SALIVA DIAGNOSTIC SYSTEMS INC, S-3/A, 1997-09-26

SALIVA DIAGNOSTIC SYSTEMS INC
S-3/A, 1997-09-26
SURGICAL & MEDICAL INSTRUMENTS & APPARATUS

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<PAGE> 1

As filed with the Securities and Exchange Commission on September 26, 1997
Registration No. 333-33429

================================================================================

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

------------------------

AMENDMENT NO. 1 TO

FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

Saliva Diagnostic Systems, Inc.
-----------------------------------------------------------------
(Exact name of registrant as specified in its charter)

DELAWARE
-----------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)

91-1549305
------------------------------------
(I.R.S. Employer Identification No.)

11719 NE 95th Street
Vancouver, Washington 98682
(360) 696-4800
-------------------------------------------------------------
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)

Kenneth J. McLachlan, President
Saliva Diagnostic Systems, Inc.
11719 NE 95th Street
Vancouver, Washington 98682
(360) 696-4800
-------------------------------------------------------------
(Name, address, including zip code, and telephone number,
including area code, of agent for service)

Copies of all correspondence to:

LaDawn Naegle, Esq.
Bryan Cave LLP
700 13th Street, N.W., Suite 700
Washington, D.C. 20005-3960
(202) 508-6000

Approximate date of commencement of proposed sale to public: From time to
time after this Registration Statement becomes effective.
<PAGE> 2
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]

If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] __________________

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _________________

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Title of each class Proposed maximum Proposed maximum
of securities to be Amount to be offering price per aggregate offering Amount of
registered registered(1) unit (2) price (2) registration fee(3)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par
value $.01 per 4,559,632 shares $1.078 $3,902,081.39 $1,182.44
share
- -----------------------------------------------------------------------------------------------------------------
</TABLE>

(1) A total of 3,247,442 shares were the subject of the initial filing.
This Amendment No. 1 includes for registration an additional 1,312,190
shares.

(2) Estimated solely for purposes of determining the registration fee
pursuant to Rule 457(c), based upon the average of the closing bid and
ask prices for 3,247,442 shares of the Common Stock of $0.766 on
August 6, 1997 and for 1,312,190 shares of $1.078 on September 23,
1997, as reported by the Nasdaq Small Cap Market.

(3) Includes filing fee of $428.65 accompanying this filing. Also includes a
filing fee of $753.79 on 3,247,442 shares of the securities being
registered on this form, which was paid on a previous filing.

-------------------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

SUBJECT TO COMPLETION DATED SEPTEMBER 26, 1997

PROSPECTUS
SALIVA DIAGNOSTIC SYSTEMS, INC.

4,559,632 SHARES OF COMMON STOCK

Saliva Diagnostic Systems, Inc. (the "Company") is registering for
resale up to 4,559,632 shares (the "Shares") of its common stock, $.01 par
value (the "Common Stock"), which include (i) 571,429 shares which have been
and may be issued in accordance with the terms of a Common Stock Subscription
Agreement dated June 30, 1997 by and between the Company and The Tail Wind Fund
Ltd. ("Tail Wind") (the "Tail Wind Subscription Agreement"); (ii) 2,220,000
shares which have been issued in accordance with the terms of a Common Stock
Subscription Agreement dated June 30, 1997 by and among the Company and certain
other investors (the "Investors"); (iii) 1,428,571 shares which have been and
may be issued in accordance with the terms of a Common Stock Subscription
Agreement dated as of August 22, 1997 by and between the Company and an
additional Investor; (iv) 100,000 shares which may be issued upon the exercise
of warrants granted to Tail Wind (the "Tail Wind Warrants"); (v) 194,632 shares
which may be issued upon the exercise of warrants granted to Grayson &
Associates, Inc. (the "Grayson Warrants"); and (vi) 45,000 shares which were
issued upon the exercise of certain warrants. All of the Common Stock offered
hereby is being offered for the account of certain shareholders of the Company
which acquired their securities in private placements conducted by the Company.
See "Selling Shareholders." Additional shares that may become issuable as a
result of the anti-dilution provisions of the Tail Wind Warrants and the
Grayson Warrants are offered hereby pursuant to Rule 416 under the Securities
Act of 1933, as amended (the "Securities Act"). The Company will not receive
any of the proceeds from the sale of the Common Stock being offered hereby (the
"Offering"), but will receive the exercise price payable upon the exercise of
the Tail Wind Warrants and the Grayson Warrants. There can be no assurance
that all or any part of the Tail Wind Warrants or the Grayson Warrants will be
exercised or that they will be exercised for cash.

The Shares may be sold from time to time in transactions
(which may include block transactions) on the Nasdaq Small Cap Market at the
market prices then prevailing. Sales of the Shares may also be made through
negotiated transactions or otherwise. The Selling Shareholders and the brokers
and dealers through which the sales of the Shares may be made may be deemed to
be "underwriters" within the meaning set forth in the Securities Act, and their
commissions and discounts and other compensation may be regarded as
underwriters' compensation. See "Plan of Distribution."

THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND SHOULD
NOT BE PURCHASED BY INVESTORS WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE
INVESTMENT. PROSPECTIVE PURCHASERS SHOULD CAREFULLY CONSIDER THE MATTERS
DISCUSSED UNDER "RISK FACTORS" BEGINNING ON PAGE 4.

-------------------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.

-------------------------------------

<TABLE>
<CAPTION>
Price to Public(1) Proceeds to Selling Shareholders(1)(2)
--------------- --------------------------------
<S> <C> <C>
Per Share of Common Stock $1.031 $1.031

Total(3) $4,700,981 $4,700,981
</TABLE>

(1) Estimated based upon the average of the high and low sales prices for the
Common Stock on September 23, 1997 as reported by Nasdaq.
(2) Excludes regular brokerage commissions and other expenses, including
expenses of counsel in excess of $10,000, if any, for Tail Wind and the
Investors, which will be paid by Tail Wind and the Investors, respectively.
The other expenses of the Offering are estimated to be approximately $23,680,
all of which will be paid by the Company.
(3) Assumes all Shares registered will be issued to the Selling Shareholders
and will be sold in this Offering.

-----------------------------------------------
The date of this Prospectus is September __, 1997

<PAGE> 4
AVAILABLE INFORMATION

The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files reports and other information with the Securities
and Exchange Commission (the "Commission"). Such reports and other information
can be inspected and copied at the public reference facilities maintained by
the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549;
and the Commission's regional offices at Room 1204, 219 South Dearborn Street,
Chicago, Illinois 60604; Room 1028, 7 World Trade Center, New York, New York
10007; and Suite 500 East, 5757 Wilshire Boulevard, Los Angeles, California
90036. Copies of such material can be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The Commission maintains an internet web site that contains
reports, proxy statements and other materials filed electronically by the
Company through the Commission's Electronic Data, Gathering, Analysis and
Retrieval (EDGAR) system. This web site can be accessed at http://www.sec.gov.
The Common Stock is traded on the Nasdaq Small Cap Market ("Nasdaq") under the
symbol "SALV," and copies of reports and other information are also available
for inspection at the Nasdaq Stock Market, 1735 K Street, N.W., Washington,
D.C. 20006.

The Company has filed with the Commission a Registration Statement on
Form S-3 (the "Registration Statement") under the Securities Act with respect
to the shares of Common Stock offered hereby. This Prospectus does not contain
all of the information set forth in the Registration Statement or the exhibits
thereto. As permitted by the rules and regulations of the Commission, this
Prospectus omits certain information contained or incorporated by reference in
the Registration Statement. For further information, reference is hereby made
to the Registration Statement and exhibits thereto, copies of which may be
inspected at the offices of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 or obtained from the Commission at the same address at
prescribed rates.

The Company furnishes Annual Reports to the holders of its securities
which contain financial information which have been examined and reported upon,
with an opinion expressed by, its independent certified public accountants.

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<PAGE> 5
INFORMATION INCORPORATED BY REFERENCE

The following documents filed by the Company with the Commission
pursuant to the Exchange Act are incorporated herein by reference:

(1) Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1996, filed on March 31, 1997 (File No.
000-21284) pursuant to Section 13(a) of the Exchange Act, as
amended on Form 10-KSB/A, filed on June 10, 1997 (File No.
000-21284) (the "1996 Annual Report");

(2) Quarterly Report on Form 10-QSB for the fiscal quarter ended
March 31, 1997, filed on May 15, 1997 (File No. 000-21284)
pursuant to Section 13(a) of the Exchange Act;

(3) Definitive Proxy Statement, filed on April 29, 1997 (File No.
000-21284) pursuant to Section 14(a) of the Exchange Act;

(4) Current Report on Form 8-K dated May 30, 1997, filed on May
30, 1997 (File No. 000-21284) pursuant to Section 13(a) of the
Exchange Act, as amended on Form 8-K/A dated May 30, 1997,
filed on June 9, 1997 (File No. 000-21284);

(5) Current Report on Form 8-K dated July 5, 1997, filed on July
30, 1997 (File No. 000-21284) pursuant to Section 13(a) of the
Exchange Act; and

(6) Quarterly Report on Form 10-QSB for the fiscal quarter ended
June 30, 1997, filed on August 9, 1997 (File No. 000-21284)
pursuant to Section 13(a) of the Exchange Act.

All documents filed by the Company with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
hereof shall hereby be deemed to be incorporated by reference in this
Prospectus and to be a part hereof from the date of filing of such documents.
See "Available Information." Any statement contained in a document
incorporated or deemed to be incorporated herein by reference shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent that
a statement contained herein or in any other subsequently filed document
incorporated or deemed to be incorporated herein by reference modifies or
supersedes such statement. Any statement contained herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained in any subsequently filed document incorporated or deemed
to be incorporated herein by reference modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.

THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF THESE DOCUMENTS (EXCLUDING
EXHIBITS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE INTO
THE INFORMATION INCORPORATED HEREIN) WILL BE PROVIDED BY FIRST CLASS MAIL
WITHOUT CHARGE TO EACH PERSON TO

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<PAGE> 6
WHOM THIS PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL REQUEST BY SUCH PERSON
TO SHAREHOLDER RELATIONS, SALIVA DIAGNOSTIC SYSTEMS, INC., 11719 NE 95TH
STREET, VANCOUVER, WASHINGTON 98682 (TELEPHONE NUMBER (360) 696-4800).

No person has been authorized in connection with this offering to give
any information or to make any representation not contained or incorporated by
reference in this Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by the
Company, the Selling Shareholders or any other person. This Prospectus does
not constitute an offer to sell, or a solicitation of an offer to purchase, any
securities other than those to which it relates, nor does it constitute an
offer to sell or a solicitation of an offer to purchase by any person in any
jurisdiction in which it is unlawful for such person to make such an offer or
solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall under any circumstances create any implication that the
information contained herein is correct as of any time subsequent to the date
hereof.

