UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~March~~June 3130, 2011

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 ~~May~~August 1318, ~~2010~~2011, 7678,~~555~~930,~~493~~892 shares of common stock, par value $0.0001 per share, were issued and outstanding.

Table of Contents

TABLE OF CONTENTS

Page PART I Item 1. Financial Statements F-1 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 3 Item 3. Quantitative and Qualitative Disclosures About Market Risk 109 Item 4(T). Controls and Procedures 109 PART II 10 Item 1. Legal Proceedings 1110 Item IA. Risk Factors 1110 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 1110 Item 3. Defaults Upon Senior Securities 11 Item 4. Removed and Reserved 11 Item 5. Other Information 11 Item 6. Exhibits 11

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements.

SUSPECT DETECTION SYSTEMS INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)

Consolidated Financial Statements-	F-1
Consolidated Balance Sheets as of March 31, 2011(unaudited), and December 31, 2010	F-2
Consolidated Balance Sheets as of June 30, 2011(unaudited), and December 31, 2010	F-2
Consolidated Statements of Operations for the Three Months Ended March 31, 2011 and 2010 (unaudited)	F-3
Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2011 and 2010 (unaudited)	F-4
Consolidated Statements of Cash Flows for Three Months Ended March 31, 2011 and 2010	F-4
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2011 and 2010 (unaudited)	F-5
Notes to Consolidated Financial Statements March 31, 2011 and 2010	F-7
Notes to Consolidated Financial Statements June 30, 2011 and 2010 (unaudited)	F-6

F-1

SUSPECT DECTECTION SYSTEMS INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

U.S. dollars

ASSETS	~~March~~June 3130,			December 31,
	2011			2010
	Unaudited			~~Audited~~
Current Assets:
Cash and cash equivalents	$	1786,~~037,374~~087		$	803,443
Restricted cash		~~115~~16,~~804~~280			115,501
Accounts receivable		22,~~422~~423			288,037
Inventory		7671,~~217~~683			188,185
Prepaid expenses and other receivables		7643,~~063~~961			253,864
Total current assets		1940,~~327,880~~434			1,649,030
Property and Equipment:
Computer and other equipment		5860,~~946~~766			56,556
Less - Accumulated depreciation		(2931,~~088~~996	)		(25,687	)
Property and equipment, net		2928,~~858~~770			30,869
Other Assets:
Severance pay fund		3536,~~393~~077			89,684
Long term deposit		7,463			7,300
Goodwill		1,333,214			1,333,214
Total other assets		1,376,~~070~~754			1,430,198
Total Assets	$	2,~~733~~345,~~808~~958		$	3,110,097

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

F-2

SUSPECT DECTECTION SYSTEMS INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

U.S. dollars

LIABILITIES AND STOCKHOLDERS' EQUITY	~~March~~June 3130,			December 31,
	2011			2010
	Unaudited			~~Audited~~
Current Liabilities:
Accounts payable - Trade	$	3529,~~793~~121		$	43,174
Accrued liabilities		~~230~~135,~~944~~241			227,228
Advances from customers		4230,~~995~~000			1,656,249
Deferred revenues		~~264~~159,~~577~~711			112,890
Due to related parties		~~466~~382,~~414~~159			283,257
Total current liabilities		1736,~~040,723~~232			2,322,798
Long-term Debt:
Long-term liabilities:
Convertible note		~~300~~409,~~905~~313			-
Accrued severance pay		3536,~~393~~077			88,560
Total liabilities		336,298			2,411,358
Total long-term liabilities		445,390			88,560
Commitments and Contingencies
Stockholders' Equity:
Common stock, par value $0.0001 per share, 250,000,000 shares authorized; 76,555,493 shares issued and outstanding at March 31, 2011 and December 31, 2010.		7,655			7,655
Common stock, par value $0.0001 per share, 250,000,000 shares authorized; 78,930,892 and 76,555,493 shares issued and outstanding at June 30, 2011 and December 31, 2010, respectively.		7,893			7,655
Additional paid-in capital		34,~~448~~795,~~726~~089			3,399,961
Common stock subscribed					-
Accumulated (deficit)		(3,953,492	)		(2,785,098	)
Accumulated (deficit)		(2,472,628	)		(2,785,098	)
		849,490			622,518
Total incorporated stockholders' equity, Net		983,753			622,518
Less - Noncontrolling interest		314,846			76,221
Less - Noncontrolling interest		(373,034	)		(76,221	)
Total stockholders' equity		1,164,336			698,739
Total stockholders' equity		1,356,787			698,739
Total Liabilities and Stockholders' Equity	$	2,345,958		$	3,110,097
Total Liabilities and Stockholders' Equity	$	2,733,808		$	3,110,097

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

F-3

SUSPECT DECTECTION SYSTEMS INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

U.S. dollars

	Three months ended March 31,
	For the three months ended June 30,						For the six months ended June 30,
	2011			2010			2011			2010
				Restated						Restated
Revenues, net	$	1129,~~608,418~~861		$	~~620~~717,~~199~~403		$	1,738,279		$	1,337,602
Cost of Goods Sold		~~163~~(10,~~754~~709	)		38(31,~~339~~409	)		(174,463	)		(69,748	)
Gross Profit		1119,~~444,664~~152			~~581~~685,~~860~~994			1,563,816			1,267,854
Expenses:
Operating Expenses:
Research and development		~~146~~48,~~694~~417			32177,~~185~~671			195,111			209,861
Selling, general and administrative		~~702~~1,~~493~~596,900			~~725~~733,~~130~~421			2,299,393			1,458,546
Total operating expenses		~~849~~1,~~187~~645,317			~~757~~911,~~315~~092			2,494,504			1,668,407
Income (Loss) from Operations		595,477			(175,455	)
Loss from Operations		(1,526,165	)		(225,098	)		(930,688	)		(400,553	)
Interest income (expense), net		13,806			(3,098	)
Interest (expenses) income, net		(3,900	)		(15,242	)		9,906			(18,340	)
Net income (loss)		~~609~~(1,~~283~~530,065	)		(~~178~~240,~~553~~340	)		(920,782	)		(418,893	)
Net loss (income) Attributable to Noncontrolling Interest		~~(296~~49,~~813~~201	)		(8520,~~747~~919	)		(247,612	)		(106,666	)
Net income (loss) attributable to Suspect Detection Systems Inc.	$	~~312~~(1,~~470~~480,864	)	$	(~~264~~261,~~300~~259	)	$	(1,168,394	)	$	(525,559	)
Income (Loss) Per Common Share:
Income (Loss) per common share - Basic and Diluted	$	(0.0002	)	$	(0.00	)	$	(0.02	)	$	(0.01	)
Weighted Average Number of Common Shares Outstanding - Basic and Diluted		74,055,493			65,729,668
Weighted Average Number of Common Shares Outstanding		75,305,493			66,309,668			74,680,493			66,039,668

The accompanying notes to the 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

