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 June 30, 2006

                         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)              (IRS Employer Identification No.)
  of incorporation or organization)

                     1 Clarks Hill Rd. 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 _____
    -----

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes ____ No   X
            -----

Transitional Small Business Disclosure Format (check one): Yes ____ No   X
                                                                       -----

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes ____ No   X
            -----

The number of shares outstanding of the Registrant's Common Stock as of August
15, 2006 was 36,742,301 shares.

<PAGE>

                        STATSURE DIAGNOSTIC SYSTEMS, INC.
                                   FORM 10-QSB
                                      INDEX

    PAGE

    PART I FINANCIAL INFORMATION

    Item 1.  Financial Statements

             Balance sheets - June 30, 2006 (unaudited) and
             December 31, 2005................................................3

             Statements of Operations - Three Months and Six Months Ended
             June 30, 2006 and 2005 (unaudited)...............................4

             Statements of Cash Flows- Six Months Ended
             June 30, 2006 and 2005 (unaudited)...............................5

             Notes to Financial Statements (unaudited)........................6

    Item 2.  Management's Discussion and Analysis of Financial Condition
             And Plan of Operation...........................................16

    Item 3.  Controls and Procedures.........................................26

    PART II OTHER INFORMATION

    Item 1.  Legal Proceedings...............................................27

    Item 2.  Changes in Securities...........................................27

    Item 3.  Defaults Upon Senior Securities.................................28

    Item 4.  Submission of Matters to a Vote of Security Holders.............28

    Item 5.  Other Information...............................................28

    Item 6.  Exhibits .......................................................29

    Signatures ..............................................................30

    Certifications ..........................................................32


                                        2
<PAGE>

PART I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS

                        STATSURE DIAGNOSTIC SYSTEMS, INC.
                            CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                     June 30, 2006  December 31, 2005
                                                                      (Unaudited)
                                                                      ------------    ------------
<S>                                                                   <C>             <C>
ASSETS

CURRENT ASSETS:
Cash and cash equivalents                                             $  1,074,554    $     76,321
Accounts receivable, net of allowance for doubtful
   accounts of $107,477 for both 2006 and 2005                             198,140          69,741
Inventories                                                                 55,511          56,150
Prepaids                                                                     7,061          11,669
Due from shareholder                                                        28,858              --
                                                                      ------------    ------------
Total current assets                                                     1,364,124         213,881

Property and equipment, net of accumulated depreciation of
   $570,278 (2006) and $558,075 (2005)                                      83,105          95,308
Equipment under construction                                               664,401         664,401
Patents and trademarks, net of accumulated amortization
   of $141,603(2006) and $125,876 (2005)                                   108,353          73,223
Deferred costs, less accumulated amortization of
   $404,879(2006) and $260,739 (2005)                                       67,121         211,261
Deposits                                                                    13,500          13,500
                                                                      ------------    ------------
 TOTAL ASSETS                                                         $  2,300,604    $  1,271,574
                                                                      ============    ============

LIABILITIES AND SHAREHOLDERS' DEFICIT

CURRENT LIABILITIES:
Note payable - shareholders                                           $    350,000    $    172,055
Debentures payable                                                         412,500       1,450,000
Accounts payable                                                            30,228          82,080
Customer advances                                                           31,792           2,000
Accrued expenses                                                           163,053         370,164
Accrued payroll  expense to officers                                       175,799         234,750
Payroll and payroll taxes payable                                           76,513         102,441
                                                                      ------------    ------------
Total current liabilities                                                1,239,885       2,413,490

LONG-TERM LIABILITIES
Note payable - shareholder                                               1,821,504       1,932,099
Deferred rent payable                                                        9,026           6,190
Derivative instruments                                                   8,629,488              --
                                                                      ------------    ------------
TOTAL LIABILITIES                                                       11,699,903       4,351,779
                                                                      ------------    ------------
COMMITMENTS AND CONTINGENCIES

Series 2006-A Convertible Preferred Stock: 2,500
   shares authorized, 2,150 issued and outstanding                               2              --
                                                                      ------------    ------------
SHAREHOLDERS' 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: 36,717,510 (2006) and 31,769,491 (2005)                 36,717          31,769
Additional paid-in capital                                              46,916,179      45,530,096
Less: deferred compensation                                                     --          (2,927)
Accumulated deficit                                                    (56,352,197)    (48,639,143)
                                                                      ------------    ------------
TOTAL SHAREHOLDERS' DEFICIT                                             (9,399,301)     (3,080,205)
                                                                      ------------    ------------
 TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT                          $  2,300,604    $  1,271,574
                                                                      ============    ============
</TABLE>

The accompanying notes are an integral part of these statements.


                                       3
<PAGE>

                        STATSURE DIAGNOSTIC SYSTEMS, INC.
                       CONDENSED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                  Three Months Ended June 30,      Six Months Ended June 30,
                                                  ----------------------------    ----------------------------
                                                     2006             2005           2006             2005
                                                                                   (Restated)      (Restated)
                                                  ------------    ------------    ------------    ------------
<S>                                               <C>             <C>             <C>             <C>
REVENUES:
Product Sales                                     $    231,007    $    176,534    $    444,066    $    441,007
Royalty Income                                              --              --              --             546
                                                  ------------    ------------    ------------    ------------
                                                       231,007         176,534         444,066         441,553
COST OF PRODUCTS SOLD                                   99,707          56,394         146,097         150,740
                                                  ------------    ------------    ------------    ------------
Gross profit                                           131,300         120,140         297,969         290,813
                                                  ------------    ------------    ------------    ------------
OPERATING EXPENSES:
Research and development                                73,466          84,556         142,615         161,556
Selling, general and administrative                    394,524         308,131         767,628         663,893
Stock based compensation and employment
    recruiting expense-non cash                        229,793         324,938         518,029         833,309
                                                  ------------    ------------    ------------    ------------
                                                       697,783         717,625       1,428,272       1,658,758
                                                  ------------    ------------    ------------    ------------
Loss from operations                                  (566,483)       (597,485)     (1,130,303)     (1,367,945)
                                                  ------------    ------------    ------------    ------------

OTHER EXPENSES:
Interest expense-net                                (6,054,917)       (938,971)     (6,178,879)     (2,825,256)
Other expenses                                        (403,872)             --        (403,872)             --
                                                  ------------    ------------    ------------    ------------
Total other expenses:                               (6,458,789)       (938,971)     (6,582,751)     (2,825,256)
                                                  ------------    ------------    ------------    ------------

NET LOSS TO COMMON STOCKHOLDERS                   $ (7,025,272)   $ (1,536,456)   $ (7,713,054)   $ (4,193,201)
                                                  ============    ============    ============    ============

BASIC AND DILUTED LOSS PER SHARE                  $      (0.20)   $      (0.05)   $      (0.23)   $      (0.13)
                                                  ============    ============    ============    ============

WEIGHTED AVERAGE NUMBER OF SHARES USED IN BASIC
   AND DILUTED PER SHARE CALCULATIONS               35,296,871      31,709,491      33,531,300      31,709,491
                                                  ============    ============    ============    ============
</TABLE>

The accompanying notes are an integral part of these statements.


