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

Attached files

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EX-31.1 - RULE 13A-14(A)/15D14(A) CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER (ATTACHED HERETO) - Suspect Detection Systems, Inc.	f10q0910a2ex31i_suspect.htm
EX-32.1 - SECTION 1350 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER - Suspect Detection Systems, Inc.	f10q0910a2ex32i_suspect.htm
EX-31.2 - RULE 13A-14(A)/15D14(A) CERTIFICATION OF PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER - Suspect Detection Systems, Inc.	f10q0910a2ex31ii_suspect.htm
EX-32.2 - SECTION 1350 CERTIFICATION OF PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER - Suspect Detection Systems, Inc.	f10q0910a2ex32ii_suspect.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

(Amendment No. 2)

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

For the quarterly period ended September 30, 2010

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

For the transition period from _____ to _____

Commission File Number: 000-52792

SUSPECT DETECTION SYSTEMS INC.

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

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

150 West 56th Street, Suite 4005, New York, NY 10019

(Address of principal executive offices)

(212) 977-4126

(Issuer's telephone number)

________________________________________________________________

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No x

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

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

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

As of November 15, 2010, 74,055,493 shares of common stock, par value $0.0001 per share, were issued and outstanding.

TABLE OF CONTENTS

	Page
PART I
Item 1. Financial Statements	F-1 – F-33
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	1
Item 3. Quantitative and Qualitative Disclosures About Market Risk	8
Item 4(T). Controls and Procedures	8
PART II
Item 1. Legal Proceedings	9
Item IA. Risk Factors	9
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	9
Item 3. Defaults Upon Senior Securities	10
Item 4. Removed and Reserved	10
Item 5. Other Information	10
Item 6. Exhibits	10

EXPLANATORY NOTE TO AMENDMENT NO. 2 ON FORM 10-Q/A

Suspect Detection Systems, Inc. (the “Company”) is filing this Amendment No. 2 (this “Amendment No.2”) to its Quarterly Report on Form 10-Q for the quarter ended September 30, 2010, which was originally filed with the Securities and Exchange Commission (“Commission”) on November 15, 2010, as amended by Amendment No.1 to Form 10-Q filed with the Commission on February 3, 2011 (the “Original Report”), to reflect the restatement of the Company’s financial statements for the period ended September 30, 2010 and 2009 and the financial statements for the fiscal year ended December 31, 2010. As more fully described in Note no. 4 (Restatement) to the consolidated financial statements, the adjustments principally relate to errors identified in the Company’s accounting pursuant to comments received from the Commission to our Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2009 and to include additional changes in presentation of certain accounts in the financial statements.

The following items of the Original Report have been modified or revised in this Amendment No. 2 to reflect the restatement:

•

Part I, Item 1. Financial Statements

•

Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

•

Part I, Item 4T. Controls and Procedures

•

Part II, Item 6. Exhibits

This Amendment No. 2 does not modify or update disclosures presented in the Original Report, except as required to reflect the effects of the restatement. Except for disclosures affected by the restatement, Amendment No. 2 speaks as of the original filing date of the Original Report on November 15, 2010 and does not modify or update disclosures in the Original Report, including the nature and character of such disclosures, to reflect events occurring or items discovered after the filing date of the Original Report. Accordingly, this Amendment No. 2 should be read in conjunction with the Company’s filings made with the Securities and Exchange Commission subsequent to the Original Report, including any amendments to those filings.

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements.

SUSPECT DETECTION SYSTEMS INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)

SEPTEMBER 30, 2010, AND 2009

(Unaudited)

Restated Consolidated Financial Statements-

	Consolidated Balance Sheets as of September 30, 2010 (unaudited) and December 31, 2009	F-1

	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2010 and 2009 (unaudited)	F-3

	Consolidated Statements of Cash Flows for Nine Months Ended September 30, 2010 and 2009	F-4

	Notes to Consolidated Financial Statements September 30, 2010 and 2009	F-6

SUSPECT DECTECTION SYSTEMS INC.

AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

U.S. dollars

ASSETS	September 30,			December 31,
	2010			2009
	Unaudited			Audited
	Restated			Restated
Current Assets:
Cash and cash equivalents	$	537,110		$	701,931
Restricted cash		115,827			15,827
Accounts receivable		22,364			-
Inventory		100,588			55,281
Prepaid expenses and other receivables		204,960			65,343
Total current assets		980,849			838,382

Property and Equipment:
Computer and other equipment		59,046			30,034
Less - Accumulated depreciation		(23,592	)		(17,534	)
Property and equipment, net		35,454			12,500

Other Assets:
Severance pay fund		83,139			45,563
Long term deposit		13,102			10,578
Goodwill		1,333,214			1,333,214
Total other assets		1,429,455			1,389,355
Total Assets	$	2,445,758		$	2,240,237

The accompanying notes to consolidated financial statements are an integral part of these consolidated statements.

F-1

SUSPECT DECTECTION SYSTEMS INC.

AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

U.S. dollars

LIABILITIES AND STOCKHOLDERS' EQUITY	September 30,			December 31,
	2010			2009
	Unaudited			Audited
	Restated			Restated
Current Liabilities:
Accounts payable - Trade	$	91,578		$	9,175
Accrued liabilities		231,803			161,161
Advances from customers		706,870			919,400
Deferred revenues		169,742			55,631
Due to related parties		281,080			111,541
Total current liabilities		1,481,073			1,256,908

Long-term Debt:
Accrued severance pay		82,139			84,315
Total liabilities		1,570,712			1,341,223

Commitments and Contingencies

Stockholders' Equity:
Common stock, par value $0.0001 per share 250,000,000 shares authorized; 74,055,493 and 71,822,893 shares issued and outstanding at September 30, 2010 and December 31, 2009, respectively		7,405			7,182
Additional paid-in capital		3,278,929			2,580,553
Common stock subscribed		-			25,000
Accumulated (deficit)		(2,531,602	)		(1,779,820	)
		754,732			832,895
Less - Noncontrolling interest		127,814			66,119
Total Stockholders' Equity		882,546			899,014

Total Liabilities and Stockholders' Equity	$	2,445,758		$	2,240,237

The accompanying notes to consolidated financial statements are an integral part of these consolidated statements.

F-2

SUSPECT DECTECTION SYSTEMS INC.

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

U.S. dollars

	Three months ended September 30,						Nine months ended September 30,
	2010			2009			2010			2009
	Restated			Restated			Restated			Restated

Revenues, net	$	259,080		$	401,512		$	1,596,682		$	825,253

Cost of Goods Sold		72,384			34,264			142,132			86,450

Gross Profit		186,696			367,248			1,454,550			738,803

Expenses:
Research and development		107,666			48,293			317,532			120,723
Selling, general and administrative		349,348			628,598			1,807,889			1,540,738
Total operating expenses		457,014			676,891			2,125,421			1,661,461

(Loss) from Operations		(270,318	)		(309,643	)		(670,871	)		(922,658	)

Interest (expense), net		(876	)		(16,158	)		(19,216	)		(9,117	)

Net (loss)		(271,194	)		(325,801	)		(690,087	)		(931,775	)

Net loss (income) Attributable to Noncontrolling Interest		44,971			38,378			(61,695	)		122,440

Net (loss) attributable to Suspect Detection Systems Inc.	$	(226,223	)	$	(287,423	)	$	(751,782	)	$	(809,335	)

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

Weighted Average Number of Common Shares Outstanding - Basic and Diluted		68,895,810			63,534,225			66,978,382			61,081,038

The accompanying notes to consolidated financial statements are an integral part of these consolidated statements.