	Three months ended March 31,
	For the six months ended June 30,
	2011			2010
				Restated
Operating Activities:
Net (loss)	$	~~609~~(920,~~283~~782	)	$	(~~178~~418,~~553~~893	)
Adjustments to reconcile net (loss) to net cash
(used in) operating activities:
Common stock issued for officers' compensation		21,000			-
Common stock compensation		483,699			172,000
Stock options issued to directors		22,265			105,203
Stock options compensation		977,720			299,405
Stock options issued to sales agents		-			81,527
Stock warrants issued to a consultant		-			49,888
Common stock issued for consulting services		5,500			99,000
Interest due to the issuance of convertible note		9,313			-
Interest due to the issuance of convertible note		905			-
Depreciation		6,309			3,058
Depreciation		3,401			1,281
Changes in Assets and Liabilities-
Inventory		111,968			7,870
Accounts receivable		265,614			(17,664	)
Prepaid expenses and other receivables		177,801			(68,970	)
Inventory		116,502			15,484
Accounts payable - Trade		(7,381	)		63,004
Prepaid expenses and other receivables		209,903			(67,394	)
Accrued liabilities		3,716			15,795
Accounts payable - Trade		(14,053	)		8,489
Advances from customers, net		(1,347,639	)		(469,400	)
Accrued liabilities		(91,987	)		114,976
Deferred revenues		151,687			87,350
Advances from customers		(1,626,249	)		(784,276	)
Due to related parties		183,157			83,389
Deferred revenues		46,821			160,822
Accrued severance pay		1,124			647
Due to related parties		98,902			105,650
Net Cash (Used in) Operating Activities		(63,213	)		(121,969	)
Accrued severance pay		1,124			(38,752	)
Net Cash (Used in) Operating Activities		(437,164	)		(397,207	)
Investing Activities:
Increase in restricted cash		(303	)		(100,000	)
Decrease (increase) in restricted cash		99,221			(100,000	)
Long term deposit		(163	)		(177	)
Additional purchase of 10% of subsidiary		(75,040	)		-
Purchases of Property and Equipment		(2,390	)		(2,789	)
Long term deposit		(163	)		(2,313	)
Net Cash Provided by (Used in) Investing Activities		(2,856	)		(102,966	)
Purchases of Property and Equipment		(4,210	)		(11,067	)
Net Cash Provided by (Used in) Investing Activities		19,808			(113,380	)
Financing Activities:
Issuance of convertible note		~~300~~400,000			-
Issuance of common stock for cash		-			95,000
Net Cash Provided by Financing Activities		~~300~~400,000			95,000
Net (decrease) in Cash		(17,356	)		(415,587	)
Cash and Cash Equivalents - Beginning of Period		803,443			701,931
Cash and Cash Equivalents - End of Period	$	786,087		$	286,344
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest	$	-		$	-
Income taxes	$	-		$	-

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

F-5

SUSPECT DECTECTION SYSTEMS INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

U.S. dollars

	Three months ended March 31,
	2011		2010
			Restated
Net Increase (Decrease) in Cash		233,931		(129,935	)
Cash and Cash Equivalents - Beginning of Period		803,443		701,931
Cash and Cash Equivalents - End of Period		1,037,374	$	571,996

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

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

F-6

Note 1: General

~~Basis~~Suspect Detection Systems Inc. (“SDS Inc.” or the “Company”) is a Delaware corporation that conducts its operations through its 68.6 percent owned subsidiary, Suspect Detection Systems Ltd., an Israeli Corporation (“SDS - Israel”). The Company was incorporated under the laws of ~~Presentation~~the ~~and~~State ~~Organization~~of Delaware on October 5, 2006, as PCMT Corporation. On December 24, 2008, the Company changed its name from PCMT Corporation to Suspect Detection Systems Inc.

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 Company operates through its Israeli subsidiary, Suspect Detection Systems Ltd, (“SDS – Israel”). SDS Israel was incorporated under the Companies Law, 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~~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. ~~Cognito~~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 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~~since July 9, 2009.

~~F-7~~On June 16, 2011, SDS Inc. entered into a share purchase agreement with Isahyau (Sigi) Horowitz (“the Seller”), pursuant to which the Company will purchase from the Seller 250,000 ordinary shares of SDS Israel (which represents 10.6% of the outstanding shares of common stock of SDS Israel) in consideration of $75,000.

F-6

On June 27, 2011, the Company entered into a Share Purchase Agreement with Shabtai Shoval (“Shoval”), a shareholder of SDS, Ltd. and its chief executive officer. Pursuant to the Agreement, Shoval will sell and transfer, under certain conditions as described herewith, to the Company all shares of SDS Israel held by him on the date of the Agreement, namely, NIS 0.01 par value 750,000 ordinary shares, which constitute 31.4% of SDS Israel outstanding shares as of the date of the agreement. In consideration for the shares, the Company will pay Shoval $1,174,500 (“Purchase Price”) which shall be paid in 35 installments. Shares shall only be transferred to the Company upon (1) the payment of fifty percent (50%) of the Purchase Price plus any and all accrued and outstanding interest as of the date of payment and/or (2) the passing of five (5) years from the date of closing provided that prior to such time, payment of no less than $225,000 on the account of the purchase price shall have been made to Shoval, plus any and all accrued and outstanding interest. The Company may defer the payment of all or a portion of any of the installments (except for the first installment, which was payable on the day of the closing) if and to the extent: (i) prior to the payment of $225,000 on the account of the aggregate purchase price to Shoval (the “Initial Threshold Amount”) the obtainable cash (cash or cash equivalents less any amounts of signed checks or any other instruments that were issued or wire transfer instructions which were executed as of the payment date of the relevant Installment) is less than the Initial Threshold Amount; or (ii) following payment of the Initial Threshold Amount, if the obtainable cash as of the payment date of the relevant Installment is less than $500,000 as of the relevant payment date.

Note 2: Summary of Significant Accounting Policies

Unaudited Interim Financial Information

The accompanying consolidated balance sheet as of ~~March~~June 3130, 2011, consolidated statements of ~~income~~operations and cash flows for the three and six months ended ~~March~~June 3130, 2011 and 2010 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 ~~March~~June 3130, 2011, our consolidated results of operations for the three and six months ended June 30, 2011 and 2010 and cash flows for the ~~three~~six months ended ~~March~~June 3130, 2011 and 2010.

These consolidated financial statements should be read in conjunction with consolidated financial statements and accompanying notes for the year ended December 31, 2010 included in our Annual Report for our 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 six months ended ~~March~~June 3130, 2011 are not necessarily indicative of results that may be expected for the year ending December 31, 2011.

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 ~~March~~June 3130, 2011, and consolidated revenues and expenses for the three and six months ended ~~March~~June 3130, 2011 and 2010. Actual results could differ from those estimates made by management.

F-7

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its 5868.6 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:

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.

F-8

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 March 31, 2011

Fair Value Measurements at June 30, 2011

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

1786,~~037,374~~087

Restricted Cash

~~115~~16,~~804~~280

Total assets at fair value

1802,~~153,178~~367

	Fair Value Measurements at December 31, 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	$	803,443	$	803,443	$	-	$	-
Restricted Cash		~~115~~15,501		115,501		-		-
Total assets at fair value	$	~~918~~924,944	$	~~918~~924,944	$	-	$	-

~~Impact of recently issued and adopted accounting pronouncements~~F-8

InImpact ~~July~~of ~~2010,~~recently ~~the FASB~~ issued ~~Accounting Standards Update No. 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables~~ and ~~the~~adopted ~~Allowance~~accounting 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.pronouncement

FIn May 2011, the FASB issued ASU 2011-904, "Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards ("IFRSs")." Under ASU 2011-04, the guidance amends certain accounting and disclosure requirements related to fair value measurements to ensure that fair value has the same meaning in U.S. GAAP and in IFRS and that their respective fair value measurement and disclosure requirements are the same. ASU 2011-03 is effective for public entities during interim and annual periods beginning after December 15, 2011. Early adoption is not permitted. The Company does not believe that the adoption of ASU 2011-04 will have a material impact on the Company's consolidated results of operation and financial condition.

