UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549





FORM 10-K


MARK ONE:








x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2010o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





Commission file number: 0-51170





IDO SECURITY INC.


(Exact name of registrant as specified in its charter)


Nevada

38-3762886(State or other Jurisdiction

of Incorporation or Organization)

(I.R.S. Employer

Identification No.)17 State Street

10004New York, New York

(Zip Code)(Address of Principal Executive Offices)





(646) 224-1234


(Registrant’s telephone number, including area code)





Securities registered under Section 12 (b) of the Exchange Act: None


Securities registered under Section 12 (g) of the Exchange Act: Common Stock, $.001 per share





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





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





Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 Website, if any, every Interactive Date 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 oNo o





Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o





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





Large accelerated filer   o   Accelerated filer   o   Non-accelerated filer  o   Smaller Reporting Company x





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





The registrant had 12,028,494,374 shares of common stock, par value $0.001 per share, outstanding as of April 13, 2011.





The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant, computed by reference to the closing price of $0.0006 of the common stock on the OTC Bulletin Board on June 30, 2010, was approximately $2.7 million.











IDO SECURITY INC.


2010 FORM 10-K ANNUAL REPORT


TABLE OF CONTENTS


PagePART IItem 1.
Business

4Item 1a.
Risk Factors

9Item 1b.
Unresolved Staff Comments

14Item 2.
Properties

15Item 3.
Legal Proceedings

15Item 4.
Removed and Reserved

15PART IIItem 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

15Item 6.
Selected Financial Data

16Item 7.
Management Discussion and Analysis of Financial Condition and Results of Operation.

16Item 7a.
Quantitative and qualitative disclosures about market risk.

20Item 8.
Financial Statements

20Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

20Item 9A.
Controls and Procedures

20Item 9b.
Other Information

20PART IIIItem 10.
Directors and Executive Officers and Corporate Governance

21Item 11.
Executive Compensation

22Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

23Item 13.
Certain Relationships and Related Transactions and Director Independence

25Item 14.
Principal Accounting Fees and Services

25PART IVItem 15.
Exhibits and Financial Statement Schedules

26SIGNATURES


27




2





FORWARD LOOKING STATEMENTS





THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND RELATED NOTES CONTAINED ELSEWHERE IN THIS FORM 10-K. CERTAIN STATEMENTS MADE IN THIS DISCUSSION ARE “FORWARD-LOOKING STATEMENTS” WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. FORWARD-LOOKING STATEMENTS CAN BE IDENTIFIED BY TERMINOLOGY SUCH AS “MAY”, “WILL”, “SHOULD”, “EXPECTS”, “INTENDS”, “ANTICIPATES”, “BELIEVES”, “ESTIMATES”, “PREDICTS”, OR “CONTINUE” OR THE NEGATIVE OF THESE TERMS OR OTHER COMPARABLE TERMINOLOGY AND INCLUDE, WITHOUT LIMITATION, STATEMENTS BELOW REGARDING: THE COMPANY’S INTENDED BUSINESS PLANS; EXPECTATIONS AS TO CONTINUING IN BUSINESS; ABILITY TO RAISE EXISTING FUNDS; EXPECTATIONS AS TO PRODUCT PERFORMANCE; EXPECTATIONS AS TO MARKET ACCEPTANCE OF THE COMPANY’S PRODUCTS; AND BELIEF AS TO THE SUFFICIENCY OF CASH RESERVES. BECAUSE FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES, THERE ARE IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY THESE FORWARD-LOOKING STATEMENTS. THESE FACTORS INCLUDE, BUT ARE NOT LIMITED TO, THE COMPANY’S INABILITY TO CONTINUE OPERATIONS; THE COMPANY’S INABILITY TO OBTAIN NECESSARY FINANCING; THE EFFECT OF A GOING CONCERN STATEMENT BY THE COMPANY’S AUDITORS; THE COMPETITIVE ENVIRONMENT GENERALLY AND IN THE COMPANY’S SPECIFIC MARKET AREAS; CHANGES IN TECHNOLOGY; THE AVAILABILITY OF AND THE TERMS OF FINANCING; INFLATION; CHANGES IN COSTS AND AVAILABILITY OF GOODS AND SERVICES; ECONOMIC CONDITIONS IN GENERAL AND IN THE COMPANY’S SPECIFIC MARKET AREAS; DEMOGRAPHIC CHANGES; CHANGES IN FEDERAL, STATE AND /OR LOCAL GOVERNMENT LAW AND REGULATIONS AFFECTING THE TECHNOLOGY; CHANGES IN OPERATING STRATEGY OR DEVELOPMENT PLANS; AND THE ABILITY TO ATTRACT AND RETAIN QUALIFIED PERSONNEL. ALTHOUGH THE COMPANY BELIEVES THAT EXPECTATIONS REFLECTED IN THE FORWARD-LOOKING STATEMENTS ARE REASONABLE, IT CANNOT GUARANTEE FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS. MOREOVER, NEITHER THE COMPANY NOR ANY OTHER PERSON ASSUMES RESPONSIBILITY FOR THE ACCURACY AND COMPLETENESS OF THESE FORWARD-LOOKING STATEMENTS. THE COMPANY IS UNDER NO DUTY TO UPDATE ANY FORWARD-LOOKING STATEMENTS AFTER THE DATE OF THIS REPORT TO CONFORM SUCH STATEMENTS TO ACTUAL RESULTS.





3








ITEM 1. BUSINESS





OVERVIEW





IDO Security Inc. (referred to herein as “we,” “our,” “us,” “IDO,” or the “Company”) is engaged in the design, development and marketing of devices for the homeland security and loss prevention markets that are intended for use in security screening procedures to detect metallic objects concealed on or in footwear, ankles and feet through the use of electro-magnetic fields. These devices were designed specifically for applications in the security screening to complement the current methods for the detection of metallic items during security screenings and at security checkpoints in venues such as airports, prisons, schools, stadiums and other public locations requiring individual security screening.





IDO Security Inc. (formerly knows as “The Medical Exchange Inc.”) was incorporated in the State of Nevada on January 23, 2004. On July 25, 2006, The Medical Exchange, IDO Security Ltd. (“IDO Ltd.”) and IDO Ltd.’s Selling Shareholders entered into a Securities Purchase Agreement (the “Purchase Agreement”) pursuant to which IDO Security Inc. purchased, in March 2007, all of the issued and outstanding share capital of IDO Ltd. (the “Acquisition Transaction”). Following the Acquisition Transaction, IDO Ltd. became a wholly-owned subsidiary of IDO Security Inc. and we adopted the business of IDO Ltd. In June 2007, we then changed our corporate name to “IDO Security Inc.”





From the commencement of operations in March 2002, IDO Ltd. has been engaged in the design, development, manufacturing and marketing of  a shoe scanning device (SSD) for the homeland security market that are used in security screening to detect metallic objects (both ferrous and non-ferrous) concealed on or in shoes, ankles and feet through the use of electro-magnetic fields, without the need of removing shoes. These devices were designed specifically for applications in the security screening and detection market to complement the current detection methods for the detection of metallic items during security screenings and at security checkpoints in venues such as schools, prisons, commercial aviation and maritime facilities, rail transportation, shopping centers/places of entertainment, business facilities bus and train stations, border crossings, government institutions/buildings, critical infrastructure and defense facilities.





We have designed and developed a security screening device containing proprietary and patented technology known as the MagShoe. The MagShoe creates specific electro-magnetic fields that can intelligently detect the presence of metallic objects inside a person’s footwear, as well as next to or above the ankles. The proprietary software included in the MagShoe provides for the collation and delivery of the screening data to the operator for immediate analysis. The MagShoe obviates the need to remove the footwear being inspected. Our technology is designed to distinguish between a person’s left and right shoe, analyzing anomalies for each foot but also for both together, and provides comparative screening results. The technology allows for both the detection and assessment of possible threats from the shoe and ankle area posed by foreign metal objects based upon the analysis of the detected metal material(s) and their location in shoes. The MagShoe device has been designed to be portable and to integrate into and complement current security screening arrays and systems.





We need to raise additional funds on an immediate basis in order to meet our on-going operating requirements and to realize our business plan. In response to the deteriorating global economic conditions that began in 2008, we have taken certain measures in an effort to reduce operating expenses and conserve our cash resources. Beginning in April 2008, we have significantly curtailed our non-essential product design and development, marketing activities. Our senior employees have agreed to defer, in part, salaries and benefits.  As of March 31, 2011, we had 10 employees working on a full-time basis. If we are unable to raise capital on an immediate basis, it may be necessary to for us to take further measures to reduce our cash burn including laying-off additional personnel, further curtail marketing efforts or cease operations entirely. We have received from representatives of certain prospective investors a non-binding proposal with respect to convertible debt based financing in a significant amount, subject to due diligence and other conditions, which our board is currently studying. Presently, we do not have any financing commitment from any person, and there can be no assurance that additional capital will be available to us (from these or any other persons) on commercially acceptable terms or at all. These conditions raise substantial doubt about our ability to continue as a going concern.





The MagShoe has been deployed and is in operation in various countries including Israel, China, Spain, Poland, The Czech Republic, Australia, the Philippines and Germany.  Subject to raising additional capital, we expect to actively pursue certain Requests for Proposals ( RFP)and Requests for Information ( RFI) for footwear scanners that we are beginning to receive from sources in various countries.  We believe that these RFPs further validate the need for a footwear scanning device similar to the MagShoe. In addition, in January 2006, the MagShoe was approved for use by the Department for Transport in the United Kingdom, after field trials were conducted for the Home Office’s Police Scientific Development Branch. In addition, we have been certified by the International Organization for Standardization (“ISO”) under ISO 9001:2000 compliance for the design, development and manufacture of electronic, electro-optic and electro-mechanical systems. In December of 2008, we received our certification from the Underwriter’s Laboratory (UL) in the United States, which signifies that the MagShoe is safe for sale in the United States.





Subject to raising the needed funds, our goal is to incorporate our shoes-on weapons metal detection proprietary technology as a complementary technology to the existing walk through metal detectors, thereby augmenting the security equipment and procedures currently used throughout the world.




4





INDUSTRY BACKGROUND





The tragic attacks of September 11, 2001 on the United States and other terrorist attacks around the world have resulted in a heightened awareness for the need for dramatically increasing the type and quality of security screening at airports and other public venues. As terrorist attacks have increased in frequency and terrorists have increased the level of sophistication of their terrorist operations, those responsible for homeland security have sought new and more sophisticated technologies and products to bolster the effectiveness and minimize the gaps that are inherent in existing security systems.





Airport security has been the focus of homeland security departments worldwide; in particular, the U.S. Department of Homeland Security (DHS) and the Transportation Security Administration (TSA) are mandated to tighten aviation security by allocating resources to create a comprehensive security screening system that can react to current and future security threats. On August 14, 2006, the Transport Security Administration revised its airport security procedures for travelers in the United States, when shoe removal and screening became required for all passengers. The TSA made passenger screening a priority and has recognized that passenger screening of shoes, feet and the ankle area pose a unique challenge and an imminent threat to the safety of passengers. Since the almost successful attempt by terrorists to detonate a shoe bomb on an airplane nearly resulted in mid-air tragedy, increased passenger screening for weapons and concealed bombs has necessitated the removal of shoes by persons entering the security areas and in many instances an even more invasive additional screening by security personnel.





The current screening technologies and procedures for screening of shoes, feet and ankles, do not meet the requirements of homeland security agencies throughout the world and in particular, the TSA and DHS. Most screening technologies and devices in use today, deliver unacceptable performance, having persistent problems with high false alarm rates, slow throughput, operator dependence and high transaction costs. This inherent weakness in the security screening process has necessitated the imposing of the security procedure mandating that passengers remove their shoes prior to a security walk-through gate. This new and imposing security procedure in the United States, for ports-of-entry, is generating delays, requires screening of shoes through baggage scanning equipment which may be insufficient in detecting any items that may be located on a persons shoe, ankle and foot, that are within approximately 10cm (4 inches) of the ground. The current protocols for screening were instituted as stop-gap measures until an effective technology could be implemented to solve the problems.





Currently, the cost of screening an individual at a checkpoint may be as high as several dollars per person, per check, depending upon the cost of security personnel. It is anticipated through the use of new technologies that the cost will drop significantly to lower than one dollar per person, per check. Currently, a significant part of that cost of a security screening is the necessity for the handling and instructing of passengers at the checkpoint bottleneck and the manual re-screening of shoes, foot and ankle area subsequent to the passenger passing through the walk-through metal detector. These procedures are labor intensive and as passenger volume increases, the cost of labor will also increase, unless new technologies can be adapted and utilized.





The MagShoe utilizes proprietary and patented technologies to deliver a shoe and ankle area screening product that is efficient, non-disruptive and delivers ease and speed of use while increasing the quality and efficacy of the screening process. IDO has developed and manufactured the MagShoe as a portable, easy to use, purpose built metal detector, which can detect metals inside a shoe and next to and on a person’s ankles, in an efficient and non-invasive manner that is complimentary to and easily integrates with current screening practices and security procedures.





OUR SOLUTION – The MagShoe





The MagShoe responds to the need for a quick, reliable and efficient way of conducting a personal screening of the shoes and ankle area, without the need for removing shoes. The MagShoe, a state-of-the-art device, is designed to create specific electro-magnetic fields which are used to detect and assess possible threats from metallic foreign objects by means of an intelligent detector system that evaluates and analyzes multiple parameters including the location of the object, mass and weight against a baseline of what is normally found in shoes and the ankle area. The MagShoe contains our proprietary and patented technology that allows high volume, highly effective screening without the necessity of shoe removal. Scanning time is no more than 1.6 seconds per person, with no need for the passenger to remove his shoes, thereby significantly reducing bottlenecks at security screening points.





The MagShoe is portable, weighing approximately 25 kilograms per unit and can be deployed quickly by existing security personnel, who can integrate the MagShoe into their current security protocols and systems. The subject being screened places his feet on the device in the grooves designated for each foot and in less than 1.6 seconds, the scan and check are completed. An audio-visual signal alerts the operator of the results of the check and the results of the check then appear on the control panel in an easily readable format.





The MagShoe is an electronic system and consists of three main sub systems: a control unit, magnetic field detectors and a processing unit. The control unit is used to calibrate parameters in the system and to display the shoe screening results. The magnetic field detectors are used to detect the metals in and around the shoes and ankles. The Processing unit interfaces between the metal detectors and the control unit.





We believe that the MagShoe scan in conjunction with a walk-through metal detector gate and/or a hand-held metal detector scan, offers a more thorough security solution. The walk through metal detector gate scan is characterized by its inherent weakness when scanning from ground levels up to approximately 10 centimeters (4 inches). MagShoe provides a completely effective coverage for that area without the need to overhaul systems and technology already in place.





The MagShoe is manufactured by our subsidiary, IDO Ltd., at its facilities presently located in Rishon Le Zion, Israel. Our manufacturing plant in Israel has been certified by the International Organization for Standardization (“ISO”). Subject to raising additional capital and identifying the appropriate source party, we anticipate that during 2010, the MagShoe will also be manufactured by an outside manufacturer, thereby enhancing our ability to turn out significant quantities of MagShoe as needed.


5




Status of the MagShoe





As noted above, the MagShoe has been deployed and is in operation in various countries including Israel, China, Spain, Poland, The Czech Republic, Australia, the Philippines and Germany.  Subject to raising additional capital, we expect to actively pursue certain Requests for Proposals (RFP) and Requests for Information (RFI) for footwear scanners that we are beginning to receive from sources in various countries.  We believe that these RFPs further validate the need for a footwear scanning device similar to the MagShoe. In addition, in January 2006, the MagShoe was approved for use by the Department for Transport in the United Kingdom, after field trials were conducted for the Home Office’s Police Scientific Development Branch. In addition, we have been certified by the International Organization for Standardization (“ISO”) under ISO 9001:2000 compliance for the design, development and manufacture of electronic, electro-optic and electro-mechanical systems. In December of 2008, the Company received its certification from the Underwriter’s Laboratory (UL) in the United States, which signifies that the MagShoe is safe for sale in the United States.





In July 2009, we introduced a Network Management Control System (NMC-3), facilitating secure, centralized management of multiple MagShoe devices across one or more facilities. The NMC-3 system remotely manages up to 300 MagShoe devices simultaneously from a single site via a secure Ethernet connection, while still allowing each device to be operated individually. This provides an accurate and up-to-date view of the entire system state, offering immediate status and oversight relating activity on all installed units, as well as personnel and usage statistics. NMC-3 collects measurement information across the network and stores it in a central database, offering a range of data analysis tools for users to evaluate unit performance over a given time period, up to a full year. The resulting reports can be exported in Microsoft Excel-compatible format for simple viewing and assessment. In August 2009, the Transportation Security Administration announced that its goal is to put out an RFP during the next calendar year and to test and evaluate technologies in order to decide on a procurement plan. We plan to follow this procedure closely and to attempt to demonstrate the technological advances made by the current MagShoe in metal and non ferrous metal weapons detection in addition to our record keeping capabilities and cost saving measures.





In September 2009, IDO demonstrated MagShoe to a delegate of U.S.A. and Canadian airport executives. In December of 2009, we entered into a partnership with Lotan security, an Isreali company specializing in security solutions for India and the Far East. This was followed with another joint marketing agreement with SJ Security of Switzerland. IDO is working diligently to establish sales through the efforts of it’s growing distributor network. Additionally, in December 2009, we were granted our second patent and our first from the State of Israel.





The failed attempt in December 2009 by the “underwear bomber” to detonate an explosive device on a United States commercial passenger aircraft bound for Detroit from the Netherlands, refocused attention on the still existing holes in the airport security screening process. As a result of this and other continuing security breaches, certain RFI’S and RFP’S have once again begun to be issued. These include an RFI from the TSA (Transportation Security Administration) as well as an RFP from Spain where, in March 2009, we demonstrated the latest model of MagShoe which increase its detection capabilities from 20 centimeters to 45 centimeters. This design development was requested by several countries.





Notwithstanding these developments, during 2010 our marketing efforts were hampered as a result of two developments. First, our subsidiary, IDO Security Ltd., experienced unforeseen and lengthy delays in obtaining from the Ministry of Defense of the State of Israel the requisite approvals needed for shipment of our MagShoe devices in respect of orders received. These delays prevented us from making timely deliveries on orders received through the third quarter of 2010.  The problem was rectified in the fourth quarter of 2010. Second, our potential customers announced new height and tolerance requirements which required that we redesign and engineer two new models of MagShoe. The product redesign was completed in the fourth quarter of 2010.





Subject to raising additional working capital, we intend to pursue our business plan over the next twelve months with respect to product development and enhancement and field testing, as well as initial marketing efforts. We have been expanding our contact base and are aggressively seeking collaborative arrangements worldwide for our MagShoe product. In May 2008, we selected a leading contract manufacturer for high volume production of MagShoe and in June 2008, we announced the availability of an elite network of industry leading distributors and systems integrators for the MagShoe device which, together with the high volume production capabilities that we established in the second quarter of 2008, significantly strengthens our infrastructure to commercially manufacture and distribute the MagShoe device.