                                       4
<PAGE>

                        STATSURE DIAGNOSTIC SYSTEMS, INC.
                       CONDENSED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                     Six Months Ended June 30,
                                                                                     --------------------------
                                                                                        2006            2005
                                                                                     (Restated)
                                                                                     -----------    -----------
<S>                                                                                  <C>            <C>
OPERATING ACTIVITIES:
Net loss                                                                             $(7,713,054)   $(4,193,201)
Adjustments to reconcile net loss to net cash  used in operating activities:
Depreciation and amortization                                                             27,930         25,280
Bad debt expense                                                                              --         51,982
Amortization of deferred costs                                                           144,140         57,143
Warrants issued for recruiting services                                                       --        280,000
Stock issued for consulting services                                                     175,350             --
Options granted to employees                                                             331,057        553,309
Options granted to non-employee                                                           11,621
Beneficial conversion feature of convertible debentures                                       --      2,614,400
Interest expense on derivative instruments                                             5,990,440             --
Induced conversion expense on debentures                                                 403,872             --
Changes in assets and liabilities:                                                            --
Accounts receivable                                                                     (128,399)       143,594
Inventories                                                                                  639         13,060
Prepaids                                                                                   4,608        (23,426)
Accounts payable, accrued payroll expense to officers  and accrued expenses               49,676         29,920
                                                                                     -----------    -----------
Net cash used in operating activities                                                   (702,120)      (447,939)
                                                                                     -----------    -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of property and equipment                                                        --       (122,729)
Acquisitions of patents and trademarks                                                   (50,857)        (1,600)
                                                                                     -----------    -----------
Net cash used in investing activities                                                    (50,857)      (124,329)
                                                                                     -----------    -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash overdraft                                                                                --        (26,953)
Proceeds from shareholder loans                                                          289,722         30,000
Proceeds from issuance of debentures                                                          --      1,510,000
Repayments of debentures                                                                 (37,500)            --
Repayment of shareholder loans                                                          (502,512)      (623,287)
Proceeds from issuance of common stock                                                    32,500          2,000
Gross proceeds from issuance of Series 2006-A preferred shares                         2,150,000             --
Deferred financing cost                                                                       --       (160,000)
Payment for financing cost                                                              (181,000)            --
                                                                                     -----------    -----------
Net cash provided by financing activities                                              1,751,210        731,760
                                                                                     -----------    -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS                                                998,233        159,492

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                            76,321        148,630
                                                                                     -----------    -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD                                             $ 1,074,554    $   308,122
                                                                                     ===========    ===========

SUPPLEMENTAL DISCLOSURE OF NON-CASH FLOW FINANCING ACTIVITIES:
During the six month periods ended June 30, 2006 and 2005, the previous years
balance of accrued interest of $239,404 and $228,773,
respectively, for a shareholder's loan was added to the loan balance as principal    $   239,404    $   228,773

During the six month period ended June 30, 2005, 1,000,000 shares of common
stock were issued for a warrant conversion at $.01 per
share. Payment due of $10,000 was offset to a note payable to this stockholder       $        --    $    10,000
Conversion of debenture and interest payable into common stock                       $ 1,109,608             --
During the six month period ended June 30, 2006, 470,312 warrants were issued
to a placement agent and were recorded as Additional paid
in capital and Warrant liability                                                     $   489,050             --
</TABLE>

The accompanying notes are an integral part of these statements.


                                       5
<PAGE>

                        STATSURE DIAGNOSTIC SYSTEMS, INC.
               NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
                                  JUNE 30, 2006

1.  Description of Business

StatSure Diagnostic Systems, Inc., (SDS), a Delaware corporation (the
"Company"), is primarily engaged in the development and marketing of oral fluid
collection devices for the drugs of abuse market, and rapid immunoassays for use
in the detection of infectious diseases. The Company believes that its patented
platform for rapid testing of infectious diseases offers significant advantages
over the competition, including ease-of-use, lower costs, and significantly
reduced risk of infection from collecting and handling specimens. In the oral
fluid collection market, the Company's platform has a patented internal quality
control that indicates sufficient volume of the oral fluid ("volume adequacy
indicator").

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.
The shares of the Company have been trading under the StatSure name, with the
new symbol SSUR, since March 22, 2006. Coinciding with our corporate name
change, the Company has changed the name of its Hema-Strip HIV test to
StatSure(TM) HIV.

In May 2002, the Company received its Investigational Device Exemption (IDE)
from the U.S. Food and Drug Administration (FDA) for its Rapid Stat-Sure(TM) HIV
Test [THE PRODUCT BRAND NAME WAS FORMERLY KNOWN AS HEMA-STRIP HIV; THIS PRODUCT
LINE WILL HEREAFTER BE REFERRED TO AS THE STATSURE(TM) PRODUCT LINE AND THIS
PRODUCT WILL BE KNOWN AS STATSURE(TM) HIV]. Upon termination of all business
relationships with its then contract manufacturer, Chembio Diagnostic Systems,
(CEMI.OB) the Company signed a Manufacturing / Research & Development Agreement
with American Bio Medica Corporation, Nasdaq SC (ABMC), of Kinderhook, NY.
Responsibilities of ABMC include the manufacture of the Company's StatSure(TM)
HIV test and other products under appropriate and applicable regulatory,
compliance standards. The Company filed a new IDE with the FDA naming ABMC as
its contract manufacturer. This IDE submission to the FDA was made in October
2003. Thereafter, the Company conducted its clinical trials and submitted the
modules of the Pre-Market Approval (PMA) to the FDA. In March 2006, the Company
received correspondence from the FDA stating that our PMA submission is
deficient and therefore will require additional clinical studies to amend the
PMA. In May 2006, the Company met with the FDA, and was requested by the FDA to
submit additional clinical data. The Company feels strongly that its data is
compelling and proves the sensitivity and specificity of its product.

During the past year, the Company has received regulatory approval to market its
StatSure(TM), HIV product in South Africa, Jordan and Guatemala and may receive
similar approvals in several other countries in 2006. In March 2006, the Company
received correspondence from the FDA stating that our Pre-Market Approval (PMA)
for marketing in the United States submission is deficient and therefore will
require additional clinical studies to amend the PMA.

On June 8, 2006, we 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.

On July 31, 2006, subsequent to the Balance Sheet date, the Company signed a
term sheet with Inverness Medical Innovations, Inc. (AMEX:IMA) to develop and
market the Company's consumer diagnostic products for HIV. The parties have
contracted to enter into a definitive agreement to cooperate in the Company's
completion of the clinical studies of its rapid test HIV products, with
Inverness Medical Innovations being appointed the Company's exclusive, worldwide
licensee in the rapid testing product consumer markets, and appointed a
non-exclusive licensee to market the Company's HIV barrel product to
professional markets.

SDS is committed to and focused on the completion of the necessary requirements
towards obtaining U.S. Food and Drug Administration (FDA), and other relevant
regulatory approvals of our rapid HIV diagnostic tests technology. Although
there is no assurance that we will receive such approval, we believe that the
StatSure(TM) format, if approved for detecting antibodies to HIV-1 in
fingerstick and venipuncture whole blood, serum and plasma samples, will have
certain competitive advantages in the market for rapid HIV testing both in the
United States and internationally.


                                       6
<PAGE>

                        STATSURE DIAGNOSTIC SYSTEMS, INC.
               NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
                                  June 30, 2006

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 revenues derived
from private label and OEM 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 $56,352,197 at June 30, 2006. Such losses are
expected to continue for the foreseeable future and until such time, if ever, as
the Company is able to attain revenue levels sufficient to support its
operations. There can be no assurance that the Company will achieve or maintain
profitability in the future. 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 will continue to seek public or
private placement of its equity securities as well as corporate partnerships 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,
none of which can be predicted with much 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.

