UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 FORM
10-K
 
 (Mark
One)
  xANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 
 For the
fiscal year ended December 31, 2009
  o
 
 For the
transition period from __________________ to
__________________________.
 
 Commission
File Number: 000-52792
 
 SUSPECT DETECTION SYSTEMS
INC.
 (Exact
name of registrant as specified in its charter)
 
 Delaware
              
              98-0511645(State
      or other jurisdiction of incorporation)
              
              (IRS
      Employer Identification No.)
 
 4 Nafcha Street, Jerusalem,
Israel 95508
 (Address
of principal executive offices)
 
 +972 (2)
500-1128
 (Registrant's
telephone number, including area code)
 
 Securities
registered pursuant to Section 12(b) of the Act: None
 
 Securities
registered pursuant to section 12(g) of the Act: Common Stock, $0.0001 par
value
 
 Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.  Yes  o  No x
 
 Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Exchange Act.  Yes  o  No o
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
 
 Indicate
by check mark if disclosure of delinquent filers in response to Item 405 of
Regulation S-K is not contained herein, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. o
   
  
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
 Large
accelerated filer  o                                                                                                 
Accelerated filer o
 
 Non-accelerated
filer    o
                                                                                                Smaller
reporting company  x
 (Do not
check if a smaller reporting company)
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes oNo x
 
 The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant, based on the last sales price quoted on NASDAQ
Over-the-Counter Bulletin Board on June 30, 2009, the last business day of
the registrant’s most recently completed second fiscal quarter, was
approximately $6.9 million
  The
number of shares of common stock issued and outstanding as of April 12, 2010,
was 73,435,493 shares.
 
 Documents
Incorporated By Reference: None
   
   TABLE
OF CONTENTS
 
 PART
      I
              
              
              
              1Item
      1.
              
              Business
              
              1Item
      1A.
              
              Risk
      Factors
              
              5Item
      1B.
              
              Unresolved
      Staff Comments
              
              5Item
      2.
              
              Properties
              
              5Item
      3.
              
              Legal
      Proceedings
              
              5Item
      4.
              
              Removed
      and Reserved
              
              5PART
      II
              
              
              
              5Item
      5.
              
              Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
              
              5Item
      6.
              
              Selected
      Financial Data
              
              6Item
      7.
              
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
              
              6Item
      7A.
              
              Quantitative
      and Qualitative Disclosures About Market RiskItem
      8.
              
              Financial
      Statements and Supplementary Data
              
              F-Item
      9.
              
              Changes
      In and Disagreements With Accountants on Accounting and Financial
      Disclosure
              
              9Item
      9A.
              
              Controls
      and Procedures
              
              9Item
      9B.
              
              Other
      Information
              
              9PART
      III
              
              
              
              10Item
      10.
              
              Directors,
      Executive Officer and Corporate Governance
              
              10Item
      11.
              
              Executive
      Compensation
              
              11Item
      12.
              
              Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
              
              13Item
      13.
              
              Certain
      Relationships and Related Transactions, and Director
      Independence
              
              14Item
      14.
              
              Principal
      Accounting Fees and Services
              
              15Item
      15.
              
              Exhibits,
      Financial Statement Schedules
              
              15SIGNATURES
              
              16
   
  
 PART
I
 
 As used
in this Form 10-K, references to the “Company,” the “Registrant,” “we,” “our,”
or “us” refer to Suspect Detection Systems Inc., unless the context otherwise
indicates.
 
 Forward-Looking
Statements
 
 This
Annual Report on Form 10-K (this “Report”) contains forward-looking statements.
Any statements contained in this Report that are not statements of historical
fact may be deemed to be forward-looking statements. Forward-looking information
includes statements relating to future actions, prospective products, future
performance or results of current or anticipated products, sales and marketing
efforts, costs and expenses, interest rates, outcome of contingencies, financial
condition, results of operations, liquidity, business strategies, cost savings,
objectives of management, and other matters. You can identify forward-looking
statements as those that are not historical in nature, particularly those that
use terms such as “may,” “will,” “should,” “expects,” “anticipates,”
“contemplates,” “estimates,” “believes,” “plans,” or  “predicts.” The
Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for
forward-looking information to encourage companies to provide prospective
information about themselves without fear of litigation, so long as that
information is identified as forward-looking and is accompanied by meaningful
cautionary statements identifying important factors that could cause actual
results to differ materially from those projected in the
information.
 
 These
forward-looking statements are not guarantees of future performance and involve
risks, uncertainties, and assumptions that we cannot predict. In evaluating
these forward-looking statements, you should consider various factors, including
the following: (a) those risks and uncertainties related to general economic
conditions, (b) whether we are able to manage our planned growth efficiently and
operate profitable operations, and (c) whether we are able to generate
sufficient revenues or obtain financing to sustain and grow our operations. We
assume no obligation to update forward-looking statements, except as otherwise
required under the applicable federal securities laws.
 
 Item 1.Business
 
 Corporate
Background
 
 The
Company was incorporated under the General Corporation Law of the State of
Delaware on October 5, 2006.  Initially the Company focused on the
business of offering computer hardware and software products to religious
consumers, with an emphasis on ultra-orthodox Jewish communities in
Israel.  On November 14, 2007, the Company executed a letter of intent
with Suspect Detection Systems Ltd., an Israeli corporation (“SDS”), providing
for the acquisition of SDS by the Company.  Since the execution of the
letter of intent with SDS, the Company’s activities have focused on the
consummation of the acquisition of SDS by the Company. On January 23, 2009, the
Company amended its Certificate of Incorporation for the purpose of changing its
name from “PCMT Corporation” to “Suspect Detection Systems Inc.” Such amendment
was approved at a special meeting of the Company’s shareholders held on the same
date. Also, on December 3, 2009, the Company further amended its Certificate of
Incorporation for the purpose of increasing its authorized capital stock from
100,000,000 to 250,000,000 shares. Such amendment was approved at a special
meeting of the Company’s shareholders held on the same date.
 
 On
December 18, 2008, the Company and SDS executed and delivered an investment
agreement (the “Investment
Agreement”).  Pursuant to the Investment Agreement, at closing
on January 20, 2009, SDS issued 1,218,062 ordinary shares, par value NIS 0.01
per share, to the Company, representing 51% of the issued and outstanding share
capital of SDS, in consideration for (a) the sum of $280,000 paid by the Company
to SDS on December 22, 2008, and (b) the sum of $820,000 previously paid by the
Company to SDS pursuant to letter agreements dated as of October 18, 2007,
November 14, 2007, January 10, 2008, May 18, 2008 and October 20,
2008.
   -1-
 
 The
Investment Agreement also provides for good faith negotiations of a second
agreement (the “Second
Agreement”), following the closing of the Investment Agreement, pursuant
to which: (i) the Company will grant options to the shareholders of SDS to
exchange their SDS ordinary shares into shares of the Company’s common stock;
(ii) the Company will grant options to the holders of options to purchase SDS
ordinary shares to exchange such options into options to purchase shares of the
Company’s common stock; (iii) SDS will grant additional options, to Mr. Shoval
and certain SDS employees or consultants, to purchase new SDS ordinary shares;
and (iv) the Company will grant rights to Mr. Shoval and said SDS employees or
consultants to exchange all or any part of the additional SDS options into
options to purchase shares of the Company’s common stock.
 
 In
accordance with the terms of the Investment Agreement, the Registrant entered
into an Exchange Agreement, dated July 9, 2009, with NG-The Northern Group LP
("NG"), pursuant to which NG exchanged all the SDS ordinary shares for 3,199,891
shares of the Registrant’s common stock, and the issuance of warrants to
purchase additional shares of common stock of the Registrant, on the terms and
provisions provided for in the Exchange Agreement.
 
 In
accordance with the terms of the Exchange Agreement, on July 9, 2009, NG
exchanged all the SDS ordinary shares for 3,199,891 shares of the Registrant’s
common stock. The Registrant also issued Two Million Two Hundred Fifty Thousand
(2,250,000) stock purchase warrants to NG, which grants NG the right to purchase
one (1) share of the Registrant’s common stock, commencing on July 9, 2009 and
terminating on July 8, 2011, at an exercise price of $0.15 per Warrant Share.
The securities were offered and exchanged in reliance on an exemption from the
registration requirements of United States federal and state securities laws
under Regulation S promulgated under the Securities Act of 1933, as
amended.
 
 As
a condition to the exchange for all the SDS ordinary shares 3,199,891 shares of
the Registrant’s common stock, NG agreed not to sell any shares of our common
stock prior to the one (1) year anniversary of the Lock-Up
Agreement.
 
 Business and History of
SDS
 
 SDS
specializes in the development and application of proprietary technologies for
law enforcement and border control, including counter terrorism efforts,
immigration control and drug enforcement, as well as human resource management,
asset management and the transportation sector.  SDS completed the
development of its “Cogito” line of products in 2007, which are based on
proprietary software and use commercially available hardware to identify
individuals that pose security threats, whether or not they are carrying a
weapon on their person or in their belongings.  Cogito systems are
comprised of a front-end test station and a back office, where multiple-station
and multiple-site data is stored, managed and distributed.  The
front-end test station serves as the point of contact with the individual being
examined.  The back-office is designed to manage and control the test
stations at a given site and it stores all test histories and traveler profiles
and interfaces with external systems and databases.  A provisional
patent application has been issued for the Cogito line of products in the United
States.  SDS is also engaged in the development of behavior based
screening technologies for the checkpoint screening market.
   -2-
 
 SDS was
incorporated under the Companies Law, 5759-1999, of the State of Israel in
2004.  In order to finance its research and development activities,
SDS sought public funding and in 2005 the Transportation Security Administration
of the US Department of Homeland Security (the “TSA”) awarded a grant
to SDS to support the development of behavior pattern recognition
technology.  Additional funding was obtained from the Israeli
government and US and Israeli governmental security authorities performed
evaluations and testing of SDS’s products in 2005.  In 2006 SDS
obtained private financing, issuing shares of preferred stock and warrants to
the NG – The Northern Group LP.  Additional US government funding was
obtained in 2006 from the TSA.
 
 On April
1, 2009, the Company entered into a Consulting Agreement with L.A. Investments
Ltd. (the “Consultant”).  The Consultant agreed to render assistance
and advice to the Company relating to capitalization and financing of the
Company. The Consulting Agreement is for a term of three years, commencing on
April 1, 2009.  In consideration for such services, the Company agreed
to compensate the Consultant in the amount of $6,500 quarterly, commencing on
April 1, 2009.
 
 In
addition, the Company agreed to issue to the Consultant warrants to purchase an
aggregate of 1,800,000 shares of the Company’s common stock. On each of April 1,
2009, September 1, 2009, March 1, 2010, and September 1, 2010, provided that the
Consulting Agreement is still in force, the Company shall issue a warrant to
purchase 450,000 shares of the Company’s common stock. Each common stock
purchase warrant entitles the Consultant to purchase one share of the Company’s
common stock at an exercise price of $0.15 per share and is exercisable for a
period of two years.
 
 On May 6,
2009, the Board of Directors of the Company appointed Julius Klein as the
Treasurer, Secretary, to serve at the discretion of the Board, until his
successor(s) are duly appointed and qualified.  In connection with his
appointment as an officer and a Director of the Company, the Board of Directors
approved a one time issuance of 50,000 shares of the Company’s common
stock.
  On
January 13, 2010, the Registrant, appointed Yoav Krill as Chairman of the Board
of Directors, effective as of said date, to serve until the next annual meeting
of the Registrant’s stockholders and until his successor is duly appointed and
qualified.  In connection with Mr. Krill’s appointment, the Registrant
entered into an Agreement (the “Consulting Agreement”) to perform such duties as
will be required of him as the Chairman of the Board. In consideration of the
services to be performed under the Consulting Agreement, Mr. Krill shall receive
an annual director’s fee of $25,000 per annum for the first twelve (12) month
period and thereafter, the parties shall agree in writing, prior to November
30th of each calendar year as to the amount to be paid as director’s fees, but
such amount shall not be less than $25,000 and shall be increased,
proportionately, with any increase in the Registrant’s paid in capital, sales
revenues or net profits. Mr. Krill was also granted 1,500,000 options of common
stock of the Registrant, exercisable at $0.15 per share, from the stock option
plan adopted by the Registrant. 250,000 options vested simultaneously with the
execution and delivery of the Consulting Agreement, and the balance shall vest
at the rate of 104,166 options each calendar quarter for the next three years,
commencing on March 31, 2010. The options shall terminate forty-eight (48)
months from the date of vesting.
 