In July 2008, we announced our entry into a collaborative relationship with Bryant Integrated Technologies, a leading security and consulting firm, to lead our product distribution efforts in the United States, and with Hwan Technology and Trade Co., one of China’s largest distributors of walk-through metal detectors, to lead our distribution efforts in China. Shortly thereafter, we announced our initial sale of the MagShoe Unit (through Bryant) in the United States to a leading commercial cruise line which intends to use the MagShoe device to significantly reduce passenger waiting lines while improving security. In addition, as a result of the recent terror attacks in Mumbai, India, we have targeted that area for special attention by our marketing department. This follows a successful test of the MagShoe at both the Mumbai and New Delhi airport several months ago. Recently, in April 2009, we announced the delivery of multiple MagShoe devices to the Xinjiang Airport in Northwestern China as well as initial sales of MagShoe devices to a large United States based international cruise line where the devices are to be used in the cargo holders so as to primarily prevent theft of valuables. In August 2009, we announced a distribution arrangement in Italy with one of that nation’s recognized providers of system integration for physical and logistical security.





In October 2010 we entered into a distribution arrangement with JEI, Inc. a California based company with an extensive history of selling state of the art audio recording devices , a vital security apparatus, to the Federal, State and local governments throughout the United States. As part of that arrangement, JEI has submitted the MagShoe to the U.S. General Services Administration ( GSA ) for approval and ultimate sale to the various Federal Agencies. Of course no guarantee can be provided that the MagShoe will be approved by the GSA and, even if approved, that ultimately, will be sold to the agencies. We are currently intensifying our efforts to identify and team up appropriate collaborators in the coming months with a view toward enabling us to bring the MagShoe to our various core markets in the United States and  throughout the world while also beginning the process of seeking other state of the art security devices to put through our distribution system to increase the awareness of IDO as a seller and supplier of security devices.




6




BUSINESS STRATEGY





Our vision is to build a profitable business that develops and commercializes new, advanced and affordable technologies and related products, to provide comprehensive security screening solutions that are widely adopted.





To achieve these objectives, the key elements of our strategy include the following:





●
Developing and establishing MagShoe brand in the security screening market.Most of the world’s leading security related businesses have strong brand identities enhancing their competitive position. We seek to establish brand identity for our company, communicate our brand and its values to investors and customers, build a relationship with our targeted markets and reinforce the relationship and further trigger recognition●
Consumer Market Analysis and our Product Features. We will seek to implement changes to enhance the performance, applications and functionality of MagShoe based on feedback from users, our constant current marketing analysis and our know-how. We believe that the enhancing MagShoe capabilities will add to its competitiveness and encourage its further usage.●
Research and Development. Our research and development strategy is to continually improve and expand our product offerings by leveraging existing and newly developed proprietary technologies, as well as those of its collaborators, into new product offerings. We are currently focusing our research and development on giving the MagShoe increased capabilities and on expanding its product offerings to additional areas.●
Global Market Expansion through Strategic and Collaborative Relationships.We believe that collaboration with leading scanning device manufacturers and providers is an avenue for us to increase consumer usage of our technology, increase demand for our products and generate revenues. We intend to promote our product sales in different geographic areas, as part of our expanding strategy.





No assurance can be provided that we will successfully implement our strategy. We are subject to significant business risks and need to raise additional capital in order to realize our business plan and effectuate the above strategy. See “Risk Factors.”





MARKETING PLAN AND SALES ORGANIZATION





We have identified a number of markets for our products and have developed programs to gain access to those target markets. Generally, private industry and government facilities that possess sensitive information, valuable assets or by virtue of the nature of their business may be subject to terrorist threats, recognize the need to implement security measures to protect personnel and property. In many instances, laws have been enacted and mandates decreed for compliance with some minimum-security standards. Airport security is a prime example. We target these entities as well as entities where we can demonstrate the need for security measures.





The MagShoe is being sold internationally, primarily through independent regional distributors and local agents, on a non-exclusive basis, and in Israel directly to end-users. MagShoe’s primary markets are in the areas of homeland security and include educational institutions, prisons, commercial aviation and maritime facilities, rail transportation, shopping centers/places of entertainment, business facilities bus and train stations, border crossings, government institutions/buildings, critical infrastructure and defense facilities.





We presently have no significant steady revenue generating arrangement and no assurance can be provided that we will in fact be able to enter into agreements or arrangements on terms that are commercially acceptable to us. Our success in concluding any revenue generating commercial agreements is premised, in part, on the acceptance of our products. We anticipate that our business may generate disproportionate amount of revenues from one period to another and therefore our financial results will vary significantly from period to period.





Our marketing strategy calls for the distributor to market the product to on-site security providers as a system upgrade that enhances the security screening process and that can be used in conjunction with currently used walk-through metal detector gates.





We intend to further develop existing channels of sales and to locate additional channels of sales, and to enter into representation agreements with distributors of similar items or entities which operate within the security field. We also intend to target the Original Equipment Manufacturer (OEM) market which will enable us to bundle MagShoe with their walk-through metal detectors suppliers.





According to our tactical marketing program, we have targeted the following market niches: schools, prisons, commercial aviation and maritime facilities, rail transportation, shopping centers/places of entertainment, business facilities bus and train stations, border crossings, government institutions/buildings, critical infrastructure and defense facilities.





7




According to our marketing plan, we have and will continue to run field trials and pilot demonstrations. These are directed toward a variety of goals including developing and demonstrating MagShoe’s capabilities and applications. As of March 2010, we have completed a series of pilot programs at strategic locations of the type mentioned above.





We attend trade shows and other security industry gatherings, on a stand alone basis or partner with our distributors or potential distributors. We use the media and other avenues to bring our products to the attention of decision makers in the security industry.





Given our lack of sufficient resources, our marketing efforts described above have been significantly curtailed pending the raising of additional funds. As of the filing of this annual report on Form 10-K, we have no commitment for any such funding and no assurance can be provided that we will be able to raise the needed funds on commercially acceptable terms or at all.





SUPPLIERS





Core components of the MagShoe are currently assembled by our subsidiary, IDO Ltd. Certain non-core components are manufactured by third party unaffiliated contractors. Testing and assembly of MagShoe units are managed by our subsidiary at its facilities in Israel. We purchase certain components from a single source which is based in Israel.





We have recently begun the process of attempting to outsource our primary assembly and manufacturing operations, utilizing turn key contract manufacturers that are ISO certified. However, the outsourcing of these operations may mean that some degree of risks related to manufacturing costs, delivery schedules, yields and other factors are not directly under our control.





SERVICE AND SUPPORT





Service and support for our product is primarily provided by our independent distributors in consultation with us. Installation is usually effected by the end-user and maintenance support primarily derives from our independent distributors, supported by our in-house engineering staff. This support generally includes consultations with the independent distributor, repair and unit replacement, traveling to the customer site to explain the technical operation of the system, clarifying the configurations, detailing any necessary software customization and defining any integration issues. Once installed, the systems are supported by our independent distributors. Our product generally carries a one-year warranty and an extended service is offered through a choice of maintenance contracts. Additional support after the expiration of the warranty period is available for a fee.





PATENTS AND PROPIETARY RIGHTS





Protecting our proprietary rights, such as our brand name and our proprietary technologies, is critical to building consumer loyalty and attracting and retaining customers.





We seek to protect our proprietary rights through a combination of copyright, trade secret, patent and trademark law and contractual restrictions, such as confidentiality agreements and proprietary rights agreements. We enter into confidentiality and proprietary rights agreements with our service providers, and generally control access to and distribution of our proprietary information. Despite our efforts to protect our proprietary rights, unauthorized parties may obtain and use our intellectual property, and we cannot be certain that the steps we have taken will prevent misappropriation or confusion among consumers and merchants. If we are unable to procure, protect and enforce our intellectual property rights, then we may not realize the full value of these assets, and our business may suffer.





We hold three patents. One patent was issued by the United States Patent and Trademark Office (“USPTO”) and the other two by the State of Israel. These patents cover various aspects of our unique technology for the detection of metal objects in and around the areas of the shoes, ankles and lower extremities.





Except for the patents referred to above, we currently do not have any registered trademarks or patents.





COMPETITION





The market for design, development and marketing of devices for the homeland security is highly competitive and we expect competition to intensify in the future. Many of our competitors have longer operating histories, greater name recognition and significantly greater financial, technical, sales and marketing resources than we have. As a result, these competitors are able to devote greater resources to the development, promotion, sale and support of their products. In addition, these entities have large market capitalization or cash reserves and are in a much better position to acquire other companies in order to gain new technologies or products. Many of our competitors also have much greater brand name recognition, more extensive customer bases, more developed distribution channels and broader product offerings than we do. These companies can use their broader customer bases and product offerings and adopt aggressive pricing policies to gain market share.





We expect competitors to introduce new and improved products and services with lower prices, and we will need to do the same to remain competitive. We may not be able to compete successfully against either current or future competitors with respect to new products.





We expect competition to increase as other companies introduce products that may increase functionality such as multi-threat detection capability or that incorporate technological advances that are not yet developed or implemented by us. Some of our present and potential competitors have financial, marketing and research resources substantially greater than those of us. In order to compete effectively in this environment, we must continually develop and market new and enhanced products and have the resources to invest in significant research and development activities.





8




In addition, new generation full body scan technology may replace the need for the MagShoe. This technology, commonly known as “backscatter” x-rays, uses high-energy X-ray waves that are more likely to scatter than penetrate materials as compared to lower-energy X-rays used in the medical field. The result is a detailed image of what’s underneath a person’s clothing, enabling screeners to easily identify foreign objects strapped to the human body beneath garments. The technology is currently in use in a number of countries but has not been accepted in the United States and other countries due to invasion of privacy concerns. Further, it is extremely expensive and therefore possibly cost-prohibitive in many venues.





A significant number of established and startup companies and leaders in the field of body screening for security may be developing applications that could significantly reduce our worldwide markets. Some of these companies are developing walk through “backscatter” and “magnometer” gates that will provide full head to toe body scan capabilities. If one or more of these approaches is widely adopted, it would significantly reduce the potential market for our product.





EMPLOYEES





At March 31, 2011, we employed 10 full time employees and consultants, all of whom but for our President and acting Chief Executive Officer, work out of IDO Ltd.’s offices in Israel. None of these employees are subject to collective bargaining agreements.





RESEARCH AND DEVELOPMENT





During our 2010 and 2009 fiscal years, we incurred $356,022 and $290,995, respectively, on the research and development of the MagShoe product.





AVAILABLE INFORMATION





Our Internet website is located at http://www.idosecurityinc.com. The reference to our Internet website does not constitute incorporation by reference of the information contained on or hyperlinked from our Internet website and should not be considered part of this document. The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Rooms by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The SEC’s Internet website is located at http://www.sec.gov.





ITEM 1 A. RISK FACTORS





OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS COULD BE MATERIALLY ADVERSELY AFFECTED BY VARIOUS RISKS, INCLUDING, BUT NOT LIMITED TO THE PRINCIPAL RISKS NOTED BELOW.





RISKS CONCERNING OUR BUSINESS





OUR NEED FOR ADDITIONAL FINANCING IS ACUTE AND FAILURE TO OBTAIN ADEQUATE FINANCING COULD LEAD TO THE FINANCIAL FAILURE OF OUR COMPANY.





We believe that our existing cash resources are insufficient to enable us to maintain operations as presently conducted and meet our obligations as they come due. Without raising additional funds on an immediate basis, whether through the issuance of our securities, licensing fees for our technology or otherwise, we will also not be able to maintain operations as presently conducted or commercially and may have to restructure our operations or even cease operations entirely. Without adequate funding, we also may not be able to accelerate the development and deployment of the MagShoe, respond to competitive pressures, develop new or enhanced products or take advantage of unanticipated acquisition opportunities. At the present time, we have no commitments for any financing, and there can be no assurance that capital will be available to us on commercially acceptable terms or at all. We may have difficulty obtaining additional funds as and when needed, and we may have to accept terms that would adversely affect our stockholders. Any failure to achieve adequate funding will delay our development programs and product launches and could lead to abandonment of one or more of our development initiatives, as well as prevent us from responding to competitive pressures or take advantage of unanticipated acquisition opportunities. The recent and continuing turmoil in the credit and equity markets may adversely affect our ability to raise the needed funds.





WE HAVE A HISTORY OF OPERATING LOSSES THAT MAY CONTINUE FOR THE FORESEEABLE FUTURE, THUS RAISING SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN.





Since inception, we have incurred significant operating losses. As of December 31, 2010, we have incurred losses totaling $37.3 million. We believe that we will continue to incur net losses for the foreseeable future as we continue to further develop and promote the MagShoe and related products. We cannot assure you that we will achieve or sustain profitability or that our operating losses will not increase in the future. If we do achieve profitability, we cannot be certain that we can sustain or increase profitability on a quarterly or annual basis in the future. We expect to expend substantial financial resources on research and development, marketing and administration as we continue to develop our products. These expenditures will necessarily precede the realization of substantial revenues from the sales of our single product line, if any, which may result in future operating losses.





9




The report of our independent registered public accounting firm for our financial statements for the year ended December 31, 2010 includes an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern. This “going concern” paragraph may have an adverse effect on our ability to obtain financing for operations and to further develop and market products. If we do not receive additional capital when and in the amounts needed in the near future, our ability to continue as a going concern is in substantial doubt.





FUTURE ECONOMIC CONDITIONS IN THE U.S. AND GLOBAL MARKETS MAY HAVE A MATERIAL ADVERSE IMPACT ON OUR BUSINESS AND FINANCIAL CONDITION THAT WE CURRENTLY CANNOT PREDICT.





The U.S. and other global world economies are slowly recovering from a recession that began in 2008 and extended into 2009. Although economic growth has resumed, it remains modest and the timing of an economic recovery is uncertain. There are likely to be significant long-term effects resulting from the recession and credit market crisis, including a future global economic growth rate that is slower than what was experienced in recent years. Unemployment rates remain high and businesses and consumer confidence levels have not yet fully recovered to pre-recession levels. In addition, more volatility may occur before a sustainable, yet lower, growth rate is achieved. This could result in reductions in sales of our products and services, slower adoption of new technologies and increase price competition. Any of these events would likely harm our business, results of operations and financial conditions.





HOLDERS OF OUR SECURED CONVERTIBLE PROMISSORY NOTES HAVE LIENS ON SUBSTANTIALLY ALL OF OUR ASSETS AND COULD FORECLOSE IN THE EVENT THAT WE DEFAULT UNDER THE NOTES.





Under the terms of the agreements with the holders of our secured promissory notes that we issued in December 2007 through December 2010 the note holders have a first priority lien on substantially all of our assets, including our cash balances. If we default under the notes, the note holders would be entitled to, among other things, foreclose on our assets (whether inside or outside a bankruptcy proceeding) in order to satisfy our obligations under the credit facility.





OUR SHAREHOLDERS MAY EXPERIENCE SIGNIFICANT DILUTION UPON THE CONVERSION OF OUR OUTSTANDING DEBENTURES AND PREFERRED STOCK BECAUSE THESE SECURITIES CONVERT AT A DISCOUNT TO THE MARKET PRICE OF OUR COMMON STOCK AT THE TIME OF CONVERSION.





We currently have outstanding approximately $7.7 million of our 10% secured convertible promissory notes due between December 2011 and  August 2012 the “Investor Notes”) and approximately $11.4 million in stated value of Series A Convertible Preferred Stock, par value $0.001 per share (the “Series A Preferred Stock”). We are required to make monthly payments with respect to the accrued principal and interest on the notes (dividends, in the case of the Series A Preferred Stock). These payments may be made, at our option, in shares of our Common Stock at a rate equal to 75% of the average of the closing bid prices of the common stock for the five trading days preceding the payment date (which shall in no event exceed $0.15 per share).





There is an inverse relationship between our stock price and the number of shares issuable upon conversion of these securities. That is, the higher the market price of our Common stock at the time a Debenture is converted or a payment is made with respect to a Series A Preferred Stock, the fewer shares we would be required to issue, and the lower the market price of our Common Stock at the time payment is made with respect to a security, the more shares we would be required to issue. Between January 1, 2010 and December 31, 2010, we issued 1.551 billion  shares of our common stock in payment of $1,113,742  in principal and accrued interest in respect of the convertible promissory notes, at a average per share price of $.0007. In addition, between January 1, 2010 and December 31, 2010, we issued 1.459 billion shares of our common stock for the conversion of Series A Preferred Stock.





WE HAVE A LIMITED OPERATING HISTORY IN THE FIELD OF DESIGN DEVELOPMENT AND MARKETING OF DEVICES FOR THE HOMELAND SECURITY MARKET AND CONSEQUENTLY, THERE IS LIMITED HISTORICAL FINANCIAL DATA UPON WHICH AN EVALUATION OF OUR BUSINESS PROSPECTS CAN BE MADE.





Our wholly-owned subsidiary, IDO Ltd. has been engaged in the design, development and marketing of devices for the homeland security market that are used in security screening to detect metallic objects concealed on or in shoes, ankles and feet through the use of electro-magnetic fields, without the need of removing shoes. We have released only one single product line and have generated limited revenues since inception. As a result, we have limited historical financial data that can be used to evaluate our business prospects and to project future operating results. For example, we cannot predict operating expenses based on our historical results, and we have instead to forecast expenses based in part on future revenue projections. In addition, our ability to accurately forecast our revenue going forward is limited.





WE ARE RELIANT ON REVENUES FROM ONE SINGLE PRODUCT AND OUR PRODUCT MAY BE SUBJECT TO FURTHER DEVELOPMENT AND TESTING.





We currently have only one product that is being marketed and sold, the MagShoe. While the product is unique and we currently believe that we will generate revenues from the MagShoe in the foreseeable future, there is no assurance that this will be the case.





10




While there is not widely known current direct competition to the MagShoe, there can be no assurance that competitors will not develop and market a superior or more competitively priced product or that the nature of security screenings will change and no longer include the type of screening that the MagShoe was designated for.





Our success is highly dependent on market acceptance of our product, acceptance which is uncertain. If the market for MagShoe (or any related product we develop) fails to grow, develops more slowly than we expect, or becomes saturated with competing products or services, then our business, financial condition and results of operations will be materially adversely affected.





Investors should consider the risks and uncertainties that we may encounter in a new and unproven market. These uncertainties include:





●
our ability to re-design our present product, if required, and design and develop additional products having the desired technological features in a cost efficient manner;●
demand for and acceptance of our product utilizing our technologies;●
our ability to demonstrate the benefits of our product to end users;●
non-predictable unfavorable economic conditions in the industry; and●
our ability to raise funds when needed on commercially acceptable terms.





OUR REVENUES DEPEND ON CUSTOMERS’ PROCUREMENT PROCEDURES AND PRACTICES. A SUBSTANTIAL DECREASE IN OUR CUSTOMERS’ BUDGETS WOULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.





The MagShoe is primarily sold to entities, governmental, public or private, many of which have complex and time-consuming procurement procedures. A substantial period of time often elapses from the time we begin marketing a product until we actually sell that product to a particular customer. In addition, our intended sales to governmental agencies, authorities and companies are directly affected by their budgetary constraints and the priority given in their budgets to the procurement of our products. A decrease in the priorities of our customers’ budgets for the acquisition of our product may adversely affect our results of operations.





WE MAY NOT BE ABLE TO IMPLEMENT OUR GROWTH STRATEGY.