3.  Summary of Significant Accounting Policies

Basis of Presentation:

The accompanying unaudited financial statements as of, and for the three and six
month periods ended June 30, 2006 and 2005, have been prepared in conformity
with accounting principles generally accepted in the United States of America.
The financial information as of December 31, 2005, 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, 2005.
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, 2005, as included in the Company's Annual Report on Form
10-KSB for the year ended December 31, 2005. Operating results for the three and
six month periods ended June 30, 2006 are not necessarily indicative of the
results that may be expected for the entire year ending December 31, 2006, or
any other portion thereof.


                                       7
<PAGE>

                        STATSURE DIAGNOSTIC SYSTEMS, INC.
               NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
                                  JUNE 30, 2006

4. Restatement

Prior to the filing of Form 10-KSB for December 31, 2005, the Company determined
that its prior 2005 quarterly filings did not reflect a beneficial conversion
feature on 9% convertible debentures issued in 2005 as required under EITF 98-5
"Accounting for Convertible Securities With Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios", as amended by EITF 00-27
"Application of Issue No. 98-5 to Certain Convertible Instruments".

Further, the Company also revalued options granted to an employee using 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.

The Company corrected the accounting for the above two errors on a
period-to-date basis in the 2005 annual financial statements. The Statement of
Operations for the three and six month periods ended June 30, 2005 is now being
restated in this Form 10-QSB filing to give effect to the correction of these
two errors and certain resulting reclassification adjustments, as further
discussed below.

The Company raised a total of $1,510,000 from the issuance of convertible
debentures in 2005. Refer to Note 6 for more information on the terms of these
debentures. During the six months ended June 30, 2005, the Company had issued a
total of $1,100,000 convertible debentures. On the date of issuance, a
beneficial conversion feature of $2,614,400 was computed being the number of
shares the debenture was convertible into multiplied by the difference between
the conversion price of $1.00 and the fair value of the shares of the Company's
common stock. The beneficial conversion amount had not been recorded earlier.

The Company had issued 1,100,000 options to two employees in the six months
ended June 30, 2005. The exercise price was not determinable at the date of the
grant and the options should have been accounted under FIN 28 as variable
options. As a result, the compensation charge for these options has been
restated to $553,309 from $128,994.

The Company has also reclassified a non-cash charge of warrants issued to
non-employees for recruiting services of $280,000 from the "selling, general and
administrative expense" line item to the "Stock based compensation and
employment recruiting expense- non cash" line item.

As a result, the Statements of Operations and Cash Flows for the three and six
month periods ended June 30, 2005 were restated to reflect these changes. The
table below details the items affected by the restatement:


                                       8
<PAGE>

                        STATSURE DIAGNOSTIC SYSTEMS, INC.
               NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
                                  JUNE 30, 2006

<TABLE>
<CAPTION>
                                   Three months ended June 30, 2005      Six months ended June 30, 2005
                                       --------------------------          --------------------------
                                       As reported    As Restated          As reported    As restated
                                       -----------    -----------          -----------    -----------
<S>                                    <C>            <C>                  <C>            <C>
STATEMENTS OF OPERATIONS:
Stock based compensation and
   employment recruiting expense-
    non cash                           $   120,084    $   324,938          $   408,994    $   833,309
Loss from operations                      (392,631)      (597,485)            (943,630)    (1,367,945)
Interest expense                          (109,571)      (938,971)            (210,856)    (2,825,256)
Net loss to common shareholders           (502,202)    (1,536,456)          (1,154,486)    (4,193,201)
Basic and diluted net loss per share         (0.02)         (0.05)               (0.04)         (0.13)
</TABLE>

STATEMENTS OF CASH FLOWS:

                                             Six months ended June 30, 2005
                                               --------------------------
                                               As reported    As restated
                                               -----------    -----------
Net loss                                       $(1,154,486)   $(4,193,201)
Adjustments to reconcile net loss to net
  cash used in operating activities:
Options granted to employees                       128,944        553,309
Beneficial conversion feature of convertible
    Debentures                                           0      2,614,400

The restatement had no impact on the net cash used in operating activities.

5. 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 operating income
and identifiable assets is not applicable.

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

                         For the three months       For the six months
                             ended June 30,            ended June 30,
                         ---------------------     ---------------------
                           2006         2005         2006         2005
                         --------     --------     --------     --------

United States            $ 25,350     $  3,890     $ 76,414     $151,498
United Kingdom            186,202      148,906      345,138      229,404
Africa                         --       22,248          588       48,738
Other                      19,455        1,490       21,926       11,367
                         --------     --------     --------     --------
                         $231,007     $176,534     $444,066     $441,007
                         ========     ========     ========     ========

6.  Debenture 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. Accordingly, the Company recognized this beneficial conversion feature by
charging an interest expense of $2,614,400 for the year ended December 31, 2005;
and a corresponding credit to the additional paid-in capital account. The
Company had sold an aggregate of $1,510,000 of these 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 $1,109,608 in convertible debentures with interest. 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.


                                       9
<PAGE>

                        STATSURE DIAGNOSTIC SYSTEMS, INC.
               NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
                                  JUNE 30, 2006

As of June 30, 2006, there are outstanding $412,500 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 on payment of interest on the debentures. As a result,
in accordance with the debenture agreements, these debentures become payable on
demand unless the default is waived by the investors. The amount of debentures
at June 30, 2006 of $412,500 plus accrued interest of $3,671 has therefore been
reflected as a current liability. All interest payments after the default date
were made and are now current. The Company has not received any notice of
default from any of the holders of the outstanding debentures.

7.  Financing from Shareholder

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. If the Company should default in
these payments, the promissory note reverts to the original maturity date of
December 31, 2006. As of June 30, 2006, the loan balance to this shareholder
aggregated $2,171,504, of which $350,000 is reflected as a current liability and
$1,821,504 as long term liability. An additional amount of $129,220 of interest
on this note has been accrued during 2006 and remains owed as of June 30,
2006.The lender has filed a Uniform Commercial Code (UCC) Lien on the Company's
equipment and patents as security for this loan.

8. Shareholders' Equity Transactions

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
the 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 equal to the lower of $1.00 or two-thirds of the price of
common stock established in any offering and sale occurring prior to April 30,
2006.

In February 2006, the Company engaged Chardan Capital Markets LLC. as its
investment bankers. The agreement is for a period of 12 months. For the advisory
services, the Company has agreed to issue a total of 300,000 shares of its
common stock of which 100,000 shares were issued on signing of the agreement and
the remaining 200,000 shares are to be issued in eight equal installments of
25,000 shares on the 1st day of each month following the date of the agreement.
As of June 30, 2006, the first four monthly installments totaling 100,000 shares
had been earned and issued.

In March 2006, previously issued warrants, exercisable into 1,500,000 shares at
$.01 per share for total proceeds of $15,000 were converted into common stock,
resulting in the issuance of 1,500,000 common shares.

In May 2006, previously issued warrants, exercisable into 1,750,000 shares at
$.01 per share for total proceeds of $17,500 were converted into common stock,
resulting in the issuance of 1,750,000 common shares.

During May 2006, convertible debentures in the principal amount of $1,000,000
and accrued interest of $109,608 were converted into common stock, resulting in
the issuance of 1,497,810 common shares. (See Note 6).


                                       10
<PAGE>

                        STATSURE DIAGNOSTIC SYSTEMS, INC.
               NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
                                  JUNE 30, 2006

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. The warrants have a term of 5 years
and an initial exercise price of $1.00 per share, subject to adjustment.

