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, 2008;
  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 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 14, 2008, there were 42,985,018 shares of registrant’s common stock, par
value $0.001 per share outstanding.
 
 
  INDEX PAGE
 
  PAGEPART
      I -- FINANCIAL INFORMATIONItem
      1
              Financial
      Statements
              1Condensed
      Consolidated Balance Sheets June 30, 2008 (Unaudited) and December 31,
      2007 (Audited)
              1Unaudited
      Condensed Consolidated Statements of Operations for the six and three
      months ended June 30, 2008 and 2007
              2Unaudited
      Condensed Consolidated Statements of Cash Flows for the six and three
      months ended June 30, 2008 and 2007
              3Notes
      to Unaudited Condensed Consolidated Financial Statements
              4Item
      2
              Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
              10Item
      4T
              Controls
      and Procedures
              13PART
      II – OTHER INFORMATIONItem
      1
              Legal
      Proceedings
              13Item
      2
              Unregistered
      Sales of Equity Securities and Use of Proceeds
              13Item
      3
              Defaults
      upon Senior Securities
              14Item
      4
              Submission
      of Matters to a Vote of Security Holders
              14Item
      5
              Other
      Information
              14Item
      6
              Exhibits
              15SIGNATURES
              16
 
 
  IDO
      SECURITY INC. AND SUBSIDIARY(A
      Development Stage Company)CONSOLIDATED
      BALANCE SHEETFOR
      THE PERIODS INDICATEDJune 30,
                
                
                December
      31,ASSETS
                
                2008
                
                
                2007CURRENT
      ASSETS
                
                (Unaudited)Cash
      and  cash equivalents
                
                $
                42,545
                
                
                $
                353,701Due
      from escrow agent
                
                
                -
                
                
                
                1,150,000Inventory
                
                
                330,184
                
                
                
                177,037Prepaid
      expenses and other current assets
                
                
                54,464
                
                
                
                75,678Total
      current assets
                
                
                427,193
                
                
                
                1,756,416Property
      and equipment, net
                
                
                33,297
                
                
                
                52,192Goodwill
                
                
                1,955,002
                
                
                
                1,955,002Deferred
      financing costs, net
                
                
                788,505
                
                
                
                718,106Total
      assets
                
                $
                3,203,997
                
                
                $
                4,481,716LIABILITIES
      AND STOCKHOLDERS' EQUITYCURRENT
      LIABILITIESAccounts
      payable and accrued liabilities
                
                $
                1,348,541
                
                
                $
                516,962Convertible
      promissory notes(net
      of discount of $2,858,850 and $855,758)
                
                
                1,173,343
                
                
                
                2,256,563Notes
      payable - other
                
                
                202,000
                
                
                
                -Loan
      payable, related party
                
                
                44,826
                
                
                
                44,826Total
      current liabilities
                
                
                2,768,710
                
                
                
                2,818,351NON-CURRENT
      LIABILITIESConvertible
      promissory notes(net
      of discount of $691,382 and $2,642,522)
                
                
                756,975
                
                
                
                -Accrued
      severance pay
                
                
                188,377
                
                
                
                155,681Total  liabilities
                
                
                3,714,062
                
                
                
                2,974,032STOCKHOLDERS'
      EQUITYPreferred
      Stock20,000,000
      shares authorized; none outstanding
                
                
                -
                
                
                
                -Common
      stock, $.001 par value;100,000,000
      shares authorized; 42,732,198 and 34,361,250issued
      and outstanding, respectively
                
                
                42,732
                
                
                
                34,361Additional
      paid-in capital
                
                
                18,489,396
                
                
                
                16,431,941Stock
      subscription receivable
                
                
                (25
                )
                
                
                (25
                )Accumulated
      other comprehensive loss
                
                
                (331
                )
                
                
                (331
                )Deferred
      stock based compenation
                
                
                (77,657
                )
                
                
                -Deficit
      accumulated during the development stage
                
                
                (18,964,180
                )
                
                
                (14,958,262
                )Total
      stockholders' equity
                
                
                (510,065
                )
                
                
                1,507,684Total
      liabilities and stockholders' equity
                
                $
                3,203,997
                
                
                $
                4,481,716See
      Notes to Consolidated Financial
Statements.
 1
  IDO
      SECURITY INC. AND SUBSIDIARY(A
      Development Stage Company)CONSOLIDATED
      STATEMENTS OF OPERATIONSJanuary
      23,Six
      Months
                
                
                Six
      Months
                
                
                2004
      (Date of
                
                
                Three
      Months
                
                
                Three
      MonthsEnded
                
                
                Ended
                
                
                Inception)
      to
                
                
                Ended
                
                
                EndedJune
      30,
                
                
                June
      30,
                
                
                June
      30,
                
                
                June
      30,
                
                
                June
      30,2008
                
                
                2007
                
                
                2008
                
                
                2008
                
                
                2007(UNAUDITED)
                
                
                (UNAUDITED)
                
                
                (UNAUDITED)
                
                
                (UNAUDITED)
                
                
                (UNAUDITED)Revenues
                
                $
                33,684
                
                
                $
                -
                
                
                $
                82,779
                
                
                $
                33,684
                
                
                $
                -Cost
      of sales
                
                
                11,408
                
                
                
                -
                
                
                
                118,595
                
                
                
                11,408
                
                
                
                -Gross
      profit (loss)
                
                
                22,276
                
                
                
                -
                
                
                
                (35,816
                )
                
                
                22,276
                
                
                
                -Operating
      expensesResearch
      and development costs
                
                
                219,291
                
                
                
                99,161
                
                
                
                498,468
                
                
                
                106,633
                
                
                
                72,155Selling,
      general and administrative expenses
                
                
                1,462,597
                
                
                
                312,309
                
                
                
                2,637,795
                
                
                
                829,474
                
                
                
