**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**


_______________________________





**FORM
      10 - QSB**


_______________________________





**QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d) OF**


**THE
      SECURITIES EXCHANGE ACT OF 1934.**






**For
      the quarterly period ended March 31, 2007**







*Commission
      File Number: 0-21284*







**STATSURE
      DIAGNOSTIC SYSTEMS, INC.**


*(Exact
      name of registrant as specified in its charter)*




DELAWARE
            91-1549305(State
                or other jurisdiction)
              of
                incorporation or organization)
            (IRS
                Employer Identification No.)





1
      Clarks Hill, Framingham, MA. 01702


(Address
      of principal executive offices and zip code) ****


(508)
      872-2625


( *Registrant’s
      telephone number, including area code)*







Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Exchange Act 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
x No
o





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


Yes
oNo
x





Transitional
      Small Business Disclosure Format (check one): Yes oNo x





Indicate
      by check mark whether the registrant is an accelerated filer (as defined in
      Rule
      12b-2 of the Exchange Act).


YesoNo
x





The
      number of shares outstanding of the Registrant's Common Stock as of April
      30,2007 was 37,379,314 shares.


1





STATSURE
      DIAGNOSTIC SYSTEMS, INC.


FORM
      10-QSB


INDEX





PAGE





PART
                I FINANCIAL INFORMATIONItem
                1.
            Financial
                StatementsBalance
                sheets - March 31, 2007 (unaudited) andDecember
                31, 2006
            3Statements
                of Operations - Three Months EndedMarch
                31, 2007 and 2006 as restated (unaudited)
            4Statements
                of Cash Flows- Three Months EndedMarch
                31, 2007 and 2006 as restated (unaudited)
            5Notes
                to Financial Statements (unaudited)
            6Item
                2.
            Management's
                Discussion and Analysis of Financial ConditionAnd
                Plan of Operation
            15Item
                3.
            Controls
                and Procedures
            18PART
                II OTHER INFORMATIONItem
                1.
            Legal
                Proceedings
            18Item
                2.
            Changes
                in Securities
            18Item
                3.
            Defaults
                Upon Senior Securities
            18Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            18Item
                5.
            Other
                Information
            18Item
                6.
            Exhibits
                and Reports on Form 8-K
            19Signatures.
            20Certifications
            21




2


**PART
      I FINANCIAL INFORMATION**


**Item
      1. FINANCIAL STATEMENTS**





**STATSURE
      DIAGNOSTIC SYSTEMS, INC.**


**BALANCE
      SHEETS**


**March
                    31, 2007**
                
                December 31, 2006**(Unaudited)****ASSETS**CURRENT
                    ASSETS:Cash
                    and cash equivalents
                
                $
                24,837
                
                $
                109,332Accounts
                    receivable, net of allowance for doubtful accounts
                
                
                107,664
                
                
                176,135Inventories
                
                
                43,937
                
                
                40,241Prepaid
                    expenses
                
                
                8,507
                
                
                6,857Total
                    current assets
                
                
                184,945
                
                
                332,565Property
                    and equipment, net of accumulated depreciation of $561,280 (2007)
                    and
                    $557,613 (2006)
                
                
                38,482
                
                
                42,149OTHER
                    ASSETS:Patents
                    and trademarks, net of accumulated amortization of $152,019 (2007)
                    and
                    $148,428 (2006)
                
                
                110,627
                
                
                108,108Deferred
                    costs, less accumulated amortization of $460,562(2007) and $455,503
                    (2006)
                
                
                11,438
                
                
                16,497Deposits
                
                
                14,350
                
                
                14,350Total
                    other assets
                
                
                136,415
                
                
                138,955TOTAL
                    ASSETS
                
                $
                359,842
                
                $
                513,669LIABILITIES
                    AND SHAREHOLDERS’ DEFICITCURRENT
                    LIABILITIES:Note
                    payable - shareholders
                
                $
                156,313
                
                $
                240,000Debentures
                    payable-net of discount
                
                
                106,878
                
                
                70,568Accounts
                    payable
                
                
                129,838
                
                
                100,758Customer
                    advances
                
                
                —
                
                
                31,792Accrued
                    expenses
                
                
                505,651
                
                
                360,665Accrued
                    payroll expense to officers
                
                
                127,499
                
                
                127,499Payroll
                    and payroll taxes payable
                
                
                11,300
                
                
                11,300Dividends
                    payable in stock to preferred stockholders
                
                
                49,500
                
                
                49,500Total
                    current liabilities
                
                
                1,086,979
                
                
                992,082LONG-TERM
                    DEBTDeferred
                    rent payable
                
                
                6,352
                
                
                6,745Note
                    payable - shareholder
                
                
                1,516,504
                
                
                1,361,504Derivative
                    instrument
                
                
                1,842,517
                
                
                3,238,778TOTAL
                    LIABILITIES
                
                
                4,452,352
                
                
                5,599,109COMMITMENTS
                    AND CONTINGENCIESSeries
                    2006-A Convertible Preferred Stock: 2,500shares authorized, $.001
                    par
                    value, 2,150 issued and outstanding
                
                
                2
                
                
                2SHAREHOLDERS’
                    DEFICIT:Series
                    1998-B Convertible Preferred Stock: 1,645 shares authorized,
                    none issued
                    and outstanding
                
                
                —
                
                
                —Common
                    stock, $.001 par value, 50,000,000 shares authorized, issued
                    and
                    outstanding: 37,294,219 (2007) and 37,213,151 (2006)
                
                
                37,294
                
                
                37,213Additional
                    paid-in capital
                
                
                46,765,336
                
                
                46,643,371Accumulated
                    deficit
                
                
                (50,895,142
                )
                
                (51,766,026
                )TOTAL
                    SHAREHOLDERS’ DEFICIT
                
                
                (4,092,512
                )
                
                (5,085,442
                )TOTAL
                    LIABILITIES AND SHAREHLDERS’ DEFICIT
                
                $
                359,842
                
                $
                513,669




The
      accompanying notes are an integral part of these statements.


3


**STATSURE
      DIAGNOSTIC SYSTEMS, INC.**


**STATEMENTS
      OF OPERATIONS**


**(Unaudited)**


**Three
                  Months Ended March 31,**2007
              
              2006REVENUES:Product
                  Sales
              
              $
              142,862
              
              $
              213,059Other
              
              
              10,986
              
              
              —Total
                  revenues
              
              
              153,848
              
              
              213,059COSTS
                  OF PRODUCTS SOLD
              
              
              21,729
              
              
              46,390Gross
                  profit
              
              
              132,119
              
              
              166,669OPERATING
                  EXPENSES:Research
                  and development expenses
              
              
              21,048
              
              
              69,149Selling,
                  general and administrative expense
              
              
              431,104
              
              
              661,340Total
                  costs and expenses
              
              
              452,152
              
              
              730,489Loss
                  from operations
              
              
              (320,033
              )
              
              (563,820
              )OTHER
                  INCOME (EXPENSES):Interest
                  expense - net
              
              
              (55,034
              )
              
              (123,962
              )Interest
                  expense on beneficial conversion feature
              
