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 March 31, 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 |_| Accelerated filer |_| Non-accelerated filer | | (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 May
15, 2008, there were 42,732,198 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 March 31, 2008 (Unaudited) and December 31,
      2007 (Audited)
              1Unaudited
      Condensed Consolidated Statements of Operations for the three months
      ended March 31, 2008 and 2007
              2Unaudited
      Condensed Consolidated Statements of Cash Flows for the three months
      ended March 31, 2008 and 2007
              3Notes
      to Unaudited Condensed Consolidated Financial Statements
              4Item
      2
              Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
              9Item
      4T
              Controls
      and Procedures
              11PART
      II -- OTHER INFORMATIONItem
      1
              Legal
      Proceedings
              12Item
      2
              Unregistered
      Sales of Equity Securities and Use of Proceeds
              12Item
      3
              Defaults
      upon Senior Securities
              12Item
      4
              Submission
      of Matters to a Vote of Security Holders
              12Item
      5
              Other
      Information
              12Item
      6
              Exhibits
              12SIGNATURES
              13
  
  IDO SECURITY INC. AND
      SUBSIDIARY(A Development Stage
      Company)CONSOLIDATED BALANCE
      SHEETSMarch 31,
                
                December
  31,ASSETS
                
                2008
                
                2007CURRENT
    ASSETS
                
                
                (UNAUDITED)Cash
      and  cash equivalents
                
                $
                187,798
                
                
                $
                353,701Due
      from escrow agent
                
                
                -
                
                
                
                1,150,000Inventory
                
                
                256,183
                
                
                
                177,037Prepaid
      expenses and other current assets
                
                
                58,704
                
                
                
                75,678Total
      current assets
                
                
                502,685
                
                
                
                1,756,416Property and equipment,
      net
                
                
                55,172
                
                
                
                52,192Goodwill
                
                
                1,955,002
                
                
                
                1,955,002Deferred financing costs,
      net
                
                
                901,603
                
                
                
                718,106Total
      assets
                
                $
                3,414,462
                
                
                $
                4,481,716LIABILITIES AND STOCKHOLDERS'
      EQUITYCURRENT
      LIABILITIESAccounts
      payable and accrued liabilities
                
                $
                673,974
                
                
                $
                516,962Convertible promissory
      notes(net
      of discount of $3,044,396 and $855,758)
                
                
                165,714
                
                
                
                2,256,563Loan
      payable, related party
                
                
                44,826
                
                
                
                44,826Total
      current liabilities
                
                
                884,514
                
                
                
                2,818,351NON-CURRENT
      LIABILITIESConvertible promissory
      notes(net
      of discount of $1,307,986 and $2,642,522)
                
                
                962,454
                
                
                
                -Accrued
      severance pay
                
                
                170,225
                
                
                
                155,681Total  liabilities
                
                
                2,017,193
                
                
                
                2,974,032STOCKHOLDERS'
      EQUITYPreferred
      Stock20,000,000
      shares authorized; none outstanding
                
                
                -
                
                
                
                -Common stock, $.001 par
      value;100,000,000 shares authorized;
      42,702,198 and 34,361,250issued
      and outstanding, respectively
                
                
                42,702
                
                
                
                34,361Additional
      paid-in capital
                
                
                18,454,231
                
                
                
                16,431,941Stock
      subscription receivable
                
                
                (25
                )
                
                
                (25
                )Accumulated
      other comprehensive loss
                
                
                (331
                )
                
                
                (331
                )Deficit
      accumulated during the development stage
                
                
                (17,099,308
                )
                
                
                (14,958,262
                )Total
      stockholders' equity
                
                
                1,397,269
                
                
                
                1,507,684Total
      liabilities and stockholders' equity
                
                $
                3,414,462
                
                
                $
                4,481,716See Notes to Consolidated
      Financial Statements.
  1
  IDO SECURITY INC. AND
      SUBSIDIARY(A Development Stage
      Company)CONSOLIDATED STATEMENTS OF
      OPERATIONSJanuary 23,Three
Months
                
