UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





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





For the
quarter ended June 30, 2009





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





For the
transition period from _____ to _____





Commission
File Number: 000-52792





SUSPECT DETECTION SYSTEMS
INC.


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





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





4 Nafcha Street, Jerusalem,
Israel 95508


(Address
of principal executive offices)





+972 (2)
500-1128


(Issuer's
telephone number)




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





Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes xNo  ̈





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





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





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





As
of  August 14, 2009,  66,226,335 shares of common stock, par
value $0.0001 per share, were issued and outstanding.








TABLE
OF CONTENTS





PagePART
      IItem
      1. Financial Statements
              3Item
      2. Management’s Discussion and Analysis or Plan of
    Operation
              3Item
      3 Quantitative and Qualitative Disclosures About Market
    Risk
              5Item
      4(T) Controls and Procedures
              5PART
      IIItem
      1. Legal Proceedings
              6Item
      IA. Risk Factors
              6Item
      2. Unregistered Sales of Equity Securities and Use of
    Proceeds
              6Item
      3. Defaults Upon Senior Securities
              6Item
      4. Submission of Matters to a Vote of Security Holders
              7Item
      5. Other Information
              7Item
      6. Exhibits
              7


2


PART
I


FINANCIAL
INFORMATION





Item
1.  Financial Statements.




SUSPECT
DETECTION SYSTEMS INC. & SUBSIDIARY
 (A
DEVELOPMENT STAGE COMPANY)
 INDEX TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS
 JUNE 30, 2009, AND 2008
 (Unaudited)
 
 Interim
Consolidated Financial Statements-
  Consolidated Balance Sheets as of June 30, 2009, and
      December 31, 2008
              F-2Consolidated
      Statements of Operations for the Three Months and Six Months Ended June30,
      2009, and 2008, and Cumulative from Inception
              F-3Consolidated
      Statements of Cash Flows for Six Months Ended June 30, 2009, 2008, and
      Cumulative from Inception
              F-4Notes to Interim Consolidated Financial Statements June 30,
      2009, and 2008
              F-6
  F-1
 
 SUSPECT
DETECTION SYSTEMS INC. & SUBSIDIARY
 (A
DEVELOPMENT STAGE COMPANY)
 CONSOLIDATED
BALANCE SHEETS (NOTE 2)
 AS
OF JUNE 30, 2009, AND DECEMBER 31, 2008
 (Unaudited)
 
 As
      of
                                                  
                                                  
                                                  As
      ofJune
      30,
                                                  
                                                  
                                                  December
      31,2009
                                                  
                                                  
                                                  2008ASSETSCurrent
      Assets:Cash
      and cash equivalents
                                                  
                                                  $
                                                  284,559
                                                  
                                                  
                                                  $
                                                  179,565Restricted
      cash
                                                  
                                                  
                                                  15,827
                                                  
                                                  
                                                  
                                                  -Due
      from related party - SDS
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  28,000Inventory
                                                  
                                                  
                                                  34,025
                                                  
                                                  
                                                  
                                                  -Prepaid
      expenses
                                                  
                                                  
                                                  59,689
                                                  
                                                  
                                                  
                                                  143,392Total
      current assets
                                                  
                                                  
                                                  394,100
                                                  
                                                  
                                                  
                                                  350,957Property
      and Equipment, net
                                                  
                                                  
                                                  15,010
                                                  
                                                  
                                                  
                                                  -Other
      Assets:Deferred
      acquisition costs
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  1,135,000Prepaid
      expenses, non-current
                                                  
                                                  
                                                  22,524
                                                  
                                                  
                                                  
                                                  -Goodwill
                                                  
                                                  
                                                  1,033,964
                                                  
                                                  
                                                  
                                                  -Total
      other assets
                                                  
                                                  
                                                  1,056,488
                                                  
                                                  
                                                  
                                                  1,135,000Total
      Assets
                                                  
                                                  $
                                                  1,465,598
                                                  
                                                  
                                                  $
                                                  1,485,957LIABILITIES AND STOCKHOLDERS'
      EQUITYCurrent
      Liabilities:Accounts
      payable - Trade
                                                  
                                                  $
                                                  13,010
                                                  
                                                  
                                                  $
                                                  807Accrued
      liabilities
                                                  
                                                  
                                                  281,641
                                                  
                                                  
                                                  
                                                  20,802Due
      to Director and stockholder
                                                  
                                                  
                                                  288
                                                  
                                                  
                                                  
                                                  288Total
      current liabilities
                                                  
                                                  
                                                  294,939
                                                  
                                                  
                                                  
                                                  21,897Total
      liabilities
                                                  
                                                  
                                                  294,939
                                                  
                                                  
                                                  
                                                  21,897Commitments
      and ContingenciesStockholders'
      Equity:Common
      stock, par value $0.0001 per share, 100,000,000 shares authorized;
      66,226,335 and 72,689,668 shares issued and  outstanding in 2009 and
      2008, respectively
                                                  
                                                  
                                                  6,623
                                                  
                                                  
                                                  
                                                  7,269Additional
      paid-in capital
                                                  
                                                  
                                                  1,878,449
                                                  
                                                  
                                                  
                                                  1,797,302(Deficit)
      accumulated during the development stage
                                                  
                                                  
                                                  (727,423
                                                  )
                                                  
                                                  
                                                  (340,511
                                                  )Total
      Suspect Detection Systems, Inc. equity
                                                  
                                                  
                                                  1,157,649
                                                  
                                                  
                                                  
                                                  1,464,060Noncontrolling
      Interest
                                                  
                                                  
                                                  13,010
                                                  
                                                  
                                                  
                                                  -Total
      stockholders' equity
                                                  
                                                  
                                                  1,170,659
                                                  
                                                  
                                                  
                                                  1,464,060Total
      Liabilities and Stockholders' Equity
                                                  
                                                  $
                                                  1,465,598
                                                  
                                                  
                                                  $
                                                  1,485,957
  The
accompanying notes to interim consolidated financial statements are
 an
integral part of these consolidated balance sheets.
  F-2
 
 SUSPECT
DETECTION SYSTEMS INC. & SUBSIDIARY
 (A
DEVELOPMENT STAGE COMPANY)
 CONSOLIDATED
STATEMENTS OF OPERATIONS (NOTE 2)
 FOR
THREE MONTHS AND SIX MONTHS ENDED JUNE 30,2009, AND 2008,
 AND
CUMULATIVE FROM INCEPTION (OCTOBER 5, 2006)
 THROUGH
JUNE 30, 2009
 (Unaudited)
 
 Three
      Months Ended
                                  
                                  
                                  Six
      Months Ended
                                  
                                  
                                  CumulativeJune
      30,
                                  
                                  
                                  June
      30,
                                  
                                  
                                  From2009
                                  
                                  
                                  2008
                                  
                                  
                                  2009
                                  
                                  
                                  2008
                                  
                                  
                                  InceptionRevenues,
      net
                                  
                                  $
                                  254,759
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  423,741
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  423,741Cost
      of Revenues
                                  
                                  
                                  14,729
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  52,186
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  52,186Gross
      Profit
                                  
                                  
                                  240,030
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  371,555
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  371,555Expenses:Research
      and development
                                  
                                  
                                  32,683
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  72,430
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  72,430Selling,
      general and administrative
                                  
                                  
                                  299,926
                                  
                                  
                                  
                                  68,824
                                  
                                  
                                  
                                  777,140
                                  
                                  
                                  
                                  109,827
                                  
                                  
                                  
                                  1,125,437Total
      operating expenses
                                  
                                  
                                  332,609
                                  
                                  
                                  
                                  68,824
                                  
                                  
                                  
                                  849,570
                                  
                                  
                                  
                                  109,827
                                  
                                  
                                  
