Suspect Detection Systems, Inc. - FORM 10-K/A

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EX-32.1 - CERTIFICATION - Suspect Detection Systems, Inc.	f10k2009a1ex32i_suspect.htm
EX-31.1 - CERTIFICATION - Suspect Detection Systems, Inc.	f10k2009a1ex31i_suspect.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

(Amendment No. 1)

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2009

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

For the transition period from __________________ to __________________________.

Commission File Number: 000-52792

SUSPECT DETECTION SYSTEMS INC.

(Exact name of registrant as specified in its charter)

Delaware		98-0511645
(State or other jurisdiction of incorporation)		(IRS Employer Identification No.)

4 Nafcha Street, Jerusalem, Israel 95508

(Address of principal executive offices)

+972 (2) 500-1128

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to section 12(g) of the Act: Common Stock, $0.0001 par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes o No o

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the 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 if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 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 the 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 oNo x

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, based on the last sales price quoted on NASDAQ Over-the-Counter Bulletin Board on June 30, 2009, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $6.9 million

The number of shares of common stock issued and outstanding as of April 12, 2010, was 73,435,493 shares.

Documents Incorporated By Reference: None

TABLE OF CONTENTS

PART I		1
Item 1.	Business	1
Item 1A.	Risk Factors	4
Item 1B.	Unresolved Staff Comments	4
Item 2.	Properties	4
Item 3.	Legal Proceedings	4
Item 4.	Removed and Reserved	4

PART II		5
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	5
Item 6.	Selected Financial Data	5
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	5
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk
Item 8.	Financial Statements and Supplementary Data	F-1
Item 9.	Changes In and Disagreements With Accountants on Accounting and Financial Disclosure	6
Item 9A.	Controls and Procedures	6
Item 9B.	Other Information	6

PART III		7
Item 10.	Directors, Executive Officer and Corporate Governance	7
Item 11.	Executive Compensation	8
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	10
Item 13.	Certain Relationships and Related Transactions, and Director Independence	10
Item 14.	Principal Accounting Fees and Services	11
Item 15.	Exhibits, Financial Statement Schedules	11

SIGNATURES		13

PART I

As used in this amended Annual Report on Form 10-K/A, references to the “Company,” the “Registrant,” “we,” “our,” or “us” refer to Suspect Detection Systems Inc., unless the context otherwise indicates.

Forward-Looking Statements

This amended Annual Report on Form 10-K/A (this “Report”) contains forward-looking statements. Any statements contained in this Report that are not statements of historical fact may be deemed to be forward-looking statements. Forward-looking information includes statements relating to future actions, prospective products, future performance or results of current or anticipated products, sales and marketing efforts, costs and expenses, interest rates, outcome of contingencies, financial condition, results of operations, liquidity, business strategies, cost savings, objectives of management, and other matters. You can identify forward-looking statements as those that are not historical in nature, particularly those that use terms such as “may,” “will,” “should,” “expects,” “anticipates,” “contemplates,” “estimates,” “believes,” “plans,” or “predicts.” The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking information to encourage companies to provide prospective information about themselves without fear of litigation, so long as that information is identified as forward-looking and is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in the information.

These forward-looking statements are not guarantees of future performance and involve risks, uncertainties, and assumptions that we cannot predict. In evaluating these forward-looking statements, you should consider various factors, including the following: (a) those risks and uncertainties related to general economic conditions, (b) whether we are able to manage our planned growth efficiently and operate profitable operations, and (c) whether we are able to generate sufficient revenues or obtain financing to sustain and grow our operations. We assume no obligation to update forward-looking statements, except as otherwise required under the applicable federal securities laws.

Item 1. Business

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. Also, on December 3, 2009, the Company further amended its Certificate of Incorporation for the purpose of increasing its authorized capital stock from 100,000,000 to 250,000,000 shares. 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.

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.

In accordance with the terms of the Exchange Agreement, on July 9, 2009, NG exchanged all the SDS ordinary shares for 3,199,891 shares of the Registrant’s common stock. The Registrant also issued Two Million Two Hundred Fifty Thousand (2,250,000) stock purchase warrants to NG, which 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. The securities were offered and exchanged in reliance on an exemption from the registration requirements of United States federal and state securities laws under Regulation S promulgated under the Securities Act of 1933, as amended.

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 “Cogito” 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. Cogito 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 Cogito 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.

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.

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.

On May 6, 2009, the Board of Directors of the Company appointed Julius Klein as the Treasurer, Secretary, 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.

On January 13, 2010, the Registrant, appointed Yoav Krill as Chairman of the Board of Directors, effective as of said date, to serve until the next annual meeting of the Registrant’s stockholders and until his successor is duly appointed and qualified. In connection with Mr. Krill’s appointment, the Registrant entered into an Agreement (the “Consulting Agreement”) to perform such duties as will be required of him as the Chairman of the Board. In consideration of the services to be performed under the Consulting Agreement, Mr. Krill shall receive an annual director’s fee of $25,000 per annum for the first twelve (12) month period and thereafter, the parties shall agree in writing, prior to November 30th of each calendar year as to the amount to be paid as director’s fees, but such amount shall not be less than $25,000 and shall be increased, proportionately, with any increase in the Registrant’s paid in capital, sales revenues or net profits. Mr. Krill was also granted 1,500,000 options of common stock of the Registrant, exercisable at $0.15 per share, from the stock option plan adopted by the Registrant. 250,000 options vested simultaneously with the execution and delivery of the Consulting Agreement, and the balance shall vest at the rate of 104,166 options each calendar quarter for the next three years, commencing on March 31, 2010. The options shall terminate forty-eight (48) months from the date of vesting.

The terms of the Consulting Agreement continue until either party provides the other with no less than 90 days prior written notice. The failure of the Registrant to maintain directors’ and officers’ liability insurance covering Mr. Krill shall be deemed a material breach of the agreement and shall automatically terminate the Agreement.

Also, on January 13, 2010, the Registrant appointed Gil Boosidan as its Chief Executive Officer and executed an employment agreement with Mr. Boosidan as of January 14, 2010 (the “Employment Agreement”). In consideration of the services to be performed under the Employment Agreement, Mr. Boosidan shall receive an aggregate of $30,000 - $20,000 in cash over four equal quarterly installments commencing March 31, 2010, and $10,000 in shares of commons stock of the Registrant, the number to be determined by the market value of the shares of the date of issuance. The terms of the Employment Agreement shall be for one year, and the Registrant has the right to terminate such agreement for cause in the event of a material breach by Mr. Boosidan which is not cured after notice of such breach.

Marketing

SDS markets its products to local and national law enforcement and homeland security authorities in Israel, the US, Mexico, Europe and Asia, as well as operators of critical infrastructure in the private sector such as oil and gas companies, the diamond industry and financial enterprises. SDS has executed agreements with several companies and individuals all in the framework of its ordinary course of business, providing for assistance in the marketing of its products and endorsements.

Competition

SDS has identified a number of potential competitors, including developers of voice stress analysis equipment designed to remotely detect a person trying to lie during an interview, and developers of equipment designed to generate stimuli from a remotely location that will generate enough data about an individual to enable detection of hostile intent. WeCU Technologies and Nemesysco are just two of our competitors.

