UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549




FORM
10-Q




MARK
ONE




x
            Quarterly
      Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934 for the Quarterly Period ended June 30, 2009;
  or




o
            Transition
      Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934 for the transition period from ________ to
  ________




COMMISSION
FILE NUMBER: 0-51170




IDO
SECURITY INC.


(Exact
name of small business issuer 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


New
York, New York 10004


(Address
of principal executive offices, including zip code)





646-214-1234


(Issuer's
telephone number, including area code)




Indicate
by check mark whether the registrant (1) 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 Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).  Yes 
o No  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   (Do not
check if a smaller reporting company) Smaller reporting company x





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




As of
August 19, 2009, there were 1,974,366,319 shares of registrant’s common stock,
par value $0.001 per share outstanding.










INDEX
PAGE







PAGEPART
      I -- FINANCIAL INFORMATIONItem
      1
            Financial
      StatementsCondensed
      Consolidated Balance Sheets June 30, 2009 (Unaudited) and December 31,
      2008 (Audited)
            1Unaudited
      Condensed Consolidated Statements of Operations for the six
      and  three months ended June 30, 2009 and
      2008
            2Unaudited
      Condensed Consolidated Statements of Cash Flows for the six and three
      months ended June 30, 2009 and 2008
            3Notes
      to Unaudited Condensed Consolidated Financial Statements
            4Item
      2
            Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
            12Item
      4T
            Controls
      and Procedures
            15PART
      II -- OTHER INFORMATIONItem
      1
            Legal
      Proceedings
            16Item
      2
            Unregistered
      Sales of Equity Securities and Use of Proceeds
            16Item
      3
            Defaults
      upon Senior Securities
            16Item
      4
            Submission
      of Matters to a Vote of Security Holders
            16Item
      5
            Other
      Information
            17Item
      6
            Exhibits
            17SIGNATURES
            18









IDO
SECURITY INC. AND SUBSIDIARY
 CONDENSED
CONSOLIDATED BALANCE SHEET
  June
      30,
                    
                    
                    December
      31,ASSETS
                    
                    2009
                    
                    
                    2008CURRENT
      ASSETS
                    
                    (Unaudited)Cash
      and cash equivalents
                    
                    $
                    21,385
                    
                    
                    $
                    391,569Accounts
      receivable
                    
                    
                    37,030
                    
                    
                    
                    -Inventories
                    
                    
                    120,331
                    
                    
                    
                    124,708Prepaid
      expenses and other current assets
                    
                    
                    70,822
                    
                    
                    
                    81,840Total
      current assets
                    
                    
                    249,568
                    
                    
                    
                    598,117Property
      and equipment, net
                    
                    
                    61,326
                    
                    
                    
                    44,875Goodwill
                    
                    
                    1,955,002
                    
                    
                    
                    1,955,002Deferred
      financing costs, net
                    
                    
                    10,699
                    
                    
                    
                    17,068Total
      assets
                    
                    $
                    2,276,595
                    
                    
                    $
                    2,615,062LIABILITIES
      AND STOCKHOLDERS' DEFICIENCYCURRENT
      LIABILITIESAccounts
      payable and accrued liabilities
                    
                    $
                    1,656,024
                    
                    
                    $
                    1,727,440Bank
      line of credit
                    
                    
                    248,276
                    
                    
                    
                    161,181Convertible
      promissory notes(net
      of discount of $1,340,510 and $2,236,792)
                    
                    
                    4,281,718
                    
                    
                    
                    3,526,160Loan
      payable, related party
                    
                    
                    44,826
                    
                    
                    
                    44,826Total
      current liabilities
                    
                    
                    6,230,844
                    
                    
                    
                    5,459,607NON-CURRENT
      LIABILITIESConvertible
      promissory notes(net
      of discount of $38.847 and $236,413)
                    
                    
                    19,278
                    
                    
                    
                    30,225Accrued
      severance pay
                    
                    
                    190,387
                    
                    
                    
                    178,205Total  liabilities
                    
                    
                    6,440,509
                    
                    
                    
                    5,668,037Redeemable
      Series A Cumulative Convertible Preferred Stock,$.001
      par value; $100 stated value34,000
      shares authorized; 30,853 and 26,664 shares issuedand
      outstanding, respectively (net of discount of$1,455,062
      and $1,874,740)
                    
                    
                    1,630,238
                    
                    
                    
                    791,660STOCKHOLDERS'
      DEFICIENCYPreferred
      Stock19,966,000
      shares authorized; none outstanding
                    
                    
                    -
                    
                    
                    
                    -Common
      stock, $.001 par value;2,000,000,000
      and 100,000,000 shares authorized; 1,770,259,815and
      46,083,070 issued and outstanding, respectively
                    
                    
                    1,770,260
                    
                    
                    
                    46,083Additional
      paid-in capital
                    
                    
                    17,887,820
                    
                    
                    
                    19,306,867Stock
      subscription receivable
                    
                    
                    (25
                    )
                    
                    
                    (25
                    )Accumulated
      other comprehensive loss
                    
                    
                    (331
                    )
                    
                    
                    (331
                    )Deferred
      stock based compensation
                    
                    
                    (29,121
                    )
                    
                    
                    (55,007
                    )Accumulated
      deficit
                    
                    
                    (25,422,755
                    )
                    
                    
                    (23,142,222
                    )Total
      stockholders' deficiency
                    
                    
                    (5,794,152
                    )
                    
                    
                    (3,844,635
                    )Total
      liabilities and stockholders' deficiency
                    
                    $
                    2,276,595
                    
                    
                    $
                    2,615,062





See Notes
to Condensed Consolidated Financial Statements.




