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, 2000

|_|         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 30,2000 was 27,687,863 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, 2000
           (unaudited) and December 31, 1999                                3

           Consolidated Statements of Operations -Three Months and
           Nine Months Ended September, 2000 and 1999 (unaudited)           4

           Consolidated Statements of Cash Flows -
           Nine Months Ended September 30, 2000 and 1999 (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, 2000     December 31,
                                                   (unaudited)            1999
                                               ------------------     ------------
<S>                                               <C>                <C>
Assets (Note 7)
Current assets:
Cash and cash equivalents                         $         --       $        821
Accounts receivable, less allowance for
    doubtful accounts of $35,000 for both
    periods                                            112,673             89,920
Inventories (Note 3)                                        --            138,334
Prepaid expenses                                            --              5,923
                                                  ------------       ------------
        Total current assets                           112,673            234,898
Property and equipment, less accumulated
    depreciation of $389,102 (2000) and
    $381,275 (1999)                                    124,096             29,844
Restricted cash                                             --             20,127
Patents and trademarks, less accumulated
    amortization of $71,867 (2000) and
    $67,113 (1999)                                      87,396             94,528
Deposits                                                 1,300                 --
                                                  ------------       ------------
                                                  $    325,465       $    379,397
                                                  ============       ============

Liabilities and Stockholders' Equity (Deficit)
Current Liabilities:
Line of credit (Note 7)                           $         --       $    191,296
Note payable                                           647,832            610,900
Accounts payable                                       857,979            955,748
Accrued expenses (Note 5)                              726,801          1,053,687
Customer deposits                                        9,300             34,620
Unearned royalties - short-term (Note 6)                20,000             20,000
Other current liabilities                               28,872                 --
                                                  ------------       ------------
        Total current liabilities                    2,290,784          2,866,251
                                                  ------------       ------------

Unearned royalties - long-term (Note 6)                  5,000             25,000
Note payable - shareholder (Note 8)                    165,000             75,000
                                                  ------------       ------------
        Total long-term liabilities                    170,000            100,000
                                                  ------------       ------------

        Total liabilities                            2,460,784          2,966,251
                                                  ------------       ------------

Commitments and Contingencies (Note 9)

Shareholders' deficit(Note 8):
Common stock, $.01 par value, 50,000,000
    shares authorized, issued and outstanding:
    27,687,863 (2000) and 16,227,710 (1999)            276,879             62,277
Additional paid-in capital                          35,424,667         34,279,839
Accumulated deficit                                (37,836,865)       (37,028,970)
                                                  ------------       ------------
        Total shareholders' deficit                 (2,135,319)        (2,586,854)
                                                  ------------       ------------

                                                  $    325,465       $    379,397
                                                  ============       ============
</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
                                            2000              1999              2000              1999
                                       ------------       -----------       ------------       -----------
<S>                                    <C>                <C>               <C>                <C>
Revenues:
      Product Sales                    $         --       $   151,171       $    220,065       $   747,966
      Royalty Income - net                      404                --             30,201                --
                                       ------------       -----------       ------------       -----------
                                                404           151,171            250,266           747,966

    Cost of products sold                     7,681           190,067             67,715           673,447
                                       ------------       -----------       ------------       -----------

Gross profit (loss)                          (7,277)          (38,896)           182,551            74,519
                                       ------------       -----------       ------------       -----------
Operating expenses:
    Research and development
      expense                                66,840            52,582            390,728           176,527
    Selling, general and
      administrative expense                 86,955           335,467            290,339         1,394,517
                                       ------------       -----------       ------------       -----------
                                            153,795           388,049            681,067         1,571,044
                                       ------------       -----------       ------------       -----------

           (Loss) from operations          (161,072)         (426,945)          (498,516)       (1,496,525)
                                       ------------       -----------       ------------       -----------

Interest income                                  --               243                  9               638
Interest (expense)                          (61,606)             (485)          (337,640)           (6,265)
Other income (expense)                      (13,995)               --             28,252           (12,596)
                                       ------------       -----------       ------------       -----------

           Net (loss)                      (236,673)         (427,187)          (807,895)       (1,514,748)

Dividends including deemed
    dividends on preferred stock                 --          (234,388)                --          (796,354)
                                       ------------       -----------       ------------       -----------