Dependence on major customers

A significant portion of SDS’s revenue in 2009 was derived from services provided to a single customer, which is an agency of the government of Mexico. Since the bulk of SDS’s revenues are generated by initial sales of its systems, as opposed ongoing support services, the loss of this customer may have a material adverse impact on the business of SDS.

Intellectual Property

The United States Transportation Security Administration of the US Department of Homeland Security has certain rights in the technology developed by SDS, pursuant to a Cooperative Agreement between SDS and the TSA dated June 22, 2005. The Cooperative Agreement relates to a $200,000 grant provided to SDS by the TSA in 2005 for the development and adaptation for use in the US of a prototype application designed to detect suspicious behavior. Pursuant to the agreement, SDS granted an irrevocable, non-exclusive, paid-up license for US Government use of the technology development using the grant funds. The license requires prior approval from SDS for any commercial use of the technology, with the exception of use by US Government contractors under procurement contracts, grants, cooperative agreements and other transactions awarded or entered into for US government purposes.

The Science and Technology Directorate of the US Department of Homeland Security has certain rights in the technology developed by SDS, pursuant to a Cooperative Agreement between SDS and the STD dated September 29, 2006. The Cooperative Agreement relates to a $260,000 grant provided to SDS by the STD on June 7, 2005 pursuant to a proposal entitled Automated Internal Threat Detection. In the agreement, SDS granted (i) a royalty free, nonexclusive, irrevocable license to the US Government to use and authorize other to use scientific, technical or other works based on or containing data first produced under the grant, and (ii) an irrevocable, non-exclusive, paid-up license to the US government to use registered patents development with grant funds for or on behalf of the US government.

Employees

On April 12, 2010, the Registrant had 7 full time employees

Item 1A. Risk Factors.

Smaller reporting companies are not required to provide the information called for by this Item 1A.

Item 2. Description of Property.

SDS maintains its executive offices at 25 Bazel Street, Petach Tikva, Israel, where it leases approximately 150 square meters of office space at a monthly rent of approximately $8,500. The lease expires in August 2011 and the Company has an option to renew the lease for an additional 3 years.

Item 3. Legal Proceedings.

There are no pending legal proceedings to which the Registrant or SDS are parties or in which any director, officer or affiliate of the Registrant or SDS or any owner of record or beneficially of more than 5% of any class of voting securities of the Registrant or SDS is a party adverse to the Registrant or SDS or has an interest adverse to the Registrant or SDS. The property of the Registrant and SDS is not the subject of any pending legal proceedings.

Item 4. Removed and Reserved

PART II

Item 5. Market for Common Equity, Related Stockholder Matters and Issuer Purchases of EquitySecurities.

Although our common stock has been eligible to be traded on the Over-The-Counter Bulletin Board since June 6, 2007, there have been only limited and sporadic quotations and there is no established trading market for our common stock.

As of March 6, 2009, the ticker symbol was changed to SDSS as a result of the name change of the company.

As of April 12, 2010, there were approximately 105 holders of record of our common stock.

We have never declared or paid any cash dividends on our common stock nor do we anticipate paying any in the foreseeable future. Furthermore, we expect to retain any future earnings to finance our operations and expansion. The payment of cash dividends in the future will be at the discretion of our Board of Directors and will depend upon our earnings levels, capital requirements, any restrictive loan covenants, and other factors the Board considers relevant.

Securities Authorized for Issuance under Equity Compensation Plans

On January 1, 2009, the Registrant executed consulting agreements with Amir Uziel and Lavi Krasney providing, among other things, for the issuance of 12,500 shares of the Registrant’s common stock to each of Messrs. Uziel and Krasney on the last business day of each month for a period of three years, in addition to $3,000 per month each in cash consideration.

Mr. Krill was also granted 1,500,000 options of common stock of the Registrant, exercisable at $0.15 per share, from the stock option plan adopted by the Registrant. 250,000 options vested simultaneously with the execution and delivery of the Consulting Agreement, and the balance shall vest at the rate of 104,166 options each calendar quarter for the next three years, commencing on March 31, 2010. The options shall terminate forty-eight (48) months from the date of vesting.

On January 13, 2010, The Registrant granted Gil, Boosidan $10,000 in shares of its commons stock, the number to be determined by the market value of the shares of the date of issuance.

Item 6. Selected Financial Data

Smaller reporting companies are not required to provide the information called for by this Item 6.

Item 7. Management’s Discussion and Analysis or Plan Operation

The following discussion of our plan of operation should be read in conjunction with the financial statements and related notes that appear elsewhere in this amended Annual Report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors. All forward-looking statements speak only as of the date on which they are made. We undertake no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they are made.

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.

We are not aware of any material trend, event, or capital commitment, which would potentially adversely affect liquidity. In the event such a trend develops, we believe that we will have sufficient funds available to satisfy working capital needs through lines of credit and the funds expected from equity sales.

Results of Operations

As of December 31, 2009, and 2008, the Company had $701,931 and $179,565 in cash, respectively. We believe that such funds will be sufficient to fund our operating expenses for the next six months. We will seek additional capital for the purpose of financing, developing and marketing SDS’s products.

Revenues

The Company is in its development stage and generated revenue of $888,635 during the fiscal year ended December 31, 2009. The Company did not generate revenues during the year ended December 31, 2008.

Total operating expenses

During fiscal year ended December 31, 2009, total operating expenses were $2,154,909, which included research and development expenses in the amount of $396,049 and selling, general and administrative expenses in the amount of $1,758,860. During the fiscal year December 31, 2008, the total operating expenses were $258,615, general and administrative expenses were primarily selling, general and administrative. General expenses include fees for consulting, legal and professional accounting associated with fulfilling the Company’s SEC reporting requirements. As of December 31, 2009, the Company had an accumulated deficit of approximately $1,431,535 (2008-$340,511)

Net loss

During the fiscal years ended December 31, 2009, and 2008, the net loss was $1,091,024 and $251,267, respectively.

Liquidity and Capital Resources

We estimate that we will require approximately $1 million for the next 12 months of operations. We do not have sufficient resources to effectuate our current business. As of December 31, 2009, we had $701,931 available in cash. We expect to incur a minimum of $2,154,909, in expenses during the next 12 months of operations, including the following expenses: $396,049 in research and development costs; 1,758,860 in selling, general and administrative expenses such as corporate, legal and accounting services, office overhead, and general working capital.

Accordingly, we will have to raise the funds to pay for these expenses. We may have to borrow money from shareholders, issue debt or equity or enter into a strategic arrangement with a third party. There can be no assurance that additional capital will be available to us. We currently have no agreements, arrangements, or understandings with any person to obtain funds through bank loans, lines of credit, or any other sources. Since we have no such arrangements or plans currently in effect, our inability to raise funds for the development and marketing of SDS’s products will have a severe negative impact on our ability to remain a viable company.

Going Concern Consideration

The Company’s current activities include sales of its products, marketing, capital formation, research and development, and building infrastructure. The Company incurred a loss of approximately $1,091,024 for the year ended December 31, 2009 and, as of December 31, 2009, the Company had an accumulated deficit of approximately $1,431,535. 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.