CAUTIONARY STATEMENT

THIS PROSPECTUS, AS WELL AS INFORMATION INCORPORATED BY REFERENCE
HEREIN, CONTAINS FORWARD-LOOKING STATEMENTS, WITHIN THE MEANING OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. FORWARD-LOOKING STATEMENTS INCLUDE,
BUT ARE NOT LIMITED TO, THOSE STATEMENTS RELATING TO DEVELOPMENT OF NEW
PRODUCTS, THE ABILITY TO OBTAIN NEW DISTRIBUTION AGREEMENTS AND INCREASE
DISTRIBUTION FOR PRODUCTS UNDER EXISTING DISTRIBUTION AGREEMENTS, APPROVAL OF
THE COMPANY'S PRODUCTS AS AND WHEN REQUIRED BY THE FOOD AND DRUG ADMINISTRATION
("FDA") IN THE UNITED STATES AND SIMILAR REGULATORY BODIES IN OTHER COUNTRIES,
AND THE SCALE-UP OF MANUFACTURING IN THE UNITED STATES AND ATTENDANT FDA
APPROVALS. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO THE BUSINESS AND
ECONOMIC RISKS FACED BY THE COMPANY AND THE COMPANY'S ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS
A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS"
BELOW, UNDER "ITEM 1 - BUSINESS" AND "ITEM 6 - MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION" IN THE 1996 ANNUAL REPORT, AND IN THE OTHER
DOCUMENTS INCORPORATED BY REFERENCE HEREIN.

RISK FACTORS

The securities offered hereby are speculative and involve a high
degree of risk, including, but not limited to, the risk factors described
below. Each prospective investor should carefully consider the following risk
factors inherent in and affecting the business of the Company and this offering
before making an investment decision.

1. Limited Operating History. Since July 1990, the Company has
been engaged primarily in research and development activities focused on
developing proprietary collection devices and rapid assays. To date, sales of
the Company's products have been to a limited

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customer base. The Company has a limited operating history upon which an
evaluation of the Company's prospects can be made. Such prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered in the establishment of a new business in a continually evolving,
heavily regulated industry, characterized by an increasing number of market
entrants and intense competition, as well as the risks, expenses and
difficulties encountered in the shift from development to commercialization of
new products based on innovative technology. There can be no assurance that the
Company will be able to implement successfully its marketing strategy, obtain
necessary regulatory approval, generate increased revenues or ever achieve
profitable operations.

2. Significant Operating Losses; Accumulated Deficit; Explanatory
Paragraph in Report of Independent Certified Public Accountants. The Company
has incurred significant operating losses since its inception, resulting in an
accumulated deficit of $21,914,246 and $24,444,796 at December 31, 1996 and
June 30, 1997, respectively, and a shareholders' equity of $1,160,632 and
$1,337,171 at December 31, 1996 and June 30, 1997, respectively. The Company
has incurred additional operating losses through the date of this Prospectus.
Such losses are expected to continue for the foreseeable future and until such
time, if ever, as the Company is able to attain sales levels sufficient to
support its operations. The Company's independent certified public accountants
have included an explanatory paragraph in their report stating that the
Company's significant operating losses and significant capital requirements
raise substantial doubt about the Company's ability to continue as a going
concern.

3. Significant Capital Requirements; Need for Additional
Financing. The Company's capital requirements have been and will continue to
be significant. The Company has been dependent on private placements of its
debt and equity securities and on a public offering of securities in March 1993
to fund such requirements. The Company is dependent upon its other efforts to
raise capital resources, including proceeds received from the exercise of
warrants, to finance the costs of manufacturing, marketing and conducting
clinical trials and submissions for FDA approval of its products and continuing
the design and development of the Company's new products. Marketing,
manufacturing and clinical testing may require capital resources substantially
greater than the resources currently available to the Company. There can be no
assurance that the Company will be able to obtain additional capital resources
necessary to permit the Company to implement or continue its programs. There
can be no assurance that such financing will be available on commercially
reasonable terms or at all. It is not anticipated that any of the officers,
directors or shareholders of the Company will provide any portion of the
Company's future financing requirements. Any additional equity financing may
involve substantial dilution to the interests of the Company's shareholders,
which dilution also has occurred in the past.

4. Uncertain Acceptance of Saliva-Based Tests and Rapid Tests as
Diagnostic Tools. The human specimens traditionally used for the diagnostic
testing and quantitative measurement of most physiologically active substances,
drugs and toxins in the body, are blood and urine. Substantially all of the
assay-based diagnostic test kits currently available were approved by the FDA
for use with these testing specimens. Political and social factors may create
impediments to the use of rapid tests as diagnostic tools. These factors
include whether certain diagnostic tests, such as HIV antibody tests, should be
conducted without trained specialists and whether rapid tests in nontraditional
testing environments will lead to invasions of privacy. Although the

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<PAGE> 8
Company acknowledges the existence of such considerations, it is committed to
developing rapid testing devices as useful diagnostic tools. Limitations on the
Company's ability to market rapid tests caused by political and social factors
could have a material adverse effect on the Company's operations.

5. Uncertainty of New Product Development. The design and
development of the Company's rapid testing platforms in their current designs
have been completed and limited revenues have been generated from sales
thereof. The Company will be required to devote considerable additional
efforts to finalize the evaluation of its products. Satisfactory completion of
development, testing, evaluations, obtaining regulatory approvals and achieving
sufficient production levels of such products will be required prior to their
being available for commercial sale. The Company's products remain subject to
all the risks inherent in the introduction of new diagnostic products,
including unanticipated problems, as well as the possible insufficiency of
funds to continue design and development which could result in abandonment of
or substantial change in the design or development of such products. There can
be no assurance that such products will be successfully developed, be developed
on a timely basis or prove to be as effective as products based on existing or
newly developed technologies. The inability to successfully complete
development, or a determination by the Company, for financial or other reasons,
not to undertake to complete development of any product, particularly in
instances in which the Company has made significant capital expenditures, could
have a material adverse effect on the Company.

6. Competition. The market in which the Company operates, saliva
and blood-based collection and diagnostic testing, is highly competitive. The
Company is aware of certain entities, including ChemTrak, Inc., Epitope, Inc.,
Quidel, Inc. and Trinity Biotech, plc and specialized biotechnology firms, as
well as universities and other research institutions, which have developed or
are developing technologies and products which are competitive with Omni-SAL(R)
and the Company's products under development. Many of these competitors are
established and have substantially greater research, marketing and financial
resources than the Company. The Company expects that the number of products
competing with its products will increase as the perceived benefits of
saliva-based testing become more widely recognized. There can be no assurance
the Company will be able to compete successfully.

7. Technological Change and Risk of Technological Obsolescence.
The biotechnology industry and, in particular, saliva and blood-based
diagnostic testing, is subject to rapid and significant technological change.
There can be no assurance that the Company's competitors will not succeed in
developing technologies and products relating to the collection of saliva for
diagnostic testing prior to the Company or that they will not develop
technologies and products that are more effective than any which have been or
are being developed by the Company. In addition, the diagnostic products
market is characterized by changing technology and developing industry
standards sometimes resulting in product obsolescence or short product life
cycles. Accordingly, the ability of the Company to compete will be dependent
on its introducing products to the marketplace in a timely manner and enhancing
and improving such

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products. There can be no assurance that the Company will be able to keep pace
with technological developments or that its products will not become obsolete.

8. Government Regulation. The development, manufacture and sale
of the Company's products in the United States are subject to regulation by the
FDA and other governmental agencies. The process of obtaining FDA approval is
costly and time-consuming, and there can be no assurance that any of the
Company's products not yet approved will be approved by the FDA or other
regulatory agencies. Delays in obtaining regulatory approvals may adversely
affect the development, testing or marketing of the Company's products and the
ability of the Company to generate product revenues therefrom. If and when the
Company's products are approved by the FDA, they will be subject to continuing
regulation by the FDA and state and local agencies. The FDA has established a
number of requirements for manufacturers and requirements regarding labeling
and reporting. The failure to comply with these requirements can result in
regulatory action, including warning letters, product seizure, injunction,
product recalls, civil fines and prosecution. An FDA enforcement action could
have a material adverse effect on the Company. The Company is subject to
regulation in certain foreign markets. There can be no assurance that
regulatory approvals for any of the Company's products or for its manufacturing
in the United States will be obtained in a timely manner, or at all.

9. Risks Related to Foreign Activities. The Company and its
manufacturers may be subject to various import duties imposed by foreign
governments applicable to both finished products and components and may be
affected by various other import and export restrictions or duties as well as
other developments having an impact upon international trade. These factors
could, under certain circumstances, have an impact both on the manufacturing
cost and the wholesale and retail prices of such products. To the extent that
transactions relating to foreign sales, manufacturing of the Company's products
and purchases of components involve currencies other than United States
dollars, the operating results of the Company could be adversely affected by
fluctuations in foreign currency exchange rates.

10. Uncertainty of Market Acceptance; Dependence Upon Third Party
Distributors. The Company has limited marketing capabilities and resources.
Achieving market acceptance will require substantial marketing efforts and the
expenditure of significant funds to inform potential consumers and the public
of the perceived benefits of the Company's current and proposed products.
Moreover, the Company does not have the financial or other resources to
undertake extensive marketing and advertising activities. The Company has
recently begun to develop strategic alliances and marketing arrangements,
including joint ventures, license or distribution arrangements. The Company's
prospects will be significantly affected by its ability to successfully develop
and maintain its relationships with its joint venturers, licensors and
distributors and upon the marketing efforts of such third parties. While the
Company believes that any independent distributors and sales representatives
with whom it enters into such arrangements will have an economic motivation to
commercialize the Company's products, the time and resources devoted to those
activities generally will be controlled by such entities and not by the
Company. There can be no assurance that the Company will be able, for
financial or other reasons, to develop and maintain any third party
distribution or marketing arrangements or

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that such arrangements, if established, will result in the successful
commercialization of any of the Company's products.

11. Dependence on Manufacturers. The Company relies on
arrangements with third parties for the manufacture of some of its products.
Such manufacturers, if located in the United States or if manufacturing
products to be sold in the United States, must comply with the FDA's good
manufacturing practices ("GMP") and pass pre-approval inspections by the FDA
and periodic GMP inspections. MML Diagnostic Packaging, Inc. ("MML")
manufactures Omni-Swab and Saliva-Sampler for the Company in the United States
and has advised the Company that it is in compliance with all applicable FDA
requirements for such manufacturing. There can be no assurance that the
Company's manufacturer will continue to comply with GMP, that the Company will
be able to locate additional manufacturers that comply with GMP or secure
agreements with such manufacturers on terms acceptable to the Company. There
can be no assurance that MML will be able to meet the Company's requirements or
that MML will continue to manufacture Omni-Swab or Saliva-Sampler on terms
acceptable to the Company.

