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, 2010;
  or





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





COMMISSION
FILE NUMBER: 0-51170





IDO
SECURITY INC.


(Exact
name of small business issuer as specified in its charter)





Nevada
            
            38-3762886(State
      or other jurisdiction of incorporation or organization)
            
            (I.R.S.
      Employer Identification No.)





17 State
Street


New
York, New York 10004


(Address
of principal executive offices, including zip code)





646-214-1234


(Issuer's
telephone number, including area code)





Indicate
by check mark whether the registrant (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No o





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).  Yes 
o   
No  o





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





Large
accelerated filer  o   Accelerated
filer  o
  Non-accelerated filer  o   (Do not
check if a smaller reporting company) Smaller reporting company x





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





As of May
17, 2010, there were 3,703,221,882 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, 2010 (Unaudited) and December 31,
      2009 (Audited)
            1Unaudited
      Condensed Consolidated Statements of Operations for the three months
      ended March 31, 2010 and 2009
            2Unaudited
      Condensed Consolidated Statements of Cash Flows for the three months
      ended March 31, 2010 and 2009
            3Notes
      to Unaudited Condensed Consolidated Financial Statements
            4Item
      2
            Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
            12Item
      4T
            Controls
      and Procedures
            16PART
      II -- OTHER INFORMATIONItem
      1
            Legal
      Proceedings
            16Item
      2
            Unregistered
      Sales of Equity Securities and Use of Proceeds
            17Item
      3
            Defaults
      upon Senior Securities
            17Item
      4
            Removed
      and Reserved
            17Item
      5
            Other
      Information
            17Item
      6
            Exhibits
            17SIGNATURES
            18











IDO
      SECURITY INC. AND SUBSIDIARYCONDENSED
      CONSOLIDATED BALANCE SHEETSMarch
      31,
                
                
                December
      31,ASSETS
                
                2010
                
                
                2009CURRENT
      ASSETS
                
                (Unaudited)Cash
      and cash equivalents
                
                $
                220,381
                
                
                $
                176,559Accounts
      receivable
                
                
                4,360
                
                
                
                4,360Inventories
                
                
                62,219
                
                
                
                62,219Prepaid
      expenses and other current assets
                
                
                83,343
                
                
                
                65,613Total
      current assets
                
                
                370,303
                
                
                
                308,751Property
      and equipment, net
                
                
                60,148
                
                
                
                62,076Goodwill
                
                
                1,955,002
                
                
                
                1,955,002Deferred
      financing costs, net
                
                
                1,056
                
                
                
                4,223Total
      assets
                
                $
                2,386,509
                
                
                $
                2,330,052LIABILITIES
      AND STOCKHOLDERS' DEFICIENCYCURRENT
      LIABILITIESAccounts
      payable and accrued liabilities
                
                $
                2,531,140
                
                
                $
                2,265,491Bank
      line of credit
                
                
                263,288
                
                
                
                -Short-term
      notes payable
                
                
                200,000
                
                
                
                -Convertible
      promissory notes(net
      of discount of $603,811 and $908,264)
                
                
                5,717,429
                
                
                
                5,724,747Redeemable
      Series A Cumulative Convertible Preferred Stock(net
      of discount of $1,477,541 and $2,283,422)
                
                
                4,233,611
                
                
                
                3,461,831Loan
      payable, related party
                
                
                44,826
                
                
                
                44,826Total
      current liabilities
                
                
                12,990,294
                
                
                
                11,496,895NON-CURRENT
      LIABILITIESConvertible
      promissory notes(net
      of discount of $145,448 and $118,651)
                
                
                118,132
                
                
                
                71,141Redeemable
      Series A Cumulative Convertible Preferred Stock(net
      of discount of $365,384 and $165,236)
                
                
                300,620
                
                
                
                337,201Accrued
      severance pay
                
                
                155,335
                
                
                
                162,211Total  liabilities
                
                
                13,564,381
                
                
                