F-3

SUSPECT DECTECTION SYSTEMS INC.

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

U.S. dollars

	Nine months ended September 30,
	2010			2009
	Restated			Restated
Operating Activities:
Net (loss)	$	(690,087	)	$	(931,776	)
Adjustments to reconcile net (loss) to net cash
(used in) operating activities:
Common stock issued for officers' compensation		25,500			25,500
Stock options issued to directors		160,095			-
Stock options issued to agents		194,135			50,446
Stock warrants issued to a consultant		49,888			63,407
Common stock issued for consulting services		149,000			146,250
Depreciation		6,058			2,223
Changes in Assets and Liabilities-
Inventory		(45,307	)		23,822
Prepaid expenses and other receivables		(139,617	)		112,144
Accounts payable - Trade		82,403			13,420
Accrued liabilities		70,643			111,229
Advances from customers		(234,894	)		(130,973	)
Deferred revenues		114,111			-
Due to related parties		169,539			104,318
Accrued severance pay		(38,752	)		(6,975	)
Net Cash (Used in) Operating Activities		(127,285	)		(416,965	)

Investing Activities:
Cash acquired in business combination (b)		-			702,147
Increase in restricted cash		(100,000	)		-
Long term deposit		(2,524	)		15,341
Increase in severance pay fund		(1,000	)		-
Purchases of Property and Equipment		(29,012	)		(4,063	)
Net Cash Provided by (Used in) Investing Activities		(132,536	)		713,425

Financing Activities:
Issuance of common stock for cash		95,000			257,000
Net Cash Provided by Financing Activities		95,000			257,000

The accompanying notes to consolidated financial statements are an integral part of these consolidated statements.

F-4

SUSPECT DECTECTION SYSTEMS INC.

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

U.S. dollars

	Nine months ended September 30,
	2010			2009
	Restated			Restated

Net Increase (Decrease) in Cash		(164,821	)		553,460
Cash and Cash Equivalents - Beginning of Period		701,931			179,565
Cash and Cash Equivalents - End of Period	$	537,110		$	733,025

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

Income taxes	$	-	$	-

(a) Non cash transactions:

Common stock issued for purchase of additional 7% interest in SDS - Israel Ltd.	$	-	$	1,859

(b) Cash acquired in acquisition of 51% interest in SDS - Israel Ltd.:

Working capital deficiency, excluding cash and cash equivalents	$	-	$	541,442
Property and equipment, net		-		(16,019	)
Accrued severance pay, net		-		6,975
Long term prepaid expenses		-		(28,360	)
Deferred acquisition costs		-		1,135,000
Goodwill		-		(1,333,214	)
Noncontrolling Interest		-		396,323
	$	-	$	702,147

The accompanying notes to consolidated financial statements are an integral part of these consolidated statements.

F-5

SUSPECT DECTECTION SYSTEMS INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010 (UNAUDITED)

Note 1: General

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.

The Israeli subsidiary, Suspect Detection Systems Ltd, (“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.

On January 20, 2009, SDS Inc. completed a business combination for the purchase of 51 percent of the issued and outstanding shares of SDS – Israel for consideration of $1,100,000. The Company incurred an additional $35,000 in acquisition costs related to legal and accounting fees. The business combination was accounted for by the purchase method and accordingly, the purchase price has been allocated to the estimated fair values of the respective assets acquired and liabilities assumed of SDS – Israel, with the remaining representing goodwill in the amount of $1,333,214. The results of operations of SDS – Israel have been included in the consolidated financial statements of the Company commencing January 20, 2009.

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

F-6

SUSPECT DECTECTION SYSTEMS INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010 (UNAUDITED)

Note 2: Summary of Significant Accounting Policies

Unaudited Interim Financial Information

The accompanying consolidated balance sheet as of September 30, 2010, consolidated statements of operations for the three and nine months ended September 30, 2010 and 2009 and consolidated statements of cash flows for the nine months ended September 30, 2010 and 2009 are unaudited. These unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information. In the opinion of management, the unaudited interim consolidated financial statements include all adjustments of a normal recurring nature necessary for a fair presentation of our consolidated financial position as of September 30, 2010, our consolidated results of operations for the three and nine months ended September 30, 2010 and 2009 and our consolidated cash flows for the nine months ended September 30, 2010 and 2009.

These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes for the year ended December 31, 2009 included in our Annual Report for our fiscal year ended December 31, 2010 on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on March 22, 2011.

Results for the three and nine months ended September 30, 2010 are not necessarily indicative of results that may be expected for the year ending December 31, 2010.

Unless otherwise noted, all references to “dollars” or “$” are to United States dollars.

Use of 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, liabilities and equity as of December 31, 2010, and 2009, and consolidated revenues and expenses for the years ended December 31, 2010, and 2009. Actual results could differ from those estimates made by management.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its 58 percent owned Israeli subsidiary, SDS-Israel. Inter-company transactions and balances, have been eliminated in consolidation.

Fair Value Measurement

As defined in ASC 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”), fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in fair value measurements, ASC 820-10 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:

F-7

SUSPECT DECTECTION SYSTEMS INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010 (UNAUDITED)

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

Level 2: Other inputs those are observable directly or indirectly, such as quoted prices for similar assets and liabilities or market corroborated inputs.

Level 3: Unobservable inputs are used when little or no market data is available, which requires the Company to develop its own assumptions about how market participants would value the assets or liabilities. The fair value hierarchy gives the lowest priority to Level 3 inputs.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible in its assessment of fair value.

The following table presents the Company’s financial assets and liabilities that are carried at fair value, classified according to the three categories described above:

	Fair Value Measurements at September 30, 2010
			Quoted Prices in Active		Significant Other		Significant
			Markets for Identical Assets		Observable Inputs		Unobservable Inputs
	Total		(Level 1)		(Level 2)		(Level 3)

Cash and cash equivalents	$	537,110	$	537,110	$	-	$	-
Restricted Cash		115,827		115,827		-		-
Total assets at fair value	$	652,937	$	652,937	$	-	$	-

	Fair Value Measurements at December 31, 2009
			Quoted Prices in Active		Significant Other		Significant
			Markets for Identical Assets		Observable Inputs		Unobservable Inputs
	Total		(Level 1)		(Level 2)		(Level 3)

Cash and cash equivalents	$	701,931	$	701,931	$	-	$	-
Restricted Cash		15,827		15,827		-		-
Total assets at fair value	$	717,758	$	717,758	$	-	$	-

Impact of recently issued and adopted accounting pronouncements

In July 2010, the FASB issued Accounting Standards Update No. 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. The amendments in this update require additional disclosure about the credit quality of financing receivables, such as aging information and credit quality indicators. Both new and existing disclosures must be disaggregated by portfolio segment or class. This update is effective for interim periods and fiscal years ending after December 15, 2010. The adoption of these requirements did not have an impact on the Company's consolidated financial position or results of operations.

