10-K

UNITED STATES

 SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2012

¨ TRANSITION REPORT PURSUANT TO 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

(Exact name of registrant as specified in its charter)

New York	14-1702188
(State or other jurisdiction of	(IRS Employer Identification No.)
incorporation or organization)
122 Smith Road	12106
Kinderhook, New York	(Zip Code)
(Address of principal executive offices)

Registrant’s telephone number (including area code): (518) 758-8158

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

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

Common Shares, $0.01 Par value

Title of each class

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

¨Yes   x No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

¨Yes   x No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes    ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

x Yes      ¨ No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained herein, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

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

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Act).

¨ Yes      x No

The aggregate market value of 18,724,681 voting Common Shares held by non-affiliates of the registrant was approximately $3,183,196 based on the last sale price of the registrant’s Common Shares, $.01 par value, as reported on the OTCQB marketplace on June 30, 2012.

As of March 28, 2013, the registrant had outstanding 22,166,336 Common Shares, $.01 par value.

Documents Incorporated by Reference:

(1) Portions of the Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held on June 20, 2013 in Part III of this Form 10-K

(2) Other documents incorporated by reference on this report are listed under Part IV, Item 15(B); Exhibits

American Bio Medica Corporation

Index to Annual Report on Form 10-K

For the year ended December 31, 2012

		PAGE
PART I
Item 1.	Business	2
Item 1A.	Risk Factors	9
Item 1B.	Unresolved Staff Comments	17
Item 2.	Properties	17
Item 3.	Legal Proceedings	17
Item 4.	Mine Safety Disclosures	18
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	19
Item 6.	Selected Financial Data	20
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 8.	Financial Statements and Supplementary Data	28
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	28
Item 9A	Controls and Procedures	28
Item 9B.	Other Information	29
PART III
Item 10.	Directors, Executive Officers, and Corporate Governance	29
Item 11.	Executive Compensation	29
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	29
Item 13.	Certain Relationships and Related Transactions, and Director Independence	29
Item 14.	Principal Accounting Fees and Services	29
PART IV
Item 15.	Exhibits, Financial Statement Schedules	30
Signatures		S-1

This Form 10-K 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-K 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 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, our ability to continue as a going concern, adverse changes in regulatory requirements related to the marketing and use of our products, the uncertainty of acceptance of current and new products in our markets, competition in our markets and other factors discussed in our “Risk Factors” found in Part I, Item 1A.

PART I

Item 1. Business

Form and Year of Organization

American Bio Medica Corporation (the “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 and changed our name to American Bio Medica Corporation.

Our Business

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

In addition to the manufacture and sale of DOA testing products, we provide bulk test strip contract manufacturing services for other POCT companies. We do not currently derive a significant portion of our revenues from bulk test strip contract manufacturing. Bulk test strip manufacturing could become a greater portion of our revenues in the future, if sales of our current contract-manufacturing customers increase, or if additional applications for our technology are explored.

Our Products

POCT Products for the Detection of DOA in Urine

We manufacture a number of POCT products that detect the presence or absence of certain DOA in urine. We offer a number of standard configurations and we can also produce custom configurations on special order. We also offer different cut-off levels for certain drugs. Cut-off levels are concentrations of drugs or metabolites that must be present in urine or oral fluid specimens before a positive result will be obtained. Our urine-based POCT products test for the following drugs: amphetamines (available in some products with a cut-off level of either 500 ng/mL or 1,000 ng/mL), barbiturates, benzodiazepines, buprenorphine, cocaine (available in some products with a cut-off level of either 150 ng/mL or 300 ng/mL), MDMA (Ecstasy) (available in some products with a cut-off level of either 500 ng/mL or 1,000 ng/mL), methadone, methamphetamines (available in some products with a cut-off level of either 500 ng/mL or 1,000 ng/mL), opiates (available in some products with a cut-off level of either 300 ng/mL or 2000 ng/mL), oxycodone, PCP (phencyclidine), propoxyphene, THC (marijuana) and tricyclic antidepressants.

All of our urine-based POCT products are accurate, cost-effective, easy to use and provide results within minutes. We currently offer the following POCT products for urine-based DOA testing:

Rapid Drug ScreenÒ: The Rapid Drug Screen, or RDS®, is a patented and patent pending rapid, POCT product that detects the presence or absence of 2 to 10 DOA simultaneously in a single urine specimen. The RDS is available in card only, or as part of a kit that includes a patented collection cup.

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Rapid ONE®: The patented Rapid ONE product line consists of single drug tests, each of which tests for the presence or absence of a single drug of abuse in a urine specimen. 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 with a RDS to allow screening of an additional drug.

RDS InCup®: The patented RDS InCup is an all-inclusive POCT product that detects the presence or absence of 2 to 12 DOA in a single urine specimen. The RDS InCup incorporates collection and testing of a urine sample in a single step. Each RDS InCup product contains multiple channels and each channel contains a single drug-testing strip that contains the chemistry to detect a single class of DOA.

Rapid TOX®: Rapid TOX is a cost-effective POCT product in a cassette platform that simultaneously detects the presence or absence of 2 to 10 DOA in a single urine specimen. Each Rapid TOX contains one or two channels and each channel contains a single drug-testing strip that contains the chemistry to detect more than one class of drug of abuse.

Rapid TOX Cup® II: The patented Rapid TOX Cup II is an all-inclusive POCT product that detects the presence or absence of 2 to 14 DOA in a single urine specimen. The Rapid TOX Cup II incorporates collection and testing of the urine sample in a single step. Each Rapid TOX Cup II contains multiple channels and each channel contains a single drug-testing strip that contains the chemistry to detect more than one class of drug of abuse.

Private Label Products

Drug Check® 1200 UTK and Drug Check 1300 UTK: In July 2011, we entered into a Purchase Agreement with Dräger Safety AG & Co. KgaA (“Dräger Safety”). Under the Purchase Agreement, Dräger Safety distributes various configurations of our Rapid TOX and Rapid TOX Cup II products under their own trademark “DrugCheck”. Dräger Safety distributes these products in North America, Europe, Asia, Africa, and Central and South America; with certain markets and territories being exclusive to Dräger Safety.

POCT Products for the Detection of DOA in Oral Fluids:

We manufacture POCT products that detect the presence or absence of DOA in oral fluids. These products are easy to use and provide test results within minutes with enhanced sensitivity and detection. Currently, the assays available on our oral fluid products are amphetamines, barbiturates, benzodiazepines, cocaine, MDMA (Ecstasy), methadone, methamphetamines, opiates, PCP, propoxyphene and THC. All of our oral fluid-based POCT products are accurate, cost-effective, easy to use and provide results within minutes. We currently offer the following POCT products for oral fluid-based DOA testing:

OralStat®: OralStat is a patented and patent pending, innovative POCT product for the detection of DOA in oral fluids. Each OralStat simultaneously tests for 6 or 10 DOA in a single oral fluid specimen.

Rapid Status II™: Rapid Status II is a patented and patent pendingoral fluid POCT product that combines the incubation benefits of OralStat (see previous definition of OralStat) with the Rapid TOX cassette product platform (see previous definition of Rapid TOX). Rapid Status II maximizes drug recovery and provides a transport container for confirmation of positive test results. Rapid Status II 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, Rapid Status II provides lower THC testing sensitivity. Each Rapid Status II simultaneously tests for 6 DOA in a single oral fluid specimen.

Private Label Products

Drug Check 1200 STK: Dräger Safety distributes the Rapid Status II under their own trademark “Drug Check”. Dräger Safety distributes this product in various countries in which Dräger Safety has exclusive market rights. Each Dräger Drug Check 1200 STK oral fluid cassette simultaneously tests for 5, 6, or 7 DOA in a single oral fluid specimen.

This oral fluid cassette product is also available for marketing to other countries in which Dräger Safety does not have marketing rights.

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Other Products

We distribute a number of other products related to the detection of DOA or substances of abuse. We do not manufacture these products. We do not derive a significant portion of our revenues from the sale of these products.

Rapid Reader®: The Rapid Reader is a compact, portable unit that uses a high-resolution camera to capture a picture of the results obtained when using an ABMC POCT product. The results are analyzed, interpreted, and sent to a data management system, which enables the user to interpret, store, transmit and print the results. The Rapid Reader system can only be used to interpret and record the results of an ABMC drug test. We obtained 510(k) marketing clearance (see page “Government Regulations” for a description of 510(k) marketing clearance) from the U.S. Food and Drug Administration (“FDA”) specific to our marketing of the Rapid Reader. Presently, we offer 2 different models of the Rapid Reader to our customers, the 210 and 250.

Adulteration and Alcohol: We currently offer a number of POCT products that detect the presence or absence of adulterants and alcohol. One of these products is sold under ABMC-owned trademarks; the Rapid Check® test for adulterants. Some of the adulterant test products we distribute are also incorporated into our urine-based POCT products for DOA. We do not derive a significant portion of our revenues from the sale of these products.

Contract Manufacturing

We provide bulk test strip contract manufacturing services to a number of non-affiliated POCT diagnostic companies. In the year ended December 31, 2012, we manufactured test components for the detection of:

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

§ Fetal amniotic membrane rupture

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

Our Markets

Workplace

The Workplace market consists of pre-employment testing of job applicants, and random, cause and post-accident testing of employees. Many employers recognize the financial and safety benefits of implementing drug-free workplace programs, of which drug testing is an integral part. Government incentives encourage employers to adopt drug-free workplace programs. In some states, there are workers’ compensation and unemployment insurance premium reductions, tax deductions and other incentives for adopting these programs. The Drug-Free Workplace Act requires some federal contractors and all federal grantees to agree that they will provide drug-free workplaces as a precondition of receiving a contract or grant from a federal agency. Typically if a contractor receives a federal contract of $100,000 or more, they must enact a drug-free workplace program. Any organization or individual that has been granted a federal contract, regardless of size, must enact a drug-free workplace program. We sell our products in this market through our direct sales force and through a select network of distributors.

§ In their April 2011 report titled “The Economic Impact of Illicit Drug Use on American Society” (the first comprehensive assessment of societal costs attributable to illicit drug use to be completed in more than a decade), the U.S. Department of Justice, National Drug Intelligence Center reported that in 2007, the cost of illicit drug use totaled more than $193 billion. Direct and indirect costs attributed to illicit drug use were estimated in three principal areas: crime, health and productivity, but the majority share of costs, or $120 billion, was attributed to lost productivity.

§ According to the 2011 SAMHSA (Substance Abuse Mental Health Services Administration) National Survey on Drug Use and Health released in September 2012, most drug users are employed. Of the 19.9 million current illicit drug users aged 18 or older in 2011, 13.1 million (65.7 percent) were employed either full or part time.

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Government

The Government market includes federal, state, county and local agencies, including correctional facilities (including juvenile facilities), pretrial agencies, probation, drug courts and parole departments at the federal and state levels. A significant number of individuals on parole or probation, or within federal, state, county and local correctional facilities and jails, have one or more conditions to their sentence, including but not limited to, periodic drug-testing and substance abuse treatment. We sell our products in this market through our direct sales force.

According to reports issued by the Bureau of Justice Statistics:

§ According to a report issued by the Bureau of Justice Statistics, at year end 2011, almost 7 million people in the United States were under correctional supervision; and

§ According to the Federal Bureau of Investigation’s Uniform Crime Report released in September 2012, in 2011 there were approximately 1.5 million arrests for drug abuse violations. Drug abuse violations are defined as state or local offenses relating to the unlawful possession, sale, use, growing, manufacturing, and making of narcotic drugs including opium or cocaine and their derivatives, marijuana, synthetic narcotics, and dangerous non-narcotic drugs such as barbiturates.

Clinical

The Clinical market includes emergency rooms, physician offices, hospitals and clinics and rehabilitation facilities associated with hospitals. The Drug Abuse Warning Network (“DAWN”, a public health surveillance system that monitors drug-related visits to hospital emergency departments and drug-related deaths investigated by medical examiners and coroners) reported in July 2012, that in 2010 approximately 4.9 million emergency department visits were drug related. Drug-related ED visits have increased by 86% percent since 2005. This increase primarily reflects greater numbers of medical emergencies associated with adverse reactions, accidental drug ingestions, and misuse or abuse of prescription drugs and over-the-counter medications.

To address this issue, drug testing is performed so healthcare professionals are able to ascertain the drug status of a patient before they administer pharmaceuticals or other treatment. We currently sell our urine DOA products in this market through our direct sales force; however, we do not maintain a large share of this market. We believe the best marketing strategy in this market would be to obtain an exclusive distribution relationship with a multi-national diagnostics company focused on the clinical POCT market, and we continue to make efforts to develop such a relationship.

International

The International market consists of various markets outside of the United States. Although workplace testing is not as prevalent outside of the United States as within, the international Government and Clinical markets are somewhat in concert with their United States counterparts. One market that is significantly more prevalent outside of the United States is roadside drug testing. Countries including but not limited to, Italy, France, Australia, Malaysia, New Zealand, Portugal, Finland, Germany, Spain, Norway, Switzerland, Canada, Romania and Croatia already conduct roadside drug testing, are currently in a pilot phase of drug-testing or have put laws in place to allow drug-testing.

We sell in this market through a select network of distributors, including a master distributor in the region of Latin American; this distributor’s sales are primarily in the Government and Clinical markets, along with some sales in the Workplace market. In July 2011, we entered into a Purchase Agreement with Dräger Safety”. Under the Purchase Agreement, Dräger Safety distributes our drug tests (under their trademark “Drug Check”) in Europe, Asia, Africa, and Central and South America; with certain markets and territories being exclusive to Dräger Safety.

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Rehabilitation

The Rehabilitation market includes people in treatment for substance abuse. There is typically 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.

Education

The Education market consists of student drug-testing. In June 2002, the Supreme Court ruled that students in extracurricular activities including athletics, band, choir, and other activities could be tested for drugs at the start of the school year and randomly throughout the year. According to the February 2012 University of Michigan Monitoring the Future study, 13.4% of 8^th graders, 30.1% of 10^th graders and 39.7% of 12^th graders have used an illicit drug within the 12 months prior to the study.

Our Distribution Methods

We have a two-pronged distribution strategy that focuses on growing our business through direct sales and distributors. Our direct sales team consists of our Vice President of Sales and Marketing, Director of Latin America Sales, Director of International Sales, Regional Sales Managers and Inside Sales Representatives (collectively our “Direct Sales Team”); all of which are trained professionals and most of which are highly experienced in DOA testing sales. Our distributors are unaffiliated entities that resell our POCT products either as stand-alone products or as part of a service they provide to their customers.

Our Direct Sales Team and network of distributors sell our products to the Workplace, Government, Clinical, Rehabilitation, and Education markets, and we sell primarily through a network of distributors in the International market. Although we currently sell our urine-based point of collection products directly into the Clinical market, we continue to make efforts to develop a distribution relationship with a multi-national diagnostics company focused on the Clinical market.

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 expect to continue to recruit and utilize experienced distributors in addition to selling directly in our markets.

Competition

We compete on the following factors:

§ pricing;

§ quality of product;

§ ease and user-friendliness of products; and

§ customer and technical support

Pricing: The pricing structure within the POCT market for DOA is highly competitive. Price pressure remains to be the greatest when comparing our product pricing with the pricing of point of collection tests manufactured outside of the United States. In order to meet the price pressure caused primarily by these foreign manufacturers, we continue to evaluate all aspects of our manufacturing and assembly processes to identify areas of cost savings. Cost savings in manufacturing would allow us to achieve and/or sustain acceptable gross margins while still providing our customers with cost-competitive products. In addition, we continue to explore new, lower cost product alternatives to offer our customers.

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 (“DHHS”) in 1999 (as of the date of this report, this is still the most current government issued study). In the DHHS study, our RDS ranked the most accurate multi-drug product for all drugs when compared to GC/MS (Gas Chromatography/Mass Spectrometry). GC/MS is 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.”

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Ease and user-friendliness: Some of our competitors’ point of collection drug tests 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 product by the user (although our Rapid TOX product lines does offers the option of pipetting the specimen on the cassette, it is not required; the cassette may be dipped into the urine specimen.

Customer and technical support: Customer and technical support are becoming more important in the POCT market as individuals being tested become more knowledgeable about how to “beat” a drug test. Our customers often need guidance and assistance with certain issues, including but not limited to, test administration, drug cross reactivity and drug metabolism. ABMC provides its customers with continuous customer and technical support on a 24/7/365 basis. We believe that this support gives us a competitive advantage since most of our competitors do not offer this extended service to their customers.

Raw Materials and Suppliers

The primary raw materials required for the manufacture of our point of collection test strips and our point of collection drug tests consist of antibodies, antigens and other reagents, plastic molded pieces, membranes and packaging materials. We maintain an inventory of raw materials that have been acquired from third parties. Currently, most raw materials are available from several sources. We own the molds and tooling for our plastic components that are custom and proprietary. The ownership of these molds affords us flexibility and control in managing the supply chain for these components. We do not own the molds and tooling for our plastic components that are “stock” items.

Major Customers

We have a number of national account customers that in total represent a significant portion of our sales in the years ended December 31, 2012 and December 31, 2011. One of these national account customers represented 14.8% of net sales in the year ended December 31, 2012 and 14.1% of net sales in the year ended December 31, 2011.

Patents and Trademarks/Licenses

As of December 31, 2012, we held 31 patents related to our point of collection drug-testing products, including 4 design patents and 11 utility patents issued in the United States. As of December 31, 2012, we have 6 United States patent applications pending and 14 foreign patent applications pending. One of our patents (a RDS design patent) expired in January 2013; the next expiration date of one of our patents (another design patent) is February 2014.

To date, we have registered 17 trademarks in the United States, including but not limited to, Rapid Drug Screen, RDS, Rapid ONE, OralStat, Rapid Reader, Rapid TOX, Rapid TOX Cup, InCup, Rapid Check, our website domain, our corporate logos and certain product logos. We have also registered 14 trademarks in countries/regions such as Canada, Mexico, Europe, and the United Kingdom. We currently have one trademark application pending in the United States.

Government Regulations

In certain markets, the development, testing, manufacture and sale of our point of collection drug tests, and possible additional testing products 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, the FDA regulates the pre-clinical and clinical testing, manufacture, labeling, distribution and promotion of medical devices. A “medical device” is defined as an “instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article, including any component, part, or accessory, which is…intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease, in man or other animals, or intended to affect the structure or any function of the body of man or other animal…”.

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In the past, our industry believed that when DOA POCTs were sold in non-clinical markets (such as workplace), they did not fall under the definition of a “medical device”, but when sold in the Clinical market, they did fall under the definition of a “medical device”. When a product is a medical device, a 510(k) marketing application must be submitted to the FDA. A 510(k) is a premarketing submission made to the 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 (pre-amendments 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 a device is substantially equivalent to a predicate device.

Most of our urine-based products are marketed and sold in the Clinical market (in addition to other markets) and therefore, we have obtained 510(k) marketing clearance on our:

§ 9 panel RDS test and our Rapid ONE dipsticks. 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; and

§ Rapid Reader; and

§ Rapid TOX product line; and

§ Rapid TOX Cup II.

Our oral fluid products have never been marketed or sold to the Clinical market (or to any market that would use the products for diagnosis or treatment) and given our belief that 510(k) marketing clearance was not required to sell in non-clinical markets, we never sought 510(k) marketing clearance from FDA on our oral fluid DOA products. In July 2009, we received a warning letter from FDA, which indicated that we were marketing OralStat (one of our oral fluid DOA products), in workplace settings without marketing clearance or approval (see Current Report on Form 8-K filed with the SEC on August 5, 2009). A warning letter is considered by FDA to be informal and advisory. While a warning letter communicates FDA’s position on a matter it does not commit the FDA to taking enforcement action. We communicated to the FDA our belief (based on legal opinion) that marketing clearance was not required in non-clinical markets. The FDA continued to disagree with our interpretation of FDA regulations related to medical devices, and the FDA continued to assert jurisdiction of drug testing performed in the workplace. We also advised FDA that we were willing to obtain marketing clearance but that specific technical and scientific issues existed when attempting to utilize FDA’s draft guidance for our OralStat (because the draft guidance was written for urine drug tests). Nevertheless, we were unable to reach a consensus with the FDA on neither the jurisdiction issue nor the technical issues.

On July 10, 2012, we announced in a press release and a Current Report on Form 8-K that we entered into a Consent Decree of Permanent Injunction (the “Consent Decree”) with FDA. Under the terms of the Consent Decree, we will be allowed to continue to market our OralStat drug test in the workplace market while we take action to obtain a 510(k) marketing clearance. More specifically, FDA will provide the Company with its most recent guidance on the clinical and analytical studies that need to be conducted to gather data in support of a 510(k) submission for OralStat. We will then have a total of 396 days to discuss protocols with FDA, complete our analytical and clinical studies and submit a substantially complete 510(k). We have agreed to withdraw the OralStat product from the workplace market if any of the following events occur: 1) we do not submit a substantially complete 510(k) within this specified time period, 2) we fail to submit additional information within time frames specified by FDA, 3) we withdraw our submission, or 4) our 510(k) submission results in FDA’s determination that the product is not substantially equivalent. On August 3, 2012 the Consent decree was approved and entered by the United States District Court for the Northern District of New York, and on August 3, 2012, we received guidance from FDA. We are currently taking actions that will enable us to submit a 510(k) marketing application to FDA within the time frame specified under the Consent Decree.

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Also, in order to sell our products in Canada, we must comply with ISO 13485:2003, 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, we 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 the FDA, and are a reasonable assurance to the customer that our products are manufactured 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 TOX, RDS InCup, Rapid TOX Cup II, OralStat and Rapid STAT. We received our ISO 13485:2003 compliance certification in August 2006 and in 2010 we received our ISO 9001:2008 compliance certification. We have also obtained the license to sell our RDS, Rapid ONE and Rapid TOX products in Canada.

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 August 2008, we received our CLIA waiver from the FDA related to our Rapid TOX product line. As of the date of this report, the Rapid TOX is the only ABMC POCT product that has been granted a CLIA waiver from the FDA.

Due to the nature of the manufacturing of our point of collection tests and the raw material used, ABMC does not incur any material costs associated with compliance with environmental laws, nor do we experience any material effects of compliance with environmental laws.

Research and Development (“R&D”)

Our R&D efforts are continually focused on enhancing and/or maintaining the performance and reliability of our drug-testing products. During the year ended December 31, 2012, our R&D team continued to make enhancements to our POCT products. Our R&D expenditures were $207,000 for the year ended December 31, 2012 and $223,000 for the year ended December 31, 2011. None of the costs incurred in R&D in either the year ended December 31, 2012 or the year ended December 31, 2011 were borne by a customer.

Manufacturing and Employees

Our facility in Kinderhook, New York houses assembly and packaging of our products in addition to the Company’s administration. We continue to primarily outsource the printing of the plastic components used in our products, and we outsource the manufacture of the plastic components used in our products. We manufacture all of our own individual test strips and we manufacture test strips for unaffiliated third parties at our R&D and bulk manufacturing facility in Logan Township, New Jersey. An unaffiliated third party manufactured the Rapid Reader products we currently offer; and unaffiliated third parties also manufacture the adulteration and alcohol products we offer.

As of December 31, 2012, we had 88 employees, of which 85 were full-time and 3 were part-time. None of our employees are covered by collective bargaining agreements, and we believe our relations with our employees are good.

Item 1A. Risk FACTORS

We have a history of incurring net losses.

Since our inception and throughout most of our history, we have incurred net losses, including but not limited to, a net loss of $1,111,000 incurred in the year ended December 31, 2012. We expect to continue to make substantial expenditures for sales and marketing, product development and other business 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. In the year ended December 31, 2012, our sales continued to be negatively impacted by the aftermath of the recession, and a limited cash flow diminished our capacity to purchase raw materials in greater quantities (and on better terms) and this resulted in increased cost of goods. Our failure to increase sales while maintaining or reducing product costs, general and administrative, sales and marketing and research and development costs will result in the Company incurring additional losses.

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We believe we will need additional funding for our existing and future operations.

Our financial statements for the year ended December 31, 2012 have been prepared assuming we will continue as a going concern. If global economic conditions do not improve or return to pre-recession levels, we do not believe that our current cash balances, and cash generated from future operations will be sufficient to fund operations for the next twelve months. 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 our working capital and capital expenditure requirements, we 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 we will be able to complete financing on satisfactory terms, if at all. Any such equity financing would result in further dilution to existing shareholders.

The POCT market for DOA is highly competitive.

The POCT market for DOA is highly competitive. Several companies produce drug tests that compete directly with our DOA product line, including Alere (formerly Inverness Medical Innovations, Inc.) and its subsidiaries, as well as OraSure Technologies, Inc. In addition to these manufacturers, there are a number of smaller privately held companies, as well as foreign manufacturers, that compete with us. Cost-competitiveness, technological requirements and satisfactory product performance are essential for success in the POCT market for DOA.

Cost Competitiveness. Price competition continues to increase in the POCT markets as more companies offer products manufactured outside of the United States. Many foreign manufacturers have lower manufacturing costs and therefore can offer their products at a lower price. These lower costs include, but are not limited to, costs for labor, materials, regulatory compliance and insurance. 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.

Price competition is also increasing as a result of a number of mergers/acquisition in the drug testing market, as some of these mergers/acquisitions were of US based companies. Oftentimes, when US based companies are purchased, their manufacturing operations are moved outside of the US and this enables the acquirer to lower prices on the products, thereby increasing the number of lower cost products on the market.

Based upon actual results in the year ended December 31, 2012, and given current levels of operating expenses, we must achieve approximately $3.1 million in quarterly net sales to attain break-even results of operations. If our products do not achieve and maintain this level of revenue, or if we fail to maintain certain gross profit margins, our results of operations would be significantly harmed.

Technological Requirements. As new technologies are introduced into the POCT market for DOA, we may be required to commit considerable effort, time and resources to enhance our current product portfolio or develop new products to compete with these new technologies. There can be no assurance that any new enhancements or products will be successful in competing with new technologies offered by our competitors. Our success will depend upon meeting product pricing and performance objectives, and there can be no assurance that new enhancements or products will meet such price or performance objectives. We are subject to all of the risks inherent in product development, which could cause material delays in manufacturing. If we fail to keep up with technology in our industry, we may be at a competitive disadvantage or we may face technological obsolescence.

Satisfactory Product Performance. 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 drug tests or product defects affecting product performance may become apparent after our drug tests enter the market. We could incur significant costs if we are required to remedy defects in any of our products after commercial introduction. Any of these issues could result in cancelled orders, delays and increased expenses.

In addition, some of our competitors are more well known, and some have far greater financial resources, which means they can devote substantially more resources to business and product development and marketing efforts. Our inability to successfully address any competitive risk factors could negatively impact sales and further reduce our profitability.

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One of our customers accounted for more than 10% of our total net sales in the year ended December 31, 2012.

One of our customers accounted for approximately 14.8% of our total net sales in the year ended December 31, 2012. 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 our revenues. We cannot provide assurance that this customer or any of our current customers will continue to place orders, that orders by existing customers will continue at current or historical levels or that we will be able to obtain orders from new customers.

We rely on third parties for raw materials used in our DOA products and in our bulk test strip contract manufacturing processes.

We currently have approximately 51 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 DOA. For most of our raw materials we have multiple suppliers, but there are a few 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 DOA products. This interruption of the manufacturing process could impair our ability to fill customers’ orders as they are placed, putting the Company at a competitive disadvantage.

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

We have a significant amount of raw material and “work in process” inventory on hand that may not be used in the year ended December 31, 2013 if the expected configuration of sales orders is not received at projected levels.

We currently have approximately $1,578,000 in raw material components for the manufacture of our products at December 31, 2012. 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 $671,000in manufactured testing strips, or other “work in process” inventory at December 31, 2012. The components for much of this “work in process” inventory have lives of 12-24 months. If sales orders received are not for products that would utilize the raw material components, or if product developments make the raw materials obsolete, we may be required to dispose of these unused raw materials. In addition, since the components for much of the “work in process” inventory have lives of 12-24 months, if sales orders within the next 12-24 months are not for products that contain the components of the “work in process” inventory, we may need to discard this expired “work in process” inventory. We have established an allowance for obsolete or slow moving inventory. At December 31, 2012, this allowance was $261,000. There can be no assurance that this allowance will continue to be adequate for the year ending December 31, 2013 and/or that it will not have to be adjusted in the future.

We depend on our R&D team for product development and/or product enhancement.

Our R&D team performs product development and/or enhancement. 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 the Company at a competitive disadvantage.

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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 for our future success. The loss of a member of senior management could negatively impact our business and results of operations. Currently we have 2 executive officers, Stan Cipkowski, our CEO, CFO, Treasurer and Director, and Melissa A. Waterhouse, our EVP, Regulatory Affairs, Chief Compliance Officer and Corporate Secretary; both of which have employment agreements in place. Even with employment agreements in place, there can be no assurance that Cipkowski or Waterhouse will continue their employment; and the loss of either Cipkowski or Waterhouse could disrupt the business and therefore have a negative impact on business results. We also have a number of other individuals in senior management positions. There can be no assurance that they too will continue their employment. We do maintain key man insurance for our Chief Executive Officer Stan Cipkowski.

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

In the past, our industry believed that when DOA POCTs were sold in non-clinical markets (such as workplace), they did not fall under the definition of a “medical device”, but when sold in the Clinical market, they did fall under the definition of a “medical device”. When a product is a medical device, a 510(k) marketing application must be submitted to the FDA. A 510(k) is a premarketing submission made to the 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 (pre-amendments 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 a device is substantially equivalent to a predicate device.

Our urine point of collection products have received 510(k) marketing clearance from the FDA, and have therefore met FDA requirements for professional use. Our oral fluid products have never been marketed or sold to the Clinical market (or to any market that would use the products for diagnosis or treatment) and given our belief that 510(k) marketing clearance was not required to sell in non-clinical markets, we never sought 510(k) marketing clearance from FDA on our oral fluid DOA products. We have also been granted a CLIA waiver from the FDA related to our Rapid TOX product line.

In July 2009, we received a warning letter from FDA, which indicated that we were marketing OralStat (one of our oral fluid DOA products), in workplace settings without marketing clearance or approval (see Current Report on Form 8-K filed with the SEC on August 5, 2009). A warning letter is considered by FDA to be informal and advisory. While a warning letter communicates FDA’s position on a matter it does not commit the FDA to taking enforcement action. We communicated to the FDA our belief (based on legal opinion) that marketing clearance was not required in non-clinical markets, and the fact that there were many other oral fluid point of collection drug tests being sold in the Workplace market by our competitors, none of which have received FDA marketing clearance. The FDA continued to disagree with our interpretation of FDA regulations related to medical devices, and the FDA continued to assert jurisdiction of drug testing performed in the workplace. We also advised FDA that we were willing to obtain marketing clearance but that specific technical and scientific issues existed when attempting to utilize FDA’s draft guidance for our OralStat (because the draft guidance was written for urine drug tests). Nevertheless, we were unable to reach a consensus with the FDA on neither the jurisdiction issue nor the technical issues.

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On July 10, 2012, we announced in a press release and a Current Report on Form 8-K that we entered into a Consent Decree of Permanent Injunction (the “Consent Decree”) with FDA. Under the terms of the Consent Decree, we will be allowed to continue to market our OralStat drug test in the workplace market while we take action to obtain a 510(k) marketing clearance. More specifically, FDA will provide the Company with its most recent guidance on the clinical and analytical studies that need to be conducted to gather data in support of a 510(k) submission for OralStat. We will then have a total of 396 days to discuss protocols with FDA, complete our analytical and clinical studies and submit a substantially complete 510(k). We have agreed to withdraw the OralStat product from the workplace market if any of the following events occur: 1) we do not submit a substantially complete 510(k) within this specified time period, 2) we fail to submit additional information within time frames specified by FDA, 3) we withdraw our submission, or 4) our 510(k) submission results in FDA’s determination that the product is not substantially equivalent. On August 3, 2012 the Consent decree was approved and entered by the United States District Court for the Northern District of New York, and on August 3, 2012, we received guidance from FDA. We are currently taking actions that will enable us to submit a 510(k) marketing application to FDA within the time frame specified under the Consent Decree.

The cost of obtaining marketing clearance will be material and incurring such cost could have a negative impact on our efforts to improve our performance and to achieve profitability. Furthermore, there can be no assurance that we will obtain marketing clearance from the FDA, especially since we would be among the first companies to apply for such marketing clearance. Our point of collection oral fluid drug tests historically account for a material portion of our sales, with sales of oral fluid drug tests accounting for approximately 20% of our sales in the two fiscal years prior to the jurisdiction issues with FDA (the majority of which are sales to the Workplace market). An inability to market and sell our point of collection oral fluid drug tests in the Workplace market will negatively impact our revenues. In addition, the Consent Decree itself could have a negative impact on our relationships with our current customers who purchase our oral fluid tests. The loss of oral fluid test customers would also negatively impact our revenues.

Although we are currently unaware of any additional changes in regulatory standards related to any of our markets, if regulatory standards were to further change in the future, there can be no assurance that the FDA will grant the Company appropriate marketing clearances required to comply with the changes, if and when we apply for them.

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, product enhancements and name recognition are essential to establishing and maintaining our technology leadership position. Our personnel are bound by non-disclosure agreements. However, in some instances, some courts have not enforced all aspects of such 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 31 patents related to our POCT products. We have additional patent applications pending in the United States, and other countries, related to our POCT products. 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.

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Potential issuance and exercise of new options and warrants and exercise of outstanding options and warrants, along with the conversion of outstanding convertible debentures could adversely affect the value of our securities.

Stock Option Plans. We currently have two non-statutory stock option plans, the Fiscal 2000 Non-statutory Stock Option Plan (the “2000 Plan”) and the Fiscal 2001 Non-statutory Stock Option Plan (the “2001 Plan”). Both the 2000 Plan and the 2001 Plan have been adopted by our Board of Directors and approved by our shareholders, and both have options issued, but only the 2001 Plan has options available for future issuance. As of December 31, 2012 there were 23,500 options issued and outstanding under the 2000 Plan and 2,915,580 options issued and outstanding under the 2001 Plan, for a total of 2,939,080 options issued and outstanding as of December 31, 2012. Of the total options issued and outstanding, 2,189,080 are fully vested as of December 31, 2012. As of December 31, 2012, there were 801,420 options available for issuance under the 2001 Plan.

Series A Debentures. In August 2008, we completed an offering of 10% Series A Debentures (“Series A Debentures”) and received gross proceeds of $750,000. The net proceeds of the offering of Series A Debentures were $631,000 after placement agent fees and expenses, legal and accounting fees and state filing fees. Holders of the Series A Debentures have a right of conversion of the principal amount of the Series A Debentures into shares (the “Debenture Conversion Shares”) of the common stock of the Company (“Common Stock”), at a conversion rate of 666.67 shares per $500 in principal amount of the Series A Debentures (representing a conversion price of approximately $0.75 per share). This conversion right could be exercised at any time, commencing the earlier of (a) 120 days after the date of the Series A Debentures, or (b) the effective date of a Registration Statement to be filed by the Company with respect to the Conversion Shares. We have the right to redeem any Series A Debentures that have not been surrendered for conversion at a price equal to the Series A Debentures’ face value plus $0.05 per underlying common share, or $525 per $500 in principal amount of the Series A Debentures. We can exercise this redemption right at any time within 90 days after any date when the closing price of the Common Stock has equaled or exceeded $2.00 per share for a period of 20 consecutive trading days.