                                  1,197,867(Loss)
      from Operations
                                  
                                  
                                  (92,579
                                  )
                                  
                                  
                                  (68,824
                                  )
                                  
                                  
                                  (478,015
                                  )
                                  
                                  
                                  (109,827
                                  )
                                  
                                  
                                  (826,312
                                  )Other
      Income
                                  
                                  
                                  1,407
                                  
                                  
                                  
                                  1,896
                                  
                                  
                                  
                                  7,041
                                  
                                  
                                  
                                  4,114
                                  
                                  
                                  
                                  14,827Provision
      for Income Taxes
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Net
      (Loss) Before Noncontrolling Interest
                                  
                                  
                                  (91,172
                                  )
                                  
                                  
                                  (66,928
                                  )
                                  
                                  
                                  (470,974
                                  )
                                  
                                  
                                  (105,713
                                  )
                                  
                                  
                                  (811,485
                                  )Less
      - Income (Loss) Attributable to
      Noncontrolling Interest
                                  
                                  
                                  7,159
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (84,062
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (84,062
                                  )Net
      (Loss)
                                  
                                  $
                                  (98,331
                                  )
                                  
                                  $
                                  (66,928
                                  )
                                  
                                  $
                                  (386,912
                                  )
                                  
                                  $
                                  (105,713
                                  )
                                  
                                  $
                                  (727,423
                                  )(Loss)
      Per Common Share:(Loss)
      per common share - Basic and Diluted
                                  
                                  $
                                  (0.00
                                  )
                                  
                                  $
                                  (0.00
                                  )
                                  
                                  $
                                  (0.01
                                  )
                                  
                                  $
                                  (0.00
                                  )Weighted
      Average Number of Common Shares Outstanding - Basic and
      Diluted
                                  
                                  
                                  66,002,708
                                  
                                  
                                  
                                  68,293,916
                                  
                                  
                                  
                                  66,592,909
                                  
                                  
                                  
                                  65,878,152
 
 The
accompanying notes to interim consolidated financial statements are
 an
integral part of these consolidated statements.
  F-3
 
 SUSPECT
DETECTION SYSTEMS INC. & SUBSIDIARY
 (A
DEVELOPMENT STAGE COMPANY)
 CONSOLIDATED
STATEMENTS OF CASH FLOWS (NOTE 2)
 FOR
THE SIX MONTHS ENDED JUNE 30, 2009, AND 2008,
 AND
CUMULATIVE FROM INCEPTION (OCTOBER 5, 2006)
 THROUGH
JUNE 30, 2009
 (Unaudited)
 
 Six
      Months Ended
                                  
                                  
                                  CumulativeJune 30,
                                  
                                  
                                  From2009
                                  
                                  
                                  2008
                                  
                                  
                                  InceptionOperating
      Activities:Net
      (loss)
                                  
                                  $
                                  (470,974
                                  )
                                  
                                  $
                                  (105,713
                                  )
                                  
                                  $
                                  (811,485
                                  )Adjustments
      to reconcile net (loss) to net cash (used in) operating
      activities:Common
      stock issued for officers' compensation
                                  
                                  
                                  25,500
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  25,750Common
      stock issued for legal services
                                  
                                  
                                  -
                                  
                                  
                                  
                                  100,000
                                  
                                  
                                  
                                  10,500Common
      stock issued for promotional services
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  250,000Depreciation
      Expense
                                  
                                  
                                  2,859
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  2,859Changes
      in Current Assets and Liabilities-Inventory
                                  
                                  
                                  41,261
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  41,261Prepaid
      expenses
                                  
                                  
                                  109,150
                                  
                                  
                                  
                                  (84,882
                                  )
                                  
                                  
                                  (34,242
                                  )Accounts
      payable - Trade
                                  
                                  
                                  (18,551
                                  )
                                  
                                  
                                  (6,268
                                  )
                                  
                                  
                                  (17,744
                                  )Accrued
      liabilities
                                  
                                  
                                  (349,218
                                  )
                                  
                                  
                                  (6,063
                                  )
                                  
                                  
                                  (328,416
                                  )Net
      Cash (Used in) Operating Activities
                                  
                                  
                                  (659,973
                                  )
                                  
                                  
                                  (102,926
                                  )
                                  
                                  
                                  (861,517
                                  )Investing
      Activities:Deposit
      in Severance pay fund
                                  
                                  
                                  40,827
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  40,827Purchase
      of Property and Equipment
                                  
                                  
                                  (1,850
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (1,850
                                  )Net
      Cash Provide by Investing Activities
                                  
                                  
                                  38,977
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  38,977Financing
      Activities:Issuance
      of common stock for cash
                                  
                                  
                                  55,000
                                  
                                  
                                  
                                  995,700
                                  
                                  
                                  
                                  1,194,070Stock
      subscriptions paid
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (212,250
                                  )
                                  
                                  
                                  404,751Deferred
      acquisition costs
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (299,500
                                  )
                                  
                                  
                                  (1,135,000
                                  )Due
      from related party - SDS
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (15,500
                                  )
                                  
                                  
                                  (28,000
                                  )Due
      to Director and stockholder
                                  
                                  
                                  (3,155
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (2,867
                                  )Net
      Cash Provided by Financing Activities
                                  
                                  
                                  51,845
                                  
                                  
                                  
                                  468,450
                                  
                                  
                                  
                                  432,954Net
      Increase(Decrease) in Cash
                                  
                                  
                                  (569,151
                                  )
                                  
                                  
                                  365,524
                                  
                                  
                                  
                                  (389,586
                                  )Cash
      - Beginning of Period
                                  
                                  
                                  853,710
                                  
                                  
                                  
                                  364,534
                                  
                                  
                                  
                                  674,145Cash
      - End of Period
                                  
                                  $
                                  284,559
                                  
                                  
                                  $
                                  730,058
                                  
                                  
                                  $
                                  284,559Cash
      - End of Period Consisting of:Cash
      in bank
                                  
                                  $
                                  284,559
                                  
                                  
                                  $
                                  730,058
                                  
                                  
                                  $
                                  284,559Restricted
      cash
                                  
                                  
                                  15,827
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  15,827Total
                                  
                                  $
                                  300,386
                                  
                                  
                                  $
                                  730,058
                                  
                                  
                                  $
                                  300,386Supplemental
      Disclosure of Cash Flow Information:Cash
      paid during the period for:Interest
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -Income
      taxes
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -
  The
accompanying notes to interim consolidated financial statements are
 an
integral part of these consolidated statements.
  F-4
 
 SUSPECT
DETECTION SYSTEMS INC. & SUBSIDIARY
 (A
DEVELOPMENT STAGE COMPANY)
 CONSOLIDATED
STATEMENTS OF CASH FLOWS (NOTE 2)
 FOR
THE SIX MONTHS ENDED JUNE 30, 2009, AND 2008,
 AND
CUMULATIVE FROM INCEPTION (OCTOBER 5, 2006)
 THROUGH
JUNE 30, 2009
 (UNAUDITED)
 
 On
November 3, 2006, SDS Inc. issued 2,500,000 (post forward stock split) shares of
its common stock to its Director and Corporate Secretary at par value for
services rendered.  The transaction was valued at $250.
 
 On
December 5, 2007, SDS Inc. issued 100,000 (post forward stock split) shares of
its common stock to an attorney for legal services rendered. The transaction was
valued at $10,500.
 
 On April
20, 2008, SDS Inc. issued 666,6666 (post forward stock split) shares of its
common stock to a third-party for marketing and promotional services for one
year.  The transaction was valued at $100,000.
 
 On
October 1, 2008, SDS Inc. issued 1,000,000 (post forward stock split) shares of
its common stock to a third-party for marketing and promotional services for one
year.  The transaction was valued at $150,000.
 