In ~~January~~June ~~2010~~2011, the FASB issued ~~Accounting~~ASU ~~Standards Update~~ No. ~~2010~~ 2011-0605, ~~Fair~~"Comprehensive ~~Value~~Income ~~Measurements~~(ASC ~~and~~Topic ~~Disclosures~~220): Presentation of Comprehensive Income," (~~Topic~~"ASU ~~820~~2011-05"): ~~Improving~~which ~~Disclosures~~amends ~~about~~current ~~Fair~~comprehensive ~~Value~~income ~~Measurements~~guidance. ~~The~~This ~~amendments~~accounting inupdate ~~this~~eliminates ~~update~~the ~~require~~option ~~new~~to ~~disclosures~~present ~~and~~the ~~clarifications~~components of ~~existing~~other ~~disclosures~~comprehensive ~~related~~income toas ~~transfers~~part of the statement of shareholders' equity. Instead, comprehensive income must be reported in ~~and~~either ~~out~~a single continuous statement of ~~Level 1~~comprehensive ~~and~~income ~~Level 2~~which ~~fair~~contains ~~value~~two ~~measurements~~sections, ~~further~~net ~~disaggregation~~income ofand ~~fair~~other ~~value~~comprehensive ~~measurement~~income, ~~disclosures~~or in two separate but consecutive statements. ASU 2011-05 will be effective for ~~each~~public ~~class~~companies ofduring ~~assets~~the interim and ~~liabilities~~annual ~~and~~periods ~~additional~~beginning ~~details~~after ofDec. ~~valuation~~15, ~~techniques~~2011 ~~and~~with ~~inputs~~early ~~utilized~~adoption permitted. ~~This~~The ~~update~~Company isdoes ~~consistent~~not ~~with~~believe that the ~~Company's~~adoption ~~current~~of ~~accounting~~ASU ~~application~~2011-05 ~~for~~will ~~fair~~have ~~value~~a ~~measurements~~material impact on the Company's consolidated results of operation and ~~disclosures~~financial condition.

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 net ~~income~~loss of $~~312~~1,~~470~~168,394 for the ~~three~~six months ended ~~March~~June 3130, 2011 and, as of ~~March~~June 3130, 2011, ~~and December 31, 2010,~~ the Company had an accumulated deficit of ~~approximately~~ $23,~~472~~953,~~628 (2010 - $ 2,785,098)~~492. 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 March 31, 2011, 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.F-9

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 June 30, 2011, 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~~June ~~period ended March 31~~30, 2010 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.

The accompanying financial statements for the three and six months ended June 30, 2010 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.

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

Statement of operations for the three months ended June 30, 2010:
Increase in general and administrative expenses	$	160,814
Increase in interest expense, net		15,365
Increase in net loss attributable to Suspect Detection Systems Inc.	$	176,179
Statement of operations for the six months ended June 30, 2010:
Increase in general and administrative expenses	$	339,128
Increase in interest expense, net		18,463
Increase in net loss attributable to Suspect Detection Systems Inc.	$	357,591

F-10

~~Effects~~Statement onof ~~previously~~Operations ~~issued financial statements~~ for the ~~period~~Six months ended ~~March~~June 3130, 2010 ~~as follows:~~

Increase in general and administrative expenses	$	181,412
	Previously
Increase in 2009 net loss attributable to Suspect Detection Systems Inc.	$	181,412
	reported			Net Change					Restated
Revenues, net	$	1,337,602							$	1,337,602
Cost of Goods Sold		69,748								69,748
Gross Profit		1,267,854								1,267,854 1,267,854
Expenses:
Research and development		209,861								209,861
Selling, general and administrative		1,119,418			339,128		a,b,c,d, e,f,g,h,i,j			1,458,546
Total operating expenses		1,329,279								1,668,407
(Loss) from Operations		(61,425	)							(400,553	)
Interest expense		123			(18,463	)		j		(18,340	)
Net (loss)		(61,302	)							(418,893	)
Net (loss) Attributable to Noncontrolling Interest		(106,666	)							(106,666	)
Net (loss) attributable to Suspect Detection Systems Inc.	$	(167,968	)						$	(525,559	)
(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		73,483,285			(7,443,617	)		k		66,039,668

~~The~~(a) ~~accompanying~~Correction ~~financial~~of ~~statements~~error ~~for~~of ~~the year ended December 31~~$49,500 ~~2009~~originally ~~and~~included ~~for the three months ended at March 31, 2010 have been restated to reflect the corrections~~ in ~~accordance with FASB ASC 250-10-50-7~~selling, ~~“Accounting~~general ~~Change~~ and ~~Error~~administrative ~~Corrections~~for ~~Disclosure”.~~consultants ~~This~~fees ~~restatement~~which isshould ~~due~~have tonot ~~corrections~~been ~~of errors in previously reported financial statements~~expensed. ~~The effect on the Company's previously issued financial statements is summarized as follows:~~

~~Statement~~(b) Correction of ~~Operations~~error of $5,000 originally included in selling, general and administrative for ~~the~~insurance ~~three~~premium ~~months ended~~for ~~March~~colander 31year 2010, which was paid in advanced in 2009 and should have been recorded as prepaid expenses and an error of $7,000 originally included in selling, general and administrative for insurance premium for colander year 2010, which should have been recorded as prepaid expenses.

	Previously			Net Change			Restated
	reported
Revenues, net	$	620,199					$	620,199
Cost of Goods Sold		38,339						38,339
Gross Profit		581,860						581,860
Expenses:
Research and development		32,185						32,185
Selling, general and administrative		543,718			181,412	A,b,c,d,e,f,g,h		725,130
Total operating expenses		575,903						757,315
Income (loss) from Operations		5,957						(175,455	)
Interest expense		(3,098	)					(3,098	)
Net (loss)		2,859						(178,553	)
Net (loss) Attributable to Noncontrolling Interest		(85,747	)					(85,747	)
Net (loss) attributable to Suspect Detection Systems Inc.	$	(82,888	)				$	(264,300	)

(c) Correction of error of $12,000 originally included in selling, general and administrative for officer’s compensation which should have not been expensed.

	Previously			Net Change				Restated
	reported
(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		72,984,053			(7,254,385	)	i		65,729,668

(d) Correction of error of $49,595 originally not included in selling, general and administrative for consultants fees which should have been expensed.

(e) Correction of error of $31,035 originally not included in selling, general and administrative for general charges from SDS Israel, which should have been expensed.

(f) Correction of error of $12,500 originally not included selling, general and administrative for directorship fees of the Chairman of the Board, and $16,274 originally not included selling, general and administrative for the compensation of the chief executive officer

F-11

(ag) Correction of error involving of amortized fair value of ~~450~~2,000,000 ~~warrants~~options that were granted to athe ~~consultant~~chairman of the ~~Company~~Board inand ~~the~~a ~~amount~~member of ~~$49,888.~~the ~~The~~advisory ~~warrants~~board ~~are~~in ~~execrable~~the atamount of $090,434.~~15 per share and no later than two years from the grant date.~~

(bh) Correction of error involving of amortized fair value of 21,~~000~~550,~~000~~200 options that were granted to ~~the~~nine ~~chairman~~agents of SDS-Israel in the ~~Board~~amount ~~and~~of a$163,054. ~~member~~The options are vested within one year of the ~~advisory~~grant ~~board~~date inand ~~the~~they ~~amount~~are ofexecrable at $~~105,203~~0.15 per share and no later than three years from the grant date.

(ci) Correction of error involving of ~~amortized~~ fair value of 1450,~~550,200~~000 ~~options~~warrants that were granted to ~~nine~~a ~~sales~~consultant ~~agents~~ of ~~SDS-Israel~~the Company in the amount of $8149,~~527~~888. The ~~options~~warrants are ~~vested within one year of the grant date and they are~~ execrable at $0.15 per share and no later than ~~three~~two years from the grant date.

