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 September 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 October
30, 2006 was 37,138,151 shares.


                                       1
<PAGE>

                         SALIVA DIAGNOSTIC SYSTEMS, INC.
                                   FORM 10-QSB
                                      INDEX

                                                                           PAGE

   PART I FINANCIAL INFORMATION

   Item 1.  Financial Statements

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

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

            Statements of Cash Flows- Nine Months Ended
            September 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..........................................20

   Item 3.  Controls and Procedures........................................31


   PART II OTHER INFORMATION

   Item 1.  Legal Proceedings..............................................32

   Item 2.  Changes in Securities..........................................32

   Item 3.  Defaults Upon Senior Securities................................33

   Item 4.  Submission of Matters to a Vote of Security Holders............34

   Item 5.  Other Information..............................................34

   Item 6.  Exhibits.......................................................35

   Signatures..............................................................36

   Certifications..........................................................37


                                       2
<PAGE>

PART I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS

                        STATSURE DIAGNOSTIC SYSTEMS, INC.
                            CONDENSED BALANCE SHEETS

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

CURRENT ASSETS:

Cash and cash equivalents                                                 $    260,865    $     76,321
Accounts receivable, net of allowance for doubtful accounts of $107,477
for both 2006 and 2005                                                         129,404          69,741
Inventories                                                                     75,571          56,150
Prepaids                                                                          --            11,669
                                                                          ------------    ------------

Total current assets                                                           465,840         213,881

Property and equipment, net of accumulated depreciation
of $576,387 (2006) and $558,075 (2005)                                          78,317          95,308
Equipment under construction                                                   664,401         664,401
Patents and trademarks, net of accumulated amortization
of $145,111(2006) and $125,876 (2005)                                          104,845          73,223
Deferred costs, less accumulated amortization
of $430,369(2006) and $260,739 (2005)                                           41,631         211,261
Deposits                                                                        14,350          13,500
                                                                          ------------    ------------
 TOTAL ASSETS                                                             $  1,369,384    $  1,271,574
                                                                          ============    ============

LIABILITIES AND SHAREHOLDERS' DEFICIT

CURRENT LIABILITIES:
Note payable - shareholders                                               $    240,000    $    172,055
Debentures payable-net of discount                                              34,287         126,598
Accounts payable                                                                55,514          82,080
Customer advances                                                               31,792           2,000
Accrued expenses                                                               207,272         370,164
Accrued payroll  expense to officers                                           130,799         234,750
Payroll and payroll taxes payable                                               21,625         102,441
Dividends payable in stock to preferred shareholders                            53,750            --
                                                                          ------------    ------------
Total current liabilities                                                      775,039       1,090,088

LONG-TERM LIABILITIES
Note payable - shareholder                                                   1,354,146       1,932,099
Deferred rent payable                                                           10,129           6,190
Derivative instruments                                                       7,238,442            --
                                                                          ------------    ------------
TOTAL LIABILITIES                                                            9,377,756       3,028,377
                                                                          ------------    ------------

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: 36,792,510 (2006) and 31,769,491 (2005)            36,793          31,769
Additional paid-in capital                                                  45,868,061      44,425,696
Less: deferred compensation                                                       --           (2,927)
Accumulated deficit                                                        (53,913,228)   (46,211,341)
                                                                          ------------    ------------
TOTAL SHAREHOLDERS' DEFICIT                                                 (8,008,374)    (1,756,803)
                                                                          ------------    ------------
 TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT                              $  1,369,384    $  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                Nine Months Ended
                                                                        September 30,                    September 30,
                                                                  ----------------------------    ----------------------------
                                                                      2006            2005           2006             2005
                                                                                   (Restated)                      (Restated)
                                                                  ------------    ------------    ------------    ------------
REVENUES:
<S>                                                               <C>             <C>             <C>             <C>
Product Sales                                                     $    225,411    $    204,846    $    669,477    $    645,853
Royalty Income                                                            --              --              --               546
                                                                  ------------    ------------    ------------    ------------
                                                                       225,411         204,846         669,477         646,399
COST OF PRODUCTS SOLD                                                   80,430          75,500         226,527         226,240
                                                                  ------------    ------------    ------------    ------------
Gross profit                                                           144,981         129,346         442,950         420,159
                                                                  ------------    ------------    ------------    ------------
OPERATING EXPENSES:
Research and development                                                 6,273         102,449         148,888         264,005
Selling, general and administrative                                    523,350         227,302       1,809,007       1,724,504
                                                                  ------------    ------------    ------------    ------------
                                                                       529,623         329,751       1,957,895       1,988,509
                                                                  ------------    ------------    ------------    ------------
Loss from operations                                                  (384,642)       (200,405)     (1,514,945)     (1,568,350)
                                                                  ------------    ------------    ------------    ------------

OTHER INCOME (EXPENSES):
Interest expense-net                                                  (110,578)        (92,560)       (256,420)       (260,816)
Interest expense on beneficial conversion feature                      (36,347)        (36,310)     (1,020,189)       (121,449)
Financing costs                                                        (21,300)        (21,299)     (3,708,146)        (63,899)
Derivative income (expense)                                          1,547,877            --          (798,315)           --
Debt conversion expense                                                   --              --          (403,872)           --
                                                                  ------------    ------------    ------------    ------------

Total other income (expenses):                                       1,379,652        (150,169)     (6,186,942)       (446,164)
                                                                  ------------    ------------    ------------    ------------
Net income (loss)                                                      995,010        (350,574)     (7,701,887)     (2,014,514)

Dividends- Preferred stock series 2006 A                                53,750            --            53,750            --
                                                                  ------------    ------------    ------------    ------------
NET INCOME (LOSS) TO COMMON SHAREHOLDERS                          $    941,260    $   (350,574)     (7,755,637)   $ (2,014,514)
                                                                  ============    ============    ============    ============

BASIC AND DILUTED INCOME(LOSS) PER SHARE                          $       0.03    $      (0.01)   $      (0.22)   $      (0.06)
                                                                  ============    ============    ============    ============

WEIGHTED AVERAGE NUMBER OF SHARES USED IN BASIC AND DILUTED PER
SHARE CALCULATIONS                                                  36,783,334      31,720,578      34,518,741      31,335,938
                                                                  ============    ============    ============    ============
</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>
                                                                                                           Nine Months Ended
                                                                                                             September 30,
                                                                                                      --------------------------
                                                                                                        2006             2005
                                                                                                                      (Restated)
                                                                                                      -----------    -----------
<S>                                                                                                   <C>            <C>
OPERATING ACTIVITIES:

Net loss                                                                                              $(7,701,887)   $(2,014,514)
Adjustments to reconcile net loss to net cash  used in operating activities:
Depreciation and amortization                                                                              37,547         38,252
Bad debt expense                                                                                             --           51,982
Amortization of deferred costs                                                                            169,630         88,144
Warrants issued for recruiting services                                                                      --          280,000
Stock issued for consulting services                                                                      250,775           --
Options granted to employees                                                                              499,329        533,553
Options granted to non-employee                                                                            34,863           --
Beneficial conversion feature of convertible debentures                                                 1,020,189        121,449
Financing costs  on derivative instruments                                                              3,644,248           --
Mark-to-market loss on derivative instruments                                                             798,315           --
Induced conversion expense on debentures                                                                  403,872           --
Changes in assets and liabilities:
Accounts receivable                                                                                       (59,664)        75,944
Inventories                                                                                               (19,421)        31,714
Prepaids                                                                                                     (850)       (12,700)
Deposits                                                                                                   11,669           --
Accounts payable, accrued payroll expense to officers  and accrued expenses                                20,397         70,976
                                                                                                      -----------    -----------
Net cash used in operating activities                                                                    (890,988)      (735,200)
                                                                                                      -----------    -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of property and equipment                                                                     (1,321)      (122,729)
Acquisitions of patents and trademarks                                                                    (50,857)        (1,600)
Deferred finance cost                                                                                        --         (160,000)
                                                                                                      -----------    -----------
Net cash used in investing activities                                                                     (52,178)      (284,329)
                                                                                                      -----------    -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash overdraft                                                                                               --          (26,953)
Proceeds from shareholder loans                                                                           634,722         30,000
Proceeds from issuance of debentures                                                                         --        1,510,000
Repayments of debentures                                                                                 (112,500)          --
Repayment of shareholder loans                                                                         (1,381,012)      (623,287)
Proceeds from issuance of common stock                                                                     17,500          2,000
Gross proceeds from issuance of Series 2006-A preferred shares                                          2,150,000           --
Payment for financing cost                                                                               (181,000)          --
                                                                                                      -----------    -----------
Net cash provided by financing activities                                                               1,127,710        891,760
                                                                                                      -----------    -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS                                                                 184,544       (127,769)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                                             76,321        148,630
                                                                                                      -----------    -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD                                                              $   260,865    $    20,861
                                                                                                      ===========    ===========