    Net (loss) to common
      stockholders                     $   (236,673)      $  (661,575)      $   (807,895)      $(2,311,102)
                                       ============       ===========       ============       ===========

    Basic and diluted net (loss)
      per share (Note 4)               $      (0.01)      $     (0.16)      $      (0.04)      $     (0.39)
                                       ============       ===========       ============       ===========

Shares used in basic and
    diluted per share
    calculations                         23,976,944         6,749,028         18,784,172         5,996,171
                                       ============       ===========       ============       ===========
</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
                                                            ---------------------------
                                                               2000             1999
                                                            ---------       -----------
<S>                                                         <C>             <C>
Cash Flows From Operating Activities:
      Net (loss)                                            $(807,895)      $(1,514,748)
      Adjustments to reconcile net (loss) to net cash
             (used) in operating activities:
      Depreciation and amortization                            21,032           113,368

Changes in current assets and liabilities:
      Accounts receivable                                     (22,853)          (12,229)
      Inventories                                             138,334           109,502
      Prepaid expenses and deposits                             4,623            88,799
      Restricted Cash                                          20,129                --
      Accounts payable, accrued expenses and accrued
             interest                                            (692)          648,406
      Customer Deposits                                       (25,320)               --
      Unearned Royalties                                      (20,000)               --
      Other                                                        --                --
                                                            ---------       -----------
             Net cash (used) in operating activities         (692,642)         (566,902)
                                                            ---------       -----------

Cash Flows From Investing Activities:
Acquisitions of property and equipment                        (83,211)               --
                                                            ---------       -----------

             Net cash provided by investing activities        (83,211)               --
                                                            ---------       -----------

Cash Flows From Financing Activities:
Proceeds from issuance of debt                                     --            18,451
Proceeds from sale of preferred shares, net of
      issuance costs                                               --           470,000
Proceeds from shareholders loans                              945,584                --
Payment on line of credit                                    (191,296)               --
Payment on short term debt                                     (8,128)               --
Bank overdraft                                                 28,872                --
                                                            ---------       -----------
             Net cash provided by financing activities        775,032           488,451
                                                            ---------       -----------

Net (decrease) in cash and cash equivalents                      (821)          (78,451)
Cash and cash equivalents, beginning of period                    821           151,524
                                                            ---------       -----------

Cash and cash equivalents, end of period                    $      --       $    73,073
                                                            =========       ===========

Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest                    $   9,287       $        --
Dividends and deemed dividends on 1998-B Convertible
      preferred stock                                       $      --       $   796,354
Capital lease obligation extinguished using
      restricted cash                                       $      --       $    59,387
</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, 2000

1. Basis of Presentation

The accompanying unaudited consolidated financial statements as of and for the
three month and nine month periods ended September 30, 2000 and 1999 have been
prepared in conformity with accounting principles generally accepted in the
United States of America. The financial information as of December 31, 1999 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, 1999. 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. 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, 1999.
Operating results for the three month and nine month periods ended September 30,
2000 are not necessarily indicative of the results that may be expected for the
entire fiscal year ending December 31, 2000, 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 $37,836,865 at
September 30, 2000. 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 financings in 1999, substantial additional financing will be
required through 2000.

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, 2000

3. Inventories

Inventories are stated at the lower of cost or market determined on a first-in,
first-out (FIFO) basis, and consist of the following:

                                     September 30,      December 31,
                                         2000               1999
                                     -------------      ------------
                  Raw materials        $     --          $ 81,094
                  Work in process            --            31,586
                  Finished goods             --            25,654
                                       --------          --------
                                       $     --          $138,334
                                       ========          ========

In February 2000 the Company closed its Vancouver, WA manufacturing facility. At
that time the Company realized that its remaining inventory would have to be
used in the technology transfer to a contract manufacturer. As a result, the
remaining inventory wa expensed to Research and Development.

4. 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.

A net loss was reported in the three month and nine month periods ended
September 30, 2000 and 1999. Stock options for the purchase of 175,000 and
175,000 shares and warrants for the purchase of 147,722 and 147,722 shares for
the three months and six months ended September 30, 2000 and 1999, respectively,
were not included in loss per share calculations, because to do so would have
been anti-dilutive. The Company also had $165,000 of convertible debt
outstanding at September 30, 2000, which may be converted into common stock.
These common equivalent shares have not been included in loss per share
calculations, because to do so would have been anti-dilutive.