As part of our growth strategy, we seek to further develop MagShoe as a product, become interested in acquiring or invest in complementary, including competitive, businesses, products and technologies. We currently have no commitments or agreements with respect to any acquisitions or investments and we may not be able to consummate any acquisition or investment. Even if we do acquire or invest in these businesses, products or technology, the process of integrating acquired additional technologies and/or assets into our operations may result in unforeseen operating difficulties and expenditures and may absorb significant management attention that would otherwise be available for the ongoing development of our business. In addition, we have limited experience in making acquisitions and managing growth. We may not be able to realize the anticipated benefits of any synergic technologies and/or businesses.





OUR PRODUCT MAY CONTAIN TECHNOLOGICAL FLAWS WHICH COULD RESULT IN THE FAILURE OF OUR PRODUCT TO ACHIEVE MARKET ACCEPTANCE





Complex technological products like ours often contain unpredictable or non-detectable errors or failures when first introduced or as new versions are released. Despite testing by us, the occurrence of these errors could result in delays or failure to achieve market acceptance of our product, which could have a material adverse effect on our business, financial condition and results of operations.





WE MAY BE SUBJECT TO LOSS IN MARKET SHARE AND MARKET ACCEPTANCE AS A RESULT OF MANUFACTURING ERRORS, DELAYS AND SHORTAGES





Performance failure in our products may cause loss of market share, delay in or loss of market acceptance, warranty expense or product recall, or other contractual liabilities. We have no experience in high volume manufacturing which may lead to delays or shortages in the availability of our only product. The negative effects of any delay or failure could be exacerbated if failure occurs in the products. If a product or service launch is delayed or is the subject of an availability shortage because of problems with our ability to manufacture or assemble the product or service successfully on a timely basis, or if a product or service otherwise fails to meet performance criteria, we may lose revenue opportunities entirely and/or experience delays in revenue recognition associated with a product or service in addition to incurring higher operating expenses during the period required to correct the defects. There is a risk that for unforeseen reasons we may be required to repair or replace a substantial number of products in use or to reimburse customers for products that fail to work or meet strict performance criteria.





In addition, given the sensitive nature of the product and its market niche, a failure of the product at the point of deployment could potentially result in a security breach at that may result in significant physical and financial harm.





11




FAILURE BY US TO MAINTAIN AND PROTECT THE PROPIETARY NATURE OF OUR TECHNOLOGY, INTELLECTUAL PROPERTY AND MANUFACTURING PROCESSES COULD HAVE MATERIAL ADVERSE EFFECT ON OUR BUSINESS, OPERATIONAL RESULTS, FINANCIAL CONDITION AND STOCK PRICE AND OUR ABILITY TO COMPETE EFFECTIVELY.





We rely upon patent, trade secret and contract law to establish and protect our proprietary rights. There is a risk that claims allowed on any patents we hold may not be broad enough to protect our technology. In addition, our patents may be challenged, invalidated or circumvented and we cannot be certain that the rights granted thereunder will provide competitive advantages to us. Moreover, any current or future issued or licensed patents, or currently existing or future developed trade secrets or know-how may not afford sufficient protection against competitors with similar technologies or processes, and the possibility exists that certain of our already issued patents may infringe upon third party patents or trademarks or be designed around by others. In addition, there is a risk that others may independently develop proprietary technologies and processes, which are the same as, substantially equivalent or superior to ours, or become available in the market at a lower price.





There is a risk that we may have infringed or in the future will infringe patents owned by others, that we will need to acquire licenses under patents belonging to others for technology potentially useful or necessary to us, and that licenses will not be available to us on acceptable terms, if at all.





We may have to litigate to enforce our patents or to determine the scope and validity of other parties’ proprietary rights. Litigation could be very costly and divert management’s attention. An adverse outcome in any litigation may have a severe negative impact on our financial results and stock price. To determine the priority of inventions, we may have to participate in interference proceedings declared by the United States Patent and Trademark Office or oppositions in foreign patent and trademark offices, which could result in substantial cost to the Company and limitations on the scope or validity of our patents.





We also rely on trade secrets and proprietary know-how, which we seek to protect by confidentiality agreements with our employees, consultants, service providers and third parties. There is a risk that these agreements may be breached, and that the remedies available to us may not be adequate. In addition, our trade secrets and proprietary know-how may otherwise become known to or be independently discovered by others.





WE ARE DEVELOPING OUR CURRENT PRODUCT LINES INDEPENDENTLY FROM ANY COLLABORATIVE PARTNERS, WHICH WILL REQUIRE US TO ACCESS ADDITIONAL CAPITAL AND TO DEVELOP ADDITIONAL SKILLS TO PRODUCE, MARKET AND DISTRIBUTE THESE PRODUCTS.





We are independently developing, manufacturing, marketing and distributing our MagShoe product. Once our sales increase, these activities may require additional resources and skills that we will need to secure. There is no assurance that we will be able to raise sufficient capital or attract and retain skilled personnel to enable us to ramp up manufacturing, develop new products and market these products. Thus, there can be no assurance that we will be able to fully commercialize the MagShoe or any future products.





GOVERNMENT REGULATIONS AND STANDARDS ARE CONSTANTLY EVOLVING AND UNFAVORABLE CHANGES COULD SUBSTANTIALLY HARM OUR BUSINESS AND RESULTS OF OPERATIONS. REGULATION AND STANDARDS IN CERTAIN COUNTRIES, COULD DELAY OR PREVENT OUR ABILITY TO SELL OUR PRODUCT IN THOSE OR OTHER JURISDICTIONS.





Existing and future laws and regulations may impede the viability and commercialization of our product. These regulations and laws may cover taxation, restrictions on imports and exports, customs, tariffs, user privacy, data protection, pricing, content, copyrights, distribution, electronic contracts and other communications, consumer protection, and the characteristics and quality of products and services. It is not clear how existing laws governing issues such as property ownership, sales and other taxes, libel and personal privacy apply to our field of business. Unfavorable resolution of these issues may substantially harm our business and results of operations.





OUR FAILURE TO RAPIDLY RESPOND TO TECHNOLOGICAL CHANGE AND MARKET NEEDS COULD RESULT IN OUR SERVICES OR SYSTEMS BECOMING OBSOLETE AND SUBSTANTIALLY HARM OUR BUSINESS AND RESULTS OF OPERATIONS.





With the rapid evolvement of technologies for Homeland Security and such market needs we may be required to license emerging technologies useful in our business, enhance our existing product, develop new products and technologies that address the increasingly sophisticated and varied needs of our prospective customers and respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis. We may not be able to adequately implement new technologies or adapt our business accordingly.





RISKS ASSOCIATED WITH OUR SECURITIES AND CAPITAL STRUCTURE





FUTURE SALES OF COMMON STOCK OR OTHER DILUTIVE EVENTS MAY ADVERSELY AFFECT PREVAILING MARKET PRICES FOR OUR COMMON STOCK.





As of April 13, 2011, we had 60,000,000,000 authorized shares of Common Stock, of which 12,028,494,374 shares of our Common Stock were issued and outstanding as of such date. Except with respect to the Investor Notes and the Series A Preferred Stock, approximately 42,570,285 shares have been reserved for issuance upon exercise of outstanding options and warrants as of April 13, 2011. The effective conversion price of the Investor Notes and the Series A Preferred Stock is variable, and is based upon a 25% discount to the average of the closing bid prices for our common stock for the five trading days preceding the conversion date (not to exceed $0.15 per share). The occurrence of any such event or the exercise or conversion of any of the options, warrants or convertible securities described above would dilute the interest in our company represented by each share of Common Stock and may adversely affect the prevailing market price of our Common Stock.





12




Our board of directors has the authority, without further action or vote of our stockholders, to issue all or any part of the shares of our Common Stock that are authorized for issuance and neither issued nor reserved for issuance. Additionally, we require additional funds to continue to meet our liquidity needs and maintain our operations as presently conducted and to realize our business plan. Such stock issuances may be made at a price that reflects a discount from the then-current trading price of our Common Stock. In order to raise capital that we need at today’s stock prices, we would likely need to issue securities that are convertible into or exercisable for a significant number of shares of our Common Stock.





OUR BOARD OF DIRECTORS’ RIGHT TO AUTHORIZE THE ISSUANCE OF PREFERRED STOCK COULD ADVERSELY IMPACT THE RIGHTS OF HOLDERS OF OUR COMMON STOCK.





Our board of directors currently has the right to designate and authorize the issuance of our preferred stock, in one or more series, with such voting, dividend and other rights as our directors may determine. The board of directors can designate new series of preferred stock without the approval of the holders of our Common Stock. The rights of holders of our Common Stock may be adversely affected by the rights of any holders of shares of preferred stock that may be issued in the future, including without limitation dilution of the equity ownership percentage of our holders of Common Stock and their voting power if we issue preferred stock with voting rights. Additionally, the issuance of preferred stock could make it more difficult for a third party to acquire a majority of our outstanding voting stock.





THERE IS NO ASSURANCE OF AN ESTABLISHED PUBLIC TRADING MARKET, WHICH WOULD ADVERSELY AFFECT THE ABILITY OF INVESTORS TO SELL THEIR SECURITIES IN THE PUBLIC MARKET.





Although our common stock is listed on the OTC Bulletin Board, a regular trading market for the securities does not yet exist and may not exist or be sustained in the future. The OTC Bulletin Board is an inter-dealer, over-the-counter market that provides significantly less liquidity than the NASD’s automated quotation system (the “NASDAQ Stock Market”). Quotes for stocks included on the OTC Bulletin Board are not listed in the financial sections of newspapers as are those for the NASDAQ Stock Market. Therefore, prices for securities traded solely on the OTC Bulletin Board may be difficult to obtain and holders of common stock may be unable to resell their securities at or near their original offering price or at any price. Market prices for its common stock will be influenced by a number of factors, including:





●
the issuance of new equity securities;●
competitive developments, including announcements by competitors of new products or services or significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments;●
variations in quarterly operating results;●
change in financial estimates by securities analysts;●
the depth and liquidity of the market for our common stock;●
investor perceptions of our company and the security industry generally; and●
general economic conditions.





THE EFFECTS OF A POTENTIAL REVERSE STOCK SPLIT OF OUR COMMON STOCK ARE UNKNOWN.





Our Board of Directors may consider a reverse split of our outstanding common stock. If implemented, the stock split would most likely be of a significant order, at least on the basis of 100 outstanding shares being combined into one outstanding share. Presently, our Board has no plans to effect a reverse split.





Any authority that our Board may exercise in its discretion in implementing a reverse split would be after a determination by the Baord that any such action is in the long-term best interest of the Company. Among the reasons supporting any such action by the Board would be the assumption that reducing the number of outstanding shares will make our capital structure more attractive to potential investors and provide us with greater flexibility in structuring financings and pursuing other corporate development opportunities.





If the Board determines to effect a reverse stock split, we cannot assure you that it will be successful in achieving its goals. There is no assurance that prices for shares of the Common Stock after the reverse split will increase proportionally to the exchange ratio of the reverse stock split (or at all).  We cannot guarantee to stockholders that the price of our shares will reach or sustain any price level in the future, and it is possible the proposed reverse stock split will have no lasting impact on our share price. Additionally, as a Nevada corporation, our Board may, under certain circumstances, be able to implement a reverse split to our issued and authorized equity without securing prior stockholder approval.




13




OUR COMMON STOCK IS SUBJECT TO THE PENNY STOCK RULES, YOU MAY EXPERIENCE SUBSTANTIAL DIFFICULTY IN SELLING YOUR SHARES. ADDITIONAL BURDENS IMPOSED UPON BROKER-DEALERS BY THE APPLICATION OF THE “PENNY STOCK” RULES TO OUR COMMON STOCK MAY LIMIT THE MARKET FOR OUR COMMON STOCK.





Our common stock is considered a penny stock. Broker-dealer practices in connection with transactions in “penny stocks” are regulated by certain penny stock rules adopted by the Securities and Exchange Commission. Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current prices and volume information with respect to transactions in such securities are provided by the exchange or system). If our Common Stock continues to be offered at a market price less than $5.00 per share, and does not qualify for any exemption from the penny stock regulations, our Common Stock will continue to be subject to these additional regulations relating to low-priced stocks.





The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. In addition, the penny stock rules generally require that prior to a transaction in a penny stock the broker-dealer make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These requirements have historically resulted in reducing the level of trading activity in securities that become subject to the penny stock rules.





The additional burdens imposed upon broker-dealers by these penny stock requirements may discourage broker-dealers from effecting transactions in the Common Stock, which could severely limit the market liquidity of our Common Stock and our shareholders’ ability to sell our Common Stock in the market.





RISKS RELATED TO OPERATIONS IN ISRAEL





REGIONAL INSTABILITY IN ISRAEL MAY ADVERSELY AFFECT BUSINESS CONDITIONS AND MAY DISRUPT OUR OPERATIONS AND NEGATIVELY AFFECT OUR REVENUES AND PROFITABILITY.





In recent weeks, civil unrest, which initially began in Tunisia and then spread to Egypt, have resulted in changes in the Tunisian and Egyptian governments, has spread to other areas in the Middle East. There have been numerous demonstrations by protestors demanding a regime change in their country, and some of the demonstrations have been marked by violence. Recently, the King of Jordan reconstituted his government after protestors demanded economic and political reforms.





Civil unrest could continue to spread throughout the region and involve other areas such as the Gaza Strip or nations such as Syria, Yemen, Lebanon or others. Such unrest, if it continues to spread or grow in intensity, could lead to civil wars; regime changes resulting in governments that are hostile to the US and/or Israel, such as has previously occurred in the region; violations of the 1979 Egypt-Israel Peace Treaty; or regional conflict.





Loss of property and/or interruption of our business plans resulting from hostile acts could have a significant negative impact on our earnings and cash flow. In addition, we may not have enough insurance to cover any loss of property or other claims resulting from these risks.





WE HAVE BEEN AND MAY CONTINUE TO BE ADVERSELY AFFECTED FROM FOREIGN CURRENCY MARKET FLUCTUATIONS.





A significant portion of our expenses, primarily labor expenses and certain supplier contracts, are denominated in New Israeli Shekels “NIS”. As a result, we have significant exposure to the risk of fluctuating exchange rates with the US Dollar, our primary reporting currency. The recent volatility in the international currency markets has been equally reflected against NIS and this may continue in the future. Owing to the lack of cash flow resources and financing, we are limited in our ability to hedge against currency fluctuations.





WE DEPEND ON A SINGLE DEVELOPING AND MANUFACTURING FACILITY IN ISRAEL AND ARE SUSCEPTIBLE TO ANY EVENT THAT WOULD ADVERSELY AFFECT ITS CONDITION. CONDUCTING OUR SINGLE DEVELOPING AND MANUFACTURING FACILITY IN ISRAEL ENTAILS SPECIAL RISKS.





Most of the subsidiary’s laboratory capacity, principal research and development and manufacturing facilities are located in the State of Israel and accordingly, all these may be affected by economic, political and military conditions in the State of Israel. In addition, fire, natural disaster or any other cause of material disruption in our operation in this location could have a material adverse effect on our business, financial condition and operating results. As discussed above, to remain competitive in the Homeland Security industry, we must respond quickly to technological developments. Damage to our facility in Israel could cause serious delays in the development of new products and services and, therefore, could adversely affect our business. In addition, the particular risks relating to our location in Israel are described below.





ITEM IB. UNRESOLVED STAFF COMMENTS





Not Applicable.





14


ITEM 2. PROPERTIES





We do not own any real property. Our corporate offices are located at 17 State Street, New York, NY 10004. We paid $20,000 for the use of the office space for each of the fiscal years 2010 and 2009. Our payments for 2011 will also aggregate $20,000.





As of November 16, 2008, we entered into a lease for new premises, also in Rishon Le’Zion, comprised of approximately 370 square meters, at a monthly rate of approximately $3,900 per month. The lease continued through November 15, 2010, and, was renewed  for an additional one year term.





We believe that our facilities are generally in good condition and suitable to carry on our business. We also believe that, if required, suitable alternative or additional space will be available to us on commercially reasonable terms.





ITEM 3. LEGAL PROCEEDINGS





i) In its quarterly report on Form 10-Q for the three months ended September 30, 2009, the Company first disclosed  that on June 22, 2009, its wholly-owned subsidiary, IDO Ltd., filed an action in the Labor Court, in Tel Aviv, Israel, against one of its former officers and directors. The action asserts claims based on material non-compliance by the former officer with the terms of the employment agreement between him and our subsidiary.  The action seeks disgorgement of amounts remitted to the former officer by the subsidiary under the employment agreement in the approximate amount of 1,356,000 NIS (approximately $393,000 based on the exchange rate in effect at the time of the filing of this report on Form 10-K) voiding the agreement, other equitable relief, and costs and disbursements, including attorneys’ fees. Previously, on May 10, 2009, the former officer/director resigned from all positions held with the subsidiary purportedly for “just cause” under the employment agreement. The resignation followed a request by the subsidiary that the former officer/director attend a meeting with management relating to his performance under the agreement, which request was refused.





On January 3, 2011, the former officer filed an answer. A hearing date has been set for July 3, 2011





(ii) In its quarterly report on Form 10-Q for the three months ended September 30, 2009, the Company first disclosed that on October 10, 2009, the above referenced former officer/director filed an action in the Labor Court in Tel-Aviv against IDO Ltd., as well as a director and the General Manager of IDO Ltd.  The action seeks the payment of amounts purportedly due and payable to the officer/director under his employment agreement with IDO Ltd. in the approximate amount of 1,481,000 NIS  (approximately $429,000 based on the exchange rate in effect at the time of the filing of this report on Form 10-K). In January 2010, the Company filed an answer whereby we denied all allegations.





On January 3, 2011, the plaintiff filed his affidavit. A hearing date has been set for July 3, 2011.





The Company believes that these claims are without foundation and that it has meritorious defenses to them. The Company intends to aggressively defend its interests.





ITEM4. REMOVED AND RESERVED





PART II





ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES





Our Common Stock is quoted on the OTC Bulletin Board under the symbol “IDOI.” Until May 2007, there was only sporadic trading in our stock. As of May 31, 2007, a more active though limited trading market developed. There can be no assurance that an established trading market will develop, that the current market will be maintained or that a liquid market for our Common Stock will be available in the future. Investors should not rely on historical stock price performance as an indication of future price performance.





The following table shows the quarterly high and low bid prices for our Common Stock over the last completed quarter of 2010 and 2009 as quoted on the OTC Bulletin Board. The prices represent quotations by dealers without adjustments for retail mark-ups, mark-downs or commission and may not represent actual transactions.





LOW


HIGHYear Ended December 31, 2010First Quarter

$
0.0015


$
0.0051Second Quarter

$
0.0004


$
0.0018Third Quarter

$
0.0004


$
0.001Fourth Quarter

$
0.0007


$
0.0022Year Ended December 31, 2009First Quarter

$
0.06


$
0.005Second Quarter

$
0.00181


$
0.00031Third Quarter

$
0.00938


$
0.00113Fourth Quarter

$
0.0055


$
0.002





15




As of April 7, 2011, there were 37 holders of record of our Common Stock. A significant number of shares of our Common Stock are held in either nominee name or street name brokerage accounts, and consequently, we are unable to determine the number of beneficial owners of our stock.





DIVIDEND POLICY





We have not paid dividends on our Common Stock and do not expect to pay cash dividends in the foreseeable future. It is the present policy of the Board to retain all earnings to provide funds for the growth of our company. The declaration and payment of dividends in the future will be determined by the Board based upon our earnings, financial condition, capital requirements and such other factors as the Board may deem relevant.