As placement agent, Cantone Research, Inc. (“Cantone”) received a placement agent fee, and was also issued a four-year warrant to purchase 30,450 shares of the Company’s common stock at an exercise price of $0.37 per share (the closing price of the Company’s common shares on the Closing Date) and a four-year warrant to purchase 44,550 shares of the Company’s common stock at an exercise price of $0.40 per share (the closing price of the Company’s common stock on the Series A Completion Date), (together the “Placement Agent Warrants”). All Warrants issued to Cantone were immediately exercisable upon issuance.

We registered the Debenture Conversion Shares and the Common Stock underlying the Placement Agent Warrants in a Registration Statement on Form S-3 (the “Registration Statement”) filed with the SEC on April 15, 2009 and amended on May 5, 2009. The Registration Statement was declared effective on June 10, 2009.

The Series A Debentures were set to mature on August 1, 2012; however, July 25, 2012, we entered into another Placement Agent Agreement (the “Agent Agreement”) with Cantone. Under the terms of the Agent Agreement, Cantone acted as our exclusive placement agent in connection with an amendment of the Series A Debentures. Under the amendment, the term of Series A Debentures was extended to reflect a due date of August 1, 2013, and the interest rate during the extension period was increased from 10% to 15% per annum, due quarterly in arrears. All other terms of the Series A Debentures remained unchanged. As compensation for their placement agent services, Cantone received a cash fee of 5% of the gross amount of existing Series A Debentures, or $37,500, and the Placement Agent Warrants issued to Cantone (in connection with their services as placement agent in the original Series A Debenture financing) were amended to reflect a purchase price of $0.17 per share and a new term of three (3) years.

On July 30, 2012, we entered into a Bridge Loan Agreement and Note (the “Bridge Loan”) with Cantone Asset Management, LLC (“CAM”). The Bridge Loan is in the amount of $150,000 and was used to pay $100,000 to those Holders of Series A Debentures that did not wish to amend/extend the Series A Debentures and $50,000 was used to pay placement agent fees and expenses previously indicated in the previous paragraph.

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On July 31, 2012, we entered into an Amendment to the Series A Debenture (the “Series A Debenture Amendment”) with thirty-two of the thirty-seven Holders of Series A Debentures (representing $645,000 of Series A Debentures). As previously indicated, the Series A Debenture Amendment extends the due date of the Series A Debenture to August 31, 2013 and increased the interest rate to 15% per annum, payable quarterly in arrears. All other terms of the Series A Debentures remain unchanged. Five of the Debenture Holders (representing $105,000 in Series A Debentures) did not wish to extend the Series A Debentures and we used proceeds of $100,000 from the Bridge Loan and $5,000 paid directly from the Company to pay principal amounts due to these non-extending Debenture Holders. Given that five of the Holders did not extend, and the principal paid, the number of potential Debenture Conversation Shares did decrease from just over 1 million shares to approximately 860,000 shares.

On August 1, 2012, we entered into a Consulting Agreement (“Consulting Agreement”) with CAM. The Consulting Agreement commenced August 1, 2012 and ends on August 1, 2013. Under the terms of the Consulting Agreement, CAM will provide the Company with financial advisory services and advice related to debt refinancing. On August 1, 2012, the Company issued CAM warrants to purchase 300,000 shares of the Company’s common stock at an exercise price of $0.16 per share (the closing price of the Company’s common shares on August 1, 2012) (the “CAM Warrant”). The CAM Warrant is exercisable through July 31, 2015 and has piggyback registration rights.

If these stock options, Debenture Conversion Shares, Placement Agent Warrants or CAM Warrant 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 stock options, Debenture Conversion Shares, Placement Agent Warrants or CAM Warrant could also materially impair our ability to raise capital through the future sale of equity securities because issuance of the common shares underlying the stock options, Debenture Conversion Shares, Placement Agent Warrants or CAM Warrant would cause further dilution of our securities. In addition, in the event of any change in the outstanding shares of our common stock by reason of any recapitalization, stock split, reverse stock split, stock dividend, reorganization consolidation, combination or exchange of shares, merger or any other changes in our corporate or capital structure or our common shares, the number and class of shares covered by the stock options and/or the exercise price of the stock options may be adjusted as set forth in their plans.

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

There are 4,290,523 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 (“Rule 144”), or pursuant to a registration statement filed under the Securities Act. Rule 144 addresses sales of restricted securities by affiliates and non-affiliates of an issuer. An “affiliate” is a person, such as an officer, director or large shareholder, in a relationship of control with the issuer. “Control” means the power to direct the management and policies of the company in question, whether through the ownership of voting securities, by contract, or otherwise. If someone buys securities from a controlling person or an affiliate, they take restricted securities, even if they were not restricted in the affiliate's hands.

A person who is not an affiliate of the issuer (and who has not been for at least three months) and has held the restricted securities for at least one year can sell the securities without regard to restrictions. If the non-affiliate had held the securities for at least six months but less than one year, the securities may be sold by the non-affiliate as long as the current public information condition has been met (i.e. that the issuer has complied with the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)).

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We are subject to reporting requirements of the Exchange Act. Under Rule 144, if a holder of securities is an affiliate of an issuer subject to Exchange Act reporting requirements, the securities must be held for at least six months. In addition, the number of equity securities sold during any three-month period cannot exceed 1% of the outstanding shares of the same class being sold. The securities must be sold in unsolicited, routine trading transactions and brokers may not receive more than normal commission. Affiliates must also file a notice with the SEC on Form 144 if a sale involves more than 5,000 shares or the aggregate dollar amount is greater than $50,000 in any three-month period. The sale must take place within three months of filing the Form 144 and, if the securities have not been sold, an amended notice must be filed. Investors should be aware that sales under Rule 144 or pursuant to a registration statement filed under the Securities Act may depress the market price of our securities in any market for such shares.

Our securities are currently trading on the Pink OTC Markets, Inc. (under their OTCQB™ market tier), and may be subject to SEC “penny stock,” rules, which could make it more difficult for a broker-dealer to trade our common shares, for an investor to acquire or dispose of our common shares in the secondary market and for us to retain or attract market makers.

The SEC has adopted regulations that define a “penny stock” to be any equity security that has a market price per share of less than $5.00, subject to certain exceptions, such as any securities listed on a national securities exchange or securities of an issuer in continuous operation for more than three years whose net tangible assets are in excess of $2 million, or an issuer that has average revenue of at least $6 million for the last three years. Our common shares were delisted from the NASDAQ Capital Market in September 2009 and are currently trading on the Pink OTC Markets, Inc., under their OTCQB market tier (the US registered and reporting marketplace for over-the-counter (OTC) securities). As of the year ended December 31, 2012, our net tangible assets did not exceed $2 million, however, our average revenue for the last three years exceeded $6 million, so that our securities currently qualify for exclusion from the “penny stock” definitions. However, if our three-year average revenue falls below $6 million, we would fail to qualify for the exclusion, and our common shares would be subject to “penny stock” rules. For any transaction involving a “penny stock,” unless exempt, the rules impose additional sales practice requirements on broker-dealers, subject to certain exceptions. For these reasons, a broker-dealer may find it more difficult to trade our common stock and an investor may find it more difficult to acquire or dispose of our common stock on the secondary market. Therefore, 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, and could also make it more difficult for us to raise capital in the future. Furthermore, listing on the OTCQB may make it more difficult to retain and attract market makers. In the event that market makers cease to function as such, public trading of our securities will be adversely affected or may cease entirely.

We incur additional 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 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”), and other rules subsequently implemented by the SEC, impose various requirements on public companies. Our management and other personnel must devote a substantial amount of time to these compliance requirements. Moreover, these rules and regulations have increased our legal and financial compliance costs and 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. Management is required to perform system and process evaluation and testing of the effectiveness of our internal controls over financial reporting, as required by Section 404(a) of the Sarbanes-Oxley Act. Section 404(b) of the Sarbanes-Oxley Act requires companies to obtain auditor’s attestation related to their assessment of the effectiveness of our internal controls over financial reporting. On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Wall Street Reform Act”). Section 989G of the Wall Street Reform Act expressly exempts issuers that are neither “large accelerated filers” nor “accelerated filers” (which includes smaller reporting companies, and we are a smaller reporting company) from the requirement contained in Section 404(b) of the Sarbanes Oxley Act to provide an auditor attestation of internal control over financial reporting. 

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Although we are not required to comply with Section 404(b), we remain subject to Section 404(a) (that is, management’s report on our internal controls over financial reporting). Our testing may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses. As a result, our compliance with Section 404(a) may require that we incur substantial accounting expense and expend significant management efforts. We 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 and/or to correct such material weaknesses. If we are not able to comply with the requirements of Section 404(a), or if we identify deficiencies in our internal controls over financial reporting, the market price of our common shares 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.

Difficult conditions in the global economy have adversely affected our business and results of operations and it is uncertain if these conditions will improve in the near future.

The global economy has faced an extended worldwide recession and economic crisis. The recession and economic crisis has substantially reduced our sales and negatively impacted our results of operations. The magnitude and duration of the recession and economic crisis make it extremely difficult to forecast future sales levels. Without an economic recovery, we could experience lower sales, lower gross margins and increased bad debt risks, all of which could adversely affect our results of operations, financial condition and cash flows. There could be a number of other adverse effects on the Company’s business, including insolvency of customers and suppliers.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

Item 2. PropertIES

We purchased our property in Kinderhook, New York in November 2001. The property currently consists of a 30,000 square foot facility with approximately 22 surrounding acres. Our Kinderhook facility houses administration, customer service, inside sales, assembly and packaging and shipping. We lease (under a long-term, non-cancellable lease) 14,400 square feet of space in Logan Township, New Jersey that houses our bulk test strip manufacturing and research and development. Both facilities are currently adequate and meet the needs of all areas of the Company.

Item 3. Legal Proceedings

On December 16, 2010, we filed a complaint in the Supreme Court of the State of New York in Columbia County against Martin R. Gould (“Gould”), Jacqueline Gale (“Gale”), Advanced Diagnosticum Products, Inc. (“ADPI”) and Biosure, Inc. (“Biosure”), together the “Defendants”. The complaint alleges that Gould, our former Chief Science Officer and Executive Vice President of Technology, and Gale, our former Vice President of Manufacturing and Development, were performing illegal, competitive, employment-related services for ADPI and Biosure during their employment with the Company, were using Company resources to perform such services, and were doing so in their capacity as employees and/or officers of ADPI and Biosure. Because the Defendants continue to engage in illegal activity, in addition to the compensatory and punitive damages noted below, the complaint also seeks an injunction restraining the Defendants from engaging in further wrongdoing. The Defendants exercised their right to move the action to federal court, and proceedings are now pending in the United States District Court for the District of New Jersey.

In the Complaint, we assert claims of breach of duty of loyalty, breach of contract, violation of fiduciary duty and unfair competition and conversion specifically against Gould, and claims of breach of duty, violation of fiduciary duty and unfair competition and conversion specifically against Gale. In addition to these claims, we assert claims of conversion, tortious interference with contract, interference with prospective advantage and common law misappropriation of trade secret information against all Defendants. We are seeking judgment on nine (9) causes of action for compensatory damages against Defendants in such amount as may be established at trial, together with punitive damages in the amount of one million dollars ($1,000,000) for each cause of action in the Complaint (totaling $9,000,000).

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On March 28, 2011, the Defendants filed an Answer to our Complaint and Defendant Gould filed a counter-claim against the Company in the amount of $150,000 alleging breach of contract related to an employment agreement between Gould and the Company. We filed a reply to Gould’s counterclaim on April 13, 2011. Our reply asserted that the Company did not breach the prior employment agreement in place with Gould, that the Company provided the required written notice of non-renewal of Gould’s employment agreement, and that Gould’s employment agreement expired on May 31, 2010; at which time Gould became an at-will employee of the Company. Gould was subsequently terminated for cause on July 28, 2010. A conference was held with the court on June 16, 2011, at which issues in dispute were discussed and a discovery schedule was set. The Company has responded to the Defendants discovery requests and as of the date of this report, the Company is awaiting complete responsive discovery items from Defendants. Depositions in the matter are ongoing. Depositions and discovery were expected to be completed by April 30, 2012, however, pretrial discovery was extended to September 28, 2012 due to an unexpected personal issue that occurred involving the Defendants attorney; this unexpected issue was unrelated to the case or the claims of the case. On September 11, 2012, pretrial discovery was extended again to December 14, 2012 and on January 18, 2013, another court conference was held that further extended factual discovery until February 28, 2013 and all depositions, including expert witness, are to be conducted by June 3, 2013.

As previously disclosed, we received a warning letter from the FDA in July 2009 that alleges we were marketing our point of collection oral fluid drug test, OralStat, in workplace settings without marketing clearance or approval. A warning letter is considered by FDA to be informal and advisory. While a warning letter communicates FDA’s position on a matter it does not commit the FDA to taking enforcement action. We communicated to the FDA our belief (based on legal opinion) that marketing clearance was not required in non-clinical markets. The FDA continued to disagree with our interpretation of FDA regulations related to medical devices, and the FDA continued to assert jurisdiction of drug testing performed in the workplace. We also advised FDA that we were willing to obtain marketing clearance but that specific technical and scientific issues existed when attempting to utilize FDA’s draft guidance for our OralStat (because the draft guidance was written for urine drug tests). Nevertheless, we were unable to reach a consensus with the FDA on neither the jurisdiction issue nor the technical issues.

On July 10, 2012, we announced in a press release and a Current Report on Form 8-K that we entered into a Consent Decree of Permanent Injunction (the “Consent Decree”) with FDA. Under the terms of the Consent Decree, we will be allowed to continue to market our OralStat drug test in the workplace market while we take action to obtain a 510(k) marketing clearance. More specifically, FDA will provide the Company with its most recent guidance on the clinical and analytical studies that need to be conducted to gather data in support of a 510(k) submission for OralStat. We will then have a total of 396 days to discuss protocols with FDA, complete our analytical and clinical studies and submit a substantially complete 510(k). We have agreed to withdraw the OralStat product from the workplace market if any of the following events occur: 1) we do not submit a substantially complete 510(k) within this specified time period, 2) we fail to submit additional information within time frames specified by FDA, 3) we withdraw our submission, or 4) our 510(k) submission results in FDA’s determination that the product is not substantially equivalent. On August 3, 2012 the Consent decree was approved and entered by the United States District Court for the Northern District of New York, and on August 3, 2012, we received guidance from FDA. We are currently taking actions that will enable us to submit a 510(k) marketing application to FDA within the time frame specified under the Consent Decree.

In addition to the previous disclosures, from time to time, the Company is named in legal proceedings in connection with matters that arose during the normal course of business. While the ultimate result of any such litigation cannot be predicted, if we are unsuccessful in defending any such litigation, the resulting financial losses could have an adverse effect on the financial position, results of operations and cash flows of the Company. We are aware of no significant litigation loss contingencies for which management believes it is both probable that a liability has been incurred and that the amount of the loss can be reasonably estimated.

Item 4. MINE SAFETY DISCLOSURE

Not Applicable.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common shares are currently trading on the Pink OTC Markets, Inc. under their OTCQB market tier (the US registered and reporting marketplace for over-the-counter (OTC) securities) under the symbol “ABMC”.

The following table sets forth the high and low closing bid prices of our securities as reported by the OTCQB in the years ended December 31, 2012 and December 31, 2011. The prices quoted reflect inter-dealer prices, without retail mark-up, mark-down, or commission and may not necessarily represent actual transactions.

Year ended December 31, 2012	High		Low
Quarter ending December 31, 2012	$	0.18	$	0.13
Quarter ending September 30, 2012	$	0.19	$	0.16
Quarter ending June 30, 2012	$	0.19	$	0.16
Quarter ending March 31, 2012	$	0.18	$	0.14

Year ended December 31, 2011	High		Low
Quarter ending December 31, 2011	$	0.12	$	0.06
Quarter ending September 30, 2011	$	0.13	$	0.06
Quarter ending June 30, 2011	$	0.14	$	0.06
Quarter ending March 31, 2011	$	0.18	$	0.07

Holders

Based upon the number of record holders and individual participants in security position listings, as of March 28, 2013, there were approximately 2,300 holders of our securities. As of March 28, 2013, there were 22,166,336 common shares outstanding.

Dividends

We have not declared any dividends on our common shares and do not expect to do so in the foreseeable future. Future earnings, if any, will be retained for use in our business.

Securities authorized for issuance under equity compensation plans previously approved by security holders

We currently have two Non-statutory Stock Option Plans (the 2000 Plan and the 2001 Plan, collectively the “Plans”) that have been adopted by our Board of Directors and subsequently approved by our shareholders. The Plans provide for the granting of options to employees, directors, and consultants (see Part I, Item 1A, Risk Factor titled, “Potential issuance and exercise…”).

Securities authorized for issuance under equity compensation plans not previously approved by security holders

As part of their compensation as the placement agent in connection with the extension of our Series A Debentures, on July 31, 2012, Cantone Research, Inc. (“Cantone”) was issued a three-year warrant, immediately exercisable, to purchase 75,000 shares of the Company’s common stock at an exercise price of $0.17 per share.

On August 1, 2012, we entered into a Consulting Agreement (“Consulting Agreement”) with Cantone Asset Management, LLC (“CAM”). The Consulting Agreement commenced August 1, 2012 and ends on August 1, 2013. Under the terms of the Consulting Agreement, CAM will provide the Company with financial advisory services and advice related to debt refinancing. On August 1, 2012, the Company issued CAM warrants to purchase 300,000 shares of the Company’s common stock at an exercise price of $0.16 per share (the closing price of the Company’s common shares on August 1, 2012) (the “CAM Warrant”). The CAM Warrant is exercisable through July 31, 2015 and has piggyback registration rights. (see Part I, Item 1A, Risk Factor titled, “Potential issuance and exercise…”).

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The following table summarizes information as of December 31, 2012, 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 (a)		Weighted-average exercise price of outstanding options, warrants and rights (b)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity Compensation Plans approved by security holders		2,939,080	$	0.56		824,920
Equity Compensation Plans not approved by security holders		375,000	$	0.16		NA

Performance Graph

As a smaller reporting company, we are not required to provide the information required under this item.

Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities, Purchases of equity securities by the issuer and affiliated purchasers

On August 1, 2012, we entered into a Consulting Agreement (“Consulting Agreement”) with Cantone Asset Management, LLC (“CAM”). The Consulting Agreement commenced August 1, 2012 and ends on August 1, 2013. Under the terms of the Consulting Agreement, CAM will provide the Company with financial advisory services and advice related to debt refinancing. On August 1, 2012, the Company issued CAM warrants to purchase 300,000 shares of the Company’s common stock at an exercise price of $0.16 per share (the closing price of the Company’s common shares on August 1, 2012) (the “CAM Warrant”). The CAM Warrant is exercisable through July 31, 2015 and has piggyback registration rights. (see Part I, Item 1A, Risk Factor titled, “Potential issuance and exercise…”).

ITEM 6. SELECTED FINANCIAL DATA

As a smaller reporting company, we are not required to provide the information required under this item.

Item 7. Management’s Discussion and Analysis OF FINANCIAL CONDITION AND RESULTS of Operations

The following discussion and analysis provides information, which we believe is relevant to an assessment and understanding of our financial condition and results of operations. The discussion should be read in conjunction with the financial statements contained herein and the notes thereto. Certain statements contained in this Annual Report on Form 10-K, including, without limitation, statements containing the words “believes”, “anticipates”, “estimates”, “expects”, “intends”, “projects”, and words of similar import, are forward-looking as that term is defined by the Private Securities Litigation Reform Act of 1995 (“1995 Act”), and in releases issued by the SEC. These statements are being made pursuant to the provisions of the 1995 Act and with the intention of obtaining the benefits of the “Safe Harbor” provisions of the 1995 Act. We caution that any forward-looking statements made herein are not guarantees of future performance and that actual results may differ materially from those in such forward-looking statements as a result of various factors, including, but not limited to, any risks detailed herein, including the “Risk Factors” section contained in Part I, Item 1A of this Form 10-K, or detailed in our most recent reports on Form 10-Q and Form 8-K and from time to time in our other filings with the SEC and amendments thereto. We are not undertaking any obligation to publicly update any forward-looking statements. Readers should not place undue reliance on these forward-looking statements.

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Overview and Plan of Operations

During the year ended December 31, 2012, we sustained a net loss of $1,111,000 from net sales of $9,343,000, and had net cash provided by operating activities of $236,000. During the year ended December 31, 2011, we sustained a net loss of $345,000 from net sales of $9,272,000, and had net cash provided by operating activities of $449,000.

During the year ended December 31, 2012, we continued to market and distribute our urine and oral fluid-based point of collection tests for DOA and our Rapid Reader drug screen result and data management system, and we also performed bulk test strip contract manufacturing services for unaffiliated third parties. Throughout the year ended December 31, 2012, we continued to take steps to reduce manufacturing costs to increase our gross margin. The recession continued to have a negative impact on our sales throughout the year ended December 31, 2012, although we were able to achieve a moderate increase in sales in the year ended December 31, 2012 when compared to the year ended December 31, 2011. In response to the uncertainties associated with the state of the global economy, we have continued to implement cost-cutting measures to reduce our operating expenses. Although these measures did not prevent us from sustaining a net loss in the year ended December 31, 2012, these measures did enable the Company to minimize our net loss.

Our sales strategy continues to be a focus on direct sales, while identifying new contract manufacturing opportunities and pursuing new national and international accounts. Simultaneously with these efforts, we continue to focus on the development of new product platforms and configurations to address market trends and needs.

Our continued existence is dependent upon several factors including, but not limited to, our ability to raise revenue levels, to continue to reduce costs to generate positive cash flows, and to sell additional shares of our common stock to fund operations and/or obtain additional credit facilities, if and when necessary.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, or “U.S. GAAP”. Part IV, Item 15, Note A to our financial statements describes the significant accounting policies and methods used in the preparation of our financial statements. The accounting policies that we believe are most critical to aid in fully understanding and evaluating the financial statements include the following:

Use of Estimates: The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to product returns, bad debts, inventories, income taxes, warranty obligations, contingencies and litigation. Estimates are based 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.

Revenue: Revenue is recognized upon shipment to customers.

Accounts Receivable and Allowance for Doubtful Accounts: We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, an additional allowance may be required.

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Inventory and Allowance for Slow Moving and Obsolete Inventory: We maintain an allowance for slow moving and obsolete inventory. If necessary, actual write-downs to inventory are made 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 allowances or write-downs may be required.

Deferred Income Tax Asset Valuation Allowance: We record a valuation allowance to reduce our deferred income tax assets to the amount that is more likely than not to be realized. While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the deferred income tax asset valuation allowance, in the event we were to determine that we would be able to realize our deferred income tax assets in the future in excess of our net recorded amount, an adjustment to the deferred income tax asset would increase income in the period such determination was made.

Results of operations for the year ended December 31, 2012, compared to the year ended December 31, 2011

Net Sales: Net sales increased 1.0% to $9,343,000 in the year ended December 31, 2012 (“Fiscal 2012”) from $9,272,000 in the year ended December 31, 2011 (“Fiscal 2011”).

Throughout most of Fiscal 2012, the Company sales to our core market of Workplace increased as unemployment rates continue to improve (although at a somewhat slow rate). In addition, Workplace sales were negatively impacted in the first quarter of Fiscal 2011 by our temporary and voluntary cessation of marketing and selling of our oral fluid product in the Workplace market. Contract manufacturing sales consistently improved throughout Fiscal 2012 due to increased contract manufacturing of a product to detect fetal amniotic rupture and a product to detect RSV (respiratory syncytial virus). International sales declined through the second quarter of 2012 but we saw some improvement in the third quarter of 2012, primarily as a result of increased sales to Europe and Latin America.

Government sales declined throughout Fiscal 2012. The economic turmoil has resulted in decreased purchasing levels on some of the government contracts we currently hold; as many of our government customers are attempting to close budget deficits. We continue to find it challenging to compete against foreign manufacturers when attempting to secure contracts with the government. Most government contracts are awarded via an open solicitation process and in most cases, the company with the lowest priced product is awarded the contract. Since foreign manufacturers can offer their products at a lower price due to lower costs, including but not limited to, lower labor, material, regulatory and insurance costs, it has become increasingly difficult to compete from a cost standpoint. However, we have been successful in garnering government contracts, especially in those cases when an emphasis is placed on quality, customer service, technical support and “Made in America” requirements.

While we remain encouraged by reports of improvement in certain aspects of domestic and global economic conditions, until the rate of economic recovery substantially increases, any sales improvement we may experience in our core markets of Workplace and Government is expected to be minimal, however, as a result of signs of improving economic activity, in the fourth quarter of Fiscal 2011, we added two additional sales people to aggressively pursue additional sales opportunities. We are hopeful that future improvement in sales will be more consistent and that we will begin to see improvement in sales in our core markets. If we continue to experience sales declines, we are hopeful such declines will be minimal. We are optimistic that sales in our International market and Contract Manufacturing sales will either continue to improve or decline at minimal rates.

Cost of goods sold/gross profit: Cost of goods sold increased to 64.2% of net sales in Fiscal 2012 from 58.2% of sales in Fiscal 2011. Negatively impacting cost of goods in Fiscal 2012 were inventory disposals and a limited cash flow diminished our capacity to purchase raw materials in greater quantities (and on better terms). Cost of goods in Fiscal 2011 was also negatively impacted by increased costs of raw materials and downward pressure on selling prices as a result of competition from foreign manufacturers.

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In response to uncertain market conditions, we have reduced our inventory levels and the amount of product being manufactured; however, certain direct labor and overhead costs are fixed and such fixed costs are now being allocated to a reduced number of manufactured strips, thus increasing our manufacturing cost per unit. We continuously evaluate our production personnel levels as well as our product manufacturing levels to ensure they are adequate to meet current and anticipated sales demands.

Gross profit in the year ended December 31, 2012 continued to be negatively affected by decreased sales margins due to price pressure from foreign manufacturers and general price pressure in our markets in response to the recession.

Operating Expenses: Operating expenses for Fiscal 2012 increased $251,000, or 6.2% when compared to operating expenses in Fiscal 2011. Research and Development expense decreased while selling and marketing and general and administrative increased as noted below:

Research and development (“R&D”)

R&D expenses for Fiscal 2012 decreased $16,000, or 7.2%, when compared to R&D expenses incurred in Fiscal 2011. The reduction was primarily a result of decreased salaries and benefits. Throughout Fiscal 2012, our R&D department continued to focus their efforts on the enhancement of current products, development of new product platforms and exploration of contract manufacturing opportunities.

Selling and marketing

Selling and marketing expenses for Fiscal 2012 increased $52,000, or 2.9% when compared to selling and marketing expenses incurred in Fiscal 2011. The increase in expense primarily results from an increase in sales commissions partially offset by a decrease in travel expenses and a reduction of royalties payable. Throughout Fiscal 2012, we promoted our products through various marketing activities, including but not limited to selected advertising and participation at trade shows. Our direct sales force continued to focus their selling efforts in our core markets of Workplace and Government, as well as in the Clinical market with our CLIA waived Rapid TOX product line.

General and administrative (“G&A”)

G&A expenses for Fiscal 2012 increased $215,000, or 10.6% when compared to Fiscal 2011. Increases in legal fees, patents and licenses, SEC reporting costs, travel and non-cash compensation were partially offset by reductions in financing costs, auditing expenses and consulting fees.

We believe that our current infrastructure is sufficient to support our business. However, additional investments in research and development, selling and marketing and general and administrative may be necessary to develop new products in the future and enhance our current products to meet the customer needs in the POCT market, to grow our contract manufacturing operations, to promote our products in our markets and to institute changes that may be necessary to comply with various regulatory and public company reporting requirements.

Other income and expense: Other income during Fiscal 2012 consisted of grant income. The grant was originally received from the Columbia Economic Development Corporation and totaled $100,000. The grant was convertible to a loan based upon a percentage of the grant declining from 90% of the grant amount in 2003 to 0% in 2012. The grant was convertible to a loan only if the employment levels in the Kinderhook facility dropped below 45 employees at any time during the year. The employment levels in the Kinderhook facility were 47 and 49 at the years ended December 31, 2012 and December 31, 2011, respectively. The amount of grant income was $10,000 in both Fiscal 2012 and Fiscal 2011.

During Fiscal 2012 and Fiscal 2011 we incurred interest expense of $194,000 and $198,000, respectively, related to our loans and lines of credit with First Niagara Bank, Rosenthal & Rosenthal, Inc., and Medallion Business Credit.

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LIQUIDITY AND CAPITAL RESOURCES AS OF DECEMBER 31, 2012

Our cash requirements depend on numerous factors, including product development activities, penetration of our core markets, and effective management of inventory levels and production levels in response to sales forecasts. We expect to devote capital resources to continue product development and research and development activities. We will examine other growth opportunities including strategic alliances and expect such activities will be funded from existing cash and cash equivalents, issuance of additional equity or additional borrowings, subject to market and other conditions. Our financial statements for Fiscal 2012 have been prepared assuming we will continue as a going concern. As of the date of this report, we do not believe that our current cash balances, together with cash generated from future operations and amounts available under our credit facilities will be sufficient to fund operations for the next twelve months. If cash generated from operations is not sufficient to satisfy our working capital and capital expenditure requirements, we will be required to sell additional equity or obtain additional credit facilities. There is no assurance that such financing will be available or that we will be able to complete financing on satisfactory terms, if at all.

In Fiscal 2012, the Company had a real estate mortgage with First Niagara, a line of credit with Medallion Business Credit (which refinanced a line of credit with Rosenthal and Rosenthal, Inc.).

Real Estate Mortgage with First Niagara

On December 17, 2009, we closed on a refinancing and consolidation of our existing real estate mortgage and term note with First Niagara (the “Mortgage Consolidation Loan”). The Mortgage Consolidation Loan was secured by our facility in Kinderhook, New York as well as various pieces of machinery and equipment. We had to comply with a covenant to maintain Liquidity of at least $50,000 (Liquidity is defined as any combination of cash, marketable securities or borrowing availability under one or more credit facilities other than the Mortgage Consolidation Loan), and we maintained compliance with this covenant through the term of the Mortgage Consolidation Loan.

The annual interest rate of the Mortgage Consolidation Loan was fixed at 8.75%. The monthly payment of principal and interest was $16,125. Accrued interest was paid at closing totaling $7,000. In addition, we were required to make a $25,000 principal payment at the time of closing on the prior existing Term Note. We incurred approximately $28,000 in costs associated with the Mortgage Consolidation Loan, which were included in prepaid expenses and other current assets, and were amortized over the term of the Mortgage Consolidation Loan. For the year ended December 31, 2011 we amortized the final $2,000 of these costs. Payments commenced on the Mortgage Consolidation Loan on February 1, 2010, and the loan matured on January 1, 2011.

On February 23, 2011, we amended and extended the Mortgage Consolidation Loan. The amended Mortgage Consolidation Loan has a maturity date of March 1, 2013, and has a 6-year (72 month) amortization. The principal amount of the amended Mortgage Consolidation Loan is $815,000 with a fixed interest rate of 8.25%. The monthly payment of principal and interest is $14,000 and payments commenced on March 1, 2011. We were required to make a $15,000 principal payment at the time of closing of the amended Mortgage Consolidation Loan. We also incurred approximately $2,000 in costs associated with this amendment, which were legal costs incurred by First Niagara and passed on to the Company. These costs were fully amortized as of September 30, 2012. The amended Mortgage Consolidation Loan continues to be secured by our facility in Kinderhook, New York as well as various pieces of machinery and equipment. All other terms of the Mortgage Consolidation Loan remain unchanged, including compliance with the Liquidity covenant previously discussed. As of the date of this report, we are in compliance with this covenant. The balance on the Mortgage Consolidation Loan was $608,000 and $725,000 for the years ended December 31, 2012 and December 31, 2011, respectively. Interest expense recognized was $56,000 and $66,000 for Fiscal 2012 and Fiscal 2011, respectively.

Refinance/Extension of Mortgage Consolidation Loan

On March 8, 2013, the Company entered into a Second Amendment to Loan Agreement (the “Second Mortgage Consolidation Loan Amendment”) with First Niagara Bank related to the Company’s Mortgage Consolidation Loan. Under the Second Mortgage Consolidation Loan Amendment, the Mortgage Consolidation Loan was recast into a 4-year fully amortizing note with a one-year term through March 1, 2014. The interest rate was increased from 8.25% to 9.25% and the monthly payment was reduced to $14,115 from $14,437. The Company was required to make a principal reduction payment of $25,000 at the time of closing. All other terms of the Mortgage Consolidation Loan remained unchanged.

Loan and Security Agreement with Medallion Financial Corp (“Medallion”)

On April 20, 2012 (the “Closing Date”), we entered into a Loan and Security Agreement (the “Loan Agreement”) with Medallion, a Senior Lender, to refinance the Company’s Line of Credit with Rosenthal and Rosenthal, Inc (“Rosenthal”; see below for information on Rosenthal Line of Credit).

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Under the Loan Agreement, Medallion provided the Company with up to $1,000,000 under a revolving secured line of credit (the “Medallion Line of Credit”), which is secured by a first security interest in all of the Company’s receivables, inventory, and intellectual property rights along with a second security interest in the Company’s machinery and equipment. The maximum amount available under the Medallion Line of Credit is subject to an Advance Rate that consists of: 85% of eligible accounts receivable and up to 30% of eligible inventory (not to exceed $150,000). “Eligible Receivables” are defined as those receivables that are paid within ninety (90) days of the invoice date. Eligible Receivables consists of both domestic sales and those international sales made in North America. An Eligible Receivable becomes ineligible if more than 25% of the aggregate receivables due from a customer are more than ninety (90) days past due or the aggregate receivables from a customer exceed 25% of the then total outstanding Eligible Receivables. “Eligible Inventory” is defined as raw materials and finished goods that are not obsolete or unmerchantable and are acceptable to Medallion.

From the loan availability on the Closing Date, we drew approximately $566,000 to pay off our Line of Credit with Rosenthal. We were charged a facility fee of 1% of the balance of the Medallion Line of Credit on the Closing Date and will be charged the same facility fee of 1% on each anniversary of the Closing Date thereafter. Under the Loan Agreement, interest on outstanding borrowings is payable monthly and is charged at an annual rate equal to 4% above a base rate (which is the Wall Street Journal Prime as published from time to time; as of December 31, 2012, the Wall Street Journal Prime was 3.25%). If we were to default under the Loan Agreement, interest on outstanding borrowings under the Medallion Line of Credit would be charged at an annual rate of 2% above the interest rate in effect at the time of such default. We are subject to two audits per year by Medallion (provided we are not in default) at a rate of $950.00 per person per day. Prior to closing, we also paid a non-refundable fee in the amount of $10,000 to Medallion for field exam and due diligence costs.

We incurred $20,000 in costs related to the Medallion Line of Credit. These costs were fully expensed in Fiscal 2012. We incurred $42,000 in interest expense in Fiscal 2012 (no interest expense was incurred in Fiscal 2011 as we did not close on the Medallion Line of Credit until April 2012). We had accrued interest of $3,000 at December 31, 2012.