 The terms
of the Consulting Agreement continue until either party provides the other with
no less than 90 days prior written notice. The failure of the Registrant to
maintain directors’ and officers’ liability insurance covering Mr. Krill shall
be deemed a material breach of the agreement and shall automatically terminate
the Agreement.
   -3-
  
 Also, on
January 13, 2010, the Registrant appointed Gil Boosidan as its Chief Executive
Officer and executed an employment agreement with Mr. Boosidan as of January 14,
2010 (the “Employment Agreement”). In consideration of the services to be
performed under the Employment Agreement, Mr. Boosidan shall receive an
aggregate of $30,000 - $20,000 in cash over four equal quarterly installments
commencing March 31, 2010, and $10,000 in shares of commons stock of the
Registrant, the number to be determined by the market value of the shares of the
date of issuance. The terms of the Employment Agreement shall be for one year,
and the Registrant has the right to terminate such agreement for cause in the
event of a material breach by Mr. Boosidan which is not cured after notice of
such breach.
 
 Marketing
 
 SDS
markets its products to local and national law enforcement and homeland security
authorities in Israel, the US, Mexico, Europe and Asia, as well as operators of
critical infrastructure in the private sector such as oil and gas companies, the
diamond industry and financial enterprises.  SDS has executed
agreements with several companies and individuals all in the framework of its
ordinary course of business, providing for assistance in the marketing of its
products and endorsements.
  Competition
 
 SDS has
identified a number of potential competitors, including developers of voice
stress analysis equipment designed to remotely detect a person trying to lie
during an interview, and developers of equipment designed to generate stimuli
from a remotely location that will generate enough data about an individual to
enable detection of hostile intent. WeCU Technologies and Nemesysco are just two
of our competitors.
  Dependence on major
customers
 
 A
significant portion of SDS’s revenue in 2009 was derived from services provided
to a single customer, which is an agency of the government of
Mexico.  Since the bulk of SDS’s revenues are generated by initial
sales of its systems, as opposed ongoing support services, the loss of this
customer may have a material adverse impact on the business of
SDS.
  Intellectual
Property
 
 The
United States Transportation Security Administration of the US Department of
Homeland Security has certain rights in the technology developed by SDS,
pursuant to a Cooperative Agreement between SDS and the TSA dated June 22,
2005.  The Cooperative Agreement relates to a $200,000 grant provided
to SDS by the TSA in 2005 for the development and adaptation for use in the US
of a prototype application designed to detect suspicious
behavior.  Pursuant to the agreement, SDS granted an irrevocable,
non-exclusive, paid-up license for US Government use of the technology
development using the grant funds.  The license requires prior
approval from SDS for any commercial use of the technology, with the exception
of use by US Government contractors under procurement contracts, grants,
cooperative agreements and other transactions awarded or entered into for US
government purposes.
   -4-
 
 The
Science and Technology Directorate of the US Department of Homeland Security has
certain rights in the technology developed by SDS, pursuant to a Cooperative
Agreement between SDS and the STD dated September 29, 2006.  The
Cooperative Agreement relates to a $260,000 grant provided to SDS by the STD on
June 7, 2005 pursuant to a proposal entitled Automated Internal Threat
Detection.  In the agreement, SDS granted (i) a royalty free,
nonexclusive, irrevocable license to the US Government to use and authorize
other to use scientific, technical or other works based on or containing data
first produced under the grant, and (ii) an irrevocable, non-exclusive, paid-up
license to the US government to use registered patents development with grant
funds for or on behalf of the US government.
 
 Employees
 
 On April
12, 2010 the Registrant had 7 full time employees
 
 Item 1A.Risk Factors.
 
 Smaller
reporting companies are not required to provide the information called for by
this Item 1A.
 
 Item 2.Description of
Property.
 
 SDS
maintains its executive offices at 25 Bazel Street, Petach Tikva, Israel, where
it leases approximately 150 square meters of office space at a monthly rent of
approximately $8,500. The lease expires in August 2011 and the Company has an
option to renew the lease for an additional 3 years.
 
 Item 3.Legal
Proceedings.
 
 There are
no pending legal proceedings to which the Registrant or SDS are parties or
in which any director, officer or affiliate of the Registrant or SDS or any
owner of record or beneficially of more than 5% of any class of voting
securities of the Registrant or SDS is a party adverse to the Registrant or SDS
or has an  interest adverse to the Registrant or SDS. The property of
the Registrant and SDS is not the subject of any pending legal
proceedings.
 
 Item 4.Removed and
Reserved
 
 PART
II
 
 Item 5.Market for Common Equity, Related
Stockholder Matters and Issuer Purchases of EquitySecurities.
 
 Although
our common stock has been eligible to be traded on the Over-The-Counter Bulletin
Board since June 6, 2007, there have been only limited and sporadic quotations
and there is no established trading market for our common stock.
 
 As of
March 6, 2009, the ticker symbol was changed to SDSS as a result of the name
change of the company.
 
 As of
April 12, 2010, there were approximately 105 holders of record of our
common stock.
 
 We have
never declared or paid any cash dividends on our common stock nor do we
anticipate paying any in the foreseeable future. Furthermore, we expect to
retain any future earnings to finance our operations and expansion. The payment
of cash dividends in the future will be at the discretion of our Board of
Directors and will depend upon our earnings levels, capital requirements, any
restrictive loan covenants, and other factors the Board considers
relevant.
   -5-
 
 Securities
Authorized for Issuance under Equity Compensation Plans
 
 On
January 1, 2009, the Registrant executed consulting agreements with Amir Uziel
and Lavi Krasney providing, among other things, for the issuance of 12,500
shares of the Registrant’s common stock to each of Messrs. Uziel and Krasney on
the last business day of each month for a period of three years, in addition to
$3,000 per month each in cash consideration.
 
 Mr. Krill
was also granted 1,500,000 options of common stock of the Registrant,
exercisable at $0.15 per share, from the stock option plan adopted by the
Registrant. 250,000 options vested simultaneously with the execution and
delivery of the Consulting Agreement, and the balance shall vest at the rate of
104,166 options each calendar quarter for the next three years, commencing on
March 31, 2010. The options shall terminate forty-eight (48) months from the
date of vesting.
 
 On
January 13, 2010, The Registrant granted Gil, Boosidan $10,000 in shares of its
commons stock, the number to be determined by the market value of the shares of
the date of issuance.
 
 Item 6.Selected Financial
Data
 
 Smaller
reporting companies are not required to provide the information called for by
this Item 6.
 
 Item 7.Management’s Discussion and Analysis
or Plan Operation
 
 The
following discussion of our plan of operation should be read in conjunction with
the financial statements and related notes that appear elsewhere in this
prospectus. This discussion contains forward-looking statements that involve
risks and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of various
factors.  All forward-looking statements speak only as of the date on
which they are made. We undertake no obligation to update such statements to
reflect events that occur or circumstances that exist after the date on which
they are made.
 
 Plan
of Operation
 
 As a
result of the acquisition of 51% of Suspect Detection Systems Inc Ltd. in the
beginning of the first quarter of 2009, within the next 12 months we plan to
pursue the development and marketing of SDS’s products.
 
 We are not aware of any material trend,
event, or capital commitment, which would potentially adversely affect
liquidity. In the event such a trend develops, we believe that we will have
sufficient funds available to satisfy working capital needs through lines of
credit and the funds expected from equity sales.
 
 Results
of Operations
 
 As of
December 31, 2009, and 2008, the Company had $701,931 and $179,565 in cash,
respectively. We believe that such funds will be sufficient to fund our
operating expenses for the next six months. We will seek additional
capital for the purpose of financing, developing and marketing SDS’s
products.
   -6-
  Revenues
 
 The
Company is in its development stage and generated revenue of $888,635 during the
fiscal year ended December 31, 2009. The Company did not generate revenues
during the year ended December 31, 2008.
  Total
operating expenses
  During
fiscal year ended December 31, 2009, total operating expenses were $2,154,909,
which included research and development expenses in the amount of $396,049 and
selling, general and administrative expenses in the amount of
$1,758,860.  During the fiscal year December 31, 2008, the total
operating expenses were $258,615, general and administrative expenses were
primarily selling, general and administrative. General Expenses include fees for
consulting, legal and professional accounting associated with fulfilling the
Company’s SEC reporting requirements. As of December 31, 2009, the Company had
an accumulated deficit of approximately $1,433,495 (2008-$340,511)
  Net
loss
  During
the fiscal years ended December 31, 2009, and 2008, the net loss was $1,092,984
and $251,267, respectively.
  Liquidity
and Capital Resources
  We
estimate that we will require approximately $1 million for the next 12
months of operations.  We do not have sufficient resources to
effectuate our current business. As of December 31, 2009, we had $701,931available in cash. We
expect to incur a minimum of $2,154,909,in expenses during
the next 12 months of operations, including the following expenses: $396,049in research and
development costs; 1,758,860in selling, general and administrative expenses such as corporate, legal
and accounting services, office overhead, and general working
capital.
  Accordingly,
we will have to raise the funds to pay for these expenses. We may have to borrow
money from shareholders, issue debt or equity or enter into a strategic
arrangement with a third party. There can be no assurance that additional
capital will be available to us. We currently have no agreements, arrangements,
or understandings with any person to obtain funds through bank loans, lines of
credit, or any other sources. Since we have no such arrangements or plans
currently in effect, our inability to raise funds for the development and
marketing of SDS’s products will have a severe negative impact on our ability to
remain a viable company.
  Going
Concern Consideration
  The
Company’s current activities include sales of its products, marketing, capital
formation, research and development, and building infrastructure.  The
Company incurred a loss of approximately $1,092,984 for the year ended December
31, 2009 and, as of December 31, 2009, the Company had an accumulated deficit of
approximately $1,433,495.  The Company’s ability to continue as a
going concern is uncertain.  The revised business plan of the Company
is the application of proprietary technologies for law enforcement and border
control, including counter terrorism efforts, immigration control and drug
enforcement, as well as human resource management, asset management and the
transportation sector.
  While
management of the Company believes that the Company will be successful in its
current and planned operating activities, there can be no assurance that the
Company will be successful in the achievement of sales of its products that will
generate sufficient revenues to earn a profit and sustain the operations of the
Company.  The Company also intends to conduct additional capital
formation activities through the issuance of its common stock and loans from
related parties.
   -7-
  The
accompanying consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America,
which contemplate continuation of the Company as a going concern.  The
Company has not established sufficient sources of revenues to cover its
operating costs and expenses.  As such, it has incurred an operating
loss since inception.  Further, as of December 31, 2009, and 2008, the
cash resources of the Company were insufficient to meet its planned business
objectives.  These and other factors raise substantial doubt about the
Company’s ability to continue as a going concern.  The accompanying
consolidated financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the possible
inability of the Company to continue as a going concern.
 
 Off-Balance Sheet
Arrangements
 
 None.
   -8-
  Item 8.Financial Statements and
Supplementary Data
  
 SUSPECT
DETECTION SYSTEMS INC. AND SUBSIDIARY
 INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS
 DECEMBER 31 2009, AND 2008
 
 
 Report
      of Registered Independent Auditors
                  F-2Consolidated
      Financial Statements-Consolidated
      Balance Sheets as of December 31, 2009, and 2008
                  F-3Consolidated
      Statements of Operations for the Years Ended  December 31, 2009,
      and 2008
                  F-4Consolidated
      Statements of Stockholders’ Equity for the Years Ended  December
      31, 2009, and 2008
                  F-5Consolidated
      Statements of Cash Flows for Years Ended December 31, 2009,  and
      2008
                  F-6Notes to
      Consolidated Financial Statements December 31, 2009, and
    2008
                  F-8
  
 F-1
 
  REPORT
OF REGISTERED INDEPENDENT AUDITORS
 
 
 
 To the
Board of Directors and Stockholders of
 Suspect
Detection Systems Inc. and subsidiary:
 
 We have
audited the accompanying consolidated balance sheets of Suspect Detection
Systems Inc. and subsidiary (a Delaware corporation) as of December 31, 2009,
and 2008, and the related consolidated statements of operations, stockholders’
equity, and cash flows for each of the two years in the period ended December
31, 2009.  These consolidated financial statements are the
responsibility of the Company’s management.  Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States of America).  Those
standards require that we plan and perform the audits to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement.  The Company is not required to have, nor were
we engaged to perform, an audit of its internal control over financial
reporting.  Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting.  Accordingly, we express no such opinion.  An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements.  An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall consolidated financial
statement presentation.  We believe that our audits provide a
reasonable basis for our opinion.
  In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Suspect
Detection Systems Inc. and subsidiary as of December 31, 2009, and 2008, and the
consolidated results of its operations and its cash flows for each of the two
years in the period ended December 31, 2009, in conformity with accounting
principles generally accepted in the United States of America.
  The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has not established sufficient
sources of revenue to cover its operating costs and expenses. As such, it has
incurred an operating loss since inception. Further, as of December 31, 2009,
and 2008, the cash resources of the Company were insufficient to meet its
planned business objectives. These and other factors raise substantial doubt
about the Company’s ability to continue as a going concern. Management’s plan
regarding these matters is also described in Note 2 to the consolidated
financial statements. The accompanying consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
 
 Respectfully
submitted,
 
 /s/ Davis
Accounting Group P.C.
 