The Convertible Preferred Stock is convertible to shares of common stock at a
conversion price of $0.50 per share, 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. 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 filed timely. If
the registration statement is not declared effective by November 6, 2006, the
Company will be 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. This preferred
stock is being reflected as temporary equity on the balance sheet as of June 30,
2006.

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 has recorded initially 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 condensed
balance sheets. As the proceeds from the issuance of preferred shares of
$2,150,000 are less than the combined fair value of the warrants and the
conversion option, the difference of $3,644,248 has been charged to interest
expense on derivative instruments, a non-operating expense, in the condensed
statements of operations.

As of June 30, 2006, the liability for the value of the warrants and conversion
option was "marked to market" and the difference of $786,660 and $1,375,978 have
been accounted for as an increase to the interest expense on derivative
instruments initially recognized in the condensed statement 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 they are exercised or
they meet the criteria for equity classification.


                                       11
<PAGE>

                        STATSURE DIAGNOSTIC SYSTEMS, INC.
               NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
                                  JUNE 30, 2006

In connection with the June 8, 2006 private placement and pursuant to the
advisory agreement between Chardan and the Company, the Company paid Chardan a
placement fee of (i) $181,000 in cash and (ii) consultant warrants to purchase a
total of 470,313 shares of the Company's common stock exercisable for ten years,
consisting of 268,750 shares at an exercise price of $0.50 per share and 201,563
shares at an exercise price of $1.00 per share. The cash paid of $181,000 and
the value of the warrants of $489,050 issued to the private agent have been
accounted as additional paid in capital.

As of June 30, 2006, the liability for the warrants was "marked to market" and
the difference of $183,554 has been accounted for as an increase to the interest
expense in the condensed statement of operations. The liability for the value of
the warrants will be "marked to market"in future accounting periods until such
time as they are exercised or they meet the criteria for equity classification.

9. Stock Options

Accounting for Employee Awards:

On January 1, 2006, the Company adopted 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.

Prior to January 1, 2006, the Company accounted for similar transactions in
accordance with APB No. 25 which employed the intrinsic value method of
measuring compensation cost. Accordingly, compensation expense was not
recognized for fixed stock options if the exercise price of the option equaled
or exceeded the fair value of the underlying stock at the grant date.

While FAS No. 123 encouraged recognition of the fair value of all stock-based
awards on the date of grant as expense over the vesting period, companies were
permitted to continue to apply the intrinsic value-based method of accounting
prescribed by APB No. 25 and disclose certain pro-forma amounts as if the fair
value approach of SFAS No. 123 had been applied. In December 2002, FAS No. 148,
Accounting for Stock-Based Compensation-Transition and Disclosure, an amendment
of FAS No. 123, was issued, which, in addition to providing alternative methods
of transition for a voluntary change to the fair value method of accounting for
stock-based employee compensation, required more prominent pro-forma disclosures
in both the annual and interim financial statements. The Company complied with
these disclosure requirements for all applicable periods prior to January 1,
2006.

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 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.


                                       12
<PAGE>

                        STATSURE DIAGNOSTIC SYSTEMS, INC.
               NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
                                  JUNE 30, 2006

As a result of the adoption of FAS 123 (R), the Company's results for the three
and six month periods ended June 30, 2006 include share-based compensation
expense totaling $166,443 and $331,057, respectively which pertains to selling,
general and administrative expenses and has been included in a separate line
item in the Statement of Operations. No income tax benefit has been recognized
in the income statement for share-based compensation arrangements as the Company
has provided a 100% valuation allowance on its net deferred tax asset. Stock
compensation expense for employee options recorded under APB No. 25 in the
Statement of Operations for the three and six months ended June 30, 2005 totaled
$324,938 $553,309, respectively.

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.

Accounting for Non-employee Awards:

The Company previously accounted for options granted to its non-employee
consultants using the fair value cost in accordance with FAS 123 and EITF No.
96-18. The adoption of FAS 123(R ) and SAB 107 as of January 1, 2006, had no
material impact on the accounting for non-employee awards. The Company continues
to consider the additional guidance set forth in EITF Issue No. 96-18,
"Accounting for Equity Instruments That Are Issued to Other Than Employees"
("EITF 96-18").

Stock compensation expense related to non-employee options was $11,621 and $0
for the six month periods ended June 30, 2006 and 2005, respectively. These
amounts are included in Statement of Operations within the "Stock based
compensation and employment recruiting expense-non cash" line item.

Pro Forma Information under SFAS No. 123 for Periods Prior to Adoption of FAS
123 ( R):

There were no stock options granted in the three months ended June 30, 2006. The
fair value for stock awards granted during the six month periods was estimated
using the Black-Scholes option pricing model with the following weighted average
assumptions:

<TABLE>
<CAPTION>
                                              Three months ended June 30,               Six months ended June 30,
                                          -----------------------------------     -----------------------------------
                                               2006                2005               2006                 2005
                                                                (Pro forma)                             (Pro forma)
                                          -------------       ---------------     -------------       ---------------
<S>                                          <C>                 <C>                <C>                  <C>
Expected term (in years)                         5                   5                  5                    5
Expected stock price volatility                 182%                188%               182%                197%
Risk-free interest rate                        4.35%               3.75%              4.35%                4.01%
Expected dividend yield                          0%                  0%                 0%                  0%
Estimated fair value per option granted        1.395               1.535              1.395                1.893
</TABLE>

The following table illustrates the effect on net income and earnings per share
as if the fair value recognition provisions of FAS No. 123 had been applied to
all outstanding and unvested awards in the prior year comparable period.


                                       13
<PAGE>

                        STATSURE DIAGNOSTIC SYSTEMS, INC.
               NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
                                  JUNE 30, 2006

<TABLE>
<CAPTION>
                                                                                         Three Month          Six Month
                                                                                        Period Ended         Period Ended
                                                                                        June 30, 2005       June 30, 2005
                                                                                         (Pro forma)         (Pro forma)
                                                                                         -----------         -----------
<S>                                                                                      <C>                 <C>
Net loss as reported                                                                     $(1,536,456)        $(4,193,201)
Add:  Stock-based  employee  compensation  expense included in reported net loss,
     net of related tax affects                                                              324,938             553,309
Deduct:  Total stock-based  employee  compensation  expense determined under fair
     value based method for all awards, net of related tax affects
                                                                                            (483,802)           (729,760)
                                                                                         -----------         -----------
Pro forma net loss                                                                       $(1,695,320)        $(4,369,652)
                                                                                         ===========         ===========

Basic and diluted net loss per share:
As reported                                                                              $     (0.05)        $     (0.13)
Pro forma                                                                                      (0.05)              (0.14)
</TABLE>

The Company granted 100,000 and 550,000 employee stock options in the six months
ended June 30, 2006 and 2005, respectively. The following table represents our
stock options granted, exercised, and forfeited during the six month period
ended June 30, 2006:

<TABLE>
<CAPTION>
                                                        Weighted      Weighted
                                                        Average       Average       Aggregate
                                                        Exercise      Remaining     Intrinsic
                                      Number of        Price per     Contractual     Value
    Stock Options                       Shares           Share($)     Term (years)    ($)
                                      ----------         ------        ------      ----------
<S>                                    <C>               <C>             <C>       <C>
Outstanding at January 1, 2006         1,151,000         $ 1.65          8.88      $  664,000
Granted                                  100,000           1.00            --              --
Exercised                                     --             --            --              --
Forfeited/expired                        (51,000)         19.23            --              --
                                      ----------         ------        ------      ----------
Outstanding at June 30, 2006           1,200,000         $ 0.85          8.68      $  240,000
                                      ==========         ======        ======      ==========
Exercisable at June 30, 2006             516,667           0.65          8.75         205,833
                                      ==========         ======        ======      ==========
</TABLE>

As of June 30, 2006, there was $419,315 of unrecognized compensation cost
related to non-vested awards granted under the option plans, which is expected
to be recognized over a weighted-average period of less than 1 year.