12. Dependence Upon Third-Party Suppliers. The Company believes
that most of the components used in the manufacture of its proposed products
are currently available from numerous suppliers located in the United States,
Europe and Asia. The Company believes, however, that certain components are
available from a limited number of suppliers. Although the Company believes
that it will not encounter difficulties in obtaining these components, there
can be no assurance that the Company will be able to enter into satisfactory
agreements or arrangements for the purchase of commercial quantities of such
components. The failure to enter into agreements or otherwise arrange for
adequate or timely supplies of components and the possible inability to secure
alternative sources of components could have a material adverse effect on the
Company's ability to manufacture its products. In addition, development and
regulatory approval of the Company's products in the United States are
dependent upon the Company's ability to procure certain components and certain
packaging materials from FDA-approved sources. Since the FDA approval process
requires manufacturers to specify their proposed suppliers of certain
components in their premarket approval applications ("PMAs"), if any such
component were no longer available from the specified supplier, FDA approval of
a new supplier would be required, resulting in potential manufacturing delays.

13. Dependence on Small Number of Customers. The Company derives
a large portion of its revenues from sales to a small number of customers.
Sales to three customers accounted for approximately 49% of total product
revenues in 1996. Sales to two customers accounted for approximately 50% of
total product revenues in 1995. The loss of sales to any of the Company's
major customers could have a material adverse effect on the Company's financial
condition and results of operations.

14. Dependence on Key Personnel. The success of the Company will
be largely dependent on the personal efforts of Kenneth J. McLachlan, its
President and Chief Executive Officer, and certain key management and
scientific personnel. The loss of Mr. McLachlan's services or the services of
other key management or scientific personnel would have a material

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adverse effect on the Company's business and prospects. Competition among
biotechnology companies for qualified employees is intense, and the loss of key
personnel or the inability to attract and retain the additional highly skilled
employees required for the Company's activities could adversely affect its
business. There can be no assurance that the Company will be able to hire or
retain such necessary personnel.

15. Uncertainty of Patent Protection; Proprietary Information.
The Company has applied for United States patents on certain aspects of its
saliva collection and diagnostic testing devices and has been awarded eight of
these patents. To the extent possible, the Company also anticipates filing
patent applications for protection on future products and technology which it
develops. There can be no assurance that patents applied for will be obtained,
that any such patents will afford the Company commercially significant
protection of its technology or that the Company will have adequate resources
to enforce its patents. Inasmuch as the Company intends to sell its products
in foreign markets, it is in the process of seeking foreign patent protection
on its current products and technologies. The patent laws of other countries
may differ from those of the United States as to the patentability of the
Company's products and technologies and the degree of protection afforded.
Other companies may independently develop equivalent or superior products and
technologies and may obtain patent or similar rights with respect thereto.
Although the Company believes that its products and technologies have been
independently developed and do not infringe on the patents of others, there can
be no assurance that the Company's products and technologies do not and will
not infringe on the patents of others. In the event of infringement, the
Company would, under certain circumstances, be required to modify its device or
obtain a license. There can be no assurance that the Company will be able to
do either of the foregoing in a timely manner or upon acceptable terms and
conditions, and the failure to do so could have a material adverse effect on
the Company. There can be no assurance that the Company will have the
financial or other resources necessary to successfully defend a claim of
violation of proprietary rights.

16. Product Liability; Insurance Coverage. The Company may be
exposed to potential product liability claims by consumers. The Company
maintains product liability insurance coverage in an amount up to $4,000,000
per occurrence, up to a maximum of $4,000,000 in the aggregate, with excess
umbrella liability insurance coverage of $4,000,000. In the event of a product
liability claim, there can be no assurance that such insurance will be
sufficient to cover all possible liabilities. In the event of a successful
suit against the Company, insufficiency of insurance coverage would have a
material adverse effect on the Company.

17. Possible Removal of Securities from Nasdaq System; Disclosure
Relating to Low-Priced Stocks. If the Company should continue to experience
losses from operations, it may be unable to maintain the standards for
continued quotation on Nasdaq and the Common Stock could be subject to removal
from the Nasdaq system. Upon the filing by the Company of its Form 10-QSB for
the period ended March 31, 1997, Nasdaq issued a letter to the Company asking
the Company to demonstrate that it currently meets all Nasdaq listing
requirements and can continue to meet those requirements. In order to continue
to be included in Nasdaq under rules effective currently, a company must
maintain $2,000,000 in total assets, a $200,000 market value of the public
float and $1,000,000 in total capital and surplus. In addition, continued

9
<PAGE> 12

inclusion requires two market-makers and a minimum bid price of $1.00 per
share; provided, however, that if a company falls below such minimum bid price,
it will remain eligible for continued inclusion in Nasdaq if the market value
of the public float is at least $1,000,000 and the Company has $2,000,000 in
capital and surplus. The Company's total capital and surplus was $1,160,632 at
December 31, 1996 and $350,265 at March 31, 1997. On June 5, 1997, the Company
caused the early conversion of $800,000 of the 7.5% Convertible Debentures due
February 28, 1999 (the "Debentures") to Common Stock to demonstrate current
compliance with the Nasdaq continued inclusion requirements and submitted to
Nasdaq on June 4, 1997, its plan to sustain compliance with the Nasdaq
continued inclusion requirements with Nasdaq requirements. By letter dated
July 16, 1997, Nasdaq advised the Company of its acceptance of the Company's
plan to sustain compliance upon certain conditions. To date, the Company has
performed in accordance with such conditions.

Under the continued listing requirements effective February 1998, a
company will be required to maintain net tangible assets of $2,000,000, market
capitalization of $35,000,000 or net income of $500,000 in the most recently
completed fiscal year or in two of the last three most recently completed
fiscal years. Continued inclusion will also require a $1,000,000 market value
of the public float, two market-makers and a minimum bid price of $1.00 per
share without exception.

If the Company is removed from the Nasdaq system, trading, if any, in the
Common Stock would thereafter be conducted in the over-the-counter market on an
electronic bulletin board established for securities that do not meet the
Nasdaq inclusion requirements or in what are commonly referred to as the "pink
sheets". As a result, an investor would find it more difficult to dispose of,
or to obtain accurate quotations as to the price of, the Company's securities.
In addition, if the Company's securities were removed from the Nasdaq system,
they would be subject to so-called "penny stock" rules that impose additional
sales practice requirements on broker-dealers who sell such securities.
Consequently, removal from the Nasdaq system, if it were to occur, could affect
the ability or willingness of broker-dealers to sell the Company's securities
and the ability of purchasers of the Company's securities to sell their
securities in the secondary market. There is no assurance that the Company
will continue to remain eligible for continued inclusion of the Common Stock on
Nasdaq.

18. No Dividends. To date, the Company has not paid any dividends
on its Common Stock and does not expect to declare or pay any dividends in the
foreseeable future.

19. Significant Outstanding Options and Warrants. As of September
15, 1997, there were outstanding (i) stock options to purchase an aggregate of
1,427,499 shares of Common Stock at exercise prices ranging from $0.43 to $5.50
per share; (ii) warrants to purchase 1,380,000 shares of Common Stock which were
issued in the Companys initial public offering, are exercisable at $3.00 per
share, and expire December 31, 1997 unless extended by the Company; and (iii)
warrants to purchase 759,184 shares which are exercisable at prices ranging from
$0.50 to $4.00 per share.

10
<PAGE> 13
To the extent that outstanding options or warrants are exercised,
dilution to the Company's shareholders will occur. Moreover, the terms upon
which the Company will be able to obtain additional equity capital may be
adversely affected since the holders of outstanding options and warrants can be
expected to exercise them at a time when the Company would, in all likelihood,
be able to obtain any needed capital on terms more favorable to the Company
than the exercise terms provided by such outstanding securities.

20. Litigation. The Company is currently involved in litigation
brought by Luc Hardy against the Company and former officer and directors,
Ronald Lealos and Eugene Seymour, and Richard Kalin. This matter involves
allegations against the Company and the individual defendants arising from Mr.
Hardy's termination by the Company in 1994. A jury verdict for the plaintiff,
which is not a final judgment, was rendered on July 25, 1997 in the approximate
amount of $740,000. The Company plans to file with the court motions to set
aside the jury verdict and to move for a new trial. There can be no assurance
such motions will be granted or that the final judgment in this case will not
have a material adverse effect on the Company.

THE COMPANY

The Company is primarily engaged in the development, manufacturing and
marketing of rapid in vitro assays for use in the detection of infectious
diseases and other conditions, proprietary specimen collection devices and
other diagnostic devices. The Company's principal executive offices are
located at 11719 NE 95th Street, Vancouver, Washington, 98682 and its telephone
number is (360) 696-4800.

The Company develops rapid immunoassays utilizing immunochromatography
for the detection of antibodies to selected pathogens, such as the HIV, the
virus that causes AIDS, and Helicobacter pylori, a bacteria linked to peptic
ulcers and gastric cancer. The Company's immunoassays are designed to require
only a few simple steps and minutes to use. The tests produce visual results
in under 20 minutes, and may be used without special equipment, storage or
training. The Company's data and independent evaluations demonstrate that its
Hema-Strip HIV and Sero-Strip HIV tests are generally equivalent in performance
to widely used FDA-licensed tests for HIV.

To date, the Company has developed three rapid HIV tests: Sero-Strip
HIV, Hema-Strip HIV and Saliva-Strip HIV, and a rapid H. pylori test:
Stat-Simple. The Company has under development rapid tests for hepatitis and
tuberculosis. The Company has commenced production and marketing of two medical
specimen collectors: Saliva-Sampler and Omni-Swab. In addition, the Company
has conducted preliminary research that indicates its rapid test format may
be expanded to detect other diseases, such as tuberculosis, measles, malaria,
rubella, tetanus, herpes, chlamydia, mumps, influenza, parvovirus, pertussis,
certain cancers, tumor markers and cardiac disease.

11
<PAGE> 14
SELLING SHAREHOLDERS

None of the Selling Shareholders is an affiliate of the Company or has
had any position, office or other material relationship with the Company within
the past three years except as a shareholder of the Company or as noted below.
The following table sets forth information with respect to the Selling
Shareholders, based upon information provided to the Company by them.