Cash paid during the period for:
Interest                                                                                              $    35,250    $      --
Income taxes                                                                                          $     1,739    $       830
SUPPLEMENTAL DISCLOSURE OF NON-CASH FLOW FINANCING ACTIVITIES:
During the nine month periods ended September 30, 2006 and 2005, the previous
year's balance of accrued interest of $251,282 and $228,773, respectively, for a
shareholder's loan was added to the
loan balance as principal                                                                             $   251,282    $   228,773
During the nine month period ended September 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 shareholder                                                                                      $      --      $    10,000
Conversion of debenture and interest payable into common stock                                        $ 1,109,608    $    60,000
During the nine month period ended September 30, 2006, 470,312 warrants were issued to a placement
agent and were recorded as Additional paid in capital and Warrant liability                           $   645,881    $      --
Discount related to beneficial conversion feature of convertible debt                                 $      --      $ 1,510,000
Dividends on preferred stock payable in shares                                                        $    53,750    $      --
During the nine month period ended September 30, 2006, 1,500,000 shares of common stock were issued
for a warrant conversion at $.01 per share.  Payment due of $15,000 was offset to a note payable to
this stockholder                                                                                      $    15,000    $      --
</TABLE>

        The accompanying notes are an integral part of these statements.


                                       5
<PAGE>

                        STATSURE DIAGNOSTIC SYSTEMS, INC.
               NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
                               SEPTEMBER 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").

On January 24, 2006, the Company effected a name change from Saliva Diagnostic
Systems, Inc. to StatSure Diagnostic Systems, Inc. Since March 22, 2006, the
shares of the Company have traded under the StatSure name, with the symbol SSUR.
Coinciding with the corporate name change, the Company changed the name of its
Hema-Strip HIV test to StatSure(TM) HIV.

On September 29, 2006, SSUR.OB announced it had signed several agreements
relating to its patented barrel technology for use in screening antibodies to
HIV (AIDS). As part of a three-way alliance with Inverness Medical Innovations
(AMEX:IMA) and Chembio Diagnostics (CEMI.OB), StatSure signed a worldwide,
exclusive distribution deal for a rapid, point-of-care (POC) HIV test with
Inverness (a leading marketing and distribution organization for many POC
products). In a two-way deal with Chembio, StatSure settled their multi-year
patent litigation with StatSure granting Chembio an exclusive manufacturing
license for its recently FDA cleared HIV barrel product. This product will be
marketed under the IMA brand. An additional 2- way agreement with CEMI.OB, a
"Joint HIV Barrel Commercialization Agreement" was finalized that establishes a
long- term strategic "partnership", wherein both companies equally split their
margin dollars of the HIV barrel product once the actual cost of manufacturing
is reimbursed.

On October 24, 2006, the Company notified the U.S. Food and Drug Administration
("FDA) that it was withdrawing its pending Pre-Market Approval application for a
rapid HIV diagnostic screening product employing the Company's patented "barrel"
technology. The Company determined there is no need to obtain Pre-Market
Approval for its own HIV Barrel Product as commercialization of its barrel
technology will be undertaken by means of the aforementioned arrangement.

On June 8, 2006, we completed a private placement of $2,150,000 in Preferred
Stock with 10 institutional and accredited investors pursuant to a 2006 Series A
Convertible Preferred Stock Agreement dated June 7, 2006. Net proceeds from the
placement were approximately $1,969,000.

In the course of a routine SEC review of the Company's periodic filings, the SEC
issued a comment letter dated October 4, 2006, alerting the Company to a
possible incorrect application of certain accounting principles. On October 12,
2006, the Audit Committee of the Company's Board of Directors concluded based
upon the recommendation of the Company's management and independent auditors,
that the Company will restate its previously issued financial statements for the
quarters ended March 31, 2005, June 30, 2005, and September 30, 2005, and for
the year ended December 31, 2005, included in the Company's Annual Report on
Form 10-KSB, and for the quarters ended March 31 and June 30, 2006. The Company
filed an 8-K on October 13, 2006 stating that its previously issued financial
statements for these periods should therefore no longer be relied upon.

The need to restate the Company's financial statements arises from the incorrect
application of generally accepted accounting principles related to two non-cash
transactions, the beneficial conversion feature on the issuance of the
convertible debt by the Company, and revised calculations of the Employee Stock
Options pursuant to FIN 28: Accounting for Stock Appreciation Rights and Other
Variable Stock Options or Award Plans, an Interpretation of APB Opinions Number
15 and 25 (FASB Interpretations). The restatement is not expected to have any
impact on the Company's statements of cash flows. Once the Company's review and
restatement of the financial statements for these periods is complete, the
Company will file amendments to these reports with the Securities and Exchange
Commission as soon as practicable.


                                       6
<PAGE>

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

In this Form 10-QSB, the Company has restated the prior comparative periods for
the three and nine months ended September 30, 2005 for the above stated
incorrect application of accounting principles. See Note 4 for further details
on the restated amounts for 2005.

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 oral fluid 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 $53,913,228 at September 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 efforts
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
nine month periods ended September 30, 2006 and 2005, have been prepared in
conformity with accounting principles generally accepted in the United States of
America. 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, which will be restated as mentioned in Notes 1 and 4.
Operating results for the three and nine month periods ended September 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)
                               SEPTEMBER 30, 2006

Recent Accounting Pronouncements:

SEC Staff Accounting Bulletin 108 ("SAB 108"), Considering the Effects of Prior
Year Misstatements when Qualifying Misstatements in Current Year Financial
Statements:

In September 2006, the SEC staff issued Staff Accounting Bulletin No. 108,
"Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements." SAB 108 was issued in order
to eliminate the diversity of practice surrounding how public companies quantify
financial statement misstatements.

Traditionally, there have been two widely-recognized methods for quantifying the
effects of financial statement misstatements: the "roll-over" method and the
"iron curtain" method. The roll-over method focuses primarily on the impact of a
misstatement on the income statement--including the reversing effect of prior
year misstatements--but its use can lead to the accumulation of misstatements in
the balance sheet. The iron-curtain method, on the other hand, focuses primarily
on the effect of correcting the period-end balance sheet with less emphasis on
the reversing effects of prior year errors on the income statement.

In SAB 108, the SEC staff established an approach that requires quantification
of financial statement misstatements based on the effects of the misstatements
on each of the company's financial statements and the related financial
statement disclosures. This model is commonly referred to as a "dual approach"
because it requires quantification of errors under both the iron curtain and the
roll-over methods.

SAB 108 permits existing public companies to initially apply its provisions
either by (i) restating prior financial statements as if the "dual approach" had
always been used or (ii) recording the cumulative effect of initially applying
the "dual approach" as adjustments to the carrying values of assets and
liabilities as of January 1, 2006 with an offsetting adjustment recorded to the
opening balance of retained earnings.