ITEM 6. SELECTED FINANCIAL DATA





Not Applicable.





ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION





THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL STATEMENTS AND THE NOTES RELATED TO THOSE STATEMENTS. SOME OF OUR DISCUSSION IS FORWARD-LOOKING AND INVOLVES RISKS AND UNCERTAINTIES. FOR INFORMATION REGARDING RISK FACTORS THAT COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, REFER TO THE RISK FACTORS SECTION OF THIS ANNUAL REPORT.





OVERVIEW





IDO Security Inc. is engaged in the design, development and marketing of devices for the homeland security and loss prevention markets that are intended for use in security screening procedures to detect metallic objects concealed on or in footwear, ankles and feet through the use of electro-magnetic fields. These devices were designed specifically for applications in the security screening to complement the current methods for the detection of metallic items during security screenings and at security checkpoints in venues such as airports, prisons, schools, stadiums and other public locations requiring individual security screening. Our common stock trades on the OTC Bulletin Board under the symbol IDOI.





We believe that the market for security and inspection products will continue to be positively impacted by the threat of terrorist activities and by new government regulations and appropriations for security and inspection products and procedures. We anticipate that the promulgation of new governmental regulation and standards will establish performance baselines against which we will be able to direct certain of our continued research and development spending and market our products to customers, worldwide. In addition, we believe that the increasing awareness of security, in general, will bring increased awareness of available products and methods, such as ours, for anti-crime and loss prevention fields.





In October 2010 we entered into a distribution arrangement with JEI, Inc. a California based company with an extensive history of selling state of the art audio recording devices , a vital security apparatus, to the Federal, State and local governments throughout the United States. As part of that arrangement, JEI has submitted the MagShoe to the U.S. General Services Administration ( GSA ) for approval and ultimate sale to the various Federal Agencies. Of course no guarantee can be provided that the MagShoe will be approved by the GSA and, even if approved, that ultimately, will be sold to the agencies. We are currently intensifying our efforts to identify and team up appropriate collaborators in the coming months with a view toward enabling us to bring the MagShoe to our various core markets in the United States and  throughout the world while also beginning the process of seeking other state of the art security devices to put through our distribution system to increase the awareness of IDO as a seller and supplier of security devices.





We need to raise additional funds on an immediate basis in order to meet our on-going operating requirements and to realize our business plan. In response to the deteriorating global economic conditions that began in 2008, we have taken certain measures in an effort to reduce operating expenses and conserve our cash resources. Beginning in April 2008, we have significantly curtailed our non-essential product design and development. Our senior and other employees have agrees to, defer, in part, salaries and benefits. As of March 31, 2011, we had 10 employees working on a full-time basis. If we are unable to raise capital on an immediate basis, it may be necessary to for us to take further cost cutting measures to reduce our cash burn including laying-off additional personnel. No assurance can be given that we will be able to raise the needed capital. These conditions raise substantial doubt about our ability to continue as a going concern.





16




Subject to raising additional working capital, we intend to pursue our business plan over the next twelve months with respect to product development and enhancement and field testing, as well as initial marketing efforts. We have been expanding our contact base and are aggressively seeking collaborative arrangements worldwide for our MagShoe product. In May 2008, we selected a leading contract manufacturer for high volume production of MagShoe and in June 2008, we announced the availability of an elite network of industry leading distributors and systems integrators for the MagShoe device which, together with the high volume production capabilities that we established in the second quarter of 2008, significantly strengthens our infrastructure to commercially manufacture and distribute the MagShoe device. In July 2008, we announced our entry into a collaborative relationship with Bryant Integrated Technologies, a leading security and consulting firm, to lead our product distribution efforts in the United States, and with Hwan Technology and Trade Co., one of China’s largest distributors of walk-through metal detectors, to lead our distribution efforts in China. Shortly thereafter, we announced our initial sale of the MagShoe Unit (through Bryant) in the United States to a leading commercial cruise line which intends to use the MagShoe device to significantly reduce passenger waiting lines while improving security. In addition, as a result of the recent terror attacks in Mumbai, India, we have targeted that area for special attention by our marketing department. This follows a successful test of the MagShoe at both the Mumbai and New Delhi airport several months ago. Recently, in April 2009, we announced the delivery of multiple MagShoe devices to the Xinjiang Airport in Northwestern China as well as initial sales of MagShoe devices to a large United States based international cruise line where the devices are to be used in the cargo holders so as to primarily prevent theft of valuables. In August 2009, we announced a distribution arrangement in Italy with one of that nation’s recognized providers of system integration for physical and logistical security.





CRITICAL ACCOUNTING POLICIES AND ESTIMATES





Our financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these financial statements required management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. We continually evaluate the accounting policies and estimates it uses to prepare the consolidated financial statements and bases its estimates on historical experiences and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates made by management.





We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.





Our significant accounting policies are summarized in Note 2 of Notes to Consolidated Financial Statements. While all these significant accounting policies impact its financial condition and results of operations, the Company views certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our consolidated financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause effect on our consolidated results of operations, financial position or liquidity for the presented in this report.





RESULTS OF OPERATIONS





COMPARISON OF THE YEAR ENDED DECEMBER 31, 2010 (the “2010 Period”) TO THE YEAR ENDED DECEMBER 31, 2009 (the “2009 Period”)





Revenues and cost of goods sold – Revenues for the 2010 Period were $61,399 compared to $82,721 for the 2009 Period, all of which were derived from sales of the MagShoe units. Gross (loss) profit in 2010 and 2009 was $(11,099) and $14,529, respectively. In the 2010 Period, the allocation of fixed manufacturing costs to cost of goods resulted in negative gross profit.





The decrease in revenues and cost of goods sold during 2010 Period compared to the 2009 Period is primarily attributable to the design and development of two new prototypes of the MagShoe device in response to greater height requirements and networking capability requested by potential end-users. The design of the prototypes was completed in April 2010 and the first outside manufacturing of the new plastic exteriors was completed in the fourth quarter 2010.





Research and Development - Research and development expense consist primarily of expenses incurred in designing, developing and field testing our products. These expenses consist primarily of salaries/fees and related expenses for personnel, contract design and testing services, supplies used and consulting and license fees paid to third parties. We incurred research and development expenses in the amount of $356,022 and $290,995 in the 2010 Period and 2009 Period, respectively. The increase  in research and development expenses is primarily attributable to expenses  incurred in producing prototypes of the new third generation MagShoe, containing  new product features relating to height and capability in response to the announced requirements of potential customers.





Selling, general and administrative expenses - We incurred selling, general and administrative expenses of $1,205,778 and $1,310,676 for 2010 and 2009, respectively. These expenses primarily consist of salaries/fees and other related costs for personnel in executive and other administrative functions and consultants. Other significant costs include professional fees for legal, accounting and other services. The decrease in selling, general and administrative expenses during the 2010 Period as compared to the 2009 Period is principally attributable to reduced costs for consultants as well as the reduction in management’s salaries.





Impairment of Goodwill - Goodwill consists of the excess of cost over net assets acquired of IDO Ltd. on March 8, 2007. During the annual impairment evaluation in the fourth quarter of 2010, the results of the impairment analysis indicated the carrying value of goodwill exceeded the fair value and the Company recorded an impairment charge of $740,000 for 2010.





Stock Based Compensation - Between June 2007 and April 2008, we granted stock options to employees and consultants. The value of these options was being amortized over the vesting periods of each grant. In May 2010, we issued 4,000,000 shares of our Common Stock to a consultant.  Stock based compensation totaled $2,400 and $ 157,319   for the years ended December 31, 2010 and 2009, respectively. Stock-based compensation is non-cash and, therefore, has no impact on cash flow or liquidity.





17




Interest expense - Interest expense for the 2010 period was $1,205,800 and $602,906 for the 2009 Period. Interest expense related primarily to the placement of our convertible promissory notes. Also included in interest expense for 2010 is $477,500 related to the issuance in May 2010 of 4,775 shares of  Series A Preferred Stock as consideration for the extending the terms of certain convertible debt.





Amortizations – The amortizations are included in interest expense in the statement of operations.  Amortization for the 2010 Period was $1,058,743 and $2,482,866 for the 2009 Period. Amortization costs relate to the debt discount, beneficial conversion feature, and deferred finance costs incurred in connection with the placement of our convertible promissory notes. These costs are amortized to the date of maturity of the debt unless converted earlier.





Preferred Stock Dividends – In connection with our financing arrangements in 2010 we have issued a total of 7,973 shares of Series A Preferred Stock. The shares accrue a dividend of 10% per annum. The dividends are cumulative commencing on the issue date whether or not declared. For financial reporting purposes, we recorded a discount to reflect the difference in the amount of proceeds allocable to the Series A Preferred Stock in the offering based on relative fair values and the stated value. The discounts were being amortized as deemed dividends on preferred stock to the date of maturity unless converted earlier. Commencing on July 1, 2009, the Series A Preferred Stock is now being classified as a liability. As such, all dividends accrued and/or paid and any accretions are now classified as part of interest expense and are no longer classified as preferred stock dividends and deemed dividends.  For the year ended December 31, 2010, dividends and deemed dividends totaled $3,174,284 and such amount has been included in interest expense. For the year ended December 31, 2009, dividends and deemed dividends totaled $2,374,066, and of such amounts, $1,518,882 has been included in interest expense.





Net loss attributable to common stockholders – For year ended December 31, 2010, we had a net loss of $7,779,041 as compared to a net loss of $7,258,600 for the year ended December 31, 2009.





LIQUIDITY AND CAPITAL RESOURCES





We need to raise additional funds on an immediate basis in order to be able to satisfy our cash requirements and fulfill our business plan over the next twelve months. In response to the general deterioration in the general economic environment which began in 2008, we have taken several cost-cutting measures. We have laid-off a number of our employees and as of March 31, 2011, we had ten full time remaining employees on staff. Additionally, we have been forced to delay payments to most of our vendors and defer salaries for management and employees. Nonetheless, without raising additional funds on an immediate basis, whether through the issuance of our securities, licensing fees for our technology or otherwise, we will also not be able to maintain operations as presently conducted. As previously disclosed in our periodic reports, we have been actively seeking additional capital. At the present time, we have no commitments for financing and no assurance can be given that we will be able to raise capital on commercially acceptable terms or at all. Even if we raise cash to meet our immediate working capital needs, our cash needs could be heavier than anticipated in which case we could be forced to raise additional capital. Our auditors included a “going concern” qualification in their auditors’ report for the year ended December 31, 2010. Such “going concern” qualification may make it more difficult for us to raise funds when needed. Moreover, the current economic situation may further complicate our capital raising efforts. If we are unable to raise additional capital on an immediate basis, we may be forced lay-off additional employees and either restructure or cease operations entirely.





As of December 31, 2010, we had a cash balance of $211,970 compared to $176,559 at December 31, 2009.





Cash used in operating activities was $1,660,464 for the year ended December 31, 2010. The decrease in cash was primarily attributable to funding the loss for the period.





Cash used in investing activities was $14,269 for the year ended December 31, 2010 attributable to the addition of property and equipment.





Cash provided by financing activities was $1,710,144 for the year ended December 31, 2010. We received proceeds of $318,940 and $1,305,000 from the issuance of the 2010 Notes and short term notes, respectively.  We also received advances under our wholly-owned subsidiary’s line of credit totaling $47,432 and loans totaling $38,772.





To date we have financed our operations primarily from the sale of our securities. Our recent financings are discussed below.




Between December 5, 2007 and January 24, 2008, we raised gross proceeds of $5,404,550 from the private placement to certain accredited institutional and individual investors (the “2008 Investors”) of our two-year 10% Secured Convertible Promissory Notes (collectively, the “2008 Notes”, each a “2008 Note”).  We received net proceeds of $1 million.  The 2008 Notes were originally scheduled to mature in December 2009, but were extended to December 31, 2010 and subsequently further extended to December 31, 2011.  During 2009, we repaid principal and accrued interest in the amount of $1,103,139 in the form of 1.732 billion shares of our Common Stock.  During 2010, principal in the amount of $697,950 and accrued interest totaling $321,132 was repaid in the form of 1.353 billion shares of the Company’s Common Stock.  As of December 31, 2010, approximately $3.66 million remained outstanding on the 2008 Notes.  For the period January 1, 2011 through April 7, 2011, principal in the amount of $257,411 and accrued interest totaling $307,895 was repaid in the form of 4.498 billion shares of the Company’s Common Stock.


18





Between April 29, 2008 and November 25, 2008 (the “April-November 2008 Loans”), we received gross loan proceeds of $442,355 from two 2008 investors and one stockholder. All of these loans were rolled into the financing consummated in December 2008 as discussed below.




Pursuant to an offering dated October 30, 2008 to the holders of the 2008 Notes, on December 17, 2008, the Company realized net proceeds of $548,474, before the payment of offering related fees and expenses, from a private placement of $1,066,540 in principal amount of Secured Convertible Promissory Notes (“collectively the “December 2008 Notes”).  The December 2008 Notes were originally scheduled to mature on April 30, 2010, but were extended to December 31, 2010 and subsequently extended to December 31, 2011.  During 2009, we repaid principal and accrued interest in the amount of $100,115 on the December 2008 Notes in the form of 204 million shares of our Common Stock. In May 2010, principal in the amount of $58,285 and accrued interest totaling $11,375 was repaid in the form of 129 million shares of the Company’s Common Stock. As of December 31, 2010, approximately $1 million remains outstanding on the December 2008 Notes.  For the period January 1, 2011 through April 7, 2011, principal in the amount of $18,798 and accrued interest totaling $53,623 was repaid in the form of 357 million shares of the Company’s Common Stock.





Between April 28, 2009 and December 31, 2009, we raised net proceeds of $1,432,500 from the private placement to certain holders of the December 2008 Notes of $1,432,500 in principal amount of Secured Convertible Promissory Notes (“2009 Notes”) originally due 18 months following issuance   The maturity dates of the 2009 Notes were extended to December 31, 2011.  Proceeds of these funds were used to fund our continuing operations as well as pay down amounts outstanding under a line of credit with a commercial bank in the approximate amount of $267,000 for the benefit of our subsidiary IDO Ltd. In 2010, we raised an additional net proceeds of $318,940, which included the repayment of certain accrued expenses, from the private placement to certain holders of the December 2008 Notes (the “2010Notes”). As of December 31, 2010, approximately $1.73 million remains outstanding on the 2010 Notes.In 2011, the Company raised an additional net proceeds of $105,000 from the private placement to certain holders of the December 2008 Notes (the “2011 Notes”).





In 2010, we issued short-term notes to certain of the 2008 Investors in the principal amount of $1,305,000. The outstanding notes bore interest at the rate of 10% per annum and were due at various dates through May 2011 or the closing of a new investment In February 2011, the outstanding principal amounts and accrued interest on the these Notes were rolled into two year Secured Convertible Notes substantially identical with the “2009 and 2010 Notes” with maturity dates in August 2012.





RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS





On January 1, 2010, the Company adopted the new provisions of Accounting Standards Update (ASU) No. 2010-06, “Fair Value Measurements and Disclosures (Topic 820), Improving Disclosures about Fair Value Measurements” (“ASU No. 2010-06”). ASU No. 2010-06 provides revised guidance on improving disclosures about valuation techniques and inputs to fair value measurements. The adoption of this standard had no effect on the financial statements of the Company.





In February 2010, the Financial Accounting Standards Board (“FASB”) issued an amendment to accounting standards related to subsequent events. The amendment exempts Securities and Exchange Commission registrants from the requirement to disclose the date through which it has evaluated subsequent events for either original or restated financial statements. The standard is effective February 2010. The Company adopted this standard in February 2010. The adoption did not impact the Company’s consolidated financial position or results of operations, other than additional reporting requirements.





The Financial Accounting Standards Board (FASB) ratified Accounting Statement Update (ASU) 2009-13 (ASU 2009-13), “Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements,” which eliminates the residual method of allocation, and instead requires companies to use the relative selling price method when allocating revenue in a multiple deliverable arrangement. When applying the relative selling price method, the selling price for each deliverable shall be determined using vendor specific objective evidence of selling price, if it exists and otherwise using third-party evidence of selling price. If neither vendor specific objective evidence nor third-party evidence of selling price exists for a deliverable, companies shall use their best estimate of the selling price for that deliverable when applying the relative selling price method. ASU 2009-13 shall be effective in fiscal years beginning on or after June 15, 2010, with earlier application permitted. Companies may elect to adopt this guidance prospectively for all revenue arrangements entered into or materially modified after the date of adoption, or retrospectively for all periods presented. The Company will adopt this standard effective January 1, 2011.  The Company does not expect the provisions of ASU 2009-13 to have a material effect on the financial position, results of operations or cash flows of the Company.





In April 2010, the FASB issued Accounting Standards Update 2010-17 (ASU 2010-17), "Revenue Recognition-Milestone Method (Topic 605): Milestone Method of Revenue Recognition." The amendments in this Update are effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. Early adoption is permitted. If a vendor elects early adoption and the period of adoption is not the beginning of the entity’s fiscal year, the entity should apply the amendments retrospectively from the beginning of the year of adoption. The Company does not expect the provisions of ASU 2010-17 to have a material effect on the financial position, results of operations or cash flows of the Company.





In July 2010, the FASB issued Accounting Standards Update 2010-20, “Receivables (Topic310):  Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.”  ASU 2010-20 is intended to provide additional information to assist financial statement users in assessing an entity’s risk exposures and evaluating the adequacy of its allowance for credit losses. The disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. The amendments in ASU 2010-20 encourage, but do not require, comparative disclosures for earlier reporting periods that ended before initial adoption. However, an entity should provide comparative disclosures for those reporting periods ending after initial adoption. The adoption of ASU 2010-20 did not have a significant impact on its consolidated financial statements




19





Management does not believe that any other recently issued, but not yet effective, accounting standard if currently adopted would have a material effect on the accompanying financial statements.





ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





Not Applicable.





ITEM 8. FINANCIAL STATEMENTS





The information called for by this Item 8 is included following the “Index to Consolidated Financial Statements” contained in this Annual Report on Form 10-K.





ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.





None.





ITEM 9A. CONTROLS AND PROCEDURES





EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.





We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our President and Chief Executive Officer (who also serves as our principal financial and accounting officer) to allow timely decisions regarding required disclosure based closely on the definition of “disclosure controls and procedures” in Rule 13a-15(e).





As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with participation of management, including our President and Chief Executive Officer (who also serves as our principal financial and accounting officer), of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our President and Chief Executive Officer concluded that our disclosure controls and procedures were effective.





MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING; CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING.





Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. We carried out an evaluation, under the supervision and with participation of management, including our President and Acting Chief Executive Officer (who also serves as our principal financial and accounting officer), of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on his evaluation under the framework in Internal Control - Integrated Framework , our management concluded that our internal control over financial reporting was effective as of December 31, 2010.





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





During the quarter ended December 31, 2010, there have been no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, out internal control over financial reporting.





ITEM 9B. OTHER INFORMATION





None





20





PART III





ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE





The names, ages and positions of our directors, executive officers and key employees are as follows:


Name

Age

PositionMichael Goldberg

61

President, Acting Chief Executive Officer and DirectorIrit Reiner

53

DirectorJohn Mitola

44

DirectorHenry Shabbat

70

Chief Operating Officer (IDO Security Ltd.)





