f10q0909_suspect.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended September 30, 2009

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File Number: 000-52792

SUSPECT DETECTION SYSTEMS INC.

(Exact name of small business issuer as specified in its charter)

Delaware		98-0511645
(State of incorporation)		(IRS Employer ID Number)

4 Nafcha Street, Jerusalem, Israel 95508

(Address of principal executive offices)

972 (2) 500-1128

(Issuer's telephone number)

________________________________________________________________

(Former name, former address and former fiscal year, if changed since last report)

Check whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer o
Non-accelerated filer o		Smaller reporting company x
(Do not check if a smaller reporting company)

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

As of November 20, 2009, 71,522,893 shares of common stock, par value $0.0001 per share, were issued and outstanding.

TABLE OF CONTENTS

	Page
PART I
Item 1. Financial Statements	F-1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	1
Item 3 Quantitative and Qualitative Disclosures About Market Risk	4
Item 4(T) Controls and Procedures	5
PART II
Item 1. Legal Proceedings	5
Item IA. Risk Factors	5
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	5
Item 3. Defaults Upon Senior Securities	6
Item 4. Submission of Matters to a Vote of Security Holders	6
Item 5. Other Information	6
Item 6. Exhibits	7

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements.

SUSPECT DETECTION SYSTEMS INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009, AND 2008

(Unaudited)

Consolidated Financial Statements-

Consolidated Balance Sheets as of September 30, 2009, and December 31, 2008	F-2

Consolidated Statements of Operations for the Three Months and Nine Months Ended September 30, 2009, and 2008, and Cumulative from Inception	F-3

Consolidated Statements of Cash Flows for Nine Months Ended September 30, 2009, 2008, and Cumulative from Inception	F-4

Notes to Consolidated Financial Statements September 30, 2009, and 2008	F-6

F-1

SUSPECT DETECTION SYSTEMS INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS (NOTE 2)
AS OF SEPTEMBER 30, 2009, AND DECEMBER 31, 2008
(Unaudited)

ASSETS

	As of			As of
	September 30,			December 31,
	2009			2008
Current Assets:
Cash and cash equivalents	$	733,026		$	179,565
Restricted cash		15,827			-
Due from related party - SDS		-			28,000
Inventory		51,463			-
Prepaid expenses		49,373			143,392

Total current assets		849,689			350,957

Property and Equipment, net		17,859			-

Other Assets:
Deferred acquisition costs		-			1,135,000
Prepaid expenses, non-current		13,019			-
Goodwill		1,033,964			-

Total other assets		1,046,983			1,135,000

Total Assets	$	1,914,531		$	1,485,957

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Accounts payable - Trade	$	65,023		$	807
Accrued liabilities		230,664			20,802
Advance from customers		348,278			-
Due to Director and stockholder		92,606			288

Total current liabilities		736,571			21,897

Total liabilities		736,571			21,897

Commitments and Contingencies

Stockholders' Equity:
Common stock, par value $0.0001 per share, 100,000,000 shares
authorized; 71,522,893 and 72,689,668 shares issued and
outstanding in 2009 and 2008, respectively		7,152			7,269
Additional paid-in capital		2,192,418			1,797,302
(Deficit) accumulated during the development stage		(1,022,743	)		(340,511	)

Total Suspect Detection Systems, Inc. equity		1,176,827			1,464,060

Noncontrolling Interest		1,133			-

Total stockholders' equity		1,177,960			1,464,060

Total Liabilities and Stockholders' Equity	$	1,914,531		$	1,485,957

The accompanying notes to consolidated financial statements are

an integral part of these consolidated balance sheets.

F-2

SUSPECT DETECTION SYSTEMS INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS (NOTE 2)
FOR THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2009, AND 2008,
AND CUMULATIVE FROM INCEPTION (OCTOBER 5, 2006)
THROUGH SEPTEMBER 30, 2009
(Unaudited)

	Three Months Ended						Nine Months Ended						Cumulative
	September 30,						September 30,						From
	2009			2008			2009			2008			Inception

Revenues, net	$	401,512		$	-		$	825,253		$	-		$	825,253

Cost of Revenues		34,264			-			86,450			-			86,450

Gross Profit		367,248			-			738,803			-			738,803

Expenses:
Research and Development		48,293			-			120,723			-			120,723
Selling, general and administrative		609,996			47,940			1,387,136			157,767			1,735,433

Total operating expenses		658,289			47,940			1,507,859			157,767			1,856,156

(Loss) from Operations		(291,041	)		(47,940	)		(769,056	)		(157,767	)		(1,117,353	)

Other Income (expense)		(16,158	)		2,282			(9,117	)		6,396			(1,331	)

Provision for Income Taxes		-			-			-			-			-

Net (Loss) Before Noncontrolling Interest		(307,199	)		(45,658	)		(778,173	)		(151,371	)		(1,118,684	)

Less - Income (Loss) Attributable
to Noncontrolling Interest		(11,877	)		-			(95,941	)		-			(95,941	)

Net (Loss)	$	(295,322	)	$	(45,658	)	$	(682,232	)	$	(151,371	)	$	(1,022,743	)

(Loss) Per Common Share:
(Loss) per common share - Basic and Diluted	$	(0.00	)	$	(0.00	)	$	(0.01	)	$	(0.00	)

Weighted Average Number of Common Shares
Outstanding - Basic and Diluted		68,699,471			68,293,916			67,456,952			65,878,152

The accompanying notes to consolidated financial statements are

an integral part of these consolidated statements.

F-3

SUSPECT DETECTION SYSTEMS INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS (NOTE 2)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009, AND 2008,
AND CUMULATIVE FROM INCEPTION (OCTOBER 5, 2006)
THROUGH SEPTEMBER 30, 2009
(Unaudited)

	Nine Months Ended						Cumulative
	September 30,						From
	2009			2008			Inception

Operating Activities:
Net (loss)	$	(778,173	)	$	(151,371	)	$	(1,118,684	)
Adjustments to reconcile net (loss) to net cash
(used in) operating activities:
Common stock issued for officers' compensation		25,500			-			25,750
Common stock issued for legal services		-			-			10,500
Common stock issued for promotional services		-			-			250,000
Common stock issued for consulting services		112,500						112,500
Depreciation Expense		2,223			-			2,223
Changes in Current Assets and Liabilities-
Accounts receivable		-			-			-
Inventory		23,822			-			23,822
Prepaid expenses		127,485			(55,583	)		(15,907	)
Accounts payable - Trade		13,421			(6,492	)		14,228
Accrued liabilities		84,149			(4,525	)		104,951
Advance from customer		(130,973	)		-			(130,973	)
Accrued officer's salary		(5,000	)		(2,000	)		(5,000	)
Accrued office rent - Related party		-			2,700			-

Net Cash (Used in) Operating Activities		(525,046	)		(217,271	)		(726,590	)

Investing Activities:
Deposit in Severance pay fund		40,827			-			40,827
Purchase of Property and Equipment		(4,063	)		-			(4,063	)

Net Cash Provide by Investing Activities		36,764			-			36,764

Financing Activities:
Issuance of common stock for cash		257,000			1,528,620			1,396,070
Stock subscriptions paid		-			(378,250	)		404,751
Deferred acquisition costs		-			(579,500	)		(1,135,000	)
Due from related party - SDS		28,000			(28,000	)		-
Due to Director and stockholder		82,597			-			82,885

Net Cash Provided by Financing Activities		367,597			542,870			748,706

Net Increase(Decrease) in Cash		(120,685	)		325,599			(58,880	)

Cash - Beginning of Period		853,711			364,534			674,145

Cash - End of Period	$	733,026		$	690,133		$	733,026

Cash - End of Period Consisting of:

Cash in bank	$	733,026		$	690,133		$	733,026
Restricted cash		15,827			-			15,827

Total	$	748,853		$	690,133		$	748,853

Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest	$	-		$	-		$	-

Income taxes	$	-		$	-		$	-

The accompanying notes to consolidated financial statements are

an integral part of these consolidated statements.

F-4

SUSPECT DETECTION SYSTEMS INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS (NOTE 2)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009, AND 2008,

AND CUMULATIVE FROM INCEPTION (OCTOBER 5, 2006)

THROUGH SEPTEMBER 30, 2009

(UNAUDITED)

On November 3, 2006, SDS Inc. issued 2,500,000 (post forward stock split) shares of its common stock to its Director and Corporate Secretary at par value for services rendered. The transaction was valued at $250.

