,000
            
            $
            0.89
            
            
            3.99
            
            
            1,117,000
            
            $
            0.89$1.00
                - $1.49
            
            
            1,773,000
            
            $
            1.07
            
            
            5.31
            
            
            1,773,000
            
            $
            1.07$1.50
                - $1.99
            
            
            188,000
            
            $
            1.57
            
            
            4.46
            
            
            188,000
            
            $
            1.57$2.00
                - $3.38
            
            
            890,000
            
            $
            2.31
            
            
            2.00
            
            
            890,000
            
            $
            2.31TOTAL
            
            
            3,968,000
            
            $
            1.32
            
            
            4.15
            
            
            3,968,000
            
            $
            1.32




As
      of
      December 31, 2007, 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, 2007, 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,
      922,000 options have been returned to the plan as a result of expirations or
      cancellations and will not be re-issued. Neither the 1997 nor the 1998 plan
      have
      any options issued and outstanding and therefore there is no potential for
      additional dilution under either the 1997 or the 1998 plans. As of December
      31,
      2007, there were 9,500 options available for issuance under the Fiscal 2000
      Plan
      and 739,420 options available for issuance under the Fiscal 2001 Plan. The
      options outstanding noted in the table above are issued under either the 2000
      Plan or the 2001 Plan.




**[3]** **Warrants:**




As
      of
      December 31, 2007, there were 150,000 warrants outstanding.




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, the Company 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, the Company
      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 warrant shares, 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 thereby changing the expiration date of the warrant to October
      28, 2006. Grodko did not exercise any additional warrant shares in 2005. On
      October 27, 2006, Grodko exercised 260,000 warrant shares, leaving a balance
      of
      140,000 warrant shares. On October 28, 2006, the remaining balance of 140,000
      warrant shares expired naturally. As of December 31, 2006, there were no longer
      any warrant shares outstanding under this issuance.




F-16


**American
        Bio Medica Corporation**
 Notes
        to
        Financial Statements
 December
        31, 2007


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 warrant shares 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 were 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”) Capital Market, was $0.95 per share. This warrant was never exercised
      either in whole or in part and expired naturally on May 2, 2006.




On
      August
      22, 2001, the Company 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
      traded on the NASDAQ Capital Market and may be hereafter referred to as the
      “trading warrants”). The Company 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. As of December 31, 2006, there
      were no longer any warrant shares outstanding under these issuance as both
      the
      trading warrants and the warrants issued to the placement agents naturally
      expired on August 22, 2006.




On
      December 2, 2003, the Company 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, the Company 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 Capital Market, was $1.33
      per share. There was no activity related to this warrant issuance in the fiscal
      year ended December 31, 2007.




F-17


**American
        Bio Medica Corporation**
 Notes
        to
        Financial Statements
 December
        31, 2007


**NOTE
      I - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS**




**[1]** **Operating
          leases:**




The
      Company leases office and R&D/production facilities in New Jersey under
      operating leases expiring through December 2011. In addition, the Company leases
      office support equipment under leases expiring through November 2009. At
      December 31, 2007, the future minimum rental payments under these operating
      leases are as follows:




2008
            
            $
            90,0002009
            
            
            86,0002010
            
            
            86,0002011
            
            
            86,000$
            348,000




Rent
      expense for facilities in New Jersey was $98,000 in 2007 and $52,000 for
      2006.




**[2]** **Employment
          agreements:**




In
      the
      second quarter of 2007, the Company entered into employment agreements with
      the
      Chief Executive Officer Stan Cipkowski, Chief Science Officer Martin R. Gould
      and then Chief Financial Officer Keith E. Palmer providing for aggregate annual
      salaries of $504,000. The agreement with the Chief Executive Officer Cipkowski
      provides for a $206,000 annual salary, is for a term of one year and
      automatically renews unless either party gives advance notice of 60 days. The
      agreement with the Chief Science Officer Gould provides for a $149,000 annual
      salary, is for a term of one year and automatically renews unless either party
      gives advance notice of 60 days. The agreement with the Chief Financial Officer
      Palmer provided for a $149,000 annual salary, was for a term of one year and
      automatically renewed unless either party gave advance notice of 60 days. The
      employment agreement with Chief Financial Officer Palmer was terminated
      effective July 6, 2007 as a result of Palmer’s resignation.




In
      the
      third quarter of 2007, the Company entered into an employment agreement with
      its
      current Chief Financial Officer, Stefan Parker. The agreement provides for
      a
      $120,000 annual salary, is for a term of one year, expiring August 22, 2008,
      and
      automatically renews unless either party gives advance notice of 60 days.




**[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. ****




F-18


**American
        Bio Medica Corporation**
 Notes
        to
        Financial Statements
 December
        31, 2007


**[4]** **Patent
          Sublicense:**




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




**NOTE
      J - RELATED PARTY DISCLOSURES**




During
      the fiscal years ended December 31, 2007 and December 31, 2006, the Company
      paid
      an aggregate of $97,000 and $128,000 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 for reimbursement of expenses related
      to
      same. At December 31, 2007 there were invoices totaling $45,000 payable to
      Mr.
      Jaskiewicz.




During
      the fiscal years ended December 31, 2007 and December 31, 2006, the Company
      paid
      an aggregate of $70,000 and $59,000 respectively, to Alec Cipkowski. Alec
      Cipkowski is the son of the Company’s Chief Executive Officer, Stan Cipkowski.
      Alec Cipkowski performs information technology services for the Company updating
      and maintaining the Company website as well as supporting the Rapid Reader
      devices that are currently being used by customers. Alec Cipkowski is an
      independent contractor and not an employee of the Company. At December 31,
      2007
      there were invoices totaling $21,000 payable to Alec Cipkowski.




**NOTE
      K- GEOGRAPHIC INFORMATION**





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





**Year
                ended**
              **December
                31,**
              **2007**
            
            **Year
                ended**
              **December
                31,**
              **2006**United
                States
            
            $
            12,337,000
            
            $
            12,452,000North
                America (not domestic)
            
            
            757,000
            
            
            727,000Europe
            
            
            543,000
            
            
            552,000Asia/Pacific
                Rim
            
            
            101,000
            
            
            48,000South
                America
            
            
            122,000
            
            
            59,000Africa
            
            
            12,000
            
            
            0$
            13,872,000
            
            $
            13,838,000





F-19