<TABLE>
<CAPTION>
Shares Beneficially Shares Being Shares Beneficially
Name of Selling Shareholder Owned Prior to Offering Offered Owned After Offering (1)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mark Alt 100,000 100,000 0
Sterling E. Baker 122,500 100,000 22,500
Linda Bidell 200,000 200,000 0
Collin Bingham Trust 50,000 50,000 0
Tanner Payne Boyer Trust 50,000 50,000 0
Brian Brammell 187,000 145,000 (2) 42,000
E. Paul Brodsky, CPA, IRA 25,000 25,000 0
Mary L. Brodsky, IRA 25,000 25,000 0
Carol Bruckner 76,000 75,000 1,000
Center for Aids Research and 100,000 100,000 0
Training, Inc.
The Covette Community Property Trust 100,000 100,000 0
David Fitzpatrick 50,000 50,000 0
David Freund 1,428,571 1,428,571 (3) 0
Gerald Grayson (4) 200,000 200,000 0
Grayson & Associates, Inc. (5) 194,632 194,632 (6) 0
Dean Greenberg 50,000 50,000 0
Harvey Katzman 127,250 100,000 27,250
Hollywood Pins Co. Pension Plan 270,000 200,000 70,000
Alan Lerner 20,000 20,000 0
Michael Lipkin 100,000 100,000 0
Sandy Linka 30,000 30,000 0
Gary Nathanson 233,000 100,000 133,000
Lisa Neuhof 25,000 25,000 0
Jack P. Slovak 62,000 (7) 50,000 12,000
Robert A. Slovak 60,000 50,000 10,000
Stanton Law Corporation 50,000 50,000 0
Profit Sharing Plan
George L. Stanton 130,000 100,000 30,000
The Tail Wind Fund Ltd. 1,685,135 671,429 (8) 1,013,706
Linda Trester 20,000 20,000 0
WCGMG, Inc., DBPP 100,000 100,000 0
Jacob Zamstein, MD 65,000 50,000 15,000

Total 5,936,088 4,559,632 1,376,456
===== ========= ========= =========
</TABLE>

(1) Assumes all shares offered hereby are sold to persons who are not
affiliates of the Selling Shareholders. The Selling Shareholders may,
but are not required to, sell all shares offered hereby.

(2) Includes 45,000 shares which were issued in November 1996 upon the
exercise of certain warrants acquired by Mr. Brammel.

(3) Includes 178,571 shares which may be issued in accordance with the
Subscription Agreement dated as of August 22, 1997 by and between the
Company and David Freund.

(4) Mr. Grayson is a principal of Grayson & Associates, Inc., which has
been engaged by the Company to provide certain capital raising
services through September 1997.

12
<PAGE> 15

(5) Grayson & Associates, Inc. has been engaged by the Company to provide
certain capital raising services through September 1997. In March
1997, Grayson & Associates, Inc. received a cash fee and warrants from
the Company as compensation for assisting the Company with a private
placement of debentures. Grayson & Associates, Inc. also received a
cash fee and the Grayson Warrants in connection with the private
placement of certain of the Shares.

(6) Includes 194,632 shares which may be issued upon exercise of the
Grayson Warrants.

(7) Includes 12,000 shares registered in the name of Slovak Family Trust.

(8) Includes 100,000 shares which may be issued upon exercise of the Tail
Wind Warrants. Also includes 158,524 shares which may be issued in
accordance with the terms of the Tail Wind Subscription Agreement.

Of the Shares offered hereby, 2,632,905 were issued in July 1997 to
Tail Wind and the Investors and 1,250,000 were issued in August 1997 to David
Freund in a private placement pursuant to Regulation D of the Securities Act;
158,524 may be issued to Tail Wind under the terms of the Common Stock
Subscription Agreement dated as of June 30, 1997 by and between Tail Wind and
the Company; 178,571 may be issued to David Freund under the terms of the
Common Stock Subscription Agreement dated as of August 22, 1997 by and between
Mr. Freund and the Company; 100,000 are issuable upon the exercise of the Tail
Wind Warrants; 194,632 are issuable upon the exercise of the Grayson Warrants;
and 45,000 were issued upon the exercise of warrants acquired by Brian Brammel
in a private placement conducted by the Company pursuant to Regulation D in
November 1995. The Grayson Warrants were issued as compensation in connection
with the private placement of the Shares sold to the Investors and Tail Wind.
The Grayson Warrants may be exercised at any time on or prior to June 30, 2002,
161,600 at an exercise price of $.50 per share and 33,032 at an exercise price
of $.72656 per share. The Tail Wind Warrants were issued in connection with
the private placement, and may be exercised at any time from January 1, 1998 to
January 1, 2003 for an exercise price of $1.00 per share. Additional shares
that may become issuable as a result of the anti-dilution provisions of the
Tail Wind Warrants and the Grayson Warrants are also offered hereby pursuant to
Rule 416 under the Securities Act.

PLAN OF DISTRIBUTION

The Selling Shareholders may sell the shares in one or more
transactions (which may involve one or more block transactions) on the
over-the-counter markets on Nasdaq and upon terms then prevailing or at prices
related to the then current market price, or in separately negotiated
transactions or in a combination of such transactions. The Common Stock
offered hereby may be sold by one or more of the following methods, without
limitation: (a) a block trade in which a broker or dealer so engaged will
attempt to sell the shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction; (b) purchases by a broker
or dealer as principal and resale by such broker or dealer for its account
pursuant to this Prospectus; (c) ordinary brokerage transactions and
transactions in which the broker solicits purchasers; (d) privately negotiated
transactions; (e) short sales; and (f) face-to-face transactions between
sellers and purchasers without a broker-dealer. The Selling Shareholders may
also sell

13
<PAGE> 16
Shares in accordance with Rule 144 under the Securities Act. The Selling
Shareholders may be deemed to be underwriters of the shares offered hereby
within the meaning of the Securities Act.

The Company has agreed to keep effective the registration of the
Shares offered hereby for a period of not less than two years, until the date
upon which all of the Shares offered hereby have been sold or until the date on
which the Shares may be sold without registration, whichever is shorter.

In effecting sales, brokers or dealers engaged by the Selling
Shareholders may arrange for other brokers or dealers to participate. Such
broker or dealers may receive commissions or discounts from the Selling
Shareholders in amounts to be negotiated. All other expenses incurred in
connection with this offering will be borne by the Company other than the
Selling Shareholders' legal fees. Such brokers and dealers and any other
participating brokers or dealers may, in connection with such sales, be deemed
to be underwriters within the meaning of the Securities Act. Any discounts or
commissions received by any such brokers or dealers may be deemed to be
underwriting discounts and commissions under the Securities Act.

The Company is bearing all of the costs relating to registration of
the Shares, except commissions, discounts or other fees payable to a broker,
dealer, underwriter, agent or market maker in connection with the sale of any
of the Shares and legal fees in excess of $10,000 for the Investors and for
Tail Wind.

LEGAL MATTERS

The validity of the securities being offered will be passed upon for
the Company by Bryan Cave LLP, 700 Thirteenth Street, Washington, D.C. 20005.

EXPERTS

The financial statements of the Company for the fiscal years ended
December 31, 1996 and 1995 have been audited by Hollander, Gilbert & Co.,
independent certified public accountants, to the extent and for the periods set
forth in their report with respect thereto, and are included the Company's
Annual Report on Form 10-KSB for the fiscal year ended December 31, 1996, and
are incorporated herein by reference, in reliance upon such report given upon
the authority of said firm as experts in auditing and accounting.

14
<PAGE> 17
No dealer, sales representative or other individual has been
authorized to give any information or make any representation not contained in
this Prospectus in connection with this offering other than those contained in
this Prospectus and if given or made, such information or representation must
not be relied upon as having been authorized by the Company. This Prospectus
does not constitute an offer to sell or solicitation of an offer to buy the
Common Stock by anyone in any jurisdiction in which such offer or solicitation
is not authorized or in which the person making such offer or solicitation is
not qualified to do so or to any person to whom it is unlawful to make such
offer or solicitation. Neither the delivery of this Prospectus nor any sale
made hereunder shall under any circumstances create an implication that the
information contained herein is correct as of any time subsequent to its date.

TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Available Information . . . . . . . . . . . . . . . . 2
Information Incorporated By Reference . . . . . . . . 3
Cautionary Statement . . . . . . . . . . . . . . . . 4
Risk Factors . . . . . . . . . . . . . . . . . . . . 4
The Company . . . . . . . . . . . . . . . . . . . . . 11
Selling Shareholders . . . . . . . . . . . . . . . . 12
Plan of Distribution . . . . . . . . . . . . . . . . 13
Legal Matters . . . . . . . . . . . . . . . . . . . . 14
Experts . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>

Until November __, 1997 (40 days after the date of the Prospectus),
all dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This delivery requirement is in addition to the obligation of dealers to
deliver a Prospectus when acting as Underwriter and with respect to their
unsold allotments or subscriptions.

SALIVA DIAGNOSTIC SYSTEMS, INC.

4,559,632 SHARES OF COMMON STOCK

PROSPECTUS

SEPTEMBER __, 1997

<PAGE> 18

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The expenses in connection with the issuance and distribution of the
securities being registered hereby will be borne by the Company and are
estimated to be as follows:

<TABLE>
<S> <C>
Registration Fee . . . . . . . . . . . . . . . . . . . . . . $1,182.44
Legal Fees . . . . . . . . . . . . . . . . . . . . . . . . . 20,000.00*
Accounting Fees . . . . . . . . . . . . . . . . . . . . . . . 2,500.00*
Total . . . . . . . . . . . . . . . . . . . . . . . . . 23,682.44*
</TABLE>

- ---------------------
* Estimated

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 145 of the Delaware General Corporation Law empowers a
corporation to indemnify its directors and officers and to purchase insurance
with respect to liability arising out of their capacity or status as directors
and officers provided that this provision shall not eliminate or limit the
liability of a director (i) for any breach of the director's duty of loyalty to
the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) arising under Section 174 of the General Corporation Law of Delaware, or
(iv) for any transaction from which the director derived an improper personal
benefit.

The Delaware Corporation Law provides further that the indemnification
permitted thereunder shall not be deemed exclusive of any other rights to which
the directors and officers may be entitled under the corporation's by-laws, any
agreement, vote of shareholders or otherwise.

Article Ten of the Company's Certificate of Incorporation eliminates
the personal liability of directors to the fullest extent permitted by Section
145 of the Delaware Corporation Law.

The effect of the foregoing is to require the Company to indemnify the
officers and directors of the Company for any claim arising against such
persons in their official capacities if such person acted in good faith and in
a manner that he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.

<PAGE> 19
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE
SECURITIES ACT OF 1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS
CONTROLLING THE COMPANY PURSUANT TO THE FOREGOING PROVISIONS, THE COMPANY HAS
BEEN INFORMED THAT IN THE OPINION OF THE SECURITIES AND EXCHANGE COMMISSION,
SUCH INDEMNIFICATION IS AGAINST PUBLIC POLICY AS EXPRESSED IN THE ACT AND IS
THEREFORE UNENFORCEABLE.

ITEM 16. EXHIBITS.

<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<S> <C>
4.1 Specimen of Certificate Representing Common Stock, incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-1 (Registration No. 33-46648).