We will adopt the provisions of SAB 108 in connection with the preparation of
our annual financial statements for the year ending December 31, 2006. We are in
the process of evaluating the impact, if any, on our financial statements of
initially applying the provisions of SAB 108. .

Statement of Financial Accounting Standard 157, Fair Value Measurements ("SFAS
157"): On September 15, 2006, the Financial Accounting Standard Board issued a
standard that provides enhanced guidance for using fair value to measure assets
and liabilities. The standard applies whenever other standards require (or
permit) assets or liabilities to be measured at fair value. The standard does
not expand the use of fair value in any new circumstances. This Statement is
effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. Earlier
application is encouraged, provided that the reporting entity has not yet issued
financial statements for that fiscal year, including financial statements for an
interim period within that fiscal year. The Company will adopt this
pronouncement effective January 1, 2008. We are currently evaluating the impact
of adopting this pronouncement on our financial statements.

FSP FAS 123(R )-5, Amendment of FASB Staff Position FAS 123(R)-1:

FSP FAS 123(R )-5 was issued on October 10, 2006 . The FSP provides that
instruments that were originally issued as employee compensation and then
modified, and that modification is made to the terms of the instrument solely to
reflect an equity restructuring that occurs when the holders are no longer
employees, no change in the recognition or the measurement (due to a change in
classification) of those instruments will result if both of the following
conditions are met: (a). There is no increase in fair value of the award (or the
ratio of intrinsic value to the exercise price of the award is preserved, that
is, the holder is made whole), or the antidilution provision is not added to the
terms of the award in contemplation of an equity restructuring; and (b). All
holders of the same class of equity instruments (for example, stock options) are
treated in the same manner. The provisions in this FSP shall be applied in the
first reporting period beginning after the date the FSP is posted to the FASB
website. We will adopt this FSP from its effective date. We currently do not
believe that its adoption will have any impact on our financial statements.


                                       8
<PAGE>

                        STATSURE DIAGNOSTIC SYSTEMS, INC.
               NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
                               SEPTEMBER 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 employees 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. As a result, the compensation charge for these options
has been restated to $533,553 from $221,580.

The Balance Sheet as of December 31, 2005, the Statements of Operations for the
three and nine month periods ended September 30, 2005, and the Statements of
Cash Flows for the nine month period ended September 30, 2005 are now being
restated in this Form 10-QSB filing to give effect to the correction of these
two errors and certain resulting reclassification adjustments. The table below
details the items affected by the restatement:

                                               CONDENSED BALANCE SHEET
                                                  December 31, 2005
                                     ------------------------------------------
                                         As reported            As restated
                                     --------------------    -------------------
CURRENT LIABILITIES:
Debentures payable-net of discount   $  1,450,000               $    126,598

SHAREHOLDERS' DEFICIT:
Additional paid in capital             45,530,096                 44,425,696
Accumulated deficit                   (48,639,143)               (46,211,341)


                                       9
<PAGE>

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

<TABLE>
<CAPTION>
                                                           Three months ended                         Nine months ended
                                                           September 30, 2005                         September 30, 2005
                                                ----------------------------------------    --------------------------------------
                                                    As reported          As restated          As reported          As restated
                                                --------------------   -----------------    -----------------   ------------------
<S>                                                 <C>                  <C>                  <C>                 <C>
STATEMENTS OF OPERATIONS:

Selling, general and administrative                 $   247,058          $   227,302          $   910,951         $ 1,724,504
Stock  based  compensation  and  employment
recruiting expense- non cash                             92,586                 --                501,580                --
Loss from operations                                   (312,747)            (200,405)          (1,256,377)         (1,568,350)
Interest expense-net                                   (113,859)             (92,560)            (324,715)           (260,816)
Interest expense on beneficial                             --                (36,310)
conversion feature                                                                                   --              (121,449)
Financing costs                                            --                (21,299)                --               (63,899)
Net loss to common shareholders                        (426,606)            (350,574)          (1,581,092)         (2,014,514)
Basic and diluted net loss per share                      (0.01)               (0.01)               (0.05)              (0.06)
</TABLE>


<TABLE>
<CAPTION>
                                                                     Nine months ended September 30, 2005
                                                                 ----------------------------------------------
                                                                       As reported               As restated
                                                                 ------------------------    ------------------
<S>                                                               <C>                        <C>
STATEMENTS OF CASH FLOWS:

   Net loss                                                          $  (1,581,092)            $   (2,014,514)
   Adjustments to reconcile net loss to net
     cash used in operating activities:
   Options granted to employees                                            221,580                    533,553
   Beneficial conversion feature of convertible
       Debentures                                                                -                    121,449
   SUPPLEMENTAL  DISCLOSURE  OF NON-CASH  FLOW  FINANCING
   ACTIVITIES:
   Discount related to beneficial  conversion  feature of
   convertible debt                                                              -                  1,510,000
</TABLE>

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


                                       10
<PAGE>

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

5.    Diluted earning (loss) Per Common Share

Basic and diluted earnings (loss) per common share was calculated for all
periods in accordance with the requirements of Statement of Financial Accounting
Standards No. 128, "Earnings per Share". The following table sets forth the
computation of the diluted loss per share for the three and nine months ended
September 30, 2006 and 2005, respectively:

<TABLE>
<CAPTION>
                                           Three Months Ended               Nine Months Ended
                                              September 30                     September 30
                                       ----------------------------    ----------------------------
                                           2006            2005            2006           2005
                                                       As restated                     As restated
                                       ------------    ------------    ------------    ------------
<S>                                    <C>             <C>             <C>             <C>
Numerator:
Net income (loss) to common
  shareholders                         $    941,260    $   (350,574)   $ (7,755,637)   $ (2,014,514)
(Deduct)/Add:
   Mark-to-market gain (loss)            (1,547,877)             --         798,315              --
   Interest on convertible debt               6,982              --          27,121
   Dividends on preferred  stock
   payable in shares                         53,750              --          53,750              --
                                       ------------    ------------    ------------    ------------
Net loss to common  shareholders and
   assumed conversion                  $   (545,885)   $   (350,574)   $ (6,876,451)   $ (2,014,514)
                                       ------------    ------------    ------------    ------------
Denominator:
Share reconciliation:
Shares used for basic income (loss)
  per share                              36,783,334      31,720,578      34,518,741      31,335,938
Effect of dilutive items:
   Stock options                                 --              --              --              --
   Convertible securities                        --              --              --              --
                                       ------------    ------------    ------------    ------------
Shares used for diluted income
   (loss) per share                      36,783,334      31,720,578      34,518,741      31,335,938
                                       ------------    ------------    ------------    ------------
Income (loss) per share:
   Basic and diluted:                  $       0.03    $      (0.01)   $      (0.22)   $      (0.06)
</TABLE>

The numerator has been adjusted for the change in fair value of derivative
liability related to the convertible notes and warrants. The diluted
income(loss) per share for the three and nine months ended September 30, 2006
excludes from the calculation 3,847,188 shares issuable upon the exercise of
stock options and warrants, 4,871,594 shares issuable upon the conversion of
convertible securities and 55,850 shares issuable on payment of dividend on
preferred shares. These shares are excluded due to their anti-dilutive effect as
a result of the Company's net loss after adjusting for the change in fair value
of derivative income effect during these periods. The calculation for the three
and nine months ended September 30, 2005 excludes 4,463,000 shares issuable upon
exercise of stock options and warrants and 1,450,000 shares issuable upon
conversion of convertible securities due to net loss for these periods. For all
periods presented diluted income (loss) per share is the same as basic
income(loss) per share.