 Cedar
City, Utah,
 March 26,
2010.
    F-2
   SUSPECT
      DETECTION SYSTEMS INC. AND SUBSIDIARYCONSOLIDATED
      BALANCE SHEETS (NOTE 2)AS
      OF DECEMBER 31, 2009, AND 2008ASSETS2009
                  
                  
                  2008Current
      Assets:Cash
      and cash equivalents
                  
                  $
                  701,931
                  
                  
                  $
                  179,565Restricted
      cash
                  
                  
                  15,827
                  
                  
                  
                  -Due
      from related party - SDS - Israel
                  
                  
                  -
                  
                  
                  
                  28,000Inventory
                  
                  
                  55,281
                  
                  
                  
                  -Prepaid
      expenses
                  
                  
                  60,343
                  
                  
                  
                  143,392Total
      current assets
                  
                  
                  833,382
                  
                  
                  
                  350,957Property
      and Equipment:Property
      and Equipment
                  
                  
                  30,034
                  
                  
                  
                  -Less
      - Accumulated depreciation
                  
                  
                  (17,534
                  )
                  
                  
                  -Property
      and equipment, net
                  
                  
                  12,500
                  
                  
                  
                  -Other
      Assets:Deferred
      acquisition costs
                  
                  
                  -
                  
                  
                  
                  1,135,000Severance
      pay fund
                  
                  
                  45,563
                  
                  
                  
                  -Prepaid
      expenses, non-current
                  
                  
                  10,578
                  
                  
                  
                  -Goodwill
                  
                  
                  1,325,654
                  
                  
                  
                  -Total
      other assets
                  
                  
                  1,381,795
                  
                  
                  
                  1,135,000Total
      Assets
                  
                  $
                  2,227,677
                  
                  
                  $
                  1,485,957LIABILITIES AND STOCKHOLDERS'
      EQUITYCurrent
      Liabilities:Accounts
      payable - Trade
                  
                  $
                  9,175
                  
                  
                  $
                  807Accrued
      liabilities
                  
                  
                  161,161
                  
                  
                  
                  20,802Advances
      from customers
                  
                  
                  919,400
                  
                  
                  
                  -Deferred
      revenues
                  
                  
                  55,631
                  
                  
                  
                  -Due
      to Director and stockholder
                  
                  
                  99,541
                  
                  
                  
                  288Total
      current liabilities
                  
                  
                  1,244,908
                  
                  
                  
                  21,897Long-term
      Debt:Accrued
      severance pay
                  
                  
                  84,315
                  
                  
                  
                  -Total
      liabilities
                  
                  
                  1,329,223
                  
                  
                  
                  21,897Commitments
      and ContingenciesStockholders'
      Equity:Common
      stock, par value $0.0001 per share, 250,000,000 sharesauthorized;
      71,822,893 and 72,689,668 shares issued andoutstanding
      in 2009 and 2008, respectively
                  
                  
                  7,182
                  
                  
                  
                  7,269Additional
      paid-in capital
                  
                  
                  2,717,373
                  
                  
                  
                  1,797,302Common
      stock subscribed
                  
                  
                  25,000
                  
                  
                  
                  -Accumulated
      (deficit)
                  
                  
                  (1,433,495
                  )
                  
                  
                  (340,511
                  )Total
      Stockholders' Equity
                  
                  
                  1,316,060
                  
                  
                  
                  1,464,060Less
      - Noncontrolling Interest
                  
                  
                  (417,606
                  )
                  
                  
                  -Total
      stockholders' equity, Net
                  
                  
                  898,454
                  
                  
                  
                  1,464,060Total
      Liabilities and Stockholders' Equity
                  
                  $
                  2,227,677
                  
                  
                  $
                  1,485,957
  The accompanying notes to
consolidated financial statements are
 an
integral part of these consolidated balance sheets.
  
 F-3
 
  SUSPECT DETECTION SYSTEMS INC.
      AND SUBSIDIARYCONSOLIDATED
      STATEMENTS OF OPERATIONS (NOTE 2)FOR
      THE YEARS ENDED DECEMBER 31, 2009, AND 2008Years
      EndedDecember
      31,2009
                    
                    
                    2008Revenues,
      net
                    
                    $
                    888,635
                    
                    
                    $
                    -Cost
      of Goods Sold
                    
                    
                    141,215
                    
                    
                    
                    -Gross
      Profit
                    
                    
                    747,420
                    
                    
                    
                    -Expenses:Research
      and Development
                    
                    
                    396,049
                    
                    
                    
                    -Selling,
      general and administrative
                    
                    
                    1,758,860
                    
                    
                    
                    258,615Total
      operating expenses
                    
                    
                    2,154,909
                    
                    
                    
                    258,615(Loss)
      from Operations
                    
                    
                    (1,407,489
                    )
                    
                    
                    (258,615
                    )Other
      Income (Expense):Interest
      income
                    
                    
                    213
                    
                    
                    
                    7,348Interest
      (expense)
                    
                    
                    (12,093
                    )
                    
                    
                    -Total
      other income (expense)
                    
                    
                    (11,880
                    )
                    
                    
                    7,348Provision
      for Income Taxes
                    
                    
                    -
                    
                    
                    
                    -Net
      (Loss) Before Noncontrolling Interest
                    
                    
                    (1,419,369
                    )
                    
                    
                    (251,267
                    )Less
      - (Loss) Attributable toNoncontrolling
      Interest
                    
                    
                    (326,385
                    )
                    
                    
                    -Net
      (Loss)
                    
                    $
                    (1,092,984
                    )
                    
                    $
                    (251,267
                    )(Loss)
      Per Common Share:(Loss)
      per common share - Basic and Diluted
                    
                    $
                    (0.02
                    )
                    
                    $
                    (0.00
                    )Weighted
      Average Number of Common SharesOutstanding
      - Basic and Diluted
                    
                    
                    68,531,107
                    
                    
                    
                    68,874,810
 The
accompanying notes to consolidated financial statements are
 an
integral part of these consolidated statements.
  
 F-4
 
  SUSPECT
      DETECTION SYSTEMS INC. AND SUBSIDIARYSTATEMENTS
      OF STOCKHOLDERS' EQUITY (NOTE 2)FOR
      THE YEARS ENDED DECEMBER 31, 2009, AND 2008Additional
                    
                    
                    CommonCommon
      stock
                    
                    
                    Paid-in
                    
                    
                    Stock
                    
                    
                    Accumulated
                    
                    
                    NoncontrollingDescription
                    
                    Shares
                    
                    
                    Amount
                    
                    
                    Capital
                    
                    
                    Subscriptions
                    
                    
                    (Deficit)
                    
                    
                    Interest
                    
                    
                    TotalBalance
      - December 31, 2007
                    
                    
                    61,500,000
                    
                    
                    $
                    6,150
                    
                    
                    $
                    119,801
                    
                    
                    $
                    378,250
                    
                    
                    $
                    (89,244
                    )
                    
                    $
                    -
                    
                    
                    $
                    414,957Payment
      for common stock subscription
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    15,000
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    15,000-Common
      stock subscribed - 5,568,337 shares
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    768,250
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    768,250-Common
      stock issued from subscribed shares
                    
                    
                    9,523,002
                    
                    
                    
                    952
                    
                    
                    
                    1,427,668
                    
                    
                    
                    (1,161,500
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    267,120-Common
      stock issued for services
                    
                    
                    1,666,666
                    
                    
                    
                    167
                    
                    
                    
                    249,833
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    250,000-Net
      (loss) for the period
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (251,267
                    )
                    
                    
                    -
                    
                    
                    
                    (251,267
                    )Balance
      - December 31, 2008
                    
                    
                    72,689,668
                    
                    
                    
                    7,269
                    
                    
                    
                    1,797,302
                    
                    
                    
                    -
                    
                    
                    
                    (340,511
                    )
                    
                    
                    -
                    
                    
                    
                    1,464,060Cancellation
      of common stock by Director and officer
                    
                    
                    (7,000,000
                    )
                    
                    
                    (700
                    )
                    
                    
                    700
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    --Common
      stock issued to Officer for services
                    
                    
                    170,000
                    
                    
                    
                    17
                    
                    
                    
                    25,483
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    25,500-Common
      stock issued for cash
                    
                    
                    2,013,334
                    
                    
                    
                    201
                    
                    
                    
                    301,799
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    302,000Common
      stock issued for increase in subsidiary investment
                    
                    
                    3,199,891
                    
                    
                    
                    320
                    
                    
                    
                    479,664
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    479,984-Common
      stock issued for services
                    
                    
                    750,000
                    
                    
                    
                    75
                    
                    
                    
                    112,425
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    112,500-Ownership
      increase adjustment
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    --Payment
      for common stock subscription
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    25,000
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    25,000-Net
      (loss) for the period
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (1,092,984
                    )
                    
                    
                    -
                    
                    
                    
                    (1,092,984
                    )-Net
      (loss) for the period - Noncontrolling interest
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (417,606
                    )
                    
                    
                    (417,606
                    )Balance
      -December 31, 2009
                    
                    
                    71,822,893
                    
                    
                    $
                    7,182
                    
                    
                    $
                    2,717,373
                    
                    
                    $
                    25,000
                    
                    
                    $
                    (1,433,495
                    )
                    
                    $
                    (417,606
                    )
                    
                    $
                    898,454
 
 The
accompanying notes to consolidated financial statements are
 an
integral part of these consolidated statements.
  
 F-5
 
  SUSPECT DETECTION SYSTEMS INC.
      AND SUBSIDIARYCONSOLIDATED
      STATEMENTS OF CASH FLOWS (NOTE 2)FOR
      THE YEARS ENDED DECEMBER 31, 2009, AND 2008Years
      EndedDecember
      31,2009
                    
                    
                    2008Operating
      Activities:Net
      (loss)
                    
                    $
                    (1,419,369
                    )
                    
                    $
                    (251,267
                    )Adjustments
      to reconcile net (loss) to net cash(used
      in) operating activities:Common
      stock issued for officers' compensation
                    
                    
                    25,500
                    
                    
                    
                    -Common
      stock issued for promotional services
                    
                    
                    -
                    
                    
                    
                    250,000Common
      stock issued for consulting services
                    
                    
                    112,500
                    
                    
                    
                    -Depreciation
                    
                    
                    17,534
                    
                    
                    
                    -Changes
      in Assets and Liabilities-Inventory
                    
                    
                    (55,281
                    )
                    
                    
                    -Prepaid
      expenses
                    
                    
                    72,471
                    
                    
                    
                    (143,392
                    )Security
      deposit
                    
                    
                    -
                    
                    
                    
                    500Accounts
      payable - Trade
                    
                    
                    8,368
                    
                    
                    
                    (6,593
                    )Accrued
      liabilities
                    
                    
                    224,674
                    
                    
                    
                    2,825Advances
      from customers
                    
                    
                    919,400
                    
                    
                    
                    -Deferred
      revenues
                    
                    
                    55,631
                    
                    
                    
                    -Net
      Cash (Used in) Operating Activities
                    
                    
                    (38,572
                    )
                    
                    
                    (147,927
                    )Investing
      Activities:Deposit
      from Severance fund
                    
                    
                    (45,563
                    )
                    
                    
                    -Purchases
      of Property and Equipment
                    
                    
                    (30,034
                    )
                    
                    
                    -Net
      Cash (Used in) Investing Activities
                    
                    
                    (75,597
                    )
                    
                    
                    -Financing
      Activities:Issuance
      of common stock for cash
                    
                    
                    302,000
                    
                    
                    
                    1,035,370Stock
      subscriptions paid
                    
                    
                    25,000
                    
                    
                    
                    15,000Deferred
      acquisition costs
                    
                    
                    -
                    
                    
                    
                    (1,059,500
                    )Cash
      advances applied in acquisition of subsidiary
                    
                    
                    198,109
                    
                    
                    
                    -Due
      from related party - SDS - Israel
                    
                    
                    28,000
                    
                    
                    
                    (28,000
                    )Due
      to Director and stockholder
                    
                    
                    99,253
                    
                    
                    
                    88Net
      Cash Provided by (Used in) Financing Activities
                    
                    
                    652,362
                    
                    
                    
                    (37,042
                    )Net
      Increase (Decrease) in Cash
                    
                    
                    538,193
                    
                    
                    
                    (184,969
                    )Cash
      and Cash Equivalents - Beginning of Period
                    
                    
                    179,565
                    
                    
                    
                    364,534Cash
      and Cash Equivalents - End of Period
                    
                    $
                    717,758
                    
                    
                    $
                    179,565Cash
      and Cash Equivalents - End of Period Consisting of:
                    
                    
                    -Cash
      in bank
                    
                    $
                    701,931
                    
                    
                    $
                    179,565Restricted
      cash
                    
                    
                    15,827
                    
                    
                    
                    -Total
                    
                    $
                    717,758
                    
                    
                    $
                    179,565Supplemental
      Disclosure of Cash Flow Information:Cash
      paid during the period for:Interest
                    
                    $
                    -
                    
                    
                    $
                    -Income
      taxes
                    
                    $
                    -
                    
                    
                    $
                    -
  The
accompanying notes to consolidated financial statements are
 an integral part of these consolidated
statements.
  F-6
   SUSPECT
      DETECTION SYSTEMS INC. AND SUBSIDIARYCONSOLIDATED
      STATEMENTS OF CASH FLOWS (NOTE 2)FOR
      THE YEARS ENDED DECEMBER 31, 2009, AND 2008On
      April 20, 2008, SDS Inc. issued 666,6666 (post forward stock split) shares
      of its common stock to a third-party for marketing and promotional
      services for one year.  The transaction was valued at
      $100,000.
                    