                                       14
<PAGE>

                        STATSURE DIAGNOSTIC SYSTEMS, INC.
               NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
                                  JUNE 30, 2006

10.  Contingencies

Legal Matters:

In March 2004, Chembio Diagnostic Systems, Inc. (the Company's former contract
manufacturer) commenced an action in Federal Court, Eastern District of New
York, seeking a declaration that the Company's US Patent No. 5,935,864 was
invalid and that Chembio did not infringe the Company's Patent. The Company had
filed counterclaims for patent infringement seeking an injunction and damages.
Some initial discovery took place, and the remainder of discovery had been
stayed pending the Court's ruling interpreting the patent claims.

On September 27, 2005 the Hon. Joanna Seybert, issued her Claim Construction
Ruling on the interpretation of the patent claims in the suit. The Court ruled
that the Company's broader interpretation of its patent claims was correct, and
rejected Chembio's arguments seeking to narrow coverage afforded by the
Company's '864 patent.

With the broad scope of the '864 patent now established, the Company is seeking
to recover damages and to enjoin Chembio from selling or offering for sale the
Chembio Sure Check device. Other than that set forth above, to the best
knowledge of the Company, no other material legal proceedings are pending.

Economic Dependency:

For the six months ended June 30, 2006, sales to two customers were in excess of
10% of the Company's total sales. Sales to these customers were approximately
$344,000 and $76,000 and accounts receivable from these customers as of June 30,
2006, aggregated $185,578 and $0, respectively.

During the second quarter of 2006, the Company had two customers that accounted
for 94% of product sales ($185,000 and $32,000). 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 six months ended June 30, 2006, purchases from five suppliers were in
excess of 10% of the Company's total purchases. The purchases from these
suppliers for the six months ended June 30, 2006 ranged from $13,000 to $32,000.
The corresponding accounts payable at June 30, 2006, to these suppliers, was
$1,245.

11.  Subsequent Event

On July 31, 2006, the Company signed a term sheet with Inverness Medical
Innovations, Inc. (AMEX:IMA) to develop and market the Company's consumer
diagnostic products for HIV. The parties have contracted to enter into a
definitive agreement to cooperate in the Company's completion of the clinical
studies of its rapid test HIV products, with Inverness Medical Innovations being
appointed the Company's exclusive, worldwide licensee in the rapid testing
product consumer markets, and appointed a non-exclusive licensee to market the
Company's HIV barrel product to professional markets.


                                       15
<PAGE>

                        STATSURE DIAGNOSTIC SYSTEMS, INC.
                                  June 30, 2006

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

Since July 1990, the Company has been engaged almost exclusively in research and
development activities focused on developing proprietary rapid assays for
infectious diseases and to a lesser degree saliva based collection devices.
During the years 2005 and 2004, the Company's products have been purchased by
foreign governments, distributors, laboratories, as well as the U.S. Center for
Disease Control (CDC), an agency of the United States government.

In July of 2003, the Company signed a Manufacturing/Research & Development
Agreement with American Bio Medica Corporation (ABMC) of Kinderhook, NY.
Responsibilities of ABMC include manufacturing and regulatory compliance of the
Company's HIV test devices. The Company is seeking a PMA for its HIV rapid test
from the FDA and submitted all modules of the PMA by the end of November 2004.
At the request of the FDA, the Company has completed a small supplemental study
of 249 samples and its submission to the FDA, in October of 2005. In March 2006,
the Company received correspondence from the FDA stating that our Pre-Market
Approval (PMA) submission is deficient and therefore will require additional
clinical studies to amend the PMA. The FDA is requesting additional data.

In addition to the US, the Company intends to submit the appropriate regulatory
submissions, import/export documentation and any other requirement for a number
of countries, including but not limited to, Russia, Brazil, Canada, Vietnam,
India, Mexico, Australia, Philippines, Thailand, and a number of African
countries.

Finally, if and when the Company receives a PMA from the FDA for its HIV
product, the Company will file for a waiver of Clinical Laboratory Improvement
Amendments of 1988 (CLIA), which if received, will allow sales of this product
to a large number of markets (e.g. doctors' offices, public health clinics) that
do not operate under the standards of the CLIA.

The IDE, clinical trials, and application modules are only part of a difficult
and financially costly process to receive U.S. marketing approval. There is no
assurance that the Company will have the financial resources, expertise, or
ability to complete the approval process.

A Certificate of Exportability was issued by the FDA in October 2003 allowing
the resumption of the Company's HIV diagnostics export sales.

In November 2002, the U.S. Food and Drug Administration approved the sale in the
United States of the Oraquick Rapid HIV test, a competing product to the
Company's StatSure(TM) HIV test. Subsequent to receiving FDA approval, Orasure
received a CLIA waiver for their product. Since then, the U.S. Food and Drug
Administration has approved for sale in the United States other rapid HIV tests.


                                       16
<PAGE>

                        STATSURE DIAGNOSTIC SYSTEMS, INC.
                                  June 30, 2006

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

General (Continued)

We believe that the potential market for rapid tests in the United States and
foreign countries will continue to grow as the benefits of rapid testing are
better understood by the appropriate government agencies, by practitioners, and
by the general population. The need for and availability of rapid tests to
screen large populations for HIV has been the subject of the medical, scientific
and lay press, including the New York Times and the New England Journal of
Medicine's Editorial pages. Recently, the FDA has decided to conduct hearings to
discuss the potential need, requirements, and issues of Over The Counter (OTC)
marketing of HIV tests. The first of these hearings was held in November 2005
and the second was held in March 2006.

We are committed to and focused on the completion of the necessary requirements
towards obtaining U.S. Food and Drug Administration (FDA) and other relevant
regulatory approvals for our rapid StatSure(TM) HIV diagnostic technology.
Although there is no assurance that we will receive such approval, we believe
that the StatSure(TM) HIV device format, if approved for detecting antibodies to
HIV-1 in fingerstick, serum and plasma samples, will have a significant
competitive advantage in the market for rapid HIV testing in the United States
and internationally. However, there can be no assurance that we will achieve or
sustain significant revenues from sales of HIV diagnostic tests, internationally
or domestically, or from other new products we may develop or introduce.

The Company has limited marketing, sales and distribution resources. Achieving
market acceptance will require substantial efforts and capabilities in these
areas. The Company relies in large part on forming partnerships for marketing,
sales and distribution of its products. The Company has entered into a number of
agreements with distributors who are now in breach of the contractual terms.
However the Company is continuing to work with certain of these distributors who
commit time and resources towards obtaining regulatory approvals.

Concerning long-term growth of the StatSure(TM) HIV test, industry observers
believe that sales of HIV rapid tests will eventually be approved in certain
markets for over-the-counter (OTC) sales, and that self-testing will become as
easy to purchase as home pregnancy tests. If this were to occur, we believe the
Company's HIV product's performance, design, and ease of use could have a
competitive advantage over many of the existing technologies and platforms.
There can be no assurance that any of the Company's products not yet approved or
cleared, will be approved or cleared for marketing by the FDA or that if
approved it would be allowed for sale as an OTC product. We believe growth of
revenues from our Saliva Sampler(R)oral fluid collectors could result from our
two major customers who have both indicated a positive outlook for 2006. In
addition, the company is beginning to explore new commercial applications of
these collectors.