                Three
Months
                
                2004 (Date
    ofEnded
                
                Ended
                
                Inception)
    toMarch 31,
                
                March 31,
                
                March 31,2008
                
                
                2007
                
                
                2008(UNAUDITED)
                
                (UNAUDITED)
                
                (UNAUDITED)Revenues
                
                $
                -
                
                
                $
                -
                
                
                $
                49,095Cost of
    sales
                
                
                -
                
                
                
                -
                
                
                
                107,187Gross loss
                
                
                -
                
                
                
                -
                
                
                
                (58,092
                )Operating
      expensesResearch
      and development costs
                
                
                112,658
                
                
                
                27,006
                
                
                
                391,835Selling,
      general and administrative expenses
                
                
                633,123
                
                
                
                81,995
                
                
                
                1,908,321Stock
      based compensation
                
                
                608,647
                
                
                
                -
                
                
                
                5,987,750Total operating
      expenses
                
                
                1,354,428
                
                
                
                109,001
                
                
                
                8,287,906Loss from
      operations
                
                
                (1,354,428
                )
                
                
                (109,001
                )
                
                
                (8,345,998
                )Interest
      expense
                
                
                (243,405
                )
                
                
                (32,313
                )
                
                
                (828,406
                )Interest
    income
                
                
                1,626
                
                
                
                -
                
                
                
                4,921Amortization of debt
      discount
                
                
                (388,938
                )
                
                
                (155,705
                )
                
                
                (7,294,109
                )Amortization of beneficial
      conversion feature
                
                
                (57,083
                )
                
                
                (4,789
                )
                
                
                (510,076
                )Amortization of deferred finance
      costs
                
                
                (98,818
                )
                
                
                (23,423
                )
                
                
                (225,640
                )Net loss
                
                
                (2,141,046
                )
                
                
                (325,231
                )
                
                
                (17,199,308
                )Other comprehensive
      lossForeign
      currency translation adjustment
                
                
                -
                
                
                
                -
                
                
                
                (331
                )Comprehensive loss for the
      period
                
                $
                (2,141,046
                )
                
                $
                (325,231
                )
                
                $
                (17,199,639
                )Basic and diluted loss per
      share:
                
                $
                (0.06
                )
                
                $
                (0.01
                )Weighted average number of shares
      outstandingBasic and
      diluted
                
                
                38,577,553
                
                
                
                30,824,001See Notes to Consolidated
      Financial Statements.
  2
  IDO SECURITY INC. AND
      SUBSIDIARY(A Development Stage
      Company)CONSOLIDATED STATEMENTS OF CASH
      FLOWSJanuary 23,Three
Months
                
                Three
Months
                
                2004 (Date
    ofEnded
                
                Ended
                
                Inception)
    toMarch 31,
                
                March 31,
                
                March 31,2008
                
                
                2007
                
                
                2008(UNAUDITED)
                
                (UNAUDITED)
                
                (UNAUDITED)CASH FLOWS FROM OPERATING
      ACTIVITIESNet
      loss
                
                $
                (2,141,046
                )
                
                $
                (325,231
                )
                
                $
                (17,199,308
                )Adjustments to reconcile net loss
      to net cashused in operating
      activities:Depreciation
      and amortization
                
                
                101,689
                
                
                
                33,767
                
                
                
                334,879Amortization
      of note discount
                
                
                388,938
                
                
                
                155,705
                
                
                
                7,294,109Amortization
      of beneficial conversion feature of convertible
debt
                
                
                57,083
                
                
                
                4,789
                
                
                
                510,076Accretion
      of interest on notes payable
                
                
                5,475
                
                
                
                20,405
                
                
                
                515,317Stock
      based compensation
                
                
                608,647
                
                
                
                -
                
                
                