F-8

SUSPECT DECTECTION SYSTEMS INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010 (UNAUDITED)

In January 2010, the FASB issued Accounting Standards Update No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. The amendments in this update require new disclosures and clarifications of existing disclosures related to transfers in and out of Level 1 and Level 2 fair value measurements, further disaggregation of fair value measurement disclosures for each class of assets and liabilities and additional details of valuation techniques and inputs utilized. This update is consistent with the Company's current accounting application for fair value measurements and disclosures.

There were various other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries. None of the updates are expected to a have a material impact on the Company's financial position, results of operations or cash flows.

Note 3: Going Concern

The Company’s current activities include sales of its products, marketing, capital formation, research and development, and building infrastructure. The Company has incurred a loss of $751,782 for the nine months ended September 30, 2010 and as of September 30, 2010 the Company had an accumulated deficit of approximately $2,531,602. The Company’s ability to continue as a going concern is uncertain. The revised business plan of the Company is the application of proprietary technologies for law enforcement and border control, including counter terrorism efforts, immigration control and drug enforcement, as well as human resource management, asset management and the transportation sector.

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

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company has not established sufficient sources of revenues to cover its operating costs and expenses. As such, it has incurred significant operating losses since inception. Further, as of September 30, 2010, 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.

Note 4: Restatement

The financial statements for the period ended September 30, 2010 and 2009 and for the year ended December 31, 2009 were restated pursuant to comments received from the Securities and Exchange Commission (the "Commission") to our Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2009 and to include additional changes in presentation of certain accounts in the financial statements.

F-9

SUSPECT DECTECTION SYSTEMS INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010 (UNAUDITED)

Effects on previously issued financial statements for the period ended September 30, 2010 as follows:

Effects on previously issued financial statements as of September 30, 2010 as follows:

Balance sheet:
Decrease in cash and cash equivalents	$	100,000
Increase in restricted cash		100,000
Increase in accounts receivables		22,364
Increase in prepaid expenses and other receivables		8,386
Decrease in prepaid expenses, non current		26,405
Increase in Goodwill		7,560
Increase in account payables		1,700
Decrease in accrued liabilities		10,428
Increase in due to related parties		125,967
Increase in the additional paid-in capital		219,558
Decrease in accumulated deficit		815,158
Increase in noncontrolling interest		483,725
Statement of operations for the three months ended September 30, 2010:
Decrease in Research and development	$	(1,026	)
Increase in general and administrative expenses		123,190
Increase in interest expenses		18,340
Increase in net loss attributable to Suspect Detection Systems Inc.	$	140,504
Statement of operations for the nine months ended September 30, 2010:
Decrease in Research and development	$	(1,021	)
Increase in general and administrative expenses		462,287
Increase in net loss attributable to Suspect Detection Systems Inc.	$	461,292

F-10

SUSPECT DECTECTION SYSTEMS INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010 (UNAUDITED)

Effects on previously issued December 31, 2009 financial statements as follows:

Balance sheet:
Increase in prepaid expenses and other receivables	$	5,000
Increase in goodwill		7,560
Increase in due to related parties		12,000
Decrease in additional paid-in capital		136,840
Decrease in accumulated deficit		346,325
Increase in noncontrolling interest		483,725

Effects on previously issued financial statements for the three and nine months ended September 30, 2009 as follows:

Statement of operations for the three months ended September 30, 2009:
Increase in general and administrative expenses	$	18,603
Increase in Net loss attributable to Noncontrolling Interest		(26,501	)
Decrease in net loss attributable to Suspect Detection Systems Inc.	$	(7,898	)
Statement of operations for the nine months ended September 30, 2009:
Increase in general and administrative expenses	$	153,603
Increase in Net loss attributable to Noncontrolling Interest		(26,499	)
Increase in net loss attributable to Suspect Detection Systems Inc.	$	127,104

The accompanying financial statements for the year ended December 31, 2010 and 2009 and for the nine months ended at September 30, 2009 have been restated to reflect the corrections in accordance with FASB ASC 250-10-50-7, “Accounting Change and Error Corrections Disclosure”. This restatement is due to corrections of errors in previously reported financial statements. The effect on the Company's previously issued financial statements is summarized as follows:

F-11

SUSPECT DECTECTION SYSTEMS INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010 (UNAUDITED)

Balance Sheet as of September 30, 2010

	Previously			Net Change				Restated
	reported
Current Assets:
Cash and cash equivalents	$	637,110		$	(100,000	)	a	$	537,110
Restricted cash		15,827			100,000		a		115,827
Accounts receivables		-			22,364		b		22,364
Inventory		100,588							100,588
Prepaid expenses and other receivables		196,574			8,386		b,c,d		204,960
Total current assets		950,099							980,849

Property and Equipment:
Computer and other equipment		59,046							59,046
Less - Accumulated depreciation		(23,592	)						(23,592	)
Property and equipment, net		35,454							35,454

Other Assets:
Severance pay fund		82,139			1,000		e		83,139
Prepaid expenses, non-current		39,507			(26,405	)	f		13,102
Goodwill		1,325,654			7,560		g,h		1,333,214

Total other assets		1,447,300							1,429,455

Total Assets	$	2,432,853						$	2,445,558

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Accounts payable - Trade	$	89,878		$	1,700		I,	$	91,578
Accrued liabilities		242,231			(10,428	)	i,j,k		231,803
Advances from customers		706,870							706,870
Deferred revenues		169,742							169,742
Due to related parties		115,113			125,967		j,l, m,		281,080
Total current liabilities		1,363,834							1,481,073

Balance Sheet as of September 30, 2010

	Previously			Net Change				Restated
	reported
Long-term Debt:
Accrued severance pay		82,139							82,139
Total liabilities		1,445,973							1,481,073

Commitments and Contingencies

Stockholders' Equity:
Common stock		7,405							7,405
Additional paid-in capital		3,059,371			219,558		l,m, o,p,q,		3,278,929
Common stock subscribed		-							-
Accumulated (deficit)		(1,723,985	)		(815,158	)	c,e,f,g,h,k,l,m, o,p,q,		(2,531,602	)
Total stockholders’ equity		1,342,791							754,732
		(355,911	)						127,814
Less – Noncontrolling interest		986,880			483,725		g,h		882,546
Total stockholders' equity, Net
Total Liabilities and Stockholders' Equity	$	2,432,853						$	2,445,558

F-12

SUSPECT DECTECTION SYSTEMS INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010 (UNAUDITED)

Statement of Operations for the nine months ended September 30, 2010

	Previously			Net Change					Restated
	reported

Revenues, net	$	1,596,682							$	1,596,682

Cost of Goods Sold		142,132								142,132
Gross Profit		1,454,550								1,454,550

Expenses:
Research and development		318,553			(1,021	)		r		317,532
Selling, general and administrative		1,345,576			462,313		c,e,f,k,l, m,o,p,q,r			1,807,889
Total operating expenses		1,664,129								2,125,421

(Loss) from Operations		(209,579	)							(670,871	)

Interest expense		(19,216	)							(19,216	)

Net (loss)		(228,795	)							(690,087	)

Net (loss) Attributable to Noncontrolling Interest		(61,695	)							(61,695	)

Net (loss) attributable to Suspect Detection Systems Inc.	$	(290,490	)						$	(751,782	)

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

Weighted Average Number of Common Shares
Outstanding - Basic and Diluted		73,676,117			(6,697,735	)		s		66,978,382

F-13

SUSPECT DECTECTION SYSTEMS INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010 (UNAUDITED)

(a) Reclassification due to the indemnification agreement with the CEO of SDS- Israel to assure future credit availability of $100,000

(b) Reclassification of accounts receivable in the amount of $22,364 from prepaid and other receivables.