The amount outstanding on the Medallion Line of Credit at December 31, 2012 was $321,000. Additional loan availability was $67,000, for a total Loan Availability of $388,000 as of December 31, 2012. No amounts were outstanding or available at December 31, 2011, as we did not close on the Medallion Line of Credit until April 2012.

So long as any obligations are due to Medallion under the Medallion Line of Credit, we must maintain stockholders’ equity of at least $1,750,000. The Company was not in compliance with this requirement as of the year ended December 31, 2012, however, on January 16, 2013, the Company entered into a three-year Loan and Security Agreement (“LSA”) with Imperium Commercial Finance, LLC (“Imperium”), a new Senior Lender, to refinance the Medallion Line of Credit. Given the termination (and refinancing) of the Medallion Line of Credit, this default did not result in any triggers under the Medallion Line of Credit and did not result in any financial implications for the Company.

(Imperium Line of Credit – Subsequent Event)

Under the LSA, Imperium has agreed to provide the Company with up to a maximum amount of $1,500,000 (“Maximum Funding Amount”) under a revolving secured loan facility (the “Imperium Line of Credit”), which is secured by a first security interest in all of the Company’s receivables, inventory, and intellectual property rights along with a second security interest in the Company’s machinery and equipment (together the “Collateral”). The Maximum Funding Amount is subject to a discretionary borrowing base comprised of: 85% of eligible accounts receivables (excluding, without limitation, receivables remaining unpaid for more than 90 days from invoice date or 60 days from due date, contra receivables, and affiliated receivables), up to the lesser of 60% of eligible finished goods inventory at cost or 75% of appraised net orderly liquidation value of inventory, and a receivable dilution rate of less than 5% (the “Borrowing Base”).

In addition to the Imperium Line of Credit, the Imperium facility includes a discretionary Supplemental Advance of up to $500,000 (the “Imperium Supplemental Advance”). Supplemental advances, once repaid, cannot be re-borrowed, and is secured with the same Collateral as the Imperium Line of Credit.

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The Imperium Line of Credit is to be used for working capital and general corporate purposes, and the Imperium Supplemental Advance is to be used for costs associated with obtaining marketing clearance of the Company’s oral fluid products and costs associated with other new market opportunities.

On the Closing Date, the Company paid a closing fee of $10,000 to Imperium, and granted Imperium a 7-year warrant to purchase 2,000,000 common shares of the Company at an exercise price of $0.18 (the “Imperium Warrants”). The Imperium Warrants will be valued using the Black-Scholes pricing model. The Company also paid an early termination fee of $25,000 to Medallion on the Closing Date, and a finder’s fee of 3% of the gross proceeds from the Imperium financing, or $60,000, to Monarch Capital Group, LLC.

The Company will also pay Imperium an Unused Line Fee in an amount equal to 2% (a) from and after the Closing Date through and including March 31, 2013, the Maximum Revolving Amount of $1,500,000 less the aggregate amounts outstanding to Imperium and (b) at all time from and after April 1, 2013, the Maximum Amount of $2,000,000 less the aggregate amounts outstanding to Imperium. The Unused Line Fee for each month (except for the month in which the termination occurs) is payable on the first day of each calendar month following the Closing Date; the final monthly installment of the Unused Line Fee is payable on the termination date. The Company will also pay to Imperium a Collateral monitoring fee of $2,500 on the first day of each month during the term of the LSA.

A success fee of $175,000 (“Success Fee”) is due and payable if Imperium terminates due to an event of default, or if the Company terminates and pre-pays all amounts due to Imperium prior to the stated expiration date of January 16, 2016, however, the Success Fee is not due and payable if Imperium has exercised all its rights under the Imperium Warrant and sells all of the common shares underlying the Imperium Warrant on or before January 16, 2016 and if on the date that Imperium completes such sale(s), the price per share of the Company’s common shares is at least $0.70 per common share.

Under the LSA, interest on the Imperium Line of Credit and the Imperium Supplemental Advance is in cash at a rate equal to eight percent (8%) per annum and (ii) in kind (i.e., “PIK” interest) at a rate equal to two percent (2%) per annum (collectively, the “Interest Rate”), all of which “PIK” interest shall be added to and constitute a part of the aggregate principal amount of outstanding Line of Credit borrowing or aggregate principal amount of outstanding Supplemental Advances, as applicable, as and when such “PIK” interest becomes due and payable hereunder. Interest is payable on the Line of Credit and Supplemental Advance in arrears for the preceding calendar month on the first day of each calendar month.

So long as any obligations are due to Imperium under the LSA, the Company must maintain Net Borrowing Availability of not less than $100,000 (Net Borrowing Availability is defined as borrowing availability less the amounts due under the Imperium Line of Credit). There are also certain minimum EBITDA (Earnings Before Interest, Taxes Depreciation and Amortization) requirements. More specifically, the Company must have EBITDA of not less than (a) $25,000 for the Fiscal Quarter ending on or about March 31, 2013, (b) $100,000 for the Fiscal Quarter ending on or about June 30, 2013, (c) $200,000 for the Fiscal Quarter ending on or about September 30, 2013, and (d) $300,000 for the Fiscal Quarter ending on or about December 31, 2013 and for each of the Fiscal Quarters thereafter.

In an event of default, which includes but is not limited to, failure of the Company to make any payment when due, and non-compliance with the Net Borrowing Availability and minimum EBITDA requirements, the interest rate will be increased by 4% for as long as the event of default occurs. Imperium’s other remedies include, but are not limited to, termination or suspension of Imperium’s obligation to make further advances to the Company, declaration of all amounts owed to Imperium due and payable.

On December 18, 2012, the Company gave Medallion written notice of non-renewal as provided under the Financing Agreement. On January 16, 2013 all indebtedness due to Medallion was paid in full and Medallion’s security interest in the Company’s assets were terminated.

ROSENTHAL LINE OF CREDIT

In July 2009, we entered into a Financing Agreement (the “Financing Agreement”) with Rosenthal. On February 28, 2012, we gave Rosenthal written notice of non-renewal as provided under the Financing Agreement, and as a result, the Financing Agreement terminated on May 31, 2012.

Under the Financing Agreement, Rosenthal provided the Company with up to $1,500,000 under a revolving secured line of credit (“Rosenthal Line of Credit”). The Rosenthal Line of Credit was collateralized by a first security interest in all of the Company’s accounts receivables, inventory, and intellectual property, and a second security interest in our machinery and equipment, leases, leasehold improvements, furniture and fixtures. The maximum availability of $1,500,000 was subject to an availability formula based on certain percentages of accounts receivable and inventory, and elements of the availability formula were subject to periodic review and revision by Rosenthal. Under the Financing Agreement, we paid Rosenthal an administrative fee of $1,500 per month and an annual fee of $15,000. There were additional administrative fees paid that totaled $34,000 in Fiscal 2011 (there were no administrative fees charged in Fiscal 2012). Under the Financing Agreement, interest was payable monthly, and was charged at variable rates (based on the Prime Rate), with minimum monthly interest of $4,000. We incurred $19,000 in interest expense in Fiscal 2012 and $54,000 in interest expense in Fiscal 2011.

26

We incurred $41,000 in costs related to the Rosenthal Line of Credit. These costs were amortized over the three-year term of the Rosenthal Line of Credit. We amortized $6,000 of these costs in Fiscal 2012 and $14,000 of these costs in Fiscal 2011.

In April 2012, we drew approximately $566,000 from our Medallion Line of Credit to pay off the Rosenthal Line of Credit so the amount due on the Rosenthal Line of Credit as of December 31, 2012 was $0. The amount outstanding on the Rosenthal Line of Credit at December 31, 2011 was $397,000, with $361,000 of this amount outstanding collateralized by accounts receivable at an interest rate of 8% and $36,000 collateralized by inventory at an interest rate of 9%. Additional loan availability was $159,000, for a total Loan Availability of $556,000 as of December 31, 2011.

DEBENTURE FINANCING

In August 2008, we completed an offering of Series A Debentures (“Series A Debentures”) and received gross proceeds of $750,000. The net proceeds of the offering of Series A Debentures were $631,000 after $54,000 of placement agent fees and expenses, legal and accounting fees of $63,000 and $2,000 of state filing fees.

The Series A Debentures accrued interest at a rate of 10% per annum (payable by the Company semi-annually). As placement agent, Cantone Research, Inc. (“Cantone”) received a placement agent fee of $52,500, or 7% of the gross principal amount of Series A Debentures sold. In addition, we issued Cantone a four-year warrant to purchase 30,450 shares of the Company’s common stock at an exercise price of $0.37 per share (the closing price of the Company’s common shares on the date of closing) and a four-year warrant to purchase 44,550 shares of the Company’s common stock at an exercise price of $0.40 per share (the closing price of the Company’s common stock on the Series A Debentures completion date). All warrants issued to Cantone were immediately exercisable upon issuance. We registered the common shares underlying the Series A Debentures in a registration statement on Form S-3 filed with the SEC on April 15, 2009 and amended on May 5, 2009. On June 10, 2009, the SEC issued a notice of effectiveness related to this Form S-3, as amended.

We incurred $131,000 in expenses related to the offering, including $12,000 in expense related to warrants issued to Cantone. We amortized $19,000 of expense related to these debt issuance costs in Fiscal 2012, of which a little under $2,000 was share based payment expense related to the Cantone warrants, and $32,000 of expense in Fiscal 2011, of which just over $2,000 was share based payment expense related to the Cantone warrants.

The unamortized balance was $0 as of December 31, 2012 (as the Series A Debentures matured on August 1, 2012) and $19,000 as of December 31, 2011.

Series A Debenture Extension

The Series A Debentures matured on August 1, 2012. On July 25, 2012, we entered into a Placement Agent Agreement (the “Agent Agreement”) with Cantone. Under the terms of the Agent Agreement, Cantone acted as our exclusive placement agent in connection with an amendment of the Series A Debentures. Under the amendment, the term of Series A Debentures was extended to reflect a due date of August 1, 2013, and the interest rate during the extension period was increased from 10% to 15% per annum, due quarterly in arrears.

As compensation for their placement agent services, Cantone received a cash fee of 5% of the gross amount of existing Series A Debentures, or $37,500, and the warrants issued to Cantone (in connection with their services as placement agent in the original Series A Debenture financing) were amended to reflect a purchase price of $0.17 per share and a new term of three (3) years. Cantone also received 1% of the gross amount of Series A Debentures, or $7,500, as a non-accountable expense allowance and we reimbursed Cantone $5,000 in legal fees incurred in connection with the amendment of the Series A Debentures. We will amortize the costs (totaling $50,000) associated with the amendment of the Series A Debentures over the term of the extension (12 months).

27

On July 30, 2012, we entered into a Bridge Loan Agreement and Note (the “Bridge Loan”) with Cantone Asset Management, LLC (“CAM”). The Bridge Loan is in the amount of $150,000 and was used to pay $100,000 to those Holders of Series A Debentures that did not wish to amend/extend the Series A Debentures and $50,000 was used to pay placement agent fees and expenses previously indicated in the previous paragraph.

The maturity date of the Bridge Loan is August 1, 2013 and it bears simple interest in advance of 15%. In addition to the interest, on August 1, 2012, the Company instructed its transfer agent to issue CAM restricted stock of the Company equal to 10% of the gross amount of existing Series A Debentures, or $15,000 using a value of $0.17 per common share. On August 8, 2012, 88,235 restricted common shares were issued to CAM.

On July 31, 2012, we entered into an Agreement to the Series A Debenture (the “Series A Debenture Amendment”) with thirty-two of the thirty-seven holders of Series A Debentures (the “Debenture Holders”) (representing $645,000 of Series A Debentures). As previously indicated, the Series A Debenture Amendment extended the due date of the Series A Debentures to August 1, 2013 and increased the interest rate to 15% per annum, payable quarterly in arrears. All other terms of the Series A Debentures remain unchanged. Five of the Debenture Holders (representing $105,000 in Series A Debentures) did not wish to extend the Series A Debentures and we used proceeds of $100,000 from the Bridge Loan and $5,000 paid directly from the Company to pay principal amounts due to these non-extending Debenture Holders.

We recognized $93,000 and $75,000 in interest expense related to the Series A Debentures in Fiscal 2012 and Fiscal 2011, respectively. We had $26,000 and $36,000 in accrued interest expense related to the Series A Debentures at December 31, 2012 and December 31, 2011, respectively.

Working Capital

The Company’s working capital decreased $1,511,000 to $374,000 at December 31, 2012 from $1,885,000 at December 31, 2011. The decrease in working capital stemmed primarily from the reclassification of the Series A Debentures from non-current to current liabilities and the Company’s net loss.

We have historically satisfied net working capital requirements through cash from operations, bank debt, and occasional proceeds from the exercise of stock options and warrants.

Dividends

We have never paid any dividends on our common shares and we anticipate that all future earnings, if any, will be retained for use in our business.

Cash Flows

Operating Activities

A decrease in inventory and accounts receivable and an increase in accounts payable, offset by a decrease in accrued expenses and wages payable resulted in cash provided by operating activities of $236,000 for Fiscal 2012, compared to cash provided by operating activities of $449,000 for Fiscal 2011.

Investing Activities

Net cash used in investing activities of $34,000 in Fiscal 2012 was for investment in property, plan and equipment and patent application costs. Net cash used in investing activities of $173,000 in Fiscal 2011 was for investment in property, plant and equipment.

Financing Activities

Net cash used in financing activities of $206,000 in Fiscal 2012 consisted of net payments of our line of credit, payments on other debt financing, and debt issuance costs, offset by proceeds from a bridge loan. Net cash used in financing activities of $220,000 in Fiscal 2011 consisted of net payments of our line of credit and payments on other debt financing.

At December 31, 2012 and December 31, 2011, we had cash and cash equivalents of $89,000 and $93,000, respectively.

28

Given our current sales levels and results of operations, we expect that we may need to raise additional capital in the year ending December 31, 2013 to be able to continue operations. If events and circumstances occur such that we do not meet our current operating plans, we are unable to raise sufficient additional equity or debt financing, or our credit facilities are insufficient or not available, we may be required to further reduce expenses or take other steps which could have a material adverse effect on our future performance.

Our ability to repay or to refinance our current debt will depend primarily upon our future operating performance, which may be affected by general economic, financial, competitive, regulatory, business and other factors beyond our control, including those discussed herein. In addition, we cannot assure you that future borrowings or equity financing will be available for the payment or refinancing of any indebtedness we may have.

Our failure to comply with the restrictive covenants under our revolving credit facility and other debt instruments could result in an event of default, which, if not cured or waived, could result in the Company being required to repay these borrowings before their due date or pay higher costs associated with the indebtedness. If we are forced to refinance these borrowings on less favorable terms, our results of operations and financial condition could be adversely affected by increased costs and rates. We may also be forced to pursue one or more alternative strategies, such as restructuring or refinancing our indebtedness, selling assets, reducing or delaying capital expenditures or seeking additional equity capital. There can be no assurances that any of these strategies could be effected on satisfactory terms, if at all.

Item 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company, we are not required to provide the information required under this item.

ITEM 8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our Financial Statements are set forth beginning on page F-1.

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

None.

ITEM 9A.    CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Management has reviewed the effectiveness of our “disclosure controls and procedures” (as defined in the Exchange Act 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.

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 Exchange Act. Our 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. Our 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 our assets;

(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 our 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 our internal control over financial reporting as of December 31, 2012. 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 our internal control over financial reporting was effective as of December 31, 2012.

29

Changes in Internal Control Over Financial Reporting

There have been no changes in our 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, our internal control over financial reporting.

Attestation Report of Independent Registered Public Accounting Firm

This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the SEC that exempt smaller reporting companies from this requirement.

ITEM 9B. OTHER INFORMATION

None.

PART III

Item 10.      Directors, Executive Officers, and Corporate governance

The information required by this item is contained in our definitive Proxy Statement with respect to our Annual Meeting of Shareholders for the year ended December 31, 2012, 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”, “Nominating Committee”, “Audit Committee” and “Audit Committee Financial Expert” and is incorporated herein by reference.

Item 11.      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 year ended December 31, 2012, under the captions “Executive Compensation”, “Compensation of Directors”, “Compensation Committee Interlocks and Insider Participation”, and “Compensation Committee Report”, and is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management AND RELATED STOCKHOLDER MATTERS

The information required by this item is contained within Part II, Item 5. Market for Registrant’s Common Equity, Related Stockholders Matters and Issuer Purchases of Equity Securities earlier in this Annual Report on Form 10-K and in our definitive Proxy Statement with respect to the Annual Meeting of Shareholders for the year ended December 31, 2012, under the caption “Security Ownership of Certain Beneficial Owners and Management” and is incorporated herein by reference.

ITEM 13. 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 Shareholders for the year ended December 31, 2012, under the captions “Certain Relationships and Related Transactions” and “Independent Directors”, and is incorporated herein by reference.

ITEM 14.     PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this item is contained in our definitive Proxy Statement with respect to the Annual Meeting of Shareholders for the year ended December 31, 2012, under the caption “Independent Public Accountants”, and is incorporated herein by reference.

30

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a)          The following documents are filed as part of this Annual Report on Form 10-K:

(1) Our financial statements

	PAGE
Report of Independent Registered Public Accounting Firm – Liggett, Vogt & Webb, P.A.	F-2
Report of former Independent Registered Public Accounting Firm – Sherb & Co., LLP	F-3
Balance Sheets	F-4
Statements of Operations	F-5
Statements of Changes in Stockholders’ Equity	F-6
Statements of Cash Flows	F-7
Notes to Financial Statements	F-8

(2) Financial Statement Schedule

As a smaller reporting company, we are only required to provide financial statements required by Article 8 of Regulation S-X in lieu of financial statements that may be required under Part II, Item 8 of this Annual Report on Form 10-K, and these financial statements are noted under Item 15(a)(1).

(3) See Item 15(b) of this Annual Report on Form 10-K.

31

(b)       Exhibits

Number	Description of Exhibits
3.5	Bylaws (1)
3.50	Amended and Restated Bylaws (2)
3.51	Amended and Restated Bylaws (3)
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 (2)
4.9	2009 Series A Debenture Offering - Form of Debenture Placement Agreement (4)
4.10	2009 Series A Debenture Offering - Form of Private Placement Memorandum (4)
4.11	2009 Series A Debenture Offering - Form of Security Purchase Agreement (4)
4.12	2009 Series A Debenture Offering - Form of Series A Debenture (4)
4.13	2009 Series A Debenture Offering - Form of Registration Rights Agreement (4)
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)
4.17	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	2009 Series A Debenture Offering - Form of Placement Agent Warrant Agreement (5)
4.19	Placement Agent Agreement by and between the Company and Cantone Research, Inc.(6)
4.20	Bridge Loan Agreement by and between the Company and Cantone Asset Management, LLC(6)
4.21	Note (Bridge Loan) by and between the Company and Cantone Asset Management, LLC (6)
4.22	Form of Debenture Amendment between the Company and Debenture Holders(6)
4.23	Consulting Agreement between the Company and Cantone Asset Management, LLC(6)
10.8	Lease dated August 1, 1999/New Jersey facility (7)
10.9	Amendment dated March 23, 2001 to Lease dated August 1, 1999/New Jersey facility (8)
10.17	Amendment No.3 dated August 20, 2002/New Jersey facility (9)
10.25	Amendment No 4 dated October 9, 2006/Lease of New Jersey facility (10)
10.26	Amendment No. 5 dated January 19, 2007/Lease of New Jersey facility (10)
10.28	Employment contract between the Company and Martin Gould (a)(11)
10.30	Employment contract between the Company and Stefan Parker (a)(12)
10.31	Employment contract between the Company and Douglas Casterlin (a)(13)
10.32	Employment contract between the Company and Stan Cipkowski (a)(14)
10.33	Letter amending Employment Contract between the Company and Stefan Parker(15)
10.35	Amendment No. 6 dated December 1, 2011/New Jersey facility(16)
10.36	Employment Contract between the Company and Melissa A. Waterhouse(17)
10.37	Amendment No. 7 dated December 12, 2012/New Jersey facility
31.1 & 31.2	Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer/Chief Financial Officer
32.1 & 32.2	Section 1350 Certification of the Chief Executive Officer/Chief Financial Officer
101	The following materials from our Annual Report on Form 10-K for the year ended December 31, 2012, formatted in XBRL (Extensible Business Reporting Language): (i) Balance Sheet, (ii) Statements of Income, (iii) Statements of Cash Flows, (iv) Statements of Changes in Stockholders' Equity, and (v) Notes to Financial Statements.

32

(a) Indicates an employee benefits 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 April 15, 2002 and incorporated herein by reference.

(3) Filed as the exhibit number listed to the Company’s Current Report on Form 8-K filed on October 18, 2007 and incorporated herein by reference.

(4) Filed as the exhibit number listed to the Company’s Registration Statement on Form S-3 filed on April 15, 2009 and amended on May 5, 2009 and incorporated herein by reference.

(5) Filed as exhibit number 4.13 to the Company’s Registration Statement on Form S-3 filed on April 15, 2009 and amended on May 5, 2009 and incorporated herein by reference.

(6) Filed as the exhibit number listed to the Company’s Current Report on Form 8-K filed with the Commission on July 31, 2012.

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

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

(9) Filed as the exhibit number listed to the Company’s Form 10-KSB filed on March 31, 2003 and incorporated herein by reference.

(10) Filed as the exhibit number listed to the Company’s Form 10-KSB filed on March 29, 2007 and incorporated herein by reference.

(11) Filed as the exhibit number listed to the Company’s Form 10-QSB filed on August 13, 2007 and incorporated herein by reference.

(12) Filed as the exhibit number listed to the Company’s Form 8-K filed on August 24, 2007 and incorporated herein by reference.

(13) Filed as the exhibit number listed to the Company’s Form 8-K filed on May 1, 2008 and incorporated herein by reference.

(14) Filed as the exhibit number listed to the Company’s Form 10-Q filed on November 13, 2009 and incorporated herein by reference.

(15) Filed as the exhibit number listed to the Company’s Form 8-K filed on August 20, 2010 (and subsequently amended on September 3, 2010) and incorporated herein by reference.

(16) Filed as the exhibit number listed to the Company’s Form 10-K filed on April 16, 2012 and incorporated herein by reference.

(17) Filed as the exhibit number listed to the Company’s Current Report on Form 8-K filed with the Commission on April 25, 2012.

(c)  Not applicable.

33

SIGNATURES

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

AMERICAN BIO MEDICA CORPORATION
	By /s/ Stan Cipkowski
Stan Cipkowski
Chief Financial Officer/Chief Executive Officer
Principal Financial Officer
Principal Accounting Officer

Date: March 28, 2013

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, 2013:

/s/ Stan Cipkowski	Chief Executive Officer /Chief Financial Officer
Stan Cipkowski	& Director
	Principal Executive Officer
	Principal Financial Officer
/s/ Edmund Jaskiewicz	Chairman of the Board and President
Edmund Jaskiewicz
/s/Richard P. Koskey	Director
Richard P. Koskey
/s/ Carl A. Florio	Director
Carl A. Florio
/s/ Jean Neff	Director
Jean Neff
/s/ Stan Cipkowski	Chief Financial Officer/Chief Executive Officer
Stan Cipkowski	Principal Financial Officer
	Principal Accounting Officer
	Principal Executive Officer

S-1

AMERICAN BIO MEDICA CORPORATION

INDEX TO FINANCIAL STATEMENTS AND NOTES TO FINANCIAL STATEMENTS

	PAGE
Report of Independent Registered Public Accounting Firm – Liggett, Vogt, & Webb P.A.	F-2
Report of Former Independent Registered Public Accounting Firm – Sherb & Co., LLP	F-3
Balance Sheets	F-4
Statements of Operations	F-5
Statements of Changes in Stockholders’ Equity	F-6
Statements of Cash Flows	F-7
Notes to Financial Statements	F-8

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

American Bio Medica Corporation.

We have audited the accompanying balance sheet of American Bio Medica Corporation as of December 31, 2012 and the related statements of operations, stockholders’ equity, and cash flows for the year ended December 31, 2012. 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 audit.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2012, and the results of its operations and cash flows for the year ended December 31, 2012, in conformity with generally accepted accounting principles in the United States.

The accompanying consolidated financial statements have been prepared assuming that American Mio Medica Corporation will continue as a going concern. As more fully described in Note A, the Company has incurred recurring operating losses and will have to obtain additional financing and or refinance certain debts maturing in 2013. These conditions raise substantial doubt about the Company’s 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 to reflect the possible effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

/s/ Liggett, Vogt & Webb, P.A.

LIGGETT, VOGT & WEBB, P.A.

Certified Public Accountants

New York, New York

March 26, 2013

F-2

REPORT OF FORMER INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

American Bio Medica Corporation.

We have audited the accompanying balance sheet of American Bio Medica Corporation as of December 31, 2011 and the related statements of operations, stockholders’ equity, and cash flows for the year ended December 31, 2011. 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 audit.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2011, and the results of its operations and cash flows for the year ended December 31, 2011, in conformity with generally accepted accounting principles in the United States.

The accompanying financial statements have been prepared assuming that American Bio Medica Corporation will continue as a going concern. As more fully described in Note A, the Company has incurred recurring operating losses and will have to obtain additional financing and or refinance certain debts maturing in 2012. These conditions raise substantial doubt about the Company’s 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 to reflect the possible effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

/s/ Sherb & Co., LLP

SHERB & CO, LLP

Certified Public Accountants

New York, New York

April 11, 2012

F-3

AMERICAN BIO MEDICA CORPORATION

Balance Sheets

	December 31,			December 31,
	2012			2011
ASSETS
Current assets
Cash and cash equivalents	$	89,000		$	93,000
Accounts receivable, net of allowance for doubtful accounts of $60,000 at December 31, 2012 and $66,000 at December 31, 2011		810,000			883,000
Inventory, net of allowance for slow moving and obsolete inventory of $261,000 at December 31, 2012 and $401,000 at December 31, 2011		2,571,000			3,239,000
Prepaid expenses and other current assets		50,000			61,000
Total current assets		3,520,000			4,276,000
Property, plant and equipment, net		1,192,000			1,304,000
Debt issuance costs, net		29,000			26,000
Patents, net		24,000			0
Other assets		14,000			30,000
Total assets	$	4,779,000		$	5,636,000
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	1,016,000		$	631,000
Accrued expenses and other current liabilities		174,000			217,000
Wages payable		231,000			264,000
Line of credit		321,000			397,000
Current portion of long-term debt		1,404,000			872,000
Current portion of unearned grant		0			10,000
Total current liabilities		3,146,000			2,391,000
Other liabilities		145,000			143,000
Long-term debt		0			608,000
Related party note		124,000			124,000
Total liabilities		3,415,000			3,266,000
COMMITMENTS AND CONTINGENCIES
Stockholders’ equity:
Preferred stock; par value $.01 per share; 5,000,000 shares authorized, none issued and outstanding at December 31, 2012 and 2011
Common stock; par value $.01 per share; 50,000,000 shares authorized; 21,833,003 issued and outstanding at December 31, 2012 and 21,744,768 issued and outstanding at December 31, 2011		218,000			217,000
Additional paid-in capital		19,490,000			19,386,000
Accumulated deficit		(18,344,000	)		(17,233,000	)
Total stockholders’ equity		1,364,000			2,370,000
Total liabilities and stockholders’ equity	$	4,779,000		$	5,636,000

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

F-4

AMERICAN BIO MEDICA CORPORATION

Statements of Operations

	Year Ended  December 31, 2012			Year Ended December 31, 2011
Net sales	$	9,343,000		$	9,272,000
Cost of goods sold		5,999,000			5,396,000
Gross profit		3,344,000			3,876,000
Operating expenses:
Research and development		207,000			223,000
Selling and marketing		1,829,000			1,777,000
General and administrative		2,237,000			2,022,000
Operating loss		(929,000	)		(146,000	)
Other income / (expense):
Interest income		1,000			0
Interest expense		(194,000	)		(198,000	)
Other income, net		9,000			9,000
Net loss before tax		(1,113,000	)		(335,000	)
Income tax benefit (expense)		2,000			(10,000	)
Net loss	$	(1,111,000	)	$	(345,000	)
Basic and diluted loss per common share	$	(0.05	)	$	(0.02	)
Weighted average number of shares outstanding – basic and diluted		21,833,003			21,744,768

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

F-5

AMERICAN BIO MEDICA CORPORATION

Statements of Changes in Stockholders’ Equity

	Common Stock				Additional Paid-in		Accumulated
	Shares		Amount		Capital		Deficit			Total
Balance-December 31, 2010		21,744,768	$	217,000	$	19,328,000	$	(16,888,000	)	$	2,657,000
Share-based payment expense						58,000					58,000
Net loss								(345,000	)		(345,000	)
Balance-December 31, 2011		21,744,768	$	217,000	$	19,386,000	$	(17,233,000	)	$	2,370,000
Shares issued in connection with bridge loan		88,235		1,000							1,000
Share-based payment expense						104,000					104,000
Net loss								(1,111,000	)		(1,111,000	)
Balance-December 31, 2012		21,833,003	$	218,000	$	19,490,000	$	(18,344,000	)	$	1,364,000

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

F-6

AMERICAN BIO MEDICA CORPORATION

Statements of Cash Flows

	Year Ended			Year Ended
	December 31,			December
				31,
	2012			2011
Cash flows from operating activities:
Net loss	$	(1,111,000	)	$	(345,000	)
Adjustments to reconcile net loss to net cash provided by / (used in) operating activities:
Depreciation		123,000			277,000
Loss on disposal of property, plant and equipment		0			1,000
Amortization of debt issuance costs		47,000			48,000
Provision for bad debts		(6,000	)		(14,000	)
Provision for slow moving and obsolete inventory		454,000			188,000
Share-based payment expense		104,000			58,000
Changes in:
Accounts receivable		79,000			(126,000	)
Inventory		214,000			176,000
Prepaid expenses and other current assets		11,000			58,000
Other assets		15,000			0
Accounts payable		386,000			199,000
Accrued expenses and other current liabilities		(38,000	)		(75,000	)
Unearned grant		(10,000	)		(10,000	)
Wages payable		(34,000	)		12,000
Other liabilities		2,000			2,000
Net cash provided by operating activities		236,000			449,000
Cash flows from investing activities:
Purchase of property, plant and equipment		(11,000	)		(173,000	)
Patent application costs		(23,000	)		0
Net cash used in investing activities		(34,000	)		(173,000	)
Cash flows from financing activities:
Proceeds from lines of credit		10,185,000			9,071,000
Payments on lines of credit		(10,261,000	)		(9,167,000	)
Debt issuance costs		(50,000	)		0
Proceeds from bridge loan		150,000			0
Payments on debt financing		(230,000	)		(124,000	)
Net cash used in financing activities		(206,000	)		(220,000	)
Net (decrease)/ increase in cash and cash equivalents		(4,000	)		56,000
Cash and cash equivalents – beginning of period		93,000			37,000
Cash and cash equivalents – end of period	$	89,000		$	93,000
Supplemental disclosures of cash flow information:
Cash paid for taxes	$	0		$	0
Cash paid during the year for interest	$	201,000		$	199,000

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

F-7

AMERICAN BIO MEDICA CORPORATION

Note A - The Company and its Significant Accounting Policies

The Company:

American Bio Medica Corporation (the “Company”) is in the business of developing, manufacturing, and marketing point of collection testing products for drugs of abuse, as well as performing contract manufacturing services for third parties.

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, 2012 (“Fiscal 2012”), the Company had a net loss of $1,111,000 and net cash provided by operating activities of $236,000, compared to a net loss of $345,000 and net cash provided by operating activities of $449,000 for the year ended December 31, 2011 (“Fiscal 2011”). The Company’s cash balances decreased by $4,000 during Fiscal 2012 and increased by $56,000 during Fiscal 2011.

As of December 31, 2012, the Company had an accumulated deficit of $18,344,000. The Company has implemented programs to improve its financial prospects including entering into national and international distribution agreements, debt refinancing, implementing a number of cost-cutting initiatives, including strategic reductions in personnel, analyzing and controlling inventory levels and other measures to enhance profit margins. The Company continues to explore other measures, which would allow the Company to make further improvements in efficiency to lower the costs to manufacture its products.

If cash generated from operations is insufficient to satisfy the Company’s working capital and capital expenditure requirements, the Company will be required to sell additional equity or obtain additional credit facilities. On August 1, 2013, the Series A Debentures will mature (See Note E – Long Term Debt; Debenture Financing). On the maturity date, the Company is obligated to pay all principal and interest due (approximately $669,000) to the Holders of the Series A Debentures. In addition, all principal and interest on the Bridge Loan from Cantone Asset Management LLC (“CAM”), or approximately $173,000, will become due on August 1, 2013. And finally, our Mortgage Loan with First Niagara Bank has a maturity date of March 1, 2013 and all principal and interest will become due upon maturity (See Note L – Subsequent Event; Refinance/Extension of Mortgage Consolidation Loan). The Company is currently involved in discussions to refinance the amounts due to the Series A Debenture Holders and to CAM. There can be no assurance, however, that such financing will be available or that the Company will be able to complete financing on satisfactory terms, if at all.

Our ability to repay or to refinance our current debt will depend primarily upon our future operating performance, which may be affected by general economic, financial, competitive, regulatory, business and other factors beyond our control, including those discussed herein. In addition, we cannot assure you that future borrowings or equity financing will be available for the payment or refinancing of any indebtedness we may have.

Our failure to comply with the restrictive covenants under our revolving credit facility and other debt instruments could result in an event of default, which, if not cured or waived, could result in the Company being required to repay these borrowings before their due date or pay higher costs associated with the indebtedness. If we are forced to refinance these borrowings on less favorable terms, our results of operations and financial condition could be adversely affected by increased costs and rates. We may also be forced to pursue one or more alternative strategies, such as restructuring or refinancing our indebtedness, selling assets, reducing or delaying capital expenditures or seeking additional equity capital. There can be no assurances that any of these strategies could be effected on satisfactory terms, if at all.

The Company’s history of operating cash flow deficits, its current cash position and lack of access to capital raise 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, to sell additional shares of the Company’s common stock to fund operations and obtain additional credit facilities. Selling additional shares of the Company’s common stock and obtaining additional credit facilities may be more difficult as a result of limited access to equity markets and the tightening of credit markets. 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 mainly trade receivables due from customers for the sale of our products. Payment terms vary on a customer-by-customer basis, and currently range from cash on delivery to net 60 days. Receivables are considered past due when they have exceeded their payment terms. Accounts receivable have been reduced by an estimated allowance for doubtful accounts. The Company estimates its 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. At December 31, 2012 and December 31, 2011, the Company had an allowance for doubtful accounts of $60,000 and $66,000, respectively.

F-8

AMERICAN BIO MEDICA CORPORATION

[3]       Inventory: Inventory is stated at the lower of cost or market. Work in process and finished goods are comprised of labor, overhead and raw material costs. Labor and overhead costs are determined on a rolling average cost basis and raw materials are determined on an average cost basis. At December 31, 2012 and December 31, 2011, the Company established an allowance for slow moving and obsolete inventory of $261,000 and $401,000, respectively.

[4]       Income taxes: The Company follows ASC 740 “Income Taxes” (“ASC 740”) which prescribes the asset and liability method whereby 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. Under ASC 740, tax benefits are recorded only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon ultimate settlement. Unrecognized tax benefits are tax benefits claimed in the Company’s tax returns that do not meet these recognition and measurement standards.