              
              (36,310
              )
              
              (117,612
              )Derivative
                  income
              
              
              1,396,261
              
              
              —Penalties
              
              
              (64,500
              )
              
              —Total
                  other income (expenses):
              
              
              1,240,417
              
              
              (241,574
              )920,384
              
              
              (805,394
              )Net
                  Income (Loss) before provision for income taxesProvision
                  for income taxes
              
              
              —
              
              
              —NET
                  INCOME (LOSS)
              
              
              920,384
              
              
              (805,394
              )Dividends
                  - Preferred stock series 2006-A
              
              
              49,500
              
              
              —NET
                  INCOME (LOSS) TO COMMON SHAREHOLDERS
              
              $
              870,884
              
              $
              (805,394
              )BASIC
                  INCOME (LOSS) PER SHARE
              
              $
              0.02
              
              $
              (0.03
              )WEIGHTED
                  AVERAGE NUMBER OF SHARES USED IN BASIC PER SHARE
                  CALCULATION
              
              
              37,262,277
              
              
              32,192,408DILUTED
                  INCOME (LOSS) PER SHARE
              
              $
              0.02
              
              $
              (0.03
              )WEIGHTED
                  AVERAGE NUMBER OF SHARES USED IN DILUTED PER SHARE
                  CALCULATION
              
              
              45,988,736
              
              
              32,192,408







The
      accompanying notes are an integral part of these statements.


4





**STATSURE
      DIAGNOSTIC SYSTEMS, INC.**


**STATEMENTS
      OF CASH FLOWS**


**(Unaudited)**




**Three Months Ended March
                31,****2007**
            
            2006OPERATING
                ACTIVITIES:Net
                income (loss)
            
            $
            920,384
            
            $
            (805,394
            )Adjustments
                to reconcile net income (loss) to net cash used in operating
                activities:Depreciation
                and amortization
            
            
            7,258
            
            
            9,072Amortization
                of deferred costs
            
            
            5,059
            
            
            56,730Options
                granted to non-employee
            
            
            11,622
            
            
            11,621Beneficial
                conversion feature of convertible debentures
            
            
            36,310
            
            
            117,612Stock
                issued for consulting services
            
            
            —
            
            
            112,000Options
                granted to employees as compensation
            
            
            60,924
            
            
            164,614Mark-to-Market
                gain on derivative instruments
            
            
            (1,396,261
            )
            
            —Changes
                in assets and liabilities:Accounts
                receivable
            
            
            68,471
            
            
            65,791Inventories
            
            
            (3,696
            )
            
            (26,033
            )Prepaid
                expenses
            
            
            (1,650
            )
            
            4,608Accounts
                payable, accrued payroll expense to officers and accrued
                expenses
            
            
            142,274
            
            
            201,109Deferred
                rent
            
            
            (393
            )
            
            —Net
                cash used in operating activities
            
            
            (149,698
            )
            
            (88,270
            )CASH
                FLOWS FROM INVESTING ACTIVITIES:Acquisitions
                of patents and trademarks
            
            
            (6,110
            )
            
            (34,814
            )Net
                cash used in investing activities
            
            
            (6,110
            )
            
            (34,814
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Proceeds
                from shareholder loans
            
            
            155,000
            
            
            146,222Repayments
                of shareholder loans
            
            
            (83,687
            )
            
            (104,852
            )Proceeds
                from issuance of common stock
            
            
            —
            
            
            15,000Net
                cash provided by financing activities
            
            
            71,313
            
            
            56,370NET
                DECREASE IN CASH AND CASH EQUIVALENTS
            
            
            (84,495
            )
            
            (66,714
            )CASH
                AND CASH EQUIVALENTS, BEGINNING OF PERIOD
            
            
            109,332
            
            
            76,321CASH
                AND CASH EQUIVALENTS, END OF PERIOD
            
            $
            24,837
            
            $
            9,607SUPPLEMENTAL
                DISCLOSURE OF CASH FLOW INFORMATIONCash
                paid for interest
            
            $
            2,441
            
            $
            —SUPPLEMENTAL
                DISCLOSURE OF NON-CASH FLOW FINANCING ACTIVITIES:Common
                stock issued in lieu of cash dividend payments
            
            $
            49,500
            
            $
            —Reclassification
                of accrued interest to loan principal
            
            $
            —
            
            $
            239,404





The
      accompanying notes are an integral part of these statements.




5


**STATSURE
      DIAGNOSTIC SYSTEMS, INC.**


**NOTES
      TO FIANCIAL STATEMENTS (UNAUDITED)**


**March
      31, 2007**





**1.
      Description of Business**





StatSure
      Diagnostic Systems, Inc., a Delaware corporation ("the Company"), is primarily
      engaged in the development, manufacture and marketing of rapid in-vitro assays
      for use in the detection of infectious diseases and other conditions, and
      medical specimen collection devices. The Company is currently marketing its
      medical specimen collection devices both in the U.S. and
      overseas.





On
      September 29, 2006, the Company announced it had signed several agreements relating to its patented barrel
      technology for use in screening antibodies to HIV (Human Immunodeficiency Virus,
      the virus that causes AIDS). As part of a three-way alliance with Inverness
      Medical Innovations (AMEX:IMA) Chembio Diagnostics (CEMI.OB) (“Chembio”), and
      the Company signed a worldwide, exclusive distribution deal for a rapid,
      point-of-care HIV test with Inverness. In a two-way deal with Chembio, the
      Company granted an exclusive license to Chembio solely to manufacture their
      recently FDA approved HIV barrel product for Inverness. This product will be
      marketed under the IMA brand. In this two-way agreement (“Joint HIV Barrel
      Commercialization Agreement”), a long- term strategic “partnership” was
      established, wherein both companies equally split the margin dollars of the
      HIV
      barrel product once the actual cost of manufacturing is reimbursed.





At
      the
      beginning of business on January 24, 2006, the Company effected a name change
      from Saliva Diagnostic Systems, Inc. to StatSure Diagnostic Systems,
      Inc.





**2.**  **Substantial
      Doubt Regarding Ability To Continue As A Going Concern**





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 incurred significant operating losses
      since its inception, resulting in an accumulated deficit of $50,895,142 at
      March
      31, 2007. 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. In addition, the Company
      is in default on certain debt obligations. Despite the Company's financings
      in
      2006 (See Notes 5, 6, and 7), substantial additional financing will be required
      in future periods.





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 intends to continue to seek public or private
      placement of its equity securities in order to provide the funds necessary
      to
      meet its obligations. In addition, Management believes that the agreements
      it
      entered into in September 2006 (See Note 1), will enable the Company to increase
      its revenues significantly in the second half of this fiscal year. 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, none of which can be predicted
      with certainty. The accompanying 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 financial statements do not include any adjustments that might
      result from the outcome of this uncertainty.




