U.S. Securities and Exchange Commission
                             Washington, D.C. 20549

                                   FORM 1O-QSB

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934
      For the quarterly period ended September 30, 2001

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
             SECURITIES EXCHANGE ACT OF 1934
      For the transition period from ________ to ________

                        Commission File Number : 0-21284

                         SALIVA DIAGNOSTIC SYSTEMS, INC.
        -----------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)

             Delaware                                           91-1549305
----------------------------------                          -------------------
  (State or other jurisdiction                               (I.R.S. Employer
of incorporation or organization)                           Identification No.)

                          3661 Horseblock Rd., Suite E
                                Medford, NY 11763
              -----------------------------------------------------
              (Address of principal executive offices and zip code)

                                 (212) 937-3801
                 -----------------------------------------------
                 (Issuer's telephone number including area code)

Check whether the issuer (1) 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: Yes [] No [X]

The number of shares outstanding of the Registrant's Common Stock as of
September 30, 2001, 30,477,864 shares.

Transitional Small Business Disclosure Format (check one):  Yes [ ]    No [X]
================================================================================


<PAGE>

                         SALIVA DIAGNOSTIC SYSTEMS, INC.
                                   FORM 10-QSB
                                      INDEX



PART I    FINANCIAL INFORMATION                                         Page No.
-------------------------------                                         --------

    Item 1.  Financial Statements

             Consolidated Balance Sheets -September 30, 2001
             (unaudited) and December 31, 2000                                3

             Consolidated Statements of Operations -Three Months
             and nine months Ended September 30, 2001 and 2000 (unaudited)    4

             Consolidated Statements of Cash Flows -
             Nine  Months Ended September 30, 2001 and 2000 (unaudited)       5

             Notes to Consolidated Financial Statements                       6

    Item 2.  Management's Discussion and Analysis of Financial Condition
             and Results of Operations                                        12

PART II    OTHER INFORMATION
----------------------------
    Item 1.  Legal Proceedings                                                16

    Item 2.  Changes in Securities                                            16

    Item 6.  Exhibits and Reports on Form 8-K                                 16

    Signatures                                                                16

<PAGE>

                         SALIVA DIAGNOSTIC SYSTEMS, INC.
                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                              September 30, 2001  December 31,
                                                                                  (unaudited)         2000
                                                                              ------------------- ------------
<S>                                                                             <C>               <C>
                                 Assets (Note 6)
Current assets:
       Accounts receivable, less allowance for
            Doubtful accounts $5,000(2001);
            $35,000 (2000)                                                      $     18,448      $     76,580
       Royalty receivable (Note 4)                                                    98,565            41,771
       Due from affiliate (Note 5)                                                   126,417            51,557
                                                                                ------------      ------------
            Total current assets                                                     243,430           169,908

Property and equipment, less accumulated
       depreciation of $422,491 (2001) and
       $395,749 (2000)                                                               114,232           140,974
Patents and trademarks, less accumulated
       amortization of $83,752 (2001) and
       $76,621 (2000)                                                                 77,888            85,020
Deposits                                                                               1,300             1,300
                                                                                ------------      ------------
                                                                                $    436,850      $    397,202
                                                                                ============      ============

                       Liabilities and Stockholders' Equity
Current liabilities:
       Bank overdraft                                                           $     12,901      $     10,728
       Note payable - auto (Note 6)                                                    8,407             8,407
       Note payable - law firm (Note 6)                                                 -              610,900
       Notes payable - shareholders (Notes 9 and 11)                                 395,224           559,889
       Accounts payable                                                              447,406           504,861
       Accrued expenses (Note 7)                                                     323,660           470,183
       Customer deposits                                                               9,300             9,300
       Unearned royalties (Note 8)                                                     5,000            20,000
                                                                                ------------      ------------
            Total current liabilities                                              1,201,898         2,194,268
                                                                                ------------      ------------

Long-term debts:
       Note payable - auto (Note 6)                                                      700             7,005
       Note payable - law firm (Note 6)                                              610,900               -
       Accounts payable (Note 11)                                                     67,643               -
       Accrued expenses (Notes 7 and 11)                                             137,453               -
       Notes payable - shareholders (Notes 9 and 11)                                 615,174               -
                                                                                ------------      ------------
            Total liabilities                                                      2,633,768         2,201,273
                                                                                ------------      ------------

Commitments and Contingencies (Notes 4,5,10 and 11)