Business Experience





The following is a brief account of the education and business experience of each director, executive officer and key employee during at least the past five years, indicating each person’s business experience, principal occupation during the period, and the name and principal business of the organization by which he was employed.





Michael Goldberg  has served as a director and Acting Chief Executive Officer since July 2006, and President since June 2007. Mr. Goldberg serves as Chief Executive Officer of Rx Medical Services Corp., a position he has held from May 1991. RXM was a medical company, which at one time managed and owned small rural hospitals, clinical laboratories and MRI/CT centers and is now inactive. Mr. Goldberg currently also serves as a Director of Kreisler Industries a publicly traded aero-space engineering company and serves on its Audit and Compensation committee. Mr. Goldberg also consults for both private and public companies. Mr. Goldberg’s experience in managing and overseeing a diversified business practice equip him with the skill set needed to meet the challenges that we expect our board to face.





Irit Reiner  has served as a director since June 2006. Ms. Reiner possesses approximately 25 years experience in the field of arranging and overseeing the provision of recreational touring services to individuals and groups. From January 2002 to March 2006, Ms. Reiner devoted the majority of her time to completing the requisite coursework and obtaining an MBA in business administration from the Jerusalem School of Business Administration at the Hebrew University in Jerusalem (October 2002 to June 2004) and from September 2004 to March 2006 she was enrolled in a post graduate course at the Israel Management Center. From February 1997 to April 2002 she was affiliated with Diesenhuas Peltours, an Israeli based tour operator with various branch offices throughout Israel, where she oversaw the management and operation of several of their branch offices. Ms. Reiner’s background and business experience furnishes to our board access to a greater understanding of investor relations issues.





John Mitola  has served as a director since September 2007. Mr. Mitola is currently a managing partner with Kingsdale Capital International, a private equity and capital advisory firm specializing in merchant banking. Mr. Mitola also currently serves as Chairman of the Illinois Toll Highway Authority, a position to which he was appointed in March 2003. From January 2000 to February 2006, he served as chief executive officer of Electric City Corp. He possesses over 20 years experience in the energy and environmental industries, real estate development, venture capital, engineering and construction. Mr. Mitola’s background and experience in related industries furnishes to our board access to a greater understanding of financial and investor relations issues.





Henry Shabat  has served as the Chief Operating Officer of our subsidiary IDO Security Ltd. since July 2007. Since June 2002, Mr. Shabat has provided consulting and managerial services primarily related to the homeland security field, including development and manufacturing of communications and aeronautical systems, police and security encrypted communications systems and border control systems.





All directors of our company hold office until the next annual meeting of the stockholders or until their successors have been elected and qualified. The officers of our company are appointed by our board of directors and hold office until their death, resignation or removal from office.





Section 16(A) Beneficial Ownership Reporting C ompliance





Section 16(a) of the Securities Exchange Act of 1934 , as amended, requires each of our officers and directors and each person who owns more than 10% of a registered class of our equity securities to file with the SEC an initial report of ownership and subsequent reports of changes in such ownership. Such persons are further required by SEC regulation to furnish us with copies of all Section 16(a) forms (including Forms 3, 4 and 5) that they file. Based solely on our review of the copies of such forms received by us with respect to fiscal year 2010, or written representations from certain reporting persons, we believe all of our directors and executive officers met all applicable filing requirements for the fiscal year ended December 31, 2010.





Code of Ethics





We have adopted a code of ethics in compliance with Item 406 of Regulation S-B that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. We undertake herewith to provide by mail to any person without charge, upon request, a copy of such code of ethics if we receive the request in writing by mail to the address listed on the cover page of this Report on Form 10-K.





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Audit Committee and Audit Committee Financial Expert




At present we do not have a separately designated standing audit committee. The entire board of directors is acting as our Company’s Audit Committee, as specified in section 3(a)(58)(b) of the Exchange Act. The board of directors has determined that at present we have no audit committee financial expert serving on the Audit Committee. Our Company, at present, does not have significant operations.





ITEM 11. EXECUTIVE COMPENSATION





Summary Compensation Table





The following table sets forth all compensation for each of the last two fiscal years awarded to, or earned by, our Chief Executive Officer and the most highly compensated executive officer other than the Chief Executive Officer serving as such at the end of 2010 whose total compensation exceeded $100,000 for the year ended December 31, 2010.





Name and




OptionPrincipal




Awards

All OtherPosition(s)
Year

Salary

(1)

Compensation


TotalMichaelGoldberg,
2010

$
198,000
(2)
$
--

$
--


$
198,000President andActing Chief
2009

$
198,000
(3)
$
--

$
--


$
198,000ExecutiveOfficer(and PrincipalFinancialOfficer)


Henry Shabbat,Chief
2010

$
81,000
(4)
$
--

$
--


$
81,000OperatingOfficer of IDO
2009

$
72,000
(4)
$
--

$
--


$
72,000Security Ltd.


1. Amounts in this column reflect the aggregate grant date fair value computed in accordance with FASB ASC 718 with respect to employee stock options issued during 2010 and 2009.





2. Of the amount earned, approximately $90,000 was paid and $108,000 was deferred as of December 31, 2010.  See “Michael Goldberg”, below





3. Of the amount earned, approximately $80,000 was paid and $118,000 was deferred as of December 31, 2009. See “Michael Goldberg”, below





4. Of the amount earned, approximately $72,000 was paid and $9,000 was deferred as of December 31, 2010.  See “Henry Shabbat”, below.





Employment/Consulting Agreements





Michael Goldberg . On June 20, 2007, we entered into an employment agreement with Mr. Goldberg, which became effective as of July 2, 2007, pursuant to which Mr. Goldberg was retained as our President. The employment agreement has an initial term of one year; thereafter, the employment agreement provides that it is to be renewed automatically for additional one year periods unless either party shall advise the other 90 days before expiration of the initial (or a renewal term) of its intention to not renew the agreement beyond its then scheduled expiration date. Mr. Goldberg is entitled to an annual salary of $198,000, payable monthly.  However, in order to reduce operating expenses and conserve cash, since October 2008, Mr. Goldberg has been deferring a part of his salary until such time as our cash position permits payment of salary in full without interfering with our ability to pursue our plan of operations, and, as of December 31, 2010, such deferred amount totaled an aggregate of $315,292. Mr. Goldberg can terminate the employment agreement and the relationship thereunder at any time upon 60 days’ notice. If during the initial term the Company were to terminate the agreement for any reason other than “Just Cause” (as defined the employment agreement), then the Company is to pay to Mr. Goldberg the salary then payable under the agreement through the scheduled expiration of the initial term; if such termination for any reason other than “Just Cause” were to take place during a renewal period, then the Company is to pay to Mr. Goldberg an amount equal to three months’ salary. Under the agreement, Mr. Goldberg was awarded options to purchase 1,200,000 shares of the Company’s common stock, of which options for 525,000 shares, at a per share purchase price of $0.17, were fully vested at the time of grant and options for the remaining shares, which have vested, are exercisable at per share exercise prices ranging between $0.25 and $1.25. Mr. Goldberg has served as our Acting Chief Executive Officer since June 2006.





22




Henry Shabbat . On July 1, 2007, IDO Ltd. and Henry Shabat Ltd., a company owned by Mr. Henry Shabat, entered into a Management Agreement pursuant to which Mr. Shabat is to serve as IDO Ltd.’s Chief Operating Officer. Under the management agreement, Mr. Shabat is to be paid a monthly fee of $6,000. However, in order to reduce operating expenses and conserve cash, since December, 2008] Mr. Shabbat has been deferring a part of his salary until such time as our cash position permits payment of salary in full without interfering with our ability to pursue our plan of operations, and, as of December 31, 2010, such deferred amount totaled an aggregate of $15,000. The management agreement has an initial term of one year; thereafter, the management agreement provides that it is to be renewed automatically for additional one year periods unless either party shall advise the other 90 days before expiration of the initial (or a renewal term) of its intention to not renew the agreement beyond its then scheduled expiration date. Mr. Shabat was awarded options to purchase 240,000 shares of the Company’s common stock, which options have vested. The per share exercise price range between $0.17 and $1.17. The employment agreement also includes certain customary confidentiality and non-compete provisions that prohibit the executive from competing with the Company or soliciting the Company’s employees for 12 months following the termination of his retention.





OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END — DECEMBER 31, 2010





The following table sets forth information as of December 31, 2010, concerning unexercised options for the purchase of common stock held by the named executive officers.





Name

Number of

Securities

Underlying

Unexercised

Options

Exercisable


Number

of Securities

Underlying

Unexercised

Options

Unexercisable


Option

Exercise

Price

Option

Expiration

DateMichael Goldberg


525,000



—


$
0.17

6/20/1484,375



—



0.25

9/30/1484,375



—



0.42

12/30/1484,375



—



0.58

3/31/1584,375



—



0.72

6/30/1584,375



—



0.95

9/30/1584,375



—



1.08

12/30/1584,375



—



1.17

3/31/1684,375



—



1.25

6/30/16Henry Shabat


30,000



—


$
0.17

9/30/1230,000



—



0.25

12/31/1230,000



—



0.42

3/31/1330,000



—



0.58

6/30/1330,000



—



0.72

9/30/1330,000



—



0.95

12/31/1330,000



—



1.08

3/31/1430,000



—



1.17

6/30/14





Compensation of Directors





It is our policy to reimburse our directors for reasonable expenses incurred in traveling to and from board or committee meetings.





The following table sets forth all compensation for the last fiscal year awarded to, or earned by, our Directors during 2010.





Name

Fees Earned

(1)


Option

Awards


TotalIrit Reiner

$
2,476


$
----


$
2,476John Mitola

$
3,000


$
—


$
3,000








ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS





Beneficial Ownership of Certain Shareholders, Directors and Executive Officers





The following table sets forth information as of the close of business on April 7, 2011, concerning shares of our common stock beneficially owned by: (i) each director; (ii) each named executive officer; ( iii) all directors and executive officers as a group; and (iv) each person known by the Company to own beneficially more than 5% of the outstanding shares of common stock.





23




In accordance with the rules of the SEC, the table gives effect to the shares of common stock that could be issued upon the exercise of outstanding options and warrants within 60 days of April 7, 2011. Unless otherwise noted in the footnotes to the table and subject to community property laws where applicable, the following individuals have sole voting and investment control with respect to the shares beneficially owned by them. We have calculated the percentages of shares beneficially owned based on 12,028,494,374 shares of common stock outstanding at April 7, 2011.





Name and Address of

Beneficial Owner

Common Stock

Beneficially

Owned


Percentage of

Common

StockMichael Goldberg

President and acting Chief Executive Officer

c/o 17 State Street

New York, NY


1,200,000
(1)


*Henry Shabat

Chief Operating Officer of IDO Security Ltd.

c/o 17 State Street

New York,, NY


240,000
(2)


*Irit Reiner

Director

c/o 17 State Street

New York,, NY


167,257,654
(3)


*John Mitola

Director

c/o 17 State Street

New York, NY


100,000
(4)


*All directors and officers as a group (4 persons)


168,797,654



*





* Less than 1%.


(1)
Represent shares of Common stock issuable upon exercise of employee stock options.(2)
Represent shares of Common stock issuable upon exercise of employee stock options.(3)
Comprised of (i) 167,157,6544 shares of Common Stock held by Ms. Reiner’s husband and (ii) 100,000 shares issuable upon exercise of stock options issued to Ms. Reiner for services rendered as a director of our company. Does not include warrants to purchase an additional 200,000 shares of Common Stock issuable upon conversion of convertible debt securities and warrants held by Ms. Reiner husband. The warrants and convertible debt instruments contain provisions that prohibit the exercise of such warrants and/or conversion of the convertible debt instruments if following such exercise or conversion the aggregate holdings of such person would exceed 4.9% of the then issued and outstanding shares of our Common Stock.(4)
Represent shares of Common stock issuable upon exercise of employee stock options.





Securities Authorized for Issuance Under Equity Compensation Plans





We have two compensation plans (excluding individual stock option grants outside of such plans) under which our equity securities are authorized for issuance to employees, directors and consultants in exchange for services - the 2007 Equity Incentive Plan (the “2007 Plan”) and the 2007 Non-Employee Directors Stock Option Plan (the “2007 Directors Plan”; together with the 2007 Plan, the “Plans”). Our shareholders have approved these Plans.





24




The following table sets forth certain information with respect to securities authorized for issuance under equity compensation plans as of December 31, 2010.








Plan Category

Number of securities

to be issued upon

exercise of

outstanding options,

warrants and rights

(a)

Weighted-average

exercise price of

outstanding options,

warrants and rights

(b)


Number of securities

remaining available for future

issuance under equity

compensation plans

(excluding securities reflected

in column (a))

(c)Equity compensation plans approved by security holders:

3,490,000

$
1.47


510,000Equity compensation plans not approved by security holders:

—


—


—TOTAL

3,490,000

$
1.47


510,000





ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE





Certain Relationships and Related Transactions





There have been no transactions since the beginning of our last fiscal year or any proposed transactions in which the Company was or is a party, in which the amount involved exceeded $120,000 and in which any of our directors, officers, including nominees for director, and/or holders of more than 5% of our Common Stock or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest.





Director Independence





The Board believes that John Mitola meets the independence criteria set out in Rule 4200(a)(14) of the Marketplace Rules of the National Association of Securities Dealers and the rules and other requirements of the SEC.





ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES





Audit and Non-Audit Fees





Aggregate fees for professional services rendered for the Company by Rotenberg Meril Solomon Bertiger & Guttilla, P.C., our independent registered public accounting firm, for the fiscal years ended December 31, 2010 and 2009 are set forth below.





Fiscal Year Ended

December 31, 2010


Fiscal Year Ended

December 31, 2009Audit Fees

$
82,500


$
82,500Audit Related Fees

$
3,705


$
8,320Tax Fees

$
—


$
—All Other Fees

$
—


$
—Total

$
86,205


$
90,820





Audit Fees were for professional services rendered for the audits of our consolidated financial statements, quarterly review of the financial statements included in Quarterly Reports on Form 10-Q, consents, and other assistance required to complete the year-end audit of the consolidated financial statements.





Audit-Related Fees were for assurance and related services reasonably related to the performance of the audit or review of financial statements and not reported under the caption Audit Fees.  The fees in 2010 and 2009 related to the Company’s responses to comment letters received from the SEC.





Tax Fees were for professional services related to tax compliance, tax authority audit support and tax planning. All Other Fees include any other fees charged by our auditors that are not otherwise specified.





All Other Fees include professional advisory fees relating tour efforts to raise funds through a private placement of our securities.





25




Our full Board pre-approves all audit and permissible non-audit services to be provided by our independent registered public accountants and the estimated fees for these services. None of the services provided by the independent registered public accountants that are described above were approved by the Audit Committee pursuant to a waiver of the pre-approval requirements of the SEC’s rules and regulations.





PART IV





ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES





The following exhibits are incorporated herein by reference or are filed with this report as indicated below.


EXHIBIT NO.

EXHIBIT2.1

Securities Purchase Agreement dated as of July 19, 2006 among The Medical Exchange Inc., IDO Security Ltd. and the selling shareholders identified therein, filed as an Exhibit to the Current Report filed on March 14, 2007 and incorporated herein by reference.3.1

Amended and Restated Certificate of Incorporation of the Company filed as an exhibit to IDO’s annual report on Form 10-KSB for the year ended December 31, 2007.3.2*

Amendment to Amended and Restated Certificate of Incorporation.3.3

Bylaws of the Company, filed as an exhibit to IDO’s annual report on Form 10-KSB for the year ended December 31, 2007.3.4

Certificate of Designation of Series A Preferred Stock filed December 11, 2008, filed as an exhibit to IDO’s current report on Form 8-K filed on December 23, 2008.4.1

Form of Promissory Note issued to certain investors, filed as an exhibit to IDO’s annual report on Form 10-KSB for the year ended December 31, 2008.4.2

Form of Class A Common Stock Purchase Warrant, filed as an exhibit to the Current Report on Form 8-K filed on April 6, 2007.4.3

Form of Warrant filed as an exhibit to IDO’s annual report on Form 10-KSB for the year ended December 31, 2008.4.4

Form of Promissory Note issued on July 30, 2008, filed as an exhibit to IDO’s quarterly report on Form 10-Q for the three months ended June 30, 2008.4.5

Form of Secured Convertible Promissory Note due April 30, 2010, filed as an exhibit to IDO’s current report on Form 8-K filed on December 23, 2008.4.6

Form of Warrant issued as of October 31, 2008, filed as an exhibit to IDO’s current report on Form 8-K filed on December 23, 2008.4.7

Form of Secured Promissory Note filed as an exhibit to the Annual Report on Form 10-K for the Year ended Decemgber 31, 2010.10.1

Form of subscription Agreement, dated as of December 24, 2007, with certain investors filed as an exhibit to IDO’s annual report on Form 10-K for the year ended December 31, 2008.10.2

Form of Security Interest Agreement filed as an exhibit to IDO’s annual report on Form 10-KSB for the year ended December 31, 2008.10.3

Subscription Agreement dated as of October 31, 2008 by and between IDO Security Inc and the investors, filed as an exhibit to IDO’s quarterly report on Form 10-Q for the three months ended June 30, 2008.


10.4

Modification, Waiver and Consent Agreement dated as of December 17, 2008 between IDO Security Inc. and certain of the holders of certain of the Company’s previously issued notes, filed as an exhibit to IDO’s quarterly report on Form 10-Q for the three months ended June 30, 2008.10.5

Employment Agreement dated as of June 1, 2007 between IDO Security Inc. and Michael Goldberg, filed as an exhibit to the Quarterly Report on Form 10-QSB for the three months ended June 30, 2007. +10.6

Management Agreement dated as of July 1, 2007 between IDO Security Ltd. and Henry Shabat Ltd., filed as an exhibit to the Quarterly Report on Form 10-QSB for the three months ended June 30, 2007. +10.7

Company’s 2007 Equity Incentive plan, filed as an exhibit to the Company’s information statement filed on February 26, 2008.10.8

Company’s 2007 Non-Employee Directors Stock option Plan, filed as an exhibit to the Company’s information statement filed on February 26, 2008.31

Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232

Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* Attached hereto.





26





SIGNATURES





Pursuant to the requirements of Section 13 or 15(d) 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.





DATE: April 13, 2011IDO SECURITY INC./s/ MICHAEL GOLDBERGMICHAEL GOLDBERGACTING CHIEF EXECUTIVE OFFICER (PRINCIPALEXECUTIVE OFFICER AND PRINCIPAL FINANCIAL

AND ACCOUNTING OFFICER) AND PRESIDENT





Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.





SIGNATURE

TITLE

DATE/s/ Irit Reiner

Chairman, Director

April 13, 2011Irit Reiner/s/ Michael Goldberg

President, Acting Chief Executive Officer and Director

April 13, 2011Michael Goldberg/s/ John Mitola

Director

April 13, 2011John Mitola





27





IDO SECURITY INC. AND SUBSIDIARY
 CONSOLIDATED FINANCIAL STATEMENTS
 
 
 Report of Independent Registered Public Accounting Firm
F-1Consolidated Balance Sheets
F-2Consolidated Statements of Operations
F-3Consolidated Statements of Changes in Stockholders’ Deficiency
F-4Consolidated Statements of Cash Flows
F-5Notes to Consolidated Financial Statements
F-6
 
 
 
 REPORT OF INDEPENDENT REGISTERED ACCOUNTING FIRM
 
 To the Board of Directors and Stockholders of
 IDO Security, Inc.
 