[5]      Depreciation: Property, plant and equipment are depreciated on the straight-line method over their estimated useful lives; generally 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. All buyers have economic substance apart from the Company and the Company does not have any obligation 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 or, in the case of a distributor, the obligation is not contingent on the resale of the product, nor does the Company have any obligation to bring about 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. All distributors have economic substance apart from the Company and their own customers and 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.

[9]       Net loss per common share: Basic loss per common share is calculated by dividing net loss by the weighted average number of outstanding common shares during the period.

F-9

AMERICAN BIO MEDICA CORPORATION

Potential common shares outstanding as of December 31, 2012 and 2011:

	December 31, 2012		December 31, 2011
Warrants		375,000		75,000
Options		2,939,080		2,698,580

For Fiscal 2012 and Fiscal 2011, the number of securities not included in the diluted loss per share was 3,314,080, and 2,773,580, respectively, as their effect was anti-dilutive.

[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. Our management believes the major estimates and assumptions impacting our financial statements are the following:

· estimates of the fair value of stock options and warrants at date of grant; and

· estimates of the inventory reserves; and

· estimates and evaluation of litigation being pursued.

The fair value of stock options and warrants issued to employees, members of our Board of Directors, consultants and in connection with debt financings is estimated on the date of grant based on the Black-Scholes options-pricing model utilizing certain assumptions for a risk free interest rate; volatility; and expected remaining lives of the awards. The assumptions used in calculating the fair value of share-based payment awards represent management's best estimates, but these estimates involve inherent uncertainties and the application of management judgment.

As a result, if factors change and the Company uses different assumptions, the Company's equity-based compensation expense could be materially different in the future. In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. In estimating the Company's forfeiture rate, the Company analyzed its historical forfeiture rate, the remaining lives of unvested options, and the amount of vested options as a percentage of total options outstanding.

If the Company's actual forfeiture rate is materially different from its estimate, or if the Company reevaluates the forfeiture rate in the future, the equity-based compensation expense could be significantly different from what we have recorded in the current period.

Actual results may differ from estimates and assumptions of future events.

[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.

ASC Topic 820, “Fair Value Measurements and Disclosures” (“ASC Topic 820”) establishes a hierarchy for ranking the quality and reliability of the information used to determine fair values. ASC Topic 820 requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

Level 1: Unadjusted quoted market prices in active markets for identical assets or liabilities.

Level 2: Unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices are observable for the asset or liability.

Level 3: Unobservable inputs for the asset or liability.

The Company endeavors to utilize the best available information in measuring fair value. Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:

Cash and Cash Equivalents—The carrying amount reported in the balance sheet for cash and cash equivalents approximates its fair value due to the short-term maturity of these instruments.

F-10

AMERICAN BIO MEDICA CORPORATION

Line of Credit and Long-Term Debt—The carrying amounts of the Company’s borrowings under its line of credit agreement and other long-term debt approximates fair value, based upon current interest rates, some of which are variable interest rates.

[13]        Accounting for share-based payments and stock warrants: In accordance with the provisions of ASC Topic 718, “Accounting for Stock Based Compensation”, the Company recognizes share-based payment expense for stock options and warrants. The weighted average fair value of options granted during Fiscal 2012 and Fiscal 2011 was $0.18 and $0.13, respectively. (See Note I [2] – Stockholders’ Equity; Stock Options)

The Company accounts for derivative instruments in accordance with ASC Topic 815 “Derivatives and Hedging” (“ASC Topic 815”). The guidance within ASC Topic 815 requires the Company to recognize all derivatives as either assets or liabilities on the statement of financial position unless the contract, including common stock warrants, settles in the Company’s own stock and qualifies as an equity instrument. A contract designated as an equity instrument is included in equity at its fair value, with no further fair value adjustments required; and if designated as an asset or liability is carried at fair value with any changes in fair value recorded in the results of operations. The weighted average fair value of warrants issued in Fiscal 2012 was $0.16. The Company did not issue any warrants in Fiscal 2011. (See Note I [3] – Stockholders’ Equity; Warrants)

[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, 2012, three customers accounted for 12.8%, 9.7% and 9.6% of the Company’s net accounts receivable. A substantial portion of these balances was collected in the first quarter of the year ending December 31, 2013. Due to the longstanding nature of our relationships with these customers and contractual obligations, the Company is confident that it will recover these amounts.

At December 31, 2011, two customers accounted for 16.8% and 9.4% of the Company’s net accounts receivable. A substantial portion of these balances was collected in the first quarter of the year ended December 31, 2012. Due to the longstanding nature of our relationships with these customers and contractual obligations, the Company is confident that it will recover these amounts.

The Company has established an allowance for doubtful accounts of $60,000 and 66,000 at December 31, 2012 and December 31, 2011, respectively, based on factors surrounding the credit risk of our customers and other information.

One of our customers accounted for approximately 14.8% of net sales of the Company in Fiscal 2012 and 14.1% of net sales of the Company for Fiscal 2011.

The Company maintains certain cash balances at financial institutions that are 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 ASC Topic 220, “Reporting Comprehensive Income” (“ASC Topic 220”). The provisions of ASC Topic 220 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 Fiscal 2012 and Fiscal 2011, 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: There were no new standards adopted in Fiscal 2012 that materially impacted our financial statements.

F-11

AMERICAN BIO MEDICA CORPORATION

NOTE B - INVENTORY

Inventory is comprised of the following:

	December 31, 2012			December 31, 2011
Raw Materials	$	1,578,000		$	1,555,000
Work In Process		671,000			1,735,000
Finished Goods		583,000			350,000
Allowance for slow moving and obsolete inventory		(261,000	)		(401,000	)
	$	2,571,000		$	3,239,000

NOTE C – PROPERTY, PLANT AND EQUIPMENT

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

	December 31, 2012			December 31, 2011
Land	$	102,000		$	102,000
Buildings and improvements		1,363,000			1,363,000
Manufacturing and warehouse equipment		2,589,000			2,591,000
Office equipment (incl. furniture and fixtures)		409,000			398,000
		4,463,000			4,454,000
Less accumulated depreciation		(3,271,000	)		(3,150,000	)
	$	1,192,000		$	1,304,000

Depreciation expense was $123,000 and $277,000 for Fiscal 2012 and Fiscal 2011, respectively.

NOTE D – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of the following:

	December 31, 2012		December 31, 2011
Accrued accounting fees	$	40,000	$	53,000
Accrued interest payable		29,000		36,000
Accounts receivable credit balances		27,000		47,000
Accrued sales tax payable		42,000		11,000
Accrued expenses		24,000		34,000
Other current liabilities		12,000		36,000
	$	174,000	$	217,000

F-12

AMERICAN BIO MEDICA CORPORATION

NOTE E – LONG-TERM DEBT

Long-term debt consisted of the following:

	December 31, 2012		December 31, 2011
First Niagara:
Mortgage payable in equal monthly installments of $14,000 including interest at 8.25% through March 1, 2013 (“Maturity”) with a final lump sum payment representing the entire unpaid balance of principal, plus accrued interest at Maturity, collateralized by the building, land and personal property(1)	$	608,000	$	725,000
RICOH:
Capital lease payable in equal monthly installment of $390 including interest at 14.11% through May 1, 2012		0		3,000
MARLIN:
Capital lease payable in equal monthly installment of $147 including interest at 14.46% through September 1, 2013		1,000		2,000
Debenture financing(2):
$645,000 in principal amount of Series A Debentures; interest at 15% per annum from August 1, 2012 through December 31, 2012, and 10% from January 1, 2012 through July 31, 2012 and in the year ended December 31, 2011, payable quarterly with first payment due November 1, 2012; maturity date of August 1, 2013		645,000		750,000
Bridge Loan with Cantone Asset Management, LLC:
Interest rate of 15% payable upon loan maturity; maturity date of August 1, 2013.		150,000		0
		1,404,000		1,480,000
Less current portion		1,404,000		(872,000	)
Non-current portion	$	0	$	608,000

(1) The mortgage through First Niagara was refinanced and extended on March 8, 2013.

(2) The original debt with the Series A Debenture Holders was $750,000, with an interest rate of 10% per annum. It was payable semi-annually in August and February of each year with the first payment due February 1, 2009 and a maturity date of August 1, 2012. The Series A Debentures were amended and extended on July 31, 2012 and the terms noted in the table above are the revised terms of the Series A Debentures. Even after the amendment and extension, the Series A Debentures remained classified as a current liability given their maturity date of August 1, 2013.

At December 31, 2012, the following are the maturities of long-term debt for each of the next five years:

2013	$	1,404,000
2014		0
2015		0
2016		0
2017		0
	$	1,404,000

FIRST NIAGARA: MORTGAGE CONSOLIDATION LOAN

On December 17, 2009, we closed on a refinancing and consolidation of our existing real estate mortgage and term note with First Niagara (the “Mortgage Consolidation Loan”). The Mortgage Consolidation Loan was secured by our facility in Kinderhook, New York as well as various pieces of machinery and equipment. We had to comply with a covenant to maintain Liquidity of at least $50,000 (Liquidity is defined as any combination of cash, marketable securities or borrowing availability under one or more credit facilities other than the Mortgage Consolidation Loan), and we maintained compliance with this covenant through the term of the Mortgage Consolidation Loan.

F-13

AMERICAN BIO MEDICA CORPORATION

The annual interest rate of the Mortgage Consolidation Loan was fixed at 8.75%. The monthly payment of principal and interest was $16,125. Accrued interest was paid at closing totaling $7,000. In addition, we were required to make a $25,000 principal payment at the time of closing on the prior existing Term Note. We incurred approximately $28,000 in costs associated with the Mortgage Consolidation Loan, which were included in prepaid expenses and other current assets, and were amortized over the term of the Mortgage Consolidation Loan. For the year ended December 31, 2011 we amortized the final $2,000 of these costs. Payments commenced on the Mortgage Consolidation Loan on February 1, 2010, and the loan matured on January 1, 2011.

On February 23, 2011, we amended and extended the Mortgage Consolidation Loan. The amended Mortgage Consolidation Loan has a maturity date of March 1, 2013, and has a 6-year (72 month) amortization. The principal amount of the amended Mortgage Consolidation Loan is $815,000 with a fixed interest rate of 8.25%. The monthly payment of principal and interest is $14,000 and payments commenced on March 1, 2011. We were required to make a $15,000 principal payment at the time of closing of the amended Mortgage Consolidation Loan. We also incurred approximately $2,000 in costs associated with this amendment, which were legal costs incurred by First Niagara and passed on to the Company. These costs were fully amortized as of September 30, 2012. The amended Mortgage Consolidation Loan continues to be secured by our facility in Kinderhook, New York as well as various pieces of machinery and equipment. All other terms of the Mortgage Consolidation Loan remain unchanged, including compliance with the Liquidity covenant previously discussed. As of the date of this report, we are in compliance with this covenant. The balance on the Mortgage Consolidation Loan was $608,000 and $725,000 for the years ended December 31, 2012 and December 31, 2011, respectively. Interest expense recognized was $56,000 and $66,000 for Fiscal 2012 and Fiscal 2011, respectively. (See Note L- Subsequent Events; Refinance/Extension of Mortgage Consolidation Loan)

RICOH

In May 2007, we purchased a copier through an equipment lease with RICOH in the amount of $17,000. The term of the lease was five years with an interest rate of 14.11%. In April 2012, we notified RICOH that we were opting to purchase the copier for $1.00 as provided in our lease. The amount outstanding on this lease was $0 at December 31, 2012 and $2,000 at December 31, 2011.

MARLIN

In October 2010, we purchased a copier through an equipment lease with Marlin Leasing in the amount of $4,000. The term of the lease is three years with an interest rate of 14.46%. The amount outstanding on this lease was$1,000 at December 31, 2012 and $2,000 at December 31, 2011.

DEBENTURE FINANCING

In August 2008, we completed an offering of Series A Debentures (“Series A Debentures”) and received gross proceeds of $750,000. The net proceeds of the offering of Series A Debentures were $631,000 after $54,000 of placement agent fees and expenses, legal and accounting fees of $63,000 and $2,000 of state filing fees.

The Series A Debentures accrued interest at a rate of 10% per annum (payable by the Company semi-annually). As placement agent, Cantone Research, Inc. (“Cantone”) received a placement agent fee of $52,500, or 7% of the gross principal amount of Series A Debentures sold. In addition, we issued Cantone a four-year warrant to purchase 30,450 shares of the Company’s common stock at an exercise price of $0.37 per share (the closing price of the Company’s common shares on the date of closing) and a four-year warrant to purchase 44,550 shares of the Company’s common stock at an exercise price of $0.40 per share (the closing price of the Company’s common stock on the Series A Debentures completion date). All warrants issued to Cantone were immediately exercisable upon issuance. We registered the common shares underlying the Series A Debentures in a registration statement on Form S-3 filed with the SEC on April 15, 2009 and amended on May 5, 2009. On June 10, 2009, the SEC issued a notice of effectiveness related to this Form S-3, as amended.

F-14

AMERICAN BIO MEDICA CORPORATION

We incurred $131,000 in expenses related to the offering, including $12,000 in expense related to warrants issued to Cantone. We amortized $19,000 of expense related to these debt issuance costs in Fiscal 2012, of which a little under $2,000 was share based payment expense related to the Cantone warrants, and $32,000 of expense in Fiscal 2011, of which just over $2,000 was share based payment expense related to the Cantone warrants.

The unamortized balance was $0 as of December 31, 2012 (as the Series A Debentures matured on August 1, 2012) and $19,000 as of December 31, 2011.

Series A Debenture Extension

The Series A Debentures matured on August 1, 2012. On July 25, 2012, we entered into a Placement Agent Agreement (the “Agent Agreement”) with Cantone. Under the terms of the Agent Agreement, Cantone acted as our exclusive placement agent in connection with an amendment of the Series A Debentures. Under the amendment, the term of Series A Debentures was extended to reflect a due date of August 1, 2013, and the interest rate during the extension period was increased from 10% to 15% per annum, due quarterly in arrears.

As compensation for their placement agent services, Cantone received a cash fee of 5% of the gross amount of existing Series A Debentures, or $37,500, and the warrants issued to Cantone (in connection with their services as placement agent in the original Series A Debenture financing) were amended to reflect a purchase price of $0.17 per share and a new term of three (3) years. Cantone also received 1% of the gross amount of Series A Debentures, or $7,500, as a non-accountable expense allowance and we reimbursed Cantone $5,000 in legal fees incurred in connection with the amendment of the Series A Debentures. We will amortize the costs (totaling $50,000) associated with the amendment of the Series A Debentures over the term of the extension (12 months).

On July 30, 2012, we entered into a Bridge Loan Agreement and Note (the “Bridge Loan”) with Cantone Asset Management, LLC (“CAM”). The Bridge Loan is in the amount of $150,000 and was used to pay $100,000 to those Holders of Series A Debentures that did not wish to amend/extend the Series A Debentures and $50,000 was used to pay placement agent fees and expenses previously indicated in the previous paragraph.

The maturity date of the Bridge Loan is August 1, 2013 and it bears simple interest in advance of 15%. In addition to the interest, on August 1, 2012, the Company instructed its transfer agent to issue CAM restricted stock of the Company equal to 10% of the gross amount of existing Series A Debentures, or $15,000 using a value of $0.17 per common share. On August 8, 2012, 88,235 restricted common shares were issued to CAM.

On July 31, 2012, we entered into an Agreement to the Series A Debenture (the “Series A Debenture Amendment”) with thirty-two of the thirty-seven holders of Series A Debentures (the “Debenture Holders”) (representing $645,000 of Series A Debentures). As previously indicated, the Series A Debenture Amendment extended the due date of the Series A Debentures to August 1, 2013 and increased the interest rate to 15% per annum, payable quarterly in arrears. All other terms of the Series A Debentures remain unchanged. Five of the Debenture Holders (representing $105,000 in Series A Debentures) did not wish to extend the Series A Debentures and we used proceeds of $100,000 from the Bridge Loan and $5,000 paid directly from the Company to pay principal amounts due to these non-extending Debenture Holders.

We recognized $93,000 and $75,000 in interest expense related to the Series A Debentures in Fiscal 2012 and Fiscal 2011, respectively. We had $26,000 and $31,000 in accrued interest expense related to the Series A Debentures at December 31, 2012 and December 31, 2011, respectively.

F-15

AMERICAN BIO MEDICA CORPORATION

NOTE F – LINES OF CREDIT

Loan and Security Agreement with Medallion Financial Corp (“Medallion”)

On April 20, 2012 (the “Closing Date”), we entered into a Loan and Security Agreement (the “Loan Agreement”) with Medallion, a Senior Lender, to refinance the Company’s Line of Credit with Rosenthal and Rosenthal, Inc (“Rosenthal”; see below for information on Rosenthal Line of Credit).

Under the Loan Agreement, Medallion provided the Company with up to $1,000,000 under a revolving secured line of credit (the “Medallion Line of Credit”), which is secured by a first security interest in all of the Company’s receivables, inventory, and intellectual property rights along with a second security interest in the Company’s machinery and equipment. The maximum amount available under the Medallion Line of Credit is subject to an Advance Rate that consists of: 85% of eligible accounts receivable and up to 30% of eligible inventory (not to exceed $150,000). “Eligible Receivables” are defined as those receivables that are paid within ninety (90) days of the invoice date. Eligible Receivables consists of both domestic sales and those international sales made in North America. An Eligible Receivable becomes ineligible if more than 25% of the aggregate receivables due from a customer are more than ninety (90) days past due or the aggregate receivables from a customer exceed 25% of the then total outstanding Eligible Receivables. “Eligible Inventory” is defined as raw materials and finished goods that are not obsolete or unmerchantable and are acceptable to Medallion.

From the loan availability on the Closing Date, we drew approximately $566,000 to pay off our Line of Credit with Rosenthal. We were charged a facility fee of 1% of the balance of the Medallion Line of Credit on the Closing Date and will be charged the same facility fee of 1% on each anniversary of the Closing Date thereafter. Under the Loan Agreement, interest on outstanding borrowings is payable monthly and is charged at an annual rate equal to 4% above a base rate (which is the Wall Street Journal Prime as published from time to time; as of December 31, 2012, the Wall Street Journal Prime was 3.25%). If we were to default under the Loan Agreement, interest on outstanding borrowings under the Medallion Line of Credit would be charged at an annual rate of 2% above the interest rate in effect at the time of such default. We are subject to two audits per year by Medallion (provided we are not in default) at a rate of $950.00 per person per day. Prior to closing, we also paid a non-refundable fee in the amount of $10,000 to Medallion for field exam and due diligence costs.

We incurred $20,000 in costs related to the Medallion Line of Credit. These costs were fully expensed in Fiscal 2012. We incurred $42,000 in interest expense in Fiscal 2012 (no interest expense was incurred in Fiscal 2011 as we did not close on the Medallion Line of Credit until April 2012). We had accrued interest of $3,000 at December 31, 2012.

The amount outstanding on the Medallion Line of Credit at December 31, 2012 was $321,000. Additional loan availability was $67,000, for a total Loan Availability of $388,000 as of December 31, 2012. No amounts were outstanding or available at December 31, 2011, as we did not close on the Medallion Line of Credit until April 2012.

So long as any obligations are due to Medallion under the Medallion Line of Credit, we must maintain stockholders’ equity of at least $1,750,000. The Company was not in compliance with this requirement as of the year ended December 31, 2012, however, on January 16, 2013, the Company entered into a three-year Loan and Security Agreement (“LSA”) with Imperium Commercial Finance, LLC (“Imperium”), a new Senior Lender, to refinance the Medallion Line of Credit. Given the termination (and refinancing) of the Medallion Line of Credit, this default did not result in any triggers under the Medallion Line of Credit and did not result in any financial implications for the Company. (See Note L - Subsequent Event; Refinancing of Medallion Line of Credit).

ROSENTHAL LINE OF CREDIT

In July 2009, we entered into a Financing Agreement (the “Financing Agreement”) with Rosenthal. On February 28, 2012, we gave Rosenthal written notice of non-renewal as provided under the Financing Agreement, and as a result, the Financing Agreement terminated on May 31, 2012.

F-16

AMERICAN BIO MEDICA CORPORATION

Under the Financing Agreement, Rosenthal provided the Company with up to $1,500,000 under a revolving secured line of credit (“Rosenthal Line of Credit”). The Rosenthal Line of Credit was collateralized by a first security interest in all of the Company’s accounts receivables, inventory, and intellectual property, and a second security interest in our machinery and equipment, leases, leasehold improvements, furniture and fixtures. The maximum availability of $1,500,000 was subject to an availability formula based on certain percentages of accounts receivable and inventory, and elements of the availability formula were subject to periodic review and revision by Rosenthal. Under the Financing Agreement, we paid Rosenthal an administrative fee of $1,500 per month and an annual fee of $15,000. There were additional administrative fees paid that totaled $34,000 in Fiscal 2011 (there were no administrative fees charged in Fiscal 2012). Under the Financing Agreement, interest was payable monthly, and was charged at variable rates (based on the Prime Rate), with minimum monthly interest of $4,000. We incurred $19,000 in interest expense in Fiscal 2012 and $54,000 in interest expense in Fiscal 2011.

We incurred $41,000 in costs related to the Rosenthal Line of Credit. These costs were amortized over the three-year term of the Rosenthal Line of Credit. We amortized $6,000 of these costs in Fiscal 2012 and $14,000 of these costs in Fiscal 2011.

In April 2012, we drew approximately $566,000 from our Medallion Line of Credit to pay off the Rosenthal Line of Credit so the amount due on the Rosenthal Line of Credit as of December 31, 2012 was $0. The amount outstanding on the Rosenthal Line of Credit at December 31, 2011 was $397,000, with $361,000 of this amount outstanding collateralized by accounts receivable at an interest rate of 8% and $36,000 collateralized by inventory at an interest rate of 9%. Additional loan availability was $159,000, for a total Loan Availability of $556,000 as of December 31, 2011.

NOTE G – 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, 2012			Year Ended December 31, 2011
Tax expense at federal statutory rate		34	%		34	%
State tax expense, net of federal tax effect		5	%		5	%
Permanent timing differences		(4	%)		(7	%)
Deferred income tax asset valuation allowance		(35	%)		(32	%)
Effective income tax rate		0	%		0	%

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

	December 31, 2012			December 31, 2011
Inventory	$	18,000		$	21,000
Inventory allowance		102,000			156,000
Allowance for doubtful accounts		23,000			26,000
Accrued compensation		27,000			26,000
Net operating loss carry forward expired		(197,000	)		(25,000	)
Net operating loss carry-forward		5,013,000			4,569,000
Total gross deferred income tax assets		4,986,000			4,773,000
Less deferred income tax assets valuation allowance		(4,986,000	)		(4,773,000	)
Net deferred income tax assets	$	0		$	0

F-17

AMERICAN BIO MEDICA CORPORATION

The valuation allowance for deferred income tax assets as of December 31, 2012 and December 31, 2011 was $4,986,000 and $4,773,000, respectively. The net change in the deferred income tax assets valuation allowance was an increase of $213,000 for Fiscal 2012. The net change in the deferred income tax assets valuation allowance was an increase of $1,000 for Fiscal 2011.

As of December 31, 2012, the prior three years remain open for examination by the federal or state regulatory agencies for purposes of an audit for tax purposes.

At December 31, 2012, the Company had Federal and New York State net operating loss carry-forwards for income tax purposes of approximately $12,850,000. Our net operating loss carry-forwards began to expire in 2011 and continue to expire through 2031. In assessing the realizability of deferred income tax assets, management considers whether or not it is more likely than not that some portion or all deferred income tax assets will be realized. The ultimate realization of deferred income 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.

The Company recognizes potential interest and penalties related to income tax positions as a component of the provision for income taxes on operations. The Company does not anticipate that total unrecognized tax benefits will materially change in the next twelve months.

NOTE H – OTHER INCOME / EXPENSE

Other income in Fiscal 2012 and Fiscal 2011 is comprised primarily of grant income of $10,000 related to a Columbia Economic Development Corporation (“CEDC”) grant, offset by $1,000 loss on sale of assets.

The Company received a $100,000 grant from the CEDC that was dispersed to the Company in installments during the years ended December 31, 2002, 2003, and 2005. The grant is convertible to a loan based upon a percentage of the grant declining from 90% of the grant amount in 2003 to 0% in 2012. The unearned portion of the grant at December 31, 2012 and December 31, 2011 was $0 and $10,000, respectively. The grant was convertible to a loan only if the employment levels in the Kinderhook facility dropped below 45 employees at any time during the year. The employment levels in the Kinderhook facility were 47 and 49 at December 31, 2012 and December 31, 2011, respectively. The grant income recognized in both Fiscal 2012 and Fiscal 2011 was $10,000.

NOTE I – STOCKHOLDERS’ EQUITY

[1]          Stock option plans: The Company currently has two option plans, the Fiscal 2000 Non-statutory Stock Option Plan (the “2000 Plan”) and the Fiscal 2001 Non-statutory Stock Option Plan (the “2001 Plan”) (and together the “Plans”). Both Plans have been adopted by the Company’s Board of Directors and approved by shareholders. The 2000 Plan provides for the granting of options to purchase up to 1,000,000 common shares and the 2001 Plan provides for granting of options to purchase up to 4,000,000 common shares. Options granted under the Plans have lives of 10 years and vest over periods from 0 to 4 years. 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. Both the 2000 Plan and the 2001 Plan have options issued, however, only the 2001 Plan has options available for future issuance.

[2]          Stock options: During Fiscal 2012 and Fiscal 2011, the Company issued options to purchase 750,000 and 50,000 shares respectively, of common stock under the 2001 Plan:

Medallion Line of Credit Stock Options

As a condition to the Medallion Line of Credit, Stan Cipkowski, our Chief Executive Officer (“Cipkowski”), and our controller J. Duncan Urquhart (“Urquhart”) were each required to execute Validity Guarantees (the “Validity Guarantees”). Under the Validity Guarantees, Cipkowski and Urquhart provide representations and warranties with respect to the validity of our receivables as well as guaranteeing the accuracy of our reporting to Medallion related to the Company’s receivables.

F-18

AMERICAN BIO MEDICA CORPORATION

Cipkowski Medallion Grant

As compensation for his execution of the Validity Guarantee, on April 20, 2012, Cipkowski was awarded an option grant representing 250,000 common shares of the Company under the Company’s Fiscal 2001 stock option plan, at an exercise price of $0.18, the closing price of our common shares on April 20, 2012. The option grants vest over three (3) years in installments of 33% on April 20, 2013 (82,500 common shares), 33% on April 20, 2014 (82,500 common shares) and 34% (85,000 common shares) on April 20, 2015.

The fair value of the Cipkowski stock option grants was estimated utilizing the Black-Scholes option-pricing model. The following weighted average assumptions were used: dividend yield of 0%; risk-free interest rate of 1.99; expected life of 10 years; and stock price volatility of 88%. The value of the stock option grant is $45,000 and the Company will recognize this share-based payment expense over the vesting period of 3 years. We recognized $11,000 in share-based payment expense in Fiscal 2012. As of December 31, 2012 there was $34,000 in unrecognized share-based payment expense with 27 months remaining.

Urquhart Medallion Grant

As compensation for his execution of the Validity Guarantee, on April 20, 2012, Urquhart was awarded an option grant representing 250,000 common shares of the Company under the Company’s Fiscal 2001 stock option plan, at an exercise price of $0.18, the closing price of our common shares on April 20, 2012. The option grants vest over three (3) years in installments of 33% (82,500 common shares) on April 20, 2013, 33% (82,500 common shares) on April 20, 2014 and 34% (85,000 common shares) on April 20, 2015.

The fair value of the Urquhart stock option grant was estimated utilizing the Black-Scholes option-pricing model. The following weighted average assumptions were used: dividend yield of 0%; risk-free interest rate of 1.99; expected life of 10 years; and stock price volatility of 88%. The value of the stock option grant is $45,000 and the Company will recognize this share-based payment expense over the vesting period of 3 years. We recognized $11,000 in share-based payment expense in Fiscal 2012. As of December 31, 2012, there was $34,000 in unrecognized share-based payment expense with 27 months remaining.

Jaskiewicz Medallion Grant

As another condition to the Medallion Line of Credit, Edmund M. Jaskiewicz, our President and Chairman of the Board, was required to execute another Subordination Agreement (“Subordination Agreement”) related to the Jaskiewicz Debt (the $124,000 currently owed to Jaskiewicz by the Company for legal services rendered). Under the Subordination Agreement, the Jaskiewicz Debt is not payable, is junior in right to the Medallion Line of Credit and no payment may be accepted or retained by Jaskiewicz for the Jaskiewicz Debt unless and until we have paid and satisfied in full any obligations to Medallion. As compensation for his execution of the Subordination Agreement, on April 20, 2012 Jaskiewicz was awarded an option grant representing 150,000 common shares of the Company under the Company’s Fiscal 2001 stock option plan, at an exercise price of $0.18, the closing price of the Company’s common shares on April 20, 2012. The option grant vests over three (3) years in installments as follows: 33% (49,500 common shares) on April 20, 2013, 33% (49,500 common shares) on April 20, 2014 and 34% (51,000 common shares) on April 20, 2015.

The fair value of the Jaskiewicz stock option grant was estimated utilizing the Black-Scholes option-pricing model. The following weighted average assumptions were used: dividend yield of 0%; risk-free interest rate of 1.99; expected life of 10 years; and stock price volatility of 88%. The value of the stock option grant is $27,000 and the Company will recognize this share-based payment expense over the vesting period of 3 years. We recognized $7,000 in share-based payment expense in Fiscal 2012. As of December 31, 2012, there was $20,000 in unrecognized share-based payment expense with 27 months remaining.

F-19

AMERICAN BIO MEDICA CORPORATION

September 2012 Employee Grants

On September 20, 2012, we issued 2 stock option grants to purchase 50,000 shares each (for a total of 100,000) of the Company’s common stock to 2 non-executive employees at an exercise price of $0.18 (the closing price of the Company’s common shares on September 20, 2012). Both option grants vest over 3 years in installments as follows: 33% (33,000 common shares total) on September 20, 2013, 33% (33,000 common shares total) on September 20, 2014 and 34% (34,000 common shares total) on September 20, 2015.

We will recognize $18,000 in share-based payment expense over the vesting period of 3 years. We recognized $2,000 in share-based payment expense related to these grants in Fiscal 2012. As of December 31, 2012, there was $16,000 in unrecognized expenses with 32 months remaining.

Fiscal 2011 Stock Option Grant

On July 1, 2011, the Company issued an option grant under the 2001 Plan to purchase 50,000 shares of common stock to the Company’s President and Chairman of the Board Edmund M. Jaskiewicz (“Jaskiewicz”) at an exercise price of $0.12, the closing price of the Company’s common shares on the date of the grant. The option grant was immediately exercisable. The fair value of this stock option grant was estimated utilizing the Black-Scholes option-pricing model. The following weighted average assumptions were used: dividend yield of 0%; risk-free interest rate of 3.22%, expected life of 10 years; and stock price volatility of 91%. The value of this stock option grant totaled $6,000 and the Company recognized this share-based payment expense fully in the third quarter of Fiscal 2011.

The options were issued to Mr. Jaskiewicz as the third and final stock option grant representing compensation for his execution of an Agreement of Subordination and Assignment (“Subordination Agreement”) required as a condition to the Rosenthal Line of Credit. The first stock option grant was issued to Jaskiewicz in July 2009 when the Subordination Agreement was executed, and the second stock option grant was issued to Jaskiewicz in July 2010 (see below). The Subordination Agreement was related to $124,000 owed to Jaskiewicz by the Company as of June 29, 2009 (the “Jaskiewicz Debt”). Under the Subordination Agreement, the Jaskiewicz Debt is not payable, is junior in right to the Rosenthal Line of Credit and no payment may be accepted or retained by Jaskiewicz unless and until the Company has paid and satisfied in full any obligations to Rosenthal. Furthermore, the Jaskiewicz Debt was assigned and transferred to Rosenthal as collateral for the Rosenthal Line of Credit.

In addition to the stock options issued in Fiscal 2012 and Fiscal 2011, the following stock options have been issued prior to Fiscal 2011, and have a portion of their expense recognized in Fiscal 2011:

Fiscal 2010 Stock Option Grants

On December 31, 2010, the Company issued options to purchase 275,000 shares of common stock under the 2001 Plan to 4 members of senior management and 8 other employees of the Company at an exercise price of $0.09 (the closing price of the Company’s common shares on the date of the grant). These option grants vested 100% on the one-year anniversary of the date of the grant, or on December 31, 2011. 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 0%; risk-free interest rate of 3.29%, expected life of 10 years; and stock price volatility of 86%. The value of these grants totaled $25,000 and the Company recognized this share-based payment expense over the required service period of one year; therefore, the expense was recognized fully in Fiscal 2011.

Rosenthal Line of Credit Validity Guarantee Stock Options

As a condition to the Rosenthal Line of Credit closing, Cipkowski was required to execute a Validity Guarantee (the “Validity Guarantee”). Under the Validity Guarantee, Cipkowski provided representations and warranties with respect to the validity of the Company’s receivables and guarantees the accuracy of the Company’s reporting to Rosenthal related to the Company’s receivables and inventory. The Validity Guarantee placed Cipkowski’s personal assets at risk in the event of a breach of such representations, warranties and guarantees. As part of the compensation for his execution of the Validity Guarantee, on July 1, 2009, Cipkowski was awarded an option grant representing 500,000 common shares of the Company under the Company’s 2001 Plan, at an exercise price of $0.20, the closing price of the Company’s common shares on the date of the grant. The option grant vested over three years in equal installments.

F-20

AMERICAN BIO MEDICA CORPORATION

The calculated fair value of the Cipkowski options was $0.156 per share. The fair value of the Cipkowski option grant was estimated utilizing the Black-Scholes option-pricing model. The following weighted average assumptions were used: dividend yield of 0%; risk-free interest rate of 4.34%, expected life of 10 years; and stock price volatility of 69%. The value of the Cipkowski grant totaled $78,000, which the Company recognized in share-based payment expense amortized over the required service period of 3 years. The Company recognized $13,000 in share-based payment expense for this grant in Fiscal 2012 and $26,000 in share-based payment expense for this grant in Fiscal 2011. As of December 31, 2012, there was $0 in unrecognized expense and 0 months remaining.

On July 1, 2011, (the second anniversary of the original stock option grant date of July 1, 2009), Jaskiewicz was awarded an additional option grant representing 50,000 common shares of the Company under the Company’s 2001 Plan, at an exercise price of $0.12, the closing price of the Company’s common shares on July 1, 2011. The option grant (50,000 common shares) was 100% immediately exercisable on July 1, 2011. We recognized the full share-based payment expense of $6,000 in Fiscal 2011.