                5,987,750Loss
      on sale of property and equipment
                
                
                2,553
                
                
                
                -
                
                
                
                2,553Increase
      in net liability for severance pay
                
                
                14,544
                
                
                
                14,492
                
                
                
                19,422Increase (decrease) in cash
      attributable to changes in assets and liabilitiesInventory
                
                
                (79,146
                )
                
                
                (110
                )
                
                
                (63,764
                )Prepaid
      expenses and other current assets
                
                
                16,974
                
                
                
                (1,856
                )
                
                
                (45,860
                )Accounts
      payable
                
                
                35,222
                
                
                
                -
                
                
                
                75,846Accrued
      expenses and other current liabilities
                
                
                121,790
                
                
                
                90,770
                
                
                
                305,456Net cash used in operating
      activities
                
                
                (867,277
                )
                
                
                (7,269
                )
                
                
                (2,263,524
                )CASH FLOWS FROM INVESTING
      ACTIVITIESAcquisition
      of IDO Security Ltd., net of cash acquired of
    $19,974
                
                
                -
                
                
                
                (980,026
                )
                
                
                (950,171
                )Deferred
      acquisition costs
                
                
                -
                
                
                
                -
                
                
                
                (55,550
                )Proceeds
      from sale of property and equipment
                
                
                1,006
                
                
                
                -
                
                
                
                1,006Purchases
      of property and equipment
                
                
                (9,410
                )
                
                
                (1,644
                )
                
                
                (50,788
                )Net cash used in investing
      activities
                
                
                (8,404
                )
                
                
                (981,670
                )
                
                
                (1,055,503
                )CASH FLOWS FROM FINANCING
      ACTIVITIESIssuance of common
      shares
                
                
                -
                
                
                
                -
                
                
                
                123,125Stock subscription
      receivable
                
                
                -
                
                
                
                -
                
                
                
                (25
                )Proceeds
      from issuance of secured convertible notes
                
                
                600,000
                
                
                
                2,300,000
                
                
                
                5,975,000Due from escrow
      agent
                
                
                1,150,000
                
                
                
                -
                
                
                
                -Payments
      of deferred finance costs
                
                
                (160,455
                )
                
                
                (325,000
                )
                
                
                (714,558
                )Proceeds
      from related party loans
                
                
                -
                
                
                
                17,882
                
                
                
                44,541Proceeds
      from short-term debt
                
                
                -
                
                
                
                47,738
                
                
                
                26,896Repayment
      of notes payable
                
                
                (879,767
                )
                
                
                -
                
                
                
                (1,009,767
                )Repayment
      of short-term debt
                
                
                -
                
                
                
                (985,794
                )
                
                
                (938,056
                )Net cash provided by financing
      activities
                
                
                709,778
                
                
                
                1,054,826
                
                
                
                3,507,156Effect of foreign currency
      translation on cash
                
                
                -
                
                
                
                -
                
                
                
                (331
                )INCREASE (DECREASE) IN CASH AND
      CASH EQUIVALENTS
                
                
                (165,903
                )
                
                
                65,887
                
                
                
                187,798CASH AND CASH EQUIVALENTS -
      BEGINNING OF PERIOD
                
                
                353,701
                
                
                
                7,484
                
                
                
                -CASH AND CASH EQUIVALENTS - END OF
      PERIOD
                
                $
                187,798
                
                
                $
                73,371
                
                
                $
                187,798Supplemental disclosures of cash
      flow information:Cash
      paid for interest
                
                $
                49,266
                
                
                $
                32,313Non-cash
      activitiesIssuance
      of common stock relating to convertible promissory
      notes
                
                $
                1,538,471
                
                
                $
                274,294Issuance
      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 withU.S.generally accepted accounting
principles for interim financial information and with Rule 10-01 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 three months endedMarch 31, 2008, are not necessarily indicative of the
results that may be expected for the year endingDecember 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 endedDecember 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. AtMarch  31, 2008, the Company had not achieved
profitable operations, had accumulated losses of $17 million (since inception),
a working capital deficiency of $1.24 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.
 