                230,314Stock
      based compensation - selling, general and administrative
                
                
                566,185
                
                
                
                1,456,077
                
                
                
                5,945,288
                
                
                
                (42,462
                )
                
                
                1,456,077Total
      operating expenses
                
                
                2,248,073
                
                
                
                1,867,547
                
                
                
                9,081,551
                
                
                
                893,645
                
                
                
                1,758,546Loss
      from operations
                
                
                (2,225,797
                )
                
                
                (1,867,547
                )
                
                
                (9,117,367
                )
                
                
                (871,369
                )
                
                
                (1,758,546
                )Interest
      expense
                
                
                (311,837
                )
                
                
                (201,066
                )
                
                
                (896,838
                )
                
                
                (68,432
                )
                
                
                (168,753
                )Interest
      income
                
                
                1,803
                
                
                
                1,537
                
                
                
                5,098
                
                
                
                177
                
                
                
                1,537Amortization
      of debt discount
                
                
                (1,081,068
                )
                
                
                (1,642,679
                )
                
                
                (7,986,239
                )
                
                
                (692,130
                )
                
                
                (1,486,974
                )Amortization
      of beneficial conversion feature
                
                
                (167,103
                )
                
                
                (327,966
                )
                
                
                (620,096
                )
                
                
                (110,020
                )
                
                
                (323,177
                )Amortization
      of deferred finance costs
                
                
                (221,916
                )
                
                
                (92,182
                )
                
                
                (348,738
                )
                
                
                (123,098
                )
                
                
                (68,759
                )Net
      loss
                
                
                (4,005,918
                )
                
                
                (4,129,903
                )
                
                
                (18,964,180
                )
                
                
                (1,864,872
                )
                
                
                (3,804,672
                )Other
      comprehensive lossForeign
      currency translation adjustment
                
                
                0
                
                
                
                0
                
                
                
                (331
                )
                
                
                0
                
                
                
                0Comprehensive
      loss for the period
                
                $
                (4,005,918
                )
                
                $
                (4,129,903
                )
                
                $
                (18,964,511
                )
                
                $
                (1,864,872
                )
                
                $
                (3,804,672
                )Basic
      and diluted loss per share:
                
                $
                (0.10
                )
                
                $
                (0.13
                )
                
                
                
                
                
                $
                (0.04
                )
                
                $
                (0.12
                )Weighted
      average number of shares outstandingBasic
      and diluted
                
                
                40,654,711
                
                
                
                31,581,547
                
                
                
                
                
                
                
                42,731,868
                
                
                
                32,330,769See
      Notes to Consolidated Financial Statements.
 2
  IDO
      SECURITY INC. AND SUBSIDIARY(A
      Development Stage Company)CONSOLIDATED
      STATEMENTS OF CASH FLOWSJanuary
      23,Six
      Months
                
                
                Six
      Months
                
                
                2004
      (Date ofEnded
                
                
                Ended
                
                
                Inception)
      toJune
      30,
                
                
                June
      30,
                
                
                June
      30,2008
                
                
                2007
                
                
                2008(UNAUDITED)
                
                (UNAUDITED)
                
                
                (UNAUDITED)CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
                
                $
                (4,005,918
                )
                
                $
                (4,129,903
                )
                
                $
                (18,964,180
                )Adjustments
      to reconcile net loss to net cashused
      in operating activities:Depreciation
      and amortization
                
                
                227,529
                
                
                
                133,832
                
                
                
                360,719Amortization
      of note discount
                
                
                1,081,068
                
                
                
                1,642,679
                
                
                
                7,986,239Amortization
      of beneficial conversion feature of convertible debt
                
                
                167,103
                
                
                
                327,966
                
                
                
                620,096Accretion
      of interest on notes payable
                
                
                5,475
                
                
                
                185,771
                
                
                
                515,317Stock
      based compensation
                
                
                566,185
                
                
                
                1,456,077
                
                
                
                5,945,288Loss
      on sale of property and equipment
                
                
                22,415
                
                
                
                -
                
                
                
                22,415Increase
      in net liability for severance pay
                
                
                32,696
                
                
                
                18,197
                
                
                
                37,574Increase
      (decrease) in cash attributable to changes in assets and
      liabilitiesInventory
                
                
                (153,147
                )
                
                
                (110
                )
                
                
                (137,765
                )Prepaid
      expenses and other current assets
                
                
                21,214
                
                
                
                (5,478
                )
                
                
                (41,620
                )Accounts
      payable
                
                
                37,741
                
                
                
                
                
                
                
                78,365Accrued
      expenses and other current liabilities
                
                
                793,838
                
                
                
                18,930
                
                
                
                977,504Net
      cash used in operating activities
                
                
                (1,203,801
                )
                
                
                (352,039
                )
                
                
                (2,600,048
                )CASH
      FLOWS FROM  INVESTING ACTIVITIESAcquisition
      of IDO Security Ltd., net of cash acquired of
    $19,974
                
                -
                
                
                
                (950,171
                )
                
                
                (950,171
                )Deferred
      acquisition costs
                
                
                -
                
                
                
                -
                
                
                
                (55,550
                )Proceeds
      from sale of property and equipment
                
                
                1,006
                
                
                
                -
                
                
                
                1,006Purchases
      of property and equipment
                
                
                (10,139
                )
                
                
                (2,959
                )
                
                
                (51,517
                )Net
      cash used in investing activities
                
                
                (9,133
                )
                
                
                (953,130
                )
                
                
                (1,056,232
                )CASH
      FLOWS FROM FINANCING ACTIVITIESIssuance
      of common shares
                
                
                -
                
                
                
                -
                
                
                
                123,125Stock
      subscription receivable
                
                
                -
                
                
                
                36,475
                
                
                
                (25
                )Proceeds
      from issuance of secured convertible notes
                
                
                750,000
                
                
                