Stock option activity for Fiscal 2012 and Fiscal 2011 is summarized as follows: (the figures contained within the tables below have been rounded to the nearest thousand)

	Year Ended December 31, 2012					Year Ended December 31, 2011
	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Options outstanding at beginning of year		2,699,000		$	0.76		3,437,000		$	0.82
Granted		750,000		$	0.18		50,000		$	0.13
Exercised		0			NA		0			NA
Cancelled/expired		(510,000	)	$	1.06		(788,000	)	$	0.97
Options outstanding at end of year		2,939,000		$	0.56		2,699,000		$	0.76
Options exercisable at end of year		2,189,000		$	0.69		2,529,000		$	0.80

The following table presents information relating to stock options outstanding as of December 31, 2012:

	Options Outstanding						Options Exercisable
			Weighted		Weighted				Weighted
			Average		Average				Average
Range of Exercise			Exercise		Remaining				Exercise
Price	Shares		Price		Life in Years		Shares		Price
$0.07 - $0.20		1,675,000	$	0.17		8.12		925,000	$	0.16
$0.84 - $1.09		1,054,000	$	1.04		1.56		1,054,000	$	1.04
$1.11 - $1.74		210,000	$	1.28		0.57		210,000	$	1.28
TOTAL		2,939,000	$	0.56		5.23		2,189,000	$	0.69

F-21

AMERICAN BIO MEDICA CORPORATION

As of December 31, 2012 there were 23,500 options issued and outstanding under the 2000 Plan and 2,915,580 options issued and outstanding under the 2001 Plan, for a total of 2,939,080options issued and outstanding as of December 31, 2012. Of the total options issued and outstanding, 2,189,080 are fully vested as of December 31, 2012. Intrinsic value of vested options as of December 31, 2012 was insignificant. As of December 31, 2012, there were 801,420 options available for issuance under the 2001 Plan.

[3]         Warrants: As of December 31, 2012 and December 31, 2011, there were 375,000 and 75,000 warrants outstanding, respectively.

In connection with their services as placement agent in the Company’s Series A Debenture offering, on July 17, 2008, the Company issued Cantone Research, Inc. (“Cantone”) a four-year warrant to purchase 30,450 shares of the Company’s common stock at an exercise price of $0.37 per share, and on August 4, 2008 issued Cantone a four-year warrant to purchase 44,550 shares of the Company’s common stock at an exercise price of $0.40 per share. All warrants issued to Cantone were immediately exercisable upon issuance. The closing price of the Company’s common shares was $0.37 and $0.40 on July 17, 2008 and August 4, 2008, respectively. The July 17, 2008 warrants were valued using the Black Scholes pricing model and the following assumptions, dividend yield of zero, volatility of 46.0%, risk free interest rate of 4.7%, and expected life of 4 years. The August 4, 2008 warrants were valued using the Black Scholes pricing model and the following assumptions, dividend yield of zero, volatility of 46.1%, risk free interest rate of 4.6% and expected life of 4 years. The total value of the Cantone warrants was $12,000, which was recognized as financing costs and was amortized over the term of the Series A Debentures, with $2,000 in expense being recognized in Fiscal 2012 and $3,000 in expense being recognized in both Fiscal 2011. As of December 31, 2012, there was $0 in unrecognized expense and 0 months remaining.

The Cantone warrants were amended on July 31, 2012 in connection with the extension and amendment of the Series A Debentures; more specifically they were amended to reflect am exercise price of $0.17 per shares and a new term of three years (see Note E – Long-term Debt; Series A Debenture Extension). The CRI warrants are exercisable through July 31, 2015 (see Part I, Item I, Note E, “Series A Debenture Extension”). The fair value of the Cantone warrants was estimated utilizing the Black-Scholes option-pricing model. The following weighted average assumptions were used: dividend yield of 0%; risk-free interest rate of 1.51; expected life of 3 years; and stock price volatility of 77%. The value of the Cantone warrant is $12,000 and the Company recognized $12,000 (or the full expense) in share based payment expense in Fiscal 2012.

On August 1, 2012, we entered into a Consulting Agreement (“Consulting Agreement”) with Cantone Asset Management, LLC (“CAM”). The Consulting Agreement commenced August 1, 2012 and ends on August 1, 2013. Under the terms of the Consulting Agreement, CAM will provide the Company with financial advisory services and advice related to debt refinancing. On August 1, 2012, the Company issued CAM warrants to purchase 300,000 shares of the Company’s common stock at an exercise price of $0.16 per share (the closing price of the Company’s common shares on August 1, 2012) (the “CAM Warrant”). The CAM Warrant is exercisable through July 31, 2015 and has piggyback registration rights. The fair value of the CAM Warrants was estimated utilizing the Black-Scholes option-pricing model. The following weighted average assumptions were used: dividend yield of 0%; risk-free interest rate of 1.56; expected life of 3 years; and stock price volatility of 77%. The value of the CAM Warrant is $48,000 and the Company recognized $48,000 (or the full expense) in share based payment expense in Fiscal 2012.

NOTE J – COMMITMENTS, CONTINGENCIES AND OTHER MATTERS

[1]         Operating leases: The Company leases office and R&D/production facilities in New Jersey under long-term, non-cancellable operating leases. In December 2012, the Company extended the lease for the New Jersey facility for an additional 12 months, or through December 31, 2013. The future minimum rent due in 2013 under the lease extension is $90,000. The Company also leases office support equipment through September 2014. The future minimum rental payment due in 2013 and 2014 under the support equipment operating lease is $6,000 each year. At December 31, 2012, the future minimum rental payments under these operating leases are as follows:

2013	$	96,000
2014		6,000
	$	102,000

Rent expense was $122,000 in Fiscal 2012 and $126,000 in Fiscal 2011.

F-22

AMERICAN BIO MEDICA CORPORATION

[2]          Employment agreements: The Company has entered into employment agreements with its Chief Executive Officer, Stan Cipkowski (“Cipkowski”). The agreement provides for a $206,000 annual salary and was originally for a term of one year and automatically renewed unless either party gave advance notice of 60 days, however, on July 1, 2009, as a condition to the Rosenthal Line of Credit closing, the Company entered into a new employment contract with the CEO that is coterminous with the Rosenthal Line of Credit, however, if the Agreement is not terminated for cause or as a result of the termination or expiration of the Company’s Line of Credit with Rosenthal, the Agreement automatically renews for successive one (1) year terms unless either side gives advance written notice of intent not to renew at least sixty (60) days prior to the end of any one (1) year renewal term. All other terms and provisions of the CEO’s former employment contract remained unchanged. Cipkowski’s employment agreement contains severance provisions; in the event the Company terminates Cipkowski’s employment for any reason other than cause (which is defined under the employment agreement), Cipkowski would receive severance pay equal to 12 months of his base salary at the time of termination, with continuation of all medical benefits during the twelve-month period at the Company’s expense. In addition, Cipkowski may tender his resignation and elect to exercise the severance provision if he is required to relocate more than 50 miles from the Company’s New York facility as a continued condition of employment, if there is a substantial change in the responsibilities normally assumed by his position, or if they are asked to commit or conceal an illegal act by any officer or member of the board of directors of the Company. In the case of a change in control of the Company, Cipkowski would be entitled to severance pay equal to two times his base salary under certain circumstances.

In April 2012, the Company entered into an employment agreement with Melissa A. Waterhouse, its Executive Vice President, Chief Compliance Officer and Corporate Secretary (“Waterhouse”). The agreement provides for a $100,000 annual salary, is for an initial term of one year and automatically renews unless either party gives advance notice of 60 days. Waterhouse’s employment agreement contains severance provisions; in the event the Company terminates Waterhouse’s employment for any reason other than cause (which is defined under the employment agreement), Waterhouse would receive severance pay equal to 12 months of her base salary at the time of termination, with continuation of all medical benefits during the twelve-month period at the Company’s expense. In addition, Waterhouse may tender her resignation and elect to exercise the severance provision if she is required to relocate more than 50 miles from the Company’s New York facility as a continued condition of employment, if there is a substantial change in the responsibilities normally assumed by her position, or if she is asked to commit or conceal an illegal act by any officer or member of the board of directors of the Company. In the case of a change in control of the Company, Waterhouse would be entitled to severance pay equal to two times her base salary under certain circumstances.

On March 25, 2011 the Company received letters of resignation from its EVP, Douglas Casterlin (“Casterlin”) and CFO, Stefan Parker (“Parker”). The Company’s CEO, Stan Cipkowski has assumed the position of CFO and Casterlin’s responsibilities were absorbed by other employees where appropriate (however, in July 2012, Casterlin returned to the Company as an employee and assumed many of the same responsibilities he had prior to his departure). Prior to their resignations, Casterlin and Parker both had employment agreements in place with the Company. The agreement with Parker originally provided for a $120,000 annual salary but was amended in August 2010 to provide for an annual salary of $135,000; the contract term remained one year and would automatically renew unless either party gives advance notice of 60 days. The agreement with Casterlin provided for a $149,000 annual salary, was for a term of one year and would automatically renew unless either party gives advance notice of 60 days. Casterlin’s and Parker’s employment agreements contained the same severance provisions as Cipkowski’s employment agreement.

F-23

AMERICAN BIO MEDICA CORPORATION

[3]          Legal:

On December 16, 2010, we filed a complaint in the Supreme Court of the State of New York in Columbia County against Martin R. Gould (“Gould”), Jacqueline Gale (“Gale”), Advanced Diagnosticum Products, Inc. (“ADPI”) and Biosure, Inc. (“Biosure”), together the “Defendants”. The complaint alleges that Gould, our former Chief Science Officer and Executive Vice President of Technology, and Gale, our former Vice President of Manufacturing and Development, were performing illegal, competitive, employment-related services for ADPI and Biosure during their employment with the Company, were using Company resources to perform such services, and were doing so in their capacity as employees and/or officers of ADPI and Biosure. Because the Defendants continue to engage in illegal activity, in addition to the compensatory and punitive damages noted below, the complaint also seeks an injunction restraining the Defendants from engaging in further wrongdoing. The Defendants exercised their right to move the action to federal court, and proceedings are now pending in the United States District Court for the District of New Jersey.

In the Complaint, we assert claims of breach of duty of loyalty, breach of contract, violation of fiduciary duty and unfair competition and conversion specifically against Gould, and claims of breach of duty, violation of fiduciary duty and unfair competition and conversion specifically against Gale. In addition to these claims, we assert claims of conversion, tortious interference with contract, interference with prospective advantage and common law misappropriation of trade secret information against all Defendants. We are seeking judgment on nine (9) causes of action for compensatory damages against Defendants in such amount as may be established at trial, together with punitive damages in the amount of one million dollars ($1,000,000) for each cause of action in the Complaint (totaling $9,000,000).

On March 28, 2011, the Defendants filed an Answer to our Complaint and Defendant Gould filed a counter-claim against the Company in the amount of $150,000 alleging breach of contract related to an employment agreement between Gould and the Company. We filed a reply to Gould’s counterclaim on April 13, 2011. Our reply asserted that the Company did not breach the prior employment agreement in place with Gould, that the Company provided the required written notice of non-renewal of Gould’s employment agreement, and that Gould’s employment agreement expired on May 31, 2010; at which time Gould became an at-will employee of the Company. Gould was subsequently terminated for cause on July 28, 2010. A conference was held with the court on June 16, 2011, at which issues in dispute were discussed and a discovery schedule was set. The Company has responded to the Defendants discovery requests and as of the date of this report, the Company is awaiting complete responsive discovery items from Defendants. Depositions in the matter are ongoing. Depositions and discovery were expected to be completed by April 30, 2012, however, pretrial discovery was extended to September 28, 2012 due to an unexpected personal issue that occurred involving the Defendants attorney; this unexpected issue was unrelated to the case or the claims of the case. On September 11, 2012, pretrial discovery was extended again to December 14, 2012 and on January 18, 2013, another court conference was held that further extended factual discovery until February 28, 2013 and all depositions, including expert witness, are to be conducted by June 3, 2013.

As previously disclosed, we received a warning letter from the FDA in July 2009 that alleges we re marketing our point of collection oral fluid drug test, OralStat, in workplace settings without marketing clearance or approval. A warning letter is considered by FDA to be informal and advisory. While a warning letter communicates FDA’s position on a matter it does not commit the FDA to taking enforcement action. We communicated to the FDA our belief (based on legal opinion) that marketing clearance was not required in non-clinical markets. The FDA continued to disagree with our interpretation of FDA regulations related to medical devices, and the FDA continued to assert jurisdiction of drug testing performed in the workplace. We also advised FDA that we were willing to obtain marketing clearance but that specific technical and scientific issues existed when attempting to utilize FDA’s draft guidance for our OralStat (because the draft guidance was written for urine drug tests). Nevertheless, we were unable to reach a consensus with the FDA on neither the jurisdiction issue nor the technical issues.

F-24

AMERICAN BIO MEDICA CORPORATION

On July 10, 2012, we announced in a press release and a Current Report on Form 8-K that we entered into a Consent Decree of Permanent Injunction (the “Consent Decree”) with FDA. Under the terms of the Consent Decree, we will be allowed to continue to market our OralStat drug test in the workplace market while we take action to obtain a 510(k) marketing clearance. More specifically, FDA will provide the Company with its most recent guidance on the clinical and analytical studies that need to be conducted to gather data in support of a 510(k) submission for OralStat. We will then have a total of 396 days to discuss protocols with FDA, complete our analytical and clinical studies and submit a substantially complete 510(k). We have agreed to withdraw the OralStat product from the workplace market if any of the following events occur: 1) we do not submit a substantially complete 510(k) within this specified time period, 2) we fail to submit additional information within time frames specified by FDA, 3) we withdraw our submission, or 4) our 510(k) submission results in FDA’s determination that the product is not substantially equivalent. On August 3, 2012 the Consent decree was approved and entered by the United States District Court for the Northern District of New York, and on August 3, 2012, we received guidance from FDA. We are currently taking actions that will enable us to submit a 510(k) marketing application to FDA within the time frame specified under the Consent Decree.

In addition to the previous disclosures, from time to time, the Company is named in legal proceedings in connection with matters that arose during the normal course of business. While the ultimate result of any such litigation cannot be predicted, if we are unsuccessful in defending any such litigation, the resulting financial losses could have an adverse effect on the financial position, results of operations and cash flows of the Company. We are aware of no significant litigation loss contingencies for which management believes it is both probable that a liability has been incurred and that the amount of the loss can be reasonably estimated.

NOTE K – Related Party Disclosures

Edmund M. Jaskiewicz

During Fiscal 2012 and Fiscal 2011, the Company paid an aggregate of $10,000 and $12,000, respectively, to Edmund M. Jaskiewicz, the Company’s President and Chairman of the Board of Directors (“Jaskiewicz”) 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, 2012, there were invoices totaling $30,000 payable to Jaskiewicz.

As a condition to the Rosenthal Line of Credit closing, in June 2009, Jaskiewicz was required to execute an Agreement of Subordination and Assignment (“Subordination Agreement”) related to $124,000 owed to Jaskiewicz by the Company as of June 29, 2009 (the “Jaskiewicz Debt”). Under the Subordination Agreement, the Jaskiewicz Debt is not payable, is junior in right to the Rosenthal Line of Credit and no payment may be accepted or retained by Jaskiewicz unless and until the Company has paid and satisfied in full any obligations to Rosenthal. Furthermore, the Jaskiewicz Debt was assigned and transferred to Rosenthal as collateral for the Rosenthal Line of Credit.

As compensation for his execution of a Subordination Agreement, on July 1, 2009, July 1, 2010 and July 1, 2011, Jaskiewicz was awarded an option grant representing 50,000 common shares each year for a total of 150,000 common shares of the Company under the Company’s 2001 Plan, at an exercise price of $0.20, $0.07 and $0.13 respectively. The exercise price represents the closing price of the Company’s common shares on the date of the grant. All option grants were immediately exercisable on the date of the grant.

F-25

AMERICAN BIO MEDICA CORPORATION

ALEC CIPKOWSKI

During both Fiscal 2012 and Fiscal 2011, the Company paid an aggregate of $60,000 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 products that are currently being used by customers. He receives normal employee benefits in accordance with the Company’s standard policies. Due to the timing of pay periods, at December 31, 2012 the Company owed Alec Cipkowski approximately $1,000, however, this amount was subsequently paid in the first regularly scheduled payroll in the year ending December 31, 2013.

NOTE L – SUBSEQUENT EVENTS

Refinancing of Medallion Line of Credit

On January 16, 2013 (the “Closing Date”), the Company entered into a three-year Loan and Security Agreement (“LSA”) with Imperium Commercial Finance, LLC (“Imperium”), a new Senior Lender, to refinance the Company’s Line of Credit with Medallion Financial Corp (“Medallion”).

Under the LSA, Imperium has agreed to provide the Company with up to a maximum amount of $1,500,000 (“Maximum Funding Amount”) under a revolving secured loan facility (the “Imperium Line of Credit”), which is secured by a first security interest in all of the Company’s receivables, inventory, and intellectual property rights along with a second security interest in the Company’s machinery and equipment (together the “Collateral”). The Maximum Funding Amount is subject to a discretionary borrowing base comprised of: 85% of eligible accounts receivables (excluding, without limitation, receivables remaining unpaid for more than 90 days from invoice date or 60 days from due date, contra receivables, and affiliated receivables), up to the lesser of 60% of eligible finished goods inventory at cost or 75% of appraised net orderly liquidation value of inventory, and a receivable dilution rate of less than 5% (the “Borrowing Base”).

In addition to the Imperium Line of Credit, the Imperium facility includes a discretionary Supplemental Advance of up to $500,000 (the “Imperium Supplemental Advance”). Supplemental advances, once repaid, cannot be re-borrowed, and is secured with the same Collateral as the Imperium Line of Credit.

The Imperium Line of Credit is to be used for working capital and general corporate purposes, and the Imperium Supplemental Advance is to be used for costs associated with obtaining marketing clearance of the Company’s oral fluid products and costs associated with other new market opportunities.

On the Closing Date, the Company paid a closing fee of $10,000 to Imperium, and granted Imperium a 7-year warrant to purchase 2,000,000 common shares of the Company at an exercise price of $0.18 (the “Imperium Warrants”). The Imperium Warrants will be valued using the Black-Scholes pricing model. The Company also paid an early termination fee of $25,000 to Medallion on the Closing Date, and a finder’s fee of 3% of the gross proceeds from the Imperium financing, or $60,000, to Monarch Capital Group, LLC.

The Company will also pay Imperium an Unused Line Fee in an amount equal to 2% (a) from and after the Closing Date through and including March 31, 2013, the Maximum Revolving Amount of $1,500,000 less the aggregate amounts outstanding to Imperium and (b) at all time from and after April 1, 2013, the Maximum Amount of $2,000,000 less the aggregate amounts outstanding to Imperium. The Unused Line Fee for each month (except for the month in which the termination occurs) is payable on the first day of each calendar month following the Closing Date; the final monthly installment of the Unused Line Fee is payable on the termination date. The Company will also pay to Imperium a Collateral monitoring fee of $2,500 on the first day of each month during the term of the LSA.

A success fee of $175,000 (“Success Fee”) is due and payable if Imperium terminates due to an event of default, or if the Company terminates and pre-pays all amounts due to Imperium prior to the stated expiration date of January 16, 2016, however, the Success Fee is not due and payable if Imperium has exercised all its rights under the Imperium Warrant and sells all of the common shares underlying the Imperium Warrant on or before January 16, 2016 and if on the date that Imperium completes such sale(s), the price per share of the Company’s common shares is at least $0.70 per common share.

F-26

AMERICAN BIO MEDICA CORPORATION

Under the LSA, interest on the Imperium Line of Credit and the Imperium Supplemental Advance is in cash at a rate equal to eight percent (8%) per annum and (ii) in kind (i.e., “PIK” interest) at a rate equal to two percent (2%) per annum (collectively, the “Interest Rate”), all of which “PIK” interest shall be added to and constitute a part of the aggregate principal amount of outstanding Line of Credit borrowing or aggregate principal amount of outstanding Supplemental Advances, as applicable, as and when such “PIK” interest becomes due and payable hereunder. Interest is payable on the Line of Credit and Supplemental Advance in arrears for the preceding calendar month on the first day of each calendar month.

So long as any obligations are due to Imperium under the LSA, the Company must maintain Net Borrowing Availability of not less than $100,000 (Net Borrowing Availability is defined as borrowing availability less the amounts due under the Imperium Line of Credit). There are also certain minimum EBITDA (Earnings Before Interest, Taxes Depreciation and Amortization) requirements. More specifically, the Company must have EBITDA of not less than (a) $25,000 for the Fiscal Quarter ending on or about March 31, 2013, (b) $100,000 for the Fiscal Quarter ending on or about June 30, 2013, (c) $200,000 for the Fiscal Quarter ending on or about September 30, 2013, and (d) $300,000 for the Fiscal Quarter ending on or about December 31, 2013 and for each of the Fiscal Quarters thereafter.

In an event of default, which includes but is not limited to, failure of the Company to make any payment when due, and non-compliance with the Net Borrowing Availability and minimum EBITDA requirements, the interest rate will be increased by 4% for as long as the event of default occurs. Imperium’s other remedies include, but are not limited to, termination or suspension of Imperium’s obligation to make further advances to the Company, declaration of all amounts owed to Imperium due and payable.

On December 18, 2012, the Company gave Medallion written notice of non-renewal as provided under the Financing Agreement. On January 16, 2013 all indebtedness due to Medallion was paid in full and Medallion’s security interest in the Company’s assets were terminated.

Refinance/Extension of Mortgage Consolidation Loan

On March 8, 2013, the Company entered into a Second Amendment to Loan Agreement (the “Second Mortgage Consolidation Loan Amendment”) with First Niagara Bank related to the Company’s Mortgage Consolidation Loan. Under the Second Mortgage Consolidation Loan Amendment, the Mortgage Consolidation Loan was recast into a 4-year fully amortizing note with a one-year term through March 1, 2014. The interest rate was increased from 8.25% to 9.25% and the monthly payment was reduced to $14,115 from $14,437. The Company was required to make a principal reduction payment of $25,000 at the time of closing. All other terms of the Mortgage Consolidation Loan remained unchanged.

NOTE M- SEGMENT AND Geographic Information

The Company operates in one reportable segment.

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

	Year Ended December 31, 2012		Year Ended December 31, 2011
United States	$	8,405,000	$	8,094,000
North America (not domestic)		430,000		732,000
Europe		343,000		280,000
Asia/Pacific Rim		50,000		46,000
South America		115,000		120,000
	$	9,343,000	$	9,272,000

F-27

EX-10.37

EXHIBIT 10.37

LEASE AMENDMENT NO. 7

This Lease Amendment made and entered into this 12th day of December 2012, by and between Whitesell Enterprises, hereinafter referred to as (“Landlord”) and American Bio Medica Corporation, hereinafter referred to as (“Tenant”);

WHEREAS, Landlord leased to Tenant that certain premises known as Units 3, 4 and 6, 603 Heron Drive, Bridgeport, New Jersey, consisting of 14,406 square feet, (the “Premises”) pursuant to a Multi-Tenant Industrial Lease dated July 7, 1999; subsequently amended by Lease Amendment No. 1 dated August 17, 1999, Lease Amendment No, 2 dated May 23, 2001, Lease Amendment No. 3 dated August 20, 2002, Lease Amendment No. 4 dated October 9, 2006, Lease Amendment No. 5 dated January 19, 2007 and Lease Amendment No 6 dated December 1, 2011, (the “Lease”) the terms and conditions being more particularly described therein; and

WHEREAS, Landlord and Tenant wish to amend the Lease;

NOW THEREFORE, in consideration of the sum of One Dollar ($1.00), the promises and undertakings contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant intending to be legally bound, hereby agree to amend the Lease as follows:

1.          The term of the existing lease shall be renewed for one year commencing January 1, 2013 and expiring December 31, 2013

2.          The Base Rent for this renewal term shall be calculated at the rate of $6.25 per square foot net, $90,037.50 for the year, $7,503.13 per month.

Except as modified by this Lease Amendment, all other terms and conditions of the original Lease shall remain in full force and effect.

LANDLORD: WHITESELL ENTERPRISES

By: Whitesell Construction Co., Inc. Authorized Agent

By:	/S/ Thomas J. Heitzman
	Thomas J. Heitzman, Executive Vice President
TENANT: AMERICAN BIO MEDICA CORPORATION
By:	/S/ Melissa A. Waterhouse
	EVP, CCO, SEC

EX-31.1

EXHIBIT 31.1/EXHIBIT 31.2

RULE 13a-14(a)/15d-14(a) CERTIFICATION

I, Stan Cipkowski, certify that:

1. I have reviewed this annual report on Form 10-K of American Bio Medica Corporation;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision 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; and

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based on such evaluation; and

d) Disclosed in this annual report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Stan Cipkowski

Stan Cipkowski

Chief Executive Officer/Interim Chief Financial Officer

Principal Executive Officer/Principal Financial Officer

Principal Accounting Officer

Date: March 28, 2013

EX-32.1

EXHIBIT 32.1/EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of American Bio Medica Corporation (the “Company”) on Form 10-K for the period ending December 31, 2012 as filed with the Securities and Exchange Commission on March 28, 2013 (the “Report”), I, Stan Cipkowski, Chief Executive Officer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Stan Cipkowski

Stan Cipkowski

Chief Executive Officer/Interim Chief Financial Officer

Principal Executive Officer/Principal Financial Officer

Principal Accounting Officer

March 28, 2013

XML

LINES OF CREDIT (Details Textual) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Line of Credit Facility, Maximum Borrowing Capacity	$ 1,000,000
Medallion Line of Credit [Member]
Line of Credit Facility, Maximum Borrowing Capacity	1,000,000
Eligible Accounts Receivable, Advance Rate	85.00%
Eligible Inventory Percentage, Advance Rate	30.00%
Eligible Advance Receivable	150,000
Eligible Receivable, Description	An Eligible Receivable becomes ineligible if more than 25% of the aggregate receivables due from a customer are more than ninety (90) days past due or the aggregate receivables from a customer exceed 25% of the then total outstanding Eligible Receivables.
Proceeds from Lines of Credit	566,000
Facility Fee Percentage	1.00%
Debt Instrument, Interest Rate, Effective Percentage	4.00%
Debt Instrument, Interest Rate, Basis for Effective Rate	Wall Street Journal Prime was 3.25%
Debt Instrument Annual Rate	2.00%
Payment of Audit Fees Per Day	950
Non Refundable Field Exam and Due Diligence Costs	10,000
Line of Credit Facility Costs	20,000
Line of Credit Facility, Periodic Payment, Interest	42,000
Line of Credit Facility, Increase, Accrued Interest	3,000
Line of Credit Facility, Amount Outstanding	321,000
Line of Credit Facility, Additional Borrowing Capacity	67,000
Line of Credit Facility, Remaining Borrowing Capacity	388,000
Line of Credit Facility, Covenant Terms Minimum Stockholders Equity	1,750,000
Rosenthal Line of Credit [Member]
Line of Credit Facility, Maximum Borrowing Capacity	1,500,000
Line of Credit Facility Costs	41,000
Line of Credit Facility, Periodic Payment, Interest	19,000	54,000
Line of Credit Facility, Amount Outstanding	0	397,000
Line of Credit Facility, Additional Borrowing Capacity		159,000
Line of Credit Facility, Remaining Borrowing Capacity		556,000
Line of Credit Facility, Decrease, Repayments	566,000
Line of Credit Facility, Administrative Fee Paid Per Month	1,500
Line of Credit Facility, Administrative Fee Paid	15,000	34,000
Line of Credit Facility, Monthly Periodic Payment Interest	4,000
Line of Credit Facility, Amortized Costs	6,000	14,000
Line of Credit Facility, Amount Collateralized by Accounts Receivable		361,000
Line of Credit Facility, Amount Collateralized by Accounts Receivable Interest Rate		8.00%
Line of Credit Facility, Amount Collateralized by Inventory		$ 36,000
Line of Credit Facility, Amount Collateralized by Inventory Interest Rate		9.00%

XML

COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Details Textual) (USD $)	1 Months Ended	12 Months Ended				1 Months Ended			12 Months Ended
	Apr. 30, 2012	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2012 Stan Cipkowski, Ceo [Member]	Apr. 30, 2012 Melissa A Waterhouse Cco [Member]	Mar. 25, 2011 Stefan Parker, Cfo [Member]	Apr. 30, 2010 Stefan Parker, Cfo [Member]	Dec. 31, 2012 Douglas Casterlin, Evp [Member]	Dec. 31, 2012 Office and Research and Development or Production Facilities [Member]	Dec. 31, 2012 Office Support Equipment [Member]
Operating Leases, Future Minimum Payments Due, Next Twelve Months		$ 96,000								$ 90,000	$ 6,000
Operating Leases, Future Minimum Payments, Due in Two Years		6,000									6,000
Operating Leases, Rent Expense		122,000	126,000
Lease Expiration Date		Sep. 30, 2014
Officers' Compensation					206,000	100,000	120,000	135,000	149,000
Loss Contingency, Damages Sought, Value		9,000,000		1,000,000
Loss Contingency, Damages Paid, Value	$ 150,000

XML

STOCKHOLDERS' EQUITY (Details Textual) (USD $)	1 Months Ended		12 Months Ended				1 Months Ended	12 Months Ended	1 Months Ended			12 Months Ended												1 Months Ended	12 Months Ended	1 Months Ended		12 Months Ended					1 Months Ended		12 Months Ended			12 Months Ended		1 Months Ended	3 Months Ended		12 Months Ended
	Sep. 20, 2012	Aug. 31, 2008	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Jun. 29, 2009	Sep. 20, 2012 September 2012 Employee Grants [Member]	Dec. 31, 2012 September 2012 Employee Grants [Member]	Sep. 20, 2012 September 2012 Employee Grants [Member] September 20, 2013 [Member	Sep. 20, 2012 September 2012 Employee Grants [Member] September 20, 2014 [Member]	Sep. 20, 2012 September 2012 Employee Grants [Member] September 20, 2015 [Member]	Dec. 31, 2012 Cipkowski Medallion Grant [Member]	Dec. 31, 2012 Cipkowski Medallion Grant [Member] April 20, 2013 [Member]	Dec. 31, 2012 Cipkowski Medallion Grant [Member] April 20, 2014 [Member]	Dec. 31, 2012 Cipkowski Medallion Grant [Member] April 20, 2015 [Member]	Dec. 31, 2012 Urquhart Medallion Grant [Member]	Dec. 31, 2012 Urquhart Medallion Grant [Member] April 20, 2013 [Member]	Dec. 31, 2012 Urquhart Medallion Grant [Member] April 20, 2014 [Member]	Dec. 31, 2012 Urquhart Medallion Grant [Member] April 20, 2015 [Member]	Dec. 31, 2012 Jaskiewicz Medallion Grant [Member]	Dec. 31, 2012 Jaskiewicz Medallion Grant [Member] April 20, 2013 [Member]	Dec. 31, 2012 Jaskiewicz Medallion Grant [Member] April 20, 2014 [Member]	Dec. 31, 2012 Jaskiewicz Medallion Grant [Member] April 20, 2015 [Member]	Jul. 01, 2011 Medallion Financing Stock Option [Member] Jaskiewicz [Member]	Dec. 31, 2011 Medallion Financing Stock Option [Member] Jaskiewicz [Member]	Aug. 04, 2008 Warrant [Member]	Jul. 17, 2008 Warrant [Member]	Dec. 31, 2012 Warrant [Member]	Dec. 31, 2011 Warrant [Member]	Dec. 31, 2012 Series A Debentures [Member]	Dec. 31, 2012 Cantone Asset Management Llc [Member]	Dec. 31, 2011 Debenture Financing [Member]	Aug. 04, 2008 Debenture Financing [Member] Warrant [Member]	Jul. 17, 2008 Debenture Financing [Member] Warrant [Member]	Dec. 31, 2012 Maximum [Member]	Dec. 31, 2012 Minimum [Member]	Dec. 31, 2012 Fiscal 2000 Non Statutory Stock Option Plan [Member]	Dec. 31, 2012 Fiscal 2001 Non Statutory Stock Option Plan [Member]	Dec. 31, 2011 Fiscal 2001 Non Statutory Stock Option Plan [Member]	Jul. 01, 2011 Fiscal 2011 Stock Option Grant [Member] President and Chairman of Board of Directors [Member]	Sep. 30, 2011 Fiscal 2011 Stock Option Grant [Member] President and Chairman of Board of Directors [Member]	Jun. 29, 2009 Fiscal 2011 Stock Option Grant [Member] President and Chairman of Board of Directors [Member]	Dec. 31, 2010 Fiscal 2010 Stock Option Grants [Member] Members of Senior Management [Member]	Dec. 31, 2012 Rosenthal Line of Credit Validity Guarantee Stock Options [Member]	Dec. 31, 2011 Rosenthal Line of Credit Validity Guarantee Stock Options [Member]	Dec. 31, 2009 Rosenthal Line of Credit Validity Guarantee Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized																																					1,000,000	4,000,000
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period			10 years					3 years				3 years				3 years				3 years										3 years					4 years	0 years										3 years
Share-based Compensation Arrangement by Share-based Payment Award, Shares Issued in Period																																						750,000	50,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross			750,000	50,000			2					250,000				250,000				150,000																				50,000			275,000			500,000
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price			$ 0.18	$ 0.13			$ 0.18					$ 0.18				$ 0.18				$ 0.18																				$ 0.12			$ 0.09			$ 0.20
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Dividend Rate												0.00%				0.00%				0.00%						0.00%	0.00%			0.00%	0.00%									0.00%			0.00%			0.00%
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Risk Free Interest Rate												1.99%				1.99%				1.99%						4.60%	4.70%			1.51%	1.56%									3.22%			3.29%			4.34%
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Term												10 years				10 years				10 years						4 years	4 years			3 years	3 years									10 years			10 years			10 years
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Volatility Rate												88.00%				88.00%				88.00%						46.10%	46.00%			77.00%	77.00%									91.00%			86.00%			69.00%
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Grant in Period Intrinsic Value																																									$ 6,000		$ 25,000			$ 78,000
Subordinated Debt																																										124,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value			$ 0.18	$ 0.13																										$ 12,000	$ 48,000															$ 0.156
Allocated Share-based Compensation Expense																												2,000	3,000															13,000	26,000
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized								16,000								34,000				20,000								0																0
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized, Period for Recognition								32 months								27 months				27 months								0 months																0 months
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number			2,939,000	2,699,000	3,437,000																																23,500	2,915,580
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Outstanding, Number			2,189,080
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant			801,420
Warrants and Rights Outstanding			375,000	75,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period		44,550																														30,450	44,550	30,450
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value		$ 0.40																														$ 0.37	$ 0.40	$ 0.37
Amortization of Financing Costs			47,000	48,000																									12,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest Percentage									33.00%	33.00%	34.00%		33.00%	33.00%	34.00%		33.00%	33.00%	33.00%		33.00%	33.00%	34.00%
Stock Options Grant Vested									33,000	33,000	34,000		82,500	85,000	85,000		82,500	82,500	82,500		49,500	49,500	51,000
Stock Granted During Period, Value, Share-based Compensation, Gross																45,000				27,000
Share-based Compensation			104,000	58,000				2,000								11,000				7,000					6,000
Notes Payable, Related Parties, Noncurrent			124,000	124,000																124,000
Purchase of Shares by Granted of Stock Options	100,000						50,000																							300,000
Share-based Payment Expense in Future								18,000
Due to Affiliate						124,000
Shares Held in Employee Stock Option Plan, Allocated																								50,000
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, Exercisable Options, Weighted Average Exercise Price			$ 0.69																					$ 0.12						$ 0.17	$ 0.16
Percentage of Stock Option Grant Exercisable																								100.00%
Warrant Expense in Future																														$ 12,000	$ 48,000

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PROPERTY, PLANT AND EQUIPMENT (Details) (USD $)	Dec. 31, 2012	Dec. 31, 2011
Land	$ 102,000	$ 102,000
Buildings and improvements	1,363,000	1,363,000
Manufacturing and warehouse equipment	2,589,000	2,591,000
Office equipment (incl. furniture and fixtures)	409,000	398,000
Property, Plant and Equipment, Gross	4,463,000	4,454,000
Less accumulated depreciation	(3,271,000)	(3,150,000)
Property, Plant and Equipment, Net	$ 1,192,000	$ 1,304,000

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LONG-TERM DEBT (Tables)

12 Months Ended

Dec. 31, 2012

Debt Disclosure [Abstract]

Schedule of Long-term Debt Instruments [Table Text Block]

Long-term debt consisted of the following:

	December 31, 2012		December 31, 2011
First Niagara:
Mortgage payable in equal monthly installments of $14,000 including interest at 8.25% through March 1, 2013 (“Maturity”) with a final lump sum payment representing the entire unpaid balance of principal, plus accrued interest at Maturity, collateralized by the building, land and personal property(1)	$	608,000	$	725,000
RICOH:
Capital lease payable in equal monthly installment of $390 including interest at 14.11% through May 1, 2012		0		3,000
MARLIN:
Capital lease payable in equal monthly installment of $147 including interest at 14.46% through September 1, 2013		1,000		2,000
Debenture financing(2):
$645,000 in principal amount of Series A Debentures; interest at 15% per annum from August 1, 2012 through December 31, 2012, and 10% from January 1, 2012 through July 31, 2012 and in the year ended December 31, 2011, payable quarterly with first payment due November 1, 2012; maturity date of August 1, 2013		645,000		750,000
Bridge Loan with Cantone Asset Management, LLC:
Interest rate of 15% payable upon loan maturity; maturity date of August 1, 2013.		150,000		0
		1,404,000		1,480,000
Less current portion		1,404,000		(872,000	)
Non-current portion	$	0	$	608,000

(1) The mortgage through First Niagara was refinanced and extended on March 8, 2013.