On December 5, 2007, SDS Inc. issued 100,000 (post forward stock split) shares of its common stock to an attorney for legal services rendered. The transaction was valued at $10,500.

On April 20, 2008, SDS Inc. issued 666,6666 (post forward stock split) shares of its common stock to a third-party for marketing and promotional services for one year. The transaction was valued at $100,000.

On October 1, 2008, SDS Inc. issued 1,000,000 (post forward stock split) shares of its common stock to a third-party for marketing and promotional services for one year. The transaction was valued at $150,000.

On January 16, 2009, SDS Inc. issured 120,000 (post forward stock split) shares to its Chief Financial Officer, Mr.Zwebner for services rendered. The transaction was valued at $18,000.

On May 6, 2009, SDS Inc. issued 50,000 shares to its Secretary, Treasurer and director, Mr. Julius Klein for services rendered. The transaction was valued at $7,500.

On May 6, 2009, SDS Inc. issued 750,000 shares to a consulting company for services rendered. The transaction was valued at $112,500.

The accompanying notes to consolidated financial statements are

an integral part of these consolidated statements.

F-5

SUSPECT DECTECTION SYSTEMS INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009, AND 2008

(Unaudited)

1) Summary of Significant Accounting Policies

Basis of Presentation and Organization

Suspect Detection Systems Inc. (formerly PCMT Corporation) (“SDS Inc.” or the “Company”) is a Delaware corporation in the development stage and conducts its operations through its 58 percent owned subsidiary, Suspect Detection System, Ltd, an Israeli Corporation(“SDS - Israel”). The Company was incorporated under the laws of the State of Delaware on October 5, 2006. The revised business plan of the Company is the application of proprietary technologies for law enforcement and border control, including counter terrorism efforts, immigration control and drug enforcement, as well as human resource management, asset management and the transportation sector. The accompanying consolidated financial statements of SDS Inc. were prepared from the accounts of the Company under the accrual basis of accounting.

In November 2006, SDS Inc. began a capital formation activity through a Private Placement Offering (“PPO #1”), exempt from registration under the Securities Act of 1933, to raise up to $50,000 through the issuance of 20,000,000 (post forward stock split) shares of its common stock, par value $0.0001 per share, at an offering price of $0.0025 per share. As of February 5, 2007, the Company had received $50,000 in proceeds from the PPO #1. SDS Inc. also commenced an activity to submit a Registration Statement on Form SB-2 to the SEC to register 20,000,000 shares (post forward stock split) of its outstanding common stock on behalf of selling stockholders. SDS Inc. will not receive any of the proceeds of this registration activity once the shares of common stock are sold. The Registration Statement on Form SB-2 was filed with the SEC on March 12, 2007, and declared effective on March 29, 2007.

In October 2007, SDS Inc. began a second capital formation activity through a Private Placement Offering (“PPO #2”), exempt from registration under the Securities Act of 1933, to raise up to $100,000 through the issuance of 25,000,000 (post forward stock split) shares of its common stock, par value $0.0001 per share, at an offering price of $0.004 per share. The PPO #2 has an offering period of 180 days. As of November 15, 2008, the Company had subscribed 16,300,000 (post forward stock split) shares (December 31, 2007 – 16,300,000) related to the PPO #2 from 15 foreign investors, resulting in gross proceeds of $65,200 (December 31, 2007 - $65,200). As of November 15, 2009, the Company declared PPO#2 closed.

In November 2007, the Company began a third capital formation activity through a Private Placement Offering (“PPO #3”), exempt from registration under the Securities Act of 1933, to raise up to $2,500,000 through the issuance of 16,666,666 units. The purchase price of each unit is $0.15. Each unit contains one share of common stock, one warrant giving the holder the right to purchase one share of common stock for $0.25, which is exercisable for one year, and one warrant giving the holder the right to purchase one share of common stock for $0.375, which is exercisable for three years from the date of issuance. As of November 15, 2008, the Company had subscribed 9,523,002 (December 31, 2007 – 2,621,666) units and had received approximately $1,428,000 (December 31, 2007 - $393,250 and subscription receivable of $15,000) in proceeds from PPO #3. As of November 15, 2008, the Company had issued 9,523,002 shares (post forward stock split) of common stock subscribed and declared PPO#3 closed.

F-6

SUSPECT DECTECTION SYSTEMS INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009, AND 2008

(Unaudited)

In October 2008, SDS Inc. began a fourth capital formation activity through a Private Placement Offering (“PPO #4”), exempt from registration under the Securities Act of 1933, to raise up to $600,000 through the issuance of Units. Each Unit consists of a Promissory Note and shares of common stock of the Company in the amount of 250,000 shares for each $100,000 of principal amount of the Promissory Note. As of September 30, 2009, the Company had not subscribed any shares.

In April 2009, SDS Inc. began a fifth capital formation activity through a Private Placement Offering (“PPO #5”), exempt from registration under the Securities Act of 1933, to raise up to $2,500,000 through the issuance of 16,666,666 units at an offering price of $0.15 per unit. Each unit consists of one share of common stock of the Company, and one warrant with the exercise price at $0.25 per share, which expired one year from the date of subscription, and one warrant with the exercise price at $0.375 per share, which will be expired three years from the date of subscription. As of September 30, 2009, the Company has issued 1,633,334 shares of common stock subscribed.

In July 2009, SDS Inc. began a sixth capital formation activity through a Private Placement Offering (“PPO #6”), exempt from registration under the Securities Act of 1933, to raise up to $1,500,000 through the issuance of 10,000,000 Units. Each Unit consists of one share of common stock of the Company, and one warrant with the exercise price at $0.25 per share, which expired one year from the date of subscription, and one warrant with the exercise price at $0.375 per share, which will be expired three years from the date of subscription. As of September 30, 2009, the Company has issued 80,000 shares of common stock subscribed.

On November 14, 2007, SDS Inc. executed a letter of intent with SDS - Israel, providing for the acquisition of SDS - Israel by the Company. Since the execution of the letter of intent with SDS - Israel, the Company’s activities have focused on the consummation of the acquisition of SDS - Israel. On December 18, 2008, the Company and SDS - Israel executed and delivered an investment agreement (the “Investment Agreement”).

In January 2009, SDS Inc. completed the Investment Agreement between SDS Inc. and SDS - Israel. Pursuant to the Investment Agreement, SDS - Israel issued 1,218,062 ordinary shares, par value NIS 0.01 per share, representing 51 percent of its issued and outstanding share capital to SDS Inc. as consideration for the $280,000 paid by SDS Inc. to SDS - Israel on December 22, 2008, and $820,000 previously paid by SDS Inc. to SDS - Israel pursuant to letter agreements dated as of October 18, 2007, November 14, 2007, January 10, 2008, May 18, 2008, and October 20, 2008.

On December 24, 2008, SDS Inc.’s shareholders resolved to change its name from PCMT Corporation to Suspect Detection Systems, Inc. On January 27, 2009, the Company filed an amendment to its Certificate of Incorporation with the Secretary of State of Delaware to reflect this change.

F-7

SUSPECT DECTECTION SYSTEMS INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009, AND 2008

(Unaudited)

Unaudited Interim Financial Statements

The accompanying consolidated financial statements of the Company as of September 30, 2009, and December 31, 2008, and for the three months and nine months ended September 30, 2009, and 2008, and cumulative from inception, are unaudited. However, in the opinion of management, the accompanying consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the Company’s consolidated financial position as of September 30, 2009, and December 31, 2008, and the results of its operations and its cash flows for the three and nine months ended September 30, 2009, and 2008, and cumulative from inception. These results are not necessarily indicative of the results expected for the calendar year ending December 31, 2009. The accompanying consolidated financial statements and notes thereto do not reflect all disclosures required under accounting principles generally accepted in the United States of America. Refer to the Company’s audited financial statements as of December 31, 2008, filed with the SEC for additional information, including significant accounting policies.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its 51 percent-owned Israeli subsidiary, Suspect Detection Systems, Ltd. All significant intercompany accounts and transactions have been eliminated in consolidation.

Cash and Cash Equivalents

For purposes of reporting within the statement of cash flows, the Company considers all cash on hand, cash accounts not subject to withdrawal restrictions or penalties, and all highly liquid debt instruments purchased with a maturity of three months or less to be cash and cash equivalents.

Revenue Recognition

The Company recognizes revenues when delivery of goods or completion of services has occurred provided there is persuasive evidence of an agreement, acceptance has been approved by its customers, the fee is fixed or determinable based on the completion of stated terms and conditions, and collection of any related receivable is probable.