4.2 Form of Warrant to be issued to each of Grayson & Associates, Inc. and The Tail Wind Fund Ltd., incorporated by
reference to Exhibit 4.1 of the Company's Current Report on Form 8-K dated June 5, 1997, filed on July 30, 1997
(File No. 000-21284) pursuant to Section 13(a) of the Exchange Act (the "June 1997 8-K").

5 Opinion of Bryan Cave LLP

10.1 Common Stock Subscription Agreement dated as of June 30, 1997 by and between the Company and The Tail Wind Fund
Ltd., incorporated by reference to Exhibit 4.2 of the June 1997 8-K.

10.2 Common Stock Subscription Agreement dated as of June 30, 1997 by and between the Company and the investors set
forth on Schedule A thereto, incorporated by reference to Exhibit 4.3 of the June 1997 8-K.

10.3 Registration Rights Agreement dated as of June 30, 1997 between the Company and The Tail Wind Fund Ltd.,
incorporated by reference to Exhibit 4.4 of the June 1997 8-K.

10.4 Form of Registration Rights Agreement dated as of June 30, 1997 between the Company and the investors set forth on
Schedule A to the Common Stock Subscription Agreement dated as of June 30 ,1997 by and between the Company and the
investors set forth on Schedule A thereto, incorporated by reference to Exhibit 4.5 of the June 1997 8-K.

10.5 Common Stock Subscription Agreement dated as of August 22, 1997 by and between the Company and David Freund.

10.6 Registration Rights Agreement dated as of August 22, 1997 between the Company and David Freund.
</TABLE>

II-2
<PAGE> 20

<TABLE>
<S> <C>
23.1 Consent of Hollander, Gilbert & Co.

23.2 Consent of Bryan Cave LLP (included in Exhibit 5)
</TABLE>

ITEM 17. UNDERTAKINGS

(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933, may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions or otherwise, the
Company has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by a director, officer or controlling person of
the Company in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question of whether such indemnification by it
is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.

(b) The Company hereby undertakes:

(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement to:

(i) include any prospectus required by Section 10 (a)(3) of the
Securities Act;

(ii) reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
Registration Statement;

(iii) include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or any
material change to such information in this Registration Statement.

(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.

(4) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of a
Registration Statement in reliance upon

II-3
<PAGE> 21
Rule 430A and contained in the form of Prospectus filed by Registrant pursuant
to Rule 424 (b)(1) or (4) under the Securities Act shall be deemed to be part
of the Registration Statement as of the time it was declared effective.

(5) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
Prospectus shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.

II-4
<PAGE> 22
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as
amended, the registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-3 and has duly
caused this Amendment No. 1 to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Vancouver,
State of Washington, on September 26, 1997.

SALIVA DIAGNOSTIC SYSTEMS, INC.

By: /s/ Kenneth J. McLachlan
-------------------------
Kenneth J. McLachlan
President and Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Kenneth J. McLachlan Director, President, Chief Executive Officer, September 26, 1997
------------------------ Chief Financial Officer and Chief Accounting
Kenneth J. McLachlan Officer

/s/ Eric F. Stoer Director September 26, 1997
-----------------
Eric F. Stoer

/s/ Eric F. Stoer* Director September 26, 1997
------------------
Hans R. Vauthier

/s/ Eric F. Stoer* Chief Operating Officer and September 26, 1997
------------------ Vice President of Marketing
Paul D. Slowey

/s/ Eric F. Stoer* Vice President of Operations September 26, 1997
------------------
Michael Grant
</TABLE>

- -----------------------------

* As attorney-in-fact

<PAGE> 23

SALIVA DIAGNOSTIC SYSTEMS, INC.
EXHIBIT INDEX

5 Opinion of Bryan Cave LLP

10.1 Common Stock Subscription Agreement dated as of June 30, 1997 by and between the Company and The Tail Wind Fund
Ltd., incorporated by reference to Exhibit 4.2 of the June 1997 8-K.

10.2 Common Stock Subscription Agreement dates as of June 30, 1997 by and between the Company and the investors set
forth on Schedule A thereto, incorporated by reference to Exhibit 4.3 of the June 1997 8-K.

10.3 Registration Rights Agreement dated as of June 30, 1997 between the Company and The Tail Wind Fund Ltd.,
incorporated by reference to Exhibit 4.4 of the June 1997 8-K.

10.5 Common Stock Subscription Agreement dated as of August 22, 1997 by and between the Company and David Freund.

10.6 Registration Rights Agreement dated as of August 22, 1997 between the Company and David Freund.

23.1 Consent of Hollander, Gilbert & Co.

23.2 Consent of Bryan Cave LLP (included in Exhibit 5)
</TABLE>

<PAGE> 1
EXHIBIT 5

BRYAN CAVE LLP
700 Thirteenth Street, N.W.
Washington, D.C. 20005-3980

September __, 1997

Saliva Diagnostic Systems, Inc.
11719 NE 95th Street
Vancouver, WA 98682

Ladies and Gentlemen:

We have acted as counsel to Saliva Diagnostic Systems, Inc. (the
"Company") in connection with the registration by the Company of up to
4,559,632 shares of the Company's common stock, par value $.01 per share (the
"Common Stock"), which include (i) 571,429 shares which have been and may be
issued in accordance with the terms of a Common Stock Subscription Agreement
dated June 30, 1997 by and between the Company and The Tail Wind Fund Ltd.
("Tail Wind") (the "Tail Wind Agreement"); (ii) 2,220,000 shares which have
been issued in accordance with the terms of a Common Stock Subscription
Agreement dated June 30, 1997 by and among the Company and certain other
investors; (iii) 1,428,571 shares which have been and may be issued in
accordance with the terms of a Common Stock Subscription Agreement dated as of
August 22, 1997 by and between the Company and David Freund (the "Freund
Agreement"); (iv) 100,000 shares which may be issued upon the exercise of
warrants granted to Tail Wind (the "Tail Wind Warrants"); (v) 194,632 shares
which may be issued upon the exercise of warrants granted to Grayson &
Associates, Inc. (the "Grayson Warrants"); and (vi) 45,000 shares which were
issued upon the exercise of warrants purchased by Brian Brammel (collectively,
the "Shares"). A Registration Statement on Form S-3 covering resales of the
Shares (Registration No. 333-33429), has been filed with the Securities and
Exchange Commission pursuant to the Securities Act of 1933, as amended.

In connection herewith, we have examined and relied as to matters of
fact upon such certificates of public officials, certificates or copies
certified to our satisfaction of the Certificate of Incorporation and Bylaws of
the Company (each amended through the date hereof), proceedings of the Board of
Directors of the Company and other corporate records, documents, certificates
and instruments as we have deemed necessary or appropriate in order to enable
us to render the opinion expressed below.

In rendering the following opinion, we have assumed the genuineness of
all signatures on al documents examined by us, the authenticity of all
documents submitted to us as originals and the conformity to authentic
originals of all documents submitted to us as certified or photostatted copies,
and we have relied as to matters of fact upon statements and certifications of
officers of the Company. In addition, we have assumed that the certificates
for the Shares conform to the specimen thereof examined by us and have been
duly registered and countersigned by the Company's transfer agent, assumptions
which we are not independently verifying by inspection.

<PAGE> 2
Based on the foregoing, we are of the opinion that the Shares are duly
and validly authorized and, as issued or when issued upon the exercise of the
Grayson Warrants and the Tail Wind Warrants in accordance with their terms or
when otherwise issued in accordance with the terms and conditions of the Tail
Wind Agreement and the Freund Agreement, as the case may be, the Shares are or
will be validly issued, fully paid and non-assessable.

We hereby consent to the filing of this opinion as an exhibit to the
aforesaid Registration Statement on Form S-3 and to the use of our name under
the caption "Legal Matters" in the Prospectus filed as a part thereof.

Very truly yours,

Bryan Cave LLP

<PAGE> 1
EXHIBIT 10.5

COMMON STOCK SUBSCRIPTION AGREEMENT
OF SALIVA DIAGNOSTIC SYSTEMS, INC.

THIS COMMON STOCK SUBSCRIPTION AGREEMENT (the "Agreement") is made and
entered into as of this 22nd day of August, 1997 by and between SALIVA
DIAGNOSTIC SYSTEMS, INC., a Delaware corporation (the "Company"), and DAVID
FREUND (the, "Investor") providing for the purchase and sale of shares of
common stock, par value $.01 per share (the "Shares"), of the Company. Each of
the parties represents, warrants, covenants and agrees as follows:

1. AGREEMENT TO SUBSCRIBE; PURCHASE PRICE.

(i) Investor hereby subscribes for One Million Two
Hundred Fifty Thousand (1,250,000) Shares at a purchase price per share of
$0.60, for an aggregate of $750,000 (the "Purchase Price").

(ii) Investor shall pay the Purchase Price by wire
transfer of same-day funds in United States dollars against counter-delivery of
certificates (the "Certificates") representing the Shares by the Company. The
closing of the purchase and sale of the Shares (the "Closing") shall take place
promptly upon the satisfaction of all of the conditions set forth in Section 5
hereof, the payment of the Purchase Price and delivery of the Certificates.
The Parties anticipate that the date of the Closing (the "Closing Date") shall
be August 26, 1997.