 On
January 16, 2009, SDS Inc. issured 120,000 (post forward stock split) shares to
its Chief Financial Officer, Mr.Zwebner for services rendered. The transaction
was valued at $18,000.
 
 On May 6,
2009, SDS Inc. issued 50,000 shares to its Secretary, Treasurer and director,
Mr. Julius Klein for services rendered. The transaction was valued at
$7,500.
 
 The
accompanying notes to consolidated financial statements are
 an
integral part of these consolidated statements.
  F-5
 
 SUSPECT
DECTECTION SYSTEMS INC. & SUBSIDIARY
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2009, AND 2008
 (Unaudited)
 
 1)           Summary
of Significant Accounting Policies
 
 Basis of Presentation and
Organization
 
 Suspect
Detection Systems Inc. (formerly PCMT Corporation) (“SDS Inc.” or the “Company”)
is a Delaware corporation in the development stage and conducts its operations
through its 51 percent owned subsidiary, Suspect Detection System, Ltd, an
Israeli Corporation(“SDS - Israel”).  The Company was incorporated
under the laws of the State of Delaware on October 5, 2006.  The
revised business plan of the Company is the application of proprietary
technologies for law enforcement and border control, including counter terrorism
efforts, immigration control and drug enforcement, as well as human resource
management, asset management and the transportation sector.  The
accompanying consolidated financial statements of SDS Inc. were prepared from
the accounts of the Company under the accrual basis of accounting.
 
 In
November 2006, SDS Inc. began a capital formation activity through a Private
Placement Offering (“PPO #1”), exempt from registration under the Securities Act
of 1933, to raise up to $50,000 through the issuance of 20,000,000 (post
forward stock split) shares of its common stock, par value $0.0001 per share, at
an offering price of $0.0025 per share.  As of February 5, 2007, the
Company had received $50,000 in proceeds from the PPO #1.  SDS Inc.
also commenced an activity to submit a Registration Statement on Form SB-2 to
the SEC to register 20,000,000 shares (post forward stock split) of its
outstanding common stock on behalf of selling stockholders.  SDS Inc.
will not receive any of the proceeds of this registration activity once the
shares of common stock are sold.  The Registration Statement on Form
SB-2 was filed with the SEC on March 12, 2007, and declared effective on March
29, 2007.
 
 In
October 2007, SDS Inc. began a second capital formation activity through a
Private Placement Offering (“PPO #2”), exempt from registration under the
Securities Act of 1933, to raise up to $100,000 through the issuance of
25,000,000 (post forward stock split) shares of its common stock, par value
$0.0001 per share, at an offering price of $0.004 per share.  The PPO
#2 has an offering period of 180 days.  As of November 15, 2008, the
Company had subscribed 16,300,000 (post forward stock split) shares (December
31, 2007 – 16,300,000) related to the PPO #2 to 15 foreign investors, resulting
in gross proceeds of $65,200 (December 31, 2007 - $65,200).  As of
November 15, 2009, the Company declared PPO#2 closed.
 
 In
November 2007, the Company began a third capital formation activity through a
Private Placement Offering (“PPO #3”), exempt from registration under the
Securities Act of 1933, to raise up to $2,500,000 through the issuance of
16,666,666 units.  The purchase price of each unit is
$0.15.  Each unit contains one share of common stock, one warrant
giving the holder the right to purchase one share of common stock for $0.25,
which is exercisable for one year, and one warrant giving the holder the right
to purchase one share of common stock for $0.375, which is exercisable for three
years from the date of issuance.  As of November 15, 2008, the Company
had subscribed 9,523,002 (December 31, 2007 – 2,621,666) units and had received
approximately $1,428,000 (December 31, 2007 - $393,250 and subscription
receivable of $15,000) in proceeds from PPO #3.  As of November 15,
2008, the Company had issued 9,523,002 shares (post forward stock split) of
common stock subscribed and declared PPO#3 closed.
  F-6
  SUSPECT
DECTECTION SYSTEMS INC. & SUBSIDIARY
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2009, AND 2008
 (Unaudited)
 
 In
October 2008, SDS Inc. began a fourth capital formation activity through a
Private Placement Offering (“PPO #4), exempt from registration under the
Securities Act of 1933, to raise up to $600,000 through the issuance of
Units.  Each Unit consists of a Promissory Note and shares of common
stock of the Company in the amount of 250,000 shares for each $100,000 of
principal amount of the Promissory Note.  As of June 30, 2009, the
Company had not subscribed any shares.
 
 In April
2009, SDS Inc. began a fifth capital formation activity through a Private
Placement Offering (“PPO #5), exempt from registration under the Securities Act
of 1933, to raise up to $2,500,000 through the issuance of 16,666,666
Units.  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 June 30, 2009, the Company has issued
366,667 shares of common stock subscribed.
 
 On
November 14, 2007, SDS Inc. executed a letter of intent with SDS - Israel,
providing for the acquisition of SDS - Israel by the Company.  Since
the execution of the letter of intent with SDS - Israel, the Company’s
activities have focused on the consummation of the acquisition of SDS -
Israel.  On December 18, 2008, the Company and SDS - Israel executed
and delivered an investment (the “Investment Agreement”).
 
 In
January 2009, SDS Inc. completed the Investment Agreement between SDS Inc. and
SDS - Israel.  Pursuant to the Investment Agreement, SDS - Israel
issued 1,218,062 ordinary shares, par value NIS 0.01 per share, representing 51
percent of its issued and outstanding share capital to SDS Inc. as consideration
for the $280,000 paid by SDS Inc. to SDS - Israel on December 22, 2008, and
$820,000 previously paid by SDS Inc. to SDS - Israel pursuant to letter
agreements dated as of October 18, 2007, November 14, 2007, January 10, 2008,
May 18, 2008, and October 20, 2008.
 
 On
December 24, 2008, SDS Inc.’s shareholders resolved to change its name from PCMT
Corporation to Suspect Detection Systems, Inc.  On January 27, 2009,
the Company filed an amendment to its Certificate of Incorporation with the
Secretary of State of Delaware to reflect this change.  (See Note 9
for additional information).
 
 Unaudited
Interim Financial Statements
 
 The
interim consolidated financial statements of the Company as of June 30, 2009,
and December 31, 2008, and for the three months and six months ended June 30,
2009, and 2008, and cumulative from inception, are
unaudited.  However, in the opinion of management, the interim
consolidated financial statements include all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly SDS Inc.’s
consolidated financial position as of June 30, 2009, and December 31, 2008, and
the results of its operations and its cash flows for the three and six months
ended June 30, 2009, and 2008, and cumulative from inception.  These
results are not necessarily indicative of the results expected for the calendar
year ending December 31, 2009.  The accompanying consolidated
financial statements and notes thereto do not reflect all disclosures required
under accounting principles generally accepted in the United States of
America.  Refer to the Company’s audited financial statements as of
December 31, 2008, filed with the SEC for additional information, including
significant accounting policies.
  F-7
  SUSPECT
DECTECTION SYSTEMS INC. & SUBSIDIARY
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2009, AND 2008
 (Unaudited)
 
 Principles
of Consolidation
  The
consolidated financial statements include the accounts of the Company and its 51
percent-owned Israeli subsidiary, Suspect Detection Systems, Ltd. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
 
 Cash and Cash
Equivalents
 
 For
purposes of reporting within the statement of cash flows, the Company considers
all cash on hand, cash accounts not subject to withdrawal restrictions or
penalties, and all highly liquid debt instruments purchased with a maturity of
three months or less to be cash and cash equivalents.
 
 Revenue
Recognition
 
 The
Company recognizes revenues when delivery of goods or completion of services has
occurred provided there is persuasive evidence of an agreement, acceptance has
been approved by its customers, the fee is fixed or determinable based on the
completion of stated terms and conditions, and collection of any related
receivable is probable.
 