                    On
      October 1, 2008, SDS Inc. issued 1,000,000 (post forward stock split)
      shares of its common stock to a third-party for marketing and promotional
      services for one year.  The transaction was valued at
      $150,000.
                    
                    On
      January 16, 2009, SDS Inc. issured 120,000 (post forward stock split)
      shares to its Chief Financial Officer, Mr.Zwebner for services rendered.
      The transaction was valued at $18,000.
                    
                    On
      May 6, 2009, SDS Inc. issued 50,000 shares to its Secretary, Treasurer,
      and Director, Mr. Julius Klein, for services rendered. The transaction was
      valued at $7,500.
                    
                    On
      May 6, 2009, SDS Inc. issued 750,000 shares to a consulting company for
      services rendered. The transaction was valued at $112,500.
                    
                    On
      August 18, 2009, the Company acquired an additional seven (7) percent of
      the capital stockof
      SDS - Israel by issuing 3,199,891 shares of common stock at a per share
      value of $0.15.
                    
                    The
      total value of the transaction was $479,984, and was recorded as an equity
      investment transaction
      in the accompanying consolidated balance sheets.
  The
accompanying notes to consolidated financial statements are
 an integral part of these consolidated
statements.
  F-7
 
  SUSPECT
DECTECTION SYSTEMS INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009, AND 2008
 
 1)    Summary
of Significant Accounting Policies
 
 Basis of Presentation and
Organization
 
 Suspect
Detection Systems Inc. (“SDS Inc.” or the “Company”) is a Delaware corporation
that conducts its operations through its 58 percent owned subsidiary, Suspect
Detection Systems Ltd., an Israeli Corporation (“SDS - Israel”).  The
Company was incorporated under the laws of the State of Delaware on October 5,
2006, as PCMT Corporation.  On December 24, 2008, the Company’s
stockholders resolved to change its name from PCMT Corporation to Suspect
Detection Systems Inc.  On January 27, 2009, the Company filed an
amendment to its Certificate of Incorporation with the Secretary of State of
Delaware to reflect this change.  The Company was in the development
stage during the year ended December 31, 2008.  The revised business
plan of the Company is the application of proprietary technologies for law
enforcement and border control, including counter terrorism efforts, immigration
control and drug enforcement, as well as human resource management, asset
management and the transportation sector.  The accompanying
consolidated financial statements were prepared from the accounts of the Company
and its subsidiary under the accrual basis of accounting.
 
 Principles
of Consolidation
  The
consolidated financial statements include the accounts of the Company and its 58
percent-owned Israeli subsidiary, Suspect Detection Systems Ltd. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
  Cash and Cash
Equivalents
 
 For
purposes of reporting within the consolidated statements of cash flows, the
Company considers all cash on hand, cash accounts not subject to withdrawal
restrictions or penalties, and all highly liquid debt instruments purchased with
a maturity of three months or less to be cash and cash equivalents.
 
 Revenue
Recognition
 
 The
Company recognizes revenues when delivery of goods or completion of services has
occurred provided there is persuasive evidence of an agreement, acceptance has
been approved by its customers, the fee is fixed or determinable based on the
completion of stated terms and conditions, and collection of any related
receivable is probable.
  Loss per Common
Share
 
 Basic
loss per share is computed by dividing the net loss attributable to the common
stockholders by the weighted average number of shares of common stock
outstanding during the periods.  Diluted loss per share is computed
similar to basic loss per share except that the denominator is increased to
include the number of additional common shares that would have been outstanding
if the potential common shares had been issued and if the additional common
shares were dilutive.  There were no dilutive financial instruments
issued or outstanding for the years ended December 31, 2009, and
2008.
   F-8
 SUSPECT
DECTECTION SYSTEMS INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009, AND 2008
  Income
Taxes
 
 The
Company accounts for income taxes pursuant to FASB ASC 740, “Accounting for Income Taxes”
(“SFAS No. 109”).  Under FASB ASC 740-10-25, deferred tax assets and
liabilities are determined based on temporary differences between the bases of
certain assets and liabilities for income tax and financial reporting
purposes.  The deferred tax assets and liabilities are classified
according to the financial statement classification of the assets and
liabilities generating the differences.
 
 The
Company maintains a valuation allowance with respect to deferred tax
assets.  SDS Inc. establishes a valuation allowance based upon the
potential likelihood of realizing the deferred tax asset and taking into
consideration SDS Inc.’s financial position and results of operations for the
current period.  Future realization of the deferred tax benefit
depends on the existence of sufficient taxable income within the carryforward
period under the Federal tax laws.
 
 Changes
in circumstances, such as the Company generating taxable income, could cause a
change in judgment about the realizability of the related deferred tax
asset.  Any change in the valuation allowance will be included in
income in the year of the change in estimate.
 
 Fair Value of Financial
Instruments
 
 The
Company estimates the fair value of financial instruments using the available
market information and valuation methods.  Considerable judgment is
required in estimating fair value.  Accordingly, the estimates of fair
value may not be indicative of the amounts SDS Inc. could realize in a current
market exchange.  As of December 31, 2009, and 2008, the carry value
of financial instruments approximated fair value due to the short-term nature
and maturity of these instruments.
  Deferred
Acquisition Costs
 
 The
Company defers as other assets the direct incremental costs of acquiring a
company until such time as the acquisition is completed.  At the time
of the completion of the acquisition, the costs are charged against the goodwill
of the acquired company.  Should the acquisition be terminated,
deferred acquisition costs are charged to operations during the period in which
the agreement is terminated.  As of December 31, 2009, and 2008, the
Company had $0 and $1,135,000, respectively, of deferred acquisition costs, and
recognized $1,033,964 of goodwill from the Company’s business acquisition
transaction.
  Concentration
of Risk
 
 As of
December 31, 2009, and 2008, the Company maintained its cash account at two
commercial banks.  The balances in the accounts are subject to FDIC
coverage of up to $250,000 per institution.
   F-9
  SUSPECT
DECTECTION SYSTEMS INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009, AND 2008
 Common Stock Registration
Expenses
 
 The
Company considers incremental costs and expenses related to the registration of
equity securities with the SEC, whether by contractual arrangement as of a
certain date or by demand, to be unrelated to original issuance
transactions.  As such, subsequent registration costs and expenses are
reflected in the accompanying financial statements as general and administrative
expenses, and are expensed as incurred.
 
 Lease
Obligations
 
 All
noncancellable leases with an initial term greater than one year are categorized
as either capital or operating leases.  Assets recorded under capital
leases are amortized according to the methods employed for property and
equipment or over the term of the related lease, if shorter.
  Goodwill
 
 The
Company accounts for Goodwill in accordance with the FASB ASC Topic 350,
“Intangible-Goodwill and Other”.  The Company evaluates Goodwill, at a
minimum, on an annual basis and whenever events and changes in circumstances
suggest that the carrying amount may not be recoverable.  Impairment
of Goodwill is tested at the reporting unit level by comparing the reporting
unit’s carrying amount, including Goodwill, to the fair value of the reporting
unit.  The fair values of the reporting units are estimated using
discounted projected cash flows.  If the carrying amount of the
reporting unit exceeds its fair value, Goodwill is considered impaired and a
second step is performed to measure the amount of impairment loss, if
any.  The Company conducts our annual impairment test as of December
31 of each year, and determines if there is any impairment.  The
amount of goodwill was $1,325,654 as of December 31, 2009, and there was no
impairment of Goodwill as of that date.
 
 Estimates
 
 The
accompanying consolidated financial statements are prepared on the basis of
accounting principles generally accepted in the United States of
America.  The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of consolidated
assets and liabilities as of December 31, 2009, and 2008, and consolidated
revenues and expenses for the years ended December 31, 2009, and
2008.  Actual results could differ from those estimates made by
management.
  (2)   Going
Concern
 
 The
Company’s current activities include sales of its products, marketing, capital
formation, research and development, and building infrastructure.  The
Company incurred a loss of approximately $1,092,984 for the year ended December
31, 2009 (2008-$251,267) and, as of December 31, 2009, the Company had an
accumulated deficit of approximately $1,433,495 (2008-$340,511).  The
Company’s ability to continue as a going concern is uncertain.  The
revised business plan of the Company is the application of proprietary
technologies for law enforcement and border control, including counter terrorism
efforts, immigration control and drug enforcement, as well as human resource
management, asset management and the transportation sector.
   F-10
 SUSPECT
DECTECTION SYSTEMS INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009, AND 2008
   While
management of the Company believes that the Company will be successful in its
current and planned operating activities, there can be no assurance that the
Company will be successful in the achievement of sales of its products that will
generate sufficient revenues to earn a profit and sustain the operations of the
Company.  The Company also intends to conduct additional capital
formation activities through the issuance of its common stock and loans from
related parties.
 
 The
accompanying consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America,
which contemplate continuation of the Company as a going concern.  The
Company has not established sufficient sources of revenues to cover its
operating costs and expenses.  As such, it has incurred an operating
loss since inception.  Further, as of December 31, 2009, and 2008, the
cash resources of the Company were insufficient to meet its planned business
objectives.  These and other factors raise substantial doubt about the
Company’s ability to continue as a going concern.  The accompanying
consolidated financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the possible
inability of the Company to continue as a going concern.
 
 (3)  Appointment
of Officers
 
 On
October 18, 2007, SDS Inc. appointed Mr. Asher Zwebner as Chief Financial
Officer (“CFO”).  On October 23, 2007, an employment agreement was
entered into with the CFO.  This agreement provides that the CFO will
receive a base salary of $3,000 per quarter and $5,000 per annual
audit.  This office will be held by the individual until the next
annual general meeting of the stockholders of SDS Inc. or until a successor is
elected or appointed.
 
 On
January 23, 2008, the Company appointed Mr. Constantin Stukalin as
Treasurer.  This office will be held by the individual until the next
annual general meeting of the stockholders of SDS Inc. or until a successor is
elected or appointed.
 
 On April
30, 2008, Mr. Yosef Nachum Bernstein resigned as the Company’s Secretary and
tendered his resignation as a Director, effective May 31, 2008.
 
 Mr.
Nachman Shlomo Kohen also resigned as a Director of SDS Inc. and tendered his
resignation as the Company’s President, effective May 5, 2008.
 
 On the
same date, Mr. Asher Zwebner was appointed as the Company’s interim Chief
Executive Officer, and was elected as a Director of SDS Inc.
 
 
 F-11
 
 SUSPECT
DECTECTION SYSTEMS INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009, AND 2008
 (4)   Common
Stock
 
 On April
20, 2008, SDS Inc. entered into a written agreement with an unrelated
third-party consulting company to provide advisory services for corporate
development, acquisitions, and management assistance for one year.  As
payment for the consultant’s services, the Company issued 666,666 shares (post
forward stock split) of its unregistered common stock on said date valued at
$100,000.
 
 On
October 1, 2008, SDS Inc. entered into a written agreement with an unrelated
third-party consultant to provide advisory services for corporate development,
acquisitions, and management assistance for one year.  As payment for
the consultant’s services, the Company issued 1,000,000 shares (post forward
stock split) of its unregistered common stock on said date valued at
$150,000.
 