Shareholders' deficit:
       Common stock, $.01 par value, 50,000,000 shares authorized, issued and
            outstanding:
            30,477,864 (2001) and 28,757,864 (2000)                                  304,779           287,579
       Additional paid-in capital                                                 35,950,359        35,910,767
       Accumulated deficit                                                       (38,452,056)      (38,002,417)
                                                                                ------------      ------------
            Total shareholders' deficit                                           (2,196,918)       (1,804,071)
                                                                                ------------      ------------
                                                                                $    436,850      $    397,202
                                                                                ============      ============
</TABLE>

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


                                       3
<PAGE>

                         SALIVA DIAGNOSTIC SYSTEMS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                            Three months ended,             Nine months ended,
                                                                September 30,                   September 30,
                                                                -------------                   -------------
                                                            2001           2000           2001           2000
                                                            ----           ----           ----           ----
<S>                                                      <C>            <C>            <C>            <C>
Revenues:
     Product Sales                                       $    56,536    $         -    $   135,705    $   220,065
     Royalty Income                                           88,352            404         94,322         30,201
                                                         -----------    -----------    -----------    -----------
                                                             144,888            404        230,027        250,266
Cost of products sold                                         26,433          7,681         89,921         67,715
                                                         -----------    -----------    -----------    -----------
Gross profit (loss)                                          118,455         (7,277)       140,106        182,551
                                                         -----------    -----------    -----------    -----------
Operating expenses:
     Research and development
          expense                                             40,200         41,305        147,074        333,241
     Selling, general and
          administrative expense                             102,477        112,490        351,358        347,826
                                                         -----------    -----------    -----------    -----------
                                                             142,677        153,795        498,432        681,067
                                                         -----------    -----------    -----------    -----------
          (Loss) from operations                             (24,222)      (161,072)      (358,326)      (498,516)
Interest income                                                 -              -              -                 9
Interest (expense)                                           (29,094)       (61,606)       (83,522)      (337,640)
Other income (expense)                                       (32,791)       (13,995)        (7,791)        28,252
                                                         -----------    -----------    -----------    -----------
       Net(loss)to common
stockholders                                                 (86,107)      (236,673)      (449,639)      (807,895)
                                                         ===========    ===========    ===========    ===========
Basic net (loss) per share (Note 3)                             -       $     (0.01)         (0.02)   $     (0.04)
                                                         ===========    ===========    ===========    ===========
Shares used in basic net (loss)
     per share calculations                               30,378,156     23,976,944     29,743,017     18,784,172
                                                         ===========    ===========    ===========    ===========
</TABLE>

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


                                       4
<PAGE>

                         SALIVA DIAGNOSTIC SYSTEMS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                             Nine months ended September 30,
                                                                               2001                 2000
                                                                             ---------            ---------
<S>                                                                         <C>                  <C>
Cash Flows From Operating Activities:
       Net (loss)                                                           $(449,639)           $(807,895)
       Adjustments to reconcile net (loss) to net
            cash(used) in operating activities:
       Depreciation and amortization                                           33,873               21,032
       Stock issued for consulting services                                    20,400                 -
       Options issued for litigation settlement                                 2,791
       Write off of accounts receivable                                        26,594                 -
       Changes in current assets and liabilities:
            Accounts receivable                                                31,538              (22,853)
            Royalty receivable                                                (56,794)                -
            Due from affiliate                                                (74,860)                -
            Inventories                                                          -                 138,334
            Prepaid expenses and deposits                                        -                   4,623
            Restricted cash                                                      -                  20,129
            Accounts payable, accrued expenses and
                accrued interest                                               34,720              (20,811)
            Customer deposits                                                    -                 (25,320)
            Unearned royalties                                                (15,000)             (20,000)
                                                                            ---------            ---------
                Net cash (used) in operating activities                      (446,377)            (712,761)
                                                                            ---------            ---------
Cash Flows From Investing Activities:
       Acquisitions of property and equipment                                    -                 (83,211)
                                                                            ---------            ---------
            Net cash (used) in investing activities                              -                 (83,211)
                                                                            ---------            ---------
Cash Flows From Financing Activities:
       Proceeds from shareholders loans                                       450,509              965,703
       Payment on line of credit                                                 -                (191,296)
       Payment on long-term debt                                               (6,305)              (8,128)
       Bank overdraft                                                           2,173               28,872
                                                                            ---------            ---------
            Net cash provided in financing activities                         446,377              795,151
                                                                            ---------            ---------
       Net (decrease) in cash and cash equivalents                               -                    (821)
       Cash and cash equivalents, beginning of period                            -                     821
                                                                            ---------            ---------
       Cash and cash equivalents, end of period                             $                         -
                                                                            =========            =========
Supplemental Disclosure of Cash Flow Information:
       Cash paid during the period for interest                             $   1,247            $   9,287
</TABLE>