6


**STATSURE
      DIAGNOSTIC SYSTEMS, INC.**


**NOTES
      TO FIANCIAL STATEMENTS (UNAUDITED)**


**March
      31, 2007**




**3.
      Summary of Significant Accounting Policies**





***Basis
      of Presentation:***





The
      accompanying unaudited financial statements as of, and for the three month
      periods ended March 31, 2007 and 2006, have been prepared in conformity with
      accounting principles generally accepted in the United States of America. The
      financial information as of December 31, 2006, is derived from StatSure
      Diagnostic Systems, Inc. (the "Company") financial statements included in the
      Company's Annual Report on Form 10-KSB for the year ended December 31, 2006.
      Certain information or footnote disclosures in this filing that are normally
      included in 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. In the opinion of management,
      the
      accompanying financial statements include all adjustments necessary (which
      are
      of a normal and recurring nature) for a fair presentation of the results of
      the
      interim periods presented. The accompanying financial statements should be
      read
      in conjunction with the Company's audited financial statements for the year
      ended December 31, 2006, as included in the Company's Annual Report on Form
      10-KSB for the year ended December 31, 2006. Operating results for the three
      month period ended March 31, 2007 are not necessarily indicative of the results
      that may be expected for the entire year ending December 31, 2007, or any other
      portion thereof.





***Recent
      Accounting Pronouncement:***





In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities” (SFAS No. 159). SFAS No. 159 permits
      entities to choose to measure, on an item-by-item basis, specified financial
      instruments and certain other items a t
      fair
      value. Unrealized gains and losses on items for which the fair value has been
      elected are required to be reported in earnings at each reporting date. SFAS
      No.
      159 is effective for fiscal years beginning after November 15, 2007, the
      provisions of which are required to be applied prospectively. The Company
      expects to adopt SFAS No. 159 in the first quarter of fiscal 2008.




**Earnings
        (Loss) Per Common Share**
  The
        Company utilizes the guidance provided by Statement of Financial Accounting
        Standards No. 128, “Earnings per Share” (SFAS 128). Earnings Basic earnings
        (loss) per share is calculated by dividing net income (loss) attributable
        to
        common stockholders by the weighted average number of shares of common stock
        outstanding for the period. Diluted earnings (loss) reflects the potential
        dilution from the exercise or conversion of other securities into common
        stock,
        but only if dilutive. The fully diluted earnings per share of $.02 for the
        three
        months ended March 31, 2007 is the same as basic earnings per share. This
        is due
        to the securieties presented on a common stock equivalent basis and outstanding
        at March 31, 2007 have been excluded from the per share computation as the
        add
        back of the change in fair value of the derivative income effect would be
        anti-dilutive. The diluted loss per share of $(.02) for the three months
        ended
        March 31, 2006 is the same as the basic loss per share. Such securities
        presented on a common stock equivalent basis and outstanding at March 31,
        2006
        have been excluded from the per share computation because they are antidilutive.




**4.
      Geographic Area Information**





Under
      the
      disclosure requirements of SFAS No. 131, “Segment Disclosures and Related
      Information,” we operate within one segment. Our products are sold principally
      in the United States and Europe. Segmentation of identifiable assets is not
      applicable since all of our revenues outside the United States are export
      sales.





The
      following table represents total product sales revenue by geographic
      area:




**Three
                months ended March 31,****2007**
            
            2006United
                States
            
            **$**
            **52,642**
            
            **$**
            **51,064**United
                Kingdom
            
            
            **70,870**
            
            
            **158,936**Africa
            
            
            **-**
            
            
            **588**Others
            
            
            **19,350**
            
            
            **2,471****$**
            **142,862**
            
            **$**
            **213,059**





**5.
      Debentures Payable**





On
      January 19, 2005, the Company's board of directors authorized the issuance
      and
      sale of up to three million dollars of convertible debentures. These debentures
      mature March 31, 2009, and carry an interest rate of 9% per year and are
      convertible into common stock at the lower of 66.6% of the valuation of the
      Company's next raise of equity or $1 per share. In accordance with EITF Issue
      98-5 "Accounting for Convertible Securities with Beneficial Conversion Features
      or Contingently Adjustable Conversion Ratios", the Company had evaluated that
      the convertible debt had a beneficial conversion feature as the conversion
      price
      was less than the fair value of the Company's common stock on the measurement
      date. Under paragraph 6 of EITF 98-5, the discount related to the beneficial
      conversion feature would be calculated based on its intrinsic value which was
      $2,614,400, and is limited to the amount of the proceeds of $1,510,000 allocated
      to the convertible debt instrument. Accordingly, the beneficial conversion
      feature is being amortized using the interest method of accounting, resulting
      in
      a charge to interest expense of $36,310 for the three months ended March 31,
      2007. The Company had sold an aggregate of $1,510,000 in convertible debentures.
      In September 2005, a debenture in the amount of $60,000 was converted into
      60,000 shares of common stock. In May 2006, the Company issued 796,056 and
      701,754 shares of common stock at $0.90 and $0.57 per share, respectively,
      for
      the induced conversion of $1,109,607 in convertible debentures including
      interest of $109,608. The debenture holders accepted these shares as full
      consideration for the outstanding convertible debentures. The Company recognized
      an additional expense of $403,872 because of the induced conversion to the
      debenture holders pursuant to the accounting requirements of SFAS No. 84,
      Induced Conversions of Convertible Debt. The original terms of the debentures
      called for them to be converted at $1.00 per share. The Company induced the
      debenture holders to convert at $0.90 and $0.57 per share.


7
  **STATSURE
        DIAGNOSTIC SYSTEMS, INC.**
 **NOTES
        TO FIANCIAL STATEMENTS (UNAUDITED)**
 **March
        31, 2007**


As
      of
      March 31, 2007 there are outstanding $337,500 of 9% Convertible Debentures
      due
      in January 2009. Holders of the 9% Convertible Debentures are entitled to
      convert principal amounts into shares of common stock at a conversion price
      of
      $1.00.





The
      Company is in default to the debenture holders for not making payments on a
      timely basis. As a result, in accordance with the debenture agreements, these
      debentures became payable on demand unless the default is waived by the
      investors. The amount of debentures at March 31, 2007 of $337,500 plus accrued
      interest of $23,476 has therefore been reflected as a current liability. The
      Company has not received any notice of default from any of the holders of the
      outstanding debentures.





Debentures
      payable-net of discount in the amount of $106,878, is the net of gross amount
      of
      debenture payables of $337,500 reduced by unamortized debt discount of
      $230,622, and is shown on the balance sheet as a current liability.





**6.
      Financing From Shareholders**





Per
      a
      promissory note dated February 2003, Jules Nordlicht, a shareholder, agreed
      to
      advance in total or in installments, up to the amount of $1,000,000 to the
      Company. In November 2003 and August 2004, agreements were executed with this
      shareholder to cause additional advances in total or in installments up to
      the
      amount of $2,500,000 to advance the process of the FDA approval. In
      consideration for the financing, the Company agreed to repay such borrowed
      funds
      with accrued interest at 12% per annum and the shareholder reserved the right
      to
      demand payment in full or in part at anytime after December 31, 2006. On May
      8,
      2006 the shareholder agreed to extend the maturity date to December 31, 2008
      provided that (i) a partial payment of $350,000 will be made by the Company
      on
      or prior to July 31, 2006 and (ii) accrued interest will be paid quarterly
      thereafter, commencing September 30, 2006. The agreement was amended on
      September 4, 2006 so that the Company need no longer pay the quarterly accrued
      interest but an amount of $60,000 quarterly as a principal reduction. If the
      Company should default in these payments, the promissory note reverts to the
      original maturity date of December 31, 2006. As of March 31, 2007, the loan
      balance to this shareholder aggregated $1,672,817. An additional amount of
      $47,544 of interest on this note has been accrued during 2007 and remains owed
      as of March 31, 2007. The lender has filed a Uniform Commercial Code (UCC)
      Lien
      on the Company's equipment and patents as security for this loan. Minimum
      payments due under the promissory note as of March 31, 2007 through maturity
      in
      2008 are $156,313 in 2007 and $1,516,504 in 2008.