(dj) ~~Correction~~Reclassification of ~~error~~finance expenses in the amount of $718,~~000~~463 ~~originally~~from ~~included in~~ selling, general and administrative ~~for insurance premium for calendar year 2010, which should have been recorded as prepaid~~ expenses.

(ek) Correction of error ofinvolving ~~$74,250~~the ~~originally~~calculation ~~included~~of inthe ~~selling,~~basic ~~general~~ and ~~administrative~~diluted ~~for~~weighted ~~consultants~~average ~~fees~~number ~~which~~of ~~should~~Common ~~have~~Shares ~~not been expensed~~outstanding.

~~(f)~~Statement ~~Correction~~ of ~~error~~Operations ~~of $6,250 originally not included selling, general and administrative~~ for ~~directorship fees of~~ the ~~Chairman~~three ofmonths ended ~~the~~June ~~Board~~30, ~~and $8,137 originally not included selling, general and administrative for the compensation of the chief executive officer~~2010

(g) Correction of error of $18,058 originally not included in selling, general and administrative for general charges from SDS Israel, which should have been expensed.

	Previously
	reported			Net Change					Restated
Revenues, net	$	717,403							$	717,403
Cost of Goods Sold		31,409								31,409
Gross Profit		685,994								685,994
Expenses:
Research and development		177,671								177,671
Selling, general and administrative		572,607			160,814		a,b,c, d,e,f,g,h,i			733,421
Total operating expenses		750,278								911,022
(Loss) from Operations		(64,284	)							(225,098	)
Interest expense		123			(15,365	)		i		(15,242	)
Net (loss)		(64,161	)							(240,340	)
Net (loss) Attributable to Noncontrolling Interest		(20,919	)							(20,919	)
Net (loss) attributable to Suspect Detection Systems Inc.	$	(85,080	)		(176,179	)			$	(261,259	)

(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		73,977,031			(7,667,363	)		j		66,309,668

(ha) Correction of error of $624,~~402~~750 originally not included in selling, general and administrative for consultants fees which should have been expensed.

(ib) Correction of error ~~involving~~of ~~the~~$12,000 ~~calculation~~originally ofincluded ~~the~~in ~~basic~~selling, general and ~~diluted~~administrative ~~weighted~~for ~~average~~officer’s ~~number~~compensation ofwhich ~~Common~~should ~~Shares~~have ~~outstanding~~not been expensed.

F-12

~~Statement~~(c) Correction of ~~Cash~~error ~~Flows~~of $49,595 originally not included in selling, general and administrative for ~~the~~consultants ~~three~~fees ~~months~~which ~~ended~~should ~~March~~have ~~31,~~been ~~2010~~expensed.

	Previously
	reported			Net Change			Restated
Operating Activities:
Net income (loss)	$	2,859		$	(348,285	)	$	(178,553	)
Adjustments to reconcile net (loss) to net cash
Options issued to director		-			105,203			105,203
Options issued to agents		-			81,527			81,527
Warrants issued to a consultant		-			49,888			49,888
Common stock issued for consulting services		99,000			-			99,000
Depreciation		1,281			-			1,281
Changes in Assets and Liabilities-
Inventory		7,870			-			7,870
Prepaid expenses and other receivables		12,103			(81,703	)		(68,970	)
Accounts payable - Trade		63,004			-			63,004
Accrued liabilities		31,148			(15,353	)		15,795
Advances from customers, net		(469,400	)		-			(469,400	)
Deferred revenues		87,350			-			87,350
Due to related party		-			83,389			83,389
Accrued severance pay		647			-			647
Net Cash (Used in) Operating Activities		(164,137	)		42,168			(121,969	)
Investing Activities:
Increase in restricted cash		-			(100,000	)		(100,000	)
Prepaid expenses, non-current		-			(177	)		(177	)
Purchases of Property and Equipment		(2,789	)		-			(2,789	)
Net Cash Provided by (Used in) Investing Activities		(2,789	)		(100,177	)		(102,966	)

(d) Correction of error of $12,850 originally not included in selling, general and administrative for general charges from SDS Israel, which should have been expensed.

~~Statement~~(e) Correction of ~~Cash~~error ~~Flows~~of $6,250 originally not included selling, general and administrative for directorship fees of the ~~three~~Chairman ~~months~~of ~~ended~~the ~~March~~Board, 31and $8,137 ~~2010~~originally not included selling, general and administrative for the compensation of the chief executive officer

	Previously			Net Change			Restated
	reported
Financing Activities:
Issuance of common stock for cash		95,000			-			95,000
Due to related party		41,991			(41,991	)		-
Net Cash Provided by Financing Activities		136,991			(41,991	)		95,000
Net Increase (Decrease) in Cash		(29,935	)		-			(129,935	)
Cash and Cash Equivalents - Beginning of Period		701,931						701,931
Cash and Cash Equivalents - End of Period	$	677,996					$	571,996
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest	$	-					$	-
Income taxes	$	-					$	-

(f) 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.

(g) 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 $ (14,766).

(h) 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 $81,527. 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.

(i) Reclassification of finance expenses in the amount of $15,365 from selling, general and administrative expenses.

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

Statement of Cash Flows for the six months ended June 30, 2010

	Previously			Net Change			Restated
	reported
Operating Activities:
Net (loss)	$	(61,302	)	$	(357,591	)	$	(418,893	)
Adjustments to reconcile net (loss) to net cash
Common stock compensation		172,000			-			172,000
Stock options compensation		71,884			227,521			299,405
Stock warrants issued to a consultant		-			49,888			49,888
Depreciation		3,058			-			3,058
Changes in Assets and Liabilities-
Accounts receivable		(17,664	)					(17,664	)
Inventory		(15,484	)		30,968			15,484
Prepaid expenses and other receivables		(52,112	)		(15,282	)		(67,394	)
Accounts payable - Trade		8,489			-			8,489
Accrued liabilities		114,976			-			114,976
Advances from customers, net		(784,276	)		-			(784,276	)
Deferred revenues		160,822			-			160,822
Due to related parties		-			105,650			105,650
Accrued severance pay		(2,176	)		(36,576	)		(38,752	)

F-13

Note 5 Common Stock


Net Cash (Used in) Operating Activities	(401,785	)	4,578		(397,207	)

Investing Activities:
Increase in restricted cash	-		(100,000	)	(100,000	)
Prepaid expenses, non-current	-		(2,313	)	(2,313	)
Increase in severance pay fund	(36,576	)	36,576		-
Purchases of Property and Equipment	(11,067	)	-		(11,067	)

Net Cash Provided by (Used in) Investing Activities	(47,643	)	(65,737	)	(113,380	)

As of March 31, 2011 the Company is committed to issue shares of common stock of the Company, valued at $2,500 to the Chief Executive Officer of the Company for services rendered during the three months ended March 31, 2011.

Financing Activities:
Issuance of common stock for cash		95,000		-			95,000
Due to related party		38,841		(38,841	)		-
Net Cash Provided by Financing Activities		133,841		(38,841	)		95,000

Net Increase (Decrease) in Cash		(315,587	)	(100,000	)		(415,587	)
Cash and Cash Equivalents - Beginning of Period		717,758					701,931
Cash and Cash Equivalents - End of Period	$	386,344					286,344
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	$	-				$	-

AsNote of5: ~~March~~Related 31, 2011 the Company is committed to issue shares of common stock of the Company, valued at $4,500 to the Chief Financial Officer of the Company for services rendered by the officer rendered during the three months ended March 31, 2011.parties

As of ~~March~~June 3130, 2011 ~~the~~and ~~Company~~December ~~is committed to issue 90~~31,~~000~~ ~~shares~~2010 ~~of common stock of~~ the Company, tohas ~~two~~unpaid ~~consultants~~sales ~~and~~commissions ~~shareholders~~to ofa ~~the~~director ~~Company~~in ~~for~~SDS ~~services~~Israel ~~rendered~~in by the ~~consultants~~amounts ~~during~~of ~~the~~$382,159 ~~three~~and ~~months ended March 31~~$283,257, ~~2011~~respectively.