                                       11
<PAGE>

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

6.    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         For the nine
                               months ended         months ended
                               September 30,        September 30,
                           -------------------   -------------------
                             2006       2005       2006       2005
                           --------   --------   --------   --------

          United States    $ 58,604   $    600   $135,018   $152,098
          United Kingdom    117,290    147,373    462,428    376,777
          Africa             38,500     12,932     39,088     61,670
          Other              11,017     43,941     32,943     55,308
                           --------   --------   --------   --------

                           $225,411   $204,846   $669,477   $645,853
                           ========   ========   ========   ========


7.    Accounts Receivable

In 2005, the Company recorded a 100% allowance of $102,477 against a receivable
of $102,477 from one customer. We have given this account over to attorneys for
collection and at this time are uncertain if this will result in the collection
of this outstanding account.

8.    Equipment Under Construction

In 2004, the Company entered into agreements with vendors to have custom
assembly machinery built to assemble the Company's Statsure HIV test. We
purchased this equipment to produce production quantities of our "barrel"
technology based products in an automated and cost effective manner and had
expected to need it initially to satisfy the market demand of our first major
barrel product--the StatSure(TM) HIV test upon FDA approval. On September 29,
2006 the Company settled patent infringement litigation with Chembio Diagnostic
Systems, Inc., for which Chembio had obtained FDA approval. Under the terms of
the settlement, the HIV Barrel product will be manufactured by Chembio. The
Company is exploring alternate uses of this equipment. The equipment will be
depreciated commencing in the Fourth Quarter 2006.

9.    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


                                       12
<PAGE>

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

measurement date. Accordingly, the Company recognized this beneficial conversion
feature by charging an interest expense of $186,598 for the year ended December
31, 2005. 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
including interest of $109,608. The debenture holders accepted these shares as
full consideration for the outstanding convertible debentures. The Company
recognized an additional expense of $403,872 because of the induced conversion
to the debenture holders pursuant to the accounting requirements of SFAS No. 84,
Induced Conversions of Convertible Debt. The original terms of the debentures
called for them to be converted at $1.00 per share. The Company induced the
debenture holders to convert at $0.90 and $0.57 per share.

As of September 30, 2006, there are outstanding $337,500 of 9% Convertible
Debentures due in January 2009. Holders of the 9% Convertible Debentures are
entitled to convert principal amounts into shares of common stock at a
conversion price of $1.00.

Debentures payable-net of discount in the amount of $34,287, is net of gross
amount of debenture payables of $337,500 reduced by unamortized debt discount of
$303,213.

Although the Company is current in its interest payments to the debenture
holders, it previously was in default for not making payments on a timely basis.
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 September 30, 2006 of $337,500 plus accrued interest of
$10,653 has therefore been reflected as a current liability. The Company has not
received any notice of default from any of the holders of the outstanding
debentures.

10.   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. The agreement was amended on
September 4, 2006 so that the Company need no longer pay the quarterly accrued
interest but an amount of $60,000 quarterly as a principal reduction. If the
Company should default in these payments, the promissory note reverts to the
original maturity date of December 31, 2006. As of September 30, 2006, the loan
balance to this shareholder aggregated $1,594,146. An additional amount of
$185,460 of interest on this note has been accrued during 2006 and remains owed
as of September 30, 2006. The lender has filed a Uniform Commercial Code (UCC)
Lien on the Company's equipment and patents as security for this loan.

11.   Shareholders' Equity Transactions

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 September 30, 2006, monthly installments totaling 175,000 shares had been
earned. The Company has accounted for this issuance as per provisions FAS 123R
and EITF 96-18, "Accounting for Equity Instruments That Are Issued to Other Than
Employees" ("EITF 96-18"). Expense of $75,425 and $250,775 has been recorded in
the three and nine months ended September 30, 2006, respectively, in the
statements of operations.


                                       13
<PAGE>

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

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 9).

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 the investors upon conversion of their
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 the initial exercise price of $1.50 per share has been adjusted
to $1.00 per share as the contingent event stated in the agreement failed to
materialize. This $1.00 exercise price is subject to adjustments for certain
corporate events such as merger, reorganization or future sale of securities at
a price below the exercise price.

The Convertible Preferred Stock is convertible to shares of common stock at an
initial conversion price of $0.80 per share, which has been since adjusted to
$0.50 per share, as the contingent event stated in the agreement failed to
materialize. The conversion price of $0.50 per share is subject to adjustment in
the event of certain corporate events such as merger, reorganization or future
sale of securities at a price below the conversion rate. Cash dividends accrue
on the Convertible Preferred Stock at the rate of 8% per annum, payable
quarterly beginning in October 2006; or, at the Company's option, dividends are
payable in shares of the Company's common stock, accruing at the rate of 10% per
annum based on the volume-weighted average market price for shares of common
stock for the 10 trading days preceding payment. As of September 30, 2006, the
Company has accrued $53,750 in dividends at the rate of 10% per annum.

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

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

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


                                       14
<PAGE>

The Company is required to keep the Registration Statement continuously
effective until such date as is the earlier of (x) the date when all Registrable
Shares covered by the registration statement have been sold or (y) the date on
which the Registrable Shares may be sold without any restriction pursuant to
Rule 144 as determined by Counsel to the Company. The registration statement was
timely filed and declared effective, and no penalty was payable at September 30,
2006.

(SEE SUBSEQUENT EVENTS)

This preferred stock is being reflected as temporary equity on the balance sheet
as it has redemption features. However, the initial discount on issue of
preferred shares of $2,149,998 is not being accreted as currently there is no
probability of redemption of the preferred stock.

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 balance sheet.
As the proceeds from the issuance of preferred shares of $2,150,000 were less
than the combined fair value of the warrants and the conversion option, the
difference of $3,644,248 was charged to derivative expense, a non-operating
expense, in the statements of operations.

As of September 30, 2006, the liability for the value of the warrants and
conversion option was "marked to market" and the difference of $815,330 and
$550,852 been accounted for as a decrease to the derivative expense initially
recognized in the statements of operations. The liability for the value of the
conversion option and warrants will be "marked to market" in future accounting
periods until such time as the preferred shares are converted and the warrants
are exercised or they meet the criteria for equity classification.

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 $1.00 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 a charge to additional paid in capital.

In August 2006, the agreement with the agent was modified. As a result, the
Company agreed to issue additional warrants to purchase 161,250 shares of Common
Stock as an advisory fee to Chardan. The warrants were assigned an initial value
of $156,831 and have been accounted for as a charge to additional paid in
capital. These warrants have an exercise price of $1.00 per share and a ten year
life.

As of September 30, 2006, the liability for the agent warrants was "marked to
market" and the difference of $181,694 has been accounted for as a decrease to
the derivative 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.


                                       15
<PAGE>

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

12.   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.

As a result of the adoption of FAS 123 (R), the Company's results for the three
and nine month periods ended September 30, 2006 include share-based compensation
expense totaling $168,272 and $499,329, respectively. This expense pertains to
selling, general and administrative expenses and has been included in the
relevant 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 nine months
ended September 30, 2005 totaled $(19,756) and $533,553, 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.


                                       16
<PAGE>

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

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 $34,863 and $0
for the nine month periods ended September 30, 2006 and 2005, respectively.
These amounts are included in Statement of Operations within Selling, general
and administrative 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 September 30,
2006. The fair value for stock awards granted during the other periods was
estimated using the Black-Scholes option pricing model with the following
weighted average assumptions:

<TABLE>
<CAPTION>
                                                  Three months ended September 30,       Nine months ended September 30,
                                               -------------------------------------   -----------------------------------
                                                     2006               2005               2006                 2005
                                                                     (Pro forma)                            (Pro forma)
                                               -----------------   -----------------   -------------   -------------------
<S>                                            <C>                 <C>                 <C>             <C>
Expected term (in years)                                                     5                 5                    5
Expected stock price volatility                                            188%              182%                 191%
Risk-free interest rate                                                   4.18%             4.35%                4.13%
Expected dividend yield                                                      0%                0%                   0%
Estimated fair value per option granted                                  1.265             1.395                1.412
</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.