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


                                       5
<PAGE>

                         SALIVA DIAGNOSTIC SYSTEMS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2001

1. Basis of Presentation

The accompanying unaudited consolidated financial statements as of and for the
three month and nine month periods ended September 30, 2001 and 2000 have been
prepared in conformity with accounting principles generally accepted in the
United States of America. The financial information as of December 31, 2000 is
derived from Saliva Diagnostic Systems, Inc. (the "Company") consolidated
financial statements included in the Company's Annual Report on Form 10-KSB for
the year ended December 31, 2000. Certain information or footnote disclosures
normally included in consolidated financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
have been condensed or omitted, pursuant to the rules and regulations of the
Securities and Exchange Commission for interim filings. Certain accounts in the
2000 financial statements have been reclassified to conform to the 2001
presentation. In the opinion of management, the accompanying consolidated
financial statements include all adjustments necessary (which are of a normal
and recurring nature) for the fair presentation of the results of the interim
periods presented. The accompanying consolidated financial statements should be
read in conjunction with the Company's audited financial statements for the year
ended December 31, 2000. Operating results for the three month and nine month
periods ended September 30, 2001 are not necessarily indicative of the results
that may be expected for the entire fiscal year ending December 31, 2001, or any
other portion thereof.

2. Substantial doubt regarding ability to continue as a going concern

Significant operating losses - accumulated deficit
Since July 1990, the Company has been engaged almost exclusively in research and
development activities focused on developing proprietary saliva based collection
devices and rapid assays for infectious diseases. Other than sales of the
Company's collection devices, the Company has not yet commenced any significant
product commercialization. The Company has incurred significant operating losses
since its inception, resulting in an accumulated deficit of $38,452,056 at
September 30, 2001. Such losses are expected to continue for the foreseeable
future and until such time, if ever, as the Company is able to attain sales
levels sufficient to support its operations. There can be no assurance that the
Company will achieve or maintain profitability in the future. Despite the
Company's stock and debt financings in 2000 and 2001, substantial additional
financing will be required through 2001 and 2002.

The Company's capital requirements have been and will continue to be
significant. The Company's capital base is smaller than that of many of its
competitors, and there can be no assurance that the Company's cash resources
will be able to sustain its business. The Company is dependent upon its effort
to raise capital to finance its future operations, including the cost of
development, manufacturing and marketing of its products, to conduct clinical
trials and submissions for FDA approval of its products and to continue the
design and development of its new products. Marketing, manufacturing and
clinical testing may require capital resources substantially greater than the
resources available to the Company. The Company will continue to seek public or
private placement of its equity securities and corporate partners to develop
products. The Company's future capital needs will depend upon numerous factors,
including the progress of the approval for sale of the Company's products in
various countries, including the United States, the extent and timing of the
acceptance of the Company's products, the cost of marketing and manufacturing
activities and the amount of revenues generated from operations, non of which
can be predicted with much certainty. The accompanying consolidated financial
statements have been prepared assuming that the Company will continue as a going
concern. The Company's significant operating losses and significant capital
requirements, however, raise substantial doubt about the Company's ability to
continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.


                                       6
<PAGE>

                         SALIVA DIAGNOSTIC SYSTEMS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2001

3. Loss per Share

Basic earnings (loss) per common share is computed using the weighted average
number of shares of common stock outstanding for the period. Diluted earnings
per common share is computed using the weighted average number of shares of
common stock and dilutive common equivalent shares related to stock options and
warrants outstanding during the period. Diluted earning per share is not
presented because all common equivalent shares related to options and warrants
would be anti-dilutive.

4. Manufacturing Agreement

On January 17, 2001, the Company entered into a manufacturing agreement with
Chembio Diagnostic Systems, Inc. (CDS) (See Note 5) whereby CDS has exclusive
rights to manufacture Hema-Strip and Sera-Strip on behalf of and under the label
of the Company. The agreement also allows CDS exclusive license to certain
technology and production assets of the Company to be used in the manufacture of
CDS products. CDS will pay the Company a 5% royalty on the sale of such
products. All costs associated with leased production assets will be allocated
between CDS and the Company based upon the relative proportions of goods
manufactured for each party to the total production. If the proposed merger (See
Note 5) between companies does not occur, the agreement will remain in effect
until at least November 30, 2001, but has an actual term of five years. The
agreement also specifies the price CDS will charge the Company for manufacturing
of products as well as payment terms for these manufacturing services. The
agreement also has mutual termination clauses based upon several different
factors.