 In
October 2008, SDS Inc. began a fourth capital formation activity through a
Private Placement Offering (“PPO #4”), exempt from registration under the
Securities Act of 1933, to raise up to $600,000 through the issuance of
Units.  Each Unit consists of a Promissory Note and shares of common
stock of the Company in the amount of 250,000 shares for each $100,000 of
principal amount of the Promissory Note.  As of December 31, 2009, the
Company had not subscribed any shares.
 
 On
January 16, 2009, the Company issued 120,000 shares of common stock at par
$0.0001, valued at $18,000, to an officer and Director for the services
provided.
 
 On
January 19, the former Secretary and Director of SDS Inc. returned 7,000,000
shares of SDS Inc.’s common stock, which shares were cancelled.
 
 In April
2009, SDS Inc. began a fifth capital formation activity through PPO #5, exempt
from registration under the Securities Act of 1933, to raise up to $2,500,000
through the issuance of 16,666,666 Units.  Each Unit consists of one
share of common stock of the Company, and one warrant with the exercise price at
$0.25 per share, which expired one year from the date of subscription, and one
warrant with the exercise price at $0.375 per share, which will be expired three
years from the date of subscription.  As of December 31, 2009, the
Company had issued 1,933,334 shares of common stock subscribed for proceeds of
$290,000.
 
 On May 6,
2009, SDS Inc. issued 50,000 shares to its Secretary, Treasurer, and Director,
Mr. Julius Klein, for services rendered.  The transaction was valued
at $7,500.
 
 On May 6,
2009, SDS Inc. issued 750,000 shares to a consulting company for services
rendered.  The transaction was valued at $112,500.
 
 In July
2009, SDS Inc. began a sixth capital formation activity through PPO #6, exempt
from registration under the Securities Act of 1933, to raise up to $1,500,000
through the issuance of 10,000,000 Units.  Each Unit consists of one
share of common stock of the Company, and one warrant with the exercise price at
$0.25 per share, which expired one year from the date of subscription, and one
warrant with the exercise price at $0.375 per share, which will be expired three
years from the date of subscription.  As of December 31, 2009, the
Company had issued 80,000 shares of common stock subscribed for proceeds of
$12,000.
  F-12
  SUSPECT
DECTECTION SYSTEMS INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009, AND 2008
 On August
18, 2009, the Company issued 3,199,891 shares of common stock to NG-The Northern
Group LP ("NG"), a stockholder of SDS- Israel, in accordance with the terms of
the Exchange Agreement, entered between the Company and NG on July 9, 2009, to
exchange 170,295 shares of SDS-Israel common stock that NG held.  As
result of this transaction, the Company acquired additional 7 percent of
ownership interest in SDS- Israel.  The equity transaction was valued
at $479,984.
 
 (5)   Income
Taxes
 
 The
provision (benefit) for income taxes for the years ended December 31, 2009, and
2008 were as follows (assuming a 23 percent effective tax rate):
 Year
      EndedDecember
      31,2009
                    
                    
                    2008Current
      Tax Provision:Federal-Taxable
      income
                    
                    $
                    -
                    
                    
                    $
                    -Total
      current tax provision
                    
                    $
                    -
                    
                    
                    $
                    -Deferred
      Tax Provision:Federal-Loss
      carryforwards
                    
                    $
                    251,386
                    
                    
                    $
                    57,791Change
      in valuation allowance
                    
                    
                    (251,386
                    )
                    
                    
                    (57,791
                    )Total
      deferred tax provision
                    
                    $
                    -
                    
                    
                    $
                    -
  SDS Inc.
had deferred income tax assets as of December 31, 2009, and 2008, as
follows:
 As
      of
                    
                    
                    As
      ofSeptember 30,
                    
                    
                    December
      31,2009
                    
                    
                    
                    2008Loss
      carryforwards
                    
                    $
                    329,704
                    
                    
                    $
                    78,318Less
      - Valuation allowance
                    
                    
                    (329,704
                    )
                    
                    
                    (78,318
                    )Total
      net deferred tax assets
                    
                    $
                    -
                    
                    
                    $
                    -
  The
Company provided a valuation allowance equal to the deferred income tax assets
for the years ended December 31, 2009, and 2008, because it is not presently
known whether future taxable income will be sufficient to utilize the loss
carryforwards.
   F-13
  SUSPECT
DECTECTION SYSTEMS INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009, AND 2008
 As of
December 31, 2009, and 2008, the Company had approximately $1,092,984 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.
 
 (6)   Related
Party Transactions
 
 As of
December 31, 2008, SDS Inc. owed $288 to an individual who is a former Director,
President, and Treasurer of SDS Inc., and a current stockholder.  The
loan was provided for working capital purposes, and is unsecured, non-interest
bearing, and has no terms for repayment
 
 Effective
October 5, 2006, SDS Inc. entered into a verbal agreement with an individual who
is a former Director, President, and Treasurer of SDS Inc., and current
stockholder of the Company, to lease 250 square feet of office space for
operations in Jerusalem, Israel.  The monthly lease rental amount is
$300, and the term of the lease arrangement is month-to-month.  At the
end of the March, 2009, the Company terminated the verbal agreement regarding
the lease of office space.  As of December 31, 2009, and 2008, SDS
Inc. had accrued $8,952 and $8,052, respectively, in office rent expense related
to the lease.
 
 On
October 23, 2007, SDS Inc. entered into an employment agreement with its
CFO.  This agreement provides that the CFO will receive a base salary
of $3,000 per quarter and $5,000 per annual audit.  This agreement is
effective until the next annual general meeting of the stockholders of the
Company or until his successor is elected or appointed.  During the
years ended December 31, 2009, and 2008, SDS Inc. recognized $14,000 and
$20,200, respectively in officer’s compensation expense.
 
 As
described in Note 4, on January 16, 2009, the Company issued 120,000 shares of
common stock at par $0.0001, valued at $18,000, to an officer and Director for
the services provided.
 
 As
described in Note 4, on May 6, 2009, SDS Inc. issued 50,000 shares to its
Secretary, Treasurer, and Director, Mr. Julius Klein for services
rendered.  The transaction was valued at $7,500.
 
 As of
December 31, 2009, the Company owed $99,541 to the Directors of SDS –
Israel.  The loan was provided for working capital purposes, and is
unsecured, non-interest bearing, and has no terms for repayment.
 
 (8)   Commitments
 
 As
discussed in Note 7, the Company entered into a verbal agreement for the lease
of office space on a month-to-month basis with an individual who is a former
Director and officer of the Company and a current stockholder.  The
monthly lease amount is $300.  On April 1, 2009, the Company
terminated the office lease verbal agreement.
 
 As
discussed in Note 4, on October 18, 2007, SDS Inc. appointed Mr. Asher Zwebner
as CFO.  On October 23, 2007, an employment agreement was entered into
with the CFO.  This agreement provides that the CFO will receive a
base salary of $3,000 per calendar quarter and $5,000 per annual
audit.  The employment agreement is effective until the next annual
general meeting of the stockholders of the Company or until his successor is
elected or appointed.
   F-14
 SUSPECT
DECTECTION SYSTEMS INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009, AND 2008
  As
discussed in Note 5, on December 5, 2007, the Company entered into a written
commitment with a third-party attorney to provide legal services and assistance
with required SEC filings.  Legal services under the arrangement
principally commenced during the period ended December 31, 2007.  The
attorney will receive $3,000 per month and miscellaneous reimbursement of
expenses incurred on SDS Inc.’s behalf.
 
 On March
15, 2008, SDS Inc. entered into a written commitment with a third-party
consultant to provide marketing and promotional assistance for up to 50 hours
per month, beginning April 2008.  In return for these services, the
consultant will receive a monthly service fee of $7,000, a stock option for
purchasing 100,000 shares of common stock at $0.15 per share, and an annual
performance-based bonus at the discretion of SDS Inc.  In May 2008,
this agreement was placed on hold.  As of December 31, 2008, the
options were not issued and may not be issued in the future depending on the
resolution of the agreement.
 
 As
described in Note 5, on April 20, 2008, SDS Inc. entered into a written
agreement with an unrelated third-party consulting company to provide advisory
services for corporate development, acquisitions, and management assistance for
one year.  As payment for the consultant’s services, the Company
issued 666,666 shares (post forward stock split) of its unregistered common
stock on said date valued at $100,000.
 
 As
described in Note 5, on October 31, 2008, SDS Inc. entered into a written
agreement with an unrelated third-party consultant to provide advisory services
for corporate development, acquisitions, and management assistance for one
year.  As payment for the consultant’s services, the Company issued
1,000,000 shares (post forward stock split) of its unregistered common stock on
said date valued at $150,000.
 
 On
January 20, 2009, an employment agreement was entered into between SDS - Israel
and its Chief Executive Officer (CEO).  This agreement provides that
the CEO will receive a base salary of NIS 63,000 per month, plus monthly
contributions by SDS - Israel of an aggregate of 20.84 percent of the base
salary towards the cost of the CEO’s life insurance, pension savings, disability
insurance, severance compensation fund, and professional
education.  SDS Inc. has agreed to guarantee the performance by SDS -
Israel of all its obligations under the employment agreement.
 
 On April
1, 2009, the Company entered into a Consulting Agreement with L.A. Investments
Ltd. (the “Consultant”).  The Consultant agreed to render assistance
and advice to the Company relating to capitalization and financing of the
Company.  The Consulting Agreement is for a term of three years,
commencing on April 1, 2009.  In consideration for such services, the
Company agreed to compensate the Consultant in the amount of $6,500 quarterly,
commencing on April 1, 2009.
 
 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.
   F-15
  SUSPECT
DECTECTION SYSTEMS INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009, AND 2008
 (9)   Business
Combination
 
 On
October 18, 2007, SDS Inc. entered into a Letter Agreement with SDS -
Israel.  The Letter Agreement allowed the Company to conduct a due
diligence review of SDS - Israel and its technology for the purpose of entering
into a future business combination transaction on terms and conditions to be
negotiated.  As part of the Letter Agreement, SDS Inc. committed to
raise $1,500,000 and agreed to advance proceeds of $60,000 to SDS -
Israel.  As of December 31, 2007, SDS Inc. had paid SDS - Israel
$60,000.  In January 2008, SDS Inc. and SDS - Israel amended the
Letter Agreement such that the Company agreed to advance SDS - Israel an
additional $30,000 each month commencing January 2008 until the consummation or
termination of the Letter Agreement.  The amount of $60,000 previously
paid by SDS Inc. to SDS - Israel as well as each monthly payment of $30,000
served to reduce the $1,500,000 which SDS Inc. was committed to
raise.  In May 2008, SDS Inc. and SDS - Israel again amended the
Letter Agreement such that the Company agreed to advance SDS - Israel $80,000
each month commencing May 2008 until the consummation or termination of the
Letter Agreement.  In August 2008, SDS Inc. and SDS - Israel again
amended the Letter Agreement such that the Company agreed to advance SDS -
Israel $100,000 each month commencing August 2008 until the consummation or
termination of the Letter Agreement.  In December 2008, SDS Inc. and
SDS - Israel entered into an Investment Agreement and the Company agreed to
advance SDS - Israel an additional $280,000 and SDS - Israel issued to SDS Inc.
1,218,062 shares of SDS – Israel’s capital stock, par value NIS 0.01 per share,
which represented 51 percent of the issued and outstanding share capital of SDS
- Israel.  As of December 31, 2008, SDS Inc. had paid SDS - Israel a
cumulative total of $1,100,000.
 
 On
November 14, 2007, the Company entered into a Letter of Intent with SDS -
Israel, pursuant to which SDS Inc. intended to acquire all of the issued and
outstanding capital stock of SDS - Israel.  In consideration thereof,
SDS Inc. is to issue to the stockholders of SDS - Israel no less than 28,600,000
(post forward stock split) shares of SDS Inc.’s common stock, or such number of
shares of SDS Inc.’s common stock representing not less than 31 percent of SDS
Inc.’s issued and outstanding shares of common stock at the time of
closing.  The closing of the transaction was to take place after SDS
Inc. had raised a minimum of $500,000 from PPO #3.  SDS Inc. also
agreed to pay up to $20,000 in accounting fees to obtain Israel Tax Authority
approval of the transaction, and up to $15,000 in legal fees.  As of
December 31, 2008, SDS Inc. had paid $15,000 (2007 - $8,000) in legal fees, and
$20,000 (2007 - $8,000) in accounting fees in addition to the $1,100,000 (2007 -
$60,000) described above for a total $1,135,000 (2007 - $75,500).
 