<TABLE>
<CAPTION>
                                                                     Three Month Period Ended    Nine Month Period Ended
                                                                        September 30, 2005         September 30, 2005
                                                                       (Pro forma Restated)       (Pro forma Restated)
                                                                     -------------------------   -----------------------
<S>                                                                       <C>                         <C>
     Net loss as restated                                                 $      (350,574)            $   (2,014,514)
     Add:  Stock-based  employee  compensation  expense included
         in  reported  net  loss,  net of  related  tax  affects                  (19,756)                   533,553
         (restated)
     Deduct:  Total stock-based  employee  compensation  expense
         determined  under  fair  value  based  method  for  all
         awards, net of related tax affects                                      (253,938)                  (983,698)
                                                                          ----------------            ---------------
     Pro forma net loss restated                                          $      (624,268)            $   (2,464,659)
                                                                          ================            ===============

     Basic and diluted net loss per share:
     As restated                                                          $         (0.01)            $        (0.06)
     Pro forma Restated                                                             (0.02)                     (0.08)
</TABLE>


                                       17
<PAGE>

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

The Company granted 100,000 and 550,000 employee stock options in the nine
months ended September 30, 2006 and 2005, respectively. 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
of $1.00.

The following table represents our stock options granted, exercised, and
forfeited during the nine month period ended September 30, 2006:

<TABLE>
<CAPTION>
                                                           Weighted Average            Weighted Average           Aggregate
                                                          Exercise Price per        Remaining Contractual      Intrinsic Value
           Stock Options          Number of Shares             Share ($)                 Term (years)                ($)
                                 --------------------   ------------------------    -----------------------    ----------------
<S>                                   <C>                       <C>                              <C>              <C>
Outstanding at
January 1, 2006                       1,151,000              $       1.65
Granted                                 100,000                      1.00
Exercised                                    -                       -
Forfeited/expired                       (51,000)                    19.23
                                    -----------              ------------
Outstanding at
September 30, 2006                    1,200,000              $       0.85                        8.68             $    312,000
                                    ===========              ============              ==============             ============
Exercisable at
September 30, 2006                      525,000              $       0.66                        8.73             $    237,750
                                    ===========              ============              ==============             ============
</TABLE>

As of September 30, 2006, there was $251,043 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.

13.   Contingencies

Legal Matters:

On September 29, 2006, the Company and Chembio Diagnostic Systems, Inc.
("Chembio) entered into a Settlement Agreement pursuant to which all matters in
their litigation regarding the Company's' barrel patent and other matters were
settled. In addition the parties entered into the Joint HIV Barrel Product
Commercialization Agreement, which provides that the parties will equally share
in the profits relating to all HIV Barrel Products including Chembio's SURE
CHECK(R) HIV 1/2 after reimbursement to Chembio of its manufacturing and related
costs, as defined, and that they will act jointly in the HIV barrel field. The
settlement combines each company's HIV barrel intellectual property, including
an exclusive manufacturing license to Chembio of its barrel patent for all HIV
applications.

To the best knowledge of the Company, no other material legal proceedings are
pending.

Economic Dependency:

For the nine months ended September 30, 2006, sales to two customers were in
excess of 10% of the Company's total sales. Sales to these customers were
approximately $462,000 and $131,000 and accounts receivable from these customers
as of September 30, 2006, aggregated $65,400 and $55,400, respectively.


                                       18
<PAGE>

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

During the third quarter of 2006, the Company had three customers that accounted
for 94% of product sales ($117,000, $55,000, and $39,000). The loss of either of
our two largest 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 nine months ended September 30, 2006, purchases from six suppliers were
in excess of 10% of the Company's total purchases. The purchases from these
suppliers for the nine months ended September 30, 2006 ranged from $24,000 to
$44,000. The corresponding accounts payable at September 30, 2006, to these
suppliers, was $8,356.

14.   Subsequent Events

In October 2006, 170 shares of the Company's 2006 Series A Convertible Preferred
Stock were converted into 340,000 shares of the Company's common stock.

In October 2006, a dividend was paid on the Company's 2006 Series A Convertible
Preferred Stock with 55,850 shares of the Company's common stock.

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


                                       19
<PAGE>

                        STATSURE DIAGNOSTIC SYSTEMS, INC.
                               SEPTEMBER 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 2006 and 2005, the Company's products have been purchased by
foreign governments, distributors, and laboratories.

On September 29, 2006, SSUR.OB announced it had signed several agreements
relating to its patented barrel technology for use in screening antibodies to
HIV (AIDS). As part of a three-way alliance with Inverness Medical Innovations
(AMEX:IMA) and Chembio Diagnostics (CEMI.OB), StatSure signed a worldwide,
exclusive distribution deal for a rapid, point-of-care (POC) HIV test with
Inverness (a leading marketing and distribution organization for many POC
products). In a two-way deal with Chembio, StatSure settled their multi-year
patent litigation with StatSure granting Chembio an exclusive manufacturing
license for its recently FDA cleared HIV Barrel Product. This product will be
marketed under the IMA brand. An additional 2- way agreement with CEMI.OB, a
"Joint HIV Barrel Commercialization Agreement" was finalized that establishes a
long- term strategic "partnership", wherein both companies equally split their
margin dollars of the HIV Barrel Products once the actual cost of manufacturing
is reimbursed.

Some terms of the agreement are:

      o     Inverness will market the "Barrel" HIV test under Inverness brands
            globally [subject only to certain existing international agreements
            that the Company and StatSure may keep in place for up to one year];

      o     Inverness will be the exclusive distributor/marketor of the "Barrel"
            HIV test under the agreement as well as any new HIV products in the
            "barrel field" that are developed, and may not compete with any
            products in this field worldwide as defined;

      o     The Company granted Inverness exclusive marketing and distribution
            rights to their intellectual property in the HIV barrel field; and
            Inverness also granted the Company a license to its lateral flow
            technology for an HIV cassette product as well as for certain other
            products.


                                       20
<PAGE>

                        STATSURE DIAGNOSTIC SYSTEMS, INC.
                               SEPTEMBER 30, 2006

The Company believes 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. The U.S. Centers for Disease
Control and Prevention (CDC) published on Sept 26, 2006; new recommendations for
health care providers that are designed to make voluntary HIV screening a
routine part of medical care for all patients aged 13 to 64. Highlights of the
new recommendations for health care settings from the CDC (Center for Disease
Control and Prevention): http://www.cdc.gov/od/oc/media/pressrel/r060921.htm

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. 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
emerge as a new market. The Company believes that the two- and three-way
strategic relationships that were signed on September 29, 2006, will accelerate
the commercialization of this technology and decrease certain risks the Company
had relating to costs and timing of obtaining FDA clearance for its HIV barrel
technology. However, there can be no assurance that we will receive significant
revenues from the three-way licensing, marketing and distribution arrangement
(among the Company, Inverness Medical Innovations and Chembio Diagnostics,
Inc.), 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 had entered into a number of
agreements with distributors who are now in breach of the contractual terms. The
relationship with each of these distributors is under review as a result of our
signing the three-way strategic alliance with IMA.

We continue to distribute our StatSure(TM) HIV test (on a very limited basis)
and Saliva Sampler(R) oral fluid collection product through our current
distribution networks. 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.

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.

On On June 8, 2006, the Company completed a 2006 Series A Convertible Preferred
Stock Offering for $2,150,000.

In the course of a routine SEC review of the Company's periodic filings, the SEC
issued a comment letter dated October 4, 2006, alerting the Company to a
possible incorrect application of certain accounting principles. On October 12,
2006, the Audit Committee of the Company's Board of Directors concluded based
upon the recommendation of the Company's management and independent auditors,
that the Company will restate its previously issued financial statements for the
quarters ended March 31, 2005, June 30, 2005, and September 30, 2005, and for
the year ended December 31, 2005, included in the Company's Annual Report on
Form 10-KSB, and for the quarters ended March 31 and June 30, 2006. The Company
filed an 8-K on October 13, 2006 stating inform that its previously issued
financial statements for these periods should therefore no longer be relied
upon.