(2) The original debt with the Series A Debenture Holders was $750,000, with an interest rate of 10% per annum. It was payable semi-annually in August and February of each year with the first payment due February 1, 2009 and a maturity date of August 1, 2012. The Series A Debentures were amended and extended on July 31, 2012 and the terms noted in the table above are the revised terms of the Series A Debentures. Even after the amendment and extension, the Series A Debentures remained classified as a current liability given their maturity date of August 1, 2013.

Schedule of Maturities of Long-term Debt [Table Text Block]

At December 31, 2012, the following are the maturities of long-term debt for each of the next five years:

2013	$	1,404,000
2014		0
2015		0
2016		0
2017		0
	$	1,404,000

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SUBSEQUENT EVENTS (Details Textual) (USD $)	12 Months Ended
	Dec. 31, 2012	Jun. 30, 2012
Line of Credit Facility, Maximum Borrowing Capacity	$ 1,000,000
Line of Credit Facility, Covenant Terms	The Maximum Funding Amount is subject to a discretionary borrowing base comprised of: 85% of eligible accounts receivables (excluding, without limitation, receivables remaining unpaid for more than 90 days from invoice date or 60 days from due date, contra receivables, and affiliated receivables), up to the lesser of 60% of eligible finished goods inventory at cost or 75% of appraised net orderly liquidation value of inventory, and a receivable dilution rate of less than 5% (the "Borrowing Base").
Finders Fee as Percentage of Financing Amount	2.00%
Percentage Increase in Interest on Default of Covenant Terms	4.00%
Mortgage Consolidation Loan Initial Interest Percentage	8.25%
Mortgage Consolidation Loan Revised Interest Percentage	9.25%
Mortgage Consolidation Loan Initial Monthly Payment		14,437
Line of Credit Facility, Interest Rate Description	interest rate will be increased by 4% for as long as the event of default occurs
Mortgage Consolidation Loan Revised Monthly Payment		14,115
Mortgage Consolidation Loan Principal Reduction Payment		25,000
Supplemental Advance in Cash Interest, Percentage	2.00%
Payment in Kind Interest, Percentage	2.00%
Monarch Capital Group Llc [Member]
Finders Fee as Percentage of Financing Amount	3.00%
Finders Fee		60,000
Imperium Warrants [Member]
Class of Warrant or Right Term of Warrants or Rights	7 years
Class of Warrant or Right, Number of Securities Called by Warrants or Rights		2,000,000
Class of Warrant or Right, Exercise Price of Warrants or Rights		$ 0.18
Imperium Line of Credit [Member]
Subsequent Event, Date	Jan. 16, 2013
Line of Credit Facility, Maximum Borrowing Capacity		1,500,000
Line of Credit Facility, Closing Fee		10,000
Line of Credit Facility, Collateral Fees, Amount	2,500
Line of Credit Facility, Success Fee		175,000
Line of Credit Facility, Success Fee Terms	A success fee of $175,000 ("Success Fee") is due and payable if Imperium terminates due to an event of default, or if the Company terminates and pre-pays all amounts due to Imperium prior to the stated expiration date of January 16, 2016, however, the Success Fee is not due and payable if Imperium has exercised all its rights under the Imperium Warrant and sells all of the common shares underlying the Imperium Warrant on or before January 16, 2016 and if on the date that Imperium completes such sale(s), the price per share of the Company's common shares is at least $0.70 per common share.
Imperium Line of Credit [Member] | March 31, 2013 [Member]
Line of Credit Facility, Maximum Borrowing Capacity	25,000
Imperium Line of Credit [Member] | June 30, 2013 [Member]
Line of Credit Facility, Maximum Borrowing Capacity	100,000
Imperium Line of Credit [Member] | September 30, 2013 [Member]
Line of Credit Facility, Maximum Borrowing Capacity	200,000
Imperium Line of Credit [Member] | December 31, 2013 [Member]
Line of Credit Facility, Maximum Borrowing Capacity	300,000
Imperium Supplemental Advance [Member]
Line of Credit Facility, Maximum Borrowing Capacity		500,000
Medallion Line of Credit [Member]
Line of Credit Facility, Maximum Borrowing Capacity	1,000,000
Line of Credit Facility, Termination Fee		$ 25,000

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INCOME TAXES (Details Textual) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Valuation Allowance, Deferred Tax Asset, Change in Amount	$ 213,000	$ 1,000
Operating Loss Carryforwards	12,850,000
Operating Loss Carryforwards, Expiration Dates	expire in 2011 and continue to expire through 2031
Deferred Tax Assets, Valuation Allowance	4,986,000	4,773,000
Income Tax Reconciliation, Change in Deferred Tax Assets Valuation Allowance	$ 0	$ 0

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LONG-TERM DEBT (Details 1) (USD $)	Dec. 31, 2012	Dec. 31, 2011
2013	$ 1,404,000
2014	0
2015	0
2016	0
2017	0
Long-term Debt	$ 1,404,000	$ 1,480,000

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COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Details) (USD $)	Dec. 31, 2012
2013	$ 96,000
2014	6,000
Operating Leases, Future Minimum Payments Due	$ 102,000

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PROPERTY, PLANT AND EQUIPMENT

12 Months Ended

Dec. 31, 2012

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment Disclosure [Text Block]

NOTE C – PROPERTY, PLANT AND EQUIPMENT

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

	December 31, 2012			December 31, 2011
Land	$	102,000		$	102,000
Buildings and improvements		1,363,000			1,363,000
Manufacturing and warehouse equipment		2,589,000			2,591,000
Office equipment (incl. furniture and fixtures)		409,000			398,000
		4,463,000			4,454,000
Less accumulated depreciation		(3,271,000	)		(3,150,000	)
	$	1,192,000		$	1,304,000

Depreciation expense was $123,000 and $277,000 for Fiscal 2012 and Fiscal 2011, respectively.

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OTHER INCOME / EXPENSE (Details Textual) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2005	Dec. 31, 2003	Dec. 31, 2002
Grant Convertible into Loans Percentage	90% of the grant amount in 2003 to 0% in 2012.
Unearned Portion of Grant	$ 0	$ 10,000
Employee Level to Convert Grant into Loans	45
Deferred Revenue, Revenue Recognized	10,000	10,000
Minimum [Member]
Employee Level to Convert Grant into Loans	47
Maximum [Member]
Employee Level to Convert Grant into Loans	49
Columbia Economic Development Corporation [Member]
Revenue from Grants	10,000
Gain (Loss) on Sale of Property Plant Equipment	$ 1,000	$ 1,000	$ 100,000	$ 100,000	$ 100,000

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SEGMENT AND GEOGRAPHIC INFORMATION (Tables)

12 Months Ended

Dec. 31, 2012

Segment Reporting [Abstract]

Schedule of Segment Reporting Information, by Segment [Table Text Block]

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

	Year Ended December 31, 2012		Year Ended December 31, 2011
United States	$	8,405,000	$	8,094,000
North America (not domestic)		430,000		732,000
Europe		343,000		280,000
Asia/Pacific Rim		50,000		46,000
South America		115,000		120,000
	$	9,343,000	$	9,272,000

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COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Tables)

12 Months Ended

Dec. 31, 2012

Commitments and Contingencies Disclosure [Abstract]

Schedule of Future Minimum Rental Payments for Operating Leases [Table Text Block]

 At December 31, 2012, the future minimum rental payments under these operating leases are as follows:

2013	$	96,000
2014		6,000
	$	102,000

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STOCKHOLDERS' EQUITY (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Shares,Options outstanding at beginning of year	2,699,000	3,437,000
Shares,Granted	750,000	50,000
Shares,Exercised	0	0
Shares,Cancelled/expired	(510,000)	(788,000)
Shares,Options outstanding at end of year	2,939,000	2,699,000
Shares,Options exercisable at end of year	2,189,000	2,529,000
Weighted Average Exercise Price,Options outstanding at beginning of year	$ 0.76	$ 0.82
Weighted Average Exercise Price,Granted	$ 0.18	$ 0.13
Weighted Average Exercise Price,Cancelled/expired	$ 1.06	$ 0.97
Weighted Average Exercise Price,Options outstanding at end of year	$ 0.56	$ 0.76
Weighted Average Exercise Price,Options exercisable at end of year	$ 0.69	$ 0.80

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The Company and its Significant Accounting Policies (Details)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Potential common shares outstanding	3,314,080	2,773,580
Warrant [Member]
Potential common shares outstanding	375,000	75,000
Stock Options [Member]
Potential common shares outstanding	2,939,080	2,698,580

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The Company and its Significant Accounting Policies (Details Textual) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Net Income (Loss) Attributable to Parent	$ (1,111,000)	$ (345,000)
Net Cash Provided by (Used in) Operating Activities	236,000	449,000
Cash and Cash Equivalents, Period Increase (Decrease)	(4,000)	56,000
Retained Earnings (Accumulated Deficit)	18,344,000	17,233,000
Allowance for Doubtful Accounts Receivable, Current	60,000	66,000
Inventory Adjustments	261,000	401,000
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	3,314,080	2,773,580
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value	$ 0.18	$ 0.13
Effective Income Tax Rate Reconciliation, Tax Settlements	50.00%
Share-based Compensation Arrangement by Share-based Payment Award, Warrants Issued in Period, Weighted Average Fair Value	$ 0.16
Accounts Receivable [Member] | Customer 1 [Member]
Concentration Risk, Percentage	12.80%	16.80%
Accounts Receivable [Member] | Customer 2 [Member]
Concentration Risk, Percentage	9.70%	9.40%
Accounts Receivable [Member] | Customer 3 [Member]
Concentration Risk, Percentage	9.60%
Sales Revenue, Goods, Net [Member] | Customer 4 [Member]
Concentration Risk, Percentage	14.80%	14.10%
Building [Member]
Property, Plant and Equipment, Useful Life	30 years
Building [Member] | Maximum [Member]
Property, Plant and Equipment, Useful Life	5 years
Building [Member] | Minimum [Member]
Property, Plant and Equipment, Useful Life	3 years
Series A Debentures [Member]
Debt Instrument, Periodic Payment, Interest	669,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value	$ 12,000
Cantone Asset Management Llc [Member]
Debt Instrument, Periodic Payment, Interest	$ 173,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value	$ 48,000

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INVENTORY

12 Months Ended

Dec. 31, 2012

Inventory Disclosure [Abstract]

Inventory Disclosure [Text Block]

NOTE B - INVENTORY

Inventory is comprised of the following:

	December 31, 2012			December 31, 2011
Raw Materials	$	1,578,000		$	1,555,000
Work In Process		671,000			1,735,000
Finished Goods		583,000			350,000
Allowance for slow moving and obsolete inventory		(261,000	)		(401,000	)
	$	2,571,000		$	3,239,000

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INVENTORY (Details) (USD $)	Dec. 31, 2012	Dec. 31, 2011
Raw Materials	$ 1,578,000	$ 1,555,000
Work In Process	671,000	1,735,000
Finished Goods	583,000	350,000
Allowance for slow moving and obsolete inventory	(261,000)	(401,000)
Inventory	$ 2,571,000	$ 3,239,000

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INCOME TAXES (Details)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Tax expense at federal statutory rate	34.00%	34.00%
State tax expense, net of federal tax effect	5.00%	5.00%
Permanent timing differences	(4.00%)	(7.00%)
Deferred income tax asset valuation allowance	(35.00%)	(32.00%)
Effective income tax rate	0.00%	0.00%

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Balance Sheets (USD $)	Dec. 31, 2012	Dec. 31, 2011
ASSETS
Cash and cash equivalents	$ 89,000	$ 93,000
Accounts receivable, net of allowance for doubtful accounts of $60,000 at December 31, 2012 and $66,000 at December 31, 2011	810,000	883,000
Inventory, net of allowance for slow moving and obsolete inventory of $261,000 at December 31, 2012 and $401,000 at December 31, 2011	2,571,000	3,239,000
Prepaid expenses and other current assets	50,000	61,000
Total current assets	3,520,000	4,276,000
Property, plant and equipment, net	1,192,000	1,304,000
Debt issuance costs, net	29,000	26,000
Patents, net	24,000	0
Other assets	14,000	30,000
Total assets	4,779,000	5,636,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable	1,016,000	631,000
Accrued expenses and other current liabilities	174,000	217,000
Wages payable	231,000	264,000
Line of credit	321,000	397,000
Current portion of long-term debt	1,404,000	872,000
Current portion of unearned grant	0	10,000
Total current liabilities	3,146,000	2,391,000
Other liabilities	145,000	143,000
Long-term debt	0	608,000
Related party note	124,000	124,000
Total liabilities	3,415,000	3,266,000
COMMITMENTS AND CONTINGENCIES
Stockholders' equity:
Preferred stock; par value $.01 per share; 5,000,000 shares authorized, none issued and outstanding at December 31, 2012 and 2011
Common stock; par value $.01 per share; 50,000,000 shares authorized; 21,833,003 issued and outstanding at December 31, 2012 and 21,744,768 issued and outstanding at December 31, 2011	218,000	217,000
Additional paid-in capital	19,490,000	19,386,000
Accumulated deficit	(18,344,000)	(17,233,000)
Total stockholders' equity	1,364,000	2,370,000
Total liabilities and stockholders' equity	$ 4,779,000	$ 5,636,000

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STOCKHOLDERS' EQUITY (Details 1) (USD $)	12 Months Ended
	Dec. 31, 2012
Options Outstanding,Shares	2,939,000
Options Outstanding,Weighted Average Exercise Price	$ 0.56
Options Outstanding,Weighted Average Remaining Life in Years	5 years 2 months 23 days
Options Exercisable,Shares	2,189,000
Weighted Average Exercise Price	$ 0.69
Range of Exercise Price $0.07 - $0.20 [Member]
Range of Exercise Price,Minimum	$ 0.07
Range of Exercise Price,Maximum	$ 0.20
Options Outstanding,Shares	1,675,000
Options Outstanding,Weighted Average Exercise Price	$ 0.17
Options Outstanding,Weighted Average Remaining Life in Years	8 years 1 month 13 days
Options Exercisable,Shares	925,000
Weighted Average Exercise Price	$ 0.16
Range of Exercise Price $0.84 - $1.09 [Member]
Range of Exercise Price,Minimum	$ 0.84
Range of Exercise Price,Maximum	$ 1.09
Options Outstanding,Shares	1,054,000
Options Outstanding,Weighted Average Exercise Price	$ 1.04
Options Outstanding,Weighted Average Remaining Life in Years	1 year 6 months 22 days
Options Exercisable,Shares	1,054,000
Weighted Average Exercise Price	$ 1.04
Range of Exercise Price $1.11 - $1.74 [Member]
Range of Exercise Price,Minimum	$ 1.11
Range of Exercise Price,Maximum	$ 1.74
Options Outstanding,Shares	210,000
Options Outstanding,Weighted Average Exercise Price	$ 1.28
Options Outstanding,Weighted Average Remaining Life in Years	6 months 26 days
Options Exercisable,Shares	210,000
Weighted Average Exercise Price	$ 1.28

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Statements of Cash Flows (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Cash flows from operating activities:
Net loss	$ (1,111,000)	$ (345,000)
Adjustments to reconcile net loss to net cash provided by / (used in) operating activities:
Depreciation	123,000	277,000
Loss on disposal of property, plant and equipment	0	1,000
Amortization of debt issuance costs	47,000	48,000
Provision for bad debts	(6,000)	(14,000)
Provision for slow moving and obsolete inventory	454,000	188,000
Share-based payment expense	104,000	58,000
Changes in:
Accounts receivable	79,000	(126,000)
Inventory	214,000	176,000
Prepaid expenses and other current assets	11,000	58,000
Other assets	15,000	0
Accounts payable	386,000	199,000
Accrued expenses and other current liabilities	(38,000)	(75,000)
Unearned grant	(10,000)	(10,000)
Wages payable	(34,000)	12,000
Other liabilities	2,000	2,000
Net cash provided by operating activities	236,000	449,000
Cash flows from investing activities:
Purchase of property, plant and equipment	(11,000)	(173,000)
Patent application costs	(23,000)	0
Net cash used in investing activities	(34,000)	(173,000)
Cash flows from financing activities:
Proceeds from lines of credit	10,185,000	9,071,000
Payments on lines of credit	(10,261,000)	(9,167,000)
Debt issuance costs	(50,000)	0
Proceeds from bridge loan	150,000	0
Payments on debt financing	(230,000)	(124,000)
Net cash used in financing activities	(206,000)	(220,000)
Net (decrease)/ increase in cash and cash equivalents	(4,000)	56,000
Cash and cash equivalents - beginning of period	93,000	37,000
Cash and cash equivalents - end of period	89,000	93,000
Supplemental disclosures of cash flow information:
Cash paid for taxes	0	0
Cash paid during the year for interest	$ 201,000	$ 199,000

XML

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES (Details) (USD $)	Dec. 31, 2012	Dec. 31, 2011
Accrued accounting fees	$ 40,000	$ 53,000
Accrued interest payable	29,000	36,000
Accounts receivable credit balances	27,000	47,000
Accrued sales tax payable	42,000	11,000
Accrued expenses	24,000	34,000
Other current liabilities	12,000	36,000
Accrued Expenses and Other Current Liabilities	$ 174,000	$ 217,000

XML

INVENTORY (Tables)

12 Months Ended

Dec. 31, 2012

Inventory Disclosure [Abstract]

Schedule of Inventory, Current [Table Text Block]

Inventory is comprised of the following:

	December 31, 2012			December 31, 2011
Raw Materials	$	1,578,000		$	1,555,000
Work In Process		671,000			1,735,000
Finished Goods		583,000			350,000
Allowance for slow moving and obsolete inventory		(261,000	)		(401,000	)
	$	2,571,000		$	3,239,000

XML

LONG-TERM DEBT (Details) (USD $)	Dec. 31, 2012		Dec. 31, 2011
Long-term Debt	$ 1,404,000		$ 1,480,000
Less current portion	1,404,000		(872,000)
Non-current portion	0		608,000
Mortgage Payable to First Niagara [Member]
Long-term Debt	608,000	[1]	725,000	[1]
Capital Lease Payable to Ricoh [Member]
Long-term Debt	0		3,000
Capital Lease Payable to Marlin [Member]
Long-term Debt	1,000		2,000
Debenture Financing [Member]
Long-term Debt	645,000	[2]	750,000	[2]
Bridge Loan with Cantone Asset Management, Llc [Member]
Long-term Debt	$ 150,000		$ 0

[1] The mortgage through First Niagara was refinanced and extended on March __, 2013.

[2] The original debt with the Series A Debenture Holders was $750,000, with an interest rate of 10% per annum. It was payable semi-annually in August and February of each year with the first payment due February 1, 2009 and a maturity date of August 1, 2012. The Series A Debentures were amended and extended on July 31, 2012 and the terms noted in the table above are the revised terms of the Series A Debentures. Even after the amendment and extension, the Series A Debentures remained classified as a current liability given their maturity date of August 1, 2013.

XML

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES (Tables)

12 Months Ended

Dec. 31, 2012

Payables and Accruals [Abstract]

Schedule of Accrued Expenses and Other Current Liabilities [Table Text Block]

Accrued expenses and other current liabilities consisted of the following:

	December 31, 2012		December 31, 2011
Accrued accounting fees	$	40,000	$	53,000
Accrued interest payable		29,000		36,000
Accounts receivable credit balances		27,000		47,000
Accrued sales tax payable		42,000		11,000
Accrued expenses		24,000		34,000
Other current liabilities		12,000		36,000
	$	174,000	$	217,000

XML

The Company and its Significant Accounting Policies

12 Months Ended

Dec. 31, 2012

Accounting Policies [Abstract]

Basis of Presentation and Significant Accounting Policies [Text Block]

Note A - The Company and its Significant Accounting Policies

The Company:

American Bio Medica Corporation (the “Company”) is in the business of developing, manufacturing, and marketing point of collection testing products for drugs of abuse, as well as performing contract manufacturing services for third parties.

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, 2012 (“Fiscal 2012”), the Company had a net loss of $1,111,000 and net cash provided by operating activities of $236,000, compared to a net loss of $345,000 and net cash provided by operating activities of $449,000 for the year ended December 31, 2011 (“Fiscal 2011”). The Company’s cash balances decreased by $4,000 during Fiscal 2012 and increased by $56,000 during Fiscal 2011.

As of December 31, 2012, the Company had an accumulated deficit of $18,344,000. The Company has implemented programs to improve its financial prospects including entering into national and international distribution agreements, debt refinancing, implementing a number of cost-cutting initiatives, including strategic reductions in personnel, analyzing and controlling inventory levels and other measures to enhance profit margins. The Company continues to explore other measures, which would allow the Company to make further improvements in efficiency to lower the costs to manufacture its products.

If cash generated from operations is insufficient to satisfy the Company’s working capital and capital expenditure requirements, the Company will be required to sell additional equity or obtain additional credit facilities. On August 1, 2013, the Series A Debentures will mature (See Note E – Long Term Debt; Debenture Financing). On the maturity date, the Company is obligated to pay all principal and interest due (approximately $669,000) to the Holders of the Series A Debentures. In addition, all principal and interest on the Bridge Loan from Cantone Asset Management LLC (“CAM”), or approximately $173,000, will become due on August 1, 2013. And finally, our Mortgage Loan with First Niagara Bank has a maturity date of March 1, 2013 and all principal and interest will become due upon maturity (See Note L – Subsequent Event; Refinance/Extension of Mortgage Consolidation Loan). The Company is currently involved in discussions to refinance the amounts due to the Series A Debenture Holders and to CAM. There can be no assurance, however, that such financing will be available or that the Company will be able to complete financing on satisfactory terms, if at all.

Our ability to repay or to refinance our current debt will depend primarily upon our future operating performance, which may be affected by general economic, financial, competitive, regulatory, business and other factors beyond our control, including those discussed herein. In addition, we cannot assure you that future borrowings or equity financing will be available for the payment or refinancing of any indebtedness we may have.

Our failure to comply with the restrictive covenants under our revolving credit facility and other debt instruments could result in an event of default, which, if not cured or waived, could result in the Company being required to repay these borrowings before their due date or pay higher costs associated with the indebtedness. If we are forced to refinance these borrowings on less favorable terms, our results of operations and financial condition could be adversely affected by increased costs and rates. We may also be forced to pursue one or more alternative strategies, such as restructuring or refinancing our indebtedness, selling assets, reducing or delaying capital expenditures or seeking additional equity capital. There can be no assurances that any of these strategies could be effected on satisfactory terms, if at all.

The Company’s history of operating cash flow deficits, its current cash position and lack of access to capital raise 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, to sell additional shares of the Company’s common stock to fund operations and obtain additional credit facilities. Selling additional shares of the Company’s common stock and obtaining additional credit facilities may be more difficult as a result of limited access to equity markets and the tightening of credit markets. 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 mainly trade receivables due from customers for the sale of our products. Payment terms vary on a customer-by-customer basis, and currently range from cash on delivery to net 60 days. Receivables are considered past due when they have exceeded their payment terms. Accounts receivable have been reduced by an estimated allowance for doubtful accounts. The Company estimates its 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. At December 31, 2012 and December 31, 2011, the Company had an allowance for doubtful accounts of $60,000 and $66,000, respectively.

[3]       Inventory: Inventory is stated at the lower of cost or market. Work in process and finished goods are comprised of labor, overhead and raw material costs. Labor and overhead costs are determined on a rolling average cost basis and raw materials are determined on an average cost basis. At December 31, 2012 and December 31, 2011, the Company established an allowance for slow moving and obsolete inventory of $261,000 and $401,000, respectively.

[4]       Income taxes: The Company follows ASC 740 “Income Taxes” (“ASC 740”) which prescribes the asset and liability method whereby 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. Under ASC 740, tax benefits are recorded only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon ultimate settlement. Unrecognized tax benefits are tax benefits claimed in the Company’s tax returns that do not meet these recognition and measurement standards.

[5]      Depreciation: Property, plant and equipment are depreciated on the straight-line method over their estimated useful lives; generally 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. All buyers have economic substance apart from the Company and the Company does not have any obligation 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 or, in the case of a distributor, the obligation is not contingent on the resale of the product, nor does the Company have any obligation to bring about 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. All distributors have economic substance apart from the Company and their own customers and 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.

[9]       Net loss per common share: Basic loss per common share is calculated by dividing net loss by the weighted average number of outstanding common shares during the period.

Potential common shares outstanding as of December 31, 2012 and 2011:

	December 31, 2012		December 31, 2011
Warrants		375,000		75,000
Options		2,939,080		2,698,580

For Fiscal 2012 and Fiscal 2011, the number of securities not included in the diluted loss per share was 3,314,080, and 2,773,580, respectively, as their effect was anti-dilutive.

[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. Our management believes the major estimates and assumptions impacting our financial statements are the following:

· estimates of the fair value of stock options and warrants at date of grant; and

· estimates of the inventory reserves; and

· estimates and evaluation of litigation being pursued.

The fair value of stock options and warrants issued to employees, members of our Board of Directors, consultants and in connection with debt financings is estimated on the date of grant based on the Black-Scholes options-pricing model utilizing certain assumptions for a risk free interest rate; volatility; and expected remaining lives of the awards. The assumptions used in calculating the fair value of share-based payment awards represent management's best estimates, but these estimates involve inherent uncertainties and the application of management judgment.

As a result, if factors change and the Company uses different assumptions, the Company's equity-based compensation expense could be materially different in the future. In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. In estimating the Company's forfeiture rate, the Company analyzed its historical forfeiture rate, the remaining lives of unvested options, and the amount of vested options as a percentage of total options outstanding.

If the Company's actual forfeiture rate is materially different from its estimate, or if the Company reevaluates the forfeiture rate in the future, the equity-based compensation expense could be significantly different from what we have recorded in the current period.

Actual results may differ from estimates and assumptions of future events.

[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.

ASC Topic 820, “Fair Value Measurements and Disclosures” (“ASC Topic 820”) establishes a hierarchy for ranking the quality and reliability of the information used to determine fair values. ASC Topic 820 requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

Level 1: Unadjusted quoted market prices in active markets for identical assets or liabilities.

Level 2: Unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices are observable for the asset or liability.

Level 3: Unobservable inputs for the asset or liability.

The Company endeavors to utilize the best available information in measuring fair value. Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:

Cash and Cash Equivalents—The carrying amount reported in the balance sheet for cash and cash equivalents approximates its fair value due to the short-term maturity of these instruments.

Line of Credit and Long-Term Debt—The carrying amounts of the Company’s borrowings under its line of credit agreement and other long-term debt approximates fair value, based upon current interest rates, some of which are variable interest rates.

[13]        Accounting for share-based payments and stock warrants: In accordance with the provisions of ASC Topic 718, “Accounting for Stock Based Compensation”, the Company recognizes share-based payment expense for stock options and warrants. The weighted average fair value of options granted during Fiscal 2012 and Fiscal 2011 was $0.18 and $0.13, respectively. (See Note I [2] – Stockholders’ Equity; Stock Options)

The Company accounts for derivative instruments in accordance with ASC Topic 815 “Derivatives and Hedging” (“ASC Topic 815”). The guidance within ASC Topic 815 requires the Company to recognize all derivatives as either assets or liabilities on the statement of financial position unless the contract, including common stock warrants, settles in the Company’s own stock and qualifies as an equity instrument. A contract designated as an equity instrument is included in equity at its fair value, with no further fair value adjustments required; and if designated as an asset or liability is carried at fair value with any changes in fair value recorded in the results of operations. The weighted average fair value of warrants issued in Fiscal 2012 was $0.16. The Company did not issue any warrants in Fiscal 2011. (See Note I [3] – Stockholders’ Equity; Warrants)

[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, 2012, three customers accounted for 12.8%, 9.7% and 9.6% of the Company’s net accounts receivable. A substantial portion of these balances was collected in the first quarter of the year ending December 31, 2013. Due to the longstanding nature of our relationships with these customers and contractual obligations, the Company is confident that it will recover these amounts.

At December 31, 2011, two customers accounted for 16.8% and 9.4% of the Company’s net accounts receivable. A substantial portion of these balances was collected in the first quarter of the year ended December 31, 2012. Due to the longstanding nature of our relationships with these customers and contractual obligations, the Company is confident that it will recover these amounts.

The Company has established an allowance for doubtful accounts of $60,000 and 66,000 at December 31, 2012 and December 31, 2011, respectively, based on factors surrounding the credit risk of our customers and other information.

One of our customers accounted for approximately 14.8% of net sales of the Company in Fiscal 2012 and 14.1% of net sales of the Company for Fiscal 2011.

The Company maintains certain cash balances at financial institutions that are 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 ASC Topic 220, “Reporting Comprehensive Income” (“ASC Topic 220”). The provisions of ASC Topic 220 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 Fiscal 2012 and Fiscal 2011, 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: There were no new standards adopted in Fiscal 2012 that materially impacted our financial statements.

XML

Balance Sheets (Parenthetical) (USD $)	Dec. 31, 2012	Dec. 31, 2011
Accounts receivable, net of allowance for doubtful accounts (in dollars)	$ 60,000	$ 66,000
Inventory, net of allowance for slow moving and obsolete inventory (in dollars)	$ 261,000	$ 401,000
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized	5,000,000	5,000,000
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	50,000,000	50,000,000
Common stock, shares issued	21,833,003	21,744,768
Common stock, shares outstanding	21,833,003	21,744,768

XML

RELATED PARTY DISCLOSURES

12 Months Ended

Dec. 31, 2012

Related Party Transactions [Abstract]

Related Party Transactions Disclosure [Text Block]

NOTE K – Related Party Disclosures

Edmund M. Jaskiewicz

During Fiscal 2012 and Fiscal 2011, the Company paid an aggregate of $10,000 and $12,000, respectively, to Edmund M. Jaskiewicz, the Company’s President and Chairman of the Board of Directors (“Jaskiewicz”) 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, 2012, there were invoices totaling $30,000 payable to Jaskiewicz.

As a condition to the Rosenthal Line of Credit closing, in June 2009, Jaskiewicz was required to execute an Agreement of Subordination and Assignment (“Subordination Agreement”) related to $124,000 owed to Jaskiewicz by the Company as of June 29, 2009 (the “Jaskiewicz Debt”). Under the Subordination Agreement, the Jaskiewicz Debt is not payable, is junior in right to the Rosenthal Line of Credit and no payment may be accepted or retained by Jaskiewicz unless and until the Company has paid and satisfied in full any obligations to Rosenthal. Furthermore, the Jaskiewicz Debt was assigned and transferred to Rosenthal as collateral for the Rosenthal Line of Credit.

As compensation for his execution of a Subordination Agreement, on July 1, 2009, July 1, 2010 and July 1, 2011, Jaskiewicz was awarded an option grant representing 50,000 common shares each year for a total of 150,000 common shares of the Company under the Company’s 2001 Plan, at an exercise price of $0.20, $0.07 and $0.13 respectively. The exercise price represents the closing price of the Company’s common shares on the date of the grant. All option grants were immediately exercisable on the date of the grant.

ALEC CIPKOWSKI

During both Fiscal 2012 and Fiscal 2011, the Company paid an aggregate of $60,000 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 products that are currently being used by customers. He receives normal employee benefits in accordance with the Company’s standard policies. Due to the timing of pay periods, at December 31, 2012 the Company owed Alec Cipkowski approximately $1,000, however, this amount was subsequently paid in the first regularly scheduled payroll in the year ending December 31, 2013.

XML

Document and Entity Information (USD $)	12 Months Ended
	Dec. 31, 2012	Mar. 28, 2013	Jun. 30, 2012
Entity Registrant Name	AMERICAN BIO MEDICA CORP
Entity Central Index Key	0000896747
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Trading Symbol	abmc
Entity Common Stock, Shares Outstanding		22,166,336
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2012
Document Fiscal Period Focus	FY
Document Fiscal Year Focus	2012
Entity Well-Known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Public Float			$ 3,183,196

XML

SUBSEQUENT EVENTS

12 Months Ended

Dec. 31, 2012

Subsequent Events [Abstract]

Subsequent Events [Text Block]

NOTE L – SUBSEQUENT EVENTS

Refinancing of Medallion Line of Credit

On January 16, 2013 (the “Closing Date”), the Company entered into a three-year Loan and Security Agreement (“LSA”) with Imperium Commercial Finance, LLC (“Imperium”), a new Senior Lender, to refinance the Company’s Line of Credit with Medallion Financial Corp (“Medallion”).

Under the LSA, Imperium has agreed to provide the Company with up to a maximum amount of $1,500,000 (“Maximum Funding Amount”) under a revolving secured loan facility (the “Imperium Line of Credit”), which is secured by a first security interest in all of the Company’s receivables, inventory, and intellectual property rights along with a second security interest in the Company’s machinery and equipment (together the “Collateral”). The Maximum Funding Amount is subject to a discretionary borrowing base comprised of: 85% of eligible accounts receivables (excluding, without limitation, receivables remaining unpaid for more than 90 days from invoice date or 60 days from due date, contra receivables, and affiliated receivables), up to the lesser of 60% of eligible finished goods inventory at cost or 75% of appraised net orderly liquidation value of inventory, and a receivable dilution rate of less than 5% (the “Borrowing Base”).