**7.
      Series 2006-A Convertible Preferred Stock**





On
      June
      8, 2006, the Company completed a private placement of $2,150,000 with 10
      institutional and accredited investors pursuant to the 2006 Series A Convertible
      Preferred Stock Agreement dated June 7, 2006. Net proceeds from the placement
      were approximately $1,969,000. The Company issued 2,150 shares of Series 2006-A
      Convertible Preferred Stock, par value $0.001 per share (the “Convertible
      Preferred Stock”), at a purchase price of $1,000 per share. Each investor also
      received a Series A Warrant (a “Warrant”) to purchase up to 75% of the number of
      shares of common stock issuable to him upon conversion of his Convertible
      Preferred Stock. If all of the Warrants are exercised, the Company will issue
      a
      total of 2,015,625 shares of common stock. In addition, the Company issued
      to
      the placement agent 631,562 warrants valued at $645,881 and paid fees of
      $181,000. All the warrants have a term of 5 years and the initial exercise
      price
      of $1.50 per share has been adjusted to $1.00 per share as the contingent event
      stated in the agreement failed to materialize. This $1.00 exercise price is
      subject to adjustments for certain corporate events such as merger,
      reorganization or future sale of securities at a price below the exercise
      price.  As
      the
      fair value of warrants and conversion option exceeded the net proceeds of
      $2,150,000 from preferred stock, the Company deemed the fair value of the
      preferred stock to be $0 at inception. The $2 reflects the minimum par value
      of
      the stock.





The
      Convertible Preferred Stock is convertible to shares of common stock at an
      initial conversion price of $0.80 per share, which has been since adjusted
      to
      $0.50 per share, as the contingent event stated in the agreement failed to
      materialize. The conversion price of $0.50 per share is subject to adjustment
      in
      the event of certain corporate events such as merger, reorganization or future
      sale of securities at a price below the conversion rate. Cash dividends accrue
      on the Convertible Preferred Stock at the rate of 8% per annum, payable
      quarterly beginning in October 2006; or, at the Company's option, dividends
      are
      payable in shares of the Company’s common stock, accruing at the rate of 10% per
      annum based on the volume-weighted average market price for shares of common
      stock for the 10 trading days preceding payment. In January 2007, a dividend
      was
      paid on the Company’s 2006
      Series A Convertible Preferred Stock with 81,068 shares of the Company’s common
      stock valued at $49,500.




8


**STATSURE
      DIAGNOSTIC SYSTEMS, INC.**


**NOTES
      TO FIANCIAL STATEMENTS (UNAUDITED)**


**March
      31, 2007**





As
      of
      March 31, 2007, the Company has accrued $49,500 in dividends at the rate of
      10%
      per annum. In April 2007, subsequent to the balance sheet date, this dividend
      was paid with 85,095 shares of the Company’s common stock.





The
      Company may mandate conversion of the Convertible Preferred Stock if the closing
      bid price of the common stock exceeds $2.50 for twenty (20) consecutive trading
      days. In the event of a merger or sale of more than 50% of the assets of the
      Company, or in the event shares of common stock issuable upon the conversion
      of
      Convertible Preferred Stock or exercise of warrants fail or cease to be
      registered as contemplated by the terms of the Certificate of Designation of
      the
      Relative Rights and Preferences of Series 2006 A Convertible Preferred Stock,
      the Convertible Preferred Stock is redeemable at a price of $1,000 per share,
      plus any accrued and unpaid dividends payable thereon, payable at the option
      of
      the Company in cash or in shares of the Company’s common stock.





In
      connection with the issuance of the Preferred Stock and Warrants pursuant to
      the
      June 8, 2006 private placement described above, we agreed to file a registration
      statement with the Securities and Exchange Commission to register for sale
      the
      shares of common stock issuable upon conversion of Convertible Preferred Stock
      and the exercise of Warrants. The Company was required to file a registration
      statement on or before August 4, 2006, which was timely filed. If the
      registration statement is not timely declared effective or is suspended for
      a
      certain length of time, the Company is required to pay 1% of the purchase price
      of the Convertible Preferred Stock for each 30 day period or portion thereof
      after such effective date until the registration statement is declared effective
      or reinstated.





There
      is
      no stated limit on the maximum penalty that could be incurred. However, the
      maximum penalty is effectively capped as the period or periods for which
      payments are due for events of default and limited under the registration rights
      agreement to 24 months. Accordingly, the penalty is capped at 24%.





The
      Company is required to keep the Registration Statement continuously effective
      until such date as is the earlier of (x) the date when all Registerable Shares
      covered by the registration statement have been sold or (y) the date on which
      the Registerable Shares may be sold without any restriction pursuant to Rule
      144
      as determined by Counsel to the Company. The registration statement was timely
      filed and declared effective. On October 13, 2006, the Company announced its
      intention to restate financial statements, and suspended use of its Registration
      Statement declared effective by the SEC October 4, 2006. For such time as the
      Registration Statement is not effective, the Company is obligated, pursuant
      to
      Company’s Registration Rights Agreement with holders of the Company’s
      Convertible Preferred Stock, to pay such holders an amount equal to one percent
      per month of the original purchase price of the Convertible Preferred Stock
      until the earlier of the date the Registration Statement is again declared
      effective by the SEC, or June 2008. As of March 31, 2007, a penalty of $64,500
      was accrued for the first quarter 2007 and $100,200 in cumulative penalties
      has
      been accrued since the registration was suspended.





The
      Company has accounted for the conversion option in the preferred
      stock as an embedded derivative under the provisions of FAS 133: Accounting
      for Derivative Instruments and Hedging Activities. Pursuant to the provisions
      of
      Statement of Financial Accounting Standards No. 133, and EITF 00-19: “Accounting
      for Derivative Financial Instruments Indexed to, and Potentially Settled in,
      a
      Company's Own Stock” (“EITF 00-19”), the Company had initially recorded the
      value of the warrants and conversion option at $2,095,930 and $3,698,316,
      respectively which are reflected as derivative instruments on the balance sheet.
      As the proceeds from the issuance of preferred shares of $2,150,000
      were less than the combined fair value of the warrants and the conversion
      option, the initial difference of $3,644,246 was charged to financing costs,
      a
      non-operating expense, in the statements of operations.