 The financial statements do not include
any adjustments that might result from the outcome of this uncertainty. There
can be no assurance that management will be successful in implementing a
business plan or that the successful implementation of a business plan will
actually improve the Company's operating results.
 
 
 NOTE 2 - 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 afterNovember 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.
  4
 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 afterNovember 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
afterDecember 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.
 
 NOTE 3 -NETLOSSPERSHARE
 
 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 asMarch 312008
                
                
                2007Warrants
                
                
                6,160,066
                
                
                2,484,000Options
                
                
                3,890,000
                
                
                -Convertible
      notes
                
                
                5,480,550
                
                
                496,800
  5
 
 NOTE 4 –GOODWILL
 
 Goodwill consists of the excess of cost
over net assets acquired ofits subsidiary,IDOSecurityLtd. onMarch 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
 
 OnOctober 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 ofOctober 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 onJanuary 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.
 
 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 $5,480,550 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 ofDecember 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.
  6
 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 be 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 value weighted
average price (VWAP) 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. As of the filing of this quarterly report
on Form 10-Q, the Company has not made any payment in respect of the
amounts due on the first Scheduled Payment Date of April 24,
2008.
 
 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 Form 10-Q, the Company
has not filed the registration statement. The Company intends to file such
registration statement following the conclusion, if any, of any additional
capital that it raises.Accordingly, the Company owes to the
holders of these notes, as ofMarch31, 2008approximately $216,000in 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. For each 30 day period thereafter
(or any part thereof), they will oweapproximatelyan additional $108,000 in liquidated
damages.
 
 7
 Upon demandby the holders, each of the non-filing and non
effectiveness of such registration statement by the dates specified above, as
well as the non-payment of the amounts due on the Scheduled Payment Dates,would bean Event of Default under the 2008
Notes.As of the filing of
this quarterly report on Form 10-Q, no such demand has been
made.
 
 NOTE 6 - CAPITAL
TRANSACTIONS
 
 Authorized Shares
 
 OnNovember 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.
 
 NOTE 7 - Subsequent
Event
 
 On April
29, 2008, the Company received from one of its stockholders a loan, payable
within 90 days, in the principal amount of $14,000. The loan accrues interest at
rate of 10% per annum
  8
  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.
 
 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 on security, in general, will bring to an increasing
awareness on available products and methods, such ours, for anti-crime and loss
prevention fields.
  We have
been seeking to expand our contact base and are aggressively seeking
collaborative arrangements worldwide for our MagShoe product. We will 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.
 
 9
 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. 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. In May 2008, we selected a leading
contract manufacturer for high volume production of MagShoe.
  RESULTS
OF OPERATIONS
 
 COMPARISON
OF THE THREE MONTHS ENDED MARCH 31, 2008 TO THE THREE MONTHS ENDED MARCH 31,
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 - No revenues were recorded for the three months ended March 31,
2008 or during the corresponding period in 2007. We first recorded revenues of
$49,095 in the quarter ended December 31, 2007, all of which were derived from
sales of the MagShoe Units.
 
 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 in the amount of $112,658 for the
three months ended March 31, 2008 and $27,006 for the corresponding period
in 2007. The increase in research and development expenses 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 and other related costs for personnel in executive and other
administrative functions. Other significant costs include professional fees for
legal, accounting and other services. We incurred selling, general and
administrative expenses of $633,123 for the three months ended March 31, 2008 as
compared to $81,995 for the corresponding period in 2007. The increase in
selling, general and administrative expenses is principally attributable to the
intensified activities following the Acquisition Transaction.
 
 Stock Based Compensation
Between June and September 2007, we granted stock options to employees and
consultants valued at $7.5 million. The value of these options are being
amortized over the vesting periods of each grant. Stock based compensation
totaled $608,647 for the three months ended March 31, 2008, respectively.
Stock-based compensation is non-cash and, therefore, has no impact on cash flow
or liquidity.
 