1




IDO
SECURITY INC. AND SUBSIDIARY


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


Six
      Months
                          
                          
                          Six
      Months
                          
                          
                          Three
      Months
                          
                          
                          Three
      MonthsEnded
                          
                          
                          Ended
                          
                          
                          Ended
                          
                          
                          EndedJune
      30,
                          
                          
                          June
      30,
                          
                          
                          June
      30,
                          
                          
                          June
      30,2009
                          
                          
                          2008
                          
                          
                          2009
                          
                          
                          2008(Unaudited)
                          
                          
                          (Unaudited)
                          
                          
                          (Unaudited)
                          
                          
                          (Unaudited)Revenues
                          
                          $
                          61,339
                          
                          
                          $
                          33,684
                          
                          
                          $
                          41,246
                          
                          
                          $
                          33,684Cost
      of sales
                          
                          
                          45,809
                          
                          
                          
                          11,408
                          
                          
                          
                          29,554
                          
                          
                          
                          11,408Gross
      profit
                          
                          
                          15,530
                          
                          
                          
                          22,276
                          
                          
                          
                          11,692
                          
                          
                          
                          22,276Operating
      expensesResearch
      and development expenses
                          
                          
                          99,783
                          
                          
                          
                          219,291
                          
                          
                          
                          39,872
                          
                          
                          
                          106,633Selling,
      general and administrative expenses
                          
                          
                          597,697
                          
                          
                          
                          1,462,597
                          
                          
                          
                          295,519
                          
                          
                          
                          829,474Stock
      based compensation - selling, general and administrative
                          
                          
                          128,198
                          
                          
                          
                          566,185
                          
                          
                          
                          37,849
                          
                          
                          
                          (42,462
                          )Total
      operating expenses
                          
                          
                          825,678
                          
                          
                          
                          2,248,073
                          
                          
                          
                          373,240
                          
                          
                          
                          893,645Loss
      from operations
                          
                          
                          (810,148
                          )
                          
                          
                          (2,225,797
                          )
                          
                          
                          (361,548
                          )
                          
                          
                          (871,369
                          )Interest
      expense (including amortization of debt discount,beneficial
      conversion features and deferred finance costs)
                          
                          
                          (1,487,076
                          )
                          
                          
                          (1,818,682
                          )
                          
                          
                          (784,921
                          )
                          
                          
                          (1,052,758
                          )Interest
      income
                          
                          
                          9
                          
                          
                          
                          1,803
                          
                          
                          
                          5
                          
                          
                          
                          177Foreign
      currency translation
                          
                          
                          16,682
                          
                          
                          
                          36,758
                          
                          
                          
                          (19,406
                          )
                          
                          
                          59,078Net
      loss
                          
                          
                          (2,280,533
                          )
                          
                          
                          (4,005,918
                          )
                          
                          
                          (1,165,870
                          )
                          
                          
                          (1,864,872
                          )Preferred
      stock dividends and deemed dividends
                          
                          
                          (855,184
                          )
                          
                          
                          -
                          
                          
                          
                          (441,547
                          )
                          
                          
                          -Net
      loss attributable to common stockholders
                          
                          $
                          (3,135,717
                          )
                          
                          $
                          (4,005,918
                          )
                          
                          $
                          (1,607,417
                          )
                          
                          $
                          (1,864,872
                          )Basic
      and diluted loss per share:
                          
                          $
                          (0.01
                          )
                          
                          $
                          (0.10
                          )
                          
                          $
                          (0.00
                          )
                          
                          $
                          (0.04
                          )Weighted
      average number of shares outstandingBasic
      and diluted
                          
                          
                          399,928,361
                          
                          
                          
                          40,654,711
                          
                          
                          
                          726,590,886
                          
                          
                          
                          42,731,868




See
Notes to Condensed Consolidated Financial Statements.
  2


IDO SECURITY INC. AND SUBSIDIARY
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS





Six
      Months
                            
                            
                            Six
      MonthsEnded
                            
                            
                            EndedJune
      30,
                            
                            
                            June
      30,2009
                            
                            
                            2008(Unaudited)
                            
                            
                            (Unaudited)CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
                            
                            $
                            (2,280,533
                            )
                            
                            $
                            (4,005,918
                            )Adjustments
      to reconcile net loss to net cash used
      in operating activities:Depreciation
      and amortization
                            
                            
                            18,757
                            
                            
                            
                            227,529Amortization
      of note discount
                            
                            
                            1,140,445
                            
                            
                            
                            1,081,068Amortization
      of beneficial conversion feature of convertible debt
                            
                            
                            73,061
                            
                            
                            
                            167,103Accretion
      of interest on notes payable
                            
                            
                            -
                            
                            
                            
                            5,475Stock
      based compensation
                            
                            
                            128,198
                            
                            
                            
                            566,185Stock
      issued in lieu of interest and other charges
                            
                            
                            522,562
                            
                            
                            
                            -Interest
      related to note payable settlement
                            
                            
                            18,694
                            
                            
                            
                            -Loss
      on sale of property and equipment
                            
                            
                            -
                            
                            
                            
                            22,415Increase
      in net liability for severance pay
                            
                            
                            12,182
                            
                            
                            
                            32,696Increase
      (decrease) in cash attributable to changes in operating assets and
      liabilitiesAccounts
      receivable
                            
                            
                            (37,030
                            )
                            
                            
                            -Inventory
                            
                            
                            4,377
                            
                            
                            
                            (153,147
                            )Prepaid
      expenses and other current assets
                            
                            
                            11,018
                            
                            
                            
                            21,214Accounts
      payable
                            
                            
                            107,257
                            
                            
                            
                            37,741Accrued
      expenses and other current liabilities
                            
                            
                            (314,928
                            )
                            
                            
                            793,838Net
      cash used in operating activities
                            
                            
                            (595,940
                            )
                            
                            
                            (1,203,801
                            )CASH
      FLOWS FROM  INVESTING ACTIVITIESProceeds
      from sale of property and equipment
                            
                            
                            -
                            
                            
                            
                            1,006Purchases
      of property and equipment
                            
                            
                            (28,839
                            )
                            