                3,000,000
                
                
                
                5,975,000Due
      from escrow agent
                
                
                1,150,000
                
                
                
                -
                
                
                
                -Payments
      of deferred finance costs
                
                
                (170,455
                )
                
                
                (325,000
                )
                
                
                (724,558
                )Proceeds
      from related party loans
                
                
                -
                
                
                
                12,735
                
                
                
                44,541Proceeds
      from short-term debt
                
                
                202,000
                
                
                
                47,738
                
                
                
                228,896Repayment
      of notes payable
                
                
                (1,029,767
                )
                
                
                -
                
                
                
                (1,009,767
                )Repayment
      of short-term debt
                
                
                -
                
                
                
                (985,794
                )
                
                
                (938,056
                )Net
      cash provided by financing activities
                
                
                901,778
                
                
                
                1,786,154
                
                
                
                3,699,156Effect
      of foreign currency translation on cash
                
                
                -
                
                
                
                -
                
                
                
                (331
                )INCREASE
      (DECREASE) IN CASH AND CASH EQUIVALENTS
                
                
                (311,156
                )
                
                
                480,985
                
                
                
                42,545CASH
      AND CASH EQUIVALENTS - BEGINNING OF YEAR
                
                
                353,701
                
                
                
                7,484
                
                
                
                -CASH
      AND CASH EQUIVALENTS - END OF PERIOD
                
                $
                42,545
                
                
                $
                488,469
                
                
                $
                42,545Supplemental
      disclosures of cash flow information:Cash
      paid for interest
                
                $
                49,266
                
                
                $
                -Non-cash
      activitiesIssuance
      of common stock and warrants relatingto
      convertible promissory notes
                
                $
                1,538,471
                
                
                $
                3,624,623Issuance
      of common stock for cashless exercise of warrants
                
                $
                8,341
                
                
                $
                -See
      Notes to Consolidated Financial Statements.
 3
 
 IDO
SECURITY INC.
 (formerly
The Medical Exchange, Inc.)
 (A
development stage company)
  NOTES TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
   NOTE
1 -  BASIS OF PRESENTATION
  The
accompanying unaudited 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 8.03of 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, 2008, are not necessarily
indicative of the results that may be expected for the year ending December 31,
2008. These unaudited 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-KSB for the year
ended December 31, 2007, as filed with the Securities and Exchange
Commission.
 
 The
accompanying consolidated financial statements have been prepared assuming the
Company will continue as a going concern. At June 30, 2008, the Company had
not achieved profitable operations, had accumulated losses of $19 million (since
inception), a working capital deficiency of $2.34 million and expects to incur
further losses in the development of its business. These conditions raise
substantial doubt about the Company’s ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
 
 The
Company’s ability to continue as a going concern is dependent upon its ability
to generate future profitable operations or management's ability to find sources
of additional equity capital. The Company needs to raise additional funds on an
immediate basis in order to continue to meet its liquidity needs and realize its
business plan and maintain operations. 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 operating from February to September 2007 from the
net proceeds of approximately $2.675 million from the private placement of its
short-term convertible debentures. In October 2007, the Company raised net
proceeds of $223,000 from the private placement of its 90 day promissory notes.
In December 2007 and January 2008, the Company received net proceeds of
approximately $1 million from the proceeds of the private placement its two-year
10% Secured Convertible Promissory Notes, after the payment of offering related
fees and expenses and after the repayment of short-term debentures and bridge
loans that came due. Additionally, between April and July 2008, the Company
received from two previous investors and one stockholder, gross loan proceeds
totaling $414,500, which are discussed below in Note 5.
 
 The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty. There can be no assurance that management will be
successful in implementing a business plan or that the successful implementation
of a business plan will actually improve the Company's operating
results.
  4
  NOTE
2 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
 
 In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value
Measurements,” (“SFAS 157”) which defines fair value, establishes a framework
for measuring fair value and expands disclosures about fair value measurements.
SFAS 157 applies under other accounting pronouncements that require or permit
fair value measurements, but it does not require any new fair value
measurements. SFAS 157 is effective for fiscal years beginning after November
15, 2007, and interim periods within those fiscal years. SFAS 157 could impact
how fair values are determined and assigned to assets and liabilities in any
future acquisition.
  In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 allows
entities the option to measure eligible financial instruments at fair value as
of specified dates. Such election, which may be applied on an instrument by
instrument basis, is typically irrevocable once elected. SFAS 159 is effective
for fiscal years beginning after November 15, 2007. The Company does not
expect SFAS 159 to have a material effect on the Company’s consolidated results
of operations or financial position.
  In
December 2007, the FASB issued FAS 141(R), "Business Combinations - a
replacement of FASB Statement No. 141", which significantly changes the
principles and requirements for how the acquirer of a business recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any non-controlling interest in the acquiree. The
statement also provides guidance for recognizing and measuring the goodwill
acquired in the business combination and determines what information to disclose
to enable users of the financial statements to evaluate the nature and financial
effects of the business combination. This statement is effective prospectively,
except for certain retrospective adjustments to deferred tax balances, for
fiscal years beginning after December 15, 2008. This statement will be
effective for the Company beginning in fiscal 2009. The Company is currently
evaluating FAS 141(R), and has not yet determined the impact if any, FAS 141(R)
will have on its consolidated results of operations or financial
position.
 
 In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133”
(“FAS 161”). FAS 161 requires enhanced disclosures about an entity’s derivative
and hedging activities and thereby improves the transparency of financial
reporting. The objective of the guidance is to provide users of financial
statements with an enhanced understanding of how and why an entity uses
derivative instruments; how derivative instruments and related hedged items are
accounted for; and how derivative instruments and related hedged items affect an
entity’s financial position, financial performance, and cash flows. FAS 161 is
effective for fiscal years beginning after November 15, 2008. Management is
currently evaluating the impact FAS 161 will have on the Company’s consolidated
financial statements, but it currently does not expect the effect to be
material.
 