We continue to distribute our StatSure(TM) HIV test and Saliva Sampler(R) oral
fluid collection product through our current distribution networks. We will also
seek new distribution relationships for our current and future test products.

The Company has discontinued selling its FDA approved Stat-Simple(TM) H. pylori
test since 2000 but may elect to resume sales if market conditions so warrant.

The Company believes that its current cash position will not be sufficient to
maintain the Company's operations through 2006. The Company will need to raise
additional capital to fund its aggressive growth and marketing efforts and to
capitalize on its Intellectual Property (IP) portfolio to design, develop, test,
gain regulatory approval and launch new products as well as to meet its debt
obligations. Development, marketing, manufacturing and clinical testing may
require capital resources


                                       17
<PAGE>

                        STATSURE DIAGNOSTIC SYSTEMS, INC.
                                  June 30, 2006

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

General (Continued)

substantially greater than the resources, which may be available to the Company.
The Company is reviewing its options, including the selling of common stock or
considering other strategic alternatives, as a means to fund the Company's
future growth plans. There can be no assurance that the Company will be able to
obtain the additional capital resources necessary to fund its growth plans, or
that such financing will be available on commercially reasonable terms.

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.

The Company has adopted Statement of Financial Accounting Standards ("FAS") No.
123 (Revised 2004), Share-Based Payment ["FAS 123(R)], effective January 1,
2006, to account for its employee options. Other than this adoption, the Company
believes there have been no other significant changes, during the quarterly
period ended June 30, 2006, to the items disclosed as critical accounting
policies and estimates in Management's Discussion and Analysis of Financial
Condition and Results of Operations in the Company's Annual Report on Form
10-KSB for the year ended December 31, 2005.

Restatement

Prior to the filing of Form 10-KSB for December 31, 2005, the Company determined
that its prior 2005 quarterly filings did not reflect a beneficial conversion
feature on 9% convertible debentures issued in 2005 as required under EITF 98-5
"Accounting for Convertible Securities With Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios", as amended by EITF 00-27
"Application of Issue No. 98-5 to Certain Convertible Instruments".

Further, the Company also revalued options granted to an employee using 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.

The Company corrected the accounting for the above two errors on a
period-to-date basis in the 2005 annual financial statements. The Statement of
Operations for the three and six month periods ended June 30, 2005 is now being
restated in this Form 10-QSB filing to give effect to the correction of these
two errors and certain resulting reclassification adjustments, as further
discussed below.

The Company raised a total of $1,510,000 from the issuance of convertible
debentures in 2005. Refer to Note 6 of the Notes to Financial Statements for
more information on the terms of these debentures. During the six months ended
June 30, 2005, the Company had issued a total of $1,100,000 convertible
debentures. On the date of issuance, a beneficial conversion feature of
$2,614,400 was computed being the number of shares the debenture was convertible
into multiplied by the difference between the conversion price of $1.00 and the
fair value of the shares of the Company's common stock. The beneficial
conversion amount had not been recorded earlier.


                                       18
<PAGE>

                        STATSURE DIAGNOSTIC SYSTEMS, INC.
                                  June 30, 2006

The Company had issued 1,100,000 options to two employees in the six months
ended June 30, 2005. The exercise price was not determinable at the date of the
grant and the options should have been accounted under FIN 28 as variable
options. As a result, the compensation charge for these options has been
restated to $553,309 from $128,994.

The Company has also reclassified a non-cash charge of warrants issued to
non-employees for recruiting services of $280,000 from the "selling, general and
administrative expense" line item to the "Stock based compensation and
employment recruiting expense- non cash" line item.

As a result, the Statements of Operations and Cash Flows for the three and six
month periods ended June 30, 2005 were restated to reflect these changes. The
table below details the items affected by the restatement:

<TABLE>
<CAPTION>
                                          Three months ended June 30, 2005        Six months ended June 30, 2005
                                            -----------------------------         -------------------------------
                                            As reported       As Restated         As reported         As restated
                                            ---------         -----------         -----------         -----------
<S>                                         <C>               <C>                 <C>                 <C>
STATEMENTS OF OPERATIONS:
Stock based compensation and
   employment recruiting expense-
    non cash                                $ 120,084         $   324,938         $   408,994         $   833,309
Loss from operations                         (392,631)           (597,485)           (943,630)         (1,367,945)
Interest expense                             (109,571)           (938,971)           (210,856)         (2,825,256)
Net loss to common shareholders              (502,202)         (1,536,456)         (1,154,486)         (4,193,201)
Basic and diluted net loss per share            (0.02)              (0.05)              (0.04)              (0.13)
</TABLE>

<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS:                           Six months ended June 30, 2005
                                                    -------------------------------
                                                    As reported         As restated
                                                    -----------         -----------
<S>                                                 <C>                 <C>
Net loss                                            $(1,154,486)        $(4,193,201)
Adjustments to reconcile net loss to net
  cash used in operating activities:
Options granted to employees                            128,944             553,309
Beneficial conversion feature of convertible
    Debentures                                                0           2,614,400
</TABLE>

The restatement had no impact on the cash used in operating activities.

RESULTS OF OPERATIONS

Second Quarter and First Six Months of 2006 Compared to Second Quarter and First
six Months of 2005

Revenues. The Company's revenues consist of product sales and royalties.
Revenues increased 31% to $231,007 in the second quarter of 2006 yielding a
gross margin of $131,300 or 57% from revenues of $176,534 in the second quarter
of 2005, yielding a gross margin of $120,140 or 67%. Revenues increased 1% to
$444,066 in the first six months of 2006 yielding a gross margin of $297,969 or
67% from $441,553 in the first six months of 2005 yielding a gross margin of
$290,813 or 66%. Factors leading to the revenue increase in the second quarter
was the completion and shipment of special packaged products by our largest
customer. The Company is continuing to seek new markets and sales opportunities
for its products.


                                       19
<PAGE>

                        STATSURE DIAGNOSTIC SYSTEMS, INC.
                                  June 30, 2006

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

Results of Operations (Continued)

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. For the six months ended June 30, 2006, sales to two
customers were in excess of 10% of the Company's total sales. Sales to these
customers were approximately $344,000 and $76,000.

Cost of products sold: Costs of products sold increased to $99,707 (43% of
product sales) in the second quarter of 2006 from $56,394 (33% of product sales)
in the second quarter of 2005, and decreased to $146,097 (33% of product sales)
in the first six months of 2006 from $150,740 (34% of product sales) in the
first six months of 2005. The decrease in gross margins in the second quarter
was due to greater packaging cost incurred completing rush orders.

Research and development expenses: Research and development expenses decreased
to $73,466 in the second quarter of 2006 from $84,556 in the second quarter of
2005 and decreased to $142,615 in the first six months of 2006 from $161,556 in
the first six months of 2005. The decrease is due to fewer consulting expenses
incurred with our HIV test. R&D costs for our HIV test are expected to continue
in 2006 until such time that we receive FDA approval to market the test in the
U.S.

Selling, general and administrative expenses: Selling, general and
administrative expenses increased 28% to $394,524 in the second quarter of 2006
from $308,131 in the second quarter of 2005 and increased 16% to $767,628 in the
first six months of 2006 from $663,893 in the first six months of 2005. This
increase is due to significantly greater expenses for consulting, recruitment
expenses, amortization expense, and payroll.