While management of the Company believes that the Company will be successful in its current and planned operating activities, there can be no assurance that the Company will be successful in the achievement of sales of its products that will generate sufficient revenues to earn a profit and sustain the operations of the Company. The Company also intends to conduct additional capital formation activities through the issuance of its common stock and loans from related parties.

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 has not established sufficient sources of revenues to cover its operating costs and expenses. As such, it has incurred an operating loss since inception. Further, as of December 31, 2009, and 2008, the cash resources of the Company were insufficient to meet its planned business objectives. These and other factors raise substantial doubt about the Company’s ability to continue as a going concern. 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.

Off-Balance Sheet Arrangements

None.

SUSPECT DETECTION SYSTEMS INC. AND SUBSIDIARY

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)

DECEMBER 31 2009, AND 2008

Report of Registered Independent Auditors	F-2

Restated Consolidated Financial Statements-

Consolidated Balance Sheets as of December 31, 2009, and 2008	F-3

Consolidated Statements of Operations for the Years Ended December 31, 2009, and 2008	F-4

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2009, and 2008	F-5

Consolidated Statements of Cash Flows for Years Ended December 31, 2009, and 2008	F-6

Notes to Consolidated Financial Statements December 31, 2009, and 2008	F-8

F-1

REPORT OF REGISTERED INDEPENDENT AUDITORS

To the Board of Directors and Stockholders of

Suspect Detection Systems Inc.:

We have audited the accompanying consolidated balance sheets of Suspect Detection Systems Inc. and subsidiary (a Delaware corporation) as of December 31, 2009, and 2008, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2009. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Suspect Detection Systems Inc. and subsidiary as of December 31, 2009, and 2008, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has not established sufficient sources of revenue to cover its operating costs and expenses. As such, it has incurred an operating loss since inception. Further, as of December 31, 2009, and 2008, the cash resources of the Company were insufficient to meet its planned business objectives. These and other factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plan regarding these matters is also described in Note 2 to the consolidated financial statements. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

As discussed in Note 3 to the consolidated financial statements, an error in the determination of the amount of goodwill, additional paid in capital and l and noncontrolling interest from the acquisition of an additional seven percent interest in the equity of Suspect Detection Systems, Ltd., an Israeli Corporation, resulting from an Exchange Agreement dated July 9, 2009, which amounted to $291,690, was determined by management of the Company. Accordingly, the consolidated financial statements as of and for the period ended December 31, 2009, have been restated to correct the error.

Respectfully submitted,

/s/ Davis Accounting Group P.C.

Cedar City, Utah,

March 26, 2010, except for Note 3, for

which the date is December 30, 2010.

F-2

SUSPECT DETECTION SYSTEMS INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (NOTE 3)
AS OF DECEMBER 31, 2009, AND 2008 (RESTATED) (NOTE 3)

ASSETS

	2009			2008
	(Restated)
Current Assets:
Cash and cash equivalents	$	701,931		$	179,565
Restricted cash		15,827			-
Due from related party - SDS - Israel		-			28,000
Inventory		55,281			-
Prepaid expenses		60,343			143,392

Total current assets		833,382			350,957

Property and Equipment:
Computer and other equipment		30,034			-
Less - Accumulated depreciation		(17,534	)		-

Property and equipment, net		12,500			-

Other Assets:
Deferred acquisition costs		-			1,135,000
Severance pay fund		45,563			-
Prepaid expenses, non-current		10,578			-
Goodwill		1,033,964			-

Total other assets		1,090,105			1,135,000

Total Assets	$	1,935,987		$	1,485,957

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Accounts payable - Trade	$	9,175		$	807
Accrued liabilities		161,161			20,802
Advances from customers		919,400			-
Deferred revenues		55,631			-
Due to Director and stockholder		99,541			288

Total current liabilities		1,244,908			21,897

Long-term Debt:
Accrued severance pay		84,315			-

Total liabilities		1,329,223			21,897

Commitments and Contingencies

Stockholders' Equity:
Common stock, par value $0.0001 per share, 250,000,000 shares
authorized; 71,822,893 and 72,689,668 shares issued and
outstanding in 2009 and 2008, respectively		7,182			7,269
Additional paid-in capital		2,239,248			1,797,302
Common stock subscribed		25,000			-
Accumulated (deficit)		(1,431,535	)		(340,511	)

Total stockholders' equity		839,895			1,464,060

Less - Noncontrolling interest		(233,131	)		-

Total stockholders' equity, Net		606,764			1,464,060

Total Liabilities and Stockholders' Equity	$	1,935,987		$	1,485,957

The accompanying notes to consolidated financial statements are

an integral part of these consolidated balance sheets.

F-3

SUSPECT DETECTION SYSTEMS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (NOTE 2)
FOR THE YEARS ENDED DECEMBER 31, 2009, AND 2008 (RESTATED) (NOTE 3)

	Years Ended
	December 31,
	2009			2008
	(Restated)

Revenues, net	$	888,635		$	-

Cost of Goods Sold		141,215			-

Gross Profit		747,420			-

Expenses:
Research and development		396,049			-
Selling, general and administrative		1,758,860			258,615

Total operating expenses		2,154,909			258,615

(Loss) from Operations		(1,407,489	)		(258,615	)

Other Income (Expense):
Interest income		213			7,348
Interest (expense)		(12,093	)		-

Total other income (expense)		(11,880	)		7,348

Provision for Income Taxes		-			-

Net (loss)		(1,419,369	)		(251,267	)

Net (loss) Attributable to Noncontrolling Interest		(328,345	)		-

Net (loss) attributable to Suspect Detection Systems Inc.	$	(1,091,024	)	$	(251,267	)

(Loss) Per Common Share:
(Loss) per common share - Basic and Diluted	$	(0.02	)	$	(0.00	)

Weighted Average Number of Common Shares
Outstanding - Basic and Diluted		68,531,107			68,874,810

The accompanying notes to consolidated financial statements are

an integral part of these consolidated statements.

F-4

SUSPECT DETECTION SYSTEMS INC. AND SUBSIDIARY
STATEMENTS OF STOCKHOLDERS' EQUITY (NOTE 2)
FOR THE YEARS ENDED DECEMBER 31, 2009, AND 2008 (RESTATED) (NOTE 3)

							Additional		Common
	Common stock						Paid-in		Stock			Accumulated			Noncontrolling
Description	Shares			Amount			Capital		Subscriptions			(Deficit)			Interest			Total

Balance - December 31, 2007		61,500,000		$	6,150		$	119,801	$	378,250		$	(89,244	)	$	-		$	414,957

Payment for common stock subscription		-			-			-		15,000			-			-			15,000
																			-
Common stock subscribed - 5,568,337 shares		-			-			-		768,250			-			-			768,250
																			-
Common stock issued from subscribed shares		9,523,002			952			1,427,668		(1,161,500	)		-			-			267,120
																			-
Common stock issued for services		1,666,666			167			249,833		-			-			-			250,000
																			-
Net (loss) for the period		-			-			-		-			(251,267	)		-			(251,267	)

Balance - December 31, 2008		72,689,668			7,269			1,797,302		-			(340,511	)		-			1,464,060

Cancellation of common stock by Director and officer		(7,000,000	)		(700	)		700		-			-			-			-
																			-
Common stock issued to Officer for services		170,000			17			25,483		-			-			-			25,500
																			-
Common stock issued for cash		2,013,334			201			301,799		-			-			-			302,000

Purchase of 51% of SDS-Israel shares as subsidiary investment		-			-			-		-			-			97,073			97,073

Common stock issued for 7% increase in subsidiary investment		3,199,891			320			1,539		-			-			(1,859	)		-
																			-
Common stock issued for services		750,000			75			112,425		-			-			-			112,500
																			-
Payment for common stock subscription		-			-			-		25,000			-			-			25,000

Net (loss) for the period		-			-			-		-			(1,091,024	)		-			(1,091,024	)
																			-
Net (loss) for the period - Noncontrolling interest		-			-			-		-			-			(328,345	)		(328,345	)

Balance -December 31, 2009		71,822,893		$	7,182		$	2,239,248	$	25,000		$	(1,431,535	)	$	(233,131	)	$	606,764

The accompanying notes to consolidated financial statements are

an integral part of these consolidated statements.