 In
May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally
Accepted Accounting Principles” (“SFAS No. 162”). SFAS No. 162
identifies the sources of accounting principles and the framework for selecting
the principles to be used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with generally
accepted accounting principles in the United States (commonly referred to as the
GAAP hierarchy). The statement is effective 60 days following the SEC’s
approval of the Public Company Accounting Oversight Board amendments to AU
Section 411, The Meaning of Present Fairly in Conformity With Generally
Accepted Accounting Principles. The Company is currently evaluating the
potential impact, if any, the adoption of SFAS No. 162 will have on its
financial position, results of operations, cash flows, and
disclosures.
 
 In May
2008, FASB issued FSP Accounting Principles Board No. 14−1 Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement) (“FSP APB 14−1”).  FSP APB 14−1 requires the issuer
of certain convertible debt instruments that may be settled in cash (or other
assets) on conversion (including partial cash settlement) to separately account
for the liability and equity components of the instrument in a manner that
reflects the issuer's non−convertible debt borrowing rate when interest cost is
recognized in subsequent periods.  FSP APB 14−1 is effective for us
beginning after January 1, 2009.  The Company is  evaluating
the effect of adopting FSP APB 14−1 on its financial statements.
  5
  In June
2008, FASB ratified EITF Issue No. 08-4, Transition Guidance for Conforming
Changes to Issue No. 98-5 (“EITF No. 08-4”).  Per EITF No. 08-4,
conforming changes made to EITF Issue No. 98-5, Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios, that result from EITF Issue No. 00-27, Application of Issue No. 98-5 to
Certain Convertible Instruments, and SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity, shall be
effective for us beginning after January 1, 2009.  The Company
is  evaluating the effect of adopting FSP APB 14−1 on its financial
statements.
  NOTE
3 - 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/Exerciseof
      asJune
      302008
                
                
                2007Warrants
                
                
                7,448,866
                
                
                
                11,421,000Options
                
                
                3,490,000
                
                
                
                1,650,000Convertible
      notes
                
                
                5,480,550
                
                
                
                1,911,463
  NOTE
4 – GOODWILL
 
 Goodwill
consists of the excess of cost over net assets acquired of its subsidiary, IDO
Security Ltd. on March 8, 2007. Under the provisions of SFAS no. 142, "Goodwill
and Other Intangible Assets", goodwill is not amortized, but is tested at least
annually for impairment, or if circumstances change that will more likely than
not reduce the fair value of the reporting unit below its carrying
amount. The Company performed its impairment test during the quarter ended
March 31, 2008 and determined that there was no impairment.
  NOTE
5 - PRIVATE PLACEMENT OF DEBT SECURITIES
 
 (i)
Promissory Notes
 
 On
October 11, 2007, the Company raised gross proceeds of $250,000 from the private
placement to institutional investors of its 90 day Promissory Notes
(collectively, the “October 2007 Notes”). The loan was advanced pursuant to a
Subscription Agreement, dated as of October 11, 2007 (the “Subscription
Agreement”), between the Company and the investors. Pursuant to the Subscription
Agreement, the Company issued to the investors the October 2007 Notes,
originally scheduled to mature on January 11, 2008, in the aggregate principal
amount of $265,957.  The effective annual interest rate of the October
2007 notes is 25%. In connection with the issuance of these notes, the
Company issued to the investors five-year warrants  to purchase up to
265,957 shares of the Company’s Common Stock at a per share exercise price of
$1.77. In connection with their investment, the investors also received an
aggregate of 25,000 restricted shares of the Company’s Common
Stock.
 
 Out of
the gross proceeds received, the Company paid a due diligence fee of $25,000 and
other offering related fees and expenses totaling $2,500.
  6
 For
financial reporting purposes, the Company recorded a discount of $177,019 to
reflect the value of the warrants and shares. The discount was amortized to the
date of maturity.
 
 Upon
maturity in January 2008, principal balances including accreted interest
totaling $138,390 were re-invested in the Company's private placement of its
two-year 10% secured convertible promissory notes discussed below and the
remaining balance of $122,092 was repaid.
 
 (ii)
10% Secured Convertible Promissory Notes
 
 Between
December 5, 2007 and January 24, 2008, the Company raised gross proceeds of
$5,404,550 from the private placement  to certain accredited
institutional and individual investors (the “2008 Investors”) of its two-year
10% Secured Convertible Promissory Notes (collectively, the “2008 Notes”, each
a  “ 2008 Note”). Of such amount, $3,916,160 was raised in December
2007 and $1,564,390 was raised in January 2008.  The transactions were
effected pursuant to a Subscription Agreement, dated as of December 5, 2007 (the
“2008 Subscription Agreement”), 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. All of the holders of the 2007 Notes and the October 2007 Notes
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.
  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 2008
Notes have a term of two years and are 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 Notes accrues at the rate
of 10% per annum and is payable upon conversion, a required repayment or upon
maturity, whichever occurs first, and will continue to accrue until the Notes
are fully converted and/or paid in full.
  Commencing
on the fourth month anniversary of the issuance of the 2008 Notes and on the
same day of each month thereafter until the principal amount of the 2008 Notes
has been paid in full, the Company 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 ten 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. In addition, provided the Registration Statement is
effective, 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. In July 2008, two investors converted a total of $125,000 of the
principal of the 2008 Notes into 125,000 shares of the Company's Common Stock.
In addition in July and August 2008, the Company issued a total of 127,820
shares in respect of the principal amounts due on the first four scheduled
payments, accrued and unpaid interest due as of such date and liquidated
damages.  As of the filing of this Quarterly Report on Form 10-Q, the
Company has  not made any other payments in respect of the amounts due
on the first four  monthly Scheduled Payment Dates. The Company is in
discussions with the lead 2008 Investors in an effort to resolve these matters.
The continuing non-payment of these amounts constitutes an Event of Default
under the transaction documents with the 2008 Investors.
  On August
14, 2008, the Company received from two of the 2008 Investors who hold notes in
the principal amount of $350,000, notices advising the Company that the company
is in default and demanding immediate payment of principal, accrued interest and
all other amounts owing to them.  The Company intends on contacting
these 2008 Investors in an effort to resolve this situation.
 7
 The
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 following the first
anniversary of issuance if the Registration Statement is not in effect at the
time of exercise.
  The
conversion price of the 2008 Notes and the exercise price of the 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.
 