Note 6 Convertible Note

On March 21, 2011, the Company issued a convertible note (the “Note”) to Tamar Shefet (the “Lender”) whereby the Lender made a loan (the “Loan”) to the Company in an amount equal to $300,000 and accruing interest at a rate of 10% per annum. The Loan and the accrued interest will be repayable in one installment on the date that is eighteen months after the date the Loan is made; provided that such date may be extended at the Company’s request by another six months. The Lender shall have the right, at any time, to convert the principal and interest outstanding under the Note into common share issued by the Company at a conversion rate of $0.07 per a common share. In addition, the Lender is entitled to (i) 500 Class C warrants to purchase an additional 500 Common Shares for each 1000 Common Shares converted at exercise price of $0.12 per Common Share and (ii) 500 Class D warrants to purchase an additional 500 Common Shares for each 1000 Common Shares converted at exercise price of $0.21 per Common Share. The Class C Warrants shall be exercisable at any time from the conversion date to and excluding the first anniversary thereof and the Class D Warrants shall be exercisable at any time from the conversion date to and excluding the third anniversary thereof. There will be no restrictions on shares being registered upon exercise of the loan and the warrants will be registered under the Securities Act, or any state securities laws, and may be offered or sold in the United States upon registration or an applicable exemption from the registration requirements of the Securities Act.

FSP APB 14-1 requires issuers of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) to initially record the liability and equity components of the convertible debt separately. The liability component is computed based on the fair value of a similar liability that does not include the conversion option. The equity component is computed based on the total debt proceeds less the fair value of the liability component. The equity component (debt discount) and debt issuance costs are amortized as interest expense over the expected term of the debt facility. The liability component of our convertible notes is classified as long-term debt and presented as a long-term debt and the equity component of our convertible debt will be considered a redeemable security and presented as redeemable equity on our consolidated balance sheet if our stock price is above the conversion prices of $0.07 at the balance sheet date. We concluded that the liability value is equal to similar liability that does not include a conversion option and therefore the equity component is zero. At March 31, 2011 our stock price closed at $0.06. Therefore, our convertible note is presented as a long term debt.

F-14

~~Note~~On ~~7 Stock~~June ~~warrants~~29, 2011 SDS Inc. approved an Amended Consulting Agreement with Mr. Yoav Krill, the Company’s Chairman of the Board. In consideration of the services to be performed under the Amended Consulting Agreement, Mr. Krill shall receive an annual director’s fee of $25,000 for the first twelve-month period. 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, which 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. In addition, under the Amended Consulting Agreement, Mr. Krill was granted 2,400,000 shares of common stock of the Company valued at $240,000 and 10,500,000 stock options valued at $978,936.

AThe ~~summary~~Options vests as follows: 4,666,660 shares were vested upon execution of the ~~warrants~~Amended ~~granted~~Agreement isand asthe ~~follows:~~balance of 5,833,340 shares shall vest in equal monthly amounts of 291,667 shares during each and every calendar month during the twenty month period commencing on July 1, 2011. The price of the Company's share at date of grant of shares and options was $0.1, the exercise price of the options $0.1 and the its expiration date 10 years from grant.

	For the period ended
	March 31, 2011
	Number of warrants		Weighted Average Exercise Price
Outstanding and exercisable at the beginning of the period		21,003,339	$	0.268
Granted		3,783,336		0.349
Exercised		-		-
Forfeited		-		-
Outstanding and exercisable at the end of the period		17,220,003	$	0.25

On June 29, 2011 SDS Inc. approved an Amended Employment Agreement with Mr. Gil Boosidan will serve as the Company’s Chief Executive Officer. In consideration of the services to be performed under the Amended Employment Agreement, Mr. Boosidan shall receive (i) an aggregate of $30,000 in cash in four equal quarterly installments commencing September 30, 2011, and (ii) 1,200,000 shares of common stock of the Company valued at $120,000 and 6,000,000 stock options valued at $559,392.

	For the year period
	March 31, 2010
	Number of warrants		Weighted Average Exercise Price
Outstanding and exercisable at the beginning of the period		16,699,667	$	0.317
Granted		2,050,000		0.277
Exercised		-		-
Forfeited		-		-
Outstanding and exercisable at the end of the period		18,749,667	$	0.313

The Options vests as follows: 2,666,680 shares vested upon the execution of his Amended Employment Agreement and the balance of 3,333,320 shares shall vest in equal monthly amounts of 166,667 shares during each and every calendar month during the twenty month period commencing on July 1, 2011. The price of the Company's share at date of grant of shares and options was $0.1, the exercise price of the options $0.1 and the its expiration date 10 years from grant.

On June 1, 2011 SDS Inc signed a consulting agreement with Mr. Daniel Krill, the son of Mr. Yoav Krill, chairman of the board of director. In consideration for services Mr. Daniel Krill was granted 400,000 shares valued at $32,000 and 200,000 stock options valued at $15,032. 5,555 options shall vest each calendar month commencing the date of the execution of the consulting Agreement. The price of the Company's share at date of grant of shares and options was $0.08, the exercise price of the options $0.1 and the its expiration date 10 years from grant.

Note 6: Convertible Note

On March 21, 2011, the Company issued a convertible note (the “Note”) to Investor (the “Lender”) whereby the Lender made a loan to the Company in an amount equal to $300,000 and accruing interest at a rate of 10% per annum. A similar note was issued on May 12, 2011 for an amount equal to $100,000 (together the loans are referred to as the "loan"). The Loan and the accrued interest will be repayable in one installment on the date that is eighteen months after the date the Loan is made; provided that such date may be extended at the Company’s request by another six months. The Lender shall have the right, at any time, to convert the principal and interest outstanding under the Note into common share issued by the Company at a conversion rate of $0.07 per a common share. In addition, the Lender is entitled to (i) 500 Class C warrants to purchase an additional 500 Common Shares for each 1000 Common Shares converted at exercise price of $0.12 per Common Share and (ii) 500 Class D warrants to purchase an additional 500 Common Shares for each 1000 Common Shares converted at exercise price of $0.21 per Common Share. The Class C Warrants shall be exercisable at any time from the conversion date to and excluding the first anniversary thereof and the Class D Warrants shall be exercisable at any time from the conversion date to and excluding the third anniversary thereof. There will be no restrictions on shares being registered upon exercise of the loan and the warrants will be registered under the Securities Act, or any state securities laws, and may be offered or sold in the United States upon registration or an applicable exemption from the registration requirements of the Securities Act.

F-15

~~Note~~FSP 8APB 14-1 requires issuers of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) to initially record the liability and equity components of the convertible debt separately. The liability component is computed based on the fair value of a similar liability that does not include the conversion option. The equity component is computed based on the total debt proceeds less the fair value of the liability component. The equity component (debt discount) and debt issuance costs are amortized as interest expense over the expected term of the debt facility. ~~Stock~~The ~~options~~liability component of our convertible notes is classified as long-term debt and presented as a long-term debt and the equity component of our convertible debt will be considered a redeemable security and presented as redeemable equity on our consolidated balance sheet if our stock price is above the conversion prices of $0.07 at the grant date. We concluded there the liability value is equal to similar liability that does not include a conversion option and therefore the equity component is zero.