 Loss per Common
Share
 
 Basic
loss per share is computed by dividing the net loss attributable to the common
stockholders by the weighted average number of shares of common stock
outstanding during the periods.  Diluted loss per share is computed
similar to basic loss per share except that the denominator is increased to
include the number of additional common shares that would have been outstanding
if the potential common shares had been issued and if the additional common
shares were dilutive.  There were no dilutive financial instruments
issued or outstanding for the three months and six months ended June 30, 2009,
and 2008.
 
 Income
Taxes
 
 The
Company accounts for income taxes pursuant to SFAS No. 109, “Accounting for Income Taxes”
(“SFAS No. 109”).  Under SFAS No. 109, deferred tax assets and
liabilities are determined based on temporary differences between the bases of
certain assets and liabilities for income tax and financial reporting
purposes.  The deferred tax assets and liabilities are classified
according to the financial statement classification of the assets and
liabilities generating the differences.
  F-8
  SUSPECT
DECTECTION SYSTEMS INC. & SUBSIDIARY
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2009, AND 2008
 (Unaudited)
 
 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 June 30, 2009, and December 31, 2008, the
carry value of financial instruments approximated fair value due to the
short-term nature and maturity of these instruments.
 
 Deferred Offering
Costs
 
 The
Company defers as other assets the direct incremental costs of raising capital
until such time as the offering is completed.  At the time of the
completion of the offering, the costs are charged against the capital
raised.  Should the offering be terminated, deferred offering costs
are charged to operations during the period in which the offering is
terminated.
 
 Concentration
of Risk
 
 As of
June 30, 2009, and December 31, 2008, the Company maintained its cash account at
two commercial banks.  The balances in the accounts are subject to
FDIC coverage of up to $250,000 per institution.
 
 Common Stock Registration
Expenses
 
 The
Company considers incremental costs and expenses related to the registration of
equity securities with the SEC, whether by contractual arrangement as of a
certain date or by demand, to be unrelated to original issuance
transactions.  As such, subsequent registration costs and expenses are
reflected in the accompanying financial statements as general and administrative
expenses, and are expensed as incurred.
 
 Lease
Obligations
 
 All
noncancellable leases with an initial term greater than one year are categorized
as either capital or operating leases. Assets recorded under capital leases are
amortized according to the methods employed for property and equipment or over
the term of the related lease, if shorter.
  F-9
  SUSPECT
DECTECTION SYSTEMS INC. & SUBSIDIARY
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2009, AND 2008
 (Unaudited)
 
 Estimates
 
 The
consolidated financial statements are prepared on the basis of accounting
principles generally accepted in the United States of America.  The
preparation of consolidated financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of
June 30, 2009, and December 31, 2008, and expenses for the three months and six
months ended June 30, 2009, and 2008, and cumulative from
inception.  Actual results could differ from those estimates made by
management.
 
 Goodwill
 
 Goodwill
represents the excess of acquisition cost over the fair value of net assets
acquired in a business combination.  In accordance with Statement of
Financial Accounting Statement No.142, “Goodwill and Other Intangible
Assets” (“SFAS No.142”), goodwill is not amortized but reviewed annually
for impairment.
 
 (2)           Development
Stage Activities and Going Concern
 
 The
Company is currently in the development stage, and is devoting substantially all
of its efforts toward conducting marketing of its products. The Company’s
activities also include capital formation, and building
infrastructure.  The Company had losses of approximately $386,912 for
the six months ended June 30, 2009 (2008-$105,713) and, as of June 30, 2009, the
Company had an accumulated deficit of approximately $727,423
(2008-$340,511).  The Company’s ability to continue as a going concern
is uncertain.  The revised business plan of the Company is the
application of proprietary technologies for law enforcement and border control,
including counter terrorism efforts, immigration control and drug enforcement,
as well as human resource management, asset management and the transportation
sector.  In January 2009, SDS Inc. completed the Investment Agreement
between SDS Inc. and SDS - Israel.  Pursuant to the Investment
Agreement, SDS - Israel issued 1,218,062 ordinary shares, par value NIS 0.01 per
share, representing 51 percent of its issued and outstanding share capital to
SDS Inc. as consideration for the $280,000 paid by SDS Inc. to SDS - Israel on
December 22, 2008, and $820,000 previously paid by SDS Inc. to SDS - Israel
pursuant to letter agreements dated as of October 18, 2007, November 14, 2007,
January 10, 2008, May 18, 2008, and October 20, 2008.
 
 During
the period from inception (October 5, 2006) through March 31, 2009, the Company
was incorporated, received initial working capital through a loan from a
Director and stockholder, and commenced a capital formation activity through PPO
#1, exempt from registration under the Securities Act of 1933, to raise up to
$50,000 through the issuance of 20,000,000 (post forward stock split)
shares of its common stock, par value $0.0001 per share, at an offering price of
$0.0025 per share.  As of February 5, 2007, SDS Inc. had received
$50,000 in proceeds from PPO #1.  The Company also commenced an
activity to submit a Registration Statement on Form SB-2 to the SEC to register
20,000,000 shares (post forward stock split) of common stock on behalf of
selling stockholders.  SDS Inc. will not receive any of the proceeds
of this registration activity once the shares of common stock are
sold.  The Registration Statement on Form SB-2 was filed with the SEC
on March 12, 2007, and declared effective on March 29, 2007.
  F-10
  SUSPECT
DECTECTION SYSTEMS INC. & SUBSIDIARY
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2009, AND 2008
 (Unaudited)
 
 In
October 2007, SDS Inc. began a second capital formation activity through a
Private Placement Offering (“PPO #2”), exempt from registration under the
Securities Act of 1933, to raise up to $100,000 through the issuance of
25,000,000 (post forward stock split) shares of its common stock, par value
$0.0001 per share, at an offering price of $0.004 per share.  The PPO
#2 has an offering period of 180 days.  As of November 15, 2008, the
Company had subscribed 16,300,000 (post forward stock split) shares (December
31, 2007 – 16,300,000) related to the PPO #2 to 15 foreign investors, resulting
in gross proceeds of $65,200 (December 31, 2007 - $65,200).  As of
November 15, 2008, the Company declared PPO#2 closed.
 
 In
November 2007, the Company began a third capital formation activity through a
Private Placement Offering (“PPO #3”), exempt from registration under the
Securities Act of 1933, to raise up to $2,500,000 through the issuance of
16,666,666 units.  The purchase price of each unit is
$0.15.  Each unit contains one share of common stock, one warrant
giving the holder the right to purchase one share of common stock for $0.25,
which is exercisable for one year, and one warrant giving the holder the right
to purchase one share of common stock for $0.375, which is exercisable for three
years from the date of issuance.  As of November 15, 2008, the Company
had subscribed 9,523,002 (December 31, 2007 – 2,621,666) units and had received
approximately $1,428,000 (December 31, 2007 - $393,250 and subscription
receivable of $15,000) in proceeds from PPO #3.  As of November 15,
2008, the Company had issued 9,523,002 shares (post forward stock split) of
common stock subscribed and declared PPO#3 closed.
 
 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 June 30, 2009, the
Company had not subscribed any shares.
  In April
2009, SDS Inc. began a fifth capital formation activity through a Private
Placement Offering (“PPO #5), exempt from registration under the Securities Act
of 1933, to raise up to $2,500,000 through the issuance of 16,666,666
Units.  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 June 30, 2009, the Company has issued
366,667 shares of common stock subscribed.
 