Royalties earned under this agreement through September 30, 2001 aggregated
$94,322.

5. Letter of Intent/Proposed Merger Agreement

In November 2000, the Company entered into a letter of intent whereby they would
acquire all the outstanding shares of Chembio Diagnostic Systems, Inc. (CDS).
This acquisition will be accounted for as a reverse acquisition and will result
in the CDS shareholders holding about 75% of the common stock of the Company.
The agreement contains several contingency provisions regarding additional
financing, liability provisions and others, which can effect the terms of the
deal. As of the date of this report, the reverse acquisition has not been
consummated.

An additional part of this agreement calls for the Company to advance up to
$1,000,000 to CDS, payable in four equal installments of $250,000. The first
installment was to be paid upon the execution of the letter of intent with the
remaining installments due in successive 30-day periods. These advances are to
be applied to expenses incurred by CDS in the manufacture and promotions of the
Company's products. As of September 30, 2001, the Company had advanced $499,998
under this agreement. In the event the acquisition is not consummated, any funds
advanced in excess of expenses incurred by CDS on behalf of the Company will be
converted into a primary note payable, by CDS to the Company, two years from the
date of the last advance with interest at prime + 1% payable quarterly.

Amounts advanced under this agreement, net of expenses incurred on behalf of the
Company, through September 30, 2001 aggregated $126,417 and are reflected as a
current asset "Due from affiliate".


                                       7
<PAGE>

                         SALIVA DIAGNOSTIC SYSTEMS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2001

6. Notes Payable

Law Firm

In July of 1999, the Company converted $610,900 owed to a law firm into a
promissory note, which bears interest at 10% per annum. This note is payable
upon demand and is secured by first priority interest in certain patents and
future license rights associated with the patents as well as security rights to
all physical and real assets not already secured by other parties. As of
September 30, 2001, the principal balance under this note was $610,900, not
including additional accrued interest of $137,453 (See Note 11).

Automobile

In September of 2000, the Company purchased an automobile with financing from
the automobile dealership. The note requires 24 monthly payments of $701 and is
due in September of 2002. The dealership has a security interest in the
automobile. As of September 30, 2001, the balance under this note was $9,107.

7. Accrued Expenses

                                    September 30, 2001      December 31, 2000
                                  ---------------------   ---------------------
     Accrued interest             $             286,103   $             229,536
     Accrued wages and salaries                   3,125                   3,978
     Accrued payroll taxes                        5,177                   5,331
     Accrued litigation expenses                 89,619                 158,823
     Other accrued liabilities                   77,089                  72,515
                                  ---------------------   ---------------------
                                  $             461,113   $             470,183
                                  =====================   =====================

8. Unearned Revenues

In October 1999, the Company entered into a contract with Whatman International
Limited, and licenses its Omni Swab patent exclusively to Whatman for the life
of the patent. The contract also required the transfer of all Omni Swab tooling
and equipment to Whatman. The licensing agreement included a $50,000 payment for
the value of tooling, rights, and equipment, as well as a $50,000 advance fee to
be applied toward future royalty payments. This $50,000 royalty advance was
structured as to allow only a maximum of $5,000 of the $50,000 to be offset
against owed royalties in any one quarter. The royalty fees due to the Company
are based upon the following schedule:

      10% of first 100,000 of total annual sales
       9% of second 100,000 of total annual sales
       8% of third 100,000 of total annual sales
       7% of fourth 100,000 of total annual sales
       6% of fifth 100,000 of total annual sales

On May 12, 2000, the Company assigned future royalties representing the first 6%
of total annual sales to Resonance Limited as consideration for investment
banking and other services. On a quarterly basis, royalties due Resonance
Limited are offset to royalties earned from Whatman. Residual royalties will
continue to accrue to the Company.

The balance of prepaid but unearned royalties at September 30, 2001 is $5,000.