F-5

SUSPECT DETECTION SYSTEMS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (NOTE 2)
FOR THE YEARS ENDED DECEMBER 31, 2009,
AND 2008 (RESTATED) (NOTE 3)

	Years Ended
	December 31,
	2009			2008
	(Restated)
Operating Activities:
Net (loss)	$	(1,419,369	)	$	(251,267	)
Adjustments to reconcile net (loss) to net cash (used in) operating activities:
Common stock issued for officers' compensation		25,500			-
Common stock issued for promotional services		-			250,000
Common stock issued for consulting services		112,500			-
Depreciation		17,534			-
Changes in Assets and Liabilities-
Inventory		20,004			-
Prepaid expenses		118,956			(143,392	)
Security deposit		-			500
Severance pay fund		(4,736	)		-
Accounts payable - Trade		(50,386	)		(6,593	)
Accrued liabilities		55,685			2,825
Advances from customers		440,149			-
Deferred revenues		55,631			-
Accrued severance pay		36,514			-

Net Cash (Used in) Operating Activities		(592,018	)		(147,927	)

Investing Activities:
Cash acquired in business combination		689,973			-
Deferred acquisition costs		-			(1,059,500	)
Purchases of Property and Equipment		(14,015	)		-

Net Cash Provided by (Used in) Investing Activities		675,958			(1,059,500	)

Financing Activities:
Issuance of common stock for cash		302,000			1,035,370
Cash advances applied in acquisition of subsidiary		-			-
Due from related party - SDS - Israel		28,000			(28,000	)
Stock subscriptions paid		25,000			15,000
Due to Director and stockholder		99,253			88

Net Cash Provided by Financing Activities		454,253			1,022,458

Net Increase (Decrease) in Cash		538,193			(184,969	)

Cash and Cash Equivalents - Beginning of Period		179,565			364,534

Cash and Cash Equivalents - End of Period	$	717,758		$	179,565

Cash and Cash Equivalents - End of Period Consisting of:		-

Cash in bank	$	701,931		$	179,565
Restricted cash		15,827			-

Total	$	717,758		$	179,565

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-6

SUSPECT DETECTION SYSTEMS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (NOTE 2)
FOR THE YEARS ENDED DECEMBER 31, 2009, AND 2008 (RESTATED) (NOTE 3)

	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. issued 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.

	On August 18, 2009, the Company acquired an additional seven (7) percent of the capital stock
	of SDS - Israel by issuing 3,199,891 shares of common stock.
	The transaction was recorded at acost as an equity transaction in the accompanying consolidated
	financial statements.

The accompanying notes to consolidated financial statements are

an integral part of these consolidated statements.

F-7

SUSPECT DETECTION SYSTEMS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)

DECEMBER 31, 2009, AND 2008

1) Summary of Significant Accounting Policies

Basis of Presentation and Organization

Suspect Detection Systems Inc. (“SDS Inc.” or the “Company”) is a Delaware corporation that conducts its operations through its 58 percent owned subsidiary, Suspect Detection Systems Ltd., an Israeli Corporation (“SDS - Israel”). The Company was incorporated under the laws of the State of Delaware on October 5, 2006, as PCMT Corporation. On December 24, 2008, the Company’s stockholders 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. The Company was in the development stage during the year ended December 31, 2008. 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 were prepared from the accounts of the Company and its subsidiary under the accrual basis of accounting.

On January 20, 2009, SDS Inc. completed a business combination for the purchase of 51 percent of the issued and outstanding shares of SDS – Israel for consideration of $1,100,000. The Company incurred an additional $35,000 in acquisition costs related to legal and accounting fees. The business combination was accounted for by the purchase method and accordingly, the purchase price has been allocated to the estimated fair values of the respective assets acquired and liabilities assumed of SDS – Israel, with the remaining representing goodwill in the amount of $1,033,964. The results of operations of SDS – Israel have been included in the consolidated financial statements of the Company commencing January 20, 2009.

In July 9, 2009, SDS Inc. entered into an Exchange Agreement (the “Exchange Agreement”) with the Northern Group LP ("NG"), pursuant to which NG exchanged 170,295 ordinary shares of SDS – Israel for 3,199,891 of SDS Inc’s common stock. The 170,295 shares of SDS- Israel represented 7 percent of the outstanding shares of SDS-Israel and increased SDS Inc.’s ownership interest in SDS- Israel to 58 percent. The acquisition of the additional equity interest was accounted for by the equity method. . The increased percentage of ownership of SDS – Israel, amounting to 58 percent, has been applied to the operations of this subsidiary from July 9, 2009, through December 31, 2009.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its 58 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 consolidated statements 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.

F-8

SUSPECT DETECTION SYSTEMS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)

DECEMBER 31, 2009, AND 2008

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 years ended December 31, 2009, and 2008.

Income Taxes

The Company accounts for income taxes pursuant to FASB ASC 740, “Accounting for Income Taxes” (“SFAS No. 109”). Under FASB ASC 740-10-25, 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 December 31, 2009, and 2008, the carry value of financial instruments approximated fair value due to the short-term nature and maturity of these instruments.

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 December 31, 2009, and 2008, the Company had $0 and $1,135,000, respectively, of deferred acquisition costs, and recognized $1,033,964of goodwill from the Company’s business combination transactions.

F-9

SUSPECT DETECTION SYSTEMS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)

DECEMBER 31, 2009, AND 2008

Concentration of Risk

As of December 31, 2009, and 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

The Company accounts for Goodwill in accordance with the FASB ASC Topic 350, “Intangible-Goodwill and Other.” The Company evaluates Goodwill, at a minimum, on an annual basis and whenever events and changes in circumstances suggest that the carrying amount may not be recoverable. Impairment of Goodwill is tested at the reporting unit level by comparing the reporting unit’s carrying amount, including Goodwill, to the fair value of the reporting unit. The fair values of the reporting units are estimated using discounted projected cash flows. If the carrying amount of the reporting unit exceeds its fair value, Goodwill is considered impaired, and a second step is performed to measure the amount of impairment loss, if any. The Company conducts our annual impairment test as of December 31 of each year, and determines if there is any impairment. The amount of goodwill was $1,033,964 as of December 31 of 2009, and there was no impairment of Goodwill as of that date.

Estimates

The accompanying 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 consolidated assets and liabilities as of December 31, 2009, and 2008, and consolidated revenues and expenses for the years ended December 31, 2009, and 2008. Actual results could differ from those estimates made by management.