 The
accompanying consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America,
which contemplate continuation of the Company as a going concern.  The
Company is devoting substantially all of its efforts toward conducting marketing
of its products. The Company’s activities also include raising capital, and
building infrastructure. In the course of such activities, the Company has
sustained operating losses and expects such losses to continue for the
foreseeable future. The Company's ability to continue to operate as a going
concern is dependent upon additional financial support. The accompanying
consolidated financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the possible
inability of the Company to continue as a going concern.
  F-11
  SUSPECT
DECTECTION SYSTEMS INC. & SUBSIDIARY
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2009, AND 2008
 (Unaudited)
 
 (3)           Loan
from Director and Shareholder
 
 As of
June 30, 2009, and December 31, 2008, a loan from an individual who is a former
Director, officer, and shareholder of the Company amounted to
$288.  The loan was provided for working capital purposes, and is
unsecured, non-interest bearing, and has no terms for repayment.
 
 (4)           Appointment
of Officers
 
 On
October 18, 2007, SDS Inc. appointed an individual as Chief Financial Officer
(“CFO”).  On October 23, 2007, an employment agreement was entered
into with the CFO.  This agreement provides that the CFO will receive
a base salary of $3,000 per quarter and $5,000 per annual audit.  This
agreement is effective until the next annual general meeting of the stockholders
of the Company or until his successor is elected or appointed.
 
 On
January 23, 2008, the Company appointed Mr. Stukalin as
Treasurer.  This office will be held by the individual until the next
annual general meeting of the stockholders of SDS Inc. or until a successor is
elected or appointed.
 
 On April
30, 2008, Mr. Bernstein resigned as the Company’s Secretary and tendered his
resignation as Director, effective May 31, 2008.
 
 Mr. Kohen
resigned as a Director of SDS Inc. and tendered his resignation as the Company’s
President, effective May 5, 2008.
 
 Mr.
Zwebner was appointed as the Company’s interim Chief Executive Officer, and was
elected as a Director of SDS Inc.
  On May 6,
2009, Mr. Constantin Stukalin resigned as the Treasurer, Secretary, and director
of SDS Inc. Effective
May 6, 2009, Mr. Julius Klein was apponited as the Treasurer, Secretary and
Director of SDS Inc.
 
 (5)           Common
Stock
 
 On
October 10, 2006, the Company issued 100,000 (post forward stock split) shares
of its common stock to its Director, president, and treasurer at par
value.  The transaction was valued at $1.
 
 On
November 3, 2006, SDS Inc. issued 25,000,000 (post forward stock split) of its
common stock to its Director and corporate secretary for services
rendered.  The transaction was valued at the par value of the common
stock, or $250.
 
 On
November 5, 2006, the Board of Directors of the Company approved PPO #1, exempt
from registration under the Securities Act of 1933, to raise up to $50,000
through the issuance of 20,000,000 (post forward stock split) shares of its
common stock, par value $0.0001 per share, at an offering price of $0.0025 per
share.  The PPO #1 had an offering period of 180 days.  As
of February 5, 2007, the Company had received cash proceeds from the PPO #1
amounting to $50,000 related to the issuance of 20,000,000 (post forward stock
split) shares of common stock.
 
 The
Company also commenced an activity to submit a Registration Statement on Form
SB-2 to the SEC to register 20,000,000 shares (post forward stock split) of
common stock on behalf of selling stockholders.  SDS Inc. will not
receive any of the proceeds of this registration activity once the shares of
common stock are sold.  The Registration Statement on Form SB-2 was
filed with the SEC on March 12, 2007, and declared effective on March 29,
2007.
  F-12
  SUSPECT
DECTECTION SYSTEMS INC. & SUBSIDIARY
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2009, AND 2008
 (Unaudited)
 
 In
October 2007, SDS Inc. began a second capital formation activity through a
Private Placement Offering (“PPO #2”), exempt from registration under the
Securities Act of 1933, to raise up to $100,000 through the issuance of
25,000,000 (post forward stock split) shares of its common stock, par value
$0.0001 per share, at an offering price of $0.004 per share.  The PPO
#2 has an offering period of 180 days.  As of November 15, 2008, the
Company had subscribed 16,300,000 (post forward stock split) shares (December
31, 2007 – 16,300,000) related to the PPO #2 to 15 foreign investors, resulting
in gross proceeds of $65,200 (December 31, 2007 - $65,200).  As of
November 15, 2008, the Company declared PPO#2 closed.
 
 In
November 2007, the Company began a third capital formation activity through a
Private Placement Offering (“PPO #3”), exempt from registration under the
Securities Act of 1933, to raise up to $2,500,000 through the issuance of
16,666,666 units.  The purchase price of each unit is
$0.15.  Each unit contains one share of common stock, one warrant
giving the holder the right to purchase one share of common stock for $0.25,
which is exercisable for one year, and one warrant giving the holder the right
to purchase one share of common stock for $0.375, which is exercisable for three
years from the date of issuance.  As of November 15, 2008, the Company
had subscribed 9,523,002 (December 31, 2007 – 2,621,666) units and had received
approximately $1,428,000 (December 31, 2007 - $393,250 and subscription
receivable of $15,000) in proceeds from PPO #3.  As of November 15,
2008, the Company had issued 9,523,000 shares (post forward stock split) of
common stock subscribed and declared PPO#3 closed.
 
 On
November 14, 2007, the Company notified the NASD of its intention to implement a
10-for-1 forward stock split of its issued and outstanding common stock to the
holders of record as of November 23, 2007.  Such forward stock split
was effective as of November 26, 2007.  The accompanying consolidated
financial statements and related notes thereto have been adjusted accordingly to
reflect this forward stock split.
 
 On
December 5, 2007, the Company entered into a written commitment with a
third-party attorney to provide legal services and assistance with required SEC
filings.  As part of this agreement, SDS Inc. issued to the attorney
100,000 shares (post forward stock split) of common stock on said date valued at
$10,500.
 
 On April
20, 2008, SDS Inc. entered into a written agreement with an unrelated
third-party consulting company to provide advisory services for corporate
development, acquisitions, and management assistance for one year.  As
payment for the consultant’s services, the Company issued 666,666 shares (post
forward stock split) of its unregistered common stock on said date valued at
$100,000.
  F-13
  SUSPECT
DECTECTION SYSTEMS INC. & SUBSIDIARY
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2009, AND 2008
 (Unaudited)
 
 On
October 1, 2008, SDS Inc. entered into a written agreement with an unrelated
third-party consultant to provide advisory services for corporate development,
acquisitions, and management assistance for one year.  As payment for
the consultant’s services, the Company issued 1,000,000 shares (post forward
stock split) of its unregistered common stock on said date valued at
$150,000.
 
 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 June 30, 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, 2009 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 a Private
Placement Offering (“PPO #5), exempt from registration under the Securities Act
of 1933, to raise up to $2,500,000 through the issuance of 16,666,666
Units.  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 June 30, 2009, the Company has issued
366,667 shares of common stock subscribed.
 
 On May 6,
2009, SDS Inc. issued 50,000 shares to its Secretary, Treasurer and director,
Mr. Julius Klein for services rendered. The transaction was valued at
$7,500.
 
 (6)           Income
Taxes
 
 The
provision (benefit) for income taxes for the six months ended June 30, 2009, and
2008 were as follows (assuming a 23 percent effective tax
rate):
  F-14
 
 SUSPECT
DECTECTION SYSTEMS INC. & SUBSIDIARY
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2009, AND 2008
 (Unaudited)
 
 Six
      Months EndedJune 30,2009
                        
                        
                        2008Current
      Tax Provision:Federal-Taxable
      income
                        
                        $
                        -
                        
                        
                        $
                        -Total
      current tax provision
                        
                        $
                        -
                        
                        
                        $
                        -Deferred
      Tax Provision:Federal-Loss
      carryforwards
                        
                        $
                        88,990
                        
                        
                        $
                        24,314Change
      in valuation allowance
                        
                        
                        (88,990
                        )
                        
                        
                        (24,314
                        )Total
      deferred tax provision
                        
                        $
                        -
                        
                        
                        $
                        -
 
 SDS Inc.
had deferred income tax assets as of June 30, 2009, and December 31, 2008, as
follows:
 
 As
      of
                    
                    
                    As
      ofJune
      30,
                    
                    
                    December
      31,2009
                    
                    
                    2008Loss
      carryforwards
                    
                    $
                    167,308
                    
                    
                    $
                    78,318Less
      - Valuation allowance
                    
                    
                    (167,308
                    )
                    
                    
                    (78,318
                    )Total
      net deferred tax assets
                    
                    $
                    -
                    
                    
                    $
                    -
 
 The
Company provided a valuation allowance equal to the deferred income tax assets
for the six months ended June 30, 2009, and 2008, because it is not presently
known whether future taxable income will be sufficient to utilize the loss
carryforwards.
 