 We have audited the accompanying consolidated balance sheets of IDO Security, Inc. and Subsidiary (the “Company”) as of December 31, 2010 and 2009 and the related consolidated statements of operations, changes in stockholders’ deficiency and cash flows for the years then ended.  The consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
 
 We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
 In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2010 and 2009 and the results of their operations and cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
 
 The financial statements referred to above have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has not achieved profitable operations, has incurred recurring losses, has a working capital deficiency and expects to incur further losses in the development of the business, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 1. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
 
 /s/ ROTENBERG MERIL SOLOMON BERTIGER & GUTTILLA, P.C.
 
 ROTENBERG MERIL SOLOMON BERTIGER & GUTTILLA, P.C.
 Saddle Brook, New Jersey
 April 13, 2011
  F-1
 
 IDO SECURITY INC. AND SUBSIDIARYCONSOLIDATED BALANCE SHEETSDecember 31,


December 31,ASSETS

2010


2009CURRENT ASSETSCash and cash equivalents

$
211,970


$
176,559Accounts receivable


-



4,360Inventories


288,311



62,219Prepaid expenses and other current assets


98,595



65,613Total current assets


598,876



308,751Property and equipment, net


59,381



62,076Goodwill


1,215,002



1,955,002Deferred financing costs, net


-



4,223Total assets

$
1,873,259


$
2,330,052LIABILITIES AND STOCKHOLDERS' DEFICIENCYCURRENT LIABILITIESAccounts payable and accrued liabilities

$
3,494,861


$
2,265,491Bank line of credit


53,301



-Loans payable


38,772Convertible promissory notes(net of discount of $201,284 and $908,264)


6,160,224



5,724,747Redeemable Series A Cumulative Convertible Preferred Stock(net of discount of $503,210 and $2,283,422)


6,227,330



3,461,831Loan payable, related party


44,826



44,826Total current liabilities


16,019,314



11,496,895NON-CURRENT LIABILITIESNotes payable


1,305,000Convertible promissory notes(net of discount of $-0- and $118,651)


-



71,141Redeemable Series A Cumulative Convertible Preferred Stock(net of discount of $-0- and $165,326


-



337,201Accrued severance pay


156,868



162,211Total  liabilities


17,481,182



12,067,448ContingencySTOCKHOLDERS' DEFICIENCYPreferred Stock19,885,000 shares authorized; none outstanding


-



-Common stock, $.001 par value;60,000,000,000 and 5,000,000,000 shares authorized, respectively;4,997,183,991 and 1,952,917,590 issued and outstanding, respectively

4,997,184



1,982,918Additional paid-in capital


16,719,903



17,825,655Accumulated other comprehensive loss


(331
)


(331
)Accumulated deficit


(37,324,679
)


(29,545,638
)Total stockholders' deficiency


(15,607,923
)


(9,737,396
)Total liabilities and stockholders' deficiency

$
1,873,259


$
2,330,052See Notes to Consolidated Financial Statements.
 F-2


IDO SECURITY INC. AND SUBSIDIARYCONSOLIDATED STATEMENTS OF OPERATIONSYear


YearEnded


EndedDecember 31,


December 31,2010


2009Revenues

$
61,399


$
82,721Cost of sales


72,498



68,192Gross profit


(11,099
)


14,529Operating expensesResearch and development expenses


356,022



290,995Selling, general and administrative expenses


1,205,778



1,310,676Stock based compensation - selling, general and administrative


2,400



157,319Impairment of goodwill


740,000



-Inventory write-down


-



71,000Total operating expenses


2,304,200



1,829,990Loss from operations


(2,315,299
)


(1,815,461
)Interest expense (including amortization of debt and preferred stock discount,beneficial conversion features, dividends and deferred finance costs)


(5,438,827
)


(4,604,654
)Interest income


15



19,116Foreign currency translation


(24,930
)


(2,417
)Net loss


(7,779,041
)


(6,403,416
)Preferred stock dividends and deemed dividends


-



(855,184
)Net loss attributable to common stockholders

$
(7,779,041
)

$
(7,258,600
)Basic and diluted loss per share:

$
0.00


$
(0.01
)Weighted average number of shares outstandingBasic and diluted


3,879,902,208



1,188,026,095See Notes to Consolidated Financial Statements.




F-3








IDO SECURITY INC. AND SUBSIDIARYCONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCYPreferred Stock


Common Stock


Additional

Paid-in


Accumulated


Accumulated

Other

Comprehensive


Common

Stock


Deferred

Stock BasedShares


Amount


Shares


Amount


Capital


Deficit


Income


Subscribed


Compensation


TotalBalances at January 1, 2009


-


$
-


$
46,083,070


$
46,083


$
19,306,867


$
(23,142,222
)

$
(331
)

$
(25
)

$
(55,007
)

$
(3,844,635
)Conversion of convertiblepromissory notes andaccrued interest and fees


-



-



1,936,834,520



1,936,835



(733,581
)


-



-



-



-



1,203,254Warrants issued in connectionwith debt placement


-



-



-



-



5,266



-



-



-



-



5,266Cancellation of stock

subscription


-



-



-



-



(25
)


-



-



25







-Stock based compensation


-



-



-



-



102,312



-



-



-



55,007



157,319Preferred stock dividends


-



-



-



-



(855,184
)


-



-



-



-



(855,184
)Net loss


-



-



-



-



-



(6,403,416
)


-



-



-



(6,403,416
)Balances at December 31, 2009


-



-



1,982,917,590



1,982,918



17,825,655



(29,545,638
)


(331
)


-



-



(9,737,396
)Conversion of convertiblepromissory notes andaccrued interest and fees


-



-



1,551,091,797



1,551,091



(437,349
)


-



-



-



-



1,113,742Conversion of convertiblePreferred stock










1,459,174,604



1,459,175



(667,065
)


















792,110Warrants issued in connectionwith debt placement


-



-



-



-



262



-



-



-



-



262Shares issued for services










4,000,000



4,000



(1,600
)


















2,400Net loss


-



-



-



-



-



(7,779,041
)


-



-



-



(7,779,041
)Balances at December 31, 2010


-


$
-



4,997,183,991


$
4,997,184



16,719,903


$
(37,324,679
)

$
(331
)

$
-


$
-


$
(15,607,923
)See Notes to Consolidated Financial Statements.




F-4




IDO SECURITY INC. AND SUBSIDIARYCONSOLIDATED STATEMENTS OF CASH FLOWSYear


YearEnded


EndedDecember 31,


December 31,2010


2009CASH FLOWS FROM OPERATING ACTIVITIESNet loss

$
(7,779,041
)

$
(6,403,416
)Adjustments to reconcile net loss to net cashused in operating activities:Depreciation and amortization


21,187



34,483Loss on extinguishment of debtAmortization of note discount


4,180,365



3,841,570Amortization of beneficial conversion feature of convertible debt


48,439



147,333Accretion of interest on notes payable


-



24,000Stock based compensation


2,400



157,319Stock issued in lieu of interest and other charges


810,007



622,273Impairment of goodwill


740,000



-Inventory write-down


-



71,000Interest related to note payable settlement


-



18,694Decrease in net liability for severance pay


(5,343
)


(15,994
)Increase (decrease) in cash attributable to changes in operating assets and liabilitiesAccounts receivable


4,360



(4,360
)Inventory


(226,092
)


(8,511
)Prepaid expenses and other current assets


(32,982
)


16,227Accounts payable


196,907



228,919Accrued expenses and other current liabilities


379,329



(82,897
)Net cash used in operating activities


(1,660,464
)


(1,353,360
)CASH FLOWS FROM  INVESTING ACTIVITIESPurchases of property and equipment


(14,269
)


(38,839
)Net cash used in investing activities


(14,269
)


(38,839
)CASH FLOWS FROM FINANCING ACTIVITIESProceeds from issuance of convertible notes and preferred stock


318,940



1,332,500Proceeds from loans payable


38,772



-Proceeds from short-term debt


1,305,000



-Proceeds (repayment) from bank line of credit


47,432



(155,311
)Net cash provided by financing activities


1,710,144



1,177,189INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS


35,411



(215,010
)CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR


176,559



391,569CASH AND CASH EQUIVALENTS - END OF YEAR

$
211,970


$
176,559Supplemental disclosures of cash flow information:Cash paid for interest

$
-


$
-Non-cash activitiesIssuance of common stock for the conversion ofconvertible promissory notes and acrued interest

$
1,113,742


$
1,203,254Issuance of common stock for the conversion of convertible preferred stock

$
792,110


$
-Preferred stock dividends and deemed dividends

$
-


$
855,184See Notes to Consolidated Financial Statements.




F-5


IDO SECURITY INC. AND SUBSIDIARY
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE 1 - GENERAL
 
 Overview
 
 IDO Security Inc. (hereinafter, “IDO”) is engaged in the design, development and marketing of devices for the homeland security and loss prevention markets that are intended for use in security screening procedures and are designed to detect concealed metallic objects through the use of electro-magnetic fields. These devices were designed specifically for applications in the security screening and detection market to complement the current detection methods for detecting metallic items during security screenings at security checkpoints in venues such as airports, prisons, schools, stadiums and other public locations requiring individual security screening. The consolidated financial statements include the accounts of IDO and IDO Security Ltd. (“IDO Ltd.”), its wholly-owned subsidiary (collectively the “Company”).
 
 IDO was incorporated in the State of Nevada on January 23, 2004 under the name “The Medical Exchange, Inc.”  On July 25, 2006, IDO Ltd. and the holders of all of the issued and outstanding share capital of IDO Ltd. (collectively the “IDO Selling Shareholders”) entered into a Securities Purchase Agreement pursuant to which The Medical Exchange Inc. (“Med Ex”) agreed to purchase all of the issued and outstanding share capital of IDO Ltd. (the “Acquisition Transaction”). On March 8, 2007, the Acquisition Transaction was consummated. Following the consummation of the Acquisition Transaction, IDO Ltd. became a wholly-owned subsidiary of Med Ex and Med Ex adopted the business of IDO Ltd.  In June 2007, Med Ex changed its name to “IDO Security Inc.”
 
 IDO conducts its principal design and production operations in Israel and revenues are derived principally from shipments to customers in the United States as well as Asian and European countries.
 
 Basis of presentation
 
 The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. At December 31, 2010, the Company had not achieved profitable operations, had accumulated losses of $37.3 million (since inception), a working capital deficiency of $15.4 million and expects to incur further losses in the development of its business. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
 The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations or management’s ability to find sources of additional equity capital. The Company needs to raise additional funds on an immediate basis in order to continue to meet its liquidity needs, realize its business plan and maintain operations.  The Company’s current cash resources are not sufficient to support its operations as presently conducted or permit it to take advantage of business opportunities that may arise. Management of the Company is continuing its efforts to secure funds through equity and/or debt instruments for its operations. The Company has received from representatives of certain prospective investors a non-binding proposal with respect to convertible debt based financing in a significant amount, subject to due diligence and other conditions, which our board is currently studying. Presently, the Company does not have any financing commitment from any person, and there can be no assurance that additional capital will be available to the Company on commercially acceptable terms or at all.
 
 The Company has been funding its operations from the net proceeds from the private placements of its convertible securities. From December 2007 through January 2011, the Company received net proceeds of approximately $5 million from the proceeds of the private placement to certain accredited investors of its 10% Secured Convertible Promissory Notes, Convertible Preferred Stock and Bridge Loans. See Notes 6 and 7 below.
 
 The financial statements do not include any adjustments that might result from the outcome of this uncertainty. There can be no assurance that management will be successful in implementing a business plan or that the successful implementation of a business plan will actually improve the Company’s operating results.
 
 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Principles of Consolidation
 The accompanying consolidated financial statements include the accounts of IDO Ltd., the Company’s wholly-owned subsidiary. All significant inter-company balances and transactions have been eliminated.
 
 Cash Equivalents
 The Company considers all highly liquid investments purchased with a maturity date of three months or less at the date acquired to be cash equivalents.  Cash equivalents consist of a money market account.
 
 F-6
  Use of Estimates
 These financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. The Company continually evaluates the accounting policies and estimates we use to prepare the consolidated financial statements. The Company bases its estimates on historical experiences and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates made by management.
 
 Functional Currency
 The majority of Company’s sales are in United States dollars. In addition, the majority of the Company’s investing and financing activities are in United States dollars. Accordingly, the Company has determined the United States dollar as the currency of its primary economic environment and thus, its functional and reporting currency. Non-dollar transactions and balances have been measured in United States dollars in accordance with FASB ASC 830 “Foreign Currency Matters.”  All transaction gains and losses from the measurement of monetary balance sheet items denominated in non-dollar currencies are reflected in the statement of operations as financial income or expenses, as appropriate.
 
 Revenue Recognition
 Revenue is recognized upon shipment of the product to the customer, subject to the following criteria: (i) persuasive evidence of an arrangement exists, (ii) the selling price is fixed and determinable and (iii) no significant obligations remain to the Company and collection of the related receivable is reasonable assured. When the above stated revenue recognition criteria are not met, the Company will record deferred revenue.
 
 Concentrations -Revenue
 For the year ended December 31, 2010, 39% and 25% of the Company’s revenue was derived from shipments to China and the United States, respectively.  For the year ended December 31, 2009, 50% of the Company’s revenue was derived from shipments to the United States.
 
 Inventories
 Inventories, consisting of completed devices, devices partially completed and components are valued at the lower of cost determined by the moving-average basis or market. The value of the inventories is adjusted for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions.
 
 In 2009, the Company wrote down inventory by $71,000 for items that it does not expect to utilize. Management does not anticipate that these identified items will be used in manufacturing the Company’s products. In accordance with FASB ASC 330, “Inventory”, this reduction of inventory has been segregated from cost of goods sold and included in operating expenses
 
 Inventories at December 31, 2010 consisted of components totaling $81,972 and partially completed and completed devices totaling $206,339.   Inventories at December 31, 2009 consisted of partially completed and completed devices totaling $62,219.
 
 Accounts Receivable
 Accounts receivable, if any, is reported at their outstanding unpaid principal balances reduced by an allowance for doubtful accounts. The Company will estimate doubtful accounts based on historical bad debts, factors related to specific customers’ ability to pay, and current economic trends. The Company will write off accounts receivable against the allowance when a balance is determined to be uncollectible.
 
 Property and Equipment
 Property and equipment are stated at cost.  Depreciation is provided for by the straight-line method over the estimated useful lives of the related assets ranging from three to ten years. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.
 
 Deferred Financing Costs
 Deferred financing costs are being amortized over the respective lives of the convertible promissory notes.
 
 Goodwill
 Goodwill consists of the excess of cost over net assets acquired of IDO Ltd. on March 8, 2007. Goodwill is not amortized, but is tested at least annually for impairment, or if circumstances change that will more likely than not reduce the fair value of the reporting unit below its carrying amount.   The Company tests goodwill for impairment using a market based model.  The Company performs annual impairment testing on a recurring basis in the last quarter of each year. Impairments, if any, will be expensed in the year incurred.  During the annual impairment evaluation in the fourth quarter of 2010, the results of the impairment analysis indicated the carrying value of goodwill exceeded the fair value. Therefore the Company recorded an impairment charge of $740,000.  The Company did not record an impairment in 2009
 
 F-7
 
 Research and Development
 Costs incurred in connection with the research and development of the Company’s products is expensed as incurred.
 
 Advertising and Marketing
 The Company recognizes advertising and marketing expenses in the period incurred.  Advertising amounted to $48,411 and $37,427 for the years ended December 31, 2010 and 2009.
 
 Severance Pay
 The Company’s subsidiary liability for severance pay is calculated pursuant to Israeli severance pay law based on the most recent salary of the employees multiplied by the number of years of employment as of balance sheet date. Employees are entitled to one month’s salary for each year of employment, or a portion thereof (on a pro-rata basis). Such liability in Israel is fully provided by monthly deposits in accordance with insurance policies and by an accrual. The deposited funds include profits accumulated through December 31, 2010. The deposited funds may be withdrawn only upon the fulfillment of the obligation pursuant to Israeli severance pay law or labor agreements. The value of the deposited funds is based on the cash surrendered value of these policies, and includes immaterial profits.
 
 Income Taxes
 The Company accounts for income taxes in accordance with accounting guidance now codified as FASB ASC 740, “Income Taxes,” which requires that the Company recognize deferred tax liabilities and assets based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities, using enacted tax rates in effect in the years the differences are expected to reverse. Deferred income tax benefit (expense) results from the change in net deferred tax assets or deferred tax liabilities. A valuation allowance is recorded when it is more likely than not that some or all deferred tax assets will not be realized.
 
 The Company has adopted the provisions of FASB ASC 740-10-05 “Accounting for Uncertainty in Income Taxes.” The ASC clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements.  The ASC prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  The ASC provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
 
 Stock-Based Compensation
 The Company accounts for stock-based compensation in accordance with FASB ASC 718, “Compensation – Stock Compensation.” Under the fair value recognition provision of the ASC, stock-based  compensation cost is estimated at the grant date based on the fair value of the award. The Company estimates the fair value of stock options granted using the Black-Scholes-Merton option pricing model.
 
 Earning (loss) per Share
 Basic earnings (loss) per share are computed by dividing net income (loss) available to common stockholders by the weighted-average number of shares of Common Stock outstanding during the period. Diluted earnings (loss) per share give effect to dilutive convertible securities, options, warrants and other potential Common Stock outstanding during the period, only in periods in which such effect is dilutive. The following securities have been excluded from the calculation of net loss per share, as their effect would be anti-dilutive:
 
 Shares of Common StockIssuable upon Conversion/Exerciseof asDecember 312010


2009Warrants


26,235,421



24,109,154Convertible notes


47,517,560



48,424,187Stock options


3,490,000



3,490,000Convertible preferred stock


52,135,093



44,523,473
 
 Fair Value of Financial Instruments
 Substantially all of the Company’s financial instruments, consisting primarily of cash equivalents, accounts payable and accrued expenses, other current liabilities and convertible notes, are carried at, or approximate, fair value because of their short-term nature or because they carry market rates of interest.
 
 Recently Issued Accounting Pronouncements
 On January 1, 2010, the Company adopted the new provisions of Accounting Standards Update (ASU) No. 2010-06, “Fair Value Measurements and Disclosures (Topic 820), Improving Disclosures about Fair Value Measurements” (“ASU No. 2010-06”). ASU No. 2010-06 provides revised guidance on improving disclosures about valuation techniques and inputs to fair value measurements. The adoption of this standard had no effect on the financial statements of the Company.
 
 F-8
  In February 2010, the Financial Accounting Standards Board (“FASB”) issued an amendment to accounting standards related to subsequent events. The amendment exempts Securities and Exchange Commission registrants from the requirement to disclose the date through which it has evaluated subsequent events for either original or restated financial statements. The standard is effective February 2010. The Company adopted this standard in February 2010. The adoption did not impact the Company’s consolidated financial position or results of operations, other than additional reporting requirements.
 