(c) Correction of error of $24,750 originally included in selling, general and administrative for consultants fees which should have not been expensed.

(d) Correction of error of $ 5,000 originally included in selling, general and administrative for insurance premium for calendar year 2010, which was paid in advanced in 2009 and should have been recorded as prepaid expenses and an error of $ 1,000 originally included in selling, general and administrative for insurance premium for colander year 2010, which should have been recorded as prepaid expenses.

(e) Correction of error in calculation of the severance pay fund in the amount of $1,000.

(f) Correction of error of $26,405 originally not included in selling, general and administrative for consultants fees which should have been expensed.

(g) Correction of error in calculation of the fair value of goodwill and 49% noncontrolling interest in SDS-Israel to recognize their fair value of $ 392,000 under FASB ASC 805, as a result of the acquisition of 51% percent interest in the equity ownership of SDS – Israel.

(h) Correction of error in calculation of the goodwill, noncontrolling interest, additional paid in capital and net income as a result of the exchange of 3,199,891 shares of common stock of the Company for additional 7% interest in the equity ownership of SDS – Israel. Those accounts were restated to correct overstatement of the goodwill by $291,690, overstatement of additional paid in capital by $478,125, overstatement of the net income by $1,960, and understatement of the noncontrolling interest by $184,475.

(i) Reclassification of accounts payables in the amount of $1,700 from other accounts payables.

(j) Reclassification of loan from shareholder in the amount of $288 from other accounts payables to due to related parties.

(k) Reclassification of $8,644 from other accounts payables to due to related parties and correction of error of $39,374 originally not included in selling, general and administrative for general charges from SDS Israel, which should have been expensed.

(l) Correction of error of $18,750 originally not included selling, general and administrative for directorship fees of the Chairman of the Board, and $24,411 originally not included selling, general and administrative for the compensation of the chief executive officer

(m) Correction of error of $24,000 originally not included in selling, general and administrative for consultants fees which should have been expensed in fiscal year 2009 and $18,000 originally not included in selling, general and administrative for consultants fees which should have been expensed in fiscal year 2010.

F-14

SUSPECT DECTECTION SYSTEMS INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010 (UNAUDITED)

(n) Correction of the additional paid-in capital in the amount of $ (136,839) and the accumulated deficit in the amount of $ (346,325) due to the restatements of the financial statements to the fiscal year ended at December 31, 2009.

(o) Correction of error involving of amortized fair value of 2,000,000 options that were granted to the chairman of the Board and a member of the advisory board in the amount of $104,874.

(p) Correction of error involving of amortized fair value of 1,550,200 options that were granted to nine agents of SDS-Israel in the amount of $194,131. The options are vested within one year of the grant date and they are execrable at $0.15 per share and no later than three years from the grant date.

(q) Correction of error involving of fair value of 450,000 warrants that were granted to a consultant of the Company in the amount of $49,888. The warrants are execrable at $0.15 per share and no later than two years from the grant date.

(r) Reclassification of certain expenses in the amount of $1,021 from research and developments costs to selling, general and administrative expenses.

(s) Correction of error involving the calculation of the basic and diluted weighted average number of Common Shares outstanding

F-15

SUSPECT DECTECTION SYSTEMS INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010 (UNAUDITED)

Statement of Operations for the three months ended September 30, 2010

	Previously			Net Change					Restated
	reported

Revenues, net	$	259,080							$	259,080

Cost of Goods Sold		72,384								72,384
Gross Profit		186,696								186,696

Expenses:
Research and development		108,692			(1,026	)		r		107,666
Selling, general and administrative		226,158			123,190		c,e,f,k,l, m,o,p,r			349,348
Total operating expenses		334,850								457,014

(Loss) from Operations		(148,154	)							(270,318	)

Interest expense		(19,216	)		(18,340	)				(876	)

Net (loss)		(167,370	)							(271,194	)

Net (loss) Attributable to Noncontrolling Interest		(44,971	)							(44,971	)

Net (loss) attributable to Suspect Detection Systems Inc.
	$	(122,399	)						$	(226,223	)
(Loss) Per Common Share:
(Loss) per common share - Basic and Diluted
	$	(0.01	)						$	(0.01	)
Weighted Average Number of Common Shares
Outstanding - Basic and Diluted		74,055,493			(5,159,683	)		s		68,895,810

F-16

SUSPECT DECTECTION SYSTEMS INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010 (UNAUDITED)

(c) Correction of error of $24,750 originally not included in selling, general and administrative for consultants fees which should have been expensed.

(d) Correction of error of $ 6,000 originally not included in selling, general and administrative for insurance premium, which should have been expensed.

(k) Correction of error of $8,466 originally not included in selling, general and administrative for general charges from SDS Israel, which should have been expensed.

(l) Correction of error of $6,250 originally not included selling, general and administrative for directorship fees of the Chairman of the Board, and $8,137 originally not included selling, general and administrative for the compensation of the chief executive officer

(m) Correction of error of $18,000 originally not included in selling, general and administrative for consultants fees which should have been expensed.

(o) Correction of error involving of amortized fair value of 2,000,000 options that were granted to the chairman of the Board and a member of the advisory board in the amount of $20,845

(p) Correction of error involving of amortized fair value of 1,550,200 options that were granted to nine agents of SDS-Israel in the amount of $31,081. The options are vested within one year of the grant date and they are execrable at $0.15 per share and no later than three years from the grant date.

(r) Reclassification of certain expenses in the amount of $1,026 from research and developments costs to selling, general and administrative expenses.

(s) Correction of error involving the calculation of the basic and diluted weighted average number of Common Shares outstanding

F-17

SUSPECT DECTECTION SYSTEMS INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010 (UNAUDITED)

Statement of Cash Flows for the period ended September 30, 2010

	Previously			Net Change			Restated
	reported
Operating Activities:
Net (loss)	$	(228,795	)	$	(461,292	)	$	(690,087	)
Adjustments to reconcile net (loss) to net cash
Common stock issued for officers' compensation		18,000			7,500			25,500
Stock options issued to directors		55,221			104,874			160,095
Stock options issued to agents		-			194,135			194,135
Stock warrants issued to a consultant		-			49,888			49,888
Common stock issued for consulting services		149,000			-			149,000
Depreciation		6,058			-			6,058
Changes in Assets and Liabilities-
Inventory		(45,307	)		-			(45,307	)
Prepaid expenses and other receivables		(165,160	)		25,543			(139,617	)
Accounts payable - Trade		80,703			1,700			82,403
Accrued liabilities		81,070			(10,427	)		70,643
Advances from customers, net		(212,530	)		(22,364	)		(234,894	)
Deferred revenues		114,111			-			114,111
Due to related parties		-			169,539			169,539
Accrued severance pay		(2,176	)		36,576			(38,752	)

Net Cash (Used in) Operating Activities		(149,805	)		22,520			(127,285	)