2. INVESTOR'S REPRESENTATIONS AND COVENANTS

The Investor represents, warrants and covenants to the Company
as follows:

(i) This Agreement has been duly authorized, validly
executed and delivered on behalf of Investor and is a valid and binding
agreement of Investor enforceable against Investor in accordance with its
terms, subject to general principles of equity and of bankruptcy or other laws
affecting the enforcement of creditor's rights;

(ii) Investor is purchasing the Shares for its own account
for investment purposes and not with a view towards distribution. Investor
understands and agrees that it must bear the economic risks of its investment
for an indefinite period of time. Investor has received and carefully reviewed
copies of the Public Documents (as defined below), the press release issued by
the Company on June 25, 1997 and the Supplemental Disclosure Memorandum dated
June 30, 1997. Investor understands that the offer and sale of the Shares are
being made only by means of this Agreement. No representations or warranties
have been made to Investor by the Company, the officers or directors of the
Company, or any agent, employee or affiliate of any of them except as set forth
herein. Investor is aware that the purchase of the Shares involves a high
degree of risk and that it may sustain, and has the financial ability to
sustain, the loss of its entire investment. Investor has had the opportunity
to ask questions of, and receive answers satisfactory to it from, the Company's
management regarding the Company. Investor understands that no federal or
state governmental authority has made any finding or determination relating to
the fairness of an investment in the Shares and that no federal or state
governmental authority has recommended or endorsed, or will recommend or
endorse, the investment herein. Investor, in making the decision to purchase
the Shares subscribed for, has relied upon independent investigations

<PAGE> 2
made by it and has not relied on any information or representations made by
third parties. Investor has significant assets, and upon consummation of the
purchase of the Shares, will continue to have significant assets exclusive of
the Shares. Investor has not been organized for the purpose of acquiring the
Shares;

(iii) Investor is an "accredited investor" within the
meaning of Rule 501, promulgated under the Securities Act of 1933, as amended
(the "Securities Act");

(iv) Investor understands that the Shares are being
offered and sold to it in reliance on specific provisions of federal and state
securities laws and that the Company is relying upon the truth and accuracy of
the representations, warranties, agreements, acknowledgments and understandings
of Investor set forth herein in order to determine the applicability of such
provisions; and

(v) Investor understands that the Shares have not been
registered under the Securities Act and therefore it cannot dispose of any or
all of the Shares until such Shares are subsequently registered under the
Securities Act or exemptions from such registration are available. Investor
acknowledges that, until an effective registration statement relating to the
Shares is effective or until the Shares are eligible for sale pursuant to Rule
144(k), promulgated under the Securities Act, a legend substantially as follows
will be placed on the Certificates representing the Shares:

THE SECURITIES REPRESENTED HEREBY ARE RESTRICTED SECURITIES WITHIN THE MEANING
OF THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED,
TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH SUCH ACT AND THE
RULES AND REGULATIONS THEREUNDER AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS. THE ISSUER OF THESE SECURITIES WILL NOT RECOGNIZE A TRANSFER
OF SUCH SECURITIES EXCEPT UPON RECEIPT OF EVIDENCE SATISFACTORY TO THE ISSUER
THAT THE REGISTRATION PROVISIONS OF SUCH ACT HAVE BEEN COMPLIED WITH OR THAT
SUCH REGISTRATION IS NOT REQUIRED AND THAT SUCH TRANSFER WILL NOT VIOLATE ANY
APPLICABLE STATE SECURITIES LAWS.

3. THE COMPANY'S REPRESENTATIONS AND COVENANTS.

(a) The Company represents and warrants to the Investor as
follows:

(i) The Company has been duly incorporated and is validly
existing and in good standing under the laws of the state of Delaware, with
full corporate power and authority to own, lease and operate its properties and
to conduct its business as currently conducted, and is duly registered and
qualified to conduct its business and is in good standing in each jurisdiction
or place where the nature of its properties or the conduct of its business
requires such registration or qualification, except where the failure so to
register or qualify does not have a material adverse effect on the condition
(financial or other), business, properties, net worth or operations of the
Company.

(ii) The Company has registered its common stock pursuant
to Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), is in full compliance with all reporting requirements of the Exchange
Act, and the Company's common stock is quoted on the Nasdaq SmallCap Market
(trading symbol SALV). The Company has been subject to the requirements of
Section 12 of the Exchange Act for at least 12 months, and has filed in a
timely manner all reports required to be filed during the preceding 12 months;
<PAGE> 3
(iii) The Company has furnished Investor with copies of the
Company's most recent Annual Report on Form 10-KSB filed with the U.S.
Securities and Exchange Commission ("SEC"), all Forms 10-QSB and 8-K, filed
thereafter and all other filings required under the Exchange Act made with the
SEC after the filing of the most recent Form 10-KSB and the registration
statement on Form SB-2 filed under the Securities Act and declared effective
June 13, 1997 (collectively, the "Public Documents"), the press release issued
by the Company on June 25, 1997 and the Supplemental Disclosure Memorandum
dated June 30, 1997. The Public Documents at the time of their filing did not
include any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements contained therein, in light of
the circumstances under which they were made, not misleading;

(iv) The authorized capital stock of the Company solely
consists of 33,000,000 shares of common stock, par value $.01 per share. The
Company currently has 26,688,868 shares of common stock issued and outstanding.

(v) Upon issuance and delivery and payment therefor in
accordance with the terms hereof, the Shares shall be duly authorized, validly
issued, fully paid and nonassessable, and the Additional Shares (as defined
below), if and when issued and delivered, will be duly authorized, validly
issued, fully paid and nonassessable, free from all encumbrances and
restrictions other than restrictions on transfer imposed by applicable
securities laws and/or this Agreement, and will not subject the holders thereof
to personal liability by reason of being such holders. The Additional Shares
have been duly reserved for issuance. There are no preemptive rights of any
stockholder of the Company with respect to the Shares or the Additional Shares;

(vi) This Agreement has been duly authorized, validly
executed and delivered on behalf of the Company and is a valid and binding
agreement of the Company enforceable in accordance with its terms, subject to
general principles of equity and to bankruptcy or other laws affecting the
enforcement of creditors' rights generally, and the Company has full corporate
power and authority to execute and deliver this Agreement and the other
agreements and documents contemplated hereby and to perform its obligations
hereunder and thereunder;

(vii) The Company is not and, upon the execution and
delivery of this Agreement, the issuance of the Shares, the issuance of the
Additional Shares, and the consummation of the transactions contemplated by
this Agreement, will not be in conflict with or in breach of any of the terms
or provisions of, or in default under, the Company's Certificate of
Incorporation or Bylaws, or any indenture, mortgage, deed of trust or other
material agreement or instrument to which the Company is a party or by which it
or any of its properties or assets are bound, any law, statute, rule,
regulation, or any existing applicable decree, judgment or order of any court,
federal or state regulatory body, administrative agency or other governmental
body having jurisdiction over the Company or any of its properties or assets or
will result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company or any of its subsidiaries pursuant
to the terms of any agreement or instrument to which any of them is a party or
by which any of them may be bound or to which any of the property or assets of
any of them is subject;

(viii) No authorization, approval, filing with or consent of
any governmental body is required for the issuance and sale of the Shares or
the Additional Shares, as contemplated by this Agreement;

<PAGE> 4
(ix) [Intentionally omitted];

(x) Subject in part to the truth and accuracy of the
Investor's representations and warranties in Section 2, the offer, sale and
issuance of the Shares hereunder are exempt from the registration requirements
of the Securities Act and applicable state securities laws;

(xi) Except as disclosed on Schedule 3(xi) hereto, there
is no action, suit or proceeding before or by any court or governmental agency
or body, domestic or foreign, now pending or, to the knowledge of the Company,
threatened, against or affecting the Company, or any of its properties, which
could be reasonably expected to result in any material adverse change in the
condition (financial or otherwise) or in the earnings, revenues, business
affairs or business prospects of the Company, or which could be reasonably
expected to materially and adversely affect its properties or assets;

(xii) To the best knowledge of the Company, the Company is
not in default in the performance or observance of any material obligation,
agreement, covenant or condition contained in any indenture, mortgage, deed of
trust or other instrument or agreement to which it is a party or by which it or
its property is bound; and

(xiii) To the best knowledge of the Company, there is no
fact known to the Company (other than general economic conditions known to the
public generally) that has not been disclosed in writing to the Investor that
(i) could reasonably be expected to have a material adverse effect on the
condition (financial or otherwise) or in the earnings, revenues, business
affairs, business prospects, properties or assets of the Company, or (ii) could
reasonably be expected to materially and adversely affect the ability of the
Company to perform its obligations pursuant to this Agreement.

(b) The Company covenants to the Investor as follows:

(i) The Company will comply with all applicable
securities laws and regulations with respect to the sale and issuance of the
Shares and Additional Shares to the Investor, including but not limited to the
timely filing of all reports required to be filed in connection therewith with
the SEC or Nasdaq or any other regulatory authority, and shall remain in full
compliance with all of the requirements (including reporting) of the Exchange
Act;

(ii) The Company shall: (i) use all reasonable efforts to
maintain the inclusion of the Shares and Additional Shares on the Nasdaq Stock
Market; and (ii) reserve immediately prior to the Closing and shall continue to
reserve from its authorized common stock a sufficient number of shares of
common stock to permit the issuance of the Additional Shares; and

(iii) The Company agrees that it will not issue a press
release to the public containing Investor's name or other identifying
information without the Investor's prior written consent except as may be
necessary in connection with the Company's fulfilling its obligations under the
Registration Rights Agreement (as defined in Section 4). Investor acknowledges
that this Agreement and the related documents may be filed with the SEC.

4. REGISTRATION.

Within 30 days following the Closing, the Company shall, at the
Company's expense, file a registration statement or an amendment to an existing
registration statement to effect the registration of all of the Shares and
Additional Shares held by or to be issued to the Investor under the Securities
Act,

<PAGE> 5
and relevant Blue Sky laws. Such registration shall be effected in accordance
with the terms of the Registration Rights Agreement attached hereto as Exhibit
A (the "Registration Rights Agreement"). In the event the registration of the
Shares and Additional Shares is not declared effective by the SEC within 90
days of the Closing Date (the "Registration Date"), then such failure shall
constitute a breach of this Agreement entitling Investor to be paid by the
Company the "Damage Amount," as liquidated damages and not as a penalty. The
Damage Amount shall mean $1 for each $1,000 of Shares purchased hereunder for
each calendar day following the Registration Date by which the registration of
the Shares (and the Additional Shares) is not effective with the SEC. The
Damage Amount shall be payable in cash as of the end of each calendar week
following the Registration Date.

5. CONDITIONS TO CLOSING.

(i) The Company shall furnish to the Investor a legal
opinion addressed to the Investor and dated as of the Closing Date
from Bryan Cave LLP substantially in the form of Exhibit B attached
hereto.

(ii) The Company shall have delivered a certificate
executed by its President, dated the Closing Date, and certifying that
all of the Company's representations and warranties made in this
Agreement are true and correct as of the date of this Agreement and as
of the Closing Date.

6. CERTAIN AGREEMENTS.

(i) The Company agrees to pay the legal fees associated
with the Investor's entering into this Agreement to counsel for the
Investor in an amount not to exceed $3,750.

(ii) The Company agrees to pay to the Investor $37,500
from the Purchase Price as a finder's fee.

7. RESTRICTIONS ON SALES OF SHARES.

The Investor shall not sell any of the Shares purchased hereunder
during the 90-day period immediately following the Closing Date; however,
Investor may sell, at its option, up to (i) Thirty-Three and One-Third percent
(33 1/3%) of the number of Shares purchased hereunder at any time from and
after the ninetieth (90th) day following the Closing Date, (ii) an aggregate of
Sixty-Six and Two-Thirds percent (66 2/3%) of the Shares purchased hereunder at
any time from and after the one hundred twentieth (120th) day following the
Closing Date, and (iii) One Hundred percent (100%) of the Shares purchased
hereunder at any time from and after the one hundred fiftieth (150th) day
following the Closing Date.