 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.
  F-16
  SUSPECT
DECTECTION SYSTEMS INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009, AND 2008
 On
January 20, 2009, SDS Inc. and SDS - Israel completed the transactions under the
Exchange Agreement.  At closing, SDS - Israel issued 1,218,062
ordinary shares, par value NIS 0.01 per share, representing 51 percent of its
issued and outstanding share capital to SDS Inc., as consideration for $280,000
paid by SDS Inc. to SDS - Israel on December 22, 2008, and $820,000 previously
paid by SDS Inc. to SDS - Israel pursuant to the letter agreements dated October
18, 2007, November 14, 2007, January 10, 2008, May 18, 2008, and October 20,
2008.
 
 On
December 18, 2008 SDS Inc. and SDS –Israel entered into an Investment Agreement
(“Investment Agreement”).  The Investment Agreement provides for good
faith negotiations of a second agreement (the “Second Agreement”), following the
closing of the Investment Agreement, pursuant to which: (i) SDS Inc. will grant
options to the stockholders of SDS-Israel to exchange their SDS-Israel ordinary
shares into shares of the SDS Inc’s common stock; (ii) SDS Inc. will grant
options to the holders of options to purchase SDS Inc ordinary shares to
exchange such options into options to purchase shares of SDS Inc’s common stock;
(iii) SDS Inc. will grant additional options, to Mr. Shabtai Shoval and certain
SDS-Israel employees or consultants, to purchase new SDS ordinary shares; and
(iv) SDS Inc will grant rights to Mr. Shabtai Shoval and said SDS-Israel
employees or consultants to exchange all or any part of the additional SDS
options into options to purchase shares of SDS Inc’s common stock.
 
 In
accordance with the terms of the Investment Agreement, SDS Inc. entered into an
Exchange Agreement (the “Exchange Agreement”), dated July 9, 2009, with NG,
pursuant to which NG exchanged all of NG’s SDS- Israel ordinary shares of
170,295 for 3,199,891 shares of SDS Inc’s common stock.
 
 Also on
July 9, 2009, SDS Inc. also entered into a warrant agreement (the “Warrant
Agreement”) with NG, pursuant to which, SDS Inc. issued 2,250,000 stock purchase
warrants (the “Warrants”) to NG.  Each Warrant grants NG the right to
purchase one share of SDS Inc’s common stock, commencing on July 9, 2009, and
terminating on July 8, 2011, at an exercise price of $0.15 per Warrant
Share.  As a condition to the exchange for all the SDS- Israel
ordinary shares of 170,295 for 3,199,891 shares of SDS Inc’s common stock, NG
agreed not to sell any shares of SDS Inc’s common stock prior to the one year
anniversary of the agreement.  As of November 5, 2009, the Company has
not issue any warrants.
 
 On
December 24, 2008, SDS Inc.’s stockholders resolved to change its name from PCMT
Corporation to Suspect Detection Systems, Inc.  On January 27, 2009,
the Company filed with the Secretary of State of Delaware an amendment to its
Certificate of Incorporation to reflect this change.
   F-17
  SUSPECT
DECTECTION SYSTEMS INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009, AND 2008
 SDS -
Israel was incorporated under the Companies Law, 5759-1999, of the State of
Israel in 2004.  SDS – Israel specializes in the development and
application of proprietary technologies for law enforcement and border control,
including counter terrorism efforts, immigration control and drug enforcement,
as well as human resource management, asset management and the transportation
sector.  SDS – Israel completed the development of its “Cognito” line
of products in 2007, which are based on proprietary software and use
commercially available hardware to identify individuals that pose security
threats, whether or not they are carrying a weapon on their person or in their
belongings.  Cognito systems are comprised of a front-end test station
and a back office, where multiple-station and multiple-site data is stored,
managed and distributed.  The front-end test station serves as the
point of contact with the individual being examined.  The back-office
is designed to manage and control the test stations at a given site and it
stores all test histories and traveler profiles and interfaces with external
systems and databases.  A provisional patent application has been
issued for the Cognito line of products in the United States.  SDS –
Israel is also engaged in the development of behavior based screening
technologies for the checkpoint screening market.
 
 (10)  Recent
Accounting Pronouncements
 
 In March
2008, the FASB issued FASB Statement No. 161, (FASB ASC 815) “Disclosures about Derivative
Instruments and Hedging Activities – an amendment of FASB Statement
133”.  SFAS No. 161 (FASB ASC 815) enhances required
disclosures regarding derivatives and hedging activities, including enhanced
disclosures regarding how:  (a) an entity uses derivative instruments;
(b) derivative instruments and related hedged items are accounted for under FASB
No. 133, “Accounting for Derivative Instruments and Hedging Activities”; and (c)
derivative instruments and related hedged items affect an entity’s financial
position, financial performance, and cash flows.  Specifically, SFAS
No. 161 (FASB ASC 815) requires:
 
 ·
                disclosure
      of the objectives for using derivative instruments be disclosed in terms
      of underlying risk and accounting
designation;
 ·
                disclosure
      of the fair values of derivative instruments and their gains and losses in
      a tabular format;
 ·
                disclosure
      of information about credit-risk-related contingent
    features;
 ·
                and
      cross-reference from the derivative footnote to other footnotes in which
      derivative-related information is
disclosed.
 
 SFAS No.
161 (FASB ASC 815) is effective for fiscal years and interim periods beginning
after November 15, 2008.  Earlier application is
encouraged.  The management of Companydoes not expect the adoption of
this pronouncement to have a material impact on its financial
statements.
 
 On May 9,
2008, the FASB issued FASB Statement No. 162, (FASB ASC 105) “The Hierarchy of Generally Accepted
Accounting Principles”.  SFAS No. 162 (FASB ASC 105) is
intended to improve financial reporting by identifying a consistent framework,
or hierarchy, for selecting accounting principles to be used in preparing
financial statements that are presented in conformity with U.S. generally
accepted accounting principles (“GAAP”) for nongovernmental
entities.
   F-18
  SUSPECT
DECTECTION SYSTEMS INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009, AND 2008
 Prior to
the issuance of SFAS No. 162 (FASB ASC 105), GAAP hierarchy was defined in the
American Institute of Certified Public Accountants (“AICPA”) Statement on
Auditing Standards (“SAS”) No. 69, “The Meaning of Present Fairly in
Conformity with Generally Accept Accounting Principles.”  SAS
No. 69 has been criticized because it is directed to the auditor rather than the
entity.  SFAS No. 162 (FASB ASC 105) addresses these issues by
establishing that the GAAP hierarchy should be directed to entities because it
is the entity (not the auditor) that is responsible for selecting accounting
principles for financial statements that are presented in conformity with
GAAP.
 
 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.
 
 SFAS No.
162 (FASB ASC 105) is effective 60 days following the SEC’s approval of the
Public Company Accounting   Oversight Board amendment to its
authoritative literature.  It is only effective for nongovernmental
entities; therefore, the GAAP hierarchy will remain in SAS 69 for state and
local governmental entities and federal governmental entities.  The
management of Company does not expect the adoption of this pronouncement to have
a material impact on its financial statements.
 
 On May
26, 2008, the FASB issued FASB Statement No. 163, (FASB ASC 944)“Accounting for Financial Guarantee
Insurance Contracts”.  SFAS No. 163 (FASB ASC 944) clarifies
how FASB Statement No. 60, “Accounting and Reporting by
Insurance Enterprises” (“SFAS No. 60”), applies to financial guarantee
insurance contracts issued by insurance enterprises, including the recognition
and measurement of premium revenue and claim liabilities.  It also
requires expanded disclosures about financial guarantee insurance
contracts.
   F-19
  SUSPECT
DECTECTION SYSTEMS INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009, AND 2008
 The
accounting and disclosure requirements of SFAS No. 163 (FASB ASC 944) are
intended to improve the comparability and quality of information provided to
users of financial statements by creating consistency.  Diversity
exists in practice in accounting for financial guarantee insurance contracts by
insurance enterprises under SFAS No. 60, “Accounting and Reporting by
Insurance Enterprises.”  That diversity results in
inconsistencies in the recognition and measurement of claim liabilities because
of differing views about when a loss has been incurred under FASB Statement No.
5, “Accounting for
Contingencies” (“SFAS No. 5”).  SFAS No. 163 (FASB ASC 944)
requires that an insurance enterprise recognize a claim liability prior to an
event of default when there is evidence that credit deterioration has occurred
in an insured financial obligation.  It also requires disclosure about
(a) the risk-management activities used by an insurance enterprise to evaluate
credit deterioration in its insured financial obligations and (b) the insurance
enterprise’s surveillance or watch list.
 
 SFAS No.
163 (FASB ASC 944) is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and all interim periods within those fiscal
years, except for disclosures about the insurance enterprise’s risk-management
activities.  Disclosures about the insurance enterprise’s
risk-management activities are effective the first period beginning after
issuance of SFAS No. 163 (FASB ASC 944).  Except for those
disclosures, earlier application is not permitted.  The management of
Company does not expect the adoption of this pronouncement to have material
impact on its financial statements.
 
 On May
22, 2009, the FASB issued FASB Statement No. 164, (FASB ASC 958) “Not-for-Profit Entities: Mergers and
Acquisitions”.  SFAS No. 164 (FASB ASC 958) is intended to
improve the relevance, representational faithfulness, and comparability of the
information that a not-for-profit entity provides in its financial reports about
a combination with one or more other not-for-profit entities, businesses, or
nonprofit activities. To accomplish that, this Statement establishes principles
and requirements for how a not-for-profit entity:
 
 a.
                Determines
      whether a combination is a merger or an
  acquisition.
 b.
                Applies
      the carryover method in accounting for a
merger.
 c.
                Applies
      the acquisition method in accounting for an acquisition, including
      determining which of the combining entities is the
    acquirer.
 d.
                Determines
      what information to disclose to enable users of financial statements to
      evaluate the nature and financial effects of a merger or an
      acquisition.
 
 This
Statement also improves the information a not-for-profit entity provides about
goodwill and other intangible assets after an acquisition by amending FASB
Statement No. 142, Goodwill
and Other Intangible Assets, to make it fully applicable to
not-for-profit entities.
 
 SFAS No.
164 (FASB ASC 958) is effective for mergers occurring on or after December 15,
2009, and acquisitions for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December
15, 2009.  Early application is prohibited.  The management
of Company does not expect the adoption of this pronouncement to have material
impact on its financial statements.
   F-20
  SUSPECT
DECTECTION SYSTEMS INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009, AND 2008
 On May
28, 2009, the FASB issued FASB Statement No. 165, (FASB ASC 855) “Subsequent
Events”.  SFAS No.  165 (FASB ASC 855) establishes
general standards of accounting for and disclosure of events that occur after
the balance sheet date but before financial statements are issued or are
available to be issued. Specifically, Statement 165 (FASB ASC 855)
provides:
 
 1.
                The
      period after the balance sheet date during which management of a reporting
      entity should evaluate events or transactions that may occur for potential
      recognition or disclosure in the financial
  statements.
 2.
                The
      circumstances under which an entity should recognize events or
      transactions occurring after the balance sheet date in its financial
      statements.
 3.
                The
      disclosures that an entity should make about events or transactions that
      occurred after the balance sheet
date.
 
 In
accordance with this Statement, an entity should apply the requirements to
interim or annual financial periods ending after June 15, 2009.  The
adoption of this pronouncement did not have a material impact on the financial
statements of the Company.
 
 In June
2009, the FASB issued FASB Statement No. 166, (FASB ASC 860) “Accounting for Transfers of
Financial Assets- an amendment of FASB Statement No, 140”. SFAS No. 166
(FASB ASC 860) is a revision to SFAS No. 140 “Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities” and will
require more information about transfers of financial assets, including
securitization transactions, and where companies have continuing exposure to the
risks related to transferred financial assets.  It eliminates the
concept of a “qualifying special-purpose entity,” changes the requirements for
derecognizing financial assets, and requires additional
disclosures.
 
 This
statement is effective for financial asset transfers occurring after the
beginning of an entity's first fiscal year that begins after November 15,
2009.  The management of Company does not expect the adoption of this
pronouncement to have material impact on its financial statements.
 
 In June
2009, the FASB issued FASB Statement No. 167, (FASB ASC 810) "Amendments to FASB Interpretation
No. 46(R)". SFAS No. 167 (FASB ASC 810) amends certain requirements of
FASB Interpretation No. 46(R), “Consolidation of Variable Interest
Entities” and changes how a company determines when an entity that is
insufficiently capitalized or is not controlled through voting (or similar
rights) should be consolidated.  The determination of whether a
company is required to consolidate an entity is based on, among other things, an
entity’s purpose and design and a company’s ability to direct the activities of
the entity that most significantly impact the entity’s economic
performance.
  This
statement is effective as of the beginning of each reporting entity’s first
annual reporting period that begins after November 15, 2009.  The
management of Company does not expect the adoption of this pronouncement to have
material impact on its financial statements.
 