Investing Activities:
Cash acquired in business combination (b)		-			-			-
Increase in restricted cash		-			(100,000	)		(100,000	)
Prepaid expenses, non-current		-			(2,524	)		(2,524	)
Increase in severance pay fund		(36,576	)		35,576			(1,000	)
Purchases of Property and Equipment		(29,012	)		-			(29,012	)

Net Cash Provided by (Used in) Investing Activities		(65,588	)		(66,948	)		(132,536	)

F-18

SUSPECT DECTECTION SYSTEMS INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010 (UNAUDITED)

Statement of Cash Flows for the Year Ended December 31, 2009

	Previously			Net Change			Restated
	reported
Financing Activities:
Issuance of common stock for cash		95,000			-			95,000
Due to related party		55,572			(55,572	)		-
Net Cash Provided by Financing Activities		150,572			(55,572	)		95,000

Net Increase (Decrease) in Cash		(64,821	)		-			(164,821	)
Cash and Cash Equivalents - Beginning of Period		717,758						701,931
Cash and Cash Equivalents - End of Period	$	652,937			(15,827	)	$	537,110
Cash and Cash Equivalents - End of Period:
Cash in bank	$	701,931					$	701,931
Restricted cash		15,827			(15,827	)		-
Total	$	717,758					$	701,931
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest	$	-					$	-
Income taxes	$	-					$	-

F-19

SUSPECT DECTECTION SYSTEMS INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010 (UNAUDITED)

Balance Sheet as of December 31, 2009

	Previously			Net Change			Restated
	reported
Current Assets:
Cash and cash equivalents	$	701,931					$	701,931
Restricted cash		15,827						15,827
Accounts receivables		-						-
Inventory		55,281						55,281
Prepaid expenses and other receivables		60,343			5,000	d		65,343
Total current assets		833,382						838,382

Property and Equipment:
Computer and other equipment		30,034						30,034
Less - Accumulated depreciation		(17,534	)					(17,534	)
Property and equipment, net		12,500						12,500

Other Assets:
Severance pay fund		45,563						45,563
Prepaid expenses, non-current		10,578						10,578
Goodwill		1,325,654			7,560	a,b		1,333,214

Total other assets		1,381,795						1,389,355

Total Assets	$	2,227,677					$	2,240,237

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Accounts payable - Trade	$	9,175					$	9,175
Accrued liabilities		161,161						161,161
Advances from customers		919,400						919,400
Deferred revenues		55,631						55,631
Due to related parties		99,541			12,000	e		111,541
Total current liabilities		1,244,908						1,256,908

F-20

SUSPECT DECTECTION SYSTEMS INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010 (UNAUDITED)

Balance Sheet as of December 31, 2009

	Previously			Net Change				Restated
	reported
Long-term Debt:
Accrued severance pay		84,315							84,315
Total liabilities		1,329,223							1,341,223

Commitments and Contingencies

Stockholders' Equity:
Common stock		7,182							7,182
Additional paid-in capital		2,717,373			(136,840	)	b,c,d,f,g		2,580,533
Common stock subscribed		25,000							25,000
Accumulated (deficit)		(1,433,495	)		(346,325	)	b,c,d,e,f,g		(1,779,820	)
Total stockholders' equity		1,316,060							832,895

Less - Noncontrolling interest		(417,606	)		483,725		a,b		66,119
Total stockholders' equity, Net		898,454							899,014
Total Liabilities and Stockholders' Equity	$	2,227,677						$	2,240,237

(a) Correction of error in calculation of the fair value of goodwill and 49% noncontrolling interest in SDS-Israel to recognize their fair value of $ 392,000 under FASB ASC 805, as a result of the acquisition of 51% percent interest in the equity ownership of SDS – Israel.

(b) Correction of error in calculation of the goodwill, noncontrolling interest, additional paid in capital and net income as a result of the exchange of 3,199,891 shares of common stock of the Company for additional 7% interest in the equity ownership of SDS – Israel. Those accounts were restated to correct overstatement of the goodwill by $291,690, overstatement of additional paid in capital by $478,125, overstatement of the net income by $1,960, and understatement of the noncontrolling interest by $184,475.

(c) Correction of error involving of amortized fair value of 1,550,200 options that were granted to nine agents of SDS-Israel in the amount of $131,973. The options are vested within one year of the grant date and they are execrable at $0.15 per share and no later than three years from the grant date.

(d) Correction of error of $ 5,000 originally included in selling, general and administrative for insurance premium for colander year 2010, which was paid in advanced in 2009 and should have been recorded as prepaid expenses.

(e) Correction of error of $57,000 originally not included in selling, general and administrative for consultants fees which should have been expensed in fiscal year 2009.

F-21

SUSPECT DECTECTION SYSTEMS INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010 (UNAUDITED)

(f) Correction of error involving of amortized fair value of 300,000 shares that should been granted to two consultants of the Company under their consulting agreement.

(g) Correction of error involving of fair value of 900,000 warrants that were granted to a consultant of the Company in the amount of $141,437. The warrants are execrable at $0.15 per share and no later than two years from the grant date.

(h) Reclassification of certain expenses in the amount of $28,454 from cost of goods sold and $59,385 from selling, general and administrative expenses to research and developments costs.

(i) Correction of error involving the calculation of the basic and diluted weighted average number of Common Shares outstanding

F-22

SUSPECT DECTECTION SYSTEMS INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010 (UNAUDITED)

Statement of Operations for the nine months ended September 30, 2009

	Previously			Net Change				Restated
	reported

Revenues, net	$	825,253						$	825,253

Cost of Goods Sold		86,450							86,450
Gross Profit
		738,803							738,803
Expenses:
Research and development		120,723							120,723
Selling, general and administrative		1,387,136			150,603		b,c,d,e		1,540,738
Total operating expenses		1,507,859							1,661,461

(Loss) from Operations		(769,056	)						(922,658	)

Interest expense		(9,117	)						(9,117	)

Net (loss)		(778,173	)						(931,775	)

Net (loss) Attributable to Noncontrolling Interest		(95,941	)		(26,499	)	a		(122,440	)

Net (loss) attributable to Suspect Detection Systems Inc.	$	(682,232	)					$	(809,335	)

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

Weighted Average Number of Common Shares
Outstanding - Basic and Diluted		67,465,952			(6,375,914	)	f		61,081,038

F-23

SUSPECT DECTECTION SYSTEMS INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010 (UNAUDITED)

(a) Correction of error in calculation of the net loss attributable to Noncontrolling Interest

(b) Correction of error of $50,446 involving of amortized fair value of 750,200 options that were granted to nine agents of SDS-Israel in the amount of $50,446. The options are vested within one year of the grant date and they are execrable at $0.15 per share and no later than three years from the grant date.

(c) Correction of error involving of fair value of 450,000 warrants that were granted to a consultant of the Company in the amount of $63,407. The warrants are execrable at $0.15 per share and no later than two years from the grant date.

(d) Correction of error of $6,000 originally not included in selling, general and administrative for consultants fees which should have been expensed.

(e) Correction of error of $33,750 involving of amortized fair value of 225,000 shares that should been granted to two consultants of the Company under their consulting agreement.