 As of
June 30, 2009, and December 31, 2008, the Company had approximately $727,423 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.
 
 (7)           Related
Party Transactions
 
 As
described in Note 3, as of June 30, 2009, and 2008, SDS Inc. owed $288 to an
individual who is a former Director, president, and treasurer of SDS Inc., and a
current stockholder.
  As
described in Note 5, the Company has issued 100,000 shares (post forward stock
split) of its common stock to its Director, president, and treasurer at par
value.  The transaction was valued at $1.
 F-15
  SUSPECT
DECTECTION SYSTEMS INC. & SUBSIDIARY
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2009, AND 2008
 (Unaudited)
  As
described in Note 5, SDS Inc. has entered into a transaction with an officer and
Director of the Company for his services, and has issued a total of 25,000,000
shares (post forward stock split) of its common stock at a value of
$250.
 
 Effective
October 5, 2006, SDS Inc. entered into a verbal agreement with an individual who
is a former Director, president, and treasurer of SDS Inc., and current
stockholder of the Company, to lease 250 square feet of office space for
operations in Jerusalem, Israel.  The monthly lease rental amount is
$300, and the term of the lease arrangement is month-to-month.  As of
March 31, 2009, and 2008, SDS Inc. had accrued $8,952 and $8,052, respectively,
in office rent expense related to the lease.
 
 As
described in Note 4, on October 23, 2007, SDS Inc. entered into an employment
agreement with its CFO.  This agreement provides that the CFO will
receive a base salary of $3,000 per quarter and $5,000 per annual
audit.  This agreement is effective until the next annual general
meeting of the stockholders of the Company or until his successor is elected or
appointed.  During the six months ended June 30, 2009 and 2008, SDS
Inc. recognized $6,000 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 an officer and Director for the services
provided.
 
 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.
 
 (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 an individual as
CFO.  On October 23, 2007, an employment agreement was entered into
with the CFO.  This agreement provides that the CFO will receive a
base salary of $3,000 per calendar quarter and $5,000 per annual
audit.  The employment agreement is effective until the next annual
general meeting of the stockholders of the Company or until his successor is
elected or appointed.
 
 As
discussed in Note 5, on December 5, 2007, the Company entered into a written
commitment with a third-party attorney to provide legal services and assistance
with required SEC filings.  Legal services under the arrangement
principally commenced during the period ended December 31, 2007.  The
attorney will receive $3,000 per month and miscellaneous reimbursement of
expenses incurred on SDS Inc.’s behalf.
  F-16
  SUSPECT
DECTECTION SYSTEMS INC. & SUBSIDIARY
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2009, AND 2008
 (Unaudited)
 
 On March
15, 2008, SDS Inc. entered into a written commitment with a third-party
consultant to provide marketing and promotional assistance for up to 50 hours
per month, beginning April 2008.  In return for these services, the
consultant will receive a monthly service fee of $7,000, a stock option for
purchasing 100,000 shares of common stock at $0.15 per share, and an annual
performance-based bonus at the discretion of SDS Inc.  In May 2008,
this agreement was placed on hold.  As of December 31, 2008, the
options were not issued and may not be issued in the future depending on the
resolution of the agreement.
 
 As
described in Note 5, on April 20, 2008, SDS Inc. entered into a written
agreement with an unrelated third-party consulting company to provide advisory
services for corporate development, acquisitions, and management assistance for
one year.  As payment for the consultant’s services, the Company
issued 666,666 shares (post forward stock split) of its unregistered common
stock on said date valued at $100,000.
 
 As
described in Note 5, on October 31, 2008, SDS Inc. entered into a written
agreement with an unrelated third-party consultant to provide advisory services
for corporate development, acquisitions, and management assistance for one
year.  As payment for the consultant’s services, the Company issued
1,000,000 shares (post forward stock split) of its unregistered common stock on
said date valued at $150,000.
 
 On
January 20, 2009, an employment agreement was entered into between SDS - Israel
and its Chief Executive Officer (CEO).  This agreement provides that
the CEO will receive a base salary of NIS 63,000 per month, plus monthly
contributions by SDS - Israel of an aggregate of 20.84 percent of the base
salary towards the cost of the CEO’s life insurance, pension savings, disability
insurance, severance compensation fund, and professional
education.  SDS Inc. has agreed to guarantee the performance by SDS -
Israel of all its obligations under the employment agreement.
  On April
1, 2009, the Company entered into a Consulting Agreement with L.A. Investments
Ltd. (the “Consultant”).  The Consultant agreed to render assistance
and advice to the Company relating to capitalization and financing of the
Company. The Consulting Agreement is for a term of three years, commencing on
April 1, 2009.  In consideration for such services, the Company agreed
to compensate the Consultant in the amount of $6,500 quarterly, commencing on
April 1, 2009.
  In
addition, the Company agreed to issue to the Consultant warrants to purchase an
aggregate of 1,800,000 shares of the Company’s common stock. On each of April 1,
2009, September 1, 2009, March 1, 2010, and September 1, 2010, provided that the
Consulting Agreement is still in force, the Company shall issue a warrant to
purchase 450,000 shares of the Company’s common stock. Each common stock
purchase warrant entitles the Consultant to purchase one share of the Company’s
common stock at an exercise price of $0.15 per share and is exercisable for a
period of two years.
 
 (9)           Business
Combination
 
 On
October 18, 2007, SDS Inc. entered into a Letter Agreement with SDS -
Israel.  The Letter Agreement allowed the Company to conduct a due
diligence review of SDS - Israel and its technology for the purpose of entering
into a future business combination transaction on terms and conditions to be
negotiated.  As part of the Letter Agreement, SDS Inc. committed to
raise $1,500,000 and agreed to advance proceeds of $60,000 to SDS -
Israel.  As of December 31, 2007, SDS Inc. had paid SDS - Israel
$60,000.  In January 2008, SDS Inc. and SDS - Israel amended the
Letter Agreement such that the Company agreed to advance SDS - Israel an
additional $30,000 each month commencing January 2008 until the consummation or
termination of the Letter Agreement.  The amount of $60,000 previously
paid by SDS Inc. to SDS - Israel as well as each monthly payment of $30,000
served to reduce the $1,500,000 which SDS Inc. was committed to
raise.  In May 2008, SDS Inc. and SDS - Israel again amended the
Letter Agreement such that the Company agreed to advance SDS - Israel $80,000
each month commencing May 2008 until the consummation or termination of the
Letter Agreement.  In August 2008, SDS Inc. and SDS - Israel again
amended the Letter Agreement such that the Company agreed to advance SDS -
Israel $100,000 each month commencing August 2008 until the consummation or
termination of the Letter Agreement.  In December 2008, SDS Inc. and
SDS - Israel entered into an Investment Agreement and the Company agreed to
advance SDS - Israel an additional $280,000 and SDS - Israel issued to SDS Inc.
1,218,062 shares of SDS – Israel’s capital stock, par value NIS 0.01 per share,
which represented 51 percent of the issued and outstanding share capital of SDS
- Israel.  As of December 31, 2008, SDS Inc. had paid SDS - Israel a
cumulative total of $1,100,000.
  F-17
  SUSPECT
DECTECTION SYSTEMS INC. & SUBSIDIARY
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2009, AND 2008
 (Unaudited)
 
 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).  During the year ended December 31, 2008, the Company paid
$15,000 and $32,500 on behalf of SDS - Israel for additional accounting and
legal expenses, respectively.  As of December 31, 2008, the Company
reflected a receivable in the accompanying financial statements in the amount of
$28,000 related to the accounting and legal fees paid on behalf of SDS -
Israel.
 