 For
financial reporting purposes, the Company recorded a discount of $4,141,838
($3,006,128 in 2007) to reflect the value of the 2008 Investor Warrants issued
and in accordance with EITF No. 00-27, an additional discount of $658,219
($493,804 in 2007) to reflect the beneficial conversion feature of the 2008
Notes. The discounts are being amortized to the date of maturity unless
converted earlier.
 
 The
Company incurred finder's fees of  $540,455 ($391,616 in 2007),
other offering related fees and expenses totaling $25,000 in 2007 and issued
five-year warrants to purchase up to 1,080,930 shares (783,332 shares in 2007)
of Common Stock at a per share exercise price of $1. The shares underlying these
warrants will not be included in the Registration Statement.
 
 The
Company undertook to file by February 22, 2008, a registration statement 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 and to use reasonable efforts to cause such registration
statement to be declared effective by April 22, 2008 or, in case of a full
review of such registration statement, by May 22, 2008. If (i) the Registration
Statement is not timely filed or declared effective or, if following
effectiveness, the Registration Statement cease to be effective without being
succeeded within 20  business days by an effective replacement for a
period of time which shall exceed 45 days per year, the Investors are entitled
receive an amount equal to two percent (2%) of the aggregate principal amount of
the Notes remaining unconverted and purchase price of shares issued upon
conversion of the 2008 Notes and exercise of the 2008 Investor Warrants for each
thirty (30) days (or part thereof), payable in cash or shares (so long as such
shares can be resold under Rule 144), at the Company’s option. As of the date of
the filing of this Quarterly Report on Form 10-Q, the Company has not filed the
Registration Statement. Accordingly, the Company owes to the holders of these
notes, as of June 30, 2008 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. In July 2008, we issued to
an investor 24,600 shares of Common Stock in respect of liquidated damages of
$24,600. The continuing non-payment of liquidated damages constitutes an Event
of Default under the 2008 Notes. The Company is in discussions with the
lead 2008 Investors in an effort to resolve the issue of the payment of the
liquidated damages.
  8
 (iii)
Promissory Notes
 
 On each
of April 29, May 29 and June 17, 2008, the Company received  90 day
loans from one of the 2008 Investors in the principal amount of $14,000, $42,500
and $45,700, respectively. These advances were originally evidenced by notes
payable on the 90th day of
issuance, with interest accruing at a per annum rate of 10%. As of July 30,
2008, the outstanding principal and then accrued interest were consolidated into
one promissory note, in the total principal amount of $113,400, representing an
original issue discount of approximately 18%. This note is payable at the
earlier of  (i) the date the Company consummates a financing where it
raise minimum gross proceeds of $2 million or (ii) January 14,
2009.
 
 From
April through July 2008, the Company received from another 2008 Investors and a
separate stockholder, loans totaling $312,300. These loans are evidenced by two
promissory notes issued by the Company on July 30, 2008, in the aggregate
principal amount of $350,000 (the “Notes”), reflecting an original issue
discount of approximately 9%. The notes also become due at the earlier to occur
of (i) the date the Company consummates a financing where it raises minimum
gross proceeds of $2 million or (ii) January 14, 2009. Out of the gross proceeds
received, the Company paid offering related fees and expenses totaling
$47,500.
 
 These
proceeds from the above loans were used for general corporate
purposes.
 
 NOTE
6 - CAPITAL TRANSACTIONS
 
 Authorized
Shares
 
 On
November 15, 2007, Company’s Board of Directors and the majority of Company’s
stockholders authorized an increase the number of shares of Common Stock from 50
million to 100 million. The increase became effective in March
2008.
 
 Stock
Issuances
 
 In April
2008, the Company issued 30,000 shares of common stock to a consultant for
services to be rendered through December 31, 2009.
 
 Warrants
 
 On
February 14, 2008, a total of 19,514,250 warrants issued in connection with the
private placement of convertible debt were converted into 8,340,948 of the
Company's Common Stock under the cashless exercise provision.
 
 Options
 
 In April
2008, the Company issued stock options to each of two employees of the Company's
subsidiary for the purchase of up to 100,000 shares of the Company’s Common
Stock. The options are exercisable over five years from issuance at $1 per share
and vested upon issuance.
 9
  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-KSB for the year ended December 31, 2007 filed with the Securities and
Exchange Commission on April 15, 2008. We undertake no obligation to revise
or update any forward-looking statement for any reason.
  OVERVIEW
 
 IDO
Security Inc. is engaged in the design, development and marketing of devices for
the homeland security and loss prevention markets that are intended for use in
security screening procedures to detect metallic objects concealed on or in
footwear, ankles and feet through the use of electro-magnetic fields. These
devices were designed specifically for applications in the security screening to
complement the current methods for the detection of metallic items during
security screenings and at security checkpoints in venues such as
airports, prisons, schools, stadiums and other public locations requiring
individual security screening. Our common stock trades on the OTC
Bulletin Board under the symbol IDOI.
 