Stock based compensation and employment recruiting expense- non-cash: Stock
based compensation and employment recruiting expense- non cash decreased 29% to
$229,793 from $324,938 in the second quarter of 2006, versus the second quarter
of 2005 and increased 38% to $518,029 from $883,309 in the first six months of
2006 versus the same period in 2005 . The amount for the second quarter of 2005
has been restated from $120,084 to $324,938 to account for variable options
granted to an employee in accordance with FIN 28. The stock based compensation
for 2006 comprises amortization charges for employee and director options
accounted under FAS 123(R) of $331,057 and for non-employee options of $11,621
accounted under FAS 123 ( R ) and EITF 96-18.

Loss from operations: The loss from operations for the second quarter of 2006 of
$566,483 reflects a 5% decrease in loss from the $597,485 loss reported for the
second quarter of 2005; and the loss from operations for the first six months of
2006 of $1,130,303 reflects a 17% decrease from the $1,367,945 loss reported for
the first six months of 2005. Decreased expenses for stock based compensation in
2006 contributed to the Company's decreased loss.

Interest expense: Interest expense increased to $6,054,917 in the second quarter
of 2006 from $938,971 in the second quarter of 2005 and increased to $6,178,879
in the first six months of 2006 from $2,825,256 in the first six months of 2005.
Non-cash interest expenses of $5,990,440 were related to the accounting of the
Series 2006-A Convertible Preferred Stock issued in June 2006. The 2005 amount
includes the expensing of a beneficial conversion feature of the convertible
debentures issued during the first quarter of 2005. The 2005 amount has been
restated. See discussion under "restatement" for further details.

Other expense: Other expense consists of an induced conversion expense of
$403,872 incurred to convert the 9% convertible debentures as required under
SFAS 84. The Company did not incur similar expenses in the second quarter of
2005.


                                       20
<PAGE>

                        STATSURE DIAGNOSTIC SYSTEMS, INC.
                                  June 30, 2006

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

LIQUIDITY AND CAPITAL RESOURCES

Income Taxes: The Company is in a net deferred tax asset position and has
generated net operating losses to date. 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 $56 million, which is available to
offset future taxable income, if any, expiring in various years through the year
2025. 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.

                                June 30, 2006    December 31, 2005
                                -------------    -----------------
Cash and cash equivalents        $1,074,554        $    76,321
Working capital (deficit)           124,239         (2,199,609)

Net cash used in operating activities in the first six months of 2006 was
$702,120. Net cash used in the first six months of 2005 was $447,939. In 2006,
the increase in cash used by operations was primarily due to the increase of the
net loss of $7,713,054 (2006) and $4,193,201 (2005). The following expenses
showed significant changes between the first six months of 2006 when compared to
the first six months of 2006:

o     Legal and accounting costs (increased in 2006)

o     Non-cash expenses recorded for beneficial conversion features of
      convertible debt, and stock and warrant issuance costs(decreased in 2006)

o     Non-cash financing costs incurred in the issuance of the Series 2006-A
      Convertible Preferred Stock (increased in 2006)

o     Non-cash induced conversion expense (increased in 2006)

o     Consulting expenses (decreased in 2006)

o     Insurance (increased in 2006)

o     Director fees (increased in 2006)

Net cash used in operating activities was not impacted by the aforementioned
restatement.

Cash used in investing activities in the first six months of 2006 was $50,857 as
compared to $124,329 in the first six months of 2005. The 2005 amount includes
equipment costs and deferred finance costs. The Company did not incur similar
costs in 2006

Cash provided by financing activities in the first six months of 2006 was
$1,751,210, and in the first six months of 2005 was $731,760. The following
lists the significant changes. During 2006 the Company netted $1,969,000 from
the sale of Series 2006-A Convertible Preferred Stock offset by net repayments
of $212,790 of shareholder loans. During 2005 the Company received $1,510,000
from the sale of debentures. This amount was offset by $593,287 in net
repayments of shareholder loans. Proceeds from issuance of common stock in 2006
were $32,500 and in 2005 was $2,000.

Our cash requirements depend on numerous factors, including product development
activities, penetration of the direct sales market, market acceptance of our
products, and effective management of accounts receivable. We expect to devote
capital resources to improve our sales and marketing efforts, continue our
product development, expand manufacturing capacity and continue research and
development activities. We will examine other growth opportunities, including
strategic alliances, and we expect any such activities will be funded from funds
provided by debenture offerings and or stock subscription sales in 2006. There
can be no assurance that we will be successful in raising such funds.


                                       21
<PAGE>

                        STATSURE DIAGNOSTIC SYSTEMS, INC.
                                  June 30, 2006

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.

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. If the Company should default in
these payments, the promissory note reverts to the original maturity date of
December 31, 2006. As of June 30, 2006, the loan balance to this shareholder
aggregated $2,171,504, of which $350,000 is reflected as a current liability and
$1,821,504 as long term liability. An additional amount of $129,220 of interest
on this note has been accrued during 2006 and remains owed as of June 30,
2006.The lender has filed a Uniform Commercial Code (UCC) Lien on the Company's
equipment and patents as security for this loan.

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. Accordingly, the Company recognized this beneficial conversion feature by
charging an interest expense of $2,614,400 for the year ended December 31, 2005;
and a corresponding credit to the additional paid-in capital account. The
Company had sold an aggregate of $1,510,000 of these 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 796,506 and 701,754
shares of common stock at $0.90 and $0.57 per share, respectively, for the
induced conversion of $1,109,608 in convertible debentures with interest. 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. 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. As of
June 30, 2006, there are outstanding $412,500 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 on payment of interest on the debentures. As a
result, in accordance with the debenture agreements, these debentures become
payable on demand unless the default is waived by the investors. The amount of
debentures at June 30, 2006 of $412,500 plus accrued interest of $3,671 has
therefore been reflected as a current liability.

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
the 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 equal to the lower of $1.00 or two-thirds of the price of
common stock established in any offering and sale occurring prior to April 30,
2006. As of June 30, 2006, the Company recorded director fees of $11,621.


                                       22
<PAGE>

                        STATSURE DIAGNOSTIC SYSTEMS, INC.
                                  June 30, 2006

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

Liquidity and Capital Resources (Continued)

In February 2006, the Company engaged Chardan Capital Markets LLC. as its
investment bankers. The agreement is for a period of 12 months. For the advisory
services, the Company has agreed to issue a total of 300,000 shares of its
common stock of which 100,000 shares were issued on signing of the agreement and
the remaining 200,000 shares are to be issued in eight equal installments of
25,000 shares on the 1st day of each month following the date of the agreement.
As of June 30, 2006, the first four monthly installments totaling 100,000 shares
had been earned and issued. In addition, the advisor is entitled to a cash fee
of 9% of total gross proceeds for any equity financing introduced by them and
accepted by the Company and warrants to purchase shares of common stock as shall
equal 9% of the shares of the Common Stock so issued, of which the shares of
common stock are to be calculated as specified in the agreement. All fees due
for advisory services are non-refundable and non-cancelable.

In March 2006, previously issued warrants, exercisable into 1,500,000 shares at
$.01 per share for total proceeds of $15,000 were converted into common stock,
resulting in the issuance of 1,500,000 common shares.

During May 2006, convertible debentures in the principal amount of $1,000,000
and accrued interest of $109,608 were converted into common stock, resulting in
the issuance of 1,497,810 common shares.

On June 8, 2006, we 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. We issued 2,150 shares of our Series 2006
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, we will issue a total of
2,015,625 shares of common stock. The warrants have a term of 5 years and an
initial exercise price of $1.00 per share, subject to adjustment.