                            
                            (10,139
                            )Net
      cash used in investing activities
                            
                            
                            (28,839
                            )
                            
                            
                            (9,133
                            )CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from issuance of secured convertible notes
                            
                            
                            167,500
                            
                            
                            
                            750,000Proceeds
      from escrow agent
                            
                            
                            -
                            
                            
                            
                            1,150,000Payments
      of deferred finance costs
                            
                            
                            -
                            
                            
                            
                            (170,455
                            )Proceeds
      from bank line of credit
                            
                            
                            87,095
                            
                            
                            
                            202,000Repayment
      of notes payable
                            
                            
                            -
                            
                            
                            
                            (1,029,767
                            )Net
      cash provided by financing activities
                            
                            
                            254,595
                            
                            
                            
                            901,778DECREASE
      IN CASH AND CASH EQUIVALENTS
                            
                            
                            (370,184
                            )
                            
                            
                            (311,156
                            )CASH
      AND CASH EQUIVALENTS - BEGINNING OF PERIOD
                            
                            
                            391,569
                            
                            
                            
                            353,701CASH
      AND CASH EQUIVALENTS - END OF PERIOD
                            
                            $
                            21,385
                            
                            
                            $
                            42,545Supplemental
      disclosures of cash flow information:Cash
      paid for interest
                            
                            $
                            -
                            
                            
                            $
                            49,266Non-cash
      activitiesIssuance
      of common stock and warrants relatingto
      convertible promissory notes
                            
                            $
                            1,057,993
                            
                            
                            $
                            1,538,471Issuance
      of common stock for cashless exercise of warrants
                            
                            $
                            -
                            
                            
                            $
                            8,341Preferred
      stock dividends and deemed dividends
                            
                            $
                            855,184
                            
                            
                            $
                            -






See
Notes to Condensed Consolidated Financial Statements.  3




IDO SECURITY INC. AND
SUBSIDIARY
 NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
  NOTE
1 - Basis of presentation
 
 The
accompanying unaudited condensed consolidated financial statements of IDO
Security Inc. (hereinafter, “IDO” or the “Company”) have been prepared in
accordance with U.S. generally accepted accounting principles for interim
financial information and with Rule 8-03 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
six months ended June 30, 2009, are not necessarily indicative of the results
that may be expected for the year ending December 31, 2009. These unaudited
condensed consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and footnotes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31, 2008,
as filed with the Securities and Exchange Commission
  The
accompanying condensed consolidated financial statements have been prepared
assuming the Company will continue as a going concern. At June 30, 2009,
the Company had not achieved profitable operations, had accumulated losses of
$25 million (since inception), a working capital deficiency of $6 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 to
continue to meet its liquidity needs, realize its business plan and maintain
operations.  In addition, the Company’s current cash resources are not
sufficient to support any unforeseen contingencies that may arise or permit the
Company 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. 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
placement of its convertible securities. In December 2007 and January 2008, the
Company received net proceeds of approximately $1 million from the proceeds of
the private placement to certain accredited investors (the “2008 Investors”) of
its 10% Secured Convertible Promissory Notes which are scheduled to mature on
December 2009. Between April and November 2008, the Company received from two
previous investors and one stockholder, gross loan proceeds totaling $442,355,
which are discussed below in Note 7 below.  In December 2008, the
Company raised net proceeds of $548,474 from certain 2008 Investors in a private
placement of convertible notes and preferred stock, as further discussed in Note
7. In April and June 2009, the Company raised net proceeds of $167,500 from
certain of the 2008 Investors, as discussed in Note 7 below.  Finally,
between July 1, 2009 and August 19, 2009, the Company raised net proceeds of
$850,000 from certain of the 2008 Investors, discussed in Note 9
below.
  We
have evaluated subsequent events, as defined by Statement of Financial
Accounting Standards (“SFAS”) No. 165 “Subsequent Events,” through the date that
the financial statements were issued on August 19, 2009.
  4
  NOTE
2 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
  Effective
January 1, 2009, the Company adopted Financial Accounting Standards Board’s
("FASB") Staff Position 157-2, "Effective Date of FASB Statement No. 157," which
delays the effective date of SFAS No. 157 until January 1, 2009 for all
nonfinancial assets and nonfinancial liabilities, except for items that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually). The adoption of the delayed items of SFAS No. 157 did
not have a material impact on the Company’s consolidated financial
statements.
  In
June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles”
("SFAS 168"). SFAS 168 identifies the FASB Accounting Standards Codification as
the authoritative source of generally accepted accounting principles in the
United States. Rules and interpretive releases of the Securities and Exchange
Commission under federal securities laws are also sources of authoritative GAAP
for SEC registrants. SFAS 168 is effective for financial statements issued for
interim and annual periods ending after September 15, 2009. The Company does not
expect adoption to have a material impact on our consolidated financial
statements.
  Effective
January 1, 2009, the Company adopted FASB Staff Position No. 142-3,
"Determination of the Useful Life of Intangible Assets" ("FSP
142-3").  FSP 142-3 amends FASB Statement No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142") to improve the consistency between the useful
life of a recognized intangible asset under SFAS 142 and the period of expected
cash flows used to measure the fair value of the asset under SFAS 141R and other
U.S. GAAP. The adoption did not have a material impact on the Company’s
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.
  NOTE
3 – 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.
 