 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-18
  SUSPECT
DECTECTION SYSTEMS INC. & SUBSIDIARY
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2009, AND 2008
 (Unaudited)
 
 On
December 24, 2008, SDS Inc.’s shareholders resolved to change its name from PCMT
Corporation to Suspect Detection Systems, Inc.  On January 27, 2009,
the Company filed with the Secretary of State of Delaware an amendment to its
Certificate of Incorporation to reflect this change.
 
 SDS -
Israel was incorporated under the Companies Law, 5759-1999, of the State of
Israel in 2004.  SDS – Israel specializes in the development and
application of proprietary technologies for law enforcement and border control,
including counter terrorism efforts, immigration control and drug enforcement,
as well as human resource management, asset management and the transportation
sector.  SDS – Israel completed the development of its “Cognito” line
of products in 2007, which are based on proprietary software and use
commercially available hardware to identify individuals that pose security
threats, whether or not they are carrying a weapon on their person or in their
belongings.  Cognito systems are comprised of a front-end test station
and a back office, where multiple-station and multiple-site data is stored,
managed and distributed.  The front-end test station serves as the
point of contact with the individual being examined.  The back-office
is designed to manage and control the test stations at a given site and it
stores all test histories and traveler profiles and interfaces with external
systems and databases.  A provisional patent application has been
issued for the Cognito line of products in the United States.  SDS –
Israel is also engaged in the development of behavior based screening
technologies for the checkpoint screening market.
 
 (10)           Recent
Accounting Pronouncements
 
 In March
2008, the FASB issued FASB Statement No. 161, “Disclosures about Derivative
Instruments and Hedging Activities – an amendment of FASB Statement 133”
(“SFAS No. 161”).  SFAS No. 161 enhances required disclosures
regarding derivatives and hedging activities, including enhanced disclosures
regarding how:  (a) an entity uses derivative instruments; (b)
derivative instruments and related hedged items are accounted for under SFAS No.
133, “Accounting for
Derivative Instruments and Hedging Activities”; and (c) derivative
instruments and related hedged items affect an entity’s financial position,
financial performance, and cash flows.  Specifically, SFAS No. 161
requires:
 
 ● Disclosure
of the objectives for using derivative instruments 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 is effective for fiscal years and interim periods beginning after November
15, 2008.  Earlier application is encouraged.  The
management of SDS Inc. does not expect the adoption of this pronouncement to
have a material impact on its financial statements.
  F-19
  SUSPECT
DECTECTION SYSTEMS INC. & SUBSIDIARY
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2009, AND 2008
 (Unaudited)
 
 In May
2008, the FASB issued FASB Statement No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (“SFAS No. 162”).  SFAS No. 162
identifies the sources of accounting principles and the framework for selecting
the principles used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with generally
accepted accounting principles in the United States of America.  The
sources of accounting principles that are generally accepted are categorized in
descending order as follows:
 
 a)
              FASB
      Statements of Financial Accounting Standards and Interpretations, FASB
      Statement 133 Implementation Issues, FASB Staff Positions, and American
      Institute of Certified Public Accountants (AICPA) Accounting Research
      Bulletins and Accounting Principles Board Opinions that are not superseded
      by actions of the FASB.
 
 b)
              FASB
      Technical Bulletins and, if cleared by the FASB, AICPA Industry Audit and
      Accounting Guides and Statements of
Position.
 
 c)
              AICPA
      Accounting Standards Executive Committee Practice Bulletins that have been
      cleared by the FASB, consensus positions of the FASB Emerging Issues Task
      Force (EITF), and the Topics discussed in Appendix D of EITF Abstracts
      (EITF D-Topics).
 
 d)
              Implementation
      guides (Q&As) published by the FASB staff, AICPA Accounting
      Interpretations, AICPA Industry Audit and Accounting Guides and Statements
      of Position not cleared by the FASB, and practices that are widely
      recognized and prevalent either generally or in the
    industry.
 
 On May
26, 2008, the FASB issued FASB Statement No. 163, “Accounting for Financial Guarantee
Insurance Contracts” (“SFAS No. 163”).  SFAS No. 163 clarifies
how FASB Statement No. 60, “Accounting and Reporting by
Insurance Enterprises” (“SFAS No. 60”), applies to financial guarantee
insurance contracts issued by insurance enterprises, including the recognition
and measurement of premium revenue and claim liabilities.  It also
requires expanded disclosures about financial guarantee insurance
contracts.
 
 The
accounting and disclosure requirements of SFAS No. 163 are intended to improve
the comparability and quality of information provided to users of financial
statements by creating consistency.  Diversity exists in practice in
accounting for financial guarantee insurance contracts by insurance enterprises
under SFAS No. 60, “Accounting
and Reporting by Insurance Enterprises.”  That diversity
results in inconsistencies in the recognition and measurement of claim
liabilities because of differing views about when a loss has been incurred under
FASB Statement No. 5, “Accounting for Contingencies”
(“SFAS No. 5”).  SFAS No. 163 requires that an insurance enterprise
recognize a claim liability prior to an event of default when there is evidence
that credit deterioration has occurred in an insured financial
obligation.  It also requires disclosure about (a) the risk-management
activities used by an insurance enterprise to evaluate credit deterioration in
its insured financial obligations and (b) the insurance enterprise’s
surveillance or watch list.
  F-20
  SUSPECT
DECTECTION SYSTEMS INC. & SUBSIDIARY
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2009, AND 2008
 (Unaudited)
 
 SFAS No.
163 is effective for financial statements issued for fiscal years beginning
after December 15, 2008, and all interim periods within those fiscal years,
except for disclosures about the insurance enterprise’s risk-management
activities.  Disclosures about the insurance enterprise’s
risk-management activities are effective the first period beginning after
issuance of SFAS No. 163.  Except for those disclosures, earlier
application is not permitted.  Management of SDS Inc. does not expect
the adoption of this pronouncement to have material impact on its financial
statements.
 
 On May
22, 2009, the FASB issued FASB Statement No. 164, “Not-for-Profit Entities: Mergers and
Acquisitions” (“SFAS No. 164”).  Statement 164 is intended to
improve the relevance, representational faithfulness, and comparability of the
information that a not-for-profit entity provides in its financial reports about
a combination with one or more other not-for-profit entities, businesses, or
nonprofit activities. To accomplish that, this Statement establishes principles
and requirements for how a not-for-profit entity:
 
 a.
              Determines
      whether a combination is a merger for 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.
 
 Statement
164 is effective for mergers occurring on or after December 15, 2009, and
acquisitions for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15,
2009.  Early application is prohibited.  Management of the
Company does not expect the adoption of this pronouncement to have material
impact on its financial statements.
 