                                       8
<PAGE>

                         SALIVA DIAGNOSTIC SYSTEMS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2001

9. Shareholders' Transactions

Pursuant to an agreement dated October 1999 and amended as to amount in January
2000, and again in January 2001, a shareholder, agreed to advance or cause to be
advanced to the Company from time to time, through December 31, 2002, up to the
sum of $1,500,000. In consideration for the above, the Company agreed to repay
such borrowed funds with accrued interest at 12% per annum, six months from the
date of the loan or upon demand, at the option of the lender. The shareholder
assigned the Note to Resonance Ltd., also a shareholder of the Company. The
balance at September 30, 2001 was $1,010,398, and accrued interest of $21,528.
Pursuant to the terms of the loan instrument, the loan was convertible, at the
option of the holder, into Common Stock of the Company at 75% of the closing
stock bid price for the five days prior to conversion.

In April 2001, the Company issued 1,020,000 shares of unregistered and legended
Company common stock to employees of Chembio Diagnostic Systems, Inc. in
exchange for consulting services. The stock was issued at the market value on
the date of settlement with a 30% discount for its restriction. The Company
recorded a consulting expense of $20,400 to reflect this transaction.

In September 2001, the Company settled its dispute with Sailesh Barchha, a
marketing consultant to the company. The settlement terms included cash
reimbursements and the issuance of an option to purchase shares of the Company's
common stock. The amount of settlement is not material to the company's
financial statements.

10. Contingencies

NASDAQ DELISTING

Effective with the close of the market on March 10, 1998, the Company's
securities were delisted from The Nasdaq SmallCap Market for failure to meet the
new Nasdaq continued listing requirements. Trading in the Company's securities
is and will be conducted in the over-the-counter market on the OTC Bulletin
Board, an electronic bulletin board established for securities that do not meet
the Nasdaq listing requirements, or in what are commonly referred to as the
"pink sheets". As of May 2000 the Company's common stock was trading on the
"pink sheets".

As of May 2000 the Company was delisted from the NASD Bulletin Board market due
to its failure to meet the financial reporting requirements of the NASD. As a
result of the delisting, an investor may find it difficult to dispose of, or to
obtain accurate quotations as to the price of, the Company's securities.

FDA WARNING LETTER

In the U.S., under the Federal Food, Drug, and Cosmetics Act (the "FDC Act"),
the Food and Drug Administration (FDA) regulates all aspects, including
manufacturing, testing, and marketing, of medical devices that are made or
distributed in or from the U.S.

All medical devices are categorized by the FDA as Class I, Class II, or Class
III devices. Class I devices are subject only to general control provisions of
the FDC Act, such as purity, labeling and good manufacturing practices
regulations (GMP). Class II devices are required to also ensure reasonable
safety and efficacy through performance standards and other controls. Class III
devices must, in addition to fulfilling all other provisions of the FDC Act,
meet extensive and rigorous FDA standards that may require clinical trials.


                                       9
<PAGE>

                         SALIVA DIAGNOSTIC SYSTEMS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2001

10. Contingencies  (Continued):

FDA WARNING LETTER (Continued):

A manufacturer of medical devices which can establish that a new device is
substantially equivalent to a legally marketed Class I or Class II medical
device, or to a Class III medical device for which the FDA has not required a
premarket approval (PMA), can seek FDA marketing clearance for the device by
filing a 510(k) Premarket Notification ("510(k) Notice"). The 510(k) Notice for
diagnostic devices is normally supported by various types of information,

which is required to be submitted along with the 510(k) Notice. This information
typically includes performance data indicating that the device is as safe and
effective for its intended use as a legally marketed predicate device.

In January 2000, the Company's then manufacturing facility in Vancouver, WA. was
inspected by the FDA. The FDA found deficiencies with the Company shipping HIV
diagnostic tests (not approved for use in the US) to its US distributors for
re-export by them. In addition the Company did not provide notification to the
FDA prior to exporting these products to several foreign countries.

In September 2000, the Company received a warning from the United States Food
and Drug Administration (FDA) prohibiting the Company from selling or exporting
its HIV diagnostic products until such time that the warning letter is
rescinded. Subsequent to an audit by the FDA in 2001, the Company's contract
manufacturer, Chembio Diagnostic Systems, Inc. (See Note 5), was issued an
export certificate allowing for the resumption of sales of the Company's HIV
products.

11. Subsequent Events

In December 2001, subsequent to the balance date, Resonance Ltd., one of the
Company's shareholders, advanced funds to enable the Company to receive a
release and retirement of the Company's secured debt owed to a law firm,
consisting of notes, other payables and accrued interest in the amount of
$831,271. The debt had been secured by the patents on the Company's saliva
collector. In satisfaction of that debt now owed to Resonance, the Company
agreed to convert the debt into 110,836,115 shares of the Company's common
stock, computed at 75% of the closing stock price prior to the conversion, or
$.0075 per share. At September 30, 2001, the balance of debt owed to the law
firm was $815,996 the difference of $15,275 represents accrued interest
accumulated until the agreed date of conversion.