In addition to the Imperium Line of Credit, the Imperium facility includes a discretionary Supplemental Advance of up to $500,000 (the “Imperium Supplemental Advance”). Supplemental advances, once repaid, cannot be re-borrowed, and is secured with the same Collateral as the Imperium Line of Credit.

The Imperium Line of Credit is to be used for working capital and general corporate purposes, and the Imperium Supplemental Advance is to be used for costs associated with obtaining marketing clearance of the Company’s oral fluid products and costs associated with other new market opportunities.

On the Closing Date, the Company paid a closing fee of $10,000 to Imperium, and granted Imperium a 7-year warrant to purchase 2,000,000 common shares of the Company at an exercise price of $0.18 (the “Imperium Warrants”). The Imperium Warrants will be valued using the Black-Scholes pricing model. The Company also paid an early termination fee of $25,000 to Medallion on the Closing Date, and a finder’s fee of 3% of the gross proceeds from the Imperium financing, or $60,000, to Monarch Capital Group, LLC.

The Company will also pay Imperium an Unused Line Fee in an amount equal to 2% (a) from and after the Closing Date through and including March 31, 2013, the Maximum Revolving Amount of $1,500,000 less the aggregate amounts outstanding to Imperium and (b) at all time from and after April 1, 2013, the Maximum Amount of $2,000,000 less the aggregate amounts outstanding to Imperium. The Unused Line Fee for each month (except for the month in which the termination occurs) is payable on the first day of each calendar month following the Closing Date; the final monthly installment of the Unused Line Fee is payable on the termination date. The Company will also pay to Imperium a Collateral monitoring fee of $2,500 on the first day of each month during the term of the LSA.

A success fee of $175,000 (“Success Fee”) is due and payable if Imperium terminates due to an event of default, or if the Company terminates and pre-pays all amounts due to Imperium prior to the stated expiration date of January 16, 2016, however, the Success Fee is not due and payable if Imperium has exercised all its rights under the Imperium Warrant and sells all of the common shares underlying the Imperium Warrant on or before January 16, 2016 and if on the date that Imperium completes such sale(s), the price per share of the Company’s common shares is at least $0.70 per common share.

Under the LSA, interest on the Imperium Line of Credit and the Imperium Supplemental Advance is in cash at a rate equal to eight percent (8%) per annum and (ii) in kind (i.e., “PIK” interest) at a rate equal to two percent (2%) per annum (collectively, the “Interest Rate”), all of which “PIK” interest shall be added to and constitute a part of the aggregate principal amount of outstanding Line of Credit borrowing or aggregate principal amount of outstanding Supplemental Advances, as applicable, as and when such “PIK” interest becomes due and payable hereunder. Interest is payable on the Line of Credit and Supplemental Advance in arrears for the preceding calendar month on the first day of each calendar month.

So long as any obligations are due to Imperium under the LSA, the Company must maintain Net Borrowing Availability of not less than $100,000 (Net Borrowing Availability is defined as borrowing availability less the amounts due under the Imperium Line of Credit). There are also certain minimum EBITDA (Earnings Before Interest, Taxes Depreciation and Amortization) requirements. More specifically, the Company must have EBITDA of not less than (a) $25,000 for the Fiscal Quarter ending on or about March 31, 2013, (b) $100,000 for the Fiscal Quarter ending on or about June 30, 2013, (c) $200,000 for the Fiscal Quarter ending on or about September 30, 2013, and (d) $300,000 for the Fiscal Quarter ending on or about December 31, 2013 and for each of the Fiscal Quarters thereafter.

In an event of default, which includes but is not limited to, failure of the Company to make any payment when due, and non-compliance with the Net Borrowing Availability and minimum EBITDA requirements, the interest rate will be increased by 4% for as long as the event of default occurs. Imperium’s other remedies include, but are not limited to, termination or suspension of Imperium’s obligation to make further advances to the Company, declaration of all amounts owed to Imperium due and payable.

On December 18, 2012, the Company gave Medallion written notice of non-renewal as provided under the Financing Agreement. On January 16, 2013 all indebtedness due to Medallion was paid in full and Medallion’s security interest in the Company’s assets were terminated.

Refinance/Extension of Mortgage Consolidation Loan

On March 8, 2013, the Company entered into a Second Amendment to Loan Agreement (the “Second Mortgage Consolidation Loan Amendment”) with First Niagara Bank related to the Company’s Mortgage Consolidation Loan. Under the Second Mortgage Consolidation Loan Amendment, the Mortgage Consolidation Loan was recast into a 4-year fully amortizing note with a one-year term through March 1, 2014. The interest rate was increased from 8.25% to 9.25% and the monthly payment was reduced to $14,115 from $14,437. The Company was required to make a principal reduction payment of $25,000 at the time of closing. All other terms of the Mortgage Consolidation Loan remained unchanged.

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Statements of Operations (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Net sales	$ 9,343,000	$ 9,272,000
Cost of goods sold	5,999,000	5,396,000
Gross profit	3,344,000	3,876,000
Operating expenses:
Research and development	207,000	223,000
Selling and marketing	1,829,000	1,777,000
General and administrative	2,237,000	2,022,000
Operating loss	(929,000)	(146,000)
Other income / (expense):
Interest income	1,000	0
Interest expense	(194,000)	(198,000)
Other income, net	9,000	9,000
Net loss before tax	(1,113,000)	(335,000)
Income tax benefit (expense)	2,000	(10,000)
Net loss	$ (1,111,000)	$ (345,000)
Basic and diluted loss per common share (in dollars per share)	$ (0.05)	$ (0.02)
Weighted average number of shares outstanding - basic and diluted (in shares)	21,833,003	21,744,768

XML

LINES OF CREDIT

12 Months Ended

Dec. 31, 2012

Line Of Credit Facility [Abstract]

Line of Credit Disclosure [Text Block]

NOTE F – LINES OF CREDIT

Loan and Security Agreement with Medallion Financial Corp (“Medallion”)

On April 20, 2012 (the “Closing Date”), we entered into a Loan and Security Agreement (the “Loan Agreement”) with Medallion, a Senior Lender, to refinance the Company’s Line of Credit with Rosenthal and Rosenthal, Inc (“Rosenthal”; see below for information on Rosenthal Line of Credit).

Under the Loan Agreement, Medallion provided the Company with up to $1,000,000 under a revolving secured line of credit (the “Medallion Line of Credit”), which is secured by a first security interest in all of the Company’s receivables, inventory, and intellectual property rights along with a second security interest in the Company’s machinery and equipment. The maximum amount available under the Medallion Line of Credit is subject to an Advance Rate that consists of: 85% of eligible accounts receivable and up to 30% of eligible inventory (not to exceed $150,000). “Eligible Receivables” are defined as those receivables that are paid within ninety (90) days of the invoice date. Eligible Receivables consists of both domestic sales and those international sales made in North America. An Eligible Receivable becomes ineligible if more than 25% of the aggregate receivables due from a customer are more than ninety (90) days past due or the aggregate receivables from a customer exceed 25% of the then total outstanding Eligible Receivables. “Eligible Inventory” is defined as raw materials and finished goods that are not obsolete or unmerchantable and are acceptable to Medallion.

From the loan availability on the Closing Date, we drew approximately $566,000 to pay off our Line of Credit with Rosenthal. We were charged a facility fee of 1% of the balance of the Medallion Line of Credit on the Closing Date and will be charged the same facility fee of 1% on each anniversary of the Closing Date thereafter. Under the Loan Agreement, interest on outstanding borrowings is payable monthly and is charged at an annual rate equal to 4% above a base rate (which is the Wall Street Journal Prime as published from time to time; as of December 31, 2012, the Wall Street Journal Prime was 3.25%). If we were to default under the Loan Agreement, interest on outstanding borrowings under the Medallion Line of Credit would be charged at an annual rate of 2% above the interest rate in effect at the time of such default. We are subject to two audits per year by Medallion (provided we are not in default) at a rate of $950.00 per person per day. Prior to closing, we also paid a non-refundable fee in the amount of $10,000 to Medallion for field exam and due diligence costs.

We incurred $20,000 in costs related to the Medallion Line of Credit. These costs were fully expensed in Fiscal 2012. We incurred $42,000 in interest expense in Fiscal 2012 (no interest expense was incurred in Fiscal 2011 as we did not close on the Medallion Line of Credit until April 2012). We had accrued interest of $3,000 at December 31, 2012.

The amount outstanding on the Medallion Line of Credit at December 31, 2012 was $321,000. Additional loan availability was $67,000, for a total Loan Availability of $388,000 as of December 31, 2012. No amounts were outstanding or available at December 31, 2011, as we did not close on the Medallion Line of Credit until April 2012.

So long as any obligations are due to Medallion under the Medallion Line of Credit, we must maintain stockholders’ equity of at least $1,750,000. The Company was not in compliance with this requirement as of the year ended December 31, 2012, however, on January 16, 2013, the Company entered into a three-year Loan and Security Agreement (“LSA”) with Imperium Commercial Finance, LLC (“Imperium”), a new Senior Lender, to refinance the Medallion Line of Credit. Given the termination (and refinancing) of the Medallion Line of Credit, this default did not result in any triggers under the Medallion Line of Credit and did not result in any financial implications for the Company. (See Note L - Subsequent Event; Refinancing of Medallion Line of Credit).

ROSENTHAL LINE OF CREDIT

In July 2009, we entered into a Financing Agreement (the “Financing Agreement”) with Rosenthal. On February 28, 2012, we gave Rosenthal written notice of non-renewal as provided under the Financing Agreement, and as a result, the Financing Agreement terminated on May 31, 2012.

Under the Financing Agreement, Rosenthal provided the Company with up to $1,500,000 under a revolving secured line of credit (“Rosenthal Line of Credit”). The Rosenthal Line of Credit was collateralized by a first security interest in all of the Company’s accounts receivables, inventory, and intellectual property, and a second security interest in our machinery and equipment, leases, leasehold improvements, furniture and fixtures. The maximum availability of $1,500,000 was subject to an availability formula based on certain percentages of accounts receivable and inventory, and elements of the availability formula were subject to periodic review and revision by Rosenthal. Under the Financing Agreement, we paid Rosenthal an administrative fee of $1,500 per month and an annual fee of $15,000. There were additional administrative fees paid that totaled $34,000 in Fiscal 2011 (there were no administrative fees charged in Fiscal 2012). Under the Financing Agreement, interest was payable monthly, and was charged at variable rates (based on the Prime Rate), with minimum monthly interest of $4,000. We incurred $19,000 in interest expense in Fiscal 2012 and $54,000 in interest expense in Fiscal 2011.

We incurred $41,000 in costs related to the Rosenthal Line of Credit. These costs were amortized over the three-year term of the Rosenthal Line of Credit. We amortized $6,000 of these costs in Fiscal 2012 and $14,000 of these costs in Fiscal 2011.

In April 2012, we drew approximately $566,000 from our Medallion Line of Credit to pay off the Rosenthal Line of Credit so the amount due on the Rosenthal Line of Credit as of December 31, 2012 was $0. The amount outstanding on the Rosenthal Line of Credit at December 31, 2011 was $397,000, with $361,000 of this amount outstanding collateralized by accounts receivable at an interest rate of 8% and $36,000 collateralized by inventory at an interest rate of 9%. Additional loan availability was $159,000, for a total Loan Availability of $556,000 as of December 31, 2011.

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LONG-TERM DEBT

12 Months Ended

Dec. 31, 2012

Debt Disclosure [Abstract]

Long-term Debt [Text Block]

NOTE E – LONG-TERM DEBT

Long-term debt consisted of the following:

	December 31, 2012		December 31, 2011
First Niagara:
Mortgage payable in equal monthly installments of $14,000 including interest at 8.25% through March 1, 2013 (“Maturity”) with a final lump sum payment representing the entire unpaid balance of principal, plus accrued interest at Maturity, collateralized by the building, land and personal property(1)	$	608,000	$	725,000
RICOH:
Capital lease payable in equal monthly installment of $390 including interest at 14.11% through May 1, 2012		0		3,000
MARLIN:
Capital lease payable in equal monthly installment of $147 including interest at 14.46% through September 1, 2013		1,000		2,000
Debenture financing(2):
$645,000 in principal amount of Series A Debentures; interest at 15% per annum from August 1, 2012 through December 31, 2012, and 10% from January 1, 2012 through July 31, 2012 and in the year ended December 31, 2011, payable quarterly with first payment due November 1, 2012; maturity date of August 1, 2013		645,000		750,000
Bridge Loan with Cantone Asset Management, LLC:
Interest rate of 15% payable upon loan maturity; maturity date of August 1, 2013.		150,000		0
		1,404,000		1,480,000
Less current portion		1,404,000		(872,000	)
Non-current portion	$	0	$	608,000

(1) The mortgage through First Niagara was refinanced and extended on March 8, 2013.

(2) The original debt with the Series A Debenture Holders was $750,000, with an interest rate of 10% per annum. It was payable semi-annually in August and February of each year with the first payment due February 1, 2009 and a maturity date of August 1, 2012. The Series A Debentures were amended and extended on July 31, 2012 and the terms noted in the table above are the revised terms of the Series A Debentures. Even after the amendment and extension, the Series A Debentures remained classified as a current liability given their maturity date of August 1, 2013.

At December 31, 2012, the following are the maturities of long-term debt for each of the next five years:

2013	$	1,404,000
2014		0
2015		0
2016		0
2017		0
	$	1,404,000

FIRST NIAGARA: MORTGAGE CONSOLIDATION LOAN

On December 17, 2009, we closed on a refinancing and consolidation of our existing real estate mortgage and term note with First Niagara (the “Mortgage Consolidation Loan”). The Mortgage Consolidation Loan was secured by our facility in Kinderhook, New York as well as various pieces of machinery and equipment. We had to comply with a covenant to maintain Liquidity of at least $50,000 (Liquidity is defined as any combination of cash, marketable securities or borrowing availability under one or more credit facilities other than the Mortgage Consolidation Loan), and we maintained compliance with this covenant through the term of the Mortgage Consolidation Loan.

The annual interest rate of the Mortgage Consolidation Loan was fixed at 8.75%. The monthly payment of principal and interest was $16,125. Accrued interest was paid at closing totaling $7,000. In addition, we were required to make a $25,000 principal payment at the time of closing on the prior existing Term Note. We incurred approximately $28,000 in costs associated with the Mortgage Consolidation Loan, which were included in prepaid expenses and other current assets, and were amortized over the term of the Mortgage Consolidation Loan. For the year ended December 31, 2011 we amortized the final $2,000 of these costs. Payments commenced on the Mortgage Consolidation Loan on February 1, 2010, and the loan matured on January 1, 2011.

On February 23, 2011, we amended and extended the Mortgage Consolidation Loan. The amended Mortgage Consolidation Loan has a maturity date of March 1, 2013, and has a 6-year (72 month) amortization. The principal amount of the amended Mortgage Consolidation Loan is $815,000 with a fixed interest rate of 8.25%. The monthly payment of principal and interest is $14,000 and payments commenced on March 1, 2011. We were required to make a $15,000 principal payment at the time of closing of the amended Mortgage Consolidation Loan. We also incurred approximately $2,000 in costs associated with this amendment, which were legal costs incurred by First Niagara and passed on to the Company. These costs were fully amortized as of September 30, 2012. The amended Mortgage Consolidation Loan continues to be secured by our facility in Kinderhook, New York as well as various pieces of machinery and equipment. All other terms of the Mortgage Consolidation Loan remain unchanged, including compliance with the Liquidity covenant previously discussed. As of the date of this report, we are in compliance with this covenant. The balance on the Mortgage Consolidation Loan was $608,000 and $725,000 for the years ended December 31, 2012 and December 31, 2011, respectively. Interest expense recognized was $56,000 and $66,000 for Fiscal 2012 and Fiscal 2011, respectively. (See Note L- Subsequent Events; Refinance/Extension of Mortgage Consolidation Loan)

RICOH

In May 2007, we purchased a copier through an equipment lease with RICOH in the amount of $17,000. The term of the lease was five years with an interest rate of 14.11%. In April 2012, we notified RICOH that we were opting to purchase the copier for $1.00 as provided in our lease. The amount outstanding on this lease was $0 at December 31, 2012 and $2,000 at December 31, 2011.

MARLIN

In October 2010, we purchased a copier through an equipment lease with Marlin Leasing in the amount of $4,000. The term of the lease is three years with an interest rate of 14.46%. The amount outstanding on this lease was$1,000 at December 31, 2012 and $2,000 at December 31, 2011.

DEBENTURE FINANCING

In August 2008, we completed an offering of Series A Debentures (“Series A Debentures”) and received gross proceeds of $750,000. The net proceeds of the offering of Series A Debentures were $631,000 after $54,000 of placement agent fees and expenses, legal and accounting fees of $63,000 and $2,000 of state filing fees.

The Series A Debentures accrued interest at a rate of 10% per annum (payable by the Company semi-annually). As placement agent, Cantone Research, Inc. (“Cantone”) received a placement agent fee of $52,500, or 7% of the gross principal amount of Series A Debentures sold. In addition, we issued Cantone a four-year warrant to purchase 30,450 shares of the Company’s common stock at an exercise price of $0.37 per share (the closing price of the Company’s common shares on the date of closing) and a four-year warrant to purchase 44,550 shares of the Company’s common stock at an exercise price of $0.40 per share (the closing price of the Company’s common stock on the Series A Debentures completion date). All warrants issued to Cantone were immediately exercisable upon issuance. We registered the common shares underlying the Series A Debentures in a registration statement on Form S-3 filed with the SEC on April 15, 2009 and amended on May 5, 2009. On June 10, 2009, the SEC issued a notice of effectiveness related to this Form S-3, as amended.

We incurred $131,000 in expenses related to the offering, including $12,000 in expense related to warrants issued to Cantone. We amortized $19,000 of expense related to these debt issuance costs in Fiscal 2012, of which a little under $2,000 was share based payment expense related to the Cantone warrants, and $32,000 of expense in Fiscal 2011, of which just over $2,000 was share based payment expense related to the Cantone warrants.

The unamortized balance was $0 as of December 31, 2012 (as the Series A Debentures matured on August 1, 2012) and $19,000 as of December 31, 2011.

Series A Debenture Extension

The Series A Debentures matured on August 1, 2012. On July 25, 2012, we entered into a Placement Agent Agreement (the “Agent Agreement”) with Cantone. Under the terms of the Agent Agreement, Cantone acted as our exclusive placement agent in connection with an amendment of the Series A Debentures. Under the amendment, the term of Series A Debentures was extended to reflect a due date of August 1, 2013, and the interest rate during the extension period was increased from 10% to 15% per annum, due quarterly in arrears.

As compensation for their placement agent services, Cantone received a cash fee of 5% of the gross amount of existing Series A Debentures, or $37,500, and the warrants issued to Cantone (in connection with their services as placement agent in the original Series A Debenture financing) were amended to reflect a purchase price of $0.17 per share and a new term of three (3) years. Cantone also received 1% of the gross amount of Series A Debentures, or $7,500, as a non-accountable expense allowance and we reimbursed Cantone $5,000 in legal fees incurred in connection with the amendment of the Series A Debentures. We will amortize the costs (totaling $50,000) associated with the amendment of the Series A Debentures over the term of the extension (12 months).

On July 30, 2012, we entered into a Bridge Loan Agreement and Note (the “Bridge Loan”) with Cantone Asset Management, LLC (“CAM”). The Bridge Loan is in the amount of $150,000 and was used to pay $100,000 to those Holders of Series A Debentures that did not wish to amend/extend the Series A Debentures and $50,000 was used to pay placement agent fees and expenses previously indicated in the previous paragraph.

The maturity date of the Bridge Loan is August 1, 2013 and it bears simple interest in advance of 15%. In addition to the interest, on August 1, 2012, the Company instructed its transfer agent to issue CAM restricted stock of the Company equal to 10% of the gross amount of existing Series A Debentures, or $15,000 using a value of $0.17 per common share. On August 8, 2012, 88,235 restricted common shares were issued to CAM.

On July 31, 2012, we entered into an Agreement to the Series A Debenture (the “Series A Debenture Amendment”) with thirty-two of the thirty-seven holders of Series A Debentures (the “Debenture Holders”) (representing $645,000 of Series A Debentures). As previously indicated, the Series A Debenture Amendment extended the due date of the Series A Debentures to August 1, 2013 and increased the interest rate to 15% per annum, payable quarterly in arrears. All other terms of the Series A Debentures remain unchanged. Five of the Debenture Holders (representing $105,000 in Series A Debentures) did not wish to extend the Series A Debentures and we used proceeds of $100,000 from the Bridge Loan and $5,000 paid directly from the Company to pay principal amounts due to these non-extending Debenture Holders.

We recognized $93,000 and $75,000 in interest expense related to the Series A Debentures in Fiscal 2012 and Fiscal 2011, respectively. We had $26,000 and $31,000 in accrued interest expense related to the Series A Debentures at December 31, 2012 and December 31, 2011, respectively.

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PROPERTY, PLANT AND EQUIPMENT (Tables)

12 Months Ended

Dec. 31, 2012

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment [Table Text Block]

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

	December 31, 2012			December 31, 2011
Land	$	102,000		$	102,000
Buildings and improvements		1,363,000			1,363,000
Manufacturing and warehouse equipment		2,589,000			2,591,000
Office equipment (incl. furniture and fixtures)		409,000			398,000
		4,463,000			4,454,000
Less accumulated depreciation		(3,271,000	)		(3,150,000	)
	$	1,192,000		$	1,304,000

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SEGMENT AND GEOGRAPHIC INFORMATION

12 Months Ended

Dec. 31, 2012

Segment Reporting [Abstract]

Segment Reporting Disclosure [Text Block]

NOTE M- SEGMENT AND Geographic Information

The Company operates in one reportable segment.

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

	Year Ended December 31, 2012		Year Ended December 31, 2011
United States	$	8,405,000	$	8,094,000
North America (not domestic)		430,000		732,000
Europe		343,000		280,000
Asia/Pacific Rim		50,000		46,000
South America		115,000		120,000
	$	9,343,000	$	9,272,000

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STOCKHOLDERS' EQUITY

12 Months Ended

Dec. 31, 2012

Stockholders' Equity Note [Abstract]

Stockholders' Equity Note Disclosure [Text Block]

NOTE I – STOCKHOLDERS’ EQUITY

[1]          Stock option plans: The Company currently has two option plans, the Fiscal 2000 Non-statutory Stock Option Plan (the “2000 Plan”) and the Fiscal 2001 Non-statutory Stock Option Plan (the “2001 Plan”) (and together the “Plans”). Both Plans have been adopted by the Company’s Board of Directors and approved by shareholders. The 2000 Plan provides for the granting of options to purchase up to 1,000,000 common shares and the 2001 Plan provides for granting of options to purchase up to 4,000,000 common shares. Options granted under the Plans have lives of 10 years and vest over periods from 0 to 4 years. 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. Both the 2000 Plan and the 2001 Plan have options issued, however, only the 2001 Plan has options available for future issuance.

[2]          Stock options: During Fiscal 2012 and Fiscal 2011, the Company issued options to purchase 750,000 and 50,000 shares respectively, of common stock under the 2001 Plan:

Medallion Line of Credit Stock Options

As a condition to the Medallion Line of Credit, Stan Cipkowski, our Chief Executive Officer (“Cipkowski”), and our controller J. Duncan Urquhart (“Urquhart”) were each required to execute Validity Guarantees (the “Validity Guarantees”). Under the Validity Guarantees, Cipkowski and Urquhart provide representations and warranties with respect to the validity of our receivables as well as guaranteeing the accuracy of our reporting to Medallion related to the Company’s receivables.

Cipkowski Medallion Grant

As compensation for his execution of the Validity Guarantee, on April 20, 2012, Cipkowski was awarded an option grant representing 250,000 common shares of the Company under the Company’s Fiscal 2001 stock option plan, at an exercise price of $0.18, the closing price of our common shares on April 20, 2012. The option grants vest over three (3) years in installments of 33% on April 20, 2013 (82,500 common shares), 33% on April 20, 2014 (82,500 common shares) and 34% (85,000 common shares) on April 20, 2015.

The fair value of the Cipkowski stock option grants was estimated utilizing the Black-Scholes option-pricing model. The following weighted average assumptions were used: dividend yield of 0%; risk-free interest rate of 1.99; expected life of 10 years; and stock price volatility of 88%. The value of the stock option grant is $45,000 and the Company will recognize this share-based payment expense over the vesting period of 3 years. We recognized $11,000 in share-based payment expense in Fiscal 2012. As of December 31, 2012 there was $34,000 in unrecognized share-based payment expense with 27 months remaining.

Urquhart Medallion Grant

As compensation for his execution of the Validity Guarantee, on April 20, 2012, Urquhart was awarded an option grant representing 250,000 common shares of the Company under the Company’s Fiscal 2001 stock option plan, at an exercise price of $0.18, the closing price of our common shares on April 20, 2012. The option grants vest over three (3) years in installments of 33% (82,500 common shares) on April 20, 2013, 33% (82,500 common shares) on April 20, 2014 and 34% (85,000 common shares) on April 20, 2015.

The fair value of the Urquhart stock option grant was estimated utilizing the Black-Scholes option-pricing model. The following weighted average assumptions were used: dividend yield of 0%; risk-free interest rate of 1.99; expected life of 10 years; and stock price volatility of 88%. The value of the stock option grant is $45,000 and the Company will recognize this share-based payment expense over the vesting period of 3 years. We recognized $11,000 in share-based payment expense in Fiscal 2012. As of December 31, 2012, there was $34,000 in unrecognized share-based payment expense with 27 months remaining.

Jaskiewicz Medallion Grant

As another condition to the Medallion Line of Credit, Edmund M. Jaskiewicz, our President and Chairman of the Board, was required to execute another Subordination Agreement (“Subordination Agreement”) related to the Jaskiewicz Debt (the $124,000 currently owed to Jaskiewicz by the Company for legal services rendered). Under the Subordination Agreement, the Jaskiewicz Debt is not payable, is junior in right to the Medallion Line of Credit and no payment may be accepted or retained by Jaskiewicz for the Jaskiewicz Debt unless and until we have paid and satisfied in full any obligations to Medallion. As compensation for his execution of the Subordination Agreement, on April 20, 2012 Jaskiewicz was awarded an option grant representing 150,000 common shares of the Company under the Company’s Fiscal 2001 stock option plan, at an exercise price of $0.18, the closing price of the Company’s common shares on April 20, 2012. The option grant vests over three (3) years in installments as follows: 33% (49,500 common shares) on April 20, 2013, 33% (49,500 common shares) on April 20, 2014 and 34% (51,000 common shares) on April 20, 2015.

The fair value of the Jaskiewicz stock option grant was estimated utilizing the Black-Scholes option-pricing model. The following weighted average assumptions were used: dividend yield of 0%; risk-free interest rate of 1.99; expected life of 10 years; and stock price volatility of 88%. The value of the stock option grant is $27,000 and the Company will recognize this share-based payment expense over the vesting period of 3 years. We recognized $7,000 in share-based payment expense in Fiscal 2012. As of December 31, 2012, there was $20,000 in unrecognized share-based payment expense with 27 months remaining.

September 2012 Employee Grants

On September 20, 2012, we issued 2 stock option grants to purchase 50,000 shares each (for a total of 100,000) of the Company’s common stock to 2 non-executive employees at an exercise price of $0.18 (the closing price of the Company’s common shares on September 20, 2012). Both option grants vest over 3 years in installments as follows: 33% (33,000 common shares total) on September 20, 2013, 33% (33,000 common shares total) on September 20, 2014 and 34% (34,000 common shares total) on September 20, 2015.

We will recognize $18,000 in share-based payment expense over the vesting period of 3 years. We recognized $2,000 in share-based payment expense related to these grants in Fiscal 2012. As of December 31, 2012, there was $16,000 in unrecognized expenses with 32 months remaining.

Fiscal 2011 Stock Option Grant

On July 1, 2011, the Company issued an option grant under the 2001 Plan to purchase 50,000 shares of common stock to the Company’s President and Chairman of the Board Edmund M. Jaskiewicz (“Jaskiewicz”) at an exercise price of $0.12, the closing price of the Company’s common shares on the date of the grant. The option grant was immediately exercisable. The fair value of this stock option grant was estimated utilizing the Black-Scholes option-pricing model. The following weighted average assumptions were used: dividend yield of 0%; risk-free interest rate of 3.22%, expected life of 10 years; and stock price volatility of 91%. The value of this stock option grant totaled $6,000 and the Company recognized this share-based payment expense fully in the third quarter of Fiscal 2011.

The options were issued to Mr. Jaskiewicz as the third and final stock option grant representing compensation for his execution of an Agreement of Subordination and Assignment (“Subordination Agreement”) required as a condition to the Rosenthal Line of Credit. The first stock option grant was issued to Jaskiewicz in July 2009 when the Subordination Agreement was executed, and the second stock option grant was issued to Jaskiewicz in July 2010 (see below). The Subordination Agreement was related to $124,000 owed to Jaskiewicz by the Company as of June 29, 2009 (the “Jaskiewicz Debt”). Under the Subordination Agreement, the Jaskiewicz Debt is not payable, is junior in right to the Rosenthal Line of Credit and no payment may be accepted or retained by Jaskiewicz unless and until the Company has paid and satisfied in full any obligations to Rosenthal. Furthermore, the Jaskiewicz Debt was assigned and transferred to Rosenthal as collateral for the Rosenthal Line of Credit.

In addition to the stock options issued in Fiscal 2012 and Fiscal 2011, the following stock options have been issued prior to Fiscal 2011, and have a portion of their expense recognized in Fiscal 2011:

Fiscal 2010 Stock Option Grants

On December 31, 2010, the Company issued options to purchase 275,000 shares of common stock under the 2001 Plan to 4 members of senior management and 8 other employees of the Company at an exercise price of $0.09 (the closing price of the Company’s common shares on the date of the grant). These option grants vested 100% on the one-year anniversary of the date of the grant, or on December 31, 2011. 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 0%; risk-free interest rate of 3.29%, expected life of 10 years; and stock price volatility of 86%. The value of these grants totaled $25,000 and the Company recognized this share-based payment expense over the required service period of one year; therefore, the expense was recognized fully in Fiscal 2011.

Rosenthal Line of Credit Validity Guarantee Stock Options

As a condition to the Rosenthal Line of Credit closing, Cipkowski was required to execute a Validity Guarantee (the “Validity Guarantee”). Under the Validity Guarantee, Cipkowski provided representations and warranties with respect to the validity of the Company’s receivables and guarantees the accuracy of the Company’s reporting to Rosenthal related to the Company’s receivables and inventory. The Validity Guarantee placed Cipkowski’s personal assets at risk in the event of a breach of such representations, warranties and guarantees. As part of the compensation for his execution of the Validity Guarantee, on July 1, 2009, Cipkowski was awarded an option grant representing 500,000 common shares of the Company under the Company’s 2001 Plan, at an exercise price of $0.20, the closing price of the Company’s common shares on the date of the grant. The option grant vested over three years in equal installments.

The calculated fair value of the Cipkowski options was $0.156 per share. The fair value of the Cipkowski option grant was estimated utilizing the Black-Scholes option-pricing model. The following weighted average assumptions were used: dividend yield of 0%; risk-free interest rate of 4.34%, expected life of 10 years; and stock price volatility of 69%. The value of the Cipkowski grant totaled $78,000, which the Company recognized in share-based payment expense amortized over the required service period of 3 years. The Company recognized $13,000 in share-based payment expense for this grant in Fiscal 2012 and $26,000 in share-based payment expense for this grant in Fiscal 2011. As of December 31, 2012, there was $0 in unrecognized expense and 0 months remaining.

On July 1, 2011, (the second anniversary of the original stock option grant date of July 1, 2009), Jaskiewicz was awarded an additional option grant representing 50,000 common shares of the Company under the Company’s 2001 Plan, at an exercise price of $0.12, the closing price of the Company’s common shares on July 1, 2011. The option grant (50,000 common shares) was 100% immediately exercisable on July 1, 2011. We recognized the full share-based payment expense of $6,000 in Fiscal 2011.

Stock option activity for Fiscal 2012 and Fiscal 2011 is summarized as follows: (the figures contained within the tables below have been rounded to the nearest thousand)

	Year Ended December 31, 2012					Year Ended December 31, 2011
	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Options outstanding at beginning of year		2,699,000		$	0.76		3,437,000		$	0.82
Granted		750,000		$	0.18		50,000		$	0.13
Exercised		0			NA		0			NA
Cancelled/expired		(510,000	)	$	1.06		(788,000	)	$	0.97
Options outstanding at end of year		2,939,000		$	0.56		2,699,000		$	0.76
Options exercisable at end of year		2,189,000		$	0.69		2,529,000		$	0.80

The following table presents information relating to stock options outstanding as of December 31, 2012:

	Options Outstanding						Options Exercisable
			Weighted		Weighted				Weighted
			Average		Average				Average
Range of Exercise			Exercise		Remaining				Exercise
Price	Shares		Price		Life in Years		Shares		Price
$0.07 - $0.20		1,675,000	$	0.17		8.12		925,000	$	0.16
$0.84 - $1.09		1,054,000	$	1.04		1.56		1,054,000	$	1.04
$1.11 - $1.74		210,000	$	1.28		0.57		210,000	$	1.28
TOTAL		2,939,000	$	0.56		5.23		2,189,000	$	0.69

As of December 31, 2012 there were 23,500 options issued and outstanding under the 2000 Plan and 2,915,580 options issued and outstanding under the 2001 Plan, for a total of 2,939,080options issued and outstanding as of December 31, 2012. Of the total options issued and outstanding, 2,189,080 are fully vested as of December 31, 2012. Intrinsic value of vested options as of December 31, 2012 was insignificant. As of December 31, 2012, there were 801,420 options available for issuance under the 2001 Plan.

[3]         Warrants: As of December 31, 2012 and December 31, 2011, there were 375,000 and 75,000 warrants outstanding, respectively.

In connection with their services as placement agent in the Company’s Series A Debenture offering, on July 17, 2008, the Company issued Cantone Research, Inc. (“Cantone”) a four-year warrant to purchase 30,450 shares of the Company’s common stock at an exercise price of $0.37 per share, and on August 4, 2008 issued Cantone a four-year warrant to purchase 44,550 shares of the Company’s common stock at an exercise price of $0.40 per share. All warrants issued to Cantone were immediately exercisable upon issuance. The closing price of the Company’s common shares was $0.37 and $0.40 on July 17, 2008 and August 4, 2008, respectively. The July 17, 2008 warrants were valued using the Black Scholes pricing model and the following assumptions, dividend yield of zero, volatility of 46.0%, risk free interest rate of 4.7%, and expected life of 4 years. The August 4, 2008 warrants were valued using the Black Scholes pricing model and the following assumptions, dividend yield of zero, volatility of 46.1%, risk free interest rate of 4.6% and expected life of 4 years. The total value of the Cantone warrants was $12,000, which was recognized as financing costs and was amortized over the term of the Series A Debentures, with $2,000 in expense being recognized in Fiscal 2012 and $3,000 in expense being recognized in both Fiscal 2011. As of December 31, 2012, there was $0 in unrecognized expense and 0 months remaining.