5. Accrued Expenses

                                                 September 30,     December 31,
                                                     2000               1999
                                                 -------------     ------------
Accrued interest                                  $  204,772        $  248,812
Accrued wages and salaries                             3,125            32,091
Accrued payroll taxes                                    189            13,620
Accrued litigation expenses                          457,480           732,525
Other accrued liabilities                             61,235            26,639
                                                  ----------        ----------
                                                  $  726,801        $1,053,687
                                                  ==========        ==========

6. 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:


                                       7
<PAGE>

                         SALIVA DIAGNOSTIC SYSTEMS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2000

6. Unearned Revenues (Continued):

      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. The balance of such royalties will continue to
accrue to the Company.

Royalties earned after assignment through September 2000 aggregated $30,201.

7. Line of Credit

In December 1999, the Company granted Sterling National Bank (the "Bank"), a
security interest in the Company's assets in exchange for a $190,000 line of
credit. This line of credit was guaranteed by an investor (see Note 8
"Shareholders' Transactions"). In July of 2000, the Company repaid the line of
credit with borrowings from the investor.

8. Shareholders' Transactions

In August 1999, pursuant to a dispute regarding the rights of Dr. Scheinbaum, a
former director, to additional common stock of the Company as set forth in a
certain 1995 stock subscription agreement, the Company agreed to issue 10,000
shares of the Company common stock with a restrictive legend. Based upon the
market value of the common stock on the date of settlement, discounted 30% for
its restriction, the Company has recorded a settlement expense and related
accrual for $1,312 in the 1999 financial statements. These shares were
subsequently issued in July of 2000 and the accrual offset against capital.

On February 20, 2000 the Company entered into an agreement with its former
landlord. The Company was to surrender and vacate the premises located at the
East Ridge Business Park in Vancouver, Washington, by March 1, 2000. In
connection with the agreement the Company paid $15,000 for back rent and
expenses and in consideration for the landlord's release of any claims against
the Company, the Company issued 40,000 shares of unregistered and legended
stock. These shares will also be included in the next registration statement of
the Company. Based upon the value of the Company common stock on the date of
issuance, the Company adjusted its 1999 rent expense to reflect the ultimate
settlement.

On June 30, 2000, the Company issued 30,000 shares of unregistered Company
common stock pursuant to a settlement with Fremont Novo Sciences LLC, a former
distributor of the Company's products in India. The Company had accrued in its
1999 financial statements a settlement expense of $35,400 (representing $30,000
in cash and the market value of the stock on the date of settlement). The
accrual was offset in 2000 when the actual shares were issued and cash paid.

Pursuant to an agreement dated October 1999 and amended as to amount in January
2000, Helenka Bodner, agreed to advance or cause to be advanced to the Company
from time to time, through December 31, 2000, up to the sum of $1,000,000. 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. Helenka Bodner assigned the Note to
Resonance Ltd. The balance at September 30, 2000 was $165,000.


                                       8
<PAGE>

                         SALIVA DIAGNOSTIC SYSTEMS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2000

8. Shareholders' Transactions (Continued):

At July 31, 2000, the sum advanced under said loan was $855,584 and accrued
interest of $25,960. Pursuant to the terms of the loan instrument, the loan was
convertible, at the option of the holder, into Common Stock of the Company upon
terms similar to the Series B Preferred Stock (i.e. 75% of the closing bid price
for the five prior days of conversion). Resonance elected to convert the amount
due into shares of the Company's Common Stock at $0.108 per share, resulting in
the issuance to Resonance of 8,162,475 shares.

In August 1998, the Company entered into a securities purchase agreement, which
was amended by a letter agreement of April 1999, pursuant to which Biscount
Overseas Limited purchased an aggregate 1,500 shares of the Company's Series
1998-B Convertible Preferred Stock over an approximately eight-month period for
an aggregate purchase price of $1,500,000. Net cash proceeds to the Company at
the end of that period totaled $1,410,000. On October 14, 1999, Biscount
converted all of the outstanding 1,645 shares of the Series 1998-B Convertible
Preferred Stock into 9,495,822 shares of the Company's common stock.