 The Financial Accounting Standards Board (FASB) ratified Accounting Statement Update (ASU) 2009-13 (ASU 2009-13), “Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements,” which eliminates the residual method of allocation, and instead requires companies to use the relative selling price method when allocating revenue in a multiple deliverable arrangement. When applying the relative selling price method, the selling price for each deliverable shall be determined using vendor specific objective evidence of selling price, if it exists and otherwise using third-party evidence of selling price. If neither vendor specific objective evidence nor third-party evidence of selling price exists for a deliverable, companies shall use their best estimate of the selling price for that deliverable when applying the relative selling price method. ASU 2009-13 shall be effective in fiscal years beginning on or after June 15, 2010, with earlier application permitted. Companies may elect to adopt this guidance prospectively for all revenue arrangements entered into or materially modified after the date of adoption, or retrospectively for all periods presented. The Company will adopt this standard effective January 1, 2011.  The Company does not expect the provisions of ASU 2009-13 to have a material effect on the financial position, results of operations or cash flows of the Company.
  In April 2010, the FASB issued Accounting Standards Update 2010-17 (ASU 2010-17), "Revenue Recognition-Milestone Method (Topic 605): Milestone Method of Revenue Recognition." The amendments in this Update are effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. Early adoption is permitted. If a vendor elects early adoption and the period of adoption is not the beginning of the entity’s fiscal year, the entity should apply the amendments retrospectively from the beginning of the year of adoption. The Company does not expect the provisions of ASU 2010-17 to have a material effect on the financial position, results of operations or cash flows of the Company.
 
 In July 2010, the FASB issued Accounting Standards Update 2010-20, “Receivables (Topic310):  Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.”  ASU 2010-20 is intended to provide additional information to assist financial statement users in assessing an entity’s risk exposures and evaluating the adequacy of its allowance for credit losses. The disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. The amendments in ASU 2010-20 encourage, but do not require, comparative disclosures for earlier reporting periods that ended before initial adoption. However, an entity should provide comparative disclosures for those reporting periods ending after initial adoption. The adoption of ASU 2010-20 did not have a significant impact on its consolidated financial statements
 
 Management does not believe that any other recently issued, but not yet effective, accounting standard if currently adopted would have a material effect on the accompanying financial statements.
 
 Subsequent Events
 
 Management has reviewed subsequent events through the date of the filing.
 
 NOTE 3 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
 
 Accounts payable and accrued expenses consist of the following at December 31, 2010 and 2009:
 
 2010


2009Accounts payable

$
573,607


$
483,484Accrued registration penalty (see Note 7)


516,137



516,137Accrued interest


815,630



439,827Accrued dividends


1,089,724



430,721Accrued compensation costs


368,735



257,220Accrued professional fees


66,504



66,504Accrued other


64,524



71,598$
3,494,861


$
2,265,491
 
 NOTE 4 – BANK LINE OF CREDIT
 
 In March 2010, IDO Ltd., the Company’s Israel-based subsidiary, was provided with a loan from a commercial bank in the amount of approximately $270,000. The loan was repaid on September 2010. The loan was guaranteed by a stockholder of the Company.  Interest on the outstanding amount accrued monthly at the rate of 1.9% per annum. The Company was also required to pay a fee to the guarantor of 1% of the loan amount per month, plus bank charges.
 
 IDO Ltd.  currently has overdraft privileges from this bank.  The terms include the following:
 
 1.
An annual interest rate of 9.3% for amounts not in excess of approximately $200,000.
 2.
An annual interest rate of 12.55% for amounts in excess of approximately $200,000 but not to exceed $250,000.
 3.
The overdrafts are secured by the assets of IDO Ltd.
  F-9
 
 NOTE 5 – LOANS PAYABLE
 
 IDO Ltd. received non-interest bearing advances from a 2008 Investor. The advances are due on demand. At December 31, 2010, the Company owed $38,772.
 
 NOTE 6 – NOTES PAYABLE
 
 In 2010, the Company issued notes to several of the 2008 Investors in the aggregate principal amount of $1,305,000. The notes bear interest at the rate of 10% per annum and were originally due at the earlier of various dates through May 2011 or the closing of a new investment.
 
 In January 2011, the Company issued short-term notes to a 2008 Investor in the aggregate principal amount of $83,334. The outstanding notes bear interest at the rate of 10% per annum and were originally due at the earlier of June 2011 or the closing of a new investment.
 
 In February 2011, the Company issued new notes totaling $1,456,880 refinancing the principal of the notes previously issued as well as the unpaid accrued interest.  The notes mature in August 2012.  The Company also issued 36,422 shares of its Series A Preferred Stock and 9,712,533 warrants to purchase in the aggregate up to 9,712,533 shares of the Company’s Common Stock at per share exercise price equal to $0.25. The warrants are exercisable through the fifth anniversary of issuance.
 
 The new notes have all on the substantive terms identical to those prevailing with respect to the December 2008 Private Placement discussed at further length in Note 7(ii) below.
 
 At December 31, 2010, notes payable totaled $1,305,000.  As a result of the refinancing, the notes payable were classified as non-current liabilities.
 
 NOTE 7 - PRIVATE PLACEMENT OF CONVERTIBLE SECURITIES
 
 Convertible promissory notes consist of the following:
 
 December 31,2010


20092008 Notes - secured  and convertible - interest at 10% - see (i)  below

$
3,665,001


$
4,362,954December 2008 Notes - secured  and convertible – interest at 10% - see (ii) below


970,063



1,028,3492009 - 2011 Notes - secured  and convertible - interest at 10% - see (iii) below


1,726,440



1,432,500Total


6,361,504



6,823,803Less: Discount


(201,283
)


(1,027,915
)6,160,221



5,795,888Less Current Portion


(6,160,221
)


(5,724,747
)Total

$
-------


$
71,141
 
 The maturities on all of the Notes are December 31, 2011.
 
 (i) 10% Secured Convertible Promissory Notes
 
 Between December 5, 2007 and January 24, 2008, the Company raised gross proceeds of $5,404,550 from the private placement  to certain accredited institutional and individual investors (the “2008 Investors”) of its two-year 10% Secured Convertible Promissory Notes (collectively, the “2008 Notes”, each a ”2008 Note”).  The transactions were effected pursuant to a Subscription Agreement, dated as of December 5, 2007 between the Company and the 2008 Investors.  The Company received net proceeds of $1 million from the proceeds of the 2008 Notes.
 
 In connection with the issuance of the 2008 Notes, the Company issued to the 2008 Investors, warrants (the “2008 Investor Warrants”) to purchase up to 5,404,550 shares of the Company’s Common Stock, of which warrants for 2,702,275 shares are exercisable at a per share exercise price of $2.00 and warrants for 2,702,275 shares are exercisable at a per share exercise price of $3.00. The per share exercise price of the 2008 Investor Warrants were subsequently reduced to $0.15 in connection with the investment in December 2008 Notes discussed below in (ii).
 
 F-10
  The 2008 Notes were originally convertible into shares of Common Stock at the holder’s option at any time at an initial conversion price of $1.00 per share (the “Fixed Conversion Price”), subject to adjustment in the event of certain capital adjustments or similar transactions, such as a stock split or merger and as further described below. Interest on the 2008 Notes accrues at the rate of 10% per annum and is payable upon a required monthly repayment or upon maturity, whichever occurs first, and will continue to accrue until the 2008 Notes are fully converted and/or paid in full
 
 Commencing on the fourth month anniversary of the issuance of the 2008 Notes and on the same day of each month thereafter until the principal amount of the 2008 Notes has been paid in full, the Company was required to prepay 5% of the aggregate principal amount of the 2008 Notes originally issued, together with all accrued interest due and payable on the entire outstanding amount up to such repayment date (each such date, a “Scheduled Payment Date”).
 
 The 2008 Notes, originally scheduled to mature in December 2009 and extended to December 31, 2010, were further extended in January 2011 to December 31, 2011. All but one holder agreed to the extension and also agreed to waive all then existing defaults, The sole non-consenting investor’s note was paid out in accordance with its terms in shares of the Company’s Common Stock.  In consideration of the extension of the maturity dates, the Company agreed to issue shares of Series A Preferred Stock with a stated value equal to 10% of the principal amount of the 2008 Notes then held by such investors.
 
 To secure the Company’s obligations to the 2008 Investors, the Company granted a security interest in substantially all of its assets, including without limitation, its intellectual property. The security interest terminates upon payment or satisfaction of all of Company’s obligations under the 2008 Notes.
 
 For financial reporting purposes, the Company recorded a discount of $4,141,838 to reflect the value of the 2008 Investor Warrants issued and an additional discount of $658,219 to reflect the beneficial conversion feature of the 2008 Notes. As discussed above, the term of the 2008 Notes were modified. As a result, all of the remaining unamortized discounts were expensed. The Company incurred finder’s fees of $540,455, other offering related fees and expenses totaling $25,000 in 2007 and issued five-year warrants to purchase up to 1,080,930 shares of Common Stock at an per share exercise price of $0.15.
 
 The Company accounted for the modification of the 2008 Notes, as described above, as an extinguishment of debt. The Company deemed the terms of the amendment to be substantially different and treated the Convertible Promissory Notes as extinguished and exchanged for new notes. As such, it was necessary to reflect the Convertible Promissory Notes at fair market value and record a loss on extinguishment of debt in 2008.
 
 The fair value of the 2008 Notes was determined utilizing level 3 inputs. The fair value of the 2008 Notes was calculated utilizing the fully diluted market value of the invested capital of the Company immediately before and after the date of the debt modification. As a result, the face amount of the remaining principal balance of $4,963,050 was written down to its fair market value of $3,925,963. This discount has been fully amortized in 2009.
 
 The Company undertook to file a registration statement by a prescribed period under the Securities Act of 1933, as amended (the “Registration Statement”) with respect to the resale of the Common Stock underlying the 2008 Notes and 2008 Investor Warrants. The Company has not filed the Registration Statement and accordingly, the Company owed to the holders of these notes approximately $540,000 in liquidated damages in respect of the delay in the filing of the Registration Statement beyond the time frame specified in the agreements with such holders. At December 31, 2010, the Company owed to the holders of these notes $516,137 in liquidated damages. The non-payment of liquidated damages constitutes an Event of Default under the 2008 Notes. However, the pertinent documents provide that any action by the investors upon such default (i.e., acceleration of the debt and other remedies) can only be initiated by the holders of 65% or more of the outstanding principal amount of the notes. Such action has not been commenced by the note holders.  The Company does not currently intend to file such registration statement as the shares issuable upon conversion of the 2008 Notes and/or the 2008 Investor Warrants are eligible to be resold under Rule 144.
 
 In 2010, principal in the amount of $697,950 and accrued interest totaling $321,132 was repaid in the form of 1.353 billion shares of the Company’s Common Stock.  For the period January 1, 2011 through April 7, 2011, principal in the amount of $257,411 and accrued interest totaling $307,395 was repaid in the form of 4.498 billion shares of the Company’s Common Stock.
 
 (ii)  Secured Convertible Promissory Note and Series A Convertible Preferred Stock
 
 Pursuant to an offering dated October 31, 2008 (the “December 2008 Private Placement”) to the holders of the 2008 Notes, on December 17, 2008, the Company realized net proceeds of $548,474, after the payment of offering related fees and expenses of $19,250, from a private placement of $1,066,540 in principal amount of Secured Convertible Promissory Notes due April 20, 2010 (“collectively the “December 2008 Notes”) and 26,664 shares of Series A Convertible Preferred Stock, par value $0.001 per share (the “Series A Preferred Stock”). In addition, in connection with the issuance of the December 2008 Notes and the Series A Preferred Stock, the Company issued to the investors warrants (the “Warrants”; together with the December 2008 Notes and the Series A Preferred Stock, the “Purchased Securities”) to purchase in the aggregate up to 7,110,268 shares of the Company’s Common Stock at a per share exercise price equal to $0.25. The Warrants are exercisable through October 31, 2013 at a per share exercise price of $0.25.  The warrants include a ‘cashless exercise’ provision.  The amount raised included $478,816 in principal and accreted interest on loans advanced to the Company between April and November 2008 by two purchasers that were offset against such purchasers’ respective purchases of the Purchased Securities.
 
 F-11
  For financial reporting purposes, the Company recorded a discount of $845,743 to reflect the value of the Warrants and Preferred Stock issued and an additional discount of $220,797 to reflect the beneficial conversion feature of the December 2008 Notes. The estimated value of the warrants was determined using the Black-Scholes option pricing model under the following assumptions: life of 5 years, risk free interest rate of 1.35%, a dividend yield of 0% and volatility of 135%. The discounts are being amortized to the date of maturity unless converted earlier.
 
 The December 2008 Notes are convertible into shares of Common Stock at the holder’s option at any time at an initial conversion price of $0.15 per share (the “Fixed Conversion Price”), subject to adjustment in the event of certain capital adjustments or similar transactions, such as a stock split or merger and as further described below. Interest on the December 2008 Notes accrues at the rate of 10% per annum and is payable upon a required repayment (discussed below) or upon maturity, whichever occurs first, and will continue to accrue until the December 2008 Notes are fully converted and/or paid in full. From and after an event of default under the December 2008 Notes and for so long as the event of default is continuing, the December 2008 Notes will bear default interest at a rate of the lesser of 15% per annum or the maximum rate permitted by applicable law.
 
 Commencing on April 30, 2009, and thereafter on the last day of each subsequent calendar month until the principal amount of the December 2008 Notes has been paid in full, the Company is required to prepay 8.33% of the aggregate principal amount of the December 2008 Notes originally issued, together with all accrued interest due and payable on the entire outstanding amount up to such repayment date. The amount may be paid, at the Company’s election, either in (i) cash, at 110% of the principal amount due and 100% of all other amounts due or (ii) shares of Common Stock as defined;  provided, that , if such monthly amount is to be paid with shares of Common Stock, it will be automatically deferred unless the holder gives notice to the Company at least five (5) days before a repayment date that the holder will accept payment of such monthly amount in the form of Common Stock.
 
 The Company’s obligations under the December 2008 Notes are secured by a security interest in substantially all of its assets pursuant to a prior Security Agreement dated as of December 24, 2007 between it and the purchasers of the 2008 Notes.
 
 Holders of the Purchased Securities are subject to certain limitations on their rights to convert the securities. The principal limitation is that the holder may not, with certain limited exceptions, convert into a number of shares that would, together with other shares held by the holder, exceed 4.99% or 9.99% of the then outstanding shares of the Company after such conversion and/or exercise.
 
 The December 2008 Notes were scheduled to mature on April 30, 2010. However, in March 2010, the holders of approximately 72% of the outstanding principal amount of the December 2008 Notes extended the maturity date of the December 2008 Notes to December 31, 2010. In consideration of the extension, on May 4, 2010, the Company issued 745 shares of Series A Preferred Stock with a stated value equal to 10% of the principal amount of the December 2008 Notes then held by such investors. With respect to the remaining 28% of the principal amount of the December 2008 Notes who did not agree to the extension of the maturity date, the Company issued 129 million shares of the Company’s Common Stock, in full satisfaction of principal and accrued interest of $69,660.   In January 2011, the holders agreed to a further extension of the maturity dates to December 31, 2011 and a waiver of all existing defaults.. In consideration of the extension of the maturity dates, the Company agreed to issue shares of Series A Preferred Stock with a stated value equal to 10% of the principal amount of the December 2008 Notes then held by such investors.
 
 In 2010, principal in the amount of $58,285 and accrued interest totaling $11,375 was repaid in the form of 129 million shares of the Company’s Common Stock.  For the period January 1, 2011 through April 7, 2011, principal in the amount of $18,798 and accrued interest totaling $53,623 was repaid in the form of 357 million shares of the Company’s Common Stock.
 
 Until the increase in the number of authorized and unissued shares of Common Stock became effective as of December 23, 2010, the Company did not have a sufficient number of shares of common stock available to honor any conversions of the December 2008 Notes after July 21, 2010.   See Note 8 – Capital Transactions – Derivative Liabilities.
 
 (iii) 2009 - 2011 Notes and Series A Convertible Preferred Stock
 
 In April 2009, the holders of the 2008 Notes and the December 2008 Notes consented to the placement of secured convertible promissory notes (the “2009 Notes”), Series A Preferred Stock and warrants, all on the substantive terms identical to those prevailing with respect to the December 2008 Private Placement discussed at further length in Note 7(ii) above, for aggregate gross proceeds to not exceed $1.5 million.  Between April 28, 2009 and December 31, 2009, the Company raised net proceeds of $1,332,500 ($100,000 was rolled over from the 2008 financing) from the private placement to certain holders of the December 2008 Notes of $1,432,500 in principal amount of 2009 Notes and 35,814 shares of Series A Preferred Stock. Commencing on the six month anniversary date of the 2009 Notes, and on the same day of each subsequent calendar month thereafter until the principal amount of the 2009 Notes has been paid in full, the Company is required to prepay 8.33% of the aggregate principal amount of the 2009 Notes originally issued, together with all accrued interest due and payable on the entire outstanding amount up to such repayment date.
 
 In connection with such investment, the Company issued to the holders of the 2009 Notes, warrants to purchase in the aggregate up to 9,550,000 shares of the Company’s Common Stock at per share exercise price equal to $0.25. The warrants are exercisable through the fifth anniversary of issuance. Proceeds of these funds were used to fund the Company’s continuing operations.
 
 For financial reporting purposes, the Company recorded a discount of $1,024,732 to reflect the value of the Warrants and Preferred Stock issued. The estimated value of the warrants was determined using the Black-Scholes option pricing model under the following assumptions: life of 5 years, risk free interest rate of 2.41% - 2.71%, a dividend yield of 0% and volatility of 135%. The discounts are being amortized to the date of maturity unless converted earlier.
 
 F-12
  In January 2010, March 2010 and May  2010, the Company raised net proceeds of $318,940, which included the repayment of certain accrued expenses, from the private placement to certain holders of the December 2008 Notes (the “2010 Notes”). The Company issued $318,940 in principal amount of 2010 Notes and 7,974 shares of Series A Preferred Stock. Commencing on the six month anniversary date of the 2010 Notes, and on the same day of each subsequent calendar month thereafter until the principal amount of the 2010 Notes has been paid in full, the Company is required to prepay 8.33% of the aggregate principal amount of the 2010 Notes originally issued, together with all accrued interest due and payable on the entire outstanding amount up to such repayment date.
 
 In connection with such investment, the Company issued to the holders of the 2009 and 2010 Notes, warrants to purchase in the aggregate up to 2,126,266 shares of the Company’s Common Stock at per share exercise price equal to $0.25. The warrants are exercisable through the fifth anniversary of issuance. Proceeds of these funds were used to fund the Company’s continuing operations.
 
 For financial reporting purposes, the Company recorded a discount of $227,889 to reflect the value of the Warrants and Preferred Stock issued. The estimated value of the warrants was determined using the Black-Scholes option pricing model under the following assumptions: life of 5 years, risk free interest rate of 2.16% - 2.30%, a dividend yield of 0% and volatility of 135%. The discounts are being amortized to the date of maturity unless converted earlier.
 
 In May 2010, principal in the amount of $25,000 was repaid in the form of 69 million shares of the Company’s Common Stock.
 
 Until the increase in the number of authorized and unissued shares of Common Stock became effective as of December 23, 2010, the Company did not have a sufficient number of shares of common stock available to honor any conversions of the December 2008 Notes after July 21, 2010.   See Note 8 – Capital Transactions – Derivative Liabilities.
 