 IDO
Security Inc. (formerly knows as “The Medical Exchange Inc.”) was incorporated
in the State of Nevada on January 23, 2004. On July 25, 2006, 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 have
designed and developed a security screening device containing proprietary
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, while ignoring those
metal objects that are normally found inside shoes. 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.
 
 A patent
has been issued to us by the United States Patent and Trademark Office in
November 2005 covering various aspects of the unique technology contained in the
MagShoe and there is one patent application pending in Israel. In January 2006,
the MagShoe was approved for use by the Department for Transport in the United
Kingdom, after fields 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.
  10
  We
believe that the market for security and inspection products will continue to be
positively impacted by the threat of terrorist activities and by new government
regulations and appropriations for security and inspection products and
procedures. We anticipate that the promulgation of new governmental regulation
and standards will establish performance baselines against which we will be able
to direct certain of our continued research and development spending and market
our products to customers, worldwide. In addition, we believe that the
increasing awareness of security, in general, will bring increased awareness of
available products and methods, such as ours, for anti-crime and loss prevention
fields. In fact, based on an article published by TRIPSO.com, Los Angeles
International Airport is utilizing, on a test basis, a footwear screening
device, dubbed the “PassPort”, designed to detect the presence of explosives
that might be used in a shoe bomb. The device takes samples from hands, torso
and feet, possibly without the need for passengers to remove their footwear.
Unlike the MagShoe, however, the device does not test for or detect metals that
can and have been used as weapons. Accordingly, we believe that this deficiency
in the device will not allow security personnel to dispense with the need for
passengers to remove their footwear.  According to this same source,
last year the TSA tested a shoe scanning device, manufactured by General
Electric, at the Orlando International Airport, although the device did not meet
the TSA’s minimum detection standards and was discontinued later in the
year.
  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 currently have 10
full time employees and consultants. 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. We will,
however, need to raise additional working capital to accelerate our sales,
marketing, manufacturing and customer service activities. We presently do not
have the capital resources to undertake any of these steps.  Subject
to raising additional capital resources, we expect to make substantial
investments in equipment and to acquire inventory to facilitate the expansion of
pilot projects and to accelerate commercialization
efforts.
  RESULTS
OF OPERATIONS
 
 COMPARISON
OF THE SIX AND THREE MONTHS ENDED JUNE 30, 2008 TO THE SIX AND THREE MONTHS
ENDED JUNE 30, 2007
 
 All
references to financial results prior to the date of the Acquisition Transaction
(e.g., March 8, 2007) shall mean and refer to the financial results of IDO Ltd.
All references to results following the date of the Acquisition Transaction
shall mean and refer to the financial results of the IDO Security Inc. and its
consolidated subsidiary, IDO Ltd.
 
 Revenues and costs of goods
sold – Revenues for each of the six and three months ended June 30, 2008
were $33,684, all of which were derived from sales of our MagShoe device. No
revenues were recorded during the 2007 periods.  Costs of goods sold
were $11,408 for the six months and three months ended June 30, 2008. The gross
margin of 66% in the period was achieved primarily as a result of a limited
number of units being sold outside of the normal distribution channels.
Management does not anticipate that these high gross margins are sustainable for
the foreseeable future.
 
 Research and development
  - Research and
development expense consist primarily of expenses incurred in designing,
developing and field testing our products. These expenses consist primarily of
salaries 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, 2008 in the amount of $219,291 and $106,633, respectively, compared to
$99,161 and $72,155 for the corresponding periods in 2007. The increase in
research and development expenses during the 2008 periods is principally
attributable to the intensified research and design and development activities
following the Acquisition Transaction.
 
 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.  The 2008 periods also include liquidated
damages attributable to the delay by us in the filing of a registration
statement as required under certain investment agreements. Liquidating damages
amounted to approximately $540,000 and  $324,000 for the six and three
months ended June 30, 2008.  We incurred selling, general and
administrative expenses for the six and three months ended June 30, 2008 of
$1,462,597 and $829,474, respectively, compared to $312,309 and $230,314 for the
corresponding periods in 2007. The increase in selling, general and
administrative expenses during the 2008 periods is principally attributable to
the charge for the liquidated damages as well intensified activities following
the Acquisition Transaction.
 
 Stock Based Compensation
Between June 2007 and April 2008, we granted stock options to employees and
consultants initially valued at $7.6 million. The value of these options is
being amortized over the vesting periods of each grant. The value of options
granted to consultants are periodically remeasured until such options
vest.  Stock based compensation expense for the six months ended June
30, 2008 totaled $566,185. For the three months ended June 30, 2008, stock based
compensation was negative $42,462 as a result of the remeasurement of unvested
options granted to consultants, as well as the forfeiture of certain options
originally estimated to vest. For each of the six and three months ended June
30, 2007, the stock based compensation charge totaled
$1,456,077.  Stock-based compensation is non-cash and, therefore, has
no impact on cash flow or liquidity.
  11
  Interest expense - Interest
expense for the six and three months ended June 30, 2008 were $311,837 and
$68,432, respectively, compared to $201,066 and $168,753 for the corresponding
periods in 2007. Interest expense relates primarily to the placement of our
convertible promissory notes.
 
 Amortization - During the six
and three months ended June 30, 2008, we recorded amortization of $1,470,087 and
$925,248, respectively, compared to $2,062,827 and $1,878,910 for the
corresponding periods in 2007. Amortization costs for the 2008 periods relate 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 2008 and 2007. These costs are amortized to the date
of maturity of the debt unless converted earlier.
 
 LIQUIDITY
AND CAPITAL RESOURCES
 
 As of
June 30, 2008, we had a cash balance of $42,545 compared to $353,701 at December
31, 2007.
 
 Cash used
in operating activities was $1,203,801 for the six months ended June 30, 2008.
The decrease in cash was primarily attributable to funding the loss for the
period.
 