 On May
28, 2009, the FASB issued FASB Statement No. 165, “Subsequent Events” (“SFAS No.
165”).  Statement No.165 establishes general standards of accounting
for 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 No. 165 provides:
 
 1.
              The
      period after the balance sheet date during which management of a reporting
      entity should evaluate events or transactions that may occur for potential
      recognition or disclosure in the financial
  statements.
 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.  Management of the Company does not expect the adoption of this
pronouncement to have material impact on its financial statements.
  On June
9, 2009, the FASB issued FASB Statement No. 166, “Accounting for Transfers of
Financial Assets- an amendment of FASB Statement No, 140” (“SFAS
No.166”). SFAS
No.166 revises the derecognization provision of SFAS No. 140 “Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities” and will
require entities to provide more information about sales of securitized
financial assets and similar transactions, particularly if the seller retains
some risk with respect to the assets. It also
eliminates the concept of a "qualifying special-purpose entity."
 
 This
statement is effective for financial asset transfers occurring after the
beginning of an entity's first fiscal year that begins after November 15, 2009.
Management of the Company does not expect the adoption of this pronouncement to
have material impact on its financial statements.
 
 In June
2009, the FASB issued SFAS 167 "Amendments to FASB Interpretation
No. 46(R)." SFAS No.167 amends certain requirements of FASB
Interpretation No. 46(R), “Consolidation of Variable Interest
Entities” to improve financial reporting by companies involved with
variable interest entities and to provide additional disclosures about the
involvement with variable interest entities and any significant changes in risk
exposure due to that involvement. A reporting entity will be required to
disclose how its involvement with a variable interest entity affects the
reporting entity's financial statements.
 
 This
Statement shall be effective as of the beginning of each reporting entity’s
first annual
reporting period that begins after November 15, 2009. Management of the Company
does not expect the adoption of this pronouncement to have material impact on
its financial statements.
 
 In June
2009, the FASB issued SFAS 168, "The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principle - a
replacement of FASB Statement No. 162" ("SFAS No.168"). SFAS No.168
establishes the FASB Accounting Standards Codification (the "Codification") to
become the single official source of authoritative, nongovernmental US generally
accepted accounting principles (GAAP). The Codification did not change GAAP but
reorganizes the literature.
 
 SFAS
No.168 is effective for interim and annual periods ending after September 15,
2009. Management of the Company does not expect the adoption of this
pronouncement to have material impact on its financial
statements.
  F-21
  SUSPECT
DECTECTION SYSTEMS INC. & SUBSIDIARY
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2009, AND 2008
 (Unaudited)
  (11)           Subsequent
Events
 
 As
described in Note 9, on January 20, 2009, SDS Inc. completed the transactions
contemplated by the investment agreement (the “Investment Agreement”) dated as
of December 18, 2008 between the SDS Inc. and SDS -Israel. The Investment
Agreement provides for good faith negotiations of a second agreement (the
“Second Agreement”), following the closing of the Investment Agreement, pursuant
to which: (i) SDS Inc. will grant options to the shareholders of SDS-Israel to
exchange their SDS-Israel ordinary shares into shares of the SDS Inc’s common
stock; (ii) SDS Inc. will grant options to the holders of options to purchase
SDS Inc ordinary shares to exchange such options into options to purchase shares
of SDS Inc’s common stock; (iii) SDS Inc. will grant additional options, to Mr.
Shabtai Shoval and certain SDS-Israel employees or consultants, to purchase new
SDS ordinary shares; and (iv) SDS Inc will grant rights to Mr. Shabtai Shoval
and said SDS-Israel employees or consultants to exchange all or any part of the
additional SDS options into options to purchase shares of SDS Inc’s common
stock.
 
 In
accordance with the terms of the Investment Agreement, SDS Inc. entered into an
Exchange Agreement (the “Exchange Agreement”), dated July 9, 2009, with NG-The
Northern Group LP ("NG"), pursuant to which NG exchanged all the SDS ordinary
shares for 3,199,891 shares of SDS Inc’s common stock, and the issuance of
warrants to purchase additional shares of common stock of SDS Inc, on the terms
and provisions provided for in the Exchange Agreement.
 
 On July
9, 2009, SDS Inc. also entered into a warrant agreement (the “Warrant
Agreement”) with NG, pursuant to which SDS Inc. issued Two Million Two Hundred
Fifty Thousand (2,250,000) stock purchase warrants (the “Warrants”) to NG. Each
Warrant grants NG the right to purchase one (1) share of 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 ordinary shares 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 (1) year anniversary of the Lock Up
Agreement.
  F-22





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





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





Forward-Looking
Statements





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





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





Corporate
Background





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





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


3


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.





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




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




The
shares, the warrants and the shares to be issued upon exercise of the warrants
will be issued pursuant to the exemption from the registration requirements of
United States federal and state securities laws under Regulation S promulgated
under the Securities Act.




Business and History of
SDS





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





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





Recent
Events





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.


4


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




Plan
of Operation





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





Going
Concern Consideration





We are a
development stage company with no operations and no revenues to date. Our
registered independent auditors issued a going concern opinion, in their
report dated March 13, 2009, with respect to our audited 2008 year-end financial
statements. This means that our auditors believe there is substantial doubt that
we can continue as an on-going business for the next 12 months. We do not
anticipate that we will generate significant revenues until we have completed
our business plan. Accordingly, we must raise additional capital from sources
other than our operations in order to implement our business plan. Our 2009
financial statements and notes as of June 30, 2009, included herein, contain
additional note disclosures describing the circumstances that lead to this
disclosure by our management.





Liquidity
and Capital Resources




As of
June 30, 2009, we had $284,559 in cash and cash equivalents.  The
Company also incurred net losses of $386,912 during the six months ended June
30, 2009 as compared with net losses of $105,713 during the six months ended
June 30, 2008. These material changes in the results of operations are the
result of the acquisition of 51% of Suspect Detection Systems Inc Ltd
..





Off
Balance Sheet Arrangements





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





Item
3. Quantitative and Qualitative Disclosures About Market Risk





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





Item
4(T). Controls and Procedures.




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


5


A control
system, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met.
Further, the design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be considered relative
to their costs. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within the Company have been detected. Because
of the inherent limitations in a cost-effective control system, misstatements
due to error or fraud may occur and not be detected.





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





PART
II


OTHER
INFORMATION





Item
1.  Legal Proceedings.





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





Item
1A.           Risk
Factors





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




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





During
the three months ended June 30, 2009, the Company sold an aggregate of 366,667
units, each unit consists of 1 share of the Company’s common stock, 1 Class A
Warrant, which entitles the holder thereof the right to purchase 1 share of the
Company’s common stock at an exercise price of $0.25 per share and expires 1
year from the date of the Subscription Agreement, and 1 Class B Warrant, which
entitles the holder thereof the right to purchase 1 share of the Company’s
common stock at an exercise price of $0.375 per share and expires 3 year from
the date of the Subscription Agreement. The transactions were made in reliance
upon the exemption provided by Regulation S of the Securities Act of
1933.





On May 6
2009 the Company issued 50,000 shares to its Secretary , Treasurer and Director
, for services rendered which was valued at $7,500.





Purchases
of equity securities by the issuer and affiliated purchasers





Not
applicable





Use
of Proceeds





Not
applicable





Item
3.  Defaults Upon Senior Securities.





Not
applicable


6


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





Not
applicable





Item
5.  Other Information.





Not
applicable




Item
6.  Exhibits





Exhibit
                No.
              
              Description31.1
              
              Rule
      13a-14(a)/15d14(a) Certification of Asher Zwebner, Interim Chief Executive
      Officer, Chief Financial Officer and Director(attached
    hereto)32.1
              
              Section
      1350 Certification of Asher Zwebner, Interim Chief Executive Officer,
      Chief Financial Officer and Director(attached
  hereto)


7


SIGNATURES





In
accordance with to requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.




SUSPECT
      DETECTION SYSTEMS, INC.Dated:
      August 14 , 2009
                              By:
                              /s/ Asher ZwebnerName:   Asher ZwebnerTitle: Interim Chief Executive Officer, ChiefFinancial Officer and Director (Principal Executive,Financial and Accounting
Officer)


8