OnWe ~~December~~did ~~30,~~not ~~2009,~~calculate ~~the~~a ~~Company~~beneficial ~~approved~~conversion ~~2009~~feature, ~~Global~~in ~~Stock~~determining ~~Incentive~~whether ~~Plan~~an ~~(the~~instrument ~~“stock~~contains ~~option~~a ~~plan”)~~beneficial conversion option, ~~under~~intrinsic ~~which~~value 35should be calculated using the effective conversion price,~~000,000~~ ~~shares~~which ofis ~~common~~based ~~stock~~on ~~are~~the ~~authorized~~proceeds received for ~~issuance~~the convertible instrument. AsThe Company's shares market price at grant date of ~~march~~the ~~31,~~notes ~~2011~~was 2below the conversion price,~~000,000~~ ~~stock~~therefore ~~options~~there ~~were~~was ~~granted~~no ~~under~~beneficial ~~the~~conversion ~~Stock~~feature ~~Option~~on ~~Plan~~the loans.

OnNote ~~December 30, 2009 the Company authorized 35,000,000 shares of Common~~ 7: Stock for issuance under the SDSS Inc., 2009 the stock option plan, of which as of December 31, 2010 1,500,000 options were granted to Mr. Yoav krill, the Chairman of the Board of Directors and 500,000 to a member of the Advisory Board. The Options granted were valued at $ 236,970. The options were granted to Mr. Yoav Krill on January 13, 2010, under the consultancy agreement with Mr., Krill and they are exercisable at $0.15 per share. A total of 250,000 options were vested at the date of the grant, while the remaining options will vest at a rate of 104,167 options each calendar quarter over three years. The options terminate forty-eight (48) months from the date of vesting. The options were granted to the member of the Advisory Board on January 14, 2010, under the consultancy agreement and they are exercisable at $0.15 per share. A total of 250,000 options were vested at the date of the grant, while the remaining options will vest at a rate of 20,833 options each calendar quarter over three years. The options terminate forty-eight (48) months from the date of vesting. The number of the options exercisable at December 31, 2010 was 1,000,000 options. As of the date of the grant, the average expected term of the options was 5.32 years, expected volatility was 147.51 percent, expected dividend rate was 0 percent, and the risk free rate of return was 2.77 percent.warrants

A summary of the warrants granted is as follows:

	For the six months ended
	June 30, 2011
	Number of warrants			Weighted Average Exercise Price
Outstanding and exercisable at the beginning of the period		17,170,007		$	0.30
Forfeited		(7,373,340	)		0.34
Outstanding and exercisable at the end of the period		9,796,667		$	0.27

	For the six months ended
	June 30, 2010
	Number of warrants			Weighted Average Exercise Price
Outstanding and exercisable at the beginning of the period		16,019,667		$	0.32
Granted		2,050,000			0.28
Forfeited		( 366,667	)		0.25
Outstanding and exercisable at the end of the period		17,703,000		$	0.31

Note 8: 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 June 30, 2011 26,250,200 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

F-16

	For the three months ended
	March 31, 2011
	Number of options		Weighted Average Exercise Price
Outstanding and exercisable at the beginning of the period		3,550,200	$	0.15
Granted		-		-
Exercised		-		-
Forfeited		-		-
Outstanding and exercisable at the end of the period		3,550,200	$	0.15

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 for 2011 grants:

	For the three months ended
Annual dividends of	$	0.00
	March 31, 2010
expected volatility of		151.54	%
	Number of options			Weighted Average Exercise Price
risk-free interest rate of		1.92	%
Outstanding and exercisable at the beginning of the period		1,550,200		$	0.15
expected average options expiration		6.52
Granted		2,000,000			0.15
Exercised		-			-
Forfeited		-			-
Outstanding and exercisable at the end of the period		3,550,200		$	0.15

Note 9 Major Customers

	For the six months ended
	June 30, 2011
	Number of options		Weighted Average Exercise Price
Outstanding at the beginning of the period		3,550,200	$	0.15
Granted		22,700,000		0.11
Exercised		-		-
Forfeited		-		-
Outstanding at the end of the period		26,250,200	$	0.12

~~The~~Exercisable ~~Company’s~~at ~~revenues~~the ~~from~~end ~~a customer accounted for $1,590,110 or 99%~~ of ~~total revenues for~~ the ~~three~~period ~~months ended March 31~~13,993,263 ~~2011 and 3 customers accounted for~~ $~~859,990~~ ~~or 97% of total revenues in the nine months ended March 31, 2010~~0.17

	Three months ended March 31, 2011
	For the six months ended
	Revenues		% of total revenues
	June 30, 2010
Customer A	$	1,590,110		99	%
	Number of options		Weighted Average Exercise Price
Other customers		18,308		1
Outstanding at the beginning of the period		1,550,200	$	0.15
Total Revenues	$	1,608,418		100	%
Granted		2,000,000		0.15 0.15
Exercised		-		-
Forfeited		-		-
Outstanding at the end of the period		3,550,200	$	0.15

Exercisable at the end of the period

2,000,198

0.15

Note 9: Major Customers

The Company’s revenues from a customer accounted for $1,696,279 or 98% of total revenues for the six months ended June 30, 2011 and 2 customers accounted for $1,306,405 or 97% of total revenues in the six months ended June 30, 2010.

F-17

	Three months ended March 31, 2010
	Six months ended June 30, 2011
	Revenues		% of total revenues
Customer B	$	610,000		69	%
Customer A	$	1,696,279		98	%
Customer C		165,000		19
Other customers		42,000		2
Customer D		84,990		10
Total Revenues	$	1,738,279		100	%
Other customers		28,645		3
Total Revenues	$	888,635		100	%

	Six months ended June 30, 2010
	Revenues		% of total revenues
Customer A	$	1,006,411		75	%
Customer B		299,994		22
Other customers		31,197		3
Total Revenues	$	1,337,602		100	%

Note 10: Subsequent events

AtAs ~~April~~defined ~~18,~~in ~~2011,~~FASB ~~the~~ASC ~~Company granted 5,300,000 options to four employees of SDS~~855- ~~Ltd. A total of 3~~10,~~750,000~~ ~~options~~“Subsequent ~~were vested at the date of the grant~~Events”, ~~while~~subsequent ~~the~~events ~~remaining~~are ~~options~~events ~~will~~or ~~vest~~transactions ~~each~~that ~~calendar~~occur ~~quarter~~after ~~over two years. The options terminate at~~ the ~~31st~~balance ofsheet ~~December~~date ofbut ~~the~~before ~~fifth~~financial ~~year~~statements ~~following~~are ~~the~~issued ~~calendar~~or ~~Gregorian~~available ~~year~~to inbe ~~which the option became exercisable~~issued.

On July 27, 2011, the Company entered into an indemnification agreement with Shabtai Shoval and with Yoav Krill and Gil Boosidan. Mr. Shoval is the chief executive officer of SDS Israel, the Company's operating subsidiary, Mr. Krill is the Chairman of the Company and Mr. Boosidan is the Company's Chief Executive Officer and a director.

Pursuant to the agreements, the Company agreed to indemnify each of Messrs. Shoval, Krill and Boosidan to the fullest extent permitted by law for all expenses, costs, liabilities and legal fees which such individual may incur in the discharge of his duties to the Company. Notwithstanding the foregoing, the person will not be entitled to any indemnification with respect to any claim arising directly or indirectly if, among others, (i) his acts were committed in bad faith or were the result of active and deliberate dishonesty, (ii) he gained any financial profit or other advantage to which he was not legally entitled, or (iii) payment by the Company is not permitted by applicable law.