Loss per Common Share

Basic loss per share is computed by dividing the net loss attributable to the common stockholders by the weighted average number of shares of common stock outstanding during the periods. Diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. There were no dilutive financial instruments issued or outstanding for the three months and nine months ended September 30, 2009, and 2008.

F-8

SUSPECT DECTECTION SYSTEMS INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009, AND 2008

(Unaudited)

Income Taxes

The Company accounts for income taxes pursuant to SFAS No. 109, “Accounting for Income Taxes” (“SFAS No. 109”). Under SFAS No. 109, deferred tax assets and liabilities are determined based on temporary differences between the bases of certain assets and liabilities for income tax and financial reporting purposes. The deferred tax assets and liabilities are classified according to the financial statement classification of the assets and liabilities generating the differences.

The Company maintains a valuation allowance with respect to deferred tax assets. SDS Inc. establishes a valuation allowance based upon the potential likelihood of realizing the deferred tax asset and taking into consideration SDS Inc.’s financial position and results of operations for the current period. Future realization of the deferred tax benefit depends on the existence of sufficient taxable income within the carryforward period under the Federal tax laws.

Changes in circumstances, such as the Company generating taxable income, could cause a change in judgment about the realizability of the related deferred tax asset. Any change in the valuation allowance will be included in income in the year of the change in estimate.

Fair Value of Financial Instruments

The Company estimates the fair value of financial instruments using the available market information and valuation methods. Considerable judgment is required in estimating fair value. Accordingly, the estimates of fair value may not be indicative of the amounts SDS Inc. could realize in a current market exchange. As of September 30, 2009, and December 31, 2008, the carry value of financial instruments approximated fair value due to the short-term nature and maturity of these instruments.

Deferred Offering Costs

The Company defers as other assets the direct incremental costs of raising capital until such time as the offering is completed. At the time of the completion of the offering, the costs are charged against the capital raised. Should the offering be terminated, deferred offering costs are charged to operations during the period in which the offering is terminated.

Deferred Acquisition Costs

The Company defers as other assets the direct incremental costs of acquiring a company until such time as the acquisition is completed. At the time of the completion of the acquisition, the costs are charged against the goodwill of the acquired company. Should the acquisition be terminated, deferred acquisition costs are charged to operations during the period in which the agreement is terminated. As of September 30, 2009, and December 31, 2008, the Company had $0 and $1,135,000, respectively, of deferred acquisition costs, and recognized $1,033,964 of goodwill from the Company’s business acquisition transaction.

F-9

SUSPECT DECTECTION SYSTEMS INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009, AND 2008

(Unaudited)

Concentration of Risk

As of September 30, 2009, and December 31, 2008, the Company maintained its cash account at two commercial banks. The balances in the accounts are subject to FDIC coverage of up to $250,000 per institution.

Common Stock Registration Expenses

The Company considers incremental costs and expenses related to the registration of equity securities with the SEC, whether by contractual arrangement as of a certain date or by demand, to be unrelated to original issuance transactions. As such, subsequent registration costs and expenses are reflected in the accompanying financial statements as general and administrative expenses, and are expensed as incurred.

Lease Obligations

All noncancellable leases with an initial term greater than one year are categorized as either capital or operating leases. Assets recorded under capital leases are amortized according to the methods employed for property and equipment or over the term of the related lease, if shorter.

Goodwill

Goodwill represents the excess of acquisition cost over the fair value of net assets acquired in a business combination. In accordance with Statement of Financial Accounting Statement No.142, “Goodwill and Other Intangible Assets” (“SFAS No.142”), goodwill is not amortized but reviewed annually for impairment.

Estimates

The consolidated financial statements are prepared on the basis of accounting principles generally accepted in the United States of America. The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of September 30, 2009, and December 31, 2008, and expenses for the three months and nine months ended September 30, 2009, and 2008, and cumulative from inception. Actual results could differ from those estimates made by management.

(2) Development Stage Activities and Going Concern

The Company is currently in the development stage, and is devoting substantially all of its efforts toward conducting marketing of its products. The Company’s activities also include capital formation, and building infrastructure. The Company had losses of approximately $682,232 for the nine months ended September 30, 2009 (2008-$151,371) and, as of September 30, 2009, the Company had an accumulated deficit of approximately $1,022,743 (2008-$340,511). The Company’s ability to continue as a going concern is uncertain. The revised business plan of the Company is the application of proprietary technologies for law enforcement and border control, including counter terrorism efforts, immigration control and drug enforcement, as well as human resource management, asset management and the transportation sector. In January 2009, SDS Inc. completed the Investment Agreement between SDS Inc. and SDS - Israel. Pursuant to the Investment Agreement, SDS - Israel issued 1,218,062 ordinary shares, par value NIS 0.01 per share, representing 51 percent of its issued and outstanding share capital to SDS Inc. as consideration for the $280,000 paid by SDS Inc. to SDS - Israel on December 22, 2008, and $820,000 previously paid by SDS Inc. to SDS - Israel pursuant to letter agreements dated as of October 18, 2007, November 14, 2007, January 10, 2008, May 18, 2008, and October 20, 2008.

F-10

SUSPECT DECTECTION SYSTEMS INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009, AND 2008

(Unaudited)

During the period from inception (October 5, 2006) through September 30, 2009, the Company was incorporated, received initial working capital through a loan from a Director and stockholder, and commenced a capital formation activity through PPO #1, exempt from registration under the Securities Act of 1933, to raise up to $50,000 through the issuance of 20,000,000 (post forward stock split) shares of its common stock, par value $0.0001 per share, at an offering price of $0.0025 per share. As of February 5, 2007, SDS Inc. had received $50,000 in proceeds from PPO #1. The Company also commenced an activity to submit a Registration Statement on Form SB-2 to the SEC to register 20,000,000 shares (post forward stock split) of common stock on behalf of selling stockholders. SDS Inc. will not receive any of the proceeds of this registration activity once the shares of common stock are sold. The Registration Statement on Form SB-2 was filed with the SEC on March 12, 2007, and declared effective on March 29, 2007.

In October 2007, SDS Inc. began a second capital formation activity through PPO#2, exempt from registration under the Securities Act of 1933, to raise up to $100,000 through the issuance of 25,000,000 (post forward stock split) shares of its common stock, par value $0.0001 per share, at an offering price of $0.004 per share. The PPO #2 had an offering period of 180 days. As of November 15, 2008, the Company had subscribed 16,300,000 (post forward stock split) shares (December 31, 2007 – 16,300,000) related to the PPO #2 from 15 foreign investors, resulting in gross proceeds of $65,200 (December 31, 2007 - $65,200). As of November 15, 2008, the Company declared PPO#2 closed.

In November 2007, the Company began a third capital formation activity through PPO #3, exempt from registration under the Securities Act of 1933, to raise up to $2,500,000 through the issuance of 16,666,666 units. The purchase price of each unit was $0.15. Each unit contained one share of common stock, one warrant giving the holder the right to purchase one share of common stock for $0.25, which is exercisable for one year, and one warrant giving the holder the right to purchase one share of common stock for $0.375, which is exercisable for three years from the date of issuance. As of November 15, 2008, the Company had subscribed 9,523,002 (December 31, 2007 – 2,621,666) units and had received approximately $1,428,000 (December 31, 2007 - $393,250 and subscription receivable of $15,000) in proceeds from PPO #3. As of November 15, 2008, the Company issued 9,523,002 shares (post forward stock split) of common stock subscribed and declared PPO#3 closed.

F-11

SUSPECT DECTECTION SYSTEMS INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009, AND 2008

(Unaudited)

In October 2008, SDS Inc. began a fourth capital formation activity through PPO #4, exempt from registration under the Securities Act of 1933, to raise up to $600,000 through the issuance of Units. Each Unit consists of a Promissory Note and shares of common stock of the Company in the amount of 250,000 shares for each $100,000 of principal amount of the Promissory Note. As of September 30, 2009, the Company had not subscribed any shares.

In April 2009, SDS Inc. began a fifth capital formation activity through PPO #5, exempt from registration under the Securities Act of 1933, to raise up to $2,500,000 through the issuance of 16,666,666 units at an offering price of $0.15 per unit. Each unit consists of one share of common stock of the Company, and one warrant with the exercise price at $0.25 per share, which expired one year from the date of subscription, and one warrant with the exercise price at $0.375 per share, which will be expired three years from the date of subscription. As of September 30, 2009, the Company has issued 1,633,334 shares of common stock subscribed.