 In January 2011, all but one holder of the 2009 Notes and the holders of the 2010 Notes extended the maturity dates of the Notes to December 31, 2011 and waived all existing defaults. In consideration of the extension of the maturity dates, the Company agreed to issue shares of Series A Preferred Stock with a stated value equal to 10% of the principal amount of the 2009 Notes and 2010 Notes then held by such investors. The 2009 Note in the principal amount of $75,000 held by the sole non-consenting holder remains outstanding as a result of the conversion cap.
 
 In March 2011, the Company raised net proceeds of $105,000 from the private placement to one holder of the December 2008 Notes (the “2011 Notes”). The Company issued $105,000 in principal amount of 2011 Notes and 2,625 shares of Series A Preferred Stock. Commencing on the six month anniversary date of the 2011 Notes, and on the same day of each subsequent calendar month thereafter until the principal amount of the 2011 Notes has been paid in full, the Company is required to prepay 8.33% of the aggregate principal amount of the 2011 Notes originally issued, together with all accrued interest due and payable on the entire outstanding amount up to such repayment date.
 
 In connection with such investment, the Company issued to the holder of the 2011 Notes, warrants to purchase in the aggregate up to 699,999 shares of the Company’s Common Stock at per share exercise price equal to $0.25. The warrants are exercisable through the fifth anniversary of issuance. Proceeds of these funds were used to fund the Company’s continuing operations.
 
 NOTE 8 - STOCKHOLDERS’ DEFICIENCY
 
 Authorized Shares
 
 The Company’s Board of Directors is authorized to issue from time to time up to 20 million shares of preferred stock in one or more series, and to fix for each such series such voting power and such designations, preferences, relative participating or other rights, redemption rights, conversion privileges and such qualifications or restrictions thereof as shall be adopted by the board and set forth in an amendment to the Company’s Certificate of Incorporation. Unless a vote of any shareholders is required pursuant to the rights of the holders of preferred stock then outstanding, the board may form time to time increase or decrease (but not below the number of shares of such series outstanding) the number of shares of any series of Preferred Stock subsequent to the issuance of shares of that series.
 
 On December 24, 2009, the Company’s Board of Directors and the majority of the Company’s stockholders authorized an increase in the number of shares of Common Stock from 2,000,000,000 to 5,000,000,000. The increase became effective on March 22, 2010.
 
 On November 10, 2010, a majority of the Company’s stockholders authorized, at the recommendation of the Company’s Board of Directors, an increase the number of shares of Common Stock to 60,000,000,000. The increase became effective on December 23, 2010.
 
 Stock Issuances
 
 Common Stock
 
 At various times in 2010 and 2009, a total of 1.551 billion and 1.937 billion shares of Common Stock, respectively, were issued in connection with the conversion of principal and accrued interest on convertible securities.  See Note 7.
  F-13
  In 2010, the Company issued 1.459 billion shares of Common Stock upon the conversion of 7,921 shares of  Convertible Preferred Stock.
 
 In May 2010, the Company issued 4,000,000 shares of its Common Stock as compensation to a consultant
 
 From January 1, 2011 to April 7, 2011, principal and accrued interest of Notes totaling $637,228 was repaid in the form of 4.855 billion shares of the Company’s Common Stock.  From January 1, 2011 to April 7, 2011, 5,770 shares of Series A Preferred Stock and accrued dividends totaling $38,363 were converted into 2.176 billion shares of the Company’s Common Stock.
 
 Convertible Preferred Stock
 
 The Series A Preferred Stock was authorized in accordance with a Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock filed with the Nevada Secretary of State.   In March 2010, the Company’s certificate of incorporation was amended to increase the number of shares of preferred stock designated as Series A Convertible Preferred Stock to 115,000 shares.   At December 31, 2010 and 2009, 67,305 and 62,478 shares, respectively, of Series A Preferred Stock were issued and outstanding.
 
 In April 2009 through December 2009, in connection with the issuance of the 2009 Notes more fully discussed above in Note 7(iii), the Company issued 35,814 shares of Series A Preferred Stock.
 
 From January  2010 through May 2010, in connection with the issuance of the 2010 Notes more fully discussed above in Note 7(iii), the Company issued 12,749 shares of Series A Preferred Stock.
 
 For financial reporting purposes, the Company recorded a discount to reflect the difference between the stated value of the shares issued and the fair value of the shares issued. The discount is being amortized to the redemption dates unless converted earlier.
 
 In July 2010, 7,921 shares of Series A Preferred Stock were converted into 1.459 billion shares of Common Stock.
 
 As discussed in Note 7(i), the 2008 Notes matured on December 31, 2009 without being paid out in accordance with the terms of the Notes. In March 2010, certain holders of the 2008 Notes extended the maturity date of the 2008 Notes to December 31, 2010. In consideration of these actions, on May 4, 2010, the Company issued 4,030 shares of Series A Preferred Stock with a stated value equal to 10% of the principal amount of the 2008 Notes then held by such investors.
 
 As discussed in Note 7(ii), in March 2010, certain holders of the December 2008 Notes extended the maturity dates of the December 2008 Notes to December 31, 2010. In consideration of the extension, on May 4, 2010, the Company issued 745 shares of Series A Preferred Stock with a stated value equal to 10% of the principal amount of the December 2008 Notes then held by such investors.
 
 As discussed in Note 7, in January 2011, substantially all of the holders of the 2008 Notes, the December 2008 Notes, and the 2009 and 2010 Notes extended the maturity dates of all of the notes to December 31, 2011. In consideration of the extensions, the Company obligated itself to issue shares of Series A Preferred Stock with a stated value equal to 10% of the principal amount of the Notes then held by such investors.
 
 In February 2011, in connection with the issuance of notes payable, the Company issued 36,422 shares of its Series A Preferred Stock.  See Note 6.   In March 2011, in connection with the issuance of the 2011 Notes as more fully discussed above in Note 7(iii), the Company issued 2,625 shares of Series A Preferred Stock.
 
 From January 1, 2011 to April 7, 2011, 5,770 shares of Series A Preferred Stock and accrued dividends totaling $38,363 were converted into 2.176 billion shares of the Company’s Common Stock.
 
 Shares of Preferred Stock have not been registered and are restricted under the securities laws and pay a dividend of 10% per annum on the stated value. So long as the Series A Preferred Stock is outstanding, unless waived by the holders of 66 2/3% of the Series A Preferred Stock then outstanding, the dividend rate shall increase to 15%. In addition, shares of the Series A Preferred Stock do not vote separately as a class (but do vote on an “as-converted” to common stock basis) and have a liquidation preference equal to the stated value of the shares. Each share of Preferred Stock has a stated value of $100 and is convertible into shares of the Company’s common stock at $.15 per share.  The dividends are cumulative commencing on the issue date whether or not declared.  For the years ended December 31, 2010 and 2009, the Company declared dividends totaling $659,003 and $386,160, respectively. At December 31, 2010 and 2009, dividends payable total $1,089,724 and $430,721, respectively, and are included in accounts payable and accrued liabilities.
 
 Commencing on April 30, 2009, and thereafter on the last day of each subsequent calendar month, the Company is required to redeem 8.33% of the aggregate outstanding stated value of the Series A Preferred Stock until the stated value and all accrued dividends have been paid in full. Redemption payments on the Series A Preferred Stock may be made, at the election of the Company, in cash or shares of Common Stock, in the same manner as provided above with respect to the December 2008 Notes, subject to automatic deferral in the case of payment in shares unless the holder gives notice to the Company of such holder’s agreement to accept payment in shares.  As a result of the redemption provisions, the Series A Preferred Stock was not classified as permanent equity. The maturities on the Series A Preferred Stock are $5,234,619 past due that were payable in 2010 and $1,495,921 payable in 2011.
 
 F-14
  Commencing on July 1, 2009, the Series A Preferred Stock is now being classified as a liability. As such, all dividends accrued and/or paid and any accretions will now be classified as part of interest expense and will no longer be classified as preferred stock dividends and deemed dividends.  For the years ended December 31, 2010 and 2009, dividends and deemed dividends totaled $3,174,284 and $2,374,066, respectively, and such amount has been included in interest expense.   Of such amounts in 2009, $1,518,882 has been included in interest expense and $855,124 have been reflected as preferred stock dividends and deemed dividends.
 
 Derivative Liabilities
 
 In connection with the issuances of equity instruments or debt, the Company may issue options or warrants to purchase common stock. In certain circumstances, these options or warrants may be classified as liabilities, rather than as equity. In addition, the equity instrument or debt may contain embedded derivative instruments, such as conversion options or listing requirements, which in certain circumstances may be required to be bifurcated from the associated host instrument and accounted for separately as a derivative liability instrument. The Company accounts for derivative liability instruments under the provisions of FASB ASC 815, “Derivatives and Hedging.”
 
 The Company issued warrants, Series A Preferred Stock and Notes under various private placements.  As of July 21, 2010, due to the various issuances, the Company did not have enough available shares of authorized Common Stock to issue to the various security holders had all of the convertible securities been converted and/or exercised.  As a result, the value of the warrants have to be recognized as a liability.  In addition, the Company evaluated the conversion terms of the Notes and Series A Preferred Stock to determine if such terms gave rise to embedded derivatives that would need to be accounted for separately.   The Company determined that the lack of authorized shares (prior to the effectiveness of the increase) to satisfy the conversion requirements if all of the securities were converted resulted in the conversion features being embedded derivatives that must be bifurcated and recorded as derivative liabilities. In addition, the Company would be required to revalue the derivative liabilities at the end of each reporting period with the change in value reported on the statement of operations.  The Company did not account for the derivative liabilities in its financial statements as it was determined to not be material. On November 10, 2010, a majority of the Company’s stockholders authorized, at the recommendation of the Company’s Board of Directors, an increase the number of shares of Common Stock to 60,000,000,000. The increase became effective as of December 23, 2010.
 
 Stock Option Plans
 
 On November 15, 2007, the Company adopted the Equity Incentive Plan (“EIP”) for employees and consultants initially reserving for issuance 3,000,000 shares of Common Stock and the 2007 Non-Employee Directors Stock Option Plan “(SOP”) for non-employee initially reserving for issuance 1,000,000 shares of Common Stock. On December 24, 2009, Company’s Board of Directors and the majority of Company’s stockholders amended the EIP to increase the number of shares of Common Stock issuable from 3,000,000 to 100,000,000 and to amend the SOP to increase the number of shares of Common Stock issuable from 1,000,000 to 50,000,000.
 
 Stock Option Activity
 
 In April 2008, the Company’s board of directors approved grants of stock options to employees to purchase an aggregate of 200,000 shares of its common stock at an exercise prices $1.00. The options have a five-year term and vested upon issuance.
 
 Option activity for 2010 and 2009 is summarized as follows:
 
 Options


Weighted

Average

Exercise PriceOptions outstanding, January 1, 2009


3,490,000


$
1.73Granted


-



-Forfeited


-



-Options outstanding, December 31, 2009


3,490,000



1.73Granted


-



-Forfeited


-



-Options outstanding, December 31, 2010


3,490,000


$
1.73Aggregate intrinsic value

$
-
 
 The aggregate intrinsic value was calculated based on the positive difference between the closing market price of the Company’s Common Stock and the exercise price of the underlying options.
 
 F-15
  The following table summarizes information regarding stock options outstanding at December 31, 2010:
 
 Weighted Average

Remaining


Options Exercisable

Weighted AverageRanges of prices


Number

Outstanding


Contractual

Life


Exercise

Price


Number

Exercisable


Exercise

Price$
0.167 - $0.25



1,006,875



4.24


$
0.19



1,006,875


$
0.19$
0.417 - $0.583



566,250



4.07



0.50



566,250



0.50$
0.717 - $1.083



699,375



3.32



0.95



699,375



0.95$
1.167 - $1.250



217,500



4.02



1.20



217,500



1.20$
2.50 - $3.50



500,000



2.67



3.00



500,000



3.00$
5.00 - $7.50



500,000



2.67



6.25



250,000



6.25$
0.167-$7.50



3,490,000



3.57


$
1.73



3,490,000


$
1.73
 
 There were no option grants in 2009 or 2010
 
 The Company recognized stock compensation expense of $2,400 and $157,319 for the years ended December 31, 2010 and 2009, respectively. As of December 31, 2010, there was no unrecognized compensation cost related to nonvested options granted.
 
 Warrants
 
 A summary of the warrants outstanding at December 31, 2010 is as follows:
 
 Warrants


Exercise

Price
Expiration

Date25,272,015


$
0.25
2012-2015963,406



1.67
201226,235,421
 
 
 NOTE 9 - INCOME TAXES
 Components of loss before income taxes for the years ended December 31, 2010 and 2009 are as follows:
 
 2010



2009United States

$
(6,359,449
)

$
(5,134,420Israel


(1,419,592
)


(1,268,996)Total

$
(7,779,041
)

$
(6,403,416)
 
 At December 31, 2010, the Company had available approximately $5 million of net operating loss carry forwards, for U.S. income tax purposes which expire in the years 2024 through 2030.  The Company has foreign net operating loss carryforwards of $5 million with no expiration date.
 
 Significant components of the Company’s deferred tax assets at December 31, 2010 and 2009 are as follows:
 
 2010



2009Net operating loss carryforwards

$
2,961,528


$
2,495,822Stock based compensation


1,963,737



1,963,737Accrued expenses


383,496



349,185Total deferred tax assets


5,308,761



4,808,744Valuation allowance


(5,308,761
)


(4,808,744
)Net deferred tax assets

$
—


$
—
 
 Due to the uncertainty of their realization, no income tax benefit has been recorded by the Company for these loss carry forwards as valuation allowances have been established for any such benefits. The increase in the valuation allowance was the result of increases in the above stated items.
 
 F-16
  At December 31, 2010 and 2009, the Company had no material unrecognized tax benefits and no adjustments to liabilities or operations were required. The Company does not expect that its unrecognized tax benefits will materially increase within the next twelve months. We recognize interest and penalties related to uncertain tax positions in general and administrative expense. As of December 31, 2010 and 2009, we have not recorded any provisions for accrued interest and penalties related to uncertain tax positions.
 
 IDO Inc. has not filed its U.S. federal returns since its inception.  Due to recurring losses, management believes that once such returns are filed, the Company would not incur an income tax liability. By statute, as IDO Inc. has not filed its federal returns, all such years remain open to examination by the major taxing jurisdictions to which it is subject.
 
 IDO Ltd. has filed its Israeli income tax returns through 2008.  IDO Ltd. is scheduled to file its 2009 return in April 2011.  By statute, the Israeli income tax returns of IDO Ltd. for the years 2007 through 2010 remain open to examination.
 
 NOTE 10 - RELATED PARTY TRANSACTIONS
 
 The Company received working capital loans from certain non-management affiliated stockholders of IDO Ltd.  Amounts owed on the loans aggregated to $44,826 at both December 31, 2010 and 2009.
 
 
 NOTE 11 - COMMITMENTS AND CONTINGENCIES
 
 Employment Agreements
 
 On June 20, 2007, the Board of Directors of the Company appointed Michael Goldberg, the Company’s acting Chief Executive Officer since July 2006, to the position of President. Mr. Goldberg’s appointment became effective on July 2, 2007. In connection with his appointment as President, the Company and Mr. Goldberg entered into an employment agreement pursuant to which Mr. Goldberg is paid an annual salary of $198,000, payable monthly. However, in order to reduce operating expenses and conserve cash, since October 2008, Mr. Goldberg has been deferring a part of his salary and, as of December 31, 2010 and 2009, such deferred amounts totaled an aggregate of $315,292 and $214,375, respectively. The employment agreement had an initial term of one year; thereafter, the employment agreement provides that it is to be renewed automatically for additional one year periods unless either party shall advise the other 90 days before expiration of the initial (or a renewal term) of its intention to not renew the agreement beyond its then scheduled expiration date. As no such notice has been furnished, the agreement continues in effect. Mr. Goldberg can terminate the employment agreement and the relationship there under at any time upon 60 days’ notice.
 
 On July 1, 2007, Mr. Henry Shabat was appointed Chief Operating Officer of IDO Ltd. In connection with Mr. Shabat’s retention as IDO Ltd.’s Chief Operating Officer, on July 1, 2007, IDO Ltd. and Henry Shabat Ltd., a company owned by Mr. Henry Shabat, entered into a management agreement pursuant to which Mr. Shabat is to serve as IDO Ltd.’s Chief Operating Officer. Under the management agreement, Mr. Shabat is to be paid a monthly fee of $6,000. However, in order to reduce operating expenses and conserve cash, since December 2008, Mr. Shabbat has been deferring a part of his salary and, as of December 31, 2010, such deferred amount totaled an aggregate of $15,000. The management agreement had an initial term of one year; thereafter, the management agreement provides that it is to be renewed automatically for additional one year periods unless either party shall advise the other 90 days before expiration of the initial (or a renewal term) of its intention to not renew the agreement beyond its then scheduled expiration date. Under the agreement, Mr. Shabat was awarded options to purchase 240,000 shares of the Company’s common stock, which were scheduled to vest in equal installments of 30,000 shares at the end of each 90 day period following the execution of the management agreement. All of the options granted are vested as of June 30, 2009.  The per share exercise prices range between $0.17 and $1.67.
 
 
 Operating Leases
 
 The Company signed various operating lease agreements. At the end of 2008, IDO Ltd. signed a new rental lease for a one-year period.  At the end of the period, the Company did not send notification regarding vacating the premises and the agreement was automatically renewed.  In March 2008, the Company signed an operating lease for vehicles for a period of 36 months. Aggregate rent expenses amounted to approximately $31,000 and $19,000 for the years ended December 31, 2010 and 2009, respectively.
 
 Lawsuits
 
 (i) In its quarterly report on Form 10-Q for the three months ended September 30, 2009, the Company first disclosed  that on June 22, 2009, its wholly-owned subsidiary, IDO Ltd., filed an action in the Labor Court, in Tel Aviv, Israel, against one of its former officers and directors. The action asserts claims based on material non-compliance by the former officer with the terms of the employment agreement between him and our subsidiary.  The action seeks disgorgement of amounts remitted to the former officer by the subsidiary under the employment agreement in the approximate amount of 1,356,000 NIS (approximately $393,000 based on the exchange rate in effect at the time of the filing of this report on Form 10-K) voiding the agreement, other equitable relief, and costs and disbursements, including attorneys’ fees. Previously, on May 10, 2009, the former officer/director resigned from all positions held with the subsidiary purportedly for “just cause” under the employment agreement. The resignation followed a request by the subsidiary that the former officer/director attend a meeting with management relating to his performance under the agreement, which request was refused.







On January 3, 2011, the former officer filed an answer. A hearing date has been set for July 3, 2011
 
 (ii) In its quarterly report on Form 10-Q for the three months ended September 30, 2009, the Company first disclosed that on October 10, 2009, the above referenced former officer/director filed an action in the Labor Court in Tel-Aviv against IDO Ltd., as well as a director and the General Manager of IDO Ltd.  The action seeks the payment of amounts purportedly due and payable to the officer/director under his employment agreement with IDO Ltd. in the approximate amount of 1,481,000 NIS  (approximately $429,000 based on the exchange rate in effect at the time of the filing of this report on Form 10-K). In January 2010, the Company filed an answer whereby we denied all allegations.
 
 On January 3, 2011, the plaintiff filed his affidavit. A hearing date has been set for July 3, 2011.
 
 The Company believes that these claims are without foundation and that it has meritorious defenses to them. The Company intends to aggressively defend its interests.