The Cantone warrants were amended on July 31, 2012 in connection with the extension and amendment of the Series A Debentures; more specifically they were amended to reflect am exercise price of $0.17 per shares and a new term of three years (see Note E – Long-term Debt; Series A Debenture Extension). The CRI warrants are exercisable through July 31, 2015 (see Part I, Item I, Note E, “Series A Debenture Extension”). The fair value of the Cantone warrants was estimated utilizing the Black-Scholes option-pricing model. The following weighted average assumptions were used: dividend yield of 0%; risk-free interest rate of 1.51; expected life of 3 years; and stock price volatility of 77%. The value of the Cantone warrant is $12,000 and the Company recognized $12,000 (or the full expense) in share based payment expense in Fiscal 2012.

On August 1, 2012, we entered into a Consulting Agreement (“Consulting Agreement”) with Cantone Asset Management, LLC (“CAM”). The Consulting Agreement commenced August 1, 2012 and ends on August 1, 2013. Under the terms of the Consulting Agreement, CAM will provide the Company with financial advisory services and advice related to debt refinancing. On August 1, 2012, the Company issued CAM warrants to purchase 300,000 shares of the Company’s common stock at an exercise price of $0.16 per share (the closing price of the Company’s common shares on August 1, 2012) (the “CAM Warrant”). The CAM Warrant is exercisable through July 31, 2015 and has piggyback registration rights. The fair value of the CAM Warrants was estimated utilizing the Black-Scholes option-pricing model. The following weighted average assumptions were used: dividend yield of 0%; risk-free interest rate of 1.56; expected life of 3 years; and stock price volatility of 77%. The value of the CAM Warrant is $48,000 and the Company recognized $48,000 (or the full expense) in share based payment expense in Fiscal 2012.

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INCOME TAXES

12 Months Ended

Dec. 31, 2012

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

NOTE G – 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, 2012			Year Ended December 31, 2011
Tax expense at federal statutory rate		34	%		34	%
State tax expense, net of federal tax effect		5	%		5	%
Permanent timing differences		(4	%)		(7	%)
Deferred income tax asset valuation allowance		(35	%)		(32	%)
Effective income tax rate		0	%		0	%

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

	December 31, 2012			December 31, 2011
Inventory	$	18,000		$	21,000
Inventory allowance		102,000			156,000
Allowance for doubtful accounts		23,000			26,000
Accrued compensation		27,000			26,000
Net operating loss carry forward expired		(197,000	)		(25,000	)
Net operating loss carry-forward		5,013,000			4,569,000
Total gross deferred income tax assets		4,986,000			4,773,000
Less deferred income tax assets valuation allowance		(4,986,000	)		(4,773,000	)
Net deferred income tax assets	$	0		$	0

The valuation allowance for deferred income tax assets as of December 31, 2012 and December 31, 2011 was $4,986,000 and $4,773,000, respectively. The net change in the deferred income tax assets valuation allowance was an increase of $213,000 for Fiscal 2012. The net change in the deferred income tax assets valuation allowance was an increase of $1,000 for Fiscal 2011.

As of December 31, 2012, the prior three years remain open for examination by the federal or state regulatory agencies for purposes of an audit for tax purposes.

At December 31, 2012, the Company had Federal and New York State net operating loss carry-forwards for income tax purposes of approximately $12,850,000. Our net operating loss carry-forwards began to expire in 2011 and continue to expire through 2031. In assessing the realizability of deferred income tax assets, management considers whether or not it is more likely than not that some portion or all deferred income tax assets will be realized. The ultimate realization of deferred income 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.

The Company recognizes potential interest and penalties related to income tax positions as a component of the provision for income taxes on operations. The Company does not anticipate that total unrecognized tax benefits will materially change in the next twelve months.

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OTHER INCOME / EXPENSE

12 Months Ended

Dec. 31, 2012

Other Income and Expenses [Abstract]

Other Income and Other Expense Disclosure [Text Block]

NOTE H – OTHER INCOME / EXPENSE

Other income in Fiscal 2012 and Fiscal 2011 is comprised primarily of grant income of $10,000 related to a Columbia Economic Development Corporation (“CEDC”) grant, offset by $1,000 loss on sale of assets.

The Company received a $100,000 grant from the CEDC that was dispersed to the Company in installments during the years ended December 31, 2002, 2003, and 2005. The grant is convertible to a loan based upon a percentage of the grant declining from 90% of the grant amount in 2003 to 0% in 2012. The unearned portion of the grant at December 31, 2012 and December 31, 2011 was $0 and $10,000, respectively. The grant was convertible to a loan only if the employment levels in the Kinderhook facility dropped below 45 employees at any time during the year. The employment levels in the Kinderhook facility were 47 and 49 at December 31, 2012 and December 31, 2011, respectively. The grant income recognized in both Fiscal 2012 and Fiscal 2011 was $10,000.

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COMMITMENTS, CONTINGENCIES AND OTHER MATTERS

12 Months Ended

Dec. 31, 2012

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies Disclosure [Text Block]

NOTE J – COMMITMENTS, CONTINGENCIES AND OTHER MATTERS

[1]         Operating leases: The Company leases office and R&D/production facilities in New Jersey under long-term, non-cancellable operating leases. In December 2012, the Company extended the lease for the New Jersey facility for an additional 12 months, or through December 31, 2013. The future minimum rent due in 2013 under the lease extension is $90,000. The Company also leases office support equipment through September 2014. The future minimum rental payment due in 2013 and 2014 under the support equipment operating lease is $6,000 each year. At December 31, 2012, the future minimum rental payments under these operating leases are as follows:

2013	$	96,000
2014		6,000
	$	102,000

Rent expense was $122,000 in Fiscal 2012 and $126,000 in Fiscal 2011.

[2]          Employment agreements: The Company has entered into employment agreements with its Chief Executive Officer, Stan Cipkowski (“Cipkowski”). The agreement provides for a $206,000 annual salary and was originally for a term of one year and automatically renewed unless either party gave advance notice of 60 days, however, on July 1, 2009, as a condition to the Rosenthal Line of Credit closing, the Company entered into a new employment contract with the CEO that is coterminous with the Rosenthal Line of Credit, however, if the Agreement is not terminated for cause or as a result of the termination or expiration of the Company’s Line of Credit with Rosenthal, the Agreement automatically renews for successive one (1) year terms unless either side gives advance written notice of intent not to renew at least sixty (60) days prior to the end of any one (1) year renewal term. All other terms and provisions of the CEO’s former employment contract remained unchanged. Cipkowski’s employment agreement contains severance provisions; in the event the Company terminates Cipkowski’s employment for any reason other than cause (which is defined under the employment agreement), Cipkowski would receive severance pay equal to 12 months of his base salary at the time of termination, with continuation of all medical benefits during the twelve-month period at the Company’s expense. In addition, Cipkowski may tender his resignation and elect to exercise the severance provision if he is required to relocate more than 50 miles from the Company’s New York facility as a continued condition of employment, if there is a substantial change in the responsibilities normally assumed by his position, or if they are asked to commit or conceal an illegal act by any officer or member of the board of directors of the Company. In the case of a change in control of the Company, Cipkowski would be entitled to severance pay equal to two times his base salary under certain circumstances.

In April 2012, the Company entered into an employment agreement with Melissa A. Waterhouse, its Executive Vice President, Chief Compliance Officer and Corporate Secretary (“Waterhouse”). The agreement provides for a $100,000 annual salary, is for an initial term of one year and automatically renews unless either party gives advance notice of 60 days. Waterhouse’s employment agreement contains severance provisions; in the event the Company terminates Waterhouse’s employment for any reason other than cause (which is defined under the employment agreement), Waterhouse would receive severance pay equal to 12 months of her base salary at the time of termination, with continuation of all medical benefits during the twelve-month period at the Company’s expense. In addition, Waterhouse may tender her resignation and elect to exercise the severance provision if she is required to relocate more than 50 miles from the Company’s New York facility as a continued condition of employment, if there is a substantial change in the responsibilities normally assumed by her position, or if she is asked to commit or conceal an illegal act by any officer or member of the board of directors of the Company. In the case of a change in control of the Company, Waterhouse would be entitled to severance pay equal to two times her base salary under certain circumstances.

On March 25, 2011 the Company received letters of resignation from its EVP, Douglas Casterlin (“Casterlin”) and CFO, Stefan Parker (“Parker”). The Company’s CEO, Stan Cipkowski has assumed the position of CFO and Casterlin’s responsibilities were absorbed by other employees where appropriate (however, in July 2012, Casterlin returned to the Company as an employee and assumed many of the same responsibilities he had prior to his departure). Prior to their resignations, Casterlin and Parker both had employment agreements in place with the Company. The agreement with Parker originally provided for a $120,000 annual salary but was amended in August 2010 to provide for an annual salary of $135,000; the contract term remained one year and would automatically renew unless either party gives advance notice of 60 days. The agreement with Casterlin provided for a $149,000 annual salary, was for a term of one year and would automatically renew unless either party gives advance notice of 60 days. Casterlin’s and Parker’s employment agreements contained the same severance provisions as Cipkowski’s employment agreement.

[3]          Legal:

On December 16, 2010, we filed a complaint in the Supreme Court of the State of New York in Columbia County against Martin R. Gould (“Gould”), Jacqueline Gale (“Gale”), Advanced Diagnosticum Products, Inc. (“ADPI”) and Biosure, Inc. (“Biosure”), together the “Defendants”. The complaint alleges that Gould, our former Chief Science Officer and Executive Vice President of Technology, and Gale, our former Vice President of Manufacturing and Development, were performing illegal, competitive, employment-related services for ADPI and Biosure during their employment with the Company, were using Company resources to perform such services, and were doing so in their capacity as employees and/or officers of ADPI and Biosure. Because the Defendants continue to engage in illegal activity, in addition to the compensatory and punitive damages noted below, the complaint also seeks an injunction restraining the Defendants from engaging in further wrongdoing. The Defendants exercised their right to move the action to federal court, and proceedings are now pending in the United States District Court for the District of New Jersey.

In the Complaint, we assert claims of breach of duty of loyalty, breach of contract, violation of fiduciary duty and unfair competition and conversion specifically against Gould, and claims of breach of duty, violation of fiduciary duty and unfair competition and conversion specifically against Gale. In addition to these claims, we assert claims of conversion, tortious interference with contract, interference with prospective advantage and common law misappropriation of trade secret information against all Defendants. We are seeking judgment on nine (9) causes of action for compensatory damages against Defendants in such amount as may be established at trial, together with punitive damages in the amount of one million dollars ($1,000,000) for each cause of action in the Complaint (totaling $9,000,000).

On March 28, 2011, the Defendants filed an Answer to our Complaint and Defendant Gould filed a counter-claim against the Company in the amount of $150,000 alleging breach of contract related to an employment agreement between Gould and the Company. We filed a reply to Gould’s counterclaim on April 13, 2011. Our reply asserted that the Company did not breach the prior employment agreement in place with Gould, that the Company provided the required written notice of non-renewal of Gould’s employment agreement, and that Gould’s employment agreement expired on May 31, 2010; at which time Gould became an at-will employee of the Company. Gould was subsequently terminated for cause on July 28, 2010. A conference was held with the court on June 16, 2011, at which issues in dispute were discussed and a discovery schedule was set. The Company has responded to the Defendants discovery requests and as of the date of this report, the Company is awaiting complete responsive discovery items from Defendants. Depositions in the matter are ongoing. Depositions and discovery were expected to be completed by April 30, 2012, however, pretrial discovery was extended to September 28, 2012 due to an unexpected personal issue that occurred involving the Defendants attorney; this unexpected issue was unrelated to the case or the claims of the case. On September 11, 2012, pretrial discovery was extended again to December 14, 2012 and on January 18, 2013, another court conference was held that further extended factual discovery until February 28, 2013 and all depositions, including expert witness, are to be conducted by June 3, 2013.

As previously disclosed, we received a warning letter from the FDA in July 2009 that alleges we re marketing our point of collection oral fluid drug test, OralStat, in workplace settings without marketing clearance or approval. A warning letter is considered by FDA to be informal and advisory. While a warning letter communicates FDA’s position on a matter it does not commit the FDA to taking enforcement action. We communicated to the FDA our belief (based on legal opinion) that marketing clearance was not required in non-clinical markets. The FDA continued to disagree with our interpretation of FDA regulations related to medical devices, and the FDA continued to assert jurisdiction of drug testing performed in the workplace. We also advised FDA that we were willing to obtain marketing clearance but that specific technical and scientific issues existed when attempting to utilize FDA’s draft guidance for our OralStat (because the draft guidance was written for urine drug tests). Nevertheless, we were unable to reach a consensus with the FDA on neither the jurisdiction issue nor the technical issues.

On July 10, 2012, we announced in a press release and a Current Report on Form 8-K that we entered into a Consent Decree of Permanent Injunction (the “Consent Decree”) with FDA. Under the terms of the Consent Decree, we will be allowed to continue to market our OralStat drug test in the workplace market while we take action to obtain a 510(k) marketing clearance. More specifically, FDA will provide the Company with its most recent guidance on the clinical and analytical studies that need to be conducted to gather data in support of a 510(k) submission for OralStat. We will then have a total of 396 days to discuss protocols with FDA, complete our analytical and clinical studies and submit a substantially complete 510(k). We have agreed to withdraw the OralStat product from the workplace market if any of the following events occur: 1) we do not submit a substantially complete 510(k) within this specified time period, 2) we fail to submit additional information within time frames specified by FDA, 3) we withdraw our submission, or 4) our 510(k) submission results in FDA’s determination that the product is not substantially equivalent. On August 3, 2012 the Consent decree was approved and entered by the United States District Court for the Northern District of New York, and on August 3, 2012, we received guidance from FDA. We are currently taking actions that will enable us to submit a 510(k) marketing application to FDA within the time frame specified under the Consent Decree.

In addition to the previous disclosures, from time to time, the Company is named in legal proceedings in connection with matters that arose during the normal course of business. While the ultimate result of any such litigation cannot be predicted, if we are unsuccessful in defending any such litigation, the resulting financial losses could have an adverse effect on the financial position, results of operations and cash flows of the Company. We are aware of no significant litigation loss contingencies for which management believes it is both probable that a liability has been incurred and that the amount of the loss can be reasonably estimated.

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PROPERTY, PLANT AND EQUIPMENT (Details Textual) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Depreciation	$ 123,000	$ 277,000

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SEGMENT AND GEOGRAPHIC INFORMATION (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Net sales	$ 9,343,000	$ 9,272,000
United States [Member]
Net sales	8,405,000	8,094,000
North America [Member]
Net sales	430,000	732,000
Europe [Member]
Net sales	343,000	280,000
Asia or Pacific Rim [Member]
Net sales	50,000	46,000
South America [Member]
Net sales	$ 115,000	$ 120,000

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The Company and its Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2012

Accounting Policies [Abstract]

Schedule of Calculation of Numerator and Denominator in Earnings Per Share [Table Text Block]

Potential common shares outstanding as of December 31, 2012 and 2011:

	December 31, 2012		December 31, 2011
Warrants		375,000		75,000
Options		2,939,080		2,698,580

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INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2012

Income Tax Disclosure [Abstract]

Schedule of Effective Income Tax Rate Reconciliation [Table Text Block]

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

	Year Ended December 31, 2012			Year Ended December 31, 2011
Tax expense at federal statutory rate		34	%		34	%
State tax expense, net of federal tax effect		5	%		5	%
Permanent timing differences		(4	%)		(7	%)
Deferred income tax asset valuation allowance		(35	%)		(32	%)
Effective income tax rate		0	%		0	%

Schedule of Deferred Tax Assets and Liabilities [Table Text Block]

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

	December 31, 2012			December 31, 2011
Inventory	$	18,000		$	21,000
Inventory allowance		102,000			156,000
Allowance for doubtful accounts		23,000			26,000
Accrued compensation		27,000			26,000
Net operating loss carry forward expired		(197,000	)		(25,000	)
Net operating loss carry-forward		5,013,000			4,569,000
Total gross deferred income tax assets		4,986,000			4,773,000
Less deferred income tax assets valuation allowance		(4,986,000	)		(4,773,000	)
Net deferred income tax assets	$	0		$	0

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RELATED PARTY DISCLOSURES (Details Textual) (USD $)	1 Months Ended			12 Months Ended
	Jul. 01, 2011	Jul. 01, 2010	Jul. 01, 2009	Dec. 31, 2012	Dec. 31, 2011	Jun. 29, 2009
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross				750,000	50,000
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price				$ 0.18	$ 0.13
Edmund M Jaskiewicz Member [Member]
Related Party Transaction, Amounts of Transaction				$ 10,000	$ 12,000
Accounts Payable, Related Parties, Current				30,000
Long-term Line of Credit						124,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	50,000	50,000	50,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Net of Forfeitures	150,000
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price	$ 0.13	$ 0.07	$ 0.20
Alec Cipkowski Member [Member]
Related Party Transaction, Amounts of Transaction				60,000	60,000
Accounts Payable, Related Parties, Current				$ 1,000

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INCOME TAXES (Details 1) (USD $)	Dec. 31, 2012	Dec. 31, 2011
Inventory	$ 18,000	$ 21,000
Inventory allowance	102,000	156,000
Allowance for doubtful accounts	23,000	26,000
Accrued compensation	27,000	26,000
Net operating loss carry forward expired	(197,000)	(25,000)
Net operating loss carry-forward	5,013,000	4,569,000
Total gross deferred income tax assets	4,986,000	4,773,000
Less deferred income tax assets valuation allowance	(4,986,000)	(4,773,000)
Net deferred income tax assets	$ 0	$ 0

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Statements of Changes in Stockholders' Equity (USD $)	Common Stock [Member]	Additional Paid-In Capital [Member]	Retained Earnings [Member]	Total
Balance at Dec. 31, 2010	$ 217,000	$ 19,328,000	$ (16,888,000)	$ 2,657,000
Balance (in shares) at Dec. 31, 2010	21,744,768
Share-based payment expense		58,000		58,000
Net loss			(345,000)	(345,000)
Balance at Dec. 31, 2011	217,000	19,386,000	(17,233,000)	2,370,000
Balance (in shares) at Dec. 31, 2011	21,744,768
Shares issued in connection with bridge loan	1,000			1,000
Shares issued in connection with bridge loan (in shares)	88,235
Share-based payment expense		104,000		104,000
Net loss			(1,111,000)	(1,111,000)
Balance at Dec. 31, 2012	$ 218,000	$ 19,490,000	$ (18,344,000)	$ 1,364,000
Balance (in shares) at Dec. 31, 2012	21,833,003

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ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

12 Months Ended

Dec. 31, 2012

Payables and Accruals [Abstract]

Accounts Payable, Accrued Liabilities, and Other Liabilities Disclosure, Current [Text Block]

NOTE D – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of the following:

	December 31, 2012		December 31, 2011
Accrued accounting fees	$	40,000	$	53,000
Accrued interest payable		29,000		36,000
Accounts receivable credit balances		27,000		47,000
Accrued sales tax payable		42,000		11,000
Accrued expenses		24,000		34,000
Other current liabilities		12,000		36,000
	$	174,000	$	217,000

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STOCKHOLDERS' EQUITY (Tables)

12 Months Ended

Dec. 31, 2012

Stockholders' Equity Note [Abstract]

Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]

Stock option activity for Fiscal 2012 and Fiscal 2011 is summarized as follows: (the figures contained within the tables below have been rounded to the nearest thousand)

	Year Ended December 31, 2012					Year Ended December 31, 2011
	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Options outstanding at beginning of year		2,699,000		$	0.76		3,437,000		$	0.82
Granted		750,000		$	0.18		50,000		$	0.13
Exercised		0			NA		0			NA
Cancelled/expired		(510,000	)	$	1.06		(788,000	)	$	0.97
Options outstanding at end of year		2,939,000		$	0.56		2,699,000		$	0.76
Options exercisable at end of year		2,189,000		$	0.69		2,529,000		$	0.80

Schedule of Share-based Compensation, Shares Authorized under Stock Option Plans, by Exercise Price Range [Table Text Block]

The following table presents information relating to stock options outstanding as of December 31, 2012:

	Options Outstanding						Options Exercisable
			Weighted		Weighted				Weighted
			Average		Average				Average
Range of Exercise			Exercise		Remaining				Exercise
Price	Shares		Price		Life in Years		Shares		Price
$0.07 - $0.20		1,675,000	$	0.17		8.12		925,000	$	0.16
$0.84 - $1.09		1,054,000	$	1.04		1.56		1,054,000	$	1.04
$1.11 - $1.74		210,000	$	1.28		0.57		210,000	$	1.28
TOTAL		2,939,000	$	0.56		5.23		2,189,000	$	0.69

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LONG-TERM DEBT (Details Textual) (USD $)	1 Months Ended	12 Months Ended			12 Months Ended			1 Months Ended	12 Months Ended	1 Months Ended	12 Months Ended				1 Months Ended	12 Months Ended					1 Months Ended		12 Months Ended		1 Months Ended	12 Months Ended		1 Months Ended	5 Months Ended		7 Months Ended	12 Months Ended						12 Months Ended
	Aug. 31, 2008	Dec. 31, 2012	Dec. 31, 2011	Jul. 30, 2012	Dec. 31, 2012 Bridge Loan [Member]	Jul. 31, 2012 Thirty Seven Debentures Holders [Member]	Jan. 31, 2012 Thirty Seven Debentures Holders [Member]	Jul. 31, 2012 Five Debentures Holders [Member]	Dec. 31, 2012 Five Debentures Holders [Member]	Aug. 31, 2008 Cantone Series One Four Year Warran [Member]	Dec. 31, 2012 Cantone Series One Four Year Warran [Member]	Dec. 31, 2011 Cantone Series One Four Year Warran [Member]	Aug. 04, 2008 Cantone Series One Four Year Warran [Member]	Jul. 17, 2008 Cantone Series One Four Year Warran [Member]	Feb. 23, 2011 Mortgage Payable to First Niagara [Member]	Dec. 31, 2012 Mortgage Payable to First Niagara [Member]		Dec. 31, 2011 Mortgage Payable to First Niagara [Member]		Dec. 31, 2009 Mortgage Payable to First Niagara [Member]	Apr. 30, 2012 Capital Lease Payable to Ricoh [Member]	May 31, 2007 Capital Lease Payable to Ricoh [Member]	Dec. 31, 2012 Capital Lease Payable to Ricoh [Member]	Dec. 31, 2011 Capital Lease Payable to Ricoh [Member]	Oct. 31, 2010 Capital Lease Payable to Marlin [Member]	Dec. 31, 2012 Capital Lease Payable to Marlin [Member]	Dec. 31, 2011 Capital Lease Payable to Marlin [Member]	Aug. 31, 2008 Debenture Financing [Member]	Dec. 31, 2012 Debenture Financing [Member]		Jul. 31, 2012 Debenture Financing [Member]	Dec. 31, 2012 Debenture Financing [Member]		Dec. 31, 2011 Debenture Financing [Member]		Dec. 31, 2012 Bridge Loan with Cantone Asset Management, Llc [Member]	Dec. 31, 2011 Bridge Loan with Cantone Asset Management, Llc [Member]	Dec. 31, 2012 Series A Debentures [Member]	Dec. 31, 2011 Series A Debentures [Member]
Debt Instrument, Periodic Payment															$ 14,000					$ 16,125			$ 390			$ 147
Debt Instrument, Interest Rate During Period															8.25%	8.25%						14.11%	14.11%		14.46%	14.46%			15.00%		10.00%					15.00%		15.00%
Debt Instrument, Maturity Date																Mar. 01, 2013							May 01, 2012			Sep. 01, 2013						Aug. 01, 2013				Aug. 01, 2013		Aug. 01, 2013
Debt Issuance Cost															2,000					28,000
Debt Instrument, Covenant Compliance																				maintain Liquidity of at least $50,000
Long-term Debt, Percentage Bearing Fixed Interest, Percentage Rate																				8.75%
Debt Instrument, Increase, Accrued Interest																				7,000
Debt Instrument, Annual Principal Payment																		15,000		25,000
Amortization of Financing Costs		47,000	48,000															2,000
Debt Instrument, Convertible, Remaining Discount Amortization Period															6 years
Long-term Debt, Gross															815,000	608,000		725,000
Interest Expense, Debt																56,000		66,000																				93,000	75,000
Payments to Acquire Equipment on Lease																						17,000			4,000
Opting to Purchase, Description																					we notified RICOH that we were opting to purchase the copier for $1.00 as provided in our lease.
Leasing Term																							5 years		3 years
Operating Leases, Future Minimum Payments Due, Next Twelve Months		96,000																					0	2,000		1,000	2,000
Proceeds from Debenture Financing	631,000																											750,000
Placement Agent Fees	54,000	37,500																																				37,500
Legal and Accounting Fees	63,000
State Filing Fees	2,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period	44,550																																	30,450
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value	$ 0.40																																	$ 0.37
Payments of Debt Issuance Costs		50,000	0												2,000					28,000												131,000
Debt Issuance Agent Fee and Expenses										52,500
Placement Agent Fee Percentage										7.00%
Class of Warrant or Right, Number of Securities Called by Warrants or Rights													44,550	30,450
Class of Warrant or Right, Exercise Price of Warrants or Rights													$ 0.40	$ 0.37
Class of Warrant or Right, Expense or Revenue Recognized		131,000									12,000
Amortization of Debt Issuance Cost			32,000								19,000																											50,000
Allocated Share-based Compensation Expense											2,000	2,000
Debt Instrument, Interest Rate, Stated Percentage Rate Range, Minimum		10.00%	10.00%
Debt Instrument, Interest Rate, Stated Percentage Rate Range, Maximum		15.00%	15.00%
Percentage of Cash Fee of Gross Amount of Existing Debentures		5.00%
Placement Agent Services Compensation		37,500
Warrants Issued Amended Purchase Price Per Share		$ 0.17
Warrants Issued Amended Term		3 years
Non Accountable Expense Allowance Percentage on Gross Amount of Debentures		1.00%
Non Accountable Expense Allowance		7,500
Reimbursed in Legal Fees		5,000
Amortization Period of Debentures		12 months
Bridge Loan				150,000
Payments to Debentures Holders								105,000																														100,000
Percentage of Simple Interest in Advance of Bridge Loan		15.00%
Percentage of Gross Amount of Existing Debentures to Issue Restricted Stock		10.00%
Stock Issued During Period, Value, Restricted Stock Award, Net of Forfeitures		15,000
Restricted Stock Award Issued Price Per Share		$ 0.17
Stock Issued During Period, Shares, Restricted Stock Award, Net of Forfeitures		88,235
Long-term Debt		1,404,000	1,480,000			645,000										608,000	[1]	725,000	[1]				0	3,000		1,000	2,000		645,000	[2]		645,000	[2]	750,000	[2]	150,000	0
Debt Instrument, Interest Rate, Stated Percentage						15.00%	10.00%
Proceeds from Short-term Debt					100,000				5,000
Interest and Debt Expense																																						26,000	36,000
Long-term Debt Accrued Interest Rate																																10.00%
Debt Issuance Costs, Net		$ 29,000	$ 26,000								$ 0	$ 19,000

[1] The mortgage through First Niagara was refinanced and extended on March __, 2013.

[2] The original debt with the Series A Debenture Holders was $750,000, with an interest rate of 10% per annum. It was payable semi-annually in August and February of each year with the first payment due February 1, 2009 and a maturity date of August 1, 2012. The Series A Debentures were amended and extended on July 31, 2012 and the terms noted in the table above are the revised terms of the Series A Debentures. Even after the amendment and extension, the Series A Debentures remained classified as a current liability given their maturity date of August 1, 2013.

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The Company and its Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2012

Accounting Policies [Abstract]

Cash and Cash Equivalents, Policy [Policy Text Block]

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

Trade and Other Accounts Receivable, Policy [Policy Text Block]

[2]      Accounts Receivable: Accounts receivable consists of mainly trade receivables due from customers for the sale of our products. Payment terms vary on a customer-by-customer basis, and currently range from cash on delivery to net 60 days. Receivables are considered past due when they have exceeded their payment terms. Accounts receivable have been reduced by an estimated allowance for doubtful accounts. The Company estimates its 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. At December 31, 2012 and December 31, 2011, the Company had an allowance for doubtful accounts of $60,000 and $66,000, respectively.

Inventory, Policy [Policy Text Block]

[3]       Inventory: Inventory is stated at the lower of cost or market. Work in process and finished goods are comprised of labor, overhead and raw material costs. Labor and overhead costs are determined on a rolling average cost basis and raw materials are determined on an average cost basis. At December 31, 2012 and December 31, 2011, the Company established an allowance for slow moving and obsolete inventory of $261,000 and $401,000, respectively.

Income Tax, Policy [Policy Text Block]

[4]       Income taxes: The Company follows ASC 740 “Income Taxes” (“ASC 740”) which prescribes the asset and liability method whereby 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. Under ASC 740, tax benefits are recorded only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon ultimate settlement. Unrecognized tax benefits are tax benefits claimed in the Company’s tax returns that do not meet these recognition and measurement standards.

Depreciation, Depletion, and Amortization [Policy Text Block]

[5]      Depreciation: Property, plant and equipment are depreciated on the straight-line method over their estimated useful lives; generally 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.

Revenue Recognition, Policy [Policy Text Block]

[6]      Revenue recognition: The Company recognizes revenue when title transfers upon shipment. Sales are recorded net of discounts and returns. All buyers have economic substance apart from the Company and the Company does not have any obligation 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 or, in the case of a distributor, the obligation is not contingent on the resale of the product, nor does the Company have any obligation to bring about 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. All distributors have economic substance apart from the Company and their own customers and 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.

Shipping and Handling Cost, Policy [Policy Text Block]

[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.

Research and Development Expense, Policy [Policy Text Block]

[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.

Earnings Per Share, Policy [Policy Text Block]

[9]       Net loss per common share: Basic loss per common share is calculated by dividing net loss by the weighted average number of outstanding common shares during the period.

Potential common shares outstanding as of December 31, 2012 and 2011:

	December 31, 2012		December 31, 2011
Warrants		375,000		75,000
Options		2,939,080		2,698,580

For Fiscal 2012 and Fiscal 2011, the number of securities not included in the diluted loss per share was 3,314,080, and 2,773,580, respectively, as their effect was anti-dilutive.

Use of Estimates, Policy [Policy Text Block]

[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. Our management believes the major estimates and assumptions impacting our financial statements are the following:

· estimates of the fair value of stock options and warrants at date of grant; and

· estimates of the inventory reserves; and

· estimates and evaluation of litigation being pursued.

The fair value of stock options and warrants issued to employees, members of our Board of Directors, consultants and in connection with debt financings is estimated on the date of grant based on the Black-Scholes options-pricing model utilizing certain assumptions for a risk free interest rate; volatility; and expected remaining lives of the awards. The assumptions used in calculating the fair value of share-based payment awards represent management's best estimates, but these estimates involve inherent uncertainties and the application of management judgment.

As a result, if factors change and the Company uses different assumptions, the Company's equity-based compensation expense could be materially different in the future. In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. In estimating the Company's forfeiture rate, the Company analyzed its historical forfeiture rate, the remaining lives of unvested options, and the amount of vested options as a percentage of total options outstanding.

If the Company's actual forfeiture rate is materially different from its estimate, or if the Company reevaluates the forfeiture rate in the future, the equity-based compensation expense could be significantly different from what we have recorded in the current period.

Actual results may differ from estimates and assumptions of future events.

Impairment or Disposal of Long-Lived Assets, Policy [Policy Text Block]

[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.

Fair Value of Financial Instruments, Policy [Policy Text Block]

[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.

ASC Topic 820, “Fair Value Measurements and Disclosures” (“ASC Topic 820”) establishes a hierarchy for ranking the quality and reliability of the information used to determine fair values. ASC Topic 820 requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

Level 1: Unadjusted quoted market prices in active markets for identical assets or liabilities.

Level 2: Unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices are observable for the asset or liability.

Level 3: Unobservable inputs for the asset or liability.

The Company endeavors to utilize the best available information in measuring fair value. Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:

Cash and Cash Equivalents—The carrying amount reported in the balance sheet for cash and cash equivalents approximates its fair value due to the short-term maturity of these instruments.

Line of Credit and Long-Term Debt—The carrying amounts of the Company’s borrowings under its line of credit agreement and other long-term debt approximates fair value, based upon current interest rates, some of which are variable interest rates.

Accounting for Share-based Payments and Stock Warrants [Policy Text Block]

[13]        Accounting for share-based payments and stock warrants: In accordance with the provisions of ASC Topic 718, “Accounting for Stock Based Compensation”, the Company recognizes share-based payment expense for stock options and warrants. The weighted average fair value of options granted during Fiscal 2012 and Fiscal 2011 was $0.18 and $0.13, respectively. (See Note I [2] – Stockholders’ Equity; Stock Options)

The Company accounts for derivative instruments in accordance with ASC Topic 815 “Derivatives and Hedging” (“ASC Topic 815”). The guidance within ASC Topic 815 requires the Company to recognize all derivatives as either assets or liabilities on the statement of financial position unless the contract, including common stock warrants, settles in the Company’s own stock and qualifies as an equity instrument. A contract designated as an equity instrument is included in equity at its fair value, with no further fair value adjustments required; and if designated as an asset or liability is carried at fair value with any changes in fair value recorded in the results of operations. The weighted average fair value of warrants issued in Fiscal 2012 was $0.16. The Company did not issue any warrants in Fiscal 2011. (See Note I [3] – Stockholders’ Equity; Warrants)

Concentration Risk, Credit Risk, Policy [Policy Text Block]

[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, 2012, three customers accounted for 12.8%, 9.7% and 9.6% of the Company’s net accounts receivable. A substantial portion of these balances was collected in the first quarter of the year ending December 31, 2013. Due to the longstanding nature of our relationships with these customers and contractual obligations, the Company is confident that it will recover these amounts.

At December 31, 2011, two customers accounted for 16.8% and 9.4% of the Company’s net accounts receivable. A substantial portion of these balances was collected in the first quarter of the year ended December 31, 2012. Due to the longstanding nature of our relationships with these customers and contractual obligations, the Company is confident that it will recover these amounts.

The Company has established an allowance for doubtful accounts of $60,000 and 66,000 at December 31, 2012 and December 31, 2011, respectively, based on factors surrounding the credit risk of our customers and other information.

One of our customers accounted for approximately 14.8% of net sales of the Company in Fiscal 2012 and 14.1% of net sales of the Company for Fiscal 2011.

The Company maintains certain cash balances at financial institutions that are federally insured and at times the balances have exceeded federally insured limits.

Comprehensive Income, Policy [Policy Text Block]

[15]       Reporting comprehensive income: The Company reports comprehensive income in accordance with the provisions of ASC Topic 220, “Reporting Comprehensive Income” (“ASC Topic 220”). The provisions of ASC Topic 220 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 Fiscal 2012 and Fiscal 2011, comprehensive income was the same as net income.

Prior Period Reclassification Adjustment Description [Policy Text Block]

[16]     Reclassifications: Certain items have been reclassified from the prior years to conform to the current year presentation.

New Accounting Pronouncements, Policy [Policy Text Block]

[17]       New accounting pronouncements: There were no new standards adopted in Fiscal 2012 that materially impacted our financial statements.