 NOTE
4 - NET LOSS PER SHARE
 
 Basic
earnings (loss) per share are computed by dividing net income (loss) 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/Exerciseas
      ofJune 302009
                              
                              2008Warrants
                              
                              
                              15,675,821
                              
                              7,448,866Convertible
      notes
                              
                              
                              39,419,860
                              
                              3,490,000Stock
      options
                              
                              
                              3,490,000
                              
                              5,480,550Convertible
      preferred stock
                              
                              
                              21,774,113
                              
                              --
  5
  NOTE
5 – 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.
  Inventories
at June 30, 2009 consisted of components totaling $82,764 and partially
completed and completed devices totaling $37,567.   Inventories
at December 31, 2008 consisted of components totaling $65,100 and partially
completed and completed devices totaling $59,608.
  NOTE
6 – BANK LINE OF CREDIT
 
 The
Company’s subsidiary has a line of credit for up to approximately
$250,000.  The line bears interest at rates ranging from 9.3% per
annum on amounts up to $200,000 of indebtedness and 12.55% on amounts over that.
The line is collateralized by substantially all the assets of the
subsidiary. As of June 30, 2009 and December 31, 2008, $248,276 and $161,181,
respectively, was outstanding under the line of credit.
 
 NOTE
7 - PRIVATE PLACEMENT OF CONVERTIBLE PROMISSORY NOTES
 
 Convertible
promissory notes consist of the following:
 
 June
      30,
                  
                  
                  December
      31,2009
                  
                  
                  2008(Unaudited)
                  
                  
                  (Audited)2008
      Notes - secured  and convertible - interest at 10% - see (i)
      below
                  
                  $
                  4,446,313
                  
                  
                  $
                  4,963,050December
      2008 Notes - secured  and convertible - interest at 10% - see
      (ii) below
                  
                  
                  1,066,540
                  
                  
                  
                  1,066,5402009
      Notes - secured  and convertible - interest at 10% - see (iii)
      below
                  
                  
                  167,500
                  
                  
                  
                  --Total
                  
                  
                  5,680,353
                  
                  
                  
                  6,029,590Less:
      Discount
                  
                  
                  (1,397,357
                  )
                  
                  
                  (2,473,205
                  )4,300,996
                  
                  
                  
                  3,556,385Less
      Current Portion
                  
                  
                  (4,281,718
                  )
                  
                  
                  (3,526,160
                  )Total
                  
                  $
                  19,278
                  
                  
                  $
                  30,225
 
 (i)
2008 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”). Of such amount, $3,916,160 was raised in December 2007 and
$1,488,390 was raised in January 2008.    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, after
the payment of offering related fees and expenses and after the repayment of
bridge loans that that came due in November 2007. Certain remaining note holders
from a private placement of 2007 Notes and the October 2007 note holders
participated in the private placement and the gross proceeds raised include
amounts the Company owed to these investors in the approximate amount of $2.6
million that were offset against such investors’ respective purchases of the
2008 Notes.
  6
  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).
  The
2008 Notes are scheduled to mature on December 31, 2009 and 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. The per share Fixed Conversion Price of the 2008 Notes was
subsequently reduced to $0.15 in connection with the investment in December 2008
Notes discussed below in (ii).
  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 is 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 amount may be paid either
in (i) cash, at 110% of the principal amount due and 100% of all other amounts
due or (ii) shares of Common Stock at a rate equal to the lower of (A) the Fixed
Conversion Price or (B) 75% of the average of the closing bid price of the
Common Stock for the five trading days ending on the trading day immediately
preceding the Scheduled Payment Date, provided, that, if such monthly amount is
to be paid with shares of Common Stock, such payment in shares 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. In addition, under certain
conditions, the Company may prepay the amounts outstanding on the 2008 Notes by
giving advance notice and paying an amount equal to 115% of the sum of (x) the
principal being prepaid plus (y) the accrued interest thereon. Holders will
continue to have the right to convert their 2008 Notes prior to the actual
prepayment. For the period January 1, 2009 to June 30, 2009, principal in the
total amount of $535,431 and accrued interest totaling $522,562 was repaid in
the form of 1,724,176,745 shares of the Company’s Common Stock.
  Pending
an increase in the number of authorized and unissued shares of common stock, the
Company currently does not have a sufficient number of shares of common stock
available to honor any conversions of the 2008 Notes.  The
inability to honor conversions 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
2008 Investor Warrants are exercisable through the fifth anniversary of the
effective date of the Registration Statement. Holders of the Investor Warrants
are entitled to exercise their warrants on a cashless basis if the Registration
Statement is not in effect at the time of exercise.
  The
Fixed Conversion Price of the 2008 Notes and the exercise price of the 2008
Investor Warrants are subject to adjustment. Under the agreements with the
holders of 2008 Notes, the Company agreed that if the Company made certain sales
of its Common Stock (or securities convertible into Common Stock) to any third
party at per share conversion price or exercise price less than the conversion
price of the 2008 Notes and/or the exercise price of the 2008 Investor Warrants,
adjustments would be made to the conversion price of the then unconverted Notes
and to the exercise price of the then unexercised Investor Warrants. The above
adjustments do not apply to certain specified transactions, such as the exercise
of outstanding options, warrants, or convertible securities, the issuance of
securities pursuant to a Company option plans or a non-employee director option
plan, or the issuance of options to the Company's directors, officers, and
employees, and advisors or consultants, and transactions with strategic
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.
  7
  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 June 30, 2009, 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.
 
 (ii)  December
2008 Notes 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 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.
  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 at a rate equal to the lower of (A) the Fixed Conversion Price of
$0.15 or (B) 75% of the average of the closing bid price of the Common Stock for
the ten trading days ending on the trading day immediately preceding the
Scheduled Payment Date;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. As of June 30, 2009, no
principal or interest payments were made. For the period July 1, 2009 through
August 19, 2009, principal and accrued interest totaling $100,115 was repaid in
the form of 204,107,106 shares of the Company’s 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.
  8
  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.
  Under
the subscription agreement of the December 2008 Private Placement, the Company
also agreed that other than in connection with certain excepted issuances, if at
any time any of the Purchased Securities are outstanding, the Company shall
offer, issue or agree to issue (the “Lower Price Issuance”) any Common Stock or
securities convertible into or exercisable for shares of Common Stock (or modify
any of the foregoing which may be outstanding) to any person or entity at a
price per share or conversion or exercise price per share which shall be less
than the conversion or exercise price in respect of the Purchased Securities,
without the consent of Subscribers holding 66.67% of the outstanding principal
amount of the December 2008 Notes, then the Company shall issue, for each such
occasion, additional shares of Common Stock to each subscriber respecting each
of the Purchased Securities that remain outstanding at the time of the Lower
Price Issuance so that the average per share purchase price of the shares of
Common Stock issued to the subscriber (of only the Common Stock or Warrant
Shares still owned by the Subscriber) is equal to such other lower price per
share and the conversion price and exercise price, as the case may be, of each
of the outstanding Purchased Securities shall automatically be reduced to such
other lower price.
 