9
  **STATSURE
        DIAGNOSTIC SYSTEMS, INC.**
 **NOTES
        TO FIANCIAL STATEMENTS (UNAUDITED)**
 **March
        31, 2007**


At
      inception, the Warrants and Conversion Options had a reset provision for the
      exercise price based on the same contingent event. Management assigned an equal
      probability of 50% to each of the conditions at inception to weight the fair
      value. The Company computed the weighted fair value at June 8, 2006 of the
      Series A Warrants and Conversion Options using the Black-Scholes pricing model
      with the following weighted average assumptions:





Stock
                price
            $1.10Exercise
                price
            $0.5-1.5Expected
                life in years
            4.5
                yearsRisk
                free interest rate
            5.04%Expected
                volatility
            179%Dividend
                yield
            0%




As
      of
      March 31, 2007, the Company believed that none of the events that trigger
      redemption upon major corporate events were probable of occurring. The Company
      believes that many of these events are within its control and accordingly the
      probability of occurrence of any of such events is small. Other events that
      are
      not within the Company’s control and which trigger redemption are lapse of
      registration or unavailability of registration and suspension of listing. The
      Company believes that although these events are not in its control, as
      of March 31, 2007, redemption was not likely and that the Company
      could cure within any cure period after receipt of a Notice of Redemption. 
As such, in accordance with paragraphs 15 of EITF Topic D-98: Classification
      and
      Measurement of Redeemable Securities, the Preferred Stock is not currently
      accreted to its redemption value **** and
      there
      is no likelihood that it will become redeemable; accordingly, no accretion
      is
      being made to bring the carrying value up to its redemption value.





As
      of March 31, 2007, the liability for the value of the warrants and
      conversion option was “marked to market” and the difference of $562,596 and
      $833,665, respectively, has been accounted for as a decrease to the derivative
      expense initially recognized in the statements of operations. The liability
      for
      the value of the conversion option and warrants will be “marked to market” in
      future accounting periods until such time as the preferred shares are converted
      and the warrants are exercised or they meet the criteria for equity
      classification.  As of March 31, 2007, the Company used the Black-Scholes
      option pricing model to revalue the fair value of warrants and conversion
      options with the following assumptions:





Stock
                price
            $0.35Exercise
                price
            $0.5-1.0Expected
                life in years
            4.17
                yearsRisk
                free interest rate
            4.54%Expected
                volatility
            136.8%Dividend
                yield
            0%









10


**STATSURE
      DIAGNOSTIC SYSTEMS, INC.**


**NOTES
      TO FIANCIAL STATEMENTS (UNAUDITED)**


**March
      31, 2007**




**8.
      Shareholders’ Equity Transactions**





During
      the period ended March 31, 2007, the Company issued 81,068 shares of common
      stock for payment of accrued dividends in the amount of $49,500.





As
      of
      March 31, 2007, the Company has accrued $49,500 in dividend obligations at
      the
      rate of 10% per annum. In April 2007, subsequent to the balance sheet date,
      this
      dividend was paid with 85,095 shares of the Company’s common stock.





**9.
      Stock-Based Compensation Plans**





*Plan
      Options*





The
      Company has two stock option plans, a "1992 Plan", under which 350,000 shares
      of
      its common stock have been reserved for issuance, and a "1994 Plan", under
      which
      an additional 350,000 shares of its common stock have been reserved for
      issuance. Under both plans, the Company's Board of Directors may grant either
      incentive stock options with an exercise price of not less than the fair market
      value of the common stock at the date of grant or non-qualified stock options
      with an exercise price of not less than 85% of the fair market value of the
      common stock at the date of grant. The Board of Directors shall determine the
      period of each option and the time or times at which options may be exercised
      and any restrictions on the transfer of stock issued upon exercise of any
      options. Both plans also provide for certain automatic grants to each
      non-employee director at a price of 100% of fair market value of the common
      stock at the time of grant. Options generally vest over a period of six months
      and are exercisable over a period of five years.





***Non-Plan
      Options***





Method
      of Accounting





On
      March 25, 2005, 550,000 stock options were granted to one employee and on May
      2,
      2005, another 550,000 stock options were granted to a second employee in
      accordance with their employment agreements. Both employment agreements provided
      for immediate vesting of 100,000 stock options at an exercise price of $0.10
      on
      date of grant and then vesting of the remaining 450,000 stock options in three
      equal tranches of 150,000 stock options on October 1, 2005, October 1, 2006
      and
      October 1, 2007, at an exercise price of $1.00 per share. These options are
      exercisable until June 1, 2015. During the periods ended March 31, 2007 and
      2006, the Company recorded $60,924 and $164,614 respectively as compensation
      expense.





The
      fair
      value for stock awards was estimated using the Black-Scholes option pricing
      model with the following weighted average assumptions:





2006Expected
                term (in years)
            5Expected
                stock price volatility
            206%Risk-free
                interest rate
            4.27%Expected
                dividend yield
            0%Estimated
                fair value per option granted
            2.25





Effective
      January 1, 2006, the Company’s Plan and options granted outside of the Plan are
      accounted for in accordance with the recognition and measurement provisions
      of
      Statement of Financial Accounting Standards ("FAS") No. 123 (revised 2004),
      Share-Based Payment ("FAS 123(R)"), which replaces FAS No. 123, Accounting
      for
      Stock-Based Compensation, and supersedes Accounting Principles Board Opinion
      ("APB") No. 25, Accounting for Stock Issued to Employees, and related
      interpretations. FAS 123 (R) requires compensation costs related to share-based
      payment transactions, including employee stock options, to be recognized in
      the
      financial statements. In addition, the Company adheres to the guidance set
      forth
      within Securities and Exchange Commission ("SEC") Staff Accounting Bulletin
      ("SAB") No. 107, which provides the Staff's views regarding the interaction
      between FAS No. 123(R) and certain SEC rules and regulations and provides
      interpretations with respect to the valuation of share-based payments for public
      companies.




11


**STATSURE
      DIAGNOSTIC SYSTEMS, INC.**


**NOTES
      TO FIANCIAL STATEMENTS (UNAUDITED)**


**March
      31, 2007**





In
      adopting FAS 123(R), the Company applied the modified prospective approach
      to
      transition. Under the modified prospective approach, the provisions of FAS
      123(R) are to be applied to new awards and to outstanding awards modified,
      repurchased, or cancelled after the required effective date. Additionally,
      compensation cost for the portion of awards for which the requisite service
      has
      not been rendered that are outstanding as of the required effective date shall
      be recognized as the requisite service is rendered on or after the required
      effective date. The compensation cost for that portion of awards shall be based
      on the grant-date fair value of those awards as calculated for either
      recognition or pro-forma disclosures under FAS 123.





Prior
      to
      January 1, 2006, the Company accounted for similar transactions using APB 25
      and
      FASB Interpretation No. 28, Accounting for Stock Appreciation Rights and Other
      Variable Stock Option or Award Plans, an interpretation of APB Opinions No.
      15
      and No. 25 (“FIN 28”). The Interpretation clarifies the accounting for
      compensation related to variable stock options and specifies that compensation
      should be measured at the end of each period as the amount by which the quoted
      market value of the shares of the Company’s common stock covered by a grant,
      exceeds the option price or value specified under the plan and should be accrued
      as a charge to expense over the periods the employee performs the related
      services. Changes in the quoted market value should be reflected as an
      adjustment of accrued compensation and compensation expense in the periods
      in
      which the changes occur until the date the number of shares and purchase price,
      if any, are both known.