On December 31, 2001, subsequent to the balance date, certain shareholders
elected to convert an aggregate total of $615,174 in convertible debt held by
them into shares of the Company's common stock. The conversion price in each
instance was $.0075 share. As a result the Company is obligated to issue
82,023,266 shares of common stock.

The Company does not yet have sufficient authorized but unissued shares
available to satisfy its obligations to issue all of the shares referred to
above.

On January 31, 2002, subsequent to the balance sheet date, the Company's Board
of Directors recommended that the Company's shareholders approve its proposal to
effect a one-for-twenty-five reverse stock split and a change of the Company's
common stock from $,01 par value to no par value, effective March 7, 2002.
Shareholders holding a majority of the Company's outstanding common stock
approved both such actions by written consent on the same day.


                                       10
<PAGE>

                         SALIVA DIAGNOSTIC SYSTEMS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2001

11. Subsequent Events (Continued):

As a result of the agreed upon conversions, the amounts to be converted,
including accrued interest, which existed at September 30, 2001, have been
reflected as long-term liabilities on the Company's September 30, 2001 balance
sheet.


                                       11
<PAGE>

                         SALIVA DIAGNOSTIC SYSTEMS, INC.
                               September 30, 2001

Item 2. Management's Discussion and Analysis or Plan of Operation

General

Since July 1990, the Company has been engaged almost exclusively in research and
development activities focused on developing proprietary saliva based collection
devices and rapid assays for infectious diseases. Other than sales of the
Company's collection devices, the Company has not yet commenced any significant
product commercialization.

In February 2000, the Company closed its Vancouver, Washington manufacturing
facility and moved its executive offices to New York City and subsequently to
Medford, NY. The Company no longer has its own manufacturing plant which would
allow it to independently produce its products, and has entered into a supply
agreement with Chembio Diagnostic Systems, Inc. to supply the Company's needs.
The Company believes that it has successfully transferred its technology but
significant start-up costs associated with producing its product line are still
likely to be incurred.

In January 2000, the Company's then manufacturing facility in Vancouver, WA. was
inspected by the FDA. The FDA found deficiencies with the Company shipping HIV
diagnostic tests (not approved for use in the US) to its US distributors for
re-export by them. In addition the Company did not provide notification to the
FDA prior to exporting these products to several foreign countries. This
resulted in the Company receiving a Warning Letter and losing its export
certificate. Subsequent to an audit by the FDA in 2001, the Company's contract
manufacturer, Chembio Diagnostic Systems, Inc., was issued an export certificate
allowing for the resumption of sales of the Company's HIV products.

In November 2000, the Company entered into a letter of intent whereby the
Company would acquire all the outstanding shares of Chembio Diagnostic Systems,
Inc. (CDS). This acquisition will be accounted for as a reverse acquisition and
will result in the CDS shareholders holding approximately 75% of the common
stock of the Company. The agreement contains several contingency provisions
regarding additional financing, liability provisions and others which can effect
the terms of the deal. As of the date of this report, the reverse acquisition
has not been consummated.

An additional part of this agreement calls for the Company to advance up to
$1,000,000 to CDS, payable in four equal installments of $250,000. The first
installment was to be paid upon the execution of the letter of intent with the
remaining installments due in successive 30-day periods. These advances are to
be applied to expenses incurred by CDS in the manufacture and promotions of the
Company's products. In the event the acquisition is not consummated any funds
advanced in excess of expenses incurred by CDS on behalf of the Company will be
converted into a primary note payable two years from the date of the last
advance with interest at prime + 1% payable quarterly.

On January 17, 2001, the Company entered into a manufacturing agreement with CDS
whereby CDS has exclusive rights to manufacture Hema-Strip and Sera-Strip on
behalf of and under the label of the Company. The agreement also allows CDS
exclusive license to certain technology and production assets of the Company to
be used in the manufacture of CDS products. CDS will pay the Company a 5%
royalty on the sale of such products. All costs associated with leased
production assets will be allocated between CDS and the Company based upon the
relative proportions of goods manufactured for each party to the total
production. If the proposed merger between companies does not occur, the
agreement will remain in effect until at least November 30, 2001, but has an
actual term of five years. The agreement also specifies the price CDS will
charge the Company for manufacturing of products as well as payment terms for
these manufacturing services. The agreement also has mutual termination clauses
based upon several different factors.