 The
Company also agreed that until the expiration of the Exclusion Period (defined
below) and during the pendency of an Event of Default, except for certain
excepted issuances, the Company agreed to not enter into an agreement to nor
issue any equity, convertible debt or other securities convertible into common
stock or equity of the Company nor modify any of the foregoing which may be
outstanding at anytime, without the prior written consent of investors, which
consent may be withheld for any reason.   For so long as any of the
Purchased Securities is outstanding, except for such excepted issuances, the
Company will not enter into any equity line of credit or similar agreement, nor
issue nor agree to issue any floating or variable priced equity linked
instruments nor any of the foregoing or equity with price reset rights. 
The “Exclusion Period” ends on the first to occur of (i) April 30, 2009, or (ii)
until all the shares issuable upon exercise of the December 2008 Notes and
Warrants have been resold or transferred by the subscribers pursuant to Rule
144, without regard to volume limitations.  Under certain circumstances,
the Exclusion Period will be tolled.
  In
addition, for a period of one year, investors will have a right of first refusal
to participate, in proportion to the their holdings in any proposed sale by the
Company of its common stock or other securities or debt obligations, other than
with respect to shares issued in connection with mergers, employee stock option
plans and capital raises where the shares issued will not be
registered.
  Pending
an increase in the number of authorized and unissued shares of common stock, the
Company currently does not have a sufficient number of shares of common stock
available to honor any conversions of the December 2008
Notes.  The inability to honor conversions constitutes an Event of
Default under the December 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.
 
 (iii)
2009 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 June 21, 2009, the Company
raised net proceeds of $167,500 from the private placement to certain holders of
the December 2008 Notes of $167,500 in principal amount of 2009 Notes and 4,189
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 1,166,667 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.
 
 9
 
 NOTE
8 - CAPITAL TRANSACTIONS
  Authorized
Shares
 
 On
December 29, 2008, Company’s Board of Directors and the majority of Company’s
stockholders authorized an increase the number of shares of Common Stock from
100,000,000 to 2,000,000,000. The increase became effective in March
2009.
 
 Reverse
Stock Split
 
 On
December 29, 2008, Company’s Board of Directors and the majority of Company’s
stockholders approved an amendment to the Company's certificate of incorporation
to effect a reverse stock split at any ratio within an approved range (defined
as between 10-to-1 to 50-to-1) at any time on or before December 31,
2009.  The board of directors has the sole discretion to determine
whether or not to effect the reverse stock split and if so, at what ratio within
the approved range.
  Stock
Issuances
 
 For
the period January 1, 2009 through June 30, 2009, principal and accrued interest
of the 2008 Notes totaling $1,057,993 was repaid in the form of 1,724,176,745
shares of the Company’s Common Stock. For the period July 1, 2009 through August
19, 2009, no principal or accrued interest of the 2008 Notes totaling was
repaid.  Principal and accrued interest on the December 2008 notes
totaling $100,115 was repaid in the form of 204,107,106 shares of the Company
Common Stock.
  Convertible
Preferred Stock
  In
December 2008, in connection with the issuance of the December 2008 Notes more
fully discussed above in Note 6(ii), the Company issued to the purchasers of the
December 2008 Notes, 26,664 shares of its Series A Preferred Stock. Each
purchaser of the December 2008 Notes received shares of the Company’s Series A
Preferred Stock with a stated value of $100 equal to 250% of the principal
amount of the December 2008 Notes issued to such investor.
  In
April and June 2009, in connection with the issuance of the 2009 Notes more
fully discussed above in Note 6(iii), the Company issued 4,189 shares of Series
A 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, effective as of
December 11, 2008. A total of 34,000 shares of Series A Preferred Stock
were so authorized.  See Note 9.
  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 six and three months ended June 30,
2009, dividends totaled $136,255 and $70,508, respectively. At June 30, 2009 and
December 31, 2008, dividends payable total $180,817 and $44,562, respectively,
and are included in accounts payable and accrued liabilities.
  10
  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.
To date, no shares of the Series A Preferred Stock have been redeemed or
converted into shares of the Company’s Common Stock.
  NOTE
9 - Subsequent Events
 
 On
July 30, 2009, 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 65,000 shares.
  Between
July 1, 2009 and August 19, 2009, the Company raised net proceeds of $850,000
(which includes $100,000 in principal amount of loans advanced to the Company
that were offset against such note holder's purchase of these securities) from
the private placement to certain holders of the December 2008 Notes of $850,000
in principal amount of Secured Convertible Promissory Notes due 18 months
following issuance and 21,250 shares of Series A Preferred Stock. In connection
with such investment, the Company issued to the providers of these funds,
warrants to purchase in the aggregate up to 5,666,667 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 placement of the
notes, the Series A Preferred Stock and the warrants were effected on
substantive terms and condition identical to the placement consummated in
December 2008 and discussed in Note 7(ii).


11




ITEM
      2.
            MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
      OPERATION





We urge
you to read the following discussion in conjunction with our condensed
consolidated financial statements and the notes thereto included elsewhere
herein.