(2) Going Concern

The Company’s current activities include sales of its products, marketing, capital formation, research and development, and building infrastructure. The Company incurred a loss of approximately $1,091,024 for the year ended December 31, 2009 (2008-$251,267) and, as of December 31, 2009, the Company had an accumulated deficit of approximately $1,431,535 (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.

F-10

SUSPECT DETECTION SYSTEMS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)

DECEMBER 31, 2009, AND 2008

(3) Restatement

Subsequent to December 31, 2009, management of the Company determined that in accordance with FASB ASC 810-10-45, the carrying value of the goodwill, and the related accumulated deficit, and additional paid-in capital, and noncontrolling interest for the period ended December 31, 2009, resulting from the exchange of 3,199,891 shares of common stock of the Company for 170,295 ordinary shares of SDS – Israel for an additional seven percent interest in the equity ownership of SDS – Israel (where the Company already owned the controlling interest), was overstated by $291,690 for goodwill, overstated by $478,125 for the additional paid in capital, overstated by $1,960 for accumulated deficit, and overstated by $184,475 for the noncontrolling interest. (See Notes 5 and 9 for additional information). The Company corrected the error by decreasing goodwill by $291,690, and decreased its accumulated deficit by $1,960, additional paid in capital by $478,125 and noncontrolling interest by $184,475, respectively. The adjustment had a minor impact on the net (loss) attributable to the Company for the period ended December 31, 2009, amounting to a decrease in the net (loss) of $1,960. (Loss) per share – basic and diluted for the period remained unchanged.

(4) Appointment of Officers

On October 18, 2007, SDS Inc. appointed Mr. Asher Zwebner 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 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 January 23, 2008, the Company appointed Mr. Constantin 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. Yosef Nachum Bernstein resigned as the Company’s Secretary and tendered his resignation as a Director, effective May 31, 2008.

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

F-11

SUSPECT DETECTION SYSTEMS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)

DECEMBER 31, 2009, AND 2008

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

(5) Common Stock

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.

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.

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 December 31, 2009, the Company had not subscribed any shares.

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 December 31, 2009, the Company had issued 1,633,334 shares of common stock subscribed for proceeds of $245,000.

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.

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 December 31, 2009, the Company had issued 80,000 shares of common stock subscribed for proceeds of $12,000.

F-12

SUSPECT DETECTION SYSTEMS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)

DECEMBER 31, 2009, AND 2008

On August 18, 2009, the Company issued 3,199,891 shares of common stock to NG 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.

(6) Income Taxes

The provision (benefit) for income taxes for the years ended December 31, 2009, and 2008 were as follows (assuming a 23 percent effective tax rate):

	Years Ended
	December 31,
	2009			2008

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

Total current tax provision	$	-		$	-

Deferred Tax Provision:
Federal and state-
Loss carryforwards	$	250,936		$	34,815
Change in valuation allowance		(250,936	)		(34,815	)

Total deferred tax provision	$	-		$	-

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

	As of December 31,
	2009			2008

Loss carryforwards	$	329,254		$	78,318
Less - Valuation allowance		(329,254	)		(78,318	)

Total net deferred tax assets	$	-		$	-

The Company provided a valuation allowance equal to the deferred income tax assets for the years ended December 31, 2009, and 2008, because it is not presently known whether future taxable income will be sufficient to utilize the loss carryforwards.

As of December 31, 2009, and 2008, the Company had approximately $1,198,404 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-13

SUSPECT DETECTION SYSTEMS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)

DECEMBER 31, 2009, AND 2008

(7) Related Party Transactions

As of December 31, 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

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. At the end of the March 2009, the Company terminated the verbal agreement regarding the lease of office space. As of December 31, 2009, and 2008, SDS Inc. had accrued $8,952 and $8,052, respectively, in office rent expense related to the lease.

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 years ended December 31, 2009, and 2008, SDS Inc. recognized $14,000 and $20,200, respectively in officer’s compensation expense.

As described in Note 5 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 5, 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 December 31, 2009, the Company owed $99,541 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.

As discussed in Note 4, on October 18, 2007, SDS Inc. appointed Mr. Asher Zwebner 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.

F-14

SUSPECT DETECTION SYSTEMS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)

DECEMBER 31, 2009, AND 2008

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.

(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.

F-15

SUSPECT DETECTION SYSTEMS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)

DECEMBER 31, 2009, AND 2008

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).

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.

F-16

SUSPECT DETECTION SYSTEMS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)

DECEMBER 31, 2009, AND 2008

The following table summarizes the fair values of the assets acquired and liabilities assumed as of January 20, 2009 (the acquisition date):

Current assets	$	783,383
Property and equipment		16,019
Severance pay fund		40,827
Prepaid expenses		28,360
Total assets acquired	$	868,589

Current Liabilities	$	(622,679	)
Accrued severance fund		(47,801	)
Total Liabilities assumed	$	(670,480	)

Net Assets acquired	$	198,109

Non- controlling interest	$	(97,073	)

Total purchase price	$	1,135,000

Excess of purchase price over value of net assets acquired	$	1,033,964

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 stockholders 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, dated July 9, 2009, with NG, pursuant to which NG exchanged 170,295 of its ordinary shares of stock of SDS – Israel 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 March 26, 2010, the Company had not issued any warrants.

On December 24, 2008, SDS Inc.’s stockholders 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.

F-17

SUSPECT DETECTION SYSTEMS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)

DECEMBER 31, 2009, AND 2008

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, (FASB ASC 815) “Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB Statement 133.” SFAS No. 161 (FASB ASC 815) 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 FASB 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 (FASB ASC 815) requires:

·	disclosure of the objectives for using derivative instruments be disclosed 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.

SFAS No. 161 (FASB ASC 815) is effective for fiscal years and interim periods beginning after November 15, 2008. Earlier application is encouraged. The management of Company the does not expect the adoption of this pronouncement to have a material impact on its financial statements.

On May 9, 2008, the FASB issued FASB Statement No. 162, (FASB ASC 105) “The Hierarchy of Generally Accepted Accounting Principles.” SFAS No. 162 (FASB ASC 105) is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. generally accepted accounting principles (“GAAP”) for nongovernmental entities.

Prior to the issuance of SFAS No. 162 (FASB ASC 105), GAAP hierarchy was defined in the American Institute of Certified Public Accountants (“AICPA”) Statement on Auditing Standards (“SAS”) No. 69, “The Meaning of Present Fairly in Conformity with Generally Accept Accounting Principles.” SAS No. 69 has been criticized because it is directed to the auditor rather than the entity. SFAS No. 162 (FASB ASC 105) addresses these issues by establishing that the GAAP hierarchy should be directed to entities because it is the entity (not the auditor) that is responsible for selecting accounting principles for financial statements that are presented in conformity with GAAP.

F-18

SUSPECT DETECTION SYSTEMS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)

DECEMBER 31, 2009, AND 2008

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.

SFAS No. 162 (FASB ASC 105) is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendment to its authoritative literature. It is only effective for nongovernmental entities; therefore, the GAAP hierarchy will remain in SAS 69 for state and local governmental entities and federal governmental entities. The management of Company does not expect the adoption of this pronouncement to have a material impact on its financial statements.