As a result of the Company's failure to comply with its obligations pursuant to
the Securities Purchase Agreement and Registration Rights Agreement, there was
also due to Biscount at July 31, 2000 the amount of $447,780 together with
accrued interest thereon of $25,771. On August 1, 2000, Biscount elected to
convert $316,180 into shares of Common Stock on the same terms of the Series B
Preferred Stock (i.e. 75% of the closing bid price for the five prior days or
$0.108 per share), resulting in the issuance to Biscount of 3,207,679 shares.

On November 23, 2000, subsequent to the balance sheet date, the Company issued
1,000,000 shares of unregistered common stock, which contain piggyback
registration rights as well as the option to purchase an additional 1,000,000
shares of common stock at an exercise price of $0.25. The issuance was pursuant
to a settlement agreement with Kenneth J. McLachlan and International Business
Consulting Company. Mr. McLachlan and IBCO have released the Company from any
present or future claims.

The options carry a five-year life and immediate vesting. The option agreement
also includes cashless exercise and dilution provisions with respect to stock
splits or reverse stock splits. Based upon the fair value of the stock and
options issued to Mr. McLachlan the Company has reflected a liability to Mr.
McLachlan of $430,000 on the December 31, 1999 financial statements. Of this
$430,000, $270,187 is reflected as accounts payable for prior consulting fees
and the remaining $159,813 as an accrued expense. These liabilities were
reversed against equity in 2000 when the shares were issued. The option was
valued at the date of grant in November 2000 and accordingly a $50,000 expense
has been reflected.

9. Contingencies and Subsequent Settlements

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 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


                                       9
<PAGE>

                         SALIVA DIAGNOSTIC SYSTEMS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2000

9. Contingencies and Subsequent Settlements (Continued):

delisting, an investor may find it difficult to dispose of, or to obtain
accurate quotations as to the price of, the Company's securities.

PASKELL V. SALIVA DIAGNOSTIC SYSTEMS, INC.

In February 2000, in connection with the Company's decision to close its
Washington facility, Stefan Paskell, the Executive Vice President of the Company
resigned. Mr. Paskell is claiming that he has not been compensated in full under
the terms of his employment agreement and on December 18, 2000 filed a demand
for arbitration. Mr. Paskell claims he is owed $74,000 in unpaid salary plus
interest and any other consideration due under his employment agreement. It is
the Company's position that Mr. Paskell is not entitled to any additional
compensation.

SETTLEMENT OF BARNES CLAIMS

On April 17,2001, subsequent to the balance sheet date, the Company settled its
employment contract dispute with David Barnes, former President of SDS
International, LTD., by issuing Mr. Barnes 600,000 shares of the Company's
unregistered common stock. Mr. Barnes released the Company from any and all
claims. Based upon the market value of the common stock on the date of
settlement, discounted 30% for its restrictions, the Company has recorded a
settlement and related accrual for $33,600. This settlement will be included in
the 2001 financial statements.

SETTLEMENT OF BARCHHA CLAIMS

In September 2001, subsequent to the balance sheet date, 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 Companies common stock. This settlement will be included
in the 2001 financial statements.

10. Other Subsequent Events

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.

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 December 31, 2000 the Company had only advanced
$150,000 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 two years from the date of
the last advance with interest at prime + 1% payable quarterly.

On January 17, 2001, subsequent to the balance sheet date, 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


                                       10
<PAGE>

                         SALIVA DIAGNOSTIC SYSTEMS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2000

10. Other Subsequent Events (Continued):

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.


                                       11
<PAGE>

                         SALIVA DIAGNOSTIC SYSTEMS, INC.
                               September 30, 2000

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, subsequent to the balance sheet date, 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.

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, subsequent to the balance sheet date, 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.


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<PAGE>

                         SALIVA DIAGNOSTIC SYSTEMS, INC.
                               September 30, 2000

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

The Company has incurred significant operating losses since its inception,
resulting in an accumulated deficit of $37,836,865 at September 30, 2000. 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 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.