(f) Correction of error involving the calculation of the basic and diluted weighted average number of Common Shares outstanding

F-24

SUSPECT DECTECTION SYSTEMS INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010 (UNAUDITED)

Statement of Operations for the three months ended September 30, 2009

	Previously			Net Change					Restated
	reported

Revenues, net	$	401,512							$	401,512

Cost of Goods Sold		34,264								34,264
Gross Profit
		367,248								367,248
Expenses:
Research and development		48,293								48,293
Selling, general and administrative		609,996			18,603		b,c,d,e,g			628,598
Total operating expenses		658,289								676,891

(Loss) from Operations		(291,041	)							(309,643	)

Interest expense		(16,158	)							(16,158	)

Net (loss)		(307,199	)							(325,801	)

Net (loss) Attributable to Noncontrolling Interest		(11,879	)		26,499			a		(38,378	)

Net (loss) attributable to Suspect Detection Systems Inc.	$	(295,320	)						$	(287,423	)

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

Weighted Average Number of Common Shares
Outstanding - Basic and Diluted		66,002,708			(2,468,483	)		f		63,534,225

F-25

SUSPECT DECTECTION SYSTEMS INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010 (UNAUDITED)

(a) Correction of error in calculation of the net loss attributable to Noncontrolling Interest

(d) Correction of error of $6,000 originally not included in selling, general and administrative for consultants fees which should have been expensed.

(e) Correction of error of $11,250 involving of amortized fair value of 75,000 shares that should been granted to two consultants of the Company under their consulting agreement.

(f) Correction of error involving the calculation of the basic and diluted weighted average number of Common Shares outstanding

(g) Correction of error of $112,500 originally included in selling, general and administrative for consultants fees which should have been expensed in prior period.

F-26

SUSPECT DECTECTION SYSTEMS INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010 (UNAUDITED)

Statement of Cash Flows for the period ended September 30, 2009

	Previously			Net Change			Restated
	reported
Operating Activities:
Net (loss)	$	(228,795	)	$	(461,292	)	$	(690,087	)
Adjustments to reconcile net (loss) to net cash
Common stock issued for officers' compensation		18,000			7,500			25,500
Stock options issued to directors		55,221			104,874			160,095
Stock options issued to agents		-			194,135			194,135
Stock warrants issued to a consultant		-			49,888			49,888
Common stock issued for consulting services		149,000			-			149,000
Depreciation		6,058			-			6,058
Changes in Assets and Liabilities-
Inventory		(45,307	)		-			(45,307	)
Prepaid expenses and other receivables		(165,160	)		25,543			(139,617	)
Accounts payable - Trade		80,703			1,700			82,403
Accrued liabilities		81,070			(10,427	)		70,643
Advances from customers, net		(212,530	)		(22,364	)		(234,894	)
Deferred revenues		114,111			-			114,111
Due to related parties		-			169,539			169,539
Accrued severance pay		(2,176	)		36,576			(38,752	)

Net Cash (Used in) Operating Activities		(149,805	)		22,520			(127,285	)

Investing Activities:
Cash acquired in business combination (b)		-			-			-
Increase in restricted cash		-			(100,000	)		(100,000	)
Prepaid expenses, non-current		-			(2,524	)		(2,524	)
Increase in severance pay fund		(36,576	)		35,576			(1,000	)
Purchases of Property and Equipment		(29,012	)		-			(29,012	)

Net Cash Provided by (Used in) Investing Activities		(65,588	)		(66,948	)		(132,536	)

F-27

SUSPECT DECTECTION SYSTEMS INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010 (UNAUDITED)

Statement of Cash Flows for the Year Ended December 31, 2009

	Previously			Net Change			Restated
	reported
Financing Activities:
Issuance of common stock for cash		95,000			-			95,000
Due to related party		55,572			(55,572	)		-
Net Cash Provided by Financing Activities		150,572			(55,572	)		95,000

Net Increase (Decrease) in Cash		(64,821	)		-			(164,821	)
Cash and Cash Equivalents - Beginning of Period		717,758						701,931
Cash and Cash Equivalents - End of Period	$	652,937			(15,827	)	$	537,110
Cash and Cash Equivalents - End of Period:
Cash in bank	$	701,931					$	701,931
Restricted cash		15,827			(15,827	)		-
Total	$	717,758					$	701,931
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest	$	-					$	-
Income taxes	$	-					$	-

F-28

SUSPECT DECTECTION SYSTEMS INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010 (UNAUDITED)

Note 5: Common Stock

On January 6, 2010, the Company issued 152,600 shares of common stock to a related company and a shareholder for services rendered valued at $23,000.

On January 6, 2010, the Company issued 660,000 shares of common stock to related parties and shareholders for services valued at $99,000.

During January 2010 the Company sold 466,667 Units consisting of 466,667 shares of common stock, 466,667 Class A Warrant with the exercise price at $0.25 per share, which expired one year from the date of subscription, and Class B Warrants with the exercise price at $0.375 per share, which will be expired two years from the date of subscription for a cash payment of $65,000, which $25,000 were received in 2009. The Units were issued in a private placement made pursuant to the exemption from the registration requirements of the Securities Act provided by Regulation S. The proceeds from the sale of the Units were used for working capital purposes.

During March 2010 the Company sold 333,333 Units, consisting of 333,333 shares of common stock, 333,333 Class A Warrant with the exercise price at $0.25 per share, which expired one year from the date of subscription, and Class B Warrants with the exercise price at $0.375 per share, which will expire two years from the date of subscription for a cash payment of $50,000 or $0.15 per share. The Units were issued in private placement made pursuant to the exemption from the registration requirements of the Securities Act provided by Regulation S. The proceeds from the sale of the Units were used for working capital purposes.

On April 10, 2010, the Company issued 500,000 shares of common stock to a consultant for services provided. These services were valued at $50,000.

On April 23, 2010, the Company issued 120,000 shares of common stock at par $0.0001, valued at $18,000, to an officer for services provided and is committed to issue shares of common stock at par $0.0001, valued at $7,500, to an officer and director for services provided.

F-29

SUSPECT DECTECTION SYSTEMS INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010 (UNAUDITED)

Note 6: Stock warrants

A summary of the warrants granted is as follows:

	For the nine months ended
	September 30, 2010
	Number of warrants			Weighted Average Exercise Price

Outstanding and exercisable at the beginning of the period		16,669,667		$	0.317
Granted		2,050,000			0.277
Exercised		-			-
Forfeited		(1,713,334	)		0.25
Outstanding and exercisable at the end of the period		17,036,334			0.319

	For the nine months ended
	September 30, 2009
	Number of warrants		Weighted Average Exercise Price

Outstanding and exercisable at the beginning of the period		9,522,999	$	0.375
Granted		6,756,668		0.235
Exercised		-		-
Forfeited		-		-
Outstanding and exercisable at the end of the period		16,099,667	$	0.318

F-30

SUSPECT DECTECTION SYSTEMS INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010 (UNAUDITED)

Note 7: Stock options

On December 30, 2009, the Company approved 2009 Global Stock Incentive Plan (the “stock option plan”), under which 35,000,000 shares of common stock are authorized for issuance. As of September 30, 2010 2,000,000 stock options were granted under the Stock Option Plan.

The Company accounts for stock based compensation using the fair value recognition provisions of ASC No. 718 “Compensation – stock compensation”.