 In June
2009, the FASB issued FASB Statement No. 168, (FASB ASC 105) "The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles - a
replacement of FASB Statement No. 162".  SFAS No. 168 (FASB ASC
105) establishes the FASB Accounting Standards Codification (the "Codification")
to become the single official source of authoritative, nongovernmental U.S.
generally accepted accounting principles (“GAAP”).  The Codification
did not change GAAP but reorganizes the literature.
   F-21
 SUSPECT
DECTECTION SYSTEMS INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009, AND 2008
    SFAS No.
168 (FASB ASC 105) is effective for interim and annual periods ending after
September 15, 2009.  The adoption of this pronouncement did not have a
material impact on the financial statements of the Company.
 
 (11)  Subsequent
Events
 
 On
January 12, 2010, Asher Zwebner, the Chief Executive Officer and Chief Financial
Officer of the Registrant, resigned as the Chief Executive
Officer.  Mr. Zwebner remains as Chief Financial Officer and a
Director of the Company.
 
 On
January 13, 2010, the Company appointed Mr. Gil Boosidana as Chief Executive
Officer.
 
 On
January 13, 2010, the Company appointed Mr. Yoav Krill as Chairman of the Board
of Directors.
 
 F-22
 
 Item 9.Changes In and Disagreements With
Accountants on Accounting and Financial Disclosure
 
 None.
 
 Item
9A. Controls and Procedures
 
 Our Chief Executive Officer and Principal
Financial Officer, after evaluating the effectiveness of the Company’s
“disclosure controls and procedures” (as defined in the Securities Exchange Act
of 1934 (Exchange Act) Rules 13a-15(e) or 15d-15(e)) as of the end of the period
covered by this annual report, has concluded that our disclosure controls and
procedures are effective at a reasonable assurance level based on their
evaluation of these controls and procedures as required by paragraph (b) of
Exchange Act Rules 13a-15 or 15d-15.
 
 Management’s
Report on Internal Control Over Financial Reporting
 
 Management
of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting. As defined in Rules 13a-15(f) under the
Securities Exchange Act of 1934, internal control over financial reporting is a
process designed by, or under the supervision of, the Company’s principal
executive, principal accounting and principal financial officers, or
persons performing similar functions, and effected by the Company’s Board of
Directors, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with accounting
principles generally accepted in the United States of America.
 
 The
Company’s internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records, that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the
Company’s assets; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the Company are being made only in accordance with
authorizations of the Company’s management and directors; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Company’s assets that could have a
material effect on the financial statements.
 
 Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
 
 The
Company’s management, including the Company’s Chief Executive Officer and
Principal Financial Officer assessed the effectiveness of the Company’s internal
control over financial reporting as of December 31, 2009. In making this
assessment, management used the framework in “Internal Control - Integrated
Framework” promulgated by the Committee of Sponsoring Organizations of the
Treadway Commission, commonly referred to as the “COSO” criteria. Based on the
assessment performed, management believes that as of December 31, 2009, the
Company’s internal control over financial reporting was effective based upon the
COSO criteria. Additionally, based on management’s assessment, the Company
determined that there were no material weaknesses in its internal control over
financial reporting as of December 31, 2009.
 
 This
Annual Report does not include an attestation report of the Company’s
independent registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to attestation by the
Company’s registered public accounting firm pursuant to temporary rules of the
SEC that permit the Company to provide only management’s report in this annual
report.
 
 Changes in
Internal Controls
 
 During
the year ended December 31, 2009, there was no change in internal control over
financial reporting that has materially affected, or is reasonably likely to
materially affect our internal control over financial reporting.
 
 Item
9B. Other Information
 
 None.
 
 -9-
 PART
III
 
 Item 10.Directors, Executive Officers and
Corporate Governance
 
 Our
Directors and executive officers are:
 
 Name
              
              Age
              
              PositionGil
      Boosidan
              
              37
              
              Chief
      Executive OfficerAsher
      Zwebner
              
              46
              
              Chief
      Financial Officer and DirectorJulius
      Klein
              
              53
              
              Secretary
      and TreasurerYoav
      Krill
              
              68
              
              Director
 
 The
business address of our Directors and officers is c/o Suspect Detection Systems
Ltd., 25 Bazel Street, Petach Tikva, Israel.  Our Directors hold
office until the next annual meeting of shareholders or until their successor is
duly elected and qualified.  Our executive officers are appointed by
our Board of Directors and hold office until removed by the
Board.  Set forth below is a summary description of the principal
occupation and business experience, during the past five years, of our sole
director, who also serves as our interim chief executive officer and our chief
financial officer, and of the chief executive officer and the president of
SDS.
 
 During
the past five years none of our officers and Directors has been involved in any
legal proceedings that are material to an evaluation of their ability or
integrity as director or an executive officer of the Registrant, and none of
them have been affiliated with any company that been involved in bankruptcy
proceedings.
 
 Since
April 2007, Gil Boosidan invests and advises private equity transactions and
real estate transactions. From February 1997 until February 2007, Mr. Boosidan
served as Senior Vice President of IDT Corporation, as well as Treasurer of IDT
Investments, Inc., a subsidiary of IDT that managed a substantial portion of
IDT’s cash and investments. He served as a member of the Board of Directors
and chair of the audit committee of Global Energy Holdings Group, Inc., a public
company. Mr. Boosidan received an MBA from Tel Aviv University.
 
 Asher
Zwebner has served as our Chief Financial Officer since October 18, 2007 and,
since April 30, 2008 he has also served as our interim chief executive officer
and our sole Director.  Since July 17, 2008, Mr. Zwebner has served as
a director of PowerRaise Inc., a Nevada corporation that is engaged in the
development of Internet telephony applications.  Since January 1,
2007, Mr. Zwebner has served as the chief financial officer of SinoBiomed Inc.,
a Delaware corporation that is engaged in the Chinese biopharmaceutical
industry, and from November 2004 until October 2006 Mr. Zwebner served as a
director of SinoBiomed. Since May 2002 Mr. Zwebner has also served as the chief
financial officer of ForexManage Ltd., a private hi-tech developer of
Internet-based foreign exchange and risk management solutions based in Israel.
From 1995 through 2000 Mr. Zwebner was a senior manager at Kost Forer &
Gabbay (a member of Ernst and Young Global). Mr. Zwebner is a certified public
accountant in Israel and in the United States, and received a bachelor's degree
in accounting and finance from Touro College in 1988.
 
 Yoav
Krill has served in various chief executive positions over the past 25 years and
has been involved in the communications, technology and transportation
industries, where he managed global operations in the United States as well as
in Europe as well as in the emerging markets of Eastern Europe and Southeast
Asia. Since 2008, Mr. Krill has been consulting and promoting Israeli hi-tech
companies concentrating in the energy, electronics and security areas, including
consulting for anti-terror and security companies in the United States. From
2002 through 2008, he was the Senior Vice President Global Network for IDT Corp.
USA. In summer 1995 Mr. Krill graduated the special executive seminar for
Managing Global Opportunities at Harvard Business.
 
 There
are no agreements with respect to the election of our Directors. We have not
compensated our Directors for service on our Board of Directors or reimbursed
them for expenses incurred for attendance at meetings of our Board of Directors.
Officers are appointed annually by our Board of Directors and each officer
serves at the discretion of our Board of Directors. Our Board of Directors may
in the future determine to pay Directors’ fees and reimburse Directors for
expenses related to their activities.
   -10-
 
 Code
of Ethics
 
 We do not
currently have a Code of Ethics applicable to our principal executive, financial
and accounting officers because of the financial constraints.  The Board of
Directors intends to approve a code of ethics in 2010.
 
 Audit
Committee
 
 We do not
presently have a separately constituted audit committee or an audit committee
financial expert.  Our entire Board of Directors acts as our audit
committee.
 
 Item 11.Executive
Compensation
 
 To date,
none of our executive officers or directors have received or earned any
compensation or bonus for services rendered, with the exception of (i) the
compensation paid to our chief financial officer, Asher Zwebner, pursuant to his
employment agreement dated October 23, 2007, which is described in more detail
below, and (ii) 50,000 shares of Common Stock that were issued to our Secretary
and Treasurer, Julius Klein on May 6, 2009.  We do not maintain
key-man life insurance for any of our executive officers or
directors.
 
 SUMMARY
      COMPENSATION TABLEName
                and
                principal
                position
              Year
              Salary
              Bonus
              Stock
                Awards
              Option
                Awards
              Non-Equity
                Incentive
                Plan
                Compensation
              Nonqualified
                Deferred
                Compensation
                Earnings
              All
      Other
                Compensation
              TotalAsher
      Zwebner,
                Interim
      CEO and CFO
              2009
              $14,000
              0
              $18,000
              0
              0
              0
              0
              $32,0002008
              $20,200
              0
              0
              0
              0
              0
              0
              $20,2002007
              $3,000
              
              
              
              0
              0
              0
              $3,000Julius
      Klein
              2009
              $0
              $0
              $0
              $0
              $0
              $0
              $0
              $02008
              $0
              $0
              $7,500
              0
              0
              0
              0
              $7,5002007
              $0
              $0
              $0
              $0
              $0
              $0
              $0
              $0
 
 Option/SAR
Grants
 
 In 2009,
the Company established implemented a stock option plan pursuant to which it
will issue up to 25,000,000 shares of common stock to employees and consultants.
During the fiscal year ended December 31, 2010, the Company did not grant any
option under the plan. On January 13, 2010, Mr. Krill was also granted 1,500,000
options of common stock of the Registrant, exercisable at $0.15 per share, from
the stock option plan adopted by the Registrant. 250,000 options vested
simultaneously with the execution and delivery of the Consulting Agreement, and
the balance shall vest at the rate of 104,166 options each calendar quarter for
the next three years, commencing on March 31, 2010. The options shall terminate
forty-eight (48) months from the date of vesting.
 
  -11-
  Long-Term Incentive Plans
and Awards
 
 We do not
have any long-term incentive plans that provide compensation intended to serve
as incentive for performance. No individual grants or agreements regarding
future payouts under non-stock price-based plans have been made to any executive
officer or any Director or any employee or consultant since our inception;
accordingly, no future payouts under non-stock price-based plans or agreements
have been granted or entered into or exercised by any of the officers or
Directors or employees or consultants since we were founded.
 
 Employment Contracts,
Termination of Employment, Change-in-Control Arrangements
 
 We
executed an employment agreement with our chief financial officer, Asher
Zwebner, on October 23, 2007.  The agreement provides for payments of
$3,000 and $5,000, respectively, as compensation for each quarterly and annual
report filed by the Registrant with the Securities and Exchange Commission, as
well as unspecified additional compensation for additional work in connection
with special accounting or regulatory requirements and current reports on Form
8-K, and reimbursement of normal and reasonable expenses.  The
Registrant can terminate the agreement at any time for cause, or without cause
upon 30 days prior written notice.  Mr. Zwebner may terminate the
agreement without good reason (as defined therein) at any time, or with good
reason upon 30 days prior written notice.  The agreement includes
customary covenants regarding confidentiality and non-solicitation of the
Registrant’s business or employees for a period of one year following its
termination.
 