In July 2009, SDS Inc. began a sixth capital formation activity through PPO #6, exempt from registration under the Securities Act of 1933, to raise up to $1,500,000 through the issuance of 10,000,000 Units. Each Unit consists of one share of common stock of the Company, and one warrant with the exercise price at $0.25 per share, which expired one year from the date of subscription, and one warrant with the exercise price at $0.375 per share, which will be expired three years from the date of subscription. As of September 30, 2009, the Company has issued 80,000 shares of common stock subscribed, 80,000 class A warrant and 80,000 class B warrants, for the aggregate price of $120,000.

On August 18, 2009, the Company issued 3,199,891 shares of common stock to NG-The Northern Group LP ("NG"), a stockholder of SDS- Israel, in accordance with the terms of the Exchange Agreement, entered between the Company and NG on July 9, 2009, to exchange 170,295 shares of SDS-Israel common stock that NG held. As result of this transaction, the Company acquired additional 7 percent of ownership interest in SDS- Israel, which increased its holdings to 58 percent.

F-12

SUSPECT DECTECTION SYSTEMS INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009, AND 2008

(Unaudited)

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company is devoting substantially all of its efforts toward conducting marketing of its products. The Company’s activities also include raising capital, and building infrastructure. In the course of such activities, the Company has sustained operating losses and expects such losses to continue for the foreseeable future. The Company's ability to continue to operate as a going concern is dependent upon additional financial support. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

(3) Appointment of Officers

On October 18, 2007, SDS Inc. appointed an individual as Chief Financial Officer (“CFO”). On October 23, 2007, an employment agreement was entered into with the CFO. This agreement provides that the CFO will receive a base salary of $3,000 per quarter and $5,000 per annual audit. This agreement is effective until the next annual general meeting of the stockholders of the Company or until his successor is elected or appointed.

On January 23, 2008, the Company appointed Mr. Stukalin as Treasurer. This office will be held by the individual until the next annual general meeting of the stockholders of SDS Inc. or until a successor is elected or appointed.

On April 30, 2008, Mr. Bernstein resigned as the Company’s Secretary and tendered his resignation as Director, effective May 31, 2008.

Mr. Kohen resigned as a Director of SDS Inc. and tendered his resignation as the Company’s President, effective May 5, 2008.

Mr. Zwebner was appointed as the Company’s interim Chief Executive Officer, and was elected as a Director of SDS Inc.

(4) Common Stock

On October 10, 2006, the Company issued 100,000 (post forward stock split) shares of its common stock to its Director, president, and treasurer at par value. The transaction was valued at $1.

On November 3, 2006, SDS Inc. issued 25,000,000 (post forward stock split) of its common stock to its Director and corporate secretary for services rendered. The transaction was valued at the par value of the common stock, or $250.

On November 5, 2006, the Board of Directors of the Company approved PPO #1, exempt from registration under the Securities Act of 1933, to raise up to $50,000 through the issuance of 20,000,000 (post forward stock split) shares of its common stock, par value $0.0001 per share, at an offering price of $0.0025 per share. The PPO #1 had an offering period of 180 days. As of February 5, 2007, the Company had received cash proceeds from the PPO #1 amounting to $50,000 related to the issuance of 20,000,000 (post forward stock split) shares of common stock.

F-13

SUSPECT DECTECTION SYSTEMS INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009, AND 2008

(Unaudited)

The Company also commenced an activity to submit a Registration Statement on Form SB-2 to the SEC to register 20,000,000 shares (post forward stock split) of common stock on behalf of selling stockholders. SDS Inc. will not receive any of the proceeds of this registration activity once the shares of common stock are sold. The Registration Statement on Form SB-2 was filed with the SEC on March 12, 2007, and declared effective on March 29, 2007.

In October 2007, SDS Inc. began a second capital formation activity through PPO #2, exempt from registration under the Securities Act of 1933, to raise up to $100,000 through the issuance of 25,000,000 (post forward stock split) shares of its common stock, par value $0.0001 per share, at an offering price of $0.004 per share. The PPO #2 had an offering period of 180 days. As of November 15, 2008, the Company had subscribed 16,300,000 (post forward stock split) shares (December 31, 2007 – 16,300,000) related to the PPO #2 from 15 foreign investors, resulting in gross proceeds of $65,200 (December 31, 2007 - $65,200). As of November 15, 2008, the Company declared PPO#2 closed.

In November 2007, the Company began a third capital formation activity through PPO #3, exempt from registration under the Securities Act of 1933, to raise up to $2,500,000 through the issuance of 16,666,666 units. The purchase price of each unit is $0.15. Each unit contained one share of common stock, one warrant giving the holder the right to purchase one share of common stock for $0.25, which is exercisable for one year, and one warrant giving the holder the right to purchase one share of common stock for $0.375, which is exercisable for three years from the date of issuance. As of November 15, 2008, the Company had subscribed 9,523,002 (December 31, 2007 – 2,621,666) units and had received approximately $1,428,000 (December 31, 2007 - $393,250 and subscription receivable of $15,000) in proceeds from PPO #3. As of November 15, 2008, the Company had issued 9,523,000 shares (post forward stock split) of common stock subscribed and declared PPO#3 closed.

On November 14, 2007, the Company notified the NASD of its intention to implement a 10-for-1 forward stock split of its issued and outstanding common stock to the holders of record as of November 23, 2007. Such forward stock split was effective as of November 26, 2007. The accompanying consolidated financial statements and related notes thereto have been adjusted accordingly to reflect this forward stock split.

On December 5, 2007, the Company entered into a written commitment with a third-party attorney to provide legal services and assistance with required SEC filings. As part of this agreement, SDS Inc. issued to the attorney 100,000 shares (post forward stock split) of common stock on said date valued at $10,500.

On April 20, 2008, SDS Inc. entered into a written agreement with an unrelated third-party consulting company to provide advisory services for corporate development, acquisitions, and management assistance for one year. As payment for the consultant’s services, the Company issued 666,666 shares (post forward stock split) of its unregistered common stock on said date valued at $100,000.

F-14

SUSPECT DECTECTION SYSTEMS INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009, AND 2008

(Unaudited)

On October 1, 2008, SDS Inc. entered into a written agreement with an unrelated third-party consultant to provide advisory services for corporate development, acquisitions, and management assistance for one year. As payment for the consultant’s services, the Company issued 1,000,000 shares (post forward stock split) of its unregistered common stock on said date valued at $150,000.

On January 16, 2009, the Company issued 120,000 shares of common stock at par $0.0001, valued at $18,000, to an officer and Director for the services provided.

On January 19, the former Secretary and Director of SDS Inc. returned 7,000,000 shares of SDS Inc.’s common stock, which shares were cancelled.

In April 2009, SDS Inc. began a fifth capital formation activity through PPO #5, exempt from registration under the Securities Act of 1933, to raise up to $2,500,000 through the issuance of 16,666,666 Units. Each Unit consists of one share of common stock of the Company, and one warrant with the exercise price at $0.25 per share, which expired one year from the date of subscription, and one warrant with the exercise price at $0.375 per share, which will be expired three years from the date of subscription. As of September 30, 2009, the Company has issued 1,633,334 shares of common stock subscribed.

On May 6, 2009, SDS Inc. issued 50,000 shares to its Secretary, Treasurer, and Director, Mr. Julius Klein, for services rendered. The transaction was valued at $7,500.

On May 6, 2009, SDS Inc. issued 750,000 shares to a consulting company for services rendered. The transaction was valued at $112,500.

In July 2009, SDS Inc. began a sixth capital formation activity through PPO #6, exempt from registration under the Securities Act of 1933, to raise up to $1,500,000 through the issuance of 10,000,000 Units. Each Unit consists of one share of common stock of the Company, and one warrant with the exercise price at $0.25 per share, which expired one year from the date of subscription, and one warrant with the exercise price at $0.375 per share, which will be expired three years from the date of subscription. As of September 30, 2009, the Company has issued 80,000 shares of common stock subscribed, 80,000 class A warrants and 80,000 class B warrants, for the aggregate price of $120,000.