On May 26, 2008, the FASB issued FASB Statement No. 163, (FASB ASC 944) “Accounting for Financial Guarantee Insurance Contracts.” SFAS No. 163 (FASB ASC 944) 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 (FASB ASC 944) 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 (FASB ASC 944) 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.

SFAS No. 163 (FASB ASC 944) 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 (FASB ASC 944). Except for those disclosures, earlier application is not permitted. The management of Company does not expect the adoption of this pronouncement to have material impact on its financial statements.

F-19

SUSPECT DETECTION SYSTEMS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)

DECEMBER 31, 2009, AND 2008

On May 22, 2009, the FASB issued FASB Statement No. 164, (FASB ASC 958) “Not-for-Profit Entities: Mergers and Acquisitions”. SFAS No. 164 (FASB ASC 958) 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 (FASB ASC 958) 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 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, (FASB ASC 855) “Subsequent Events.” SFAS No. 165 (FASB ASC 855) establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Specifically, Statement 165 (FASB ASC 855) 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.

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 adoption of this pronouncement did not have a material impact on the financial statements of the Company.

F-20

SUSPECT DETECTION SYSTEMS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)

DECEMBER 31, 2009, AND 2008

In June 2009, the FASB issued FASB Statement No. 166, (FASB ASC 860) “Accounting for Transfers of Financial Assets- an amendment of FASB Statement No, 140.” SFAS No. 166 (FASB ASC 860) is a revision to SFAS No. 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities” and will require more information about transfers of financial assets, including securitization transactions, and where companies have continuing exposure to the risks related to transferred financial assets. It eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets, and requires additional disclosures.

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 Company does not expect the adoption of this pronouncement to have material impact on its financial statements.

In June 2009, the FASB issued FASB Statement No. 167, (FASB ASC 810) "Amendments to FASB Interpretation No. 46(R)." SFAS No. 167 (FASB ASC 810) amends certain requirements of FASB Interpretation No. 46(R), “Consolidation of Variable Interest Entities” and changes how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance.

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

In June 2009, the FASB issued FASB Statement No. 168, (FASB ASC 105) "The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles - a replacement of FASB Statement No. 162." SFAS No. 168 (FASB ASC 105) establishes the FASB Accounting Standards Codification (the "Codification") to become the single official source of authoritative, nongovernmental U.S. generally accepted accounting principles (“GAAP”). The Codification did not change GAAP but reorganizes the literature.

SFAS No. 168 (FASB ASC 105) is effective for interim and annual periods ending after September 15, 2009. The adoption of this pronouncement did not have a material impact on the financial statements of the Company.

(11) Subsequent Events

On January 12, 2010, Mr. Asher Zwebner, the Chief Executive Officer and Chief Financial Officer of the Company, resigned as the Chief Executive Officer. Mr. Zwebner remains as Chief Financial Officer and a Director of the Company.

On January 13, 2010, the Board of Directors of the Company appointed Mr. Gil Boosidan as Chief Executive Officer.

On January 13, 2010, the Board of Directors of the Company appointed Mr. Yoav Krill as its Chairman.

F-21

Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Our Chief Executive Officer and Principal Financial Officer, after evaluating the effectiveness of the Company’s “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 (Exchange Act) Rules 13a-15(e) or 15d-15(e)) as of the end of the period covered by this annual report, has concluded that our disclosure controls and procedures are effective at a reasonable assurance level based on their evaluation of these controls and procedures as required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15.

Management’s Report on Internal Control Over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Rules 13a-15(f) under the Securities Exchange Act of 1934, internal control over financial reporting is a process designed by, or under the supervision of, the Company’s principal executive, principal accounting and principal financial officers, or persons performing similar functions, and effected by the Company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

The Company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records, that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of the Company’s management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Company’s management, including the Company’s Chief Executive Officer and Principal Financial Officer assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2009. In making this assessment, management used the framework in “Internal Control - Integrated Framework” promulgated by the Committee of Sponsoring Organizations of the Treadway Commission, commonly referred to as the “COSO” criteria. Based on the assessment performed, management believes that as of December 31, 2009, the Company’s internal control over financial reporting was effective based upon the COSO criteria. Additionally, based on management’s assessment, the Company determined that there were no material weaknesses in its internal control over financial reporting as of December 31, 2009.

This Annual Report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in this annual report.

Changes in Internal Controls

During the year ended December 31, 2009, there was no change in internal control over financial reporting that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.

Item 9B. Other Information

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

Our Directors and executive officers are:

Name	Age	Position

Gil Boosidan	37	Chief Executive Officer

Asher Zwebner	46	Chief Financial Officer and Director

Julius Klein	53	Secretary and Treasurer

Yoav Krill	68	Director

The business address of our Directors and officers is c/o Suspect Detection Systems Ltd., 25 Bazel Street, Petach Tikva, Israel. Our Directors hold office until the next annual meeting of shareholders or until their successor is duly elected and qualified. Our executive officers are appointed by our Board of Directors and hold office until removed by the Board. Set forth below is a summary description of the principal occupation and business experience, during the past five years, of our sole director, who also serves as our interim chief executive officer and our chief financial officer, and of the chief executive officer and the president of SDS.

During the past five years none of our officers and Directors has been involved in any legal proceedings that are material to an evaluation of their ability or integrity as director or an executive officer of the Registrant, and none of them have been affiliated with any company that been involved in bankruptcy proceedings.

Since April 2007, Gil Boosidan invests and advises private equity transactions and real estate transactions. From February 1997 until February 2007, Mr. Boosidan served as Senior Vice President of IDT Corporation, as well as Treasurer of IDT Investments, Inc., a subsidiary of IDT that managed a substantial portion of IDT’s cash and investments. He served as a member of the Board of Directors and chair of the audit committee of Global Energy Holdings Group, Inc., a public company. Mr. Boosidan received an MBA from Tel Aviv University.

Asher Zwebner has served as our Chief Financial Officer since October 18, 2007 and, since April 30, 2008, he has also served as our interim chief executive officer and our sole Director. Since July 17, 2008, Mr. Zwebner has served as a director of PowerRaise Inc., a Nevada corporation that is engaged in the development of Internet telephony applications. Since January 1, 2007, Mr. Zwebner has served as the chief financial officer of SinoBiomed Inc., a Delaware corporation that is engaged in the Chinese biopharmaceutical industry, and from November 2004 until October 2006 Mr. Zwebner served as a director of SinoBiomed. Since May 2002, Mr. Zwebner has also served as the chief financial officer of ForexManage Ltd., a private hi-tech developer of Internet-based foreign exchange and risk management solutions based in Israel. From 1995 through 2000 Mr. Zwebner was a senior manager at Kost Forer & Gabbay (a member of Ernst and Young Global). Mr. Zwebner is a certified public accountant in Israel and in the United States, and received a bachelor's degree in accounting and finance from Touro College in 1988.

Yoav Krill has served in various chief executive positions over the past 25 years and has been involved in the communications, technology and transportation industries, where he managed global operations in the United States as well as in Europe as well as in the emerging markets of Eastern Europe and Southeast Asia. Since 2008, Mr. Krill has been consulting and promoting Israeli hi-tech companies concentrating in the energy, electronics and security areas, including consulting for anti-terror and security companies in the United States. From 2002 through 2008, he was the Senior Vice President Global Network for IDT Corp. USA. In summer 1995, Mr. Krill graduated the special executive seminar for Managing Global Opportunities at Harvard Business.