 Cash used
in investing activities was $9,133 for the six months ended June 30, 2008
primarily attributable to the addition of property and equipment.
 
 Cash
provided by financing activities was $901,778 for the six months ended June 30,
2008.  We received proceeds of $1,900,000 from the issuance of the
Notes and in connection therewith, we incurred financing costs of $160,455. In
addition, we repaid outstanding promissory notes totaling $1,029,767. We also
received proceeds totaling $202,000 in short-term financing from certain
shareholders and investors of the Company.  We incurred financing costs of
$10,000.
 
 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”). The transactions were effected pursuant to a
Subscription Agreement, dated as of December 5, 2007 (the “2008 Subscription
Agreement”), 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. All of the holders of the 2007
Notes and the October 2007 Notes participated in the private placement and the
gross proceeds raised include amounts the Company 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 price of the
Common Stock for the ten 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”). The
initial payment, which was due on April 24, 2008, the first Scheduled Payment
Date, was not made by us. We did not make any of these payments as of June 30,
2008; between July and August 2008 we issued 103,220 shares in payment of
$103,220 of principal and interest due through July 24, 2008 to two of these
investors. We are in discussion with the lead 2008 Investors in an effort to
resolve these matters though no assurance can be provided that we will be
successful. The continuing non-payment of these amounts constitutes an Event of
Default under the transaction documents with the 2008 Investors.  On
August 14, 2008, we received from two of the 2008 Investors who hold notes in
the aggregate principal amount of $350,000, notices advising us that we are in
default and demanding immediate payment of principal, interest and all other
amounts owing to them. We intend to contact the investors in an effort to
resolve this situation, though no assurance can be provided that we will be
successful in reaching such resolution.
 
 In
addition, we undertook to file, by February 22, 2008, a registration statement
in respect of the resale of the 2008 Notes and the warrants that we issued in
connection therewith. As of the filing of this quarterly report on Form 10-Q, we
have not filed such registration statement and we do not expect to file such
registration statement until following the conclusion, if any, by us of an
additional capital raise. However, as we did not file such registration
statement by the required filing date of February 22, 2008, we owe to the 2008
Investors, as liquidated damages, 2% of the principal amount of the 2008 Notes.
We owe an additional 2% for each 30 days (or any part thereof) that such
registration statement is not filed after such date. Accordingly, as of June 30,
2008, we owed approximately $540,000 to these investors as liquidated damages.
The liquidated damages, are payable, by the 10th day following each 30 day
period, at our option, in cash or shares that may be freely tradable under Rule
144. As of June 30, 2008, we did not make any payment in respect of the
liquidated damages. in July 2008, we issued 24,600 shares to one investor in
payment of liquidated damages of $24,600. The continuing non-payment of these
amounts constitutes an Event of Default under the transaction documents with the
2008 Investors.
 
 Between
April 29, 2008 and July 28, 2008, we received gross loan proceeds of $414,500
from two 2008 investors and one stockholder. All of these loans are currently
evidenced by notes issued by the Company on July 30 2008 in the aggregate
principal gross amount of $463,400, representing a original issue discount
ranging from  approximately 9% to 18%. All of these notes are
scheduled to come due at the earlier to occur of (i) a financing where we raise
minimum gross proceeds of $2 million or (ii) January 14, 2009. The proceeds of
these loans have been used by us to meet operating expenses.
  12
  We need
to raise additional funds on an immediate basis to be able to satisfy our cash
requirements over the next twelve months, including satisfying our obligations
as they come due, and maintain operations as presently conducted. Product
development, corporate operations and marketing expenses will continue to
require additional capital. Our current revenue from operations is insufficient
to cover our current operating expenses and projected expansion plans which
include the repayment of the Notes. We therefore are aggressively seeking
additional financing through the sale of our equity and/or debt securities. No
assurance can be provided that additional capital will be available to us on
commercially acceptable terms, or at all. Our auditors included a "going
concern" qualification in their report for the year ended December 31, 2007.
Such "going concern" qualification may make it more difficult for us to raise
funds when needed. Additional equity financings may be dilutive to holders of
our Common Stock.
 
 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).
  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, 2008, 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.
  On May
25, 2008, 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 currently 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, seeking the following substantive relief:
(i) a court order instructing IDO to remove the restrictive legend on certain of
its shares (so as to facilitate their resale on the open market) and (ii)
declaratory judgment that a power of attorney which the Stockholder gave to the
Affiliate in connection with the Stockholder’s purchase in June 2006 of its
shares in the Company is null and void. The Stockholder, who was formerly
affiliated with IDO Security Ltd. prior to the Acquisition Transaction,
purchased his shares directly from the Company in June 2006 and, in connection
with such purchase, gave to the Affiliate a power of attorney with respect to
the disposition of his shares. In addition, the agreements under which the
Stockholder’s shares were purchased contain restrictions on resale of the
shares.
 
 On July
8, 2008, the Company, through Israeli based attorneys, moved to, among other
things, (i) dismiss the suit or, in the alternative, to delay proceedings
pending determination of appropriate venue, (ii) transfer the matter to the
District Court in Jerusalem due to a lack of jurisdiction in the present forum
and (iii) summary judgment. On July 15, 2008, the court held a preliminary
hearing, following which the court instructed the parties to reach a mutually
acceptable resolution of the issues by August 15, 2008 (which date has been
extended by mutual agreement to September 1, 2008) and, failing that, to
initiate mediation proceedings. In the event that the mediation proceedings do
not produce a resolution, then the Court will address the issues. We believe
that we have meritorious defenses to this lawsuit and intend to aggressively
defend our interests.
  ITEM
      2.
              UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
  None.
  13
  ITEM
      3.
              DEFAULTS
      UPON SENIOR SECURITIES.
  Commencing
on April 24, 2008 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.
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
price of the Common Stock for the ten 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. The initial payment, which was due on
April 24, 2008, the first Scheduled Payment Date, was not made by us. We did not
make any of these payments as of June 30, 2008; between July and August 2008 we
issued103,220 shares representing principal and accrued interest in the
aggregate amount of $103,220 representing principal and accrued interest to two
of these investors. We are in discussion with the lead 2008 Investors in an
effort to resolve these matters. As of the filing of this Quarterly Report on
Form 10-Q, we owe to the 2008 investors principal payments and accrued interest
totaling $1,083,578.
 