F-15

SUSPECT DECTECTION SYSTEMS INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009, AND 2008

(Unaudited)

(5) Income Taxes

The provision (benefit) for income taxes for the nine months ended September 30, 2009, and 2008 were as follows (assuming a 23 percent effective tax rate):

	Nine Months Ended
	September 30,
	2009			2008

Current Tax Provision:
Federal-
Taxable income	$	-		$	-

Total current tax provision	$	-		$	-

Deferred Tax Provision:
Federal-
Loss carryforwards	$	156,914		$	34,815
Change in valuation allowance		(156,914	)		(34,815	)

Total deferred tax provision	$	-		$	-

SDS Inc. had deferred income tax assets as of September 30, 2009, and December 31, 2008, as follows:

	As of			As of
	September 30,			December 31,
	2009			2008

Loss carryforwards	$	235,232		$	78,318
Less - Valuation allowance		(235,232	)		(78,318	)

Total net deferred tax assets	$	-		$	-

The Company provided a valuation allowance equal to the deferred income tax assets for the nine months ended September 30, 2009, and 2008, because it is not presently known whether future taxable income will be sufficient to utilize the loss carryforwards.

As of September 30, 2009, and December 31, 2008, the Company had approximately $1,022,743 and $340,511 in tax loss carryforwards that can be utilized in future periods to reduce taxable income, and expire in various periods through the year 2029.

F-16

SUSPECT DECTECTION SYSTEMS INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009, AND 2008

(Unaudited)

(6) Related Party Transactions

As of September 30, 2009, and 2008, SDS Inc. owed $288 to an individual who is a former Director, President, and Treasurer of SDS Inc., and a current stockholder. The loan was provided for working capital purposes, and is unsecured, non-interest bearing, and has no terms for repayment

As described in Note 4, the Company has issued 100,000 shares (post forward stock split) of its common stock to its Director, President, and Treasurer at par value. The transaction was valued at $1.

As described in Note 4, SDS Inc. has entered into a transaction with an officer and Director of the Company for his services, and has issued a total of 25,000,000 shares (post forward stock split) of its common stock at a value of $250.

Effective October 5, 2006, SDS Inc. entered into a verbal agreement with an individual who is a former Director, President, and Treasurer of SDS Inc., and current stockholder of the Company, to lease 250 square feet of office space for operations in Jerusalem, Israel. The monthly lease rental amount is $300, and the term of the lease arrangement is month-to-month. As of September 30, 2009, and 2008, SDS Inc. had accrued $8,952 and $8,052, respectively, in office rent expense related to the lease.

As described in Note 4, on October 23, 2007, SDS Inc. entered into an employment agreement with its CFO. This agreement provides that the CFO will receive a base salary of $3,000 per quarter and $5,000 per annual audit. This agreement is effective until the next annual general meeting of the stockholders of the Company or until his successor is elected or appointed. During the Nine months ended September 30, 2009 and 2008, SDS Inc. recognized $9,000 and $10,200, respectively in officer’s compensation expense.

As described in Note 4, on January 16, 2009, the Company issued 120,000 shares of common stock at par $0.0001, valued at $18,000, to an officer and Director for the services provided.

As described in Note 4, on May 6, 2009, SDS Inc. issued 50,000 shares to its Secretary, Treasurer, and Director, Mr. Julius Klein for services rendered. The transaction was valued at $7,500.

As of September 30, 2009, the Company owed $83,366 to the Directors of SDS – Israel. The loan was provided for working capital purposes, and is unsecured, non-interest bearing, and has no terms for repayment.

(8) Commitments

As discussed in Note 7, the Company entered into a verbal agreement for the lease of office space on a month-to-month basis with an individual who is a former Director and officer of the Company and a current stockholder. The monthly lease amount is $300. On April 1, 2009, the Company terminated the office lease verbal agreement.

F-17

SUSPECT DECTECTION SYSTEMS INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009, AND 2008

(Unaudited)

As discussed in Note 4, on October 18, 2007, SDS Inc. appointed an individual as CFO. On October 23, 2007, an employment agreement was entered into with the CFO. This agreement provides that the CFO will receive a base salary of $3,000 per calendar quarter and $5,000 per annual audit. The employment agreement is effective until the next annual general meeting of the stockholders of the Company or until his successor is elected or appointed.

As discussed in Note 5, on December 5, 2007, the Company entered into a written commitment with a third-party attorney to provide legal services and assistance with required SEC filings. Legal services under the arrangement principally commenced during the period ended December 31, 2007. The attorney will receive $3,000 per month and miscellaneous reimbursement of expenses incurred on SDS Inc.’s behalf.

On March 15, 2008, SDS Inc. entered into a written commitment with a third-party consultant to provide marketing and promotional assistance for up to 50 hours per month, beginning April 2008. In return for these services, the consultant will receive a monthly service fee of $7,000, a stock option for purchasing 100,000 shares of common stock at $0.15 per share, and an annual performance-based bonus at the discretion of SDS Inc. In May 2008, this agreement was placed on hold. As of December 31, 2008, the options were not issued and may not be issued in the future depending on the resolution of the agreement.

As described in Note 5, on April 20, 2008, SDS Inc. entered into a written agreement with an unrelated third-party consulting company to provide advisory services for corporate development, acquisitions, and management assistance for one year. As payment for the consultant’s services, the Company issued 666,666 shares (post forward stock split) of its unregistered common stock on said date valued at $100,000.

As described in Note 5, on October 31, 2008, SDS Inc. entered into a written agreement with an unrelated third-party consultant to provide advisory services for corporate development, acquisitions, and management assistance for one year. As payment for the consultant’s services, the Company issued 1,000,000 shares (post forward stock split) of its unregistered common stock on said date valued at $150,000.

On January 20, 2009, an employment agreement was entered into between SDS - Israel and its Chief Executive Officer (CEO). This agreement provides that the CEO will receive a base salary of NIS 63,000 per month, plus monthly contributions by SDS - Israel of an aggregate of 20.84 percent of the base salary towards the cost of the CEO’s life insurance, pension savings, disability insurance, severance compensation fund, and professional education. SDS Inc. has agreed to guarantee the performance by SDS - Israel of all its obligations under the employment agreement.

On April 1, 2009, the Company entered into a Consulting Agreement with L.A. Investments Ltd. (the “Consultant”). The Consultant agreed to render assistance and advice to the Company relating to capitalization and financing of the Company. The Consulting Agreement is for a term of three years, commencing on April 1, 2009. In consideration for such services, the Company agreed to compensate the Consultant in the amount of $6,500 quarterly, commencing on April 1, 2009.

F-18

SUSPECT DECTECTION SYSTEMS INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009, AND 2008

(Unaudited)

In addition, the Company agreed to issue to the Consultant warrants to purchase an aggregate of 1,800,000 shares of the Company’s common stock. On each of April 1, 2009, September 1, 2009, March 1, 2010, and September 1, 2010, provided that the Consulting Agreement is still in force, the Company shall issue a warrant to purchase 450,000 shares of the Company’s common stock. Each common stock purchase warrant entitles the Consultant to purchase one share of the Company’s common stock at an exercise price of $0.15 per share and is exercisable for a period of two years.

(9) Business Combination

On October 18, 2007, SDS Inc. entered into a Letter Agreement with SDS - Israel. The Letter Agreement allowed the Company to conduct a due diligence review of SDS - Israel and its technology for the purpose of entering into a future business combination transaction on terms and conditions to be negotiated. As part of the Letter Agreement, SDS Inc. committed to raise $1,500,000 and agreed to advance proceeds of $60,000 to SDS - Israel. As of December 31, 2007, SDS Inc. had paid SDS - Israel $60,000. In January 2008, SDS Inc. and SDS - Israel amended the Letter Agreement such that the Company agreed to advance SDS - Israel an additional $30,000 each month commencing January 2008 until the consummation or termination of the Letter Agreement. The amount of $60,000 previously paid by SDS Inc. to SDS - Israel as well as each monthly payment of $30,000 served to reduce the $1,500,000 which SDS Inc. was committed to raise. In May 2008, SDS Inc. and SDS - Israel again amended the Letter Agreement such that the Company agreed to advance SDS - Israel $80,000 each month commencing May 2008 until the consummation or termination of the Letter Agreement. In August 2008, SDS Inc. and SDS - Israel again amended the Letter Agreement such that the Company agreed to advance SDS - Israel $100,000 each month commencing August 2008 until the consummation or termination of the Letter Agreement. In December 2008, SDS Inc. and SDS - Israel entered into an Investment Agreement and the Company agreed to advance SDS - Israel an additional $280,000 and SDS - Israel issued to SDS Inc. 1,218,062 shares of SDS – Israel’s capital stock, par value NIS 0.01 per share, which represented 51 percent of the issued and outstanding share capital of SDS - Israel. As of December 31, 2008, SDS Inc. had paid SDS - Israel a cumulative total of $1,100,000.