There are no agreements with respect to the election of our Directors. We have not compensated our Directors for service on our Board of Directors or reimbursed them for expenses incurred for attendance at meetings of our Board of Directors. Officers are appointed annually by our Board of Directors and each officer serves at the discretion of our Board of Directors. Our Board of Directors may in the future determine to pay Directors’ fees and reimburse Directors for expenses related to their activities.

Code of Ethics

We do not currently have a Code of Ethics applicable to our principal executive, financial and accounting officers because of the financial constraints. The Board of Directors intends to approve a code of ethics in 2010.

Audit Committee

We do not presently have a separately constituted audit committee or an audit committee financial expert. Our entire Board of Directors acts as our audit committee.

Item 11. Executive Compensation

To date, none of our executive officers or directors have received or earned any compensation or bonus for services rendered, with the exception of (i) the compensation paid to our chief financial officer, Asher Zwebner, pursuant to his employment agreement dated October 23, 2007, which is described in more detail below, and (ii) 50,000 shares of Common Stock that were issued to our Secretary and Treasurer, Julius Klein on May 6, 2009. We do not maintain key-man life insurance for any of our executive officers or directors.

SUMMARY COMPENSATION TABLE
Name and principal position	Year	Salary	Bonus	Stock Awards	Option Awards	Non-Equity Incentive Plan Compensation	Nonqualified Deferred Compensation Earnings	All Other Compensation	Total
Asher Zwebner, Interim CEO and CFO	2009	$14,000	0	$18,000	0	0	0	0	$32,000
	2008	$20,200	0	0	0	0	0	0	$20,200
	2007	$3,000				0	0	0	$3,000

Julius Klein	2009	$0	$0	$0	$0	$0	$0	$0	$0
	2008	$0	$0	$7,500	0	0	0	0	$7,500
	2007	$0	$0	$0	$0	$0	$0	$0	$0

Option/SAR Grants

In 2009, the Company established implemented a stock option plan pursuant to which it will issue up to 25,000,000 shares of common stock to employees and consultants. During the fiscal year ended December 31, 2010, the Company did not grant any option under the plan. On January 13, 2010, Mr. Krill was also granted 1,500,000 options of common stock of the Registrant, exercisable at $0.15 per share, from the stock option plan adopted by the Registrant. 250,000 options vested simultaneously with the execution and delivery of the Consulting Agreement, and the balance shall vest at the rate of 104,166 options each calendar quarter for the next three years, commencing on March 31, 2010. The options shall terminate forty-eight (48) months from the date of vesting.

Long-Term Incentive Plans and Awards

We do not have any long-term incentive plans that provide compensation intended to serve as incentive for performance. No individual grants or agreements regarding future payouts under non-stock price-based plans have been made to any executive officer or any Director or any employee or consultant since our inception; accordingly, no future payouts under non-stock price-based plans or agreements have been granted or entered into or exercised by any of the officers or Directors or employees or consultants since we were founded.

Employment Contracts, Termination of Employment, Change-in-Control Arrangements

We executed an employment agreement with our chief financial officer, Asher Zwebner, on October 23, 2007. The agreement provides for payments of $3,000 and $5,000, respectively, as compensation for each quarterly and annual report filed by the Registrant with the Securities and Exchange Commission, as well as unspecified additional compensation for additional work in connection with special accounting or regulatory requirements and current reports on Form 8-K, and reimbursement of normal and reasonable expenses. The Registrant can terminate the agreement at any time for cause, or without cause upon 30 days prior written notice. Mr. Zwebner may terminate the agreement without good reason (as defined therein) at any time, or with good reason upon 30 days prior written notice. The agreement includes customary covenants regarding confidentiality and non-solicitation of the Registrant’s business or employees for a period of one year following its termination.

SDS executed an employment agreement with its chief executive officer, Shabtai Shoval, on December 18, 2008. The agreement provides for a base monthly salary of 63,000 New Israeli Shekels, plus monthly contributions by SDS of an aggregate of 20.84% of the base salary towards the cost of Mr. Shoval’s life insurance, pension savings, disability insurance, severance compensation fund and professional education (collectively, the “Benefits”). In addition, SDS will provide Mr. Shoval with an automobile, a cellular telephone and reimbursement for reasonable expenses incurred in connection with his duties. The agreement may be terminated by either party at will, upon 365 days prior written notice. If SDS terminates the agreement without cause prior to the expiration of three years, in addition to compensation during the 365 day notice period Mr. Shoval is entitled to a lump sum cash payment in an amount (the “Package Value”) equal to (x) the sum of the base monthly salary, SDS’s monthly contributions towards the cost of the Benefits and SDS gross cost for the provision of an automobile and cellular telephone, multiplied by (y) the number of months during the period commencing 365 days after such termination and ending on the third anniversary of the date of the agreement. If Mr. Shoval terminates the agreement without cause after the expiration of one year or if SDS terminates the agreement without cause after the expiration of three years, Mr. Shoval is entitled to a lump sum cash payment in an amount equal to six times the Package Value. The agreement includes customary covenants regarding confidentiality and non-competition with the business of SDS for a period of one year following its termination. Pursuant to the Investment Agreement, on January 20, 2009 the Registrant executed and delivered a guarantee of all of SDS’s obligations to Mr. Shoval pursuant to this agreement.

On January 13, 2010, the Company executed a Consulting Agreement with Yoav Krill pursuant to which Mr. Krill will perform such duties as will be required of him as the Chairman of the Board. In consideration of the services to be performed under the Consulting Agreement, the Company agreed to compensate Mr. Krill with an annual Director’s fee of $25,000 per annum for the first twelve (12) month period and thereafter, the parties shall agree in writing, prior to November 30th of each calendar year as to the amount to be paid as director’s fees, but such amount shall not be less than $25,000 and shall be increased, proportionately, with any increase in the Registrant’s paid in capital, sales revenues or net profits. Mr. Krill was also granted 1,500,000 options of common stock of the Registrant, exercisable at $0.15 per share, from the stock option plan adopted by the Registrant. 250,000 options vested simultaneously with the execution and delivery of the Consulting Agreement, and the balance shall vest at the rate of 104,166 options each calendar quarter for the next three years, commencing on March 31, 2010. The options shall terminate forty-eight (48) months from the date of vesting. The terms of the Consulting Agreement continue until either party provides the other with no less than 90 days prior written notice. The failure of the Registrant to maintain directors’ and officers’ liability insurance covering Mr. Krill shall be deemed a material breach of the agreement and shall automatically terminate the Agreement.

On January 13, 2010, the Company Gil Boosidan as Chief Executive Officer of the Registrant and executed an employment agreement with Mr. Boosidan as of January 14, 2010 (the “Employment Agreement”). In consideration of the services to be performed under the Employment Agreement, Mr. Boosidan will receive an aggregate of $30,000 - $20,000 in cash over four equal quarterly installments commencing March 31, 2010, and $10,000 in shares of commons stock of the Registrant, the number to be determined by the market value of the shares of the date of issuance. The terms of the Employment Agreement shall be for one year, and the Registrant has the right to terminate such agreement for cause in the event of a material breach by Mr. Boosidan which is not cured after notice of such breach.