8. ISSUANCE OF ADDITIONAL SHARES BASED UPON PRICE RESET.

(i) In the event that the Current Market Price (as defined below)
as of any one or more five-day periods designated by the Investor in a written
notice to the Company during the 150-day period succeeding the date of
effectiveness of a Registration Statement covering resales of the Shares
("Reset Market Price") is less than 133.33% of the purchase price per share
(the "Purchase Price Per Share") for the Shares paid by the Investor hereunder,
then the Company shall issue to the Investor promptly after the Investor gives
such notice with respect to all or a portion of the Purchase Price as
designated by the Investor (in increments of no less than $150,000) (the "Reset
Value") additional shares of Common Stock (the "Additional Shares") determined
as follows: the difference between (I) the number of Shares

<PAGE> 6

which the Investor would have acquired for the Reset Value if calculated at a
per share purchase price equal to 75% of the Reset Market Price, and (II) the
number of Shares actually purchased hereunder for the amount of the Reset
Value. The Investor may give such notice(s) from time to time during such
150-day period, but in no event shall the Investor be entitled to Additional
Shares for an aggregate Reset Value in excess of the Purchase Price (i.e., the
Investor may only trigger price reset(s) under this Section 8(i) for up to an
aggregate of $750,000 during the 150-day period).

(ii) The Company shall not issue any fractional shares of Common
Stock as a result of this Section 8. Instead, the Company shall pay in lieu of
any fractional shares the cash value thereof at the then Current Market Price
of the Common Stock as determined under subparagraph (v) below.

(iii) The Company shall pay any documentary, stamp or similar issue
or transfer tax due on the issue of Additional Shares. However, the Holder
shall pay any such tax which is due because such shares are issued in a name
other than its name.

(iv) The Company shall reserve out of its authorized but unissued
Common Stock enough shares of Common Stock to permit the issuance of all of the
Additional Shares required to be issued hereunder. All Additional Shares shall
be, when issued in accordance herewith, duly authorized, validly issued,
fully-paid and nonassessable.

(v) As used herein, the "Current Market Price" per share of Common
Stock on any date is the average of the quoted bid prices of the Common Stock
for the five (5) consecutive trading days ending on the trading day immediately
prior to the date in question. As used in this subparagraph (v), the term
"quoted bid price" shall mean the closing bid price thereof on any such trading
date, as reported by the Nasdaq Stock Market.

9. MISCELLANEOUS.

(i) This Agreement shall be governed by and interpreted
in accordance with the laws of the State of Delaware.

(ii) This Agreement may be executed by facsimile signature
and in counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
Facsimile signatures of this Agreement shall be binding on all parties
hereto.

(iii) Each of the Parties agrees to pay its own expenses
incident to this Agreement and the performance of its obligations
hereunder, including, but not limited to, the fees and expenses of
each Party's legal counsel.

(iv) All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, express
overnight courier, registered first class mail, overnight courier, or
telecopied, initially to the address set forth below, and thereafter
at such other address, notice of which is given in accordance with the
provisions of this Section 9.

if to the Company:

Saliva Diagnostic Systems, Inc.
11719 NE 95th Street

<PAGE> 7

Vancouver, WA 98682
Attention: Chief Executive Officer
Telephone: (360) 696-4800
Facsimile: (360) 254-7942

if to the Investor, at such address as is listed for such
Investor on the signature page hereto.

All such notice and communications shall be deemed to have been duly given:
when delivered by hand, if personally delivered; three (3) business days after
being deposited in the mail, postage prepaid, if mailed; the next business day
after being deposited with an overnight courier, if deposited with an overnight
courier service; when receipt is acknowledged, if telecopied.

(v) This Agreement constitutes the entire agreement of
the Parties with respect to the subject matter hereof and supersedes all prior
oral or written proposals or agreements relating thereto. This Agreement may
not be amended or any provision hereof waived, in whole or in part, except by a
written amendment signed by both of the Parties.

IN WITNESS WHEREOF, this Agreement was duly executed on the date first
written above.

Official Signatory of Company:

SALIVA DIAGNOSTIC SYSTEMS, INC.

By: /s/ Kenneth J. McLachlan
-----------------------------------

Kenneth J. McLachlan
--------------------------------------
Print Name and Title

INVESTOR:

By: /s/ David Freund
-----------------------------------

Name: David Freund
---------------------------------

Title:
--------------------------------

Address:
------------------------------

------------------------------

Telephone:
----------------------------

Fax:
----------------------------------

<PAGE> 8
SCHEDULE 3(xi)

PENDING OR THREATENED ACTIONS, SUITS OR PROCEEDINGS

1. Hardy v. Saliva Diagnostic Systems, Inc., Ronald L. Lealos, Eugene
Seymour and Richard S. Kalin was filed in United States District
Court, District of Connecticut. On July 25, 1997, a jury in this case
rendered a verdict for the plaintiff, awarding approximately $200,000
for lost compensation and $525,000 for unawarded stock options. The
jury's award will be the subject of post-trial motions of the Company
to set aside the verdict and enter judgment for the Company. There
can be no assurance that the Company's motions will be granted or that
the final judgment in this case will not have a material adverse
effect on the Company. A final judgment is expected subsequent to a
September 29, 1997 hearing.

2. Merrixell Ltd. v. Saliva Diagnostic Systems, Inc. was filed in United
States District Court for the Southern District of New York.

3. Lealos v. Saliva Diagnostic Systems, Inc. was filed in Superior Court
in Clark County in the State of Washington. This suit was dismissed
without prejudice as a prerequisite to a settlement agreement
currently in the process of being documented. There can be no
assurance that a final settlement acceptable to the Company will be
concluded with Mr. Lealos, or that if new litigation ensues and is
decided adverse to the Company, that it would not have a material
adverse effect on the Company.

See pages 25 and 26 of the Prospectus dated June 13, 1997
for complete description.

<PAGE> 1

EXHIBIT 10.6

REGISTRATION RIGHTS AGREEMENT

THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
entered into as of August 22, 1997 by and between SALIVA DIAGNOSTIC SYSTEMS,
INC., a Delaware corporation (the "Company"), and DAVID FREUND (the
"Investor").

W I T N E S S E T H:

WHEREAS, pursuant to that certain Common Stock Subscription Agreement
dated the date hereof (the "Subscription Agreement"), the Investor acquired
shares of Common Stock of the Company, par value $.01 per share (the "Common
Stock" or the "Shares"); and

WHEREAS, the Company has agreed to register the Shares; and

WHEREAS, as used herein, "Registrable Securities" shall mean the
shares of Common Stock (including the Additional Shares, as defined in the
Subscription Agreement) issued or issuable by the Company under the
Subscription Agreement or issuable upon any stock split, stock dividend,
recapitalization or the like, which have not been previously sold pursuant to a
registration statement or Rule 144 promulgated under the Securities Act of
1933, as amended (the "Securities Act").

NOW THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the parties agree as follows:

1. REGISTRATION UPON CLOSING.

(a) Subject to the terms and conditions hereof, within thirty (30)
days after the closing of the transactions contemplated by the Subscription
Agreement (the "Closing Date"), the Company shall, at the Company's cost and
expense (other than the underwriting discounts and brokerage commissions, if
any, payable in respect of the Registrable Securities sold by the Investor),
prepare and file with the Securities and Exchange Commission (the "Commission")
a registration statement, or an amendment to an existing registration
statement, on Form S-3 (if the same is available), with respect to all of the
Registrable Securities and will use its best efforts to cause such registration
statement to become effective as soon as possible. If Form S-3 is not
available to the Company for such registration statement, the Company shall
file the registration statement on an appropriate alternative form.

(b) Except as set forth below, the Company shall keep effective
the registration statement contemplated by this Section 1 and shall from time
to time amend or supplement such registration statement, for a period of not
less than two (2) years (although such period may be reduced to one year
provided that all of the Shares may be sold at one time under rule 144(k) under
the Exchange Act), as extended by any period of time during which the
registration

<PAGE> 2
statement is not effective pursuant to Section 1(c) below, unless all of the
Registrable Securities set forth in such registration statement have
theretofore been sold.

(c) The Company may terminate or suspend the effectiveness of any
registration statement to be filed pursuant to Section 1(a) one time for a
period of not more than 30 days if the Company shall deliver to each Investor a
certificate signed by the President or Chief Financial Officer of the Company
stating that in the good faith judgment of the Board of Directors of the
Company it would (i) be seriously detrimental to the business of the Company
for such registration statement to be effected or remain effective at such
time, (ii) interfere with any proposed or pending material corporate
transaction involving the Company or any of its subsidiaries, or (iii) result
in any premature disclosure thereof.

2. THE COMPANY COVENANTS.

(a) The Company shall furnish to the Investor such number of
copies of a prospectus in conformity with the requirements of the Securities
Act, and such other documents as may reasonably be requested in order to
facilitate the disposition of the Registrable Securities owned by the Investor.

(b) The Company shall use all reasonable efforts to cause the
Registrable Securities so registered to be registered or qualified for sale
under the securities or blue sky laws of such jurisdictions as the Investor may
reasonably request; provided, however, that the Company shall not be required
to qualify to do business in any state by reason of this Section 2(b) in which
it is not otherwise required to qualify to do business.

(c) The Company shall notify the Investor promptly when such
registration statement has become effective or a supplement to any prospectus
forming a part of such registration statement has been filed.

(d) The Company shall advise the Investor, promptly after it shall
receive notice or obtain knowledge, of the issuance of any stop order by the
Commission suspending the effectiveness of such registration statement or the
initiation or threatening of any proceeding for that purpose, and promptly use
all reasonable efforts to prevent the issuance of any stop order or to obtain
its withdrawal if such stop order shall be issued.

(e) The Company shall promptly notify the Investor, at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event of which it has knowledge as a
result of which the prospectus included in such registration statement, as then
in effect, would include an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing, and at the reasonable request of each Investor prepare and furnish to
them such number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the offerees
and purchasers of such Registrable Securities or securities, such prospectus
shall not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or

<PAGE> 3
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made.

(f) The Company shall pay all expenses incurred by the Company in
complying with Section 1 hereof, including, without limitation, all
registration, qualification and filing fees, printing expenses, escrow fees,
fees and disbursements of counsel for the Company and one counsel for the
Investor (the amount of counsel fees for the Investor relating to such
registration shall be up to $10,000), blue sky fees and expenses, and the
expense of any special audits incident to or required by any such registration,
but excluding all underwriting discounts and brokerage commissions, if any,
payable in respect of the Registrable Securities sold by the Investor.