The Convertible Preferred Stock is convertible to shares of common stock at a
conversion price of $0.50 per share, 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. 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 exercise of Warrants. We were required to file a
registration statement on or before August 4, 2006, which we filed timely. If
the registration statement is not declared effective by November 6, 2006, we
will be 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.


                                       23
<PAGE>

                        STATSURE DIAGNOSTIC SYSTEMS, INC.
                                  June 30, 2006

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

Liquidity and Capital Resources (Continued)

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 has recorded initially 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 condensed
balance sheets. As the proceeds from the issuance of preferred shares of
$2,150,000 are less than the combined fair value of the warrants and the
conversion option, the difference of $3,644,248 has been charged to interest
expense on derivative instruments, a non-operating expense, in the condensed
statements of operations.

As of June 30, 2006, the liability for the value of the warrants and conversion
option was "marked to market" and the difference of $786,660 and $1,375,978 have
been accounted for as an increase to the interest expense on derivative
instruments initially recognized in the condensed statement 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 they are exercised or
they meet the criteria for equity classification.

In connection with the June 8, 2006 private placement and pursuant to the
advisory agreement between Chardan and the Company, the Company paid Chardan a
placement fee of (i) $181,000 in cash and (ii) consultant warrants to purchase a
total of 470,313 shares of the Company's common stock exercisable for ten years,
consisting of 268,750 shares at an exercise price of $0.50 per share and 201,563
shares at an exercise price of $1.00 per share. The cash paid of $181,000 and
the value of the warrants of $489,050 issued to the private agent have been
accounted as additional paid in capital.

As of June 30, 2006, the liability for the warrants was "marked to market" and
the difference of $183,554 has been accounted for as an increase to the interest
expense in the condensed statement of operations. The liability for the value of
the warrants will be "marked to market" in future accounting periods until such
time as they are exercised or they meet the criteria for equity classification.

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. This 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.

The following table lists the future payments required on debt and any other
contractual obligations of the Company as of June 30, 2006.

Obligations                               Less than
                         Total             1 year          1-3 years
                        ----------        --------        ----------
Long-term debt          $2,584,004        $762,500        $1,821,504
Operating leases           108,000          56,000            52,000

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.


                                       24
<PAGE>

                        STATSURE DIAGNOSTIC SYSTEMS, INC.
                                  June 30, 2006

SUBSEQUENT EVENT

On July 31, 2006, subsequent to the balance sheet date, the Company signed a
term sheet with Inverness Medical Innovations, Inc. (AMEX:IMA) to develop and
market the Company's consumer diagnostic products for HIV. The parties have
contracted to enter into a definitive agreement to cooperate in the Company's
completion of the clinical studies of its rapid test HIV products, with
Inverness Medical Innovations being appointed the Company's exclusive, worldwide
licensee in the rapid testing product consumer markets, and appointed a
non-exclusive licensee to market the Company's HIV barrel product to
professional markets.


                                       25
<PAGE>

                        STATSURE DIAGNOSTIC SYSTEMS, INC.
                                  June 30, 2006

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
president 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)]. Based on
this evaluation, our president and chief financial officer have concluded that
as of the date of the evaluation our disclosure controls and procedures are
effective to ensure that all material information required to be filed in this
report has been made known to them.

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.


                                       26
<PAGE>

                        STATSURE DIAGNOSTIC SYSTEMS, INC.
                                  June 30, 2006

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

In March 2004, Chembio Diagnostic Systems, Inc. (the Company's former contract
manufacturer) commenced an action in Federal Court, Eastern District of New
York, seeking a declaration that the Company's US Patent No. 5,935,864 was
invalid and that Chembio did not infringe the Company's Patent. The Company had
filed counterclaims for patent infringement seeking an injunction and damages.
Some initial discovery took place, and the remainder of discovery had been
stayed pending the Court's ruling interpreting the patent claims.

On September 27, 2005 the Hon. Joanna Seybert, issued her Claim Construction
Ruling on the interpretation of the patent claims in the suit. The Court ruled
that the Company's broader interpretation of its patent claims was correct, and
rejected Chembio's arguments seeking to narrow coverage afforded by the
Company's '864 patent.

With the broad scope of the '864 patent now established, the Company is seeking
to recover damages and to enjoin Chembio from selling or offering for sale the
Chembio Sure Check device.

Other than that set forth above, to the best knowledge of the Company, no other
material legal proceedings are pending.

Item 2. CHANGES IN SECURITIES

On June 8, 2006, we 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 $1,981,500. We issued 2,150 shares of our Series 2006
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, we will issue a total of
2,015,625 shares of common stock. Warrants have a term of 5 years and an initial
exercise price of $1.00 per share, subject to adjustment.

The Convertible Preferred Stock is convertible to shares of common stock at a
conversion price of $0.50 per share, 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. 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.


                                       27
<PAGE>

                        STATSURE DIAGNOSTIC SYSTEMS, INC.
                                  June 30, 2006

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 exercise of Warrants. We were required to file a
registration statement on or before August 4, 2006, which we filed timely. If
the registration statement is not declared effective by November 6, 2006, we
will be 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.

In connection with June 8, 2006 private placement and pursuant to the advisory
agreement between Chardan and the Company, the Company paid Chardan a placement
fee of (i) $181,000 in cash and (ii) consultant warrants to purchase a total of
470,313 shares of the Company's common stock exercisable for ten years,
consisting of 268,750 shares at an exercise price of $0.50 per share and 201,563
shares at an exercise price of $1.00 per share.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

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. Accordingly, the Company recognized this beneficial conversion feature by
charging an interest expense of $2,614,400 for the year ended December 31, 2005;
and a corresponding credit to additional paid-in capital account. The Company
had sold an aggregate of $1,510,000 of these convertible debentures. In
September 2005, a debenture in the amount of $60,000 was converted into 60,000
shares of common stock, and in May 2006, debentures totaling $1,000,000 were
converted into 1,368,420 shares of common stock. Interest due of $109,608 on
these debentures, were paid with 129,390 shares of common stock, valued at $0.90
per share. As at June 30, 2006, there are outstanding $412,500 of 9% Convertible
Debentures due in January 2009. All interest payments are current. The Company
has not received any notice of default from any of the holders of the
outstanding debentures. Holders of 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 on payment of interest on the debentures. As a
result, in accordance with the debenture agreements, these debentures become
payable on demand unless the default is waived by the investors. The amount of
debentures at June 30, 2006 of $412,500 plus accrued interest of $3,671 has
therefore been reflected as a current liability.

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

None

ITEM 5.  OTHER INFORMATION

None


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<PAGE>

                        STATSURE DIAGNOSTIC SYSTEMS, INC.
                                  June 30, 2006

ITEM 6. EXHIBITS

(a)  Exhibit index

Exhibit
--------

      11    Earnings per share

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

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

      32.1  Certification of Chief Executive Officer required 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 of Chief Financial Officer required 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.


                                       29
<PAGE>

                        STATSURE DIAGNOSTIC SYSTEMS, INC.
                                  June 30, 2006

                                   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: August 15, 2006

                        STATSURE DIAGNOSTIC SYSTEMS, INC.

                                     /s/ Steve M. Peltzman
                                     --------------------------------------
                                     Steve M. Peltzman
                                     Chief Executive Officer

                                     /s/ Leo Ehrlich
                                     --------------------------------------
                                     Leo Ehrlich
                                     Chief Financial Officer


                                       30