Our Board of Directors does not have a formally constituted compensation. Our Board of Directors determines all matters concerning executive officer compensation.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related StockholderMatters.

The following table lists, as of April12, 2010, the number of shares of common stock beneficially owned by (i) each person or entity known to the Registrant to be the beneficial owner of more than 5% of the outstanding common stock; (ii) each officer and director of the Registrant; and (iii) all officers and directors as a group. Information relating to beneficial ownership of common stock by our principal shareholders and management is based upon information furnished by each person using “beneficial ownership” concepts under the rules of the Securities and Exchange Commission. Under these rules, a person is deemed a beneficial owner of a security if that person has or shares voting power, which includes the power to vote or direct the voting of the security, or investment power, which includes the power to dispose or direct the disposition of the security. The person is also deemed a beneficial owner of any security of which that person has a right to acquire beneficial ownership within 60 days. Under the Securities and Exchange Commission’s rules, more than one person may be deemed a beneficial owner of the same securities, and a person may be deemed a beneficial owner of securities as to which he or she may not have any pecuniary beneficial interest. Except as noted below, each person has sole voting and investment power.

Name of Beneficial Owner	Number of Shares Beneficially Owned	Percent of Class Beneficially Owned

Yosef Nachum Berstein	4,000,000	55%

Julius Klein	50,000	.01%

All directors and executive officers (One persons)	50,000	.01%

Item 13. Certain Relationships and Related Transactions, and Director Independence

On October 30, 2006, we issued 100,000 (post forward stock split) shares of our common stock to Nachman Shlomo Kohen, valued at $1. Such shares were issued in reliance on an exemption from registration under Section 4(2) of the Securities Act of 1933. These shares of our common stock qualified for exemption under Section 4(2) of the Securities Act of 1933 since the issuance of shares by us did not involve a public offering.

On November 6, 2006, we issued 25,000,000 (post forward stock split) shares of our common stock to Yosef Nachum Bernshten, in exchange for $250 in services and expenses related to our Company. Such shares were issued in reliance on an exemption from registration under Section 4(2) of the Securities Act of 1933. These shares of our common stock qualified for exemption under Section 4(2) of the Securities Act of 1933 since the issuance of shares by us did not involve a public offering.

As of December 31, 2009, 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

On October 23, 2007, SDS Inc. entered into an employment agreement with Asher Zwebner, 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 years ended December 31, 2009, and 2008, SDS Inc. recognized $14,000 and $20,200, respectively in officer’s compensation expense.

On January 16, 2009, the Company issued 120,000 shares of common stock at par $0.0001, valued at $18,000, to Asher Zwebner for the services provided. The shares were issued under Section 4(2) of the Securities Act of 1933, as amended. Mr. Zwebner is an officer and director of the Company and had access to all of the information which would be required to be included in a registration statement, and the transaction did not involve a public offering.

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. The shares were issued under Section 4(2) of the Securities Act of 1933, as amended. Mr. Klein is an officer and director of the Company and had access to all of the information which would be required to be included in a registration statement, and the transaction did not involve a public offering.

Director Independence

We are not subject to listing requirements of any national securities exchange or national securities association and, as a result, we are not at this time required to have our Board comprised of a majority of “independent directors.” We do believe that Yoav Krill currently meet the definition of “independent” as promulgated by the rules and regulations of the American Stock Exchange.

Item 14. Principal Accountant Fees and Services

Davis Accounting Group P.C. provided audit services to the Registrant in connection with its annual reports for the fiscal years ended December 31, 2009 and 2008. The aggregate fees billed by Davis Accounting Group P.C. for the audit of the Registrant’s annual financial statements and a review of the Registrant’s quarterly financial statements during the fiscal year ended December 31, 2009 and 2008, were:

	Fiscal Year Ended
	December 31, 2009		December 31, 2008
Audit Fees	$	22,000		$	14,000

Audit Committee Pre-Approval

The Registrant does not have a standing audit committee. All audit, audit-related, tax, and all other fees paid to Davis Accounting Group P.C. were pre-approved by the Registrant’s Board of Directors.

Item 15. Exhibits

Exhibit No.		Description

3.1		Certificate of Incorporation of Company (annexed to the Company’s Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on March 12, 2007).

3.2		Certificate of Amendment to the Certificate of Incorporation of Suspect Detection Systems, Inc. (filed as Exhibit 3.3 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on December 7, 2009)

3.3		Bylaws of the Company (annexed to the Company’s Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on March 12, 2007).

10.1		Employment Agreement, dated October 23, 2007, between PCMT Corporation and Asher Zwebner (annexed to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 29, 2007).

10.2		Letter Agreement, dated October 18, 2007, between PCMT Corporation and Suspect Detection Systems Ltd. (annexed to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 29, 2007).

10.3		Form of Regulation S Subscription Agreement (annexed to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 29, 2007).

10.4		Letter of Intent dated November 14, 2007, between PCMT Corporation and Suspect Detection Systems Ltd. (annexed to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 15, 2007).

10.5		Form of Regulation S Subscription Agreement, including Form of Class A Warrant and Form of Class B Warrant (annexed to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 15, 2007).

10.6		Stock Purchase Agreement, dated April 30, 2008, among the PCMT Corporation, Suspect Detection Systems Ltd., Shabtai Shoval and the shareholders of Suspect Detection Systems Ltd. listed therein Warrant (annexed to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 6, 2008).

10.7		Investment Agreement, dated as of December 18, 2008, between PCMT Corporation and Suspect Detection Systems, Ltd. (annexed to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 22, 2008).

10.8		Termination Agreement, dated as of December 18, 2008, between PCMT Corporation, Suspect Detection Systems, Ltd. and the shareholders of Suspect Detection Systems, Ltd. (annexed to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 22, 2008).

10.9		Consultant Agreement, dated January 13, 2010, between Suspect Detection Systems Inc. and Yoav Krill (annexed to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 19, 2010).

10.1		Employment Agreement, dated January 14, 2010, between Suspect Detection Systems Inc. and Gil Boosidan (annexed to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 19, 2010).

32.1		Section (302(a) Certification of Principal Executive Officer*

32.1		Section 302(a) Certification of Principal Financial Officer*

32.1		Section 1350 Certification of Principal Executive Officer*

32.2		Section 1350 Certification of Principal Financial Officer*

*	Filed herewith.

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. AND SUBSIDIARY

January 13, 2011	By:	/s/ Gill Boosidan
		Gil Boosidan Chief Executive Officer and Director

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of Suspect Detection Systems, Inc. and in the capacities and on the dates indicated.

Signature	Title	Date

/s/ Gil Boosidan	Chief Executive Officer	January 13, 2011
Gill Boosidan

/s/Asher Zwebner	Chief Financial Officer and Director	January 13, 2011
Asher Zwebmer

/s/ Julius Klien	Secretary and Treasurer	January 13, 2011
Julius Klien

/s/ Yoav Krill	Director	January 13, 2011
Yoav Krill

Suspect Detection Systems, Inc. - FORM 10-K/A - January 13, 2011

Attached files

Suspect Detection Systems, Inc. Reports