The need to restate the Company's financial statements arises from the incorrect
application of generally accepted accounting principles related to two non-cash
transactions, the beneficial conversion feature on the issuance of the
convertible debt by the Company, and revised calculations of the Employee Stock
Options pursuant to FIN 28: Accounting for Stock Appreciation Rights and Other
Variable Stock Options or Award Plans, an Interpretation of APB Opinions Number
15 and 25 (FASB Interpretations). The restatement is not expected to have any
impact on the Company's statements of cash flows. The Company has filed its
response to the SEC and it is estimated that the Company will file an amended
Form 10-KSB and Forms 10-QSB for the relevant periods with the SEC as soon as
the SEC's comments are resolved. In this Form 10-QSB, the Company has restated
the prior comparative periods for the three and nine months ended September 30,
2005 for the above stated incorrect application of accounting principles. For
more information on the restatement, see "Restatement of 2005 periods" below.


                                       21
<PAGE>

                        STATSURE DIAGNOSTIC SYSTEMS, INC.
                               SEPTEMBER 30, 2006

On October 24, 2006, the Company notified the U.S. Food and Drug Administration
("FDA) that it was withdrawing its pending Pre-Market Approval application for a
rapid HIV diagnostic screening product employing the Company's patented "barrel"
technology. The Company determined there is no need to obtain Pre-Market
Approval for its own HIV Barrel Product as commercialization of its barrel
technology will be undertaken by means of the aforementioned arrangement.

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 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 September 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 of 2005 Periods

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 employees 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. As a result, the compensation charge for these options
has been restated to $533,553 from $221,580.


                                       22
<PAGE>

                        STATSURE DIAGNOSTIC SYSTEMS, INC.
                               SEPTEMBER 30, 2006

The Balance Sheet as of December 31, 2005, the Statements of Operations for the
three and nine month periods ended September 30, 2005, and the Statements of
Cash Flows for the nine month period ended September 30, 2005 are now being
restated in this Form 10-QSB filing to give effect to the correction of these
two errors and certain resulting reclassification adjustments. The table below
details the items affected by the restatement:

                                            CONDENSED BALANCE SHEET
                                               December 31, 2005
                                     ----------------------------------------
                                         As reported            As restated
                                     --------------------    ----------------
CURRENT LIABILITIES:
Debentures payable-net of discount      $  1,450,000           $    126,598

SHAREHOLDERS' DEFICIT:
Additional paid in capital                45,530,096             44,425,696
Accumulated deficit                      (48,639,143)           (46,211,341)


                                       23
<PAGE>

                        STATSURE DIAGNOSTIC SYSTEMS, INC.
                               SEPTEMBER 30, 2006

<TABLE>
<CAPTION>
                                                  Three months ended            Nine months ended
                                                  September 30, 2005            September 30, 2005
                                              --------------------------    --------------------------
                                              As reported    As restated    As reported    As restated
                                              -----------    -----------    -----------    -----------
<S>                                           <C>            <C>            <C>            <C>
STATEMENTS OF OPERATIONS:

Selling, general and administrative           $   247,058    $   227,302    $   910,951    $ 1,724,504
Stock  based  compensation  and  employment
recruiting expense- non cash                       92,586           --          501,580           --
Loss from operations                             (312,747)      (200,405)    (1,256,377)    (1,568,350)
Interest expense-net                             (113,859)       (92,560)      (324,715)      (260,816)
Interest expense on beneficial
conversion feature                                   --          (36,310)                     (121,449)
Financing costs                                      --          (21,299)                      (63,899)
Net loss to common shareholders                  (426,606)      (350,574)    (1,581,092)    (2,014,514)
Basic  and  diluted  net loss per share             (0.01)         (0.01)         (0.05)         (0.06)
</TABLE>

<TABLE>
<CAPTION>
                                                             Nine months ended
                                                             September 30, 2005
                                                         --------------------------
                                                         As reported    As restated
                                                         ------------   -----------
<S>                                                      <C>            <C>
STATEMENTS OF CASH FLOWS:

Net loss                                                 $(1,581,092)   $(2,014,514)
Adjustments to reconcile net loss to net
  cash used in operating activities:
Options granted to employees                                 221,580        533,553
Beneficial conversion feature of convertible
    Debentures                                                  --          121,449
SUPPLEMENTAL  DISCLOSURE  OF NON-CASH  FLOW  FINANCING
ACTIVITIES:
Discount related to beneficial  conversion  feature of          --        1,510,000
convertible debt
</TABLE>

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


                                       24
<PAGE>

                        STATSURE DIAGNOSTIC SYSTEMS, INC.
                               SEPTEMBER 30, 2006

RESULTS OF OPERATIONS

Third Quarter and First Nine Months of 2006 Compared to Third Quarter and First
Nine Months of 2005

Revenues. The Company's revenues consist of product sales and royalties.
Revenues increased 10% to $225,411 in the third quarter of 2006 yielding a gross
margin of $144,981 or 64% from revenues of $204,846 in the third quarter of
2005, yielding a gross margin of $129,346 or 63%. Revenues increased 4% to
$669,477 in the first nine months of 2006 yielding a gross margin of $442,950 or
66% from $646,399 in the first nine months of 2005 yielding a gross margin of
$420,159 or 65%. 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 nine months ended September 30,
2006, sales to two customers were in excess of 10% of the Company's total sales.
Sales to these customers were approximately $462,000 and $131,000.

Cost of products sold: Costs of products sold increased to $80,430 (36% of
product sales) in the third quarter of 2006 from $75,500 (37% of product sales)
in the third quarter of 2005, and increased to $226,527 (34% of product sales)
in the first nine months of 2006 from $226,240 (35% of product sales) in the
first nine months of 2005. Gross margins for the periods were stable and the
Company did not have any unanticipated events.

Research and development expenses: Research and development expenses decreased
to $6,273 in the third quarter of 2006 from $102,449 in the third quarter of
2005 and decreased to $148,888 in the first nine months of 2006 from $264,005 in
the first nine months of 2005. The decrease is due to fewer consulting expenses
incurred with our HIV test. R&D costs are expected to decrease from previous
year's levels as the Company will no longer be applying for FDA PMA approval for
its "barrel" format HIV test, due to an agreement signed with Inverness Medical
and Chembio Diagnostics.

Selling, general and administrative expenses: Selling, general and
administrative expenses increased 130% to $523,350 in the third quarter of 2006
from $227,302 in the third quarter of 2005 and increased 5% to $1,809,007 in the
first nine months of 2006 from $1,724,504 in the first nine months of 2005. This
increase is due to significantly greater expenses for consulting, professional
fees, amortization expense, and payroll. Of these amounts stock based
compensation and employment recruiting expenses- non cash, decreased 35% to $
from $408,994 in the third quarter of 2006, versus the third quarter of 2005 and
decreased 1% to $808,209 from $813,553 in the first nine months of 2006 versus
the same period in 2005. The amount for the third quarter of 2005 has been
restated from $92,586 to $(19,756) to account for variable options granted to an
employee in accordance with FIN 28. The stock based compensation for third
quarter of 2006 comprises amortization charges for employee and director options
accounted under FAS 123(R) of $168,272 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 third quarter of 2006 of
$384,642 reflects a 92% increase in loss from the $200,405 loss reported for the
third quarter of 2005; and the loss from operations for the first nine months of
2006 of $1,514,945 reflects a 3% decrease from the $1,568,350 loss reported for
the first nine months of 2005. Decreased expenses for stock based compensation
in 2006 contributed to the Company's decreased loss.