 In
addition, we undertook to file, by February 22, 2008, a registration statement
in respect of the resale of the 2008 Notes and the warrants that we issued in
connection therewith. As of the filing of this quarterly report on Form 10-Q, we
have not filed such registration statement. However, as we did not file such
registration statement by the required filing date of February 22, 2008, we owe
to the 2008 Investors, as liquidated damages, 2% of the principal amount of the
2008 Notes. We owe an additional 2% for each 30 days (or any part thereof) that
such registration statement is not filed after such date up and until July 24,
2008. Accordingly, as of June 30, 2008, we owed approximately $540,000 to these
investors as liquidated damages. As of June 30, 2008, we did not make any
payment in respect of the liquidated damages. As of the date of the filing of
this quarterly report on Form 10-Q, we issued to an investor 24,600 shares of
our Common Stock representing liquidated damages in the amount of
$24,600.
  ITEM
      4.
              SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY
HOLDERS.
  None.
  ITEM
      5.
              OTHER
      INFORMATION.
  (i) On
August 14, 2008, we received from two of the 2008 Investors who hold notes in
the aggregate principal amount of $350,000, notices advising us that we are in
default and demanding immediate payment of principal, interest and all other
amounts owing to them. We intend to contact the investors in an effort to
resolve this situation, though no assurance can be provided that we will be
successful in reaching such resolutions.
  (ii)
Between April 29 and June 17, 2008, we received 90 days loans from one of the
2008 Investors in the aggregate principal amount of $102,200.  These
advances were originally evidenced by notes payable on the 90th day of
issuance, with interest accruing at a per annum rate of 10%.  As of
July 30, 2008, the outstanding principal and then accrued interest were
consolidated into one promissory note, in the total principal amount of
$113,400, representing an original issue discount of approximately
18%.  This note is payable at the earlier of (i) the date we
consummate a financing where we raise minimum gross proceeds of $2 million of
(ii) January 14, 2009.
 
 Between
April and July 2008, we received from another 2008 Investors and a separate
stockholder, loans totaling $312,300.  The loans are evidenced by two
promissory notes issued by us on July 30, 2008, in the aggregate principal
amount of $350,000 (the “Notes”), reflecting an original issue discount of
approximately 9%.  The notes also become due at the earlier to occur
of (i) the date the Company consummates a financing where it raises minimum
gross proceeds of $2 million or (ii) January 14, 2009.  Out of the
gross proceeds received, the Company paid offering related fees and expenses
totaling $47,500.
 
 These
proceeds from the above loans were used for general corporate
purposes.
 Under the
terms of the Notes, the holder of a Note may declare the Note immediately due
and payable upon the occurrence of any of the following events of default (each
an “Event of Default”): (i) the Company fails to pay any installment of
principal, interest or other sum due under the Note when due and such failure
continues for a period of five (5) days after the due date, (ii) the Company
breaches any material covenant or other term or condition of the Note in any
material respect and such breach, if subject to cure, continues for a period of
ten (10) business days after written notice to us from the Holder, (iii) any
material representation or warranty made by the Company in the Note or in any
agreement or certificate given in writing pursuant hereto or in connection
therewith shall be false or misleading in any material respect as of the date
made and the Closing Date, (iv) the Company makes an assignment for the benefit
of creditors, or applies for or consent to the appointment of a receiver or
trustee for it or for a substantial part of its property or business; or such a
receiver or trustee shall otherwise be appointed, (v) any money judgment, writ
or similar final process shall be entered or filed against the Company or any of
its property or other assets for more than $500,000, and shall remain unvacated,
unbonded or unstayed for a period of forty-five (45) days, (vi) bankruptcy,
insolvency, reorganization or liquidation proceedings or other proceedings or
relief under any bankruptcy law or any law, or the issuance of any notice in
relation to such event, for the relief of debtors shall be instituted by or
against the Company and are not dismissed within 45 days of initiation, or (vii)
the de-listing of the Common Stock from over the over-the-counter Bulletin Board
or any other principal market or exchange for 15 consecutive trading days or
notification from such market that the Company is not in compliance with the
conditions for continued listing, (viii) a default by the Company under any one
or more obligations in an aggregate amount in excess of $200,000 for more than
20 days after the due date unless the Company is contesting the validity of such
obligation in good faith, (ix) the entry of a stop trade order (judicial or by
the Securities and Exchange Commission) or principal market trading suspension
that lasts for five consecutive trading days or more and (x) a default by the
Company of a material term, covenant, warranty or undertaking of any other
agreement to which the Company and Holders are parties, or the occurrence of a
material event of default under any such other agreement which is not cured
after any required notice and/or cure period.
  The Notes
were issued in accordance with Section 4(2) under the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
  14
  ITEM
      6.
              EXHIBITS.
 
 Exhibit
                Number
              
              Description4.1
              
              Form
      of Promissory Note issued on July 30, 200831
              
              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
 
 15
 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.
   DATE: August
      14, 2008IDO
      SECURITY INC./s/
      MICHAEL GOLDBERGMICHAEL
      GOLDBERGACTING
      CHIEF EXECUTIVE OFFICER (PRINCIPALEXECUTIVE
      OFFICER AND PRINCIPAL FINANCIAL ANDACCOUNTING
      OFFICER) AND PRESIDENT
  16