F-18

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

As used in this 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 Suspect Detection Systems, Ltd., an Israeli limited company (“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.

On June 16, 2011 , SDS Inc. entered into a share purchase agreement with Isahyau (Sigi) Horowitz (“the Seller”), pursuant to which the Company will purchase from the Seller, all the shares of SDS Israel held by him on the date hereof, namely, 250,000 Ordinary Shares of SDS Israel (which represents 10.6% of the outstanding shares of common stock of SDS Israel) in consideration of $ 75,000.

On June 27, 2011, the Company entered into a Share Purchase Agreement with Shabtai Shoval (“Shoval”), a shareholder of SDS, Ltd. and its chief executive officer. Pursuant to the Agreement, Shoval will sell and transfer to the Company all shares of SDS Israel held by him on the date of the Agreement, namely, NIS 0.01 par value 750,000 ordinary shares, which constitute 31.4% of SDS Israel outstanding shares as of the date of the agreement. In consideration for the shares, the Company will pay Shoval $1,174,500 (“Purchase Price”) which shall be paid in 35 installments. Shares shall only be transferred to the Company upon (1) the payment of fifty percent (50%) of the Purchase Price plus any and all accrued and outstanding interest as of the date of payment and/or (2) the passing of five (5) years from the date of closing provided that prior to such time, payment of no less than $225,000 on the account of the purchase price shall have been made to Shoval, plus any and all accrued and outstanding interest. The Company may defer the payment of all or a portion of any of the installments (except for the first installment, which was payable on the day of the closing) if and to the extent: (i) prior to the payment of $225,000 on the account of the aggregate purchase price to Shoval (the “Initial Threshold Amount”) the obtainable cash (cash or cash equivalents less any amounts of signed checks or any other instruments that were issued or wire transfer instructions which were executed as of the payment date of the relevant Installment) is less than the Initial Threshold Amount; or (ii) following payment of the Initial Threshold Amount, if the obtainable cash as of the payment date of the relevant Installment is less than $500,000 as of the relevant payment date.

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.

OnSDS ~~January~~was ~~13,~~incorporated ~~2010,~~under the ~~Company~~Companies ~~appointed~~Law, ~~Gil~~5759-1999, ~~Boosidan~~of asthe ~~its~~State ~~Chief~~of ~~Executive~~Israel ~~Officer~~in ~~and~~2004. In ~~executed~~order anto ~~employment~~finance ~~agreement~~its ~~with~~research ~~Mr.~~and ~~Boosidan~~development ~~as of January 14~~activities, ~~2010~~SDS ~~(the~~sought ~~“Employment~~public ~~Agreement”). In~~funding ~~consideration~~and ofin 2005, the ~~services~~Transportation toSecurity beAdministration ~~performed~~of ~~under~~ the ~~Employment~~US ~~Agreement,~~Department ~~Mr. Boosidan shall receive an aggregate~~ of ~~$30,000~~Homeland -Security ~~$20,000~~(the in“TSA”) ~~cash~~awarded ~~over~~a ~~four~~grant ~~equal~~to ~~quarterly~~SDS ~~installments~~to ~~commencing~~support ~~March~~the ~~31,~~development ~~2010,~~of ~~and~~behavior ~~$10,000~~pattern inrecognition ~~shares~~technology. Additional offunding ~~commons~~was ~~stock~~obtained offrom the ~~Company,~~Israeli ~~the~~government ~~number~~and toUS beand ~~determined~~Israeli bygovernmental ~~the~~security ~~market~~authorities ~~value~~performed ofevaluations ~~the~~and ~~shares~~testing of ~~the~~SDS’s ~~date~~products ofin ~~issuance~~2005. ~~The~~ In ~~terms~~2006, ofSDS ~~the~~obtained ~~Employment~~private ~~Agreement~~financing, ~~shall~~issuing beshares ~~for~~of ~~one~~preferred ~~year,~~stock and ~~the~~warrants ~~Company has the right~~ to ~~terminate such agreement for cause in~~ the ~~event~~NG of– aThe ~~material~~Northern ~~breach~~Group ~~by Mr~~LP. Additional ~~Boosidan~~US ~~which~~government isfunding ~~not~~was ~~cured~~obtained ~~after~~in ~~notice~~2006 offrom ~~such~~the ~~breach~~TSA.

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.

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 the three months ended at March 31,2011 was derived from sales of the system and services provided to a customer and 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%.

At the second quarter of 2011 we increased the ownership percentage to 68.6%.

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 ~~March~~June 3130, 2011 compared to the three months ended ~~March~~June 3130, 2011

Revenues

The Company generated $1129,~~608,418~~861 and $~~620~~717,~~199~~403 in revenues for the three (3) months ended ~~March~~June 3130, 2011 and 2010, respectively, which represents ana ~~increase~~decrease of $~~988~~587,~~219~~542 or ~~259~~81.3382%. The ~~increase~~decrease in revenues ishas ato ~~result~~do ofwith ~~increased~~revenues ~~marketing~~from ~~activities~~2 contracts that were supplied and recorded in the 3 months ended June 30, 2010.

The Company generated revenues from one of its four major customers in the amount of $1106,~~590,110~~169 or 9982% of total revenues for the three months ended ~~March~~June 3130, 2011. ~~During the three months ended March 31, 2010 the purchases of 3 customers in the aggregate amount of $859,990 accounted for 97% of the Company’s total revenues.~~

Cost of Revenue

Cost of revenue primarily consists of purchases and royalties to the Chief Science Office in Israel due to grants that were received in the past. Cost of revenues was $10,709 and $31,409 for the three months ended June 30, 2011 and 2010, respectively. This decrease is primarily attributable to decrease in revenues.

Total Operating Expenses

Results of Operations For the six months ended June 30, 2011 compared to the six months ended June 30, 2010

Revenues

The Company generated $1,738,279 and $1,337,602 in revenues for the six (6) months ended June 30, 2011 and 2010. The increase in revenues is a result of the recognition of revenues from one big contract in the first quarter of 2011.

The Company’s revenues from 1 customer accounted for $1,696,279 or 97 % of total revenues for the six months ended June 30, 2011 and 2 customers accounted for $1,306,405 or 98% of total revenues in the six months ended June 30, 2010.

	Six months ended June 30, 2011
	Revenues		% of total revenues
Customer A	$	1,696,279		98	%
Other customers		42,000		2
Total Revenues	$	1,738,279		100	%

	Six months ended June 30, 2010
	Revenues		% of total revenues
Customer A	$	1,006,411		75	%
Customer B		299,994		22
Other customers		31,197		3
Total Revenues	$	1,337,602		100	%

Cost of Revenue

Cost of revenue primarily consists of purchases and royalties to the Chief Science Office in Israel due to grants that were received in the past. Cost of revenues was $174,463 and $69,748 for the six months ended June 30, 2011 and 2010, respectively. This increase is primarily attributable to increase in revenues.