On November 14, 2007, the Company entered into a Letter of Intent with SDS - Israel, pursuant to which SDS Inc. intended to acquire all of the issued and outstanding capital stock of SDS - Israel. In consideration thereof, SDS Inc. is to issue to the stockholders of SDS - Israel no less than 28,600,000 (post forward stock split) shares of SDS Inc.’s common stock, or such number of shares of SDS Inc.’s common stock representing not less than 31 percent of SDS Inc.’s issued and outstanding shares of common stock at the time of closing. The closing of the transaction was to take place after SDS Inc. had raised a minimum of $500,000 from PPO #3. SDS Inc. also agreed to pay up to $20,000 in accounting fees to obtain Israel Tax Authority approval of the transaction, and up to $15,000 in legal fees. As of December 31, 2008, SDS Inc. had paid $15,000 (2007 - $8,000) in legal fees, and $20,000 (2007 - $8,000) in accounting fees in addition to the $1,100,000 (2007 - $60,000) described above for a total $1,135,000 (2007 - $75,500).

F-19

SUSPECT DECTECTION SYSTEMS INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009, AND 2008

(Unaudited)

On April 30, 2008, the Company entered into a Share Exchange Agreement (the “Exchange Agreement”) between SDS Inc. and SDS - Israel. Pursuant to the Agreement, SDS Inc. was to acquire on the closing date of the agreement 100 percent of the outstanding capital stock of SDS - Israel (1,170,295 shares), in exchange for 21,768,032 newly issued shares of its common stock, and options to purchase 6,831,968 shares of its common stock at an exercise price of $0.0001 per share at any time on or before the 10th anniversary of issuance of SDS Inc.’s options. The parties agreed that the fair value of the transaction was $4,290,000. On the closing date of the Agreement, SDS - Israel was to become a wholly owned subsidiary of SDS Inc. As a result of the Agreement, the stockholders of SDS - Israel were to become the beneficial owners of approximately 31 percent of SDS Inc.’s outstanding common stock on the closing date of the Agreement. On December 18, 2008, the Company and SDS - Israel entered into a Termination Agreement and terminated the Agreement, effective immediately.

On January 20, 2009, SDS Inc. and SDS - Israel completed the transactions under the Exchange Agreement. At closing, SDS - Israel issued 1,218,062 ordinary shares, par value NIS 0.01 per share, representing 51 percent of its issued and outstanding share capital to SDS Inc., as consideration for $280,000 paid by SDS Inc. to SDS - Israel on December 22, 2008, and $820,000 previously paid by SDS Inc. to SDS - Israel pursuant to the letter agreements dated October 18, 2007, November 14, 2007, January 10, 2008, May 18, 2008, and October 20, 2008.

On December 18, 2008 SDS Inc. and SDS –Israel entered into an Investment Agreement (“Investment Agreement”). The Investment Agreement provides for good faith negotiations of a second agreement (the “Second Agreement”), following the closing of the Investment Agreement, pursuant to which: (i) SDS Inc. will grant options to the shareholders of SDS-Israel to exchange their SDS-Israel ordinary shares into shares of the SDS Inc’s common stock; (ii) SDS Inc. will grant options to the holders of options to purchase SDS Inc ordinary shares to exchange such options into options to purchase shares of SDS Inc’s common stock; (iii) SDS Inc. will grant additional options, to Mr. Shabtai Shoval and certain SDS-Israel employees or consultants, to purchase new SDS ordinary shares; and (iv) SDS Inc will grant rights to Mr. Shabtai Shoval and said SDS-Israel employees or consultants to exchange all or any part of the additional SDS options into options to purchase shares of SDS Inc’s common stock.

In accordance with the terms of the Investment Agreement, SDS Inc. entered into an Exchange Agreement (the “Exchange Agreement”), dated July 9, 2009, with NG, pursuant to which NG exchanged all of NG’s SDS- Israel ordinary shares of 170,295 for 3,199,891 shares of SDS Inc’s common stock.

Also on July 9, 2009, SDS Inc. also entered into a warrant agreement (the “Warrant Agreement”) with NG, pursuant to which, SDS Inc. issued 2,250,000 stock purchase warrants (the “Warrants”) to NG. Each Warrant grants NG the right to purchase one share of SDS Inc’s common stock, commencing on July 9, 2009, and terminating on July 8, 2011, at an exercise price of $0.15 per Warrant Share. As a condition to the exchange for all the SDS- Israel ordinary shares of 170,295 for 3,199,891 shares of SDS Inc’s common stock, NG agreed not to sell any shares of SDS Inc’s common stock prior to the one year anniversary of the agreement. As of November 5, 2009, the Company has not issue any warrants.

F-20

SUSPECT DECTECTION SYSTEMS INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009, AND 2008

(Unaudited)

On December 24, 2008, SDS Inc.’s shareholders resolved to change its name from PCMT Corporation to Suspect Detection Systems, Inc. On January 27, 2009, the Company filed with the Secretary of State of Delaware an amendment to its Certificate of Incorporation to reflect this change.

SDS - Israel was incorporated under the Companies Law, 5759-1999, of the State of Israel in 2004. SDS – Israel specializes in the development and application of proprietary technologies for law enforcement and border control, including counter terrorism efforts, immigration control and drug enforcement, as well as human resource management, asset management and the transportation sector. SDS – Israel completed the development of its “Cognito” line of products in 2007, which are based on proprietary software and use commercially available hardware to identify individuals that pose security threats, whether or not they are carrying a weapon on their person or in their belongings. Cognito systems are comprised of a front-end test station and a back office, where multiple-station and multiple-site data is stored, managed and distributed. The front-end test station serves as the point of contact with the individual being examined. The back-office is designed to manage and control the test stations at a given site and it stores all test histories and traveler profiles and interfaces with external systems and databases. A provisional patent application has been issued for the Cognito line of products in the United States. SDS – Israel is also engaged in the development of behavior based screening technologies for the checkpoint screening market.

(10) Recent Accounting Pronouncements

In March 2008, the FASB issued FASB Statement No. 161, “Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB Statement 133” (“SFAS No. 161”). SFAS No. 161 enhances required disclosures regarding derivatives and hedging activities, including enhanced disclosures regarding how: (a) an entity uses derivative instruments; (b) derivative instruments and related hedged items are accounted for under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”; and (c) derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. Specifically, SFAS No. 161 requires:

●

Disclosure of the objectives for using derivative instruments in terms of underlying risk and accounting designation;

●

Disclosure of the fair values of derivative instruments and their gains and losses in a tabular format;

●

Disclosure of information about credit-risk-related contingent features; and

●

Cross-reference from the derivative footnote to other footnotes in which derivative-related information is disclosed.

F-21

SUSPECT DECTECTION SYSTEMS INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009, AND 2008

(Unaudited)

SFAS No. 161 is effective for fiscal years and interim periods beginning after November 15, 2008. Earlier application is encouraged. The management of the Company does not expect the adoption of this pronouncement to have a material impact on its financial statements.

In May 2008, the FASB issued FASB Statement No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 162”). SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States of America. The sources of accounting principles that are generally accepted are categorized in descending order as follows:

FASB Statements of Financial Accounting Standards and Interpretations, FASB Statement 133 Implementation Issues, FASB Staff Positions, and American Institute of Certified Public Accountants (AICPA) Accounting Research Bulletins and Accounting Principles Board Opinions that are not superseded by actions of the FASB.

b)	FASB Technical Bulletins and, if cleared by the FASB, AICPA Industry Audit and Accounting Guides and Statements of Position.

c)	AICPA Accounting Standards Executive Committee Practice Bulletins that have been cleared by the FASB, consensus positions of the FASB Emerging Issues Task Force (EITF), and the Topics discussed in Appendix D of EITF Abstracts (EITF D-Topics).

d)	Implementation guides (Q&As) published by the FASB staff, AICPA Accounting Interpretations, AICPA Industry Audit and Accounting Guides and Statements of Position not cleared by the FASB, and practices that are widely recognized and prevalent either generally or in the industry.

On May 26, 2008, the FASB issued FASB Statement No. 163, “Accounting for Financial Guarantee Insurance Contracts” (“SFAS No. 163”). SFAS No. 163 clarifies how FASB Statement No. 60, “Accounting and Reporting by Insurance Enterprises” (“SFAS No. 60”), applies to financial guarantee insurance contracts issued by insurance enterprises, including the recognition and measurement of premium revenue and claim liabilities. It also requires expanded disclosures about financial guarantee insurance contracts.