In
      January 2006, the Company granted options to its two outside directors, Richard
      Woodrich and Joseph Levi, to purchase in the aggregate 100,000 shares of
      Company's common stock. The options vest quarterly in equal amounts over a
      period of three years, and are exercisable for seven years from the vesting
      date
      at an exercise price of $1.00.





The
      Company's results for the three months ended March 31, 2007 include share-based
      compensation expense of $11,622 recorded in the selling, general and
      administrative expenses .





Stock
      option compensation expense in fiscal 2006 is the estimated fair value of
      options granted amortized on a straight-line basis over the requisite service
      period for the entire portion of the award. The Company has not adjusted the
      expense by estimated forfeitures, as required by FAS 123(R) for employee
      options, since the forfeiture rate based upon historical data was determined
      to
      be immaterial.





The
      fair
      value for stock awards was estimated using the Black-Scholes option pricing
      model with the following weighted average assumptions:





Expected
                term (in years)
            5Expected
                stock price volatility
            182%Risk-free
                interest rate
            4.35%Expected
                dividend yield
            0%Estimated
                fair value per option granted
            1.395





The
      following table summarizes all stock option activity for options granted under
      the 1992 Plan, the 1994 Plan and non-plan options during the three months ended
      March 31, 2007:





Number
                of Options
            
            Weighted
                Average
              Exercise
                PriceOutstanding
                at January 1, 2007
            
            
            1,200,000
            
            $
            0.85Granted
            
            
            --Exercised
            
            
            --Forfeited/expired
            
            
            --Outstanding
                at March 31, 2007
            
            
            1,200,000
            
            $
            0.85Exercisable
                at March 31, 2007
            
            
            833,333
            
            $
            0.42


12
  **STATSURE
        DIAGNOSTIC SYSTEMS, INC.**
 **NOTES
        TO FIANCIAL STATEMENTS (UNAUDITED)**
 **March
        31, 2007**


As
      of
      March 31, 2007, there was $126,157 of unrecognized compensation cost related
      to
      non-vested awards granted, which is expected to be recognized over a
      weighted-average period of less than a year. The following table summarizes
      the
      information about stock options outstanding at March 31, 2007:





Options
                Outstanding
            
            Options
                ExercisableRange
                of
              Exercise
                Price
              Per
                Share
            
            Number
              Outstanding
              at
                March
              31,
                2007
            
            Weighted
                Average
              Remaining
              Contractual
                Life
              (Years)
            
            Weighted
              Average
              Exercise
              Price
                Per
              Share
            
            Number
              Exercisable
              at
                March
              31,
                2007
            
            Weighted
              Average
              Exercise
              Price
                Per
              Share$0.
                10-$1.00
            
            1,200,000
            
            7.93
            
            $0.85
            
            833,333
            
            $0.42





The
      following table summarizes the information about warrants outstanding at March
      31, 2007:





Number
                of
              Warrants
            
            Weighted
                Average
              Exercise
                PriceOutstanding
                at January 1, 2007
            
            
            2,707,187
            
            $
            0.98Granted
            
            
            -Exercised
            
            
            -Forfeited/expired
            
            
            -Outstanding
                at March 31, 2007
            
            
            2,707,187
            
            $
            0.98


Of
      the
      above warrants, 60,000 expire in 2007, and 2,647,187 expire in
      2011.





**10.
      Contingencies**




**EMPLOYMENT
      CONTRACTS**





In
      March
      and May of 2005, the Company entered into employment agreements respectively
      with Steve Peltzman, Chief Executive Officer and Chairman of the Board, and
      Bruce Pattison, President. Both agreements provide a minimum annual base salary
      of $120,000 for a term of two years and renewable annually. Either party can
      terminate the agreement upon 90 days notice. This base salary will increase
      to
      $180,000 per year upon closing of a financing to the Company with minimum gross
      proceeds of $3,000,000. The Company is also obligated to pay health and life
      insurance benefits and reimburse expenses incurred by the officers on behalf
      of
      the company. Each executive, if terminated by the Company without cause, would
      be entitled to six months severance.





**ECONOMIC
      DEPENDENCY**





For
      the
      three months ended March 31, 2007, sales to two customers were in excess of
      10%
      of the Company's total sales. Sales to these customers were approximately
      $70,000 and $52,000 and accounts receivable from these customers as of March
      31,
      2007, aggregated $81,000 and $0, respectively. The loss of either of these
      customers could have a material adverse effect on the Company. The Company
      is
      continuing to seek new markets and sales opportunities for its
      products.





For
      the
      three months ended March 31, 2007, purchases from three suppliers were in excess
      of 10% of the Company's total purchases. The purchases from these suppliers
      for
      the first quarter 2007 were $7,197, $8,955 and $10,968. The corresponding
      accounts payable to these suppliers were $0, $7,832 and $7,816.





**CONTINGENT
      OBLIGATION TO PREFERRED STOCKHOLDERS**





On
      October 13, 2006, the Company announced its intention to restate financial
      statements, and suspended use of its Registration Statement declared effective
      by the SEC October 4, 2006. For such time as the Registration Statement is
      not
      effective, the Company is obligated, pursuant tothe
      Company’s Registration Rights Agreement with holders of the Company’s
      Convertible Preferred Stock, to pay such holders an amount equal to one percent
      per month of the original purchase price of the Convertible Preferred Stock
      until the earlier of the date the Registration Statement is again declared
      effective by the SEC, or June 2008.


13
  **STATSURE
        DIAGNOSTIC SYSTEMS, INC.**
 **NOTES
        TO FIANCIAL STATEMENTS (UNAUDITED)**
 **March
        31, 2007**





As
      a
      result of the suspension, the Company has accrued penalties through March 31,
      2007 of $100,200. Such penalties continued to accrue at rate of $21,500 per
      month until May 11, 2007, when the Registration Statement was
      declared effective.












14


**ITEM
      2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
      OPERATION**





The
      following discussion of the Company's financial condition and the results of
      operations should be read in conjunction with the Financial Statements and
      Notes
      thereto appearing elsewhere in this document.





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





**GENERAL**





StatSure
      Diagnostic Systems, Inc .,
      (SDS),
      a Delaware corporation (the “Company” or “StatSure”), is primarily engaged in
      commercializing two product platforms: first, the development, manufacturing
      and
      marketing of oral-fluid collection devices to provide physiologic samples to
      screen for the presence of drugs-of-abuse or infectious diseases; second, the
      development of point-of-care (POC), rapid, immunoassays for use in the detection
      of infectious diseases. These immunoassays incorporate SDS’ patented “barrel”
technology, designed to provide speed, safety and convenience which are
      considered critical factors in point-of-care markets. In the oral fluid
      collection market, the Company’s platform has a patented internal quality
      control that indicates sufficient volume of the oral fluid sample (“volume
      adequacy indicator”) .