The Company has incurred significant operating losses since its inception,
resulting in an accumulated deficit of $38,452,056 at September 30, 2001. Such
losses are expected to continue for the foreseeable future and until such time,
if ever, as the Company is able to attain sales levels sufficient to support its
operations.


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<PAGE>

                         SALIVA DIAGNOSTIC SYSTEMS, INC.
                               September 30, 2001

Item 2. Management's Discussion and Analysis or Plan of Operation (Continued):

General (Continued):

The Company believes that its current cash position will be insufficient to fund
the Company's operations through 2001. Substantial additional financing will be
required in 2001. The Company's independent certified public accountants have
included an explanatory paragraph in their reports stating that the Company's
significant operating losses and significant capital requirements raise
substantial doubt about the Company's ability to continue as a going concern.
There can be no assurance that the Company will be able to obtain the additional
capital resources necessary to continue its business, or that such financing
will be available on commercially reasonable terms or at all.

Results of Operations

THIRD QUARTER AND FIRST NINE MONTHS OF 2001 COMPARED TO THIRD QUARTER AND FIRST
NINE MONTHS OF 2000

Revenues: The Company's revenues consist of product sales and royalty income.
Revenues and royalty income increased 358% to $144,888 in the third quarter of
2001 from $404 in the third quarter of 2000, and decreased 8% to $230,027 in the
first nine months of 2001 from $250,266 in the first nine months of 2000. Due to
the closure of the Company's facility in Vancouver, WA, the necessity to
transfer technology to an outside contractor, and the FDA warning letter
received, the Company continues to have negligible sales throughout 2000 and
into 2001. The Company is uncertain at this time if it will be able to
reestablish relations with its customers.

Cost of products sold: Costs of products sold increased to $26,433 (47% of
product sales) in the third quarter of 2001 from $ 7,681 in the third quarter of
2000, and increased to $89,921 (66% of product sales) in the first nine months
of 2001 from $67,715 (31% of product sales) in the first nine months of 2000 due
to increased sales activity as well as a different sales mix.

Research and development expenses: Research and development expenses decreased
3% to $40,200 in the third quarter of 2001 from $41,305 in the third quarter of
2000, and decreased 56% to $147,074 in the first nine months of 2001 from
$333,241 in the first nine months of 2000. The decrease was due to the year 2000
costs incurred with the February 2000 closure of the Company's Vancouver, WA
manufacturing facility and the transfer of technology to the contract
manufacturer.

Selling, general and administrative expenses: Selling, general and
administrative expenses decreased 9% to $102,477 in the third quarter of 2001
from $112,490 in the second quarter of 2000, and increased 1% to $351,358 in the
first nine months of 2001 from $347,826 in the first nine months of 2000,
primarily as a result of decreases in payroll, legal and rent expenses, which
were offset by increases in consulting and bad debt expenses.

Interest expense: Interest expense decreased to $29,094 in the third quarter of
2001 from $61,606 in the third quarter of 2000, and decreased to $83,522 in the
first nine months of 2001 from $337,640 in the first nine months of 2000, due to
a decrease in penalties due pursuant to its preferred stock agreement.


                                       13
<PAGE>

                         SALIVA DIAGNOSTIC SYSTEMS, INC.
                               September 30, 2001

Item 2. Management's Discussion and Analysis or Plan of Operation (Continued):

Results of Operations (Continued):

Income taxes: The Company is in a net deferred tax asset position and has
generated net operating losses to date. Accordingly, no provision for or benefit
from income taxes has been recorded in the accompanying statements of
operations. The Company will continue to provide a valuation allowance for its
deferred tax assets until it becomes more likely than not, in management's
assessment, that the Company's deferred tax assets will be realized. The Company
has a net operating loss carryforward of approximately $38 million, which is
available to offset future taxable income, if any, expiring through the year
2021. The Internal Revenue Code rules under Section 382 could limit the future
use of these losses based on ownership changes and the value of the Company's
stock.

Liquidity and Capital Resources

Since inception, the Company has financed its capital requirements through
proceeds from its public offering of common stock in March 1993 and the exercise
of common stock purchase warrants pursuant to such offering, proceeds from sales
of convertible debentures, proceeds from private placements of common stock and
preferred stock, the exercise of common stock purchase warrants and stock
options and commercial borrowings.