The accounting and disclosure requirements of SFAS No. 163 are intended to improve the comparability and quality of information provided to users of financial statements by creating consistency. Diversity exists in practice in accounting for financial guarantee insurance contracts by insurance enterprises under SFAS No. 60, “Accounting and Reporting by Insurance Enterprises.” That diversity results in inconsistencies in the recognition and measurement of claim liabilities because of differing views about when a loss has been incurred under FASB Statement No. 5, “Accounting for Contingencies” (“SFAS No. 5”). SFAS No. 163 requires that an insurance enterprise recognize a claim liability prior to an event of default when there is evidence that credit deterioration has occurred in an insured financial obligation. It also requires disclosure about (a) the risk-management activities used by an insurance enterprise to evaluate credit deterioration in its insured financial obligations and (b) the insurance enterprise’s surveillance or watch list.

F-22

SUSPECT DECTECTION SYSTEMS INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009, AND 2008

(Unaudited)

SFAS No. 163 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and all interim periods within those fiscal years, except for disclosures about the insurance enterprise’s risk-management activities. Disclosures about the insurance enterprise’s risk-management activities are effective the first period beginning after issuance of SFAS No. 163. Except for those disclosures, earlier application is not permitted. The management of the Company does not expect the adoption of this pronouncement to have material impact on its financial statements.

On May 22, 2009, the FASB issued FASB Statement No. 164, “Not-for-Profit Entities: Mergers and Acquisitions” (“SFAS No. 164”). Statement 164 is intended to improve the relevance, representational faithfulness, and comparability of the information that a not-for-profit entity provides in its financial reports about a combination with one or more other not-for-profit entities, businesses, or nonprofit activities. To accomplish that, this Statement establishes principles and requirements for how a not-for-profit entity:

a.	Determines whether a combination is a merger or an acquisition.

b.	Applies the carryover method in accounting for a merger.

c.	Applies the acquisition method in accounting for an acquisition, including determining which of the combining entities is the acquirer.

d.	Determines what information to disclose to enable users of financial statements to evaluate the nature and financial effects of a merger or an acquisition.

This Statement also improves the information a not-for-profit entity provides about goodwill and other intangible assets after an acquisition by amending FASB Statement No. 142, Goodwill and Other Intangible Assets, to make it fully applicable to not-for-profit entities.

SFAS No. 164 is effective for mergers occurring on or after December 15, 2009, and acquisitions for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2009. Early application is prohibited. The management of the Company does not expect the adoption of this pronouncement to have material impact on its financial statements.

On May 28, 2009, the FASB issued FASB Statement No. 165, “Subsequent Events” (“SFAS No. 165”). Statement No.165 establishes general standards of accounting for events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Specifically, Statement No. 165 provides:

1.	The period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements.

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SUSPECT DECTECTION SYSTEMS INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009, AND 2008

(Unaudited)

2.	The circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements.

3.	The disclosures that an entity should make about events or transactions that occurred after the balance sheet date.

In accordance with this Statement, an entity should apply the requirements to interim or annual financial periods ending after June 15, 2009. The management of the Company does not expect the adoption of this pronouncement to have material impact on its financial statements.

On June 9, 2009, the FASB issued FASB Statement No. 166, “Accounting for Transfers of Financial Assets – an amendment of FASB Statement No. 140” (“SFAS No. 166”). SFAS No. 166 revises the derecognization provision of FASB Statement No. 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities” and will require entities to provide more information about sales of securitized financial assets and similar transactions, particularly if the seller retains some risk with respect to the assets. It also eliminates the concept of a "qualifying special-purpose entity."

This statement is effective for financial asset transfers occurring after the beginning of an entity's first fiscal year that begins after November 15, 2009. The management of the Company does not expect the adoption of this pronouncement to have a material impact on its financial statements.

In June 2009, the FASB issued FASB Statement 167, "Amendments to FASB Interpretation No. 46(R)" (“SFAS No. 167”). SFAS No. 167 amends certain requirements of FASB Interpretation No. 46(R), “Consolidation of Variable Interest Entities” to improve financial reporting by companies involved with variable interest entities and to provide additional disclosures about the involvement with variable interest entities and any significant changes in risk exposure due to that involvement. A reporting entity will be required to disclose how its involvement with a variable interest entity affects the reporting entity's financial statements.

This Statement shall be effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009. The management of the Company does not expect the adoption of this pronouncement to have a material impact on its financial statements.

In June 2009, the FASB issued FASB Statement 168, "The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles - a replacement of FASB Statement No. 162" ("SFAS No. 168"). SFAS No. 168 establishes the FASB Accounting Standards Codification (the "Codification") to become the single official source of authoritative, nongovernmental US generally accepted accounting principles (GAAP). The Codification did not change GAAP but reorganizes the literature.

SFAS No. 168 is effective for interim and annual periods ending after September 15, 2009. The management of the Company does not expect the adoption of this pronouncement to have a material impact on its financial statements.

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Item 2. Management’s Discussion and Analysis or Plan of Operations.

As used in this Form 10-Q, references to “Suspect,” the “Company,” “we,” “our” or “us” refer to Suspect Detection Systems, Inc. unless the context otherwise indicates.

Forward-Looking Statements

The following discussion should be read in conjunction with our financial statements, which are included elsewhere in this Form 10-Q (the “Report”). This Report contains forward-looking statements which relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties, and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

For a description of such risks and uncertainties refer to our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 31, 2009. While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

Corporate Background

The Company was incorporated under the General Corporation Law of the State of Delaware on October 5, 2006. Initially the Company focused on the business of offering computer hardware and software products to religious consumers, with an emphasis on ultra-orthodox Jewish communities in Israel. On November 14, 2007, the Company executed a letter of intent with Suspect Detection Systems Ltd., an Israeli corporation (“SDS”), providing for the acquisition of SDS by the Company. Since the execution of the letter of intent with SDS, the Company’s activities have focused on the consummation of the acquisition of SDS by the Company. On January 23, 2009, the Company amended its Certificate of Incorporation for the purpose of changing its name from “PCMT Corporation” to “Suspect Detection Systems Inc.” Such amendment was approved at a special meeting of the Company’s shareholders held on the same date.

On December 18, 2008, the Company and SDS executed and delivered an investment agreement (the “Investment Agreement”). Pursuant to the Investment Agreement, at closing on January 20, 2009 SDS issued 1,218,062 ordinary shares, par value NIS 0.01 per share, to the Company, representing 51% of the issued and outstanding share capital of SDS, in consideration for (a) the sum of $280,000 paid by the Company to SDS on December 22, 2008, and (b) the sum of $820,000 previously paid by the Company to SDS pursuant to letter agreements dated as of October 18, 2007, November 14, 2007, January 10, 2008, May 18, 2008 and October 20, 2008.

The Investment Agreement also provides for good faith negotiations of a second agreement (the “Second Agreement”), following the closing of the Investment Agreement, pursuant to which: (i) the Company will grant options to the shareholders of SDS to exchange their SDS ordinary shares into shares of the Company’s common stock; (ii) the Company will grant options to the holders of options to purchase SDS ordinary shares to exchange such options into options to purchase shares of the Company’s common stock; (iii) SDS will grant additional options, to Mr. Shoval and certain SDS employees or consultants, to purchase new SDS ordinary shares; and (iv) the Company will grant rights to Mr. Shoval and said SDS employees or consultants to exchange all or any part of the additional SDS options into options to purchase shares of the Company’s common stock.

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In accordance with the terms of the Investment Agreement, the Registrant entered into an Exchange Agreement, dated July 9, 2009, with NG-The Northern Group LP ("NG"), pursuant to which NG exchanged all the SDS ordinary shares for 3,199,891 shares of the Registrant’s common stock, and the issuance of warrants to purchase additional shares of common stock of the Registrant, on the terms and provisions provided for in the Exchange Agreement.

On July 9, 2009, the Registrant also entered into a warrant agreement (the “Warrant Agreement”) with NG, pursuant to which the Registrant issued Two Million Two Hundred Fifty Thousand (2,250,000) stock purchase warrants (the “Warrants”) to NG. Each Warrant grants NG the right to purchase one (1) share of the Registrant’s common stock, commencing on July 9, 2009 and terminating on July 8, 2011, at an exercise price of $0.15 per Warrant Share.

As a condition to the exchange for all the SDS ordinary shares 3,199,891 shares of the Registrant’s common stock, NG agreed not to sell any shares of our common stock prior to the one (1) year anniversary of the Lock-Up Agreement.