Interest expense: Interest expense increased to $110,578 in the third quarter of
2006 from $92,560 in the third quarter of 2005 and decreased to $256,420 in the
first nine months of 2006 from $260,816 in the first nine months of 2005.
Interest expense on beneficial conversion feature increased slightly to $36,347
in the third quarter of 2006 from $36,310 in the third quarter of 2005 and
increased to $1,020,189 in the first nine months of 2006 from $121,449 in the
first nine months of 2005. The increase of non-cash interest expense was due to
amortization of beneficial conversion feature of debentures.

Derivative income (expense): Non-cash derivative income of $1,547,877 and
derivative expense of $798,315 for the three and nine months ended September 30,
2006 was due to the mark-to market adjustment on embedded derivatives
principally driven by the decrease in our common stock price from $1.50 to
$1.11. The Company did not have derivative instruments in the same periods of
2005.


                                       25
<PAGE>

                        STATSURE DIAGNOSTIC SYSTEMS, INC.
                               SEPTEMBER 30, 2006

Financing costs: Financing costs increased to $3,708,146 in the first nine
months of 2006 from $63,899 in the first nine months of 2005. All of the
increase was due to the Series 2006-A convertible preferred stock financing and
the application of derivative accounting.

Debt conversion 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 third quarter of
2005.

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.

                             September 30, 2006           December 31, 2005
                             ------------------           -----------------
Cash and cash equivalents     $      260,865                $       76,321
Working capital (deficit)           (309,199)                     (876,207)


Net cash used in operating activities in the first nine months of 2006 was
$890,988. Net cash used in the first nine months of 2005 was $735,200. In 2006,
the increase in cash used by operations was primarily due to the increase of the
net loss of $7,701,887 (2006) and $2,014,514 (2005). The following expenses
showed significant changes between the first nine months of 2006 when compared
to the first nine months of 2005:

      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(increased 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 (increased in 2006)
      o     Insurance (increased in 2006)
      o     Recruiting expense (decreased in 2006)
      o     Director fees (increased in 2006)

Net cash used in operating activities for 2005 was not impacted by the
aforementioned restatement.

Cash used in investing activities in the first nine months of 2006 was $52,178
as compared to $284,329 in the first nine months of 2005. The significant
changes were equipment costs $1,321 in 2006 and $122,729 in 2005. Deferred
finance costs in 2005 were $160,000; the Company did not incur similar costs in
2006


                                       26
<PAGE>

                        STATSURE DIAGNOSTIC SYSTEMS, INC.
                               SEPTEMBER 30, 2006

Cash provided by financing activities in the first nine months of 2006 was
$1,127,710, and in the first nine months of 2005 was $891,760. 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 $761,290 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.

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. The agreement was amended on
September 4, 2006 that the Company need no longer pay the quarterly accrued
interest but an amount of $60,000 quarterly as a principal reduction. If the
Company should default in these payments, the promissory note reverts to the
original maturity date of December 31, 2006. As of September 30, 2006, the loan
balance to this shareholder aggregated $1,594,146. An additional amount of
$185,460 of interest on this note has been accrued during 2006 and remains owed
as of September 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 $186,598 for the year ended December 31, 2005.
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 including
interest of $109,608. The debenture holders accepted these shares as full
consideration for the outstanding convertible debentures. The Company recognized
an additional expense of $403,872 because of the induced conversion to the
debenture holders pursuant to the accounting requirements of SFAS No. 84,
Induced Conversions of Convertible Debt. The original terms of the debentures
called for them to be converted at $1.00 per share. The Company induced the
debenture holders to convert at $0.90 and $0.57 per share.


                                       27
<PAGE>

                        STATSURE DIAGNOSTIC SYSTEMS, INC.
                               SEPTEMBER 30, 2006

As of September 30, 2006, there are outstanding $337,500 of 9% Convertible
Debentures due in January 2009. Holders of the 9% Convertible Debentures are
entitled to convert principal amounts into shares of common stock at a
conversion price of $1.00.

Debentures payable-net of discount in the amount of $34,287, is net of gross
amount of debenture payables of $337,500 reduced by unamortized debt discount of
$303,213.

Although the Company is current in its interest payments to the debenture
holders, it previously was in default for not making payments on a timely basis.
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 September 30, 2006 of $337,500 reduced by unamortized
debt discount of $303,213 plus accrued interest of $10,653 has therefore been
reflected as a current liability. The Company has not received any notice of
default from any of the holders of the outstanding debentures.

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 September 30, 2006, the Company recorded director fees of $34,863.

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 September 30, 2006, monthly installments totaling 175,000 shares had been
earned. The Company has accounted for this issuance as per provisions FAS 123R
and EITF 96-18, "Accounting for Equity Instruments That Are Issued to Other Than
Employees" ("EITF 96-18"). Expense of $75,425 and $250,775 has been recorded in
the three and nine months ended September 30, 2006, respectively, in the
statements of operations.

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.

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 the investors upon conversion of their
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 the initial exercise price of $1.50 per share has been adjusted
to $1.00 per share as the contingent event stated in the agreement failed to
materialize. This $1.00 exercise price is subject to adjustments for certain
corporate events such as merger, reorganization or future sale of securities at
a price below the exercise price.


                                       28
<PAGE>

                        STATSURE DIAGNOSTIC SYSTEMS, INC.
                               SEPTEMBER 30, 2006

The Convertible Preferred Stock is convertible to shares of common stock at an
initial conversion price of $0.80 per share, which has been since adjusted to
$0.50 per share, as the contingent event stated in the agreement failed to
materialize. The conversion price of $0.50 per share is subject to adjustment in
the event of certain corporate events such as merger, reorganization or future
sale of securities at a price below the conversion rate. Cash dividends accrue
on the Convertible Preferred Stock at the rate of 8% per annum, payable
quarterly beginning in October 2006; or, at the Company's option, dividends are
payable in shares of the Company's common stock, accruing at the rate of 10% per
annum based on the volume-weighted average market price for shares of common
stock for the 10 trading days preceding payment. As of September 30, 2006, the
Company has accrued $53,750 in dividends at the rate of 10% per annum.

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

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

The Company is required to keep the Registration Statement continuously
effective until such date as is the earlier of (x) the date when all Registrable
Shares covered by the registration statement have been sold or (y) the date on
which the Registrable Shares may be sold without any restriction pursuant to
Rule 144 as determined by Counsel to the Company. The registration statement was
timely filed and declared effective, and no penalty was payable at September 30,
2006.

(SEE SUBSEQUENT EVENTS BELOW)

This preferred stock is being reflected as temporary equity on the balance sheet
as it has redemption features. However, the initial discount on issue of
preferred shares of $2,149,998 is not being accreted as currently there is no
probability of redemption of the preferred stock.

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 balance sheet.
As the proceeds from the issuance of preferred shares of $2,150,000 were less
than the combined fair value of the warrants and the conversion option, the
difference of $3,644,248 was charged to financing costs, a non-operating
expense, in the statements of operations.

As of September 30, 2006, the liability for the value of the warrants and
conversion option was "marked to market" and the difference of $815,330 and
$550,852 been accounted for as a decrease to the derivative expense initially
recognized in the statements of operations. The liability for the value of the
conversion option and warrants will be "marked to market" in future accounting
periods until such time as the preferred shares are converted and the warrants
are exercised or they meet the criteria for equity classification.

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 $1.00 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 a charge to additional paid in capital.


                                       29
<PAGE>

                        STATSURE DIAGNOSTIC SYSTEMS, INC.
                               SEPTEMBER 30, 2006

In August 2006, the agreement with the agent was modified. As a result, the
Company agreed to issue additional warrants to purchase 161,250 shares of Common
Stock as an advisory fee to Chardan. The warrants were assigned an initial value
of $156,831 and have been accounted for as a charge to additional paid in
capital. These warrants have an exercise price of $1.00 per share and a ten year
life.

As of September 30, 2006, the liability for the agent warrants was "marked to
market" and the decrease of $181,694 for the three and nine months ended
September 30, 2006, has been accounted for as derivative income 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 September 30, 2006.