	Three months ended March 31, 2011
	Revenues		% of total revenues
Customer A	$	1,590,110		99	%
Other customers		18,308		1
Total Revenues	$	1,608,418		100	%

	Three months ended March 31, 2010
	Revenues		% of total revenues
Customer B	$	610,000		69	%
Customer C		165,000		19
Customer D		84,990		10
Other customers		28,645		3
Total Revenues	$	888,635		100	%

Total Operating Expenses

Operating expenses consist primarily of personnel costs and related expenses, professional fees, sales and marketing expenses, including travel, sales commissions, communication expenses, other administrative expenses and amortization of other acquired intangible assets. During the ~~three~~six (36) months ended ~~March~~June 3130, 2011 and 2010, total operating expenses were $~~843~~2,~~687~~494,504 and $~~757~~1,~~315~~668,407, respectively. The increase in operating expenses ~~results~~resulted mainly from an increase in ~~research~~stock ~~and~~based ~~development~~compensation ~~expenses~~to ~~which increased from~~ $321,~~185~~461,419 ~~for~~in the ~~three~~six ~~months~~month ended ~~March~~June 3130, ~~2010~~2011 tocompared with $~~146~~471,~~964~~405 ~~for~~in the ~~three~~six ~~months~~month ended ~~March~~June 3130, ~~2011 and represents an increase of 456~~2010.~~62%.~~ ~~Selling,~~Salaries ~~general~~ and ~~administrative~~other operational expenses ~~decreased~~did ~~during~~not ~~the~~change ~~three~~from ~~(3)~~the ~~months~~six month ended ~~March~~June ~~31,~~ 2011 to ~~$702,493~~the ~~from~~same ~~$725,130,~~period ain ~~difference of $22,637 or 3~~2010.~~12%.~~

Net Income (loss)

During the three (3) months ended March 31, 2011 the net income was $312,470 as oppose to a loss of $264,300, during the three (3) months ended March 31, 2010

Liquidity and Capital Resources

The Company had cash in the amount of $1786,~~037,374~~087 as of ~~March~~June 3130, 2011 and $803,443 as of December 31, 2010. ~~Cash and cash equivalents from inception to date have been sufficient to provide the operating capital necessary to operate to date.~~

AsThe Company through its consolidated subsidiary SDS Ltd generated revenues in the amount of ~~March~~$1,738,279 31for the six (6) months ended June 30, 2011, ~~the~~as ~~Company~~compared ~~owed~~to $~~293~~1,~~162~~337,602 tofor ~~Mr.~~the ~~Eran~~six ~~Drukman,~~months anended ~~officer~~June of30, ~~SDS~~2010 –and ~~Israel. The~~incurred ~~loan~~net ~~was~~loss ~~provided~~of $1,168,394 for ~~working~~the ~~capital~~six ~~purposes~~month periods ending June 30, 2011 and isa ~~unsecured~~loss of $525,559 ~~non-interest~~for ~~bearing~~the six months ended June 30, ~~and~~2010. In ~~has~~addition, nothe ~~terms~~Company ~~for~~had ~~repayment~~a stockholders' equity of $1,164,336 at June 30, 2011.

As of June 30, 2011, the Company owed $307,000 to Mr. Eran Drukman, an officer of SDS – Israel. The loan was provided for working capital purposes, and is unsecured, non-interest bearing, and has no terms for repayment.

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 and development, marketing, sales channel development, general and administrative expenses and debt financing.

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 net ~~income~~loss of $~~317~~1,~~970~~168,394 for the ~~three~~six ~~month~~months ~~periods~~ended ~~ending~~June ~~March 31~~30, 2011. The Company had an accumulated deficit of ~~approximately~~ $23,~~472~~953,~~628 (December 31, 2010 - $2,785,098)~~492. 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 June 30, 2011, 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

In ~~July~~May ~~2010~~2011, the FASB issued ~~Accounting~~ASU ~~Standards Update No. 2010~~2011-2004, ~~Receivables~~"Fair Value Measurement (Topic ~~310~~820): ~~Disclosures~~Amendments ~~about~~to ~~the~~Achieve ~~Credit~~Common ~~Quality~~Fair ofValue ~~Financing~~Measurement ~~Receivables~~and Disclosure Requirements in U.S. GAAP and ~~the~~International ~~Allowance~~Financial ~~for~~Reporting ~~Credit~~Standards ~~Losses~~("IFRSs")." ~~The~~Under ~~amendments~~ASU in2011-04, ~~this~~the ~~update~~guidance ~~require~~amends ~~additional~~certain accounting and disclosure ~~about~~requirements ~~the~~related ~~credit~~to ~~quality~~fair ofvalue ~~financing~~measurements ~~receivables,~~to ~~such~~ensure asthat ~~aging~~fair ~~information~~value ~~and~~has ~~credit~~the ~~quality~~same ~~indicators~~meaning in U.S. ~~Both~~GAAP ~~new~~and in IFRS and ~~existing~~that ~~disclosures~~their ~~must~~respective befair ~~disaggregated~~value bymeasurement ~~portfolio~~and ~~segment~~disclosure orrequirements ~~class~~are the same. ~~This~~ASU ~~update~~2011-03 is effective for ~~interim~~public ~~periods~~entities during interim and ~~fiscal~~annual ~~years~~periods ~~ending~~beginning after December 15, ~~2010~~2011. ~~The~~Early adoption ofis ~~these~~not ~~requirements~~permitted. ~~did~~The Company does not believe that the adoption of ASU 2011-04 will have ana material impact on the Company's consolidated ~~financial~~results ~~position~~of oroperation ~~results~~and offinancial ~~operations~~condition.

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.

9Item 3. Quantitative and Qualitative Disclosures About Market Risk

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 Principal Executive Officer and Principal 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, Convertible Note and Use of Proceeds.

On March 21, 2011, the Company issued a convertible note (the “Note”) to ~~Tamar~~Investor ~~Shefet~~ (the “Lender”) whereby the Lender made a loan (the “Loan”) to the Company in an amount equal to $300,000 and accruing interest at a rate of 10% per annum. A similar note was issued on May 12, 2011 for an amount equal to $100,000 (together the loans are referred to as the "Loan"). The Loan and the accrued interest will be repayable in one installment on the date that is eighteen months after the date the Loan is made; provided that such date may be extended at the Company’s request by another six months. The Lender shall have the right, at any time, to convert the principal and interest outstanding under the Note into common share issued by the Company at a conversion rate of $0.07 per a common share. In addition, the Lender is entitled to (i) 500 Class C warrants to purchase an additional 500 Common Shares for each 1000 Common Shares converted at exercise price of $0.12 per Common Share and (ii) 500 Class D warrants to purchase an additional 500 Common Shares for each 1000 Common Shares converted at exercise price of $0.21 per Common Share. The Class C Warrants shall be exercisable at any time from the conversion date to and excluding the first anniversary thereof and the Class D Warrants shall be exercisable at any time from the conversion date to and excluding the third anniversary thereof. There will be no restrictions on shares being registered upon exercise of the loan and the warrants will be registered under the Securities Act, or any state securities laws, and may be offered or sold in the United States upon registration or an applicable exemption from the registration requirements of the Securities Act.

As of ~~March~~June 3130, 2011 the Company is committed to issue shares of common stock of the Company, valued at $45,~~500~~000 to the Chief ~~Financial~~Executive Officer of the Company for services rendered ~~by the officer rendered~~ during the ~~three~~six months ended ~~March~~June 3130, 2011.

As of ~~March~~June 3130, 2011 the Company is committed to issue 9060,000 shares of common stock of the Company, to two consultants and shareholders of the Company for services rendered by the consultants during the three months ended ~~March~~June 3130, 2011.

The shares will be issued pursuant to an exemption from the registration requirements provided under Section 4(2) of the Securities Act of 1933, as amended and by Regulation S.

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
Dated: August 22, 2011
	By:	/s/ Gil Boosidan
		Name: Gil Boosidan
		Title : Chief Executive Officer and Director (Principal Executive Officer)
		Title : Chief Executive Officer and Director (Principal Executive and Principal Financial and Accounting Officer)

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

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