Results of Operations

THIRD QUARTER AND FIRST NINE MONTHS OF 2000 COMPARED TO THIRD QUARTER AND FIRST
NINE MONTHS OF 1999

Revenues. The Company's revenues consist of product sales and royalties.
Revenues decreased 99.7% to $404 in the third quarter of 2000 from $151,171 in
the third quarter of 1999, and decreased 67% to $250,266 in the first nine
months of 2000 from $747,966 in the first nine months of 1999. 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 had negligible sales throughout 2000. 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 decreased to $7,681 in the third
quarter of 2000 from $ 190,067 (126% of product sales) in the third quarter of
1999, and decreased to $67,715 (31% of product sales) in the first nine months
of 2000 from $673,447 (90% of product sales) in the first nine months of 1999
due to decreased sales activity as well as a different sales mix.

Research and development expenses. Research and development expenses increased
27% to $66,840 in the third quarter of 2000 from $52,582 in the third quarter of
1999, and increased 121% to $390,728 in the first nine months of 2000 from
$176,527 in the first nine months of 1999. The increase was due to the February
2000 closure of the Company's

Vancouver, WA manufacturing facility and the transfer of technology to the
contract manufacturer. Additionally, at that time the Company realized that its
remaining inventory would have to be used in the technology transfer to the
contract manufacturer. As a result the remaining components were expensed to
Research and Development.

Selling, general and administrative expenses. Selling, general and
administrative expenses decreased 74% to $86,955 in the third quarter of 2000
from $335,467 in the third quarter of 1999, and decreased 79% to $290,339 in the
first nine months of 2000 from $1,394,517 in the first nine months of 1999,
primarily as a result of the closure of facilities in Vancouver, WA, a reduction
in the number of administrative personnel and less sales activity.

Interest expense. Interest expense increased to $61,606 in the third quarter of
2000 from $485 in the third quarter of 1999, and increased to $337,640 in the
first six months of 2000 from $6,265 in the first six months of 1999, due to
interest charges on increased borrowings and penalties due pursuant to its
convertible preferred stock agreement.

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 $37 million


                                       13
<PAGE>

                         SALIVA DIAGNOSTIC SYSTEMS, INC.
                               September 30, 2000

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

which is available to offset future taxable income, if any, expiring through the
year 2020. 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.

In December 1999, the Company granted Sterling National Bank (the "Bank") a
security interest in the Company's assets in exchange for a line of credit of
$190,000. The Bank also required additional collateral, which was provided by an
investor. The Company had repaid this loan with borrowings from Helenka Bodner.

Pursuant to an agreement dated October 1999 and amended as to amount in January
2000, Helenka Bodner, agreed to advance or cause to be advanced to the Company
from time to time, through December 31, 2000, up to the sum of $1,000,000 at the
interest rate of 12%. Helenka Bodner assigned the Note to Resonance Ltd. On July
31, 2000, the sum advanced under said loan was $855,584 and accrued interest of
$25,960. Pursuant to the terms of the loan instrument, the loan was convertible,
at the option of the holder, into Common Stock of the Company upon terms similar
to the Series B Preferred Stock (i.e. 75% of the closing bid price for the five
prior days of conversion). Resonance elected to convert the amount due into
shares of the Company's Common Stock at $.108 per share, resulting in the
issuance to Resonance of 8,162,475 shares. The balance at September 30, 2000 was
$165,000.

As of September 30, 2000 the Company had negative working capital. Cash used in
operating activities in the first nine months of 2000 was $692,642. This was
primarily a result of a net loss of $807,895, adjustments for depreciation and
amortization, decreases in inventory, accounts payable and accrued expenses and
an increase in accounts receivable.

Inventories decreased due to the expensing of remaining inventory to research
and development as it was needed for the technology transfer to the contract
manufacturer following the closure of the company's Vancouver Washington
Facility.

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


                                       14
<PAGE>

                        SALIVA DIAGNOSTIC SYSTEMS, INC.
                               September 30, 2000

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

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.


                                       15
<PAGE>

                         SALIVA DIAGNOSTIC SYSTEMS, INC.
                               September 30, 2000

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

See Note 9 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, 2000.

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: January 18, 2002

                                          SALIVA DIAGNOSTIC SYSTEMS, INC.


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


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