The
      Company's principal executive offices are located at 1 Clarks Hill, Framingham,
      MA. 01702.





On
      September 29, 2006, the Company announced it had signed several agreements relating to its patented barrel
      technology for use in screening antibodies to HIV (Human Immunodeficiency Virus,
      the virus that causes AIDS). As part of a three-way alliance with Inverness
      Medical Innovations (AMEX:IMA) and Chembio Diagnostics (CEMI.OB) (“Chembio”),
      StatSure signed a worldwide, exclusive distribution deal for a rapid,
      point-of-care HIV test with Inverness. In a two-way deal with Chembio, the
      Company granted an exclusive license to Chembio solely to manufacture their
      recently FDA approved HIV barrel product for Inverness Medical Innovations
      (“IMA” or “Inverness”). This product will be marketed under the IMA brand. In
      this two-way agreement (“Joint HIV Barrel Commercialization Agreement”), a long-
      term strategic “partnership” was established, wherein both companies equally
      split the margin dollars of the HIV barrel product once the actual cost of
      manufacturing is reimbursed.





The
      Company and Chembio also entered into a Settlement Agreement pursuant to which
      all matters in their litigation regarding StatSure’s barrel patent and other
      matters were settled. As previously stated, under the terms of this agreement,
      the parties will equally share in the profits relating to CLEARVIEW COMPLETE
      HIV1/2 (the IMA brand-name for the HIV barrel-based) product after reimbursement
      of the manufacturing and related costs, as defined, and the parties will act
      jointly in the HIV barrel field. The Settlement combines each company’s HIV
      barrel intellectual property, including an exclusive manufacturing license
      from
      StatSure to Chembio of its barrel patent for all HIV applications, thereby
      ensuring their exclusive right to manufacture, as well as Inverness’ right to
      market and distribute though the marketing license that StatSure granted
      Inverness under the three way agreement.





On
      February 14, 2007, Inverness introduced the licensed HIV barrel-based product
      (CLEARVIEW® Complete HIV 1/2) to its U.S. Sales force. Inverness/Chembio is in
      the process of filing for a waiver of CLIA for the licensed barrel HIV product,
      which if received, will allow sales of this product to a large number of markets
      that do not operate under the standards of the CLIA (e.g. doctors' offices,
      public health clinics). If it is not obtained, marketing and sales of the
      product will be restricted to those laboratory settings with CLIA certification,
      which will seriously restrict the revenues derived from the product. The
      submission of an application to the FDA or other regulatory authority for these
      or other claims does not guarantee that an approval or clearance to market
      the
      product will be received.





The
      Company has incurred significant operating losses since its inception, resulting
      in an accumulated deficit of $50,895,142 at March 31, 2007. 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.
      The Company's independent certified public accountants have included an
      explanatory paragraph in their report on the Company’s Form 10-KSB for December
      31, 2006 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. (See note 2 of notes to financial statements.)


15





**CRITICAL
      ACCOUNTING POLICIES AND ESTIMATES**





The
      preparation of financial statements and related disclosures in conformity with
      accounting principles generally accepted in the United States requires
      management to make estimates and assumptions that affect the amounts reported
      in
      the unaudited Financial Statements and accompanying notes. Estimates are used
      for, but not limited to, the accounting for the allowance for doubtful accounts,
      inventories, income taxes and loss contingencies. Management bases its estimates
      on historical experience and on various other assumptions that are believed
      to
      be reasonable under the circumstances. Actual results could differ from these
      estimates under different assumptions or conditions. (SEE CRITICAL ACCOUNTING
      POLICIES - FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 2006)





**RESULTS
      OF OPERATIONS**





First
      Quarter of 2007 Compared to First Quarter of 2006





REVENUES:
      The Company’s revenues consist of product sales, royalties and other income.
      Revenues decreased to **$** 153,848 **** in
      the
      first quarter of 2007 from the revenues of the first quarter of 2006 of **$** 213,059.
      The 2007 decrease in revenues was due to fewer sales of our saliva collector.
      The Company's revenues are primarily generated from sales of its patented saliva
      collection devices. Specimens collected with the device are sent to and
      processed at laboratories. The Company expects an increase in revenues in the
      second quarter 2007 over the second quarter 2006.





In
      2007,
      rental income of $10,986 was received from Chembio Diagnostic Systems, Inc.,
      for
      the use of an assembly machine.





COST
      OF
      PRODUCTS SOLD: Costs of products sold decreased to $21,729 (15% of product
      sales) in the first quarter of 2007 from $46,390 (22% of product sales) in
      the
      first quarter of 2006.





RESEARCH
      AND DEVELOPMENT EXPENSES: Research and development expenses decreased to $21,048
      in the first quarter of 2007 from $69,149 in the first quarter of 2006. The
      decrease in the first quarter 2007 is due to the abandonment of the StatSure(TM)
      HIV test clinical trials in the fourth quarter of 2006. The expenses for
      research and development are expected to continue decreasing until such time
      as
      the Company has sufficient funds to implement a new R&D program.





SELLING,
      GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and administrative
      expenses decreased to $431,104 in the first quarter of 2007, from $661,340
      in
      the first quarter of 2006. During the first quarter of 2007 the Company had
      a
      decrease in payroll expenses of approximately $100,000 due to payment through
      equity issuances in 2006, and a decrease in consulting expense of $134,000
      paid
      with equity issuances in 2006.





INTEREST
      EXPENSE, NET: Interest expense, net decreased to $55,034 in 2007 from $123,962
      in 2006. The decrease in 2007 was due to lower principal balances on debentures
      and notes payables to shareholders which resulted in lower interest expense.





INTEREST
      EXPENSE ON BENEFICIAL CONVERSION FEATURE: Interest expense on beneficial
      conversion feature decreased to $36,310 in the first quarter of 2007 from
      $117,612 in the first quarter of 2006. The decrease of this non-cash expense
      was
      due to the conversion of $400,000 of debentures which resulted in the related
      beneficial conversion being written off.





DERIVATIVE
      INCOME: **** Non-cash
      derivative income of $1,396,261 for the three months ended March 31, 2007 was
      due to the mark-to market adjustment on embedded derivatives principally driven
      by the decrease in our common stock price $0.55 to $0.35. The Company did not
      have derivative instruments in the same period of 2006.





PENALTIES:
      As a result of the withdrawal of the registration statement filed in 2006,
      the
      Company accrued penalties of $64,500 for the first quarter of 2007, to the
      holders of the 2006 Series A Convertible Preferred Stock. Such penalties
      continued to accrue at rate of $21,500 per month until May 11, 2007, when the
      Registration Statement was
      declared effective.





**LIQUIDITY
      AND CAPITAL RESOURCES**





March
                31, 2007
            
            December
                31, 2006Cash
                and cash equivalents
            
            $
            24,837
            
            $
            109,332Working
                capital deficit
            
            
            902,034
            
            
            659,517





16


Net
      cash
      used by operating activities in the first quarter 2007 was $149,698 compared
      to
      $88,270 used during the same period 2006. In 2007, the increase in cash used
      by
      operations was primarily due to the net effect of net income of $920,384 in
      2007, and a net loss of ($805,394) in 2006 combined with the mark-to-market
      gain
      on derivative instruments of $1,396,261 in 2007.