The fair value of the stock options is estimated based upon grant date fair value using the Black-Scholes option-pricing model with the following weighted average assumptions used:


	Options granted under 2009 Global Stock Incentive Plan
annual dividends of	$	0.00
expected volatility of		114.78-158.87	%
risk-free interest rate of		2.3-2.77	%
expected average options expiration		3-5.32

	For the nine months ended
	September 30, 2010
	Number of options		Weighted Average Exercise Price

Outstanding and exercisable at the beginning of the period		1,550,000	$	0.15
Granted		2,000,000		0.15
Exercised		-		-
Forfeited		-		-
Outstanding and exercisable at the end of the period		3,550,000	$	0.15

F-31

SUSPECT DECTECTION SYSTEMS INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010 (UNAUDITED)

	For the nine months ended
	September 30, 2009
	Number of options		Weighted Average Exercise Price

Outstanding and exercisable at the beginning of the period		-		-
Granted		1,500,000		0.15
Exercised		-		-
Forfeited		-		-
Outstanding and exercisable at the end of the period		1,500,000	$	0.15

Note 8: Appointments of Directors and Officers

On January 13, 2010, the board of directors of the Company, appointed Mr. Yoav Krill as Chairman of the Board, to serve until the next annual meeting of the Company and until his successor is duly appointed and qualified. In connection with Mr. Krill’s appointment, the Company 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. Mr. Krill was also granted 1,500,000 options of common stock of the Company, exercisable at $0.15 per share, from the Global Incentive Stock Option Plan adopted by the Company at December 30, 2009. The agreement calls for 250,000 options vested simultaneously with the execution and delivery of the 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 Company 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. Stock based compensation expenses for the three and nine months ended September 30, 2010 were $104,167 and $562,500, respectively.

On January 13, 2010, the board of directors of the Company appointed Mr. Gil Boosidan as Chief Executive Officer of the Company 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 Company, whereas the number of the shares will be determined by the market value of the shares of the date of issuance. The Company 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. Stock based compensation expenses for the three and nine months ended September 30, 2010 were $2,500 and $7,500, respectively.

F-32

SUSPECT DECTECTION SYSTEMS INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010 (UNAUDITED)

On January 13, 2010, the board of directors of the Company appointed Dr. Kevin Schatzle to the Board of Advisors. The advisory agreement calls for 500,000 options of common stock of the Company, exercisable at $0.15 per share, from the Global Incentive Stock Option Plan adopted by the Company at December 30, 2009. The agreement calls for 250,000 options vested simultaneously with the execution and delivery of the agreement, and the balance shall vest at the rate of 20,833 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. Stock based compensation expenses for the three and nine months ended September 30, 2010 were $20,833 and $312,500, respectively.

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 remained as Chief Financial Officer and a director of the Company until December 6, 2010 when he resigned from his position as the Chief Financial Officer and as a member of the Board of the Registrant.

On May 9, 2010 SDS -Israel entered into an employment agreement with the Chief Executive Officer of SDS -Israel for a 10 years period commencing June 1, 2010. The Company shall pay to the Chief Executive Officer of SDS -Israel a monthly consulting fee in the amount of approximately $25,000. The amount is adjusted to the Israeli Consumer Price Index and updated every 3 months. The agreement may be terminated by each of the parties by giving an advance notice in writing (The Company is obliged for 60 days period and the CEO is obliged for 120 days period). In the event that SDS -Israel terminates this agreement, she shall pay the Chief Executive Officer of SDS -Israel a lump cash sum equal to 48 months of monthly consulting services fees.

Note 9: Major Customers

The Company’s revenues from 3 customers accounted for $1,596,682 or 96% of total revenues for the nine months ended September 30, 2010 and 4 customers accounted for $811,363 or 98 % of total revenues in the nine months ended September 30, 2009.

	Nine months ended September 30, 2010
	Revenues		% of total revenues
Customer A	$	1,052,134		66	%
Customer B		313,624		20
Customer C		163,375		10
Other customers		67,549		4
Total Revenues	$	1,596,682		100	%

	Nine months ended September 30, 2009
	Revenues		% of total revenues
Customer C	$	554,247		67	%
Customer D		149,919		18
Customer E		77,222		9
Customer F		29,975		4
Other customers		13,890		2
Total Revenues	$	825,253		100	%

Note 10: Subsequent events

None

F-33

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

As used in this Amendment No.2 to the Form 10-Q (this “Report”), references to “Suspect,” the “Company,” “we,” “our” or “us” refer to Suspect Detection Systems, Inc. unless the context otherwise indicates.

Forward-Looking Statements

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

For a description of such risks and uncertainties refer to our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 22, 2011 While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

Corporate Background

The Company was incorporated under the General Corporation Law of the State of Delaware on October 5, 2006. Initially the Company focused on the business of offering computer hardware and software products to religious consumers, with an emphasis on ultra-orthodox Jewish communities in Israel. On 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 $1,135,000. The Company closed the investment at January 20, 2009. 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 Company 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 Company’s common stock, and the issuance of warrants to purchase additional shares of common stock of the Company, 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 Company’s common stock. The Company 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 Company’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. Under the Exchange Agreement, NG agreed not to sell any shares of our common stock prior to the one (1) year anniversary of the Lock-Up Agreement.

Business and History of SDS

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

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

On January 13, 2010, the Company, appointed Yoav Krill as Chairman of the Board of Directors, effective as of said date, to serve until the next annual meeting of the Company’s stockholders and until his successor is duly appointed and qualified. In connection with Mr. Krill’s appointment, the Company 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 Company’s paid in capital, sales revenues or net profits. Mr. Krill was also granted 1,500,000 options of common stock of the Company, exercisable at $0.15 per share, from the Global Incentive Stock Option Plan adopted by the Company at December 30, 2009. 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 Company 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 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 Company, 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 Company 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.

During January 2010, SDS Ltd. executed an Indemnification and Exemption Agreement with Mr. Shabtai Shoval, the CEO of SDS Ltd. The agreement calls for the indemnification of Mr. Shoval and advance of expenses for any personal liability that may be imposed on Mr. Shoval in his capacity as an officer of SDS Ltd. Per the agreement, the maximum amount payable by SDS Ltd. to Mr. Shoval shall be the higher of $1,000,000 or 80% of SDS Ltd.’s cash reserves, measured promptly after receipt by SDS Ltd. of notice from Mr. Shoval of the commencement of any action, suit or proceeding regarding which Mr. Shoval may seek indemnification thereafter. SDS Ltd, agreed to reserve $100,000 from its cash and cash equivalents in order to assure the fulfillment the Company’s indemnification obligation under the agreement until such time as determined by the Board of Directors of SDS Ltd.

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 2010 was derived from sales of the system and services provided to four customers. Since the bulk of the Company’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 Intellectual Property was developed, invented, discovered, derived, programmed and/or designed with the assistance of various Persons, including former employees and consultants, none of which entered into an agreement that any rights that they have or may have in the Intellectual Property are assigned to the Company or that they waive any such rights and such Persons were not given consideration for their efforts.

The Company has agreed in principle and orally with an employee of the Company, that certain intellectual property developed by him prior to the time he was employed by the Company is owned by him. Such intellectual property has been integrated into the Products, whilst no formal license arrangement between the Company and the employee has been entered into.