3. INDEMNIFICATION.

(a) Subject to the conditions set forth below, the Company agrees
to indemnify and hold harmless the Investor, its officers, directors, partners,
employees, agents, and counsel, and each person, if any, who controls any such
person within the meaning of Section 15 of the Securities Act or Section 20(a)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act") from
and against any and all loss, liability, charge, claim, damage, and expense
whatsoever (which shall include, for all purposes of this Section 3, but not be
limited to, reasonable attorneys' fees and any and all reasonable expenses
whatsoever incurred in investigating, preparing, or defending against any
litigation, commenced or threatened, or any claim whatsoever), arising out of,
based upon, or in connection with any untrue statement or alleged untrue
statement of a material fact contained (A) in any registration statement,
preliminary prospectus, or final prospectus (as from time to time amended and
supplemented) or any amendment or supplement thereto, relating to the sale of
any of the Registrable Securities or (B) in any application or other document
or communication (in this Section 3 collectively called an "application")
executed by or on behalf of the Company or based upon written information
furnished by or on behalf of the Company filed in any jurisdiction in order to
register or qualify any of the Registrable Securities under the securities or
blue sky laws thereof or filed with the Commission or any securities exchange
or the Nasdaq Stock Market; or any omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
made therein not misleading, unless (x) such statement or omission was made in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of the Investor for inclusion in any registration
statement, preliminary prospectus, or final prospectus, or any amendment or
supplement thereto, or in any application, as the case may be, or (y) such
loss, liability, charge, claim, damage or expense arises out of the Investor's
failure to comply with the terms and provisions of this Agreement. The
foregoing agreement to indemnify shall be in addition to any liability the
Company may otherwise have, including liabilities arising under this Agreement.

If any action is brought against the Investor or any of its officers,
directors, partners, employees, agents, or counsel, or any controlling persons
or such person (an "indemnified party") in respect of which indemnity may be
sought against the Company pursuant to the foregoing paragraph, such
indemnified party or parties shall promptly notify the Company in

<PAGE> 4
writing of the institution of such action (but the failure so to notify shall
not relieve the Company from any liability other than pursuant to this Section
3(a) unless, the failure to so notify shall materially and adversely prejudice
any rights or defenses with respect to such claim) and the Company shall
promptly assume the defense of such action, including the employment of counsel
(reasonably satisfactory to such indemnified party or parties) provided that
the indemnified party shall have the right to employ its or their own counsel
in any such case, but the fees and expenses of such counsel shall be at the
expense of such indemnified party or parties unless:

(i) the employment of such counsel shall have been
authorized in writing by the Company in connection with the defense of such
action; or

(ii) such indemnified party or parties shall have
reasonably concluded, based on an opinion of counsel, that there may be one or
more legal defenses available to it or them or to other indemnified parties
which are different from or additional to those available to the Company, in
any material respect, and that as a result thereof a conflict of interest would
arise absent separate representation of the parties.

In the event of clauses (i) or (ii) above, such fees and expenses as are
reasonable shall be borne by the Company and the Company shall not have the
right to direct the defense of such action on behalf of the indemnified party
or parties. Anything in this Section 3 to the contrary notwithstanding, the
Company shall not be liable for any settlement of any such claim or action
effected without its written consent, which shall not be unreasonably withheld.
The Company shall not, without the prior written consent of each indemnified
party that is not released as described in this sentence, settle or compromise
any action, or permit a default or consent to the entry of judgment in or
otherwise seek to terminate any pending or threatened action, in respect of
which indemnity may be sought hereunder (whether or not any indemnified party
is a party thereto) unless such settlement, compromise, consent, or termination
includes an unconditional release of each indemnified party from all liability
in respect of such action. The Company agrees promptly to notify the Investor
of the commencement of any litigation or proceedings against the Company or any
of its officers or directors in connection with the sale of any Registrable
Securities or any preliminary prospectus, final prospectus, registration
statement, or amendment or supplement thereto, or any application relating to
any sale of any Registrable Securities.

(b) The Investor agrees to indemnify and hold harmless the
Company, each director of the Company, each officer of the Company who shall
have signed any registration statement covering Registrable Securities held by
the Investor, each other person, if any, who controls the Company within the
meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange
Act, and its or their respective counsel, to the same extent as the foregoing
indemnity from the Company to the Investor in Section 3(a) but only with
respect to statements or omissions, if any, made in any registration statement,
preliminary prospectus, or final prospectus or any amendment or supplement
thereto, or in any application, in reliance upon and in conformity with written
information furnished to the Company with respect to the Investor by or on
behalf of the Investor, expressly for inclusion in any such registration
statement, preliminary

<PAGE> 5
prospectus, or final prospectus, or any amendment or supplement thereto, or in
any application, as the case may be. If any action shall be brought against
the Company or any other person so indemnified based on any such registration
statement, preliminary prospectus, or final prospectus, or any amendment or
supplement thereto, or in any application, and in respect of which indemnity
may be sought against the Investor pursuant to this Section 3(b), the Investor
shall have the rights and duties given to the Company, and the Company and each
other person so indemnified shall have the rights and duties given to the
indemnified parties, by the provisions of Section 3(a).

(c) To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to Section 3(a) or
3(b) (subject to the limitations thereof) but it is found in a final judicial
determination, not subject to further appeal, that such indemnification may not
be enforced in such case, even though this Agreement expressly provides for
indemnification in such case, or (ii) any indemnified or indemnifying party
seeks contribution under the Securities Act, the Exchange Act or otherwise,
then the Company (including for this purpose any contribution made by or on
behalf of any director of the Company, any officer of the Company who signed
any such registration statement and any controlling person of the Company) as
one entity, and the Investor included in such registration in the aggregate
(including for this purpose any contribution by or on behalf of an indemnified
party) as a second entity, shall contribute to the losses, liabilities, claims,
damages, and expenses whatsoever to which any of them may be subject, on the
basis of relevant equitable considerations such as the relative fault of the
Company and the Investor in connection with the facts which resulted in such
losses, liabilities, claims, damages, and expenses. The relative fault, in the
case of an untrue statement, alleged untrue statement, omission, or alleged
omission shall be determined by, among other things, whether such statement,
alleged statement, omission or alleged omission relates to information supplied
by the Company or by the Investor, and the parties' relative intent, knowledge,
access to information, and opportunity to correct or prevent such statement,
alleged statement, omission, or alleged omission. The Company and the Investor
agree that it would be unjust and inequitable if the respective obligations of
the Company and the Investor for contribution were determined by pro rata or
per capita allocation of the aggregate losses, liabilities, claims, damages,
and expenses (even if the Investor and the other indemnified parties were
treated as one entity for such purpose) or by any other method of allocation
that does not reflect the equitable considerations referred to in this Section
3(c). No person guilty of a fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who is not guilty of such fraudulent misrepresentation. For
purposes of this Section 3(c), each person, if any, who controls the Investor
within the meaning of Section 15 of the Securities Act or Section 20(a) of the
Exchange Act and each officer, director, partner, employee, agent, and counsel
for the Investor or control person shall have the same rights to contribution
as the Investor or control person and each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act of Section 20(a)
of the Exchange Act, each officer of the Company who shall have signed any such
registration statement, each director of the Company, and its or their
respective counsel shall have the same rights to contribution as the Company,
subject to each case to the provisions of this Section 3(c). Anything in this
Section 3(c) to the contrary notwithstanding, no party shall be liable for
contribution with respect to the settlement of any claim or action effected
without its

<PAGE> 6
written consent. This Section 3(c) is intended to supersede any right to
contribution under the Securities Act, the Exchange Act or otherwise.

4. MISCELLANEOUS.

(a) REMEDIES. In the event of a breach by either party
of its obligations under this Agreement, the other party, in addition to being
entitled to exercise all rights granted by law, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement.
Such rights shall be in addition to, and not in lieu of, the Investor's rights
to receive the Damage Payment as specified in the Subscription Agreement.

(b) AGREEMENTS AND WAIVERS. The provisions of this
Agreement, including the provisions of this sentence, may not be amended,
modified or supplemented, unless such amendment, modification or supplement is
in writing and signed by each of the parties hereto.

(c) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, express
overnight courier, registered first class mail, overnight courier, or
telecopied, initially to the address set forth below, and thereafter at such
other address, notice of which is given in accordance with the provisions of
this Section 4(c).

if to the Company:

Saliva Diagnostic Systems, Inc.
11719 NE 95th Street
Vancouver, WA 98682
Attention: Chief Executive Officer
Telephone: (360) 696-4800
Facsimile: (360) 254-7942

if to the Investor, to each investor and at such address as is
listed on the signature page to the Subscription Agreement.

All such notices and communications shall be deemed to have been duly given:
when delivered by hand, if personally delivered; three (3) business days after
being deposited in the mail, postage prepaid, if mailed; the next business day
after being deposited with an overnight courier, if deposited with an overnight
courier service; when receipt is acknowledged, if telecopied.

(d) REASONABLE COOPERATION OF THE INVESTOR. The Investor shall
cooperate in all reasonable respects with the filing of the registration
statement(s) contemplated hereby. Without limiting the foregoing, the Investor
shall furnish to the Company (or any regulatory authority) such written
information and representations that the Company may reasonably request in
order to facilitate any registration of the Registrable Securities hereunder.

<PAGE> 7

(e) SUCCESSORS AND ASSIGNS. This Agreement may be assigned by the
Investor to any purchaser or transferee of the Shares.

(f) COUNTERPARTS. This Agreement may be executed by facsimile
signature and in any number of counterparts and by the parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement.

(g) HEADINGS. The headings in this Agreement are for convenience
of references only and shall not limit or otherwise affect the meaning hereof.

(h) GOVERNING LAW. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of Delaware without
reference to its conflict of laws provisions.

(i) SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application hereof in any circumstance is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provisions in every other respect and of the
remaining provisions contained herein shall not be affected or impaired
thereby.

(j) ENTIRE AGREEMENT. This Agreement is intended by the parties
as a final expression of their agreement and intended to be a complete and
exclusive statement of this agreement and understanding of the parties hereto
in respect of the subject matter contained herein. There are not any
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein, concerning the registration rights granted by the
Company pursuant to this Agreement.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGES FOLLOW]

<PAGE> 8

IN WITNESS WHEREOF, this Agreement was duly executed on the date first
written above.

SALIVA DIAGNOSTIC SYSTEMS, INC.

By: /s/ Kenneth J. McLachlan
----------------------------------------
Kenneth J. McLachlan, President

INVESTOR:

By: /s/ David Freund
----------------------------------------

Name: David Freund
Title:
-----------------------------------

<PAGE> 1

EXHIBIT 23.1

Consent of Independent Accountants

To the Board of Directors
Saliva Diagnostic Systems, Inc.

We consent to the incorporation by reference in the Amendment No. 1 to
Registration Statement on Form S-3 of Saliva Diagnostic Systems, Inc.
(Registration No. 333-33429), of our report dated March 21, 1997 relating to
the consolidated financial statements of Saliva Diagnostic Systems, Inc. and
its subsidiaries, and to the reference to our Firm under the caption "Experts"
in the Prospectus.

/s/ Hollander, Gilbert & Co.

Hollander, Gilbert & Co.

Los Angeles, California
September 17, 1997