 SDS
executed an employment agreement with its chief executive officer, Shabtai
Shoval, on December 18, 2008.  The agreement provides for a base
monthly salary of 63,000 New Israeli Shekels, plus monthly contributions by SDS
of an aggregate of 20.84% of the base salary towards the cost of Mr. Shoval’s
life insurance, pension savings, disability insurance, severance compensation
fund and professional education (collectively, the “Benefits”).  In
addition, SDS will provide Mr. Shoval with an automobile, a cellular telephone
and reimbursement for reasonable expenses incurred in connection with his
duties.  The agreement may be terminated by either party at will, upon
365 days prior written notice.  If SDS terminates the agreement
without cause prior to the expiration of three years, in addition to
compensation during the 365 day notice period Mr. Shoval is entitled to a lump
sum cash payment in an amount (the “Package Value”) equal
to (x) the sum of the base monthly salary, SDS’s monthly contributions towards
the cost of the Benefits and SDS gross cost for the provision of an automobile
and cellular telephone, multiplied by (y) the number of months during the period
commencing 365 days after such termination and ending on the third anniversary
of the date of the agreement.  If Mr. Shoval terminates the agreement
without cause after the expiration of one year or if SDS terminates the
agreement without cause after the expiration of three years, Mr. Shoval is
entitled to a lump sum cash payment in an amount equal to six times the Package
Value.  The agreement includes customary covenants regarding
confidentiality and non-competition with the business of SDS for a period of one
year following its termination.  Pursuant to the Investment Agreement,
on January 20, 2009 the Registrant executed and delivered a guarantee of all of
SDS’s obligations to Mr. Shoval pursuant to this agreement.
   -12-
 
 On
January 13, 2010, the Company executed a Consulting Agreement with Yoav Krill
pursuant to which Mr. Krill will perform such duties as will be required of him
as the Chairman of the Board. In consideration of the services to be performed
under the Consulting Agreement, the Company agreed to compensate Mr. Krill with
an annual Director’s fee of $25,000 per annum for the first twelve (12) month
period and thereafter, the parties shall agree in writing, prior to November
30th of each calendar year as to the amount to be paid as director’s fees, but
such amount shall not be less than $25,000 and shall be increased,
proportionately, with any increase in the Registrant’s paid in capital, sales
revenues or net profits. Mr. Krill was also granted 1,500,000 options of common
stock of the Registrant, exercisable at $0.15 per share, from the stock option
plan adopted by the Registrant. 250,000 options vested simultaneously with the
execution and delivery of the Consulting Agreement, and the balance shall vest
at the rate of 104,166 options each calendar quarter for the next three years,
commencing on March 31, 2010. The options shall terminate forty-eight (48)
months from the date of vesting. The terms of the Consulting Agreement continue
until either party provides the other with no less than 90 days prior written
notice. The failure of the Registrant to maintain directors’ and officers’
liability insurance covering Mr. Krill shall be deemed a material breach of the
agreement and shall automatically terminate the Agreement.
 
 On
January 13, 2010, the Company Gil Boosidan as Chief Executive Officer of the
Registrant and executed an employment agreement with Mr. Boosidan as of January
14, 2010 (the “Employment Agreement”). In consideration of the services to be
performed under the Employment Agreement, Mr. Boosidan will receive an aggregate
of $30,000 - $20,000 in cash over four equal quarterly installments commencing
March 31, 2010, and $10,000 in shares of commons stock of the Registrant, the
number to be determined by the market value of the shares of the date of
issuance. The terms of the Employment Agreement shall be for one year, and the
Registrant has the right to terminate such agreement for cause in the event of a
material breach by Mr. Boosidan which is not cured after notice of such
breach.
 
 Our Board
of Directors does not have a formally constituted compensation. Our Board of
Directors, determines all matters concerning executive officer
compensation.
 
 Item 12.Security Ownership of Certain
Beneficial Owners and Management and Related StockholderMatters.
 
 The
following table lists, as of April12, 2010, the number of shares of common stock
beneficially owned by (i) each person or entity known to the Registrant to be
the beneficial owner of more than 5% of the outstanding common stock; (ii) each
officer and director of the Registrant; and (iii) all officers and directors as
a group. Information relating to beneficial ownership of common stock by our
principal shareholders and management is based upon information furnished by
each person using “beneficial ownership” concepts under the rules of the
Securities and Exchange Commission.  Under these rules, a person is
deemed to be a beneficial owner of a security if that person has or shares
voting power, which includes the power to vote or direct the voting of the
security, or investment power, which includes the power to dispose or direct the
disposition of the security. The person is also deemed to be a beneficial owner
of any security of which that person has a right to acquire beneficial ownership
within 60 days. Under the Securities and Exchange Commission’s rules, more than
one person may be deemed to be a beneficial owner of the same securities, and a
person may be deemed to be a beneficial owner of securities as to which he or
she may not have any pecuniary beneficial interest. Except as noted below, each
person has sole voting and investment power.
   -13-
 
 Name of Beneficial Owner
              
              Number of Shares
      Beneficially Owned
              
              Percent of Class
                Beneficially OwnedYosef
      Nachum Berstein
              
              4,000,000
              
              55%Julius
      Klein
              
              50,000
              
              .01%All
      directors and executive officers (One persons)
              
              50,000
              
              .01%
  Item
13. Certain Relationships and Related Transactions, and Director
Independence
 
 On
October 30, 2006, we issued 100,000 (post forward stock split) shares of our
common stock to Nachman Shlomo Kohen, valued at $1. Such shares were issued in
reliance on an exemption from registration under Section 4(2) of the Securities
Act of 1933. These shares of our common stock qualified for exemption under
Section 4(2) of the Securities Act of 1933 since the issuance of shares by us
did not involve a public offering.
 
 On
November 6, 2006, we issued 25,000,000 (post forward stock split) shares of our
common stock to Yosef Nachum Bernshten, in exchange for $250 in services and
expenses related to our Company. Such shares were issued in reliance on an
exemption from registration under Section 4(2) of the Securities Act of 1933.
These shares of our common stock qualified for exemption under Section 4(2) of
the Securities Act of 1933 since the issuance of shares by us did not involve a
public offering.
 
 As of
December 31, 2009, SDS Inc. owed $288 to an individual who is a former Director,
President, and Treasurer of SDS Inc., and a current stockholder.  The
loan was provided for working capital purposes, and is unsecured, non-interest
bearing, and has no terms for repayment
  Effective
October 5, 2006, SDS Inc. entered into a verbal agreement with an individual who
is a former Director, President, and Treasurer of SDS Inc., and current
stockholder of the Company, to lease 250 square feet of office space for
operations in Jerusalem, Israel.  The monthly lease rental amount is
$300, and the term of the lease arrangement is month-to-month.  At the
end of the March, 2009, the Company terminated the verbal agreement regarding
the lease of office space.  As of December 31, 2009, and 2008, SDS
Inc. had accrued $8,952 and $8,052, respectively, in office rent expense related
to the lease.
  On
October 23, 2007, SDS Inc. entered into an employment agreement with Asher
Zwebner, its CFO.  This agreement provides that the CFO will receive a
base salary of $3,000 per quarter and $5,000 per annual audit.  This
agreement is effective until the next annual general meeting of the stockholders
of the Company or until his successor is elected or appointed.  During
the years ended December 31, 2009, and 2008, SDS Inc. recognized $14,000 and
$20,200, respectively in officer’s compensation expense.
  On
January 16, 2009, the Company issued 120,000 shares of common stock at par
$0.0001, valued at $18,000, to Asher Zwebner for the services
provided.  The shares were issued under Section 4(2) of the Securities
Act of 1933, as amended.  Mr. Zwebner is an officer and director of
the Company and had access to all of the information which would be required to
be included in a registration statement, and the transaction did not involve a
public offering.
  -14-
 
  On May 6,
2009, SDS Inc. issued 50,000 shares to its Secretary, Treasurer, and Director,
Mr. Julius Klein for services rendered.  The transaction was valued at
$7,500. The shares were issued under Section 4(2) of the Securities Act of 1933,
as amended.  Mr. Klein is an officer and director of the Company and
had access to all of the information which would be required to be included in a
registration statement, and the transaction did not involve a public
offering.
  As of
December 31, 2009, the Company owed $99,541 to the Directors of SDS –
Israel.  The loan was provided for working capital purposes, and is
unsecured, non-interest bearing, and has no terms for repayment.
  Director
Independence
 
 We are
not subject to listing requirements of any national securities exchange or
national securities association and, as a result, we are not at this time
required to have our Board comprised of a majority of “independent directors.”
We do believe that Yoav Krill currently meet the definition of “independent” as
promulgated by the rules and regulations of the American Stock
Exchange.
 
 Item 14.Principal Accountant Fees and
Services
 
 Davis Accounting Group P.C. provided audit
services to the Registrant in connection with its annual reports for the fiscal
years ended December 31, 2009 and 2008. The aggregate fees billed by Davis
Accounting Group P.C. for the audit of the Registrant’s annual financial
statements and a review of the Registrant’s quarterly financial statements
during the fiscal year ended December 31, 2009 and 2008, were:
 
 Fiscal
      Year EndedDecember
      31, 2009
              
              December
      31, 2008Audit
      Fees
              
              $
              22,000
              
              
              $
              14,000
 
 Audit
Committee Pre-Approval
 
 The
Registrant does not have a standing audit committee.  All audit,
audit-related, tax, and all other fees paid to Davis Accounting Group P.C. were
pre-approved by the Registrant’s Board of Directors.
 
 Item 15.Exhibits
  Exhibit
    No.
                
                Description3.1
                
                Certificate
      of Incorporation of Company (annexed to the Company’s Registration
      Statement on Form SB-2 filed with the Securities and Exchange Commission
      on March 12, 2007).3.2
                
                Certificate
      of Amendment to the Certificate of Incorporation of Suspect Detection
      Systems, Inc. (filed as Exhibit 3.3 to the Current Report on Form 8-K
      filed with the Securities and Exchange Commission on December 7,
      2009)3.3
                
                Bylaws
      of the Company (annexed to the Company’s Registration Statement on Form
      SB-2 filed with the Securities and Exchange Commission on March 12,
      2007).
  -15-
   10.1
              
              Employment
      Agreement, dated October 23, 2007, between PCMT Corporation and Asher
      Zwebner (annexed to the Company’s Current Report on Form 8-K filed with
      the Securities and Exchange Commission on October 29,
    2007).10.2
              
              Letter
      Agreement, dated October 18, 2007, between PCMT Corporation and Suspect
      Detection Systems Ltd. (annexed to the Company’s Current Report on Form
      8-K filed with the Securities and Exchange Commission on October 29,
      2007).10.3
              
              Form
      of Regulation S Subscription Agreement (annexed to the Company’s Current
      Report on Form 8-K filed with the Securities and Exchange Commission on
      October 29, 2007).10.4
              
              Letter
      of Intent dated November 14, 2007, between PCMT Corporation and Suspect
      Detection Systems Ltd. (annexed to the Company’s Current Report on Form
      8-K filed with the Securities and Exchange Commission on November 15,
      2007).10.5
              
              Form
      of Regulation S Subscription Agreement, including Form of Class A Warrant
      and Form of Class B Warrant (annexed to the Company’s Current Report on
      Form 8-K filed with the Securities and Exchange Commission on November 15,
      2007).10.6
              
              Stock
      Purchase Agreement, dated April 30, 2008, among the PCMT Corporation,
      Suspect Detection Systems Ltd., Shabtai Shoval and the shareholders of
      Suspect Detection Systems Ltd. listed therein Warrant (annexed to the
      Company’s Current Report on Form 8-K filed with the Securities and
      Exchange Commission on May 6, 2008).10.7
              
              Investment
      Agreement, dated as of December 18, 2008, between PCMT Corporation and
      Suspect Detection Systems, Ltd. (annexed to the Company’s Current Report
      on Form 8-K filed with the Securities and Exchange Commission on December
      22, 2008).10.8
              
              Termination
      Agreement, dated as of December 18, 2008, between PCMT Corporation,
      Suspect Detection Systems, Ltd. and the shareholders of Suspect Detection
      Systems, Ltd. (annexed to the Company’s Current Report on Form 8-K filed
      with the Securities and Exchange Commission on December 22,
      2008).10.9
              
              Consultant
      Agreement, dated January 13, 2010, between Suspect Detection Systems Inc.
      and Yoav Krill (annexed to the Company’s Current Report on Form 8-K filed
      with the Securities and Exchange Commission on January 19,
      2010).10.1
              
              Employment
      Agreement, dated January 14, 2010, between Suspect Detection Systems Inc.
      and Gil Boosidan (annexed to the Company’s Current Report on Form 8-K
      filed with the Securities and Exchange Commission on January 19,
      2010).32.1
              
              Section
      (302(a) Certification of Principal Executive Officer*32.1
              
              Section
      302(a) Certification of Principal Financial Officer*32.1
              
              Section
      1350 Certification of Principal Executive Officer*32.2
              
              Section
      1350 Certification of Principal Financial
  Officer* 
 *
                Filed
      herewith.
 
 -16-
 
 SIGNATURES
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
 SUSPECT
      DETECTION SYSTEMS, INC.
                    AND
      SUBSIDIARYApril
      14, 2010
                  By:
                  /s/ Gill
      BoosidanGil
      Boosidan
                    Chief
      Executive Officer and Director
   In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of Nature's Call Brands Inc. and in the capacities
and on the dates indicated.
  Signature
                    
                    Title
                    
                    Date/s/
      Gil Boosidan
                    
                    Chief
      Executive Officer
                    
                    April
      14, 2010Gill
      Boosidan/s/Asher
      Zwebner
                    
                    Chief
      Financial Officer andDirector
                    
                    April
      14, 2010Asher
      Zwebmer/s/
      Julius Klien
                    
                    Secretary
      and Treasurer
                    
                    April
      14, 2010Julius
      Klien/s/
      Yoav Krill
                    
                    Director
                    
                    April
      14, 2010Yoav
      Krill
 -17-