     Obligations               Total       Less than 1 year      1-3 years
                          --------------   ----------------   -------------
     Long-term debt       $    1,931,646      $   577,500     $   1,354,146
     Operating leases             83,000           61,000            22,000

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.

SUBSEQUENT EVENT

In October 2006, 170 shares of the Company's 2006 Series A Convertible Preferred
Stock were converted into 340,000 shares of the Company's common stock.

In October 2006, a dividend was paid on the Company's 2006 Series A Convertible
Preferred Stock with 55,850 shares of the Company's common stock.

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


                                       30
<PAGE>

                        STATSURE DIAGNOSTIC SYSTEMS, INC.
                               SEPTEMBER 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 chief
executive officer and chief financial officer, the effectiveness of the design
and operation of our "disclosure controls and procedures" [as defined in the
Securities Exchange Act of 1934, Rules 13a - 15(e) and 15d - 15(e)]. It is noted
that the Company has been delinquent on this current filing with the SEC. The
reason for the delay is the accounting for complex financing transactions and
addressing accounting restatements in response to recent SEC routine inquiry.
The Company has hired an outside consultant to assist with accounting for
complex financing transactions in this quarter and it is anticipated that the
Company will be able to file in the future with the SEC on a timely basis. As a
result, our chief executive officer and chief financial officer have concluded
that as of the date of the evaluation our disclosure controls and procedures
were not effective to ensure that all material information required to be filed
in this report has been made known to them. However with the assistance of
outside consultants and other improvements that are being made, our chief
executive officer and chief financial officer believe that the reporting process
is now stronger and effective and will result in timely filings in the future.

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.


                                       31
<PAGE>

                        STATSURE DIAGNOSTIC SYSTEMS, INC.
                               SEPTEMBER 30, 2006

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

None

Item 2. CHANGES IN SECURITIES

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 the investors upon conversion of their
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 the initial exercise price of $1.50 per share has been adjusted
to $1.00 per share as the contingent event stated in the agreement failed to
materialize. This $1.00 exercise price is subject to adjustments for certain
corporate events such as merger, reorganization or future sale of securities at
a price below the exercise price.

The Convertible Preferred Stock is convertible to shares of common stock at an
initial conversion price of $0.80 per share, which has been since adjusted to
$0.50 per share, as the contingent event stated in the agreement failed to
materialize. The conversion price of $0.50 per share is subject to adjustment in
the event of certain corporate events such as merger, reorganization or future
sale of securities at a price below the conversion rate. Cash dividends accrue
on the Convertible Preferred Stock at the rate of 8% per annum, payable
quarterly beginning in October 2006; or, at the Company's option, dividends are
payable in shares of the Company's common stock, accruing at the rate of 10% per
annum based on the volume-weighted average market price for shares of common
stock for the 10 trading days preceding payment. As of September 30, 2006, the
Company has accrued $53,750 in dividends at the rate of 10% per annum.

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

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

The Company is required to keep the Registration Statement continuously
effective until such date as is the earlier of (x) the date when all Registrable
Shares covered by the registration statement have been sold or (y) the date on
which the Registrable Shares may be sold without any restriction pursuant to
Rule 144 as determined by Counsel to the Company. The registration statement was
timely filed and declared effective, and no penalty was payable at September 30,
2006. (SEE SUBSEQUENT EVENTS)

This preferred stock is being reflected as temporary equity on the balance sheet
as it has redemption features. However, the initial discount on issue of
preferred shares of $2,149,998 is not being accreted as currently there is no
probability of redemption of the preferred stock.


                                       32
<PAGE>

                        STATSURE DIAGNOSTIC SYSTEMS, INC.
                               SEPTEMBER 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 balance sheet.
As the proceeds from the issuance of preferred shares of $2,150,000 were less
than the combined fair value of the warrants and the conversion option, the
difference of $3,644,248 was charged to derivative expense, a non-operating
expense, in the statements of operations.

As of September 30, 2006, the liability for the value of the warrants and
conversion option was "marked to market" and the difference of $815,330 and
$550,852 been accounted for as a decrease to the derivative expense initially
recognized in the statements of operations. The liability for the value of the
conversion option and warrants will be "marked to market" in future accounting
periods until such time as the preferred shares are converted and the warrants
are exercised or they meet the criteria for equity classification.

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 a charge to additional paid in capital.

In August 2006, the agreement with the agent was modified. As a result, the
Company agreed to issue additional warrants to purchase 161,250 shares of Common
Stock as an advisory fee to Chardan. The warrants were assigned an initial value
of $156,831 and have been accounted for as a charge to additional paid in
capital. These warrants have an exercise price of $0.50 per share and a ten year
life.

As of September 30, 2006, the liability for the agent warrants was "marked to
market" and the difference of $181,694 has been accounted for as a decrease 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.

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 $186,598 for the year ended December 31, 2005.
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 including
interest of $109,608. The debenture holders accepted these shares as full
consideration for the outstanding convertible debentures. The Company recognized
an additional expense of $403,872 because of the induced conversion to the
debenture holders pursuant to the accounting requirements of SFAS No. 84,
Induced Conversions of Convertible Debt. The original terms of the debentures
called for them to be converted at $1.00 per share. The Company induced the
debenture holders to convert at $0.90 and $0.57 per share.


                                       33
<PAGE>

                        STATSURE DIAGNOSTIC SYSTEMS, INC.
                               SEPTEMBER 30, 2006

As of September 30, 2006, there are outstanding $337,500 of 9% Convertible
Debentures due in January 2009. Holders of the 9% Convertible Debentures are
entitled to convert principal amounts into shares of common stock at a
conversion price of $1.00.

Debentures payable-net of discount in the amount of $34,287, is net of gross
amount of debenture payables of $337,500 reduced by unamortized debt discount of
$303,213.

Although the Company is current in its interest payments to the debenture
holders, it previously was in default for not making payments on a timely basis.
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 September 30, 2006 of $337,500 plus accrued interest of
$10,653 has therefore been reflected as a current liability. The Company has not
received any notice of default from any of the holders of the outstanding
debentures.

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

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

None

ITEM 5. OTHER INFORMATION

None


                                       34
<PAGE>

                        STATSURE DIAGNOSTIC SYSTEMS, INC.
                               SEPTEMBER 30, 2006

ITEM 6. EXHIBITS

(a)   Exhibit index

Exhibit
------
4.18        Certificate of Designation of the Relative Rights and Preferences of
            the Series 2006 A Convertible Preferred Stock (1)

10.18       Series A Convertible Preferred Stock Purchase Agreement, dated as of
            June 8, 2006, among the Company and certain investors (1)

10.19       Form of common stock purchase warrant issued by the Company on June
            8, 2006 (1)

10.20       HIV Barrel License, Marketing and Distribution Agreement, dated as
            of September 29, 2006, by and among the Company, Inverness and
            Chembio(2)

10.21       Joint HIV Barrel Product Commercialization Agreement, dated as of
            September 29, 2006, between the Company and Chembio(2)

10.22       Settlement Agreement, dated September 29, 2006, between the Company
            and Chembio(2)

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.

      (1)   Incorporated by reference to the Registrant's registration statement
            on Form SB-2 filed with the Commission on August 04, 2006.

      (2)   Incorporated by reference to the Registrant's Current Report on Form
            8-K filed with the Commission on October 06, 2006


                                       35
<PAGE>

                        STATSURE DIAGNOSTIC SYSTEMS, INC.
                               SEPTEMBER 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: November 28, 2006

                              STATSURE DIAGNOSTIC SYSTEMS, INC.


                              /s/ Steve M. Peltzman
                              --------------------------------------
                              Steve M. Peltzman
                              Chief Executive Officer
                              (principal executive officer)


                              /s/ Leo Ehrlich
                              --------------------------------------
                              Leo Ehrlich
                              Chief Financial Officer
                              (principal financial officer)


                                       36