CAUTION
REGARDING FORWARD-LOOKING STATEMENTS




Our
prospects are subject to uncertainties and risks. In this Quarterly Report on
Form 10-Q, we make forward-looking statements in this Item 2 and elsewhere that
also involve substantial uncertainties and risks. These forward-looking
statements are based upon our current expectations, estimates and projections
about our business and our industry, and reflect our beliefs and assumptions
based upon information available to us at the date of this report. In some
cases, you can identify these statements by words such as “if,” “may,” “might,”
“will, “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,”
“predicts,” “potential,” “continue,” and other similar terms. These
forward-looking statements include, among other things, projections of our
future financial performance and our anticipated growth, descriptions of our
strategies, our product and market development plans, the trends we anticipate
in our business and the markets in which we operate, and the competitive nature
and anticipated growth of those markets.




We
caution readers that forward-looking statements are predictions based on our
current expectations about future events. These forward-looking statements are
not guarantees of future performance and are subject to risks, uncertainties and
assumptions that are difficult to predict. Our actual results, performance or
achievements could differ materially from those expressed or implied by the
forward-looking statements as a result of a number of factors, including but not
limited to the risks and uncertainties discussed in our other filings with the
SEC, including the risk factors section of the Company’s Annual Report on Form
10-K for the year ended December 31, 2008 filed with the Securities and Exchange
Commission. We undertake no obligation to revise or update any forward-looking
statement for any reason.




OVERVIEW





IDO
Security Inc. (“we”, “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. Our common stock
trades on the OTC Bulletin Board under the symbol IDOI.




IDO
Security Inc. (formerly known as “The Medical Exchange Inc.”) was incorporated
in the State of Nevada on January 23, 2004. On July 25, 2006, we, IDO Security
Ltd. (“IDO Ltd.”) and IDO Ltd.’s Selling Shareholders entered into a Securities
Purchase Agreement (the “Purchase Agreement”) pursuant to which we 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 the Company and Med Ex adopted the business
of IDO Ltd. In June 2007, the Company changed its name to “IDO Security
Inc.”





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.





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.




The
MagShoe has been deployed and is in operation in various countries including
Israel, China, Spain, Poland, The Czech Republic, Australia and Germany. Subject
to raising additional capital, we expect to actively pursue certain Requests for
Proposals ( RFP) for footwear scanners that we are beginning to receive from
sources in various countries.  We believe that these
RFPs further validate the need for our product. 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.




12




In July
2009, we introduced a Network Management Control System (NMC-3), facilitating
secure, centralized management of multiple MagShoe devices across none 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.





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 May 15, 2009, 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. We are currently in discussion with certain of our investors
regarding the possibility of additional investments in IDO by these investors.
No assurance can be given that we will be able to raise the needed capital on
commercially acceptable terms or at all. These conditions raise substantial
doubt about our ability to continue as a going concern.




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 lines where the devices are to be used in the
cargo holders so as to primarily prevent theft of valuables.




RESULTS
OF OPERATIONS





COMPARISON
OF THE SIX AND THREE MONTHS ENDED JUNE 30, 2009 TO THE SIX AND THREE MONTHS
ENDED JUNE 30, 2008




On March
8, 2007, we completed the acquisition of IDO Ltd. As we were a shell company
prior to the acquisition, IDO Ltd. is deemed to be our predecessor.





Revenues and costs of goods
sold– Revenues for the six and three months ended June 30, 2009 were
$61,339 and $41,246, respectively, compared to $33,684 and $33,684 for the
corresponding periods in 2008, all of which were derived from sales of our
MagShoe device. Costs of goods sold for the six and three months ended June
30, 2009 were $45,809 and $29,554, respectively, compared to $11,408 and $11,408
for the corresponding periods in 2008. The increase in revenues and cost of
goods sold during the six and three months ended June 30, 2009 as compared to
the corresponding periods in 2008 is primarily attributable to the multi-unit
sale of top end higher priced MagShoe devices with a base and
handrails.




Research and development expenses   - Research and development
expenses consist primarily of expenses incurred in designing, developing and
field testing our products. These expenses consist primarily of salaries 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 for the six and three months ended June 30, 2009 of
$99,783 and $39,872, respectively, compared to $219,291 and $106,633 for the
corresponding periods in 2008. The decrease in research and development expenses
during the 2009 periods as compared to the corresponding periods in 2008 is
principally attributable to our product, the MagShoe device, being substantially
developed and needing less research and development.





13


Selling, general and administrative
expenses - Selling, general and administrative expenses primarily consist
of salaries, consulting and other professional fees, and other costs related to
administrative functions.   We incurred selling, general and
administrative expenses for the six and three months ended June 30, 2009 of
$597,697 and $295,519, respectively, compared to $1,462,597 and $829,474 for the
corresponding periods in 2008. The decrease in selling, general and
administrative expenses during the 2009 periods as compared to the corresponding
periods in 2008 is principally attributable to reduced costs for consultants as
well as the Company incurred liquidated damages totaling $516,137 in the 2008
period in respect of the non-filing of a registration statement.





Stock based compensation -
Between June and April 2008, we granted stock options to employees and
consultants. The value of these options is being amortized over the vesting
periods of each grant. Stock based compensation totaled $128,198 and $37,849 for
the six and three months ended June 30, 2009 respectively, compared to $566,185
and ($42,462) for the corresponding periods in 2008. Stock-based compensation is
non-cash and, therefore, has no impact on cash flow or liquidity.





Interest expense - Interest
expense for the six and three months ended June 30, 2009 were $267,201 and
$144,661, respectively, compared to $311,837 and $64,832 during the 2008
periods. Interest expense related primarily to the placement of our convertible
promissory notes.





Amortizations - During the six
and three months ended June 30, 2009, we recorded amortization of $1,219,875 and
$640,260, respectively, compared to $1,470,087 and $925,248  for the
corresponding periods in 2008. Amortization costs relates to the debt discount,
beneficial conversion feature and deferred finance costs incurred in connection
with the placement of our convertible promissory notes which were issued
in  2007, 2008 and 2009. These costs are amortized to the date of
maturity of the debt unless converted earlier.