A provisional patent application was filed on behalf of the Company with the US Patent and Trademark Office and the details of which were provided to the Purchaser. The Company has not decided whether or not it will renew said application or whether it will proceed to attempt to register any patent. There can be no assurance that the provisional application will be accepted.

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

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

Plan of Operation

As a result of the acquisition of 51% of Suspect Detection Systems Ltd. in the beginning of the first quarter of 2009, we are currently pursuing the development and marketing of SDS’s products. At the beginning of the third quarter of 2009, we increased the ownership percentage of Suspect Detection Systems Ltd. from 51% to 58%.

Results of Operations

The following discussion should be read in conjunction with the condensed financial statements and in conjunction with the Company's Form 10-K filed on March 22, 2011. Results for interim periods may not be indicative of results for the full year.

Results of Operations For the three months ended September 30, 2010 compared to the three months ended September 30, 2009

Revenues

The Company through its consolidated subsidiary Suspect Detection Systems Ltd generated revenues in the amount of $259,080 for the three (3) months ended September 30, 2010 and as compared to $401,512 for the three ended September 30, 2009. The decrease in revenues for the three months ended in September 30, 2010, as compared to the same period in 2009, is a result of seasoned period in July - September 2010.

Total operating expenses

During the three (3) months ended September 30, 2010 and 2009, total operating expenses were $457,014 and $676,891 respectively, in 2009 as an increase in general and administrative expenses due to the increase in the Company's marketing activities.

Results of Operations For the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009

Revenues

The Company generated $1,596,682 and $825,253 in revenues for the nine (9) months ended September 30, 2010 and 2009.

	Nine months ended September 30, 2010
	Revenues		% of total revenues
Customer A	$	1,052,134		66	%
Customer B		313,624		20
Customer C		163,375		10
Other customers		67,549		4
Total Revenues	$	1,596,682		100	%

	Nine months ended September 30, 2009
	Revenues		% of total revenues
Customer C	$	554,247		67	%
Customer D		149,919		18
Customer E		77,222		9
Customer F		29,975		4
Other customers		13,890		2
Total Revenues	$	825,253		100	%

Total Operating Expenses

During the nine (9) months ended September 30, 2010 and 2009, total operating expenses were $2,125,421 and $1,661,461, respectively.

Liquidity and Capital Resources

The Company had cash in the amount of $537,110 as of September 30, 2010 and $701,931 as of December 31, 2009. Cash and cash equivalents from inception to date have been sufficient to provide the operating capital necessary to operate to date.

The Company through its consolidated subsidiary SDS Ltd generated revenues in the amount of $259,080 for the three (3) months ended September 30, 2010, as compared to $401,512 for the three months ended September 30, 2009 and incurred net losses of $271,194 and $325,801 for the three month periods ending September 30, 2010 and 2009, respectively. In addition, the Company had a stockholders' equity of $882,546 as at September 30, 2010.

The Company expects significant capital expenditures during the next 12 months, contingent upon raising capital. We anticipate that we will need approximately $1,000,000 for operations for the next 12 months. These anticipated expenditures are for manufacturing, research & development, marketing, sales channel development, general and administrative expenses and debt financing. In order to obtain capital, during the last fiscal year, the Company commenced capital formation activity through a private placement offering, exempt from registration under the Securities Act of 1933, to raise up to $1,500,000 through the issuance of 10,000,000 units. The purchase price of each unit is $0.15. Each unit contains one share of common stock, one Class A Warrant giving the holder the right to purchase one share of common stock for $0.25, which is exercisable for one year from the date of issuance and one Class B Warrant, giving the holder the right to purchase one share of common stock for $0.375, which is exercisable for three years from the date of issuance. For the nine months ended September 30, 2010, the Company has sold an aggregate of 800,000 units and has issued 800,000 shares of common stock 800,000 Class A Warrants and 800,000 Class B Warrants, for the aggregate purchase price of $0.15. There can be no assurance that the Company will be successful in selling additional units.

Going Concern Consideration

The Company’s current activities include sales of its products, marketing, capital formation, research and development, and building infrastructure. The Company has incurred a loss of $690,087 for the nine months ended September 30, 2010 (2009 - $931,775) and, as of September 30, 2010, and December 31, 2009, the Company had an accumulated deficit of approximately $2,531,602 (2009 - $1,779,820). 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.

The Company has not established sufficient sources of revenues to cover its operating costs and expenses. As such, it has incurred significant operating losses since inception. Further, as of September 30, 2010, 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.

Recent Accounting Pronouncements

Off Balance Sheet Arrangements

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Item 4(T). Controls and Procedures

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

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

Changes in Internal Controls

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

PART II

OTHER INFORMATION

Item 1. Legal Proceedings.

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

Item 1A. Risk Factors

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

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

On January 6, 2010, the Company issued 152,600 shares of common stock to a related company for services rendered valued at $23,000. The shares were issued pursuant to an exemption from the registration requirements provided under Section 4(2) of the Securities Act of 1933, as amended.

On January 6, 2010, the Company issued 660,000 shares of common stock to related parties for services valued at $99,000. The shares were issued pursuant to an exemption from the registration requirements provided under Section 4(2) of the Securities Act of 1933, as amended.

During March 2010 the Company sold 333,333 Units, consisting of 333,333shares of common stock, 333,333 Class A Warrant with the exercise price at $0.25 per share, which expired one year from the date of subscription, and Class B Warrants with the exercise price at $0.375 per share, which will expire two years from the date of subscription for a cash payment of $50,000 or $0.15 per share. The Units were issued in private placement made pursuant to the exemption from the registration requirements of the Securities Act provided by Regulation S. The proceeds from the sale of the Units were used for working capital purposes.

On April 10, 2010, the Company issued 500,000 shares of common stock to a consultant for services provided. These services were valued at $50,000. The shares were issued pursuant to an exemption from the registration requirements provided under Section 4(2) of the Securities Act of 1933, as amended.

The shares were issued pursuant to an exemption from the registration requirements provided under Section 4(2) of the Securities Act of 1933, as amended. The securities were issued in private placement made pursuant to the exemption from the registration requirements of the Securities Act provided by Regulation S. The proceeds from the sale of the securities were used for working capital purposes.

Use of Proceeds

The proceeds from the sale of the Company’s securities were be used for working capital purposes.

Item 3. Defaults Upon Senior Securities.

Not applicable

Item 4. Removed and Reserved.

Item 5. Other Information.

Not applicable

Item 6. Exhibits

Exhibit No.		Description

31.1		Rule 13a-14(a)/15d14(a) Certification of Principal Executive Officer (attached hereto)

31.2		Rule 13a-14(a)/15d14(a) Certification of Principal Financial and Accounting Officer (attached hereto)

32.1		Section 1350 Certification of Principal Executive Officer (attached hereto)

32.1		Section 1350 Certification of Principal Financial and Accounting Officer (attached hereto)

SIGNATURES

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

	SUSPECT DETECTION SYSTEMS, INC.
Dated: May 13, 2011
	By:	/s/ Gil Boosidan
		Name: Gil Boosidan
		Title : Chief Executive Officer and Director (Principal Executive Officer)

Dated: May 13, 2011	By:	/s/ Ran Daniel
		Name: Ran Daniel
		Title: Chief Financial Officer (Principal Financial and Accounting Officer

Attached files

Suspect Detection Systems, Inc. Reports

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