Cash
      used
      in investing activities in the first quarter 2007 was $6,110 as compared to
      $34,814 in the first quarter 2006. The 2006 amount includes $34,814 additions
      to
      patents and trademarks. The Company incurred less costs in 2007.





Cash
      provided by financing activities in the first quarter 2007 was $71,313 compared
      to $56,370 for the first quarter 2006. During 2007 the Company received $71,313
      of net proceeds from a shareholder loan, compared to $41,370 in 2006.


As
      of
      March 31, 2007 there are outstanding $337,500 of 9% Convertible Debentures
      due
      in January 2009. Holders of the 9% Convertible Debentures are entitled to
      convert principal amounts into shares of common stock at a conversion price
      of
      $1.00. The Company is in default to these debenture holders for not making
      payments on a timely basis. As a result, in accordance with the debenture
      agreements, these debentures became payable on demand unless the default is
      waived by the investors. The amount of debentures at March 31, 2007 of $337,500
      plus accrued interest of $23,476 has therefore been reflected as a current
      liability. The Company has not received any notice of default from any of the
      holders of the outstanding debentures. Debentures payable-net of discount in
      the
      amount of $106,878, is the net of gross amount of debenture payables of
      $337,500 reduced by unamortized debt discount of $230,622, and is shown on
      the balance sheet as a current liability.





The
      following table lists the future payments required on debt and any other
      contractual obligations of the Company as of March 31, 2007.





Obligations
            
            Total
            
            Less
                than 1 year
            
            1-3
                yearsLong-term
                debt
            
            $
            1,779,695
            
            $
            263,191
            
            $
            1,516,504Operating
                leases
            
            
            66,226
            
            
            56,220
            
            
            10,006




The
      Company occupies premises in Framingham, MA. The lease has a three-year initial
      term ending March 31, 2008 and a base annual rental rate starting at
      approximately $26,350 and increasing to approximately $40,500 per year over
      that
      initial term. The lease also has a one-year renewal option at an annual base
      rental rate of approximately $40,500. The Company also occupies premises in
      Brooklyn, New York. The lease has a three-year term ending August 30, 2008
      and a
      base annual rental rate starting at $15,000 and increasing to $15,913 per
      year.





Since
      inception, the Company has financed its capital requirements through the
      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 loans.





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.




OFF-BALANCE
      SHEET ARRANGEMENTS. The Company does not have any off-balance sheet
      arrangements, as defined in Item 304(a)(4)(ii) of Regulation S-K under the
      Securities Exchange Act of 1934, as amended.


17


**ITEM
      3. CONTROLS AND PROCEDURES**





**EVALUATION
      OF DISCLOSURE CONTROLS AND PROCEDURES**





As
      of the
      end of the period covered by this report, we evaluated, under the supervision
      and with the participation of our management, including our chief executive
      officer and chief financial officer, the effectiveness of the design and
      operation of our "disclosure controls and procedures" [as defined in the
      Securities Exchange Act of 1934, Rules 13a - 15(e) and 15d - 15(e)].
 It should be  noted that the Company had amended its 2005 Forms
      10Q-SB (March 31, June 30, and September 30), 10-KSB and 2006 Form 10-QSB for
      the quarters ended March 31, 2006, June 30, 2006 and September 31, 2006 filings
      with the SEC. The reason for the amended filing was due to complex financial
      transactions which resulted in accounting restatements in response to an SEC
      routine inquiry. As a result, our chief executive officer and chief financial
      officer have concluded that as of December 31, 2005 our disclosure controls
      and
      procedures were not sufficiently effective to ensure that all material
      information required to be filed in those  reports had been made known to
      them. Subsequent thereto,  we have engaged an accounting firm other than
      our auditors to assist in the accounting for these complex transactions.
      Management believes that these additional procedures and measures ensure that
      proper disclosure controls and procedures are in place  and that all
      material information required to be filed in those  reports.





**CHANGE
      IN INTERNAL CONTROLS**





There
      have been no changes in internal controls over financial reporting that occurred
      during the most recent fiscal quarter that have materially affected, or are
      reasonably likely to materially affect, our internal controls over financial
      reporting.





**PART
      II. OTHER INFORMATION**





**ITEM
      1** **.
      LEGAL PROCEEDINGS**








**ITEM
      2.** **UNREGISTERED
      SALES OF EQUITY SECURITIES**





On
      January 9, 2007, as payment of dividends on the **Company’s Series 2006-A Convertible Preferred Stock** ,
      the
      Company issued 81,068 shares of common stock to holders of the **Series
      2006-A** preferred stock. No cash was exchanged in this issuance. The Company relied
      on
      Section 4(2) of the Securities Act of 1933 as the basis for its exemption from
      registration of this issuance. The investors in the issuance were accredited
      investors of the Company.





**ITEM
      3.** **DEFAULTS
      UPON SENIOR SECURITIES**




The
      Company has defaulted on a total of $355,366 of convertible debentures. The
      amount of principal payments in arrears was $337,500, with an additional amount
      of $17,866 of interest due at March 31, 2007. These defaults are the result
      of a
      failure to pay in accordance with the terms agreed.





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





None





**ITEM
      5.** **OTHER
      INFORMATION**





None


18





**ITEM
      6. EXHIBITS AND REPORTS ON FORM 8-K**





(a) **** Exhibit
      index




**Exhibit**





31.1
            Certification
                ofChief
                Executive Officerrequired by Rule 13a-14(a) or Rule 15d-14(a) under the Securities
                Exchange
                Act of 1934, as amended.




31.2
            Certification
                ofChief
                Financial Officerrequired by Rule 13a-14(a) or Rule 15d-14(a) under the Securities
                Exchange
                Act of 1934, as amended.




32.1
            Certification
                ofChief
                Executive Officerrequired by Rule 13a-14(b) or Rule 15d-14(b) under the Securities
                Exchange
                Act of 1934, as amended, and 18 U.S.C. Section 1350, as Adopted Pursuant
                to Section 906 of the Sarbanes-Oxley Act of
                2002.




32.2
            Certification
                ofChief
                Financial Officerrequired by Rule 13a-14(b) or Rule 15d-14(b) under the Securities
                Exchange
                Act of 1934, as amended, and 18 U.S.C. Section 1350, as Adopted Pursuant
                to Section 906 of the Sarbanes-Oxley Act of
                2002.








(b)       Reports
      on Form 8-K :




Date
            Items
                Reported2/16/07
            99.1













19


**SIGNATURES**




Pursuant
      to the requirements of Section 13 or 15(d) 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:
      May 21, 2007


**STATSURE
              DIAGNOSTIC SYSTEMS, INC.**By:
            /s/ Steve
              M.
              PeltzmanSteve
              M. PeltzmanChief
                Executive Officer
              (principal
                executive officer)


By:
              /s/ Leo
                EhrlichLeo
                EhrlichChief
                    Financial Officer
                  (principal
                    financial officer)
 
     20