Net loss – For the six and
three months ended June 30, 2009, we had a net loss of $2,280,553 and
$1,165,870, respectively, compared to $4,005,918 and $1,864,872 for the
corresponding periods in 2008.




Preferred stock dividends – In
December 2008, we issued 26,664 shares and from April 2009 through June 2009, we
issued 4,189 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 the six and three months ended June 30, 2009, we declared
dividends totaling $136,255 and $70,508, respectively. For financial reporting
purposes, we recorded a discount of $1,861,645 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. In addition, in accordance
with EITF No. 00-27, an additional discount of $552,003 was recorded to reflect
the beneficial conversion feature. The discounts are being amortized as deemed
dividends on preferred stock to the date of maturity unless converted earlier.
Amortization of discounts for the six and three months ended June 30,,2009
amounted to $718,929 and $371,039, respectively.





LIQUIDITY
AND CAPITAL RESOURCES





As of
June 30, 2009, we had a cash balance of $21,385 compared to $391,569 at December
31, 2008.





Cash used
in operating activities was $595,940 for the six months ended June 30, 2009. The
decrease in cash was primarily attributable to funding the loss for the
period.





Cash used
in investing activities was $28,839 for the six months ended June 30, 2009
attributable to the addition of property and equipment.





Cash
provided by financing activities was $254,595 for the six months ended June 30,
2009 from proceeds from our line of credit as well private placement of our
securities.





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”) are
scheduled to mature in December 2009. We received net proceeds of $1
million from the proceeds of the 2008 Notes, after the payment of offering
related fees and expenses and after the repayment of bridge loans then due and
owing. Holders of certain notes outstanding participated in the private
placement and the gross proceeds raised include amounts that we owed to these
investors in the approximate amount of $2.7 million that were offset against
such investors’ respective purchases of the 2008 Notes. 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, we are required to prepay 5% of the aggregate principal amount of the
2008 Notes originally issued, together with all accrued interest due and payable
up to such repayment date (each such date, a “Scheduled Payment Date.”). The
amount may be paid either in (i) cash, at 110% of the principal amount due and
100% of all other amounts due or (ii) shares of Common Stock at a rate equal to
the lower of (A) the Fixed Conversion Price or (B) 75% of the average closing
bid price of the Common Stock for the five trading days ending on the trading
day immediately preceding the Scheduled Payment Date, provided that at the time
of payment there is then in effect an effective Registration Statement (as
defined below) or the shares so issued can be resold under Rule 144 promulgated
under the Securities Act of 1933, as amended (“Rule 144”); 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. During the six months ended
June 30, 2009, we repaid principal and accrued interest in the amount of
$1,057,993 in the form of 1,724,176,745 shares of our Common
Stock.  As of August 19, 2009, approximately $4.4 million remains
outstanding on the 2008 Notes. Additionally, as of June 30, 2009, we owed
approximately $516,000 to these investors as liquidated damages in respect of
the non-filing of a registration statement in respect of the resale of the
Common Stock underlying the 2008 Notes and the warrants issued in connection
therewith.





14




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 and 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 Note due April
20, 2010 (“collectively the “December 2008 Notes”) and Series A Convertible
Preferred Stock, par value $0.001 per share (the “Series A Preferred Stock”).
The amount raised included $478,816 in principal and accreted interest on the
April-November 2008 Loans that were offset against such purchasers’ respective
purchases of the Purchased Securities. 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 (each a “Scheduled
“Repayment Date”), we are 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 at a rate equal to the lower of (A) the Fixed Conversion
Price of $0.15 or (B) 75% of the average of the closing bid price of the Common
Stock for the five trading days ending on the trading day immediately preceding
the Scheduled Repayment Date; 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. Commencing on April 30, 2009, and thereafter on the last day of
each subsequent calendar month, we are also 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 our election, 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 us of such holder’s agreement to accept
payment in shares.  Between July 1, 2009 and August 19, 2009, we
repaid principal and accrued interest in the amount of $100,115 on the December
2008 Notes in the form of 204,107,106 shares of our Common Stock. As of
August 19, 2009, approximately $1 million remains outstanding on the December
2008 Notes. None of the Series A Preferred Stock were
redeemed.




Between April 28, 2009 and August 19, 2009, we raised net proceeds of $1,017,500
from the private placement to certain holders of the December 2008 Notes of
$1,017,500 in principal amount of Secured Convertible Promissory Notes due 18
months following issuance and 25,439 shares of Series A Preferred Stock. In
connection with such investment, we issued to the providers of these funds
warrants to purchase in the aggregate up to 6,783,333 shares of our Common
Stock at per share exercise price equal to $0.25. The warrants are exercisable
through the fifth anniversary of issuance. The placement of the notes, the
Series A Preferred Stock and the warrants were effected on substantive terms and
condition identical to the placement consummated in December 2008 and discussed
above. In April 2009, the holders of the 2008 Notes and the December 2008 Notes
consented to the placement of secured convertible 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 above, for
aggregate gross proceeds to not exceed $1.5 million. Proceeds of these funds are
being used to fund our continuing operations. We have received
indications from holders of the December 2008 Notes of their intention to
invest, in the aggregate, an additional $200,000 on terms identical to the
foregoing. No assurance can however be provided that such additional warrants
will in fact be invested.




Pending an increase in the number of our
authorized and unissued shares of common stock, we currently do not have a
sufficient number of shares of common stock available to honor any
conversions of the December 2008 Notes and 2008 Notes.  The inability
to honor conversions of these notes constitutes an event of default under the
transaction documents relating to these notes. However, the transaction
documents also provide that the remedies available to the holders upon such
event of default can be exercised only by the affirmative action of the holders
of 65% of the outstanding principal amount of these notes. The increase in the
number of our authorized shares of common stock will require the convening of a
stockholders meeting. Except for the above referenced notes, we have a
sufficient number of authorized shares of common stock reserved to honor
conversions of outstanding warrants and options.