Business and History of SDS

SDS specializes in the development and application of proprietary technologies for law enforcement and border control, including counter terrorism efforts, immigration control and drug enforcement, as well as human resource management, asset management and the transportation sector. SDS completed the development of its “Cognito” line of products in 2007, which are based on proprietary software and use commercially available hardware to identify individuals that pose security threats, whether or not they are carrying a weapon on their person or in their belongings. Cognito systems are comprised of a front-end test station and a back office, where multiple-station and multiple-site data is stored, managed and distributed. The front-end test station serves as the point of contact with the individual being examined. The back-office is designed to manage and control the test stations at a given site and it stores all test histories and traveler profiles and interfaces with external systems and databases. A provisional patent application has been issued for the Cognito line of products in the United States. SDS is also engaged in the development of behavior based screening technologies for the checkpoint screening market.

SDS was incorporated under the Companies Law, 5759-1999, of the State of Israel in 2004. In order to finance its research and development activities, SDS sought public funding and in 2005 the Transportation Security Administration of the US Department of Homeland Security (the “TSA”) awarded a grant to SDS to support the development of behavior pattern recognition technology. Additional funding was obtained from the Israeli government and US and Israeli governmental security authorities performed evaluations and testing of SDS’s products in 2005. In 2006 SDS obtained private financing, issuing shares of preferred stock and warrants to the NG – The Northern Group LP. Additional US government funding was obtained in 2006 from the TSA.

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On May 6, 2009, the Board of Directors of the Company appointed Julius Klein as the Treasurer, Secretary and a Director, to serve at the discretion of the Board, until his successor(s) are duly appointed and qualified. In connection with his appointment as an officer and a Director of the Company, the Board of Directors approved a one time issuance of 50,000 shares of the Company’s common stock.

Plan of Operation

As a result of the acquisition of 51% of Suspect Detection Systems Inc Ltd. in the beginning of the first quarter of 2009, within the next 12 months we plan to pursue the development and marketing of SDS’s products.

Results of Operations For the three months ended September 30, 2009 compared to the three months ended September 30, 2008

The following discussion should be read in conjunction with the condensed financial statements and in conjunction with the Company's Form 10-K filed on March 31, 2009, as amended. Results for interim periods may not be indicative of results for the full year.

Revenues

The Company through its consolidated subsidiary Suspect Detection Systems Ltd generated revenues in the amount of $401,512 for the three (3) months ended September 30, 2009, and as compared to $0 for the three ended September 30, 2008.

Total operating expenses

During the three (3) months ended September 30, 2009, and 2008, total operating expenses were $658,289 and $47,940 respectively. This material increase in the year 2009 is attributable to the operating expenses of its consolidated subsidiary.

Net loss

As a result of the increased operating expenses from its consolidated subsidiary, during the three (3) months ended September 30, 2009, the net loss amounted to $295,322 as opposed to the net loss of $ 45,658 recorded for the three months ending September 30, 2008.

Results of Operations For the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008

Revenues

The Company through its consolidated subsidiary Suspect Detection Systems Ltd (consolidated as of January 1, 2009) generated revenues in the amount of $825,253 for the nine (9) months ended September 30, 2009 and as compared to $0 for the nine ended September 30, 2008.

Total operating expenses

During the nine (9) months ended September 30, 2009, and 2008, total operating expenses were $1,507,859 and $157,767 respectively. This material increase in the year 2009 is attributable to the operating expenses of its consolidated subsidiary, consolidated as of January 1, 2009.

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Net loss

As a result of the increased operating expenses from its consolidated subsidiary, during the nine (9) months ended September 30, 2009, the net loss amounted to $682,232 as opposed to the net loss of $ 151,371 recorded for the nine months ending September 30, 2008.

Liquidity and Capital Resources

As of December 31, 2008, and September 30, 2009, the Company had cash in the amount of $ 179,565 and $733,026, respectively. Cash and cash equivalents from inception to date have been sufficient to provide the operating capital necessary to operate to date.

The Company through its consolidated subsidiary SDS Ltd generated revenues in the amount of $825,253 for the nine (9) months ended September 30, 2009, as compared to $0 for the nine months ended September 30, 2008, and incurred net losses of $682,232 and $151,371 for the nine month periods ending September 30, 2009, and 2008, respectively. In addition, the Company had a stockholders' equity of $1,177,960 as at September 30, 2009.

The Company expects significant capital expenditures during the next 12 months, contingent upon raising capital. We anticipate that we will need $1,500,000 for operations for the next 12 months. These anticipated expenditures are for manufacturing, research & development, marketing, sales channel development, general and administrative expenses and debt financing. In order to obtain capital, the Company has began capital formation activity through a private placement offering, exempt from registration under the Securities Act of 1933, to raise up to $1,500,000 through the issuance of 10,000,000 units. The purchase price of each unit is $0.15. Each unit contains one share of common stock, one Class A Warrant giving the holder the right to purchase one share of common stock for $0.25, which is exercisable for one year from the date of issuance and one Class B Warrant, giving the holder the right to purchase one share of common stock for $0.375, which is exercisable for three years from the date of issuance. As of the September 30 2009, the Company has sold an aggregate of 80,000 units and has issued 80,000 shares of common stock 80,000 Class A Warrants and 80,000 Class B Warrants, for the aggregate purchase price of $120,000. There can be no assurance that the Company will be successful in selling additional units.

Going Concern Consideration

We are a development stage company with no operations and no revenues to date. Our registered independent auditors issued a going concern opinion, in their report dated March 13, 2009, with respect to our audited 2008 year-end financial statements. This means that our auditors believe there is substantial doubt that we can continue as an on-going business for the next 12 months. We do not anticipate that we will generate significant revenues until we have completed our business plan. Accordingly, we must raise additional capital from sources other than our operations in order to implement our business plan. Our 2008 year-end financial statements contain additional note disclosures describing the circumstances that lead to this disclosure by our independent registered auditors.

Off Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that are material to investors.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

A smaller reporting company, as defined by Item 10 of Regulation S-K, is not required to provide the information required by this item.

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Item 4(T). Controls and Procedures

As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the 1934 Act). Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the 1934 Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission rules and forms. Furthermore, our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There have been no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 240.15d-15 that occurred during the Company’s last fiscal quarter that has materially affected, or is reasonable likely to materially affect, the Company internal control over financial reporting.

PART II

OTHER INFORMATION

Item 1. Legal Proceedings.

There are no pending legal proceedings to which the Company is a party or in which any director, officer or affiliate of the Company, any owner of record or beneficially of more than 5% of any class of voting securities of the Company, or security holder is a party adverse to the Company or has a material interest adverse to the Company. The Company’s property is not the subject of any pending legal proceedings.

Item 1A. Risk Factors

A smaller reporting company, as defined by Item 10 of Regulation S-K, is not required to provide the information required by this item.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

On July 9, 2009, the Company began capital formation activity through a private placement offering, exempt from registration under the Securities Act of 1933, to raise up to $1,500,000 through the issuance of 10,000,000 units. The purchase price of each unit is $0.15. Each unit contains one share of common stock, one Class A Warrant giving the holder the right to purchase one share of common stock for $0.25, which is exercisable for one year from the date of issuance and one Class B Warrant, giving the holder the right to purchase one share of common stock for $0.375, which is exercisable for three years from the date of issuance. As of the September 30, 2009, the Company has sold an aggregate of 80,000 units and has issued 80,000 shares of common stock 80,000 Class A Warrants and 80,000 Class B Warrants, for the aggregate purchase price of $120,000. The transactions were made in reliance upon the exemption provided by Regulation S of the Securities Act of 1933.

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Purchases of equity securities by the issuer and affiliated purchasers

Not applicable

Use of Proceeds

Not applicable

Item 3. Defaults Upon Senior Securities.

Not applicable

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

Not applicable

Item 5. Other Information.

Not applicable

Item 6. Exhibits

Exhibit No.		Description

31.1		Rule 13a-14(a)/15d14(a) Certification of Asher Zwebner, Interim Chief Executive Officer, Chief Financial Officer and Director(attached hereto)

32.1		Section 1350 Certification of Asher Zwebner, Interim Chief Executive Officer, Chief Financial Officer and Director(attached hereto)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	SUSPECT DETECTION SYSTEMS, INC.

Dated: November 20, 2009	By:	/s/ Asher Zwebner
		Name: Asher Zwebner
		Title: Interim Chief Executive Officer, Chief Financial Officer and Director (Principal Executive, Financial and Accounting Officer)

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