 Interest expense - Interest
expense for the three months ended March 31, 2008 was $243,405 compared to
$32,313 for the corresponding period in 2007. Interest expense relates primarily
to the placement of our convertible promissory notes.
 
 Amortization - During the
three months ended March 31, 2008, we recorded amortization of
$544,839  compared to $183,917 for the corresponding period in 2007.
Amortization costs for the 2008 period 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  2008 and 2007. These costs are amortized to the date of maturity
of the debt unless converted earlier.
 
 LIQUIDITY
AND CAPITAL RESOURCES
 
 As of
March 31, 2008, we had a cash balance of $187,798 compared to $353,701 at
December 31, 2007.
 
 Cash used
in operating activities was $867,277 for the three months ended March 31, 2008.
The decrease in cash was primarily attributable to funding the loss for the
period.
 
 Cash used
in investing activities was $8,404 for the three months ended March 31, 2008
primarily attributable to the addition of property and equipment.
 
 Cash
provided by financing activities was $709,788 for the three months ended March
31, 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, the Company repaid Notes totaling $1,029,767.
 
 To date
we have financed our operations primarily from the sale of our securities. Our
recent financings are discussed below.
 
 10
 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 will be 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 value weighted average
price (VWAP) 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 do not anticipate making subsequent scheduled
payments unless we raise additional cash or the note holders agree to accept
restricted shares of our Common Stock.
 
 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 March
31, 2008, we owed approximately $216,000 to these investors as liquidated
damages. The liquidated damages, are payable, by the10th
day following each 30 day period, at our option, in cash or shares that may be
freely tradable under Rule 144. We have not yet made any payment in respect of
the liquidated damages. Upon demand by the holders, each of the non-filing and
non effectiveness of the registration statement by the dates specified above, as
well as our failure to make the scheduled payments on the first Scheduled
Payment Date, would be an Event of Default under the 2008 Notes. As of the date
of the filing of this quarterly report on Form 10-Q, no such demand has been
made on us.
 
 On April
29, 2008, we received from one of our stockholders a loan, payable within 90
days, in the principal amount of $14,000. The loan accrues interest at rate of
10% per annum.
 
 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 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 March 31, 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.
  11
 
 PART
II - OTHER INFORMATION
 
 ITEM
      1.
                LEGAL
      PROCEEDINGS.
  None.
  ITEM
      2.
                UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
  None.
  ITEM
      3.
                DEFAULTS
      UPON SENIOR SECURITIES.
  None.
 
 ITEM
      4.
                SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY
HOLDERS.
  None.
  ITEM
      5.
                OTHER
      INFORMATION.
  On
April  29, 2008, we received from one of our shareholders a 90 day
loan in the principal amount of $14,000. The loan accrues interest at a per
annum rate of 10%.
  ITEM
      6.
                EXHIBITS.
 
 Exhibit
                  Number
                
                Description4.1
                
                Form
      of Secured Convertible Promissory Notes issued between December 5, 2007
      and January 24, 20084.2
                
                Form
      of Warrant issued between December 5, 2007 and January 24,
      200810.1
                
                Form
      of Subscription Agreement entered into by IDO Security Inc. and certain
      investors between December 5, 2007 and January 24, 200810.2
                
                Security
      Agreement entered into by IDO Security Inc. as of December 5, 2007 in
      favor of certain investors31
                
                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
  12
 
 
  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: 
      May 15, 2008IDO
      SECURITY INC./s/ MICHAEL GOLDBERGMICHAEL
      GOLDBERGACTING
      CHIEF EXECUTIVE OFFICER (PRINCIPALEXECUTIVE
      OFFICER AND PRINCIPAL FINANCIAL ANDACCOUNTING
      OFFICER) AND PRESIDENT
 13