Pursuant to an agreement dated October 1999 and amended as to amount in January
2000, and again in January 2001, Helenka Bodner, agreed to advance or cause to
be advanced to the Company from time to time, through December 31, 2002, up to
the sum of $1,500,000 at the interest rate of 12%. At September 30, 2001 the sum
advanced under said loan was $1,010,398 and accrued interest of $21,528.
Pursuant to the terms of the loan instrument, the loan was convertible, at the
option of the holder, into Common Stock of the Company at 75% of the closing
stock bid price for the five prior days to conversion.

As of September 30, 2001, the Company had negative working capital. Cash used in
operating activities in the first nine months of 2001 was $446,377. This was
primarily a result of a net loss of $446,848.

The Company's capital requirements have been and will continue to be
significant. The Company currently has an accumulated deficit due to its history
of losses. The Company is dependent upon its effort to raise capital to finance
its future operations, including the cost of manufacturing and marketing of its
products, to conduct clinical trials and submissions for FDA approval of its
products and to continue the design and development of its new products.
Marketing, manufacturing and clinical testing may require capital resources
substantially greater than the resources available to the Company.

There can be no assurance that the Company will be able to obtain the additional
capital resources necessary to implement or continue its programs, or that such
financing will be available on commercially reasonable terms or at all. The
Company will continue to seek public or private placement of its equity
securities and corporate partners to develop products. There can be no assurance
that the Company will be able to sell its securities on commercially reasonable
terms or to enter into agreements with corporate partners on favorable terms or
at all. The Company's future capital needs will depend upon numerous factors,
including the progress of the approval for sale of the Company's products in
various countries, including the U.S., the extent and timing of the acceptance
of the Company's products, the cost of marketing and manufacturing activities
and the amount of revenues generated from operations, none of which can be
predicted with certainty. The Company's significant operating losses and capital
requirements raise substantial doubt about the Company's ability to continue as
a going concern.


                                       14
<PAGE>

                         SALIVA DIAGNOSTIC SYSTEMS, INC.
                               September 30, 2001

Item 2. Management's Discussion and Analysis or Plan of Operation (Continued):

Liquidity and Capital Resources (Continued):

In December 2001, subsequent to the balance sheet date, Resonance Ltd., one of
the Company's shareholders, advanced funds to enable the Company to receive a
release and retirement of the Company's secured debt owed to Bryan Cave LLP,
consisting of notes and other payables in the amount of $831,271. The debt had
been secured by the patents on the Company's saliva collector. In satisfaction
of that debt now owed to Resonance, the Company agreed to convert the debt into
110,836,115 shares of the Company's common stock, computed at 75% of the closing
stock price prior to the conversion, or $.0075 per share.

On December 31, 2001, subsequent to the balance sheet date, certain
shareholders, elected to convert an aggregate total of $615,174 in convertible
debt held by them into shares of the Company's common stock. The conversion
price in each instance was $.0075 share. As a result the Company is obligated to
issue 82,023,266 shares of common stock.

The Company does not yet have sufficient authorized but unissued shares
available to satisfy its obligations to issue all of the shares referred to
above.

On January 31, 2002, subsequent to the balance sheet date, the Company's Board
of Directors recommended that the Company's shareholders approve its proposal to
effect a one-for-twenty-five reverse stock split and a change of the Company's
common stock from $,01 par value to no par value, effective March 7, 2002.
Shareholders holding a majority of the Company's outstanding common stock
approved both such actions by written consent on the same day.


                                       15
<PAGE>

                         SALIVA DIAGNOSTIC SYSTEMS, INC.
                               September 30, 2001

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

See Note 10 to the Notes to the Consolidated Financial Statements.

Item 2. Changes in Securities

None.

ITEM 3. Defaults upon Senior Securities

None

ITEM 4. Submission of Matters to a Vote of Security Holders

None

ITEM 5. Other Information

None

ITEM 6. Exhibits and Reports on Form 8-K

(a) No exhibits are filed as part of this report.

(b) Earnings per share

(c) Reports on Form 8-K

No reports on Form 8-K were filed during the quarter ended September 30, 2001.

SIGNATURES

      In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.


Dated:   February 25, 2002

                                  SALIVA DIAGNOSTIC SYSTEMS, INC.

                                  By: /s/ LEO EHRLICH
                                  --------------------------------------
                                  Leo Ehrlich
                                  President & Chief Financial Officer


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