As noted
above, 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 May 15, 2009, we
have 10 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. We are in discussions with certain of
our investors as to the possibility of additional investments in our company. As
noted above, between April 28, 2009 and August 19, 2009, existing investors made
additional investments in our company. However, at the present time, we have no
commitments for any such financing and no assurance can be given that we will be
able to raise capital on commercially acceptable terms (or at all). Our limited
availability of authorized and unissued shares of Common Stock impairs
our ability to raise additional funds. 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, 2008. While we raised approximately gross $1.2
million during the year ended December 31, 2008 as well as an additional
$1,017,500 during 2009, such “going concern” qualification may make it more
difficult for us to raise funds when needed. In addition, the current economic
situation further complicates 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.




ITEM
      4T.
            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 acting Chief Executive Officer (and 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-14(c).




15


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 acting Chief
Executive Officer (and Principal Financial and Accounting Officer), of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based on the foregoing, our acting Chief Executive Officer (and
Principal Financial and Accounting Officer) concluded that our disclosure
controls and procedures were effective.




During
the quarter ended June 30, 2009, there have been no changes in our internal
controls over financial reporting that have materially affected, or are
reasonably likely to materially affect, these controls.





PART
II - OTHER INFORMATION





ITEM
      1.
            LEGAL
      PROCEEDINGS.




(i) In
our quarterly report on Form 10-Q for the three months ended June 30, 2008, we
first disclosed that a certain stockholder the “Stockholder”) who holds
2,250,000 of our issued and outstanding shares of Common Stock (representing
approximately 5.2% of our then issued and outstanding holdings) initiated a suit
against Company and an officer and director of its Subsidiary (the “Affiliate”)
in the District Court in Petah Tikva, Israel.





We and
the stockholder were in settlement negotiations under the auspices of the court
since August 2008. In May 2009, the District Court approved a settlement that we
reached with the Stockholder whereby the Stockholder’s suit was discontinued and
the parties furnished to each other mutual releases.





(ii)
On June 22, 2009, our wholly owned subsidiary, IDO Security 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
$355,000 based on the exchange rate in effect at the time of the filing of this
report on Form 10-Q) 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. As of the date of the filing of this report on Form 10-Q,
the former officer/director has not filed an answer to the complaint.





ITEM
      2.
            UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS




The
following paragraph sets forth certain information with respect to all
securities sold by us during the three months ended June 30, 2009 without
registration under the Securities Act:





Between
April and June 30, 2009, we issued 1,651,157,529 shares of restricted stock to
the holders of the 2008 notes in respect of principal and accrued interest in
the aggregate amount of $914,086.





All of
the securities issued in the transactions described above were issued without
registration under the Securities Act in reliance upon the exemptions provided
in Section 4(2) of the Securities Act or Regulation S under such Securities Act.
Except with respect to securities sold under Regulation S, the recipients of
securities in each such transaction acquired the securities for investment only
and not with a view to or for sale in connection with any distribution thereof.
Appropriate legends were affixed to the share certificates issued in all of the
above transactions. Each of the recipients represented that they were
“accredited investors” within the meaning of Rule 501(a) of Regulation D under
the Securities Act, or had such knowledge and experience in financial and
business matters as to be able to evaluate the merits and risks of an investment
in its common stock. All recipients had adequate access, through their
relationships with the Company and its officers and directors, to information
about the Company. None of the transactions described above involved general
solicitation or advertising.




ITEM
      3.
            DEFAULTS
      UPON SENIOR SECURITIES.




None.




ITEM
      4.
            SUBM1ISSION
      OF MATTERS TO A VOTE OF SECURITY
HOLDERS.




None.




16




ITEM
      5.
            OTHER
      INFORMATION.




BetweenAugust 17-18, 2009, the Company
raised net proceeds of $535,000 from the private placement to certain holders of
the December 2008 Notes of $535,000 in principal amount of Secured Convertible
Promissory Notes due 18 months following issuance and 13,375 shares of Series A
Preferred Stock. In connection with such investment, the Company issued to the
providers of these funds, warrants to purchase in the aggregate up
to 3,566,667 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 placement of the notes, the Series A Preferred Stock and the
warrants were effected on substantive terms and condition identical to the
placement consummated in December 2008 and discussed above. In April 2009, the
holders of the 2008 Notes and the December 2008 Notes consented to the placement
of secured convertible 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 above, for aggregate gross proceeds to not
exceed $1.5 million. Proceeds of these funds were used to fund our continuing
operations.To date, we
have raised $1,017,500, which includes $100,000 in principal amount of loans
advanced to the Company that were offset against such holder’s purchase of these
securities. The Company received indication from holders of the
December 2008 Notes relating to their intention to invest, in the aggregate,
approximately an additional $200,000 on terms identical to the foregoing. No
assurance can, however, be provided that such additional amounts will in fact be
invested.




ITEM
      6.
            EXHIBITS.





Exhibit
                  Number
                
                Description31
                
                Certification
      Pursuant to Rule 13a-14a of the Securities Exchange Act of 1934, as
      amended32
                
                Certification
      Pursuant to Section 906 of  Sarbanes-Oxley Act of
  2002







17





SIGNATURES




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




IDO
      SECURITY INC.Date:
      AUGUST 19, 2009
                    
                    /s/ MICHAEL
      GOLDBERGMICHAEL
      GOLDBERG

                        ACTING
      CHIEF EXECUTIVE OFFICER (PRINCIPAL

                          EXECUTIVE
      OFFICER AND PRINCIPAL FINANCIAL AND

                            ACCOUNTING
      OFFICER) AND PRESIDENT