                12,067,448ContingencySTOCKHOLDERS'
      DEFICIENCYPreferred
      Stock19,935,000
      shares authorized; none outstanding
                
                
                -
                
                
                
                -Common
      stock, $.001 par value;5,000,000,000
      shares authorized; 2,294,030,446and
      1,952,917,590 issued and outstanding, respectively
                
                
                2,294,030
                
                
                
                1,982,918Additional
      paid-in capital
                
                
                18,090,301
                
                
                
                17,825,656Accumulated
      other comprehensive loss
                
                
                (331
                )
                
                
                (331
                )Accumulated
      deficit
                
                
                (31,561,872
                )
                
                
                (29,545,638
                )Total
      stockholders' deficiency
                
                
                (11,177,872
                )
                
                
                (9,737,396
                )Total
      liabilities and stockholders' deficiency
                
                $
                2,386,509
                
                
                $
                2,330,052See
      Notes to Condensed Consolidated Financial Statements.
 1
  IDO
      SECURITY INC. AND SUBSIDIARYCONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONSThree
      Months
                
                
                Three
      MonthsEnded
                
                
                EndedMarch
      31,
                
                
                March
      31,2010
                
                
                2009(Unaudited)
                
                
                (Unaudited)Revenues
                
                $
                -
                
                
                $
                20,093Cost
      of sales
                
                
                -
                
                
                
                16,255Gross
      profit
                
                
                -
                
                
                
                3,838Operating
      expensesResearch
      and development expenses
                
                
                163,549
                
                
                
                59,911Selling,
      general and administrative expenses
                
                
                343,140
                
                
                
                302,178Stock
      based compensation - selling, general and administrative
                
                
                -
                
                
                
                90,349Total
      operating expenses
                
                
                506,689
                
                
                
                452,438Loss
      from operations
                
                
                (506,689
                )
                
                
                (448,600
                )Interest
      expense (including amortization of debt and preferred stock
      discount,beneficial
      conversion features, dividends and deferred finance costs)
                
                
                (1,515,516
                )
                
                
                (702,155
                )Interest
      income
                
                
                10
                
                
                
                4Foreign
      currency translation
                
                
                5,961
                
                
                
                36,088Net
      loss
                
                
                (2,016,234
                )
                
                
                (1,114,663
                )Preferred
      stock dividends and deemed dividends
                
                
                -
                
                
                
                (413,637
                )Net
      loss attributable to common stockholders
                
                $
                (2,016,234
                )
                
                $
                (1,528,300
                )Basic
      and diluted loss per share
                
                $
                0.00
                
                
                $
                (0.02
                )Weighted
      average number of shares outstandingBasic
      and diluted
                
                
                2,007,115,256
                
                
                
                69,636,252See
      Notes to Condensed Consolidated Financial Statements.
 2
  IDO
      SECURITY INC. AND SUBSIDIARYCONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWSThree
      Months
                
                
                Three
      MonthsEnded
                
                
                EndedMarch
      31,
                
                
                March
      31,2010
                
                
                2009(Unaudited)
                
                
                (Unaudited)CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
                
                $
                (2,016,234
                )
                
                $
                (1,114,663
                )Adjustments
      to reconcile net loss to net cashused
      in operating activities:Depreciation
      and amortization
                
                
                8,237
                
                
                
                11,124Amortization
      of note discount
                
                
                1,256,924
                
                
                
                540,119Amortization
      of beneficial conversion feature of convertible debt
                
                
                36,329
                
                
                
                36,329Stock
      based compensation
                
                
                -
                
                
                
                90,349Stock
      issued in lieu of interest and other charges
                
                
                112,642
                
                
                
                58,120Interest
      related to note payable settlement
                
                
                -
                
                
                
                18,694Decrease in
      net liability for severance pay
                
                
                (6,876
                )
                
                
                (2,531
                )Change
      in cash attributable to changes in operating assets and
      liabilitiesInventory
                
                
                -
                
                
                
                8,015Prepaid
      expenses and other current assets
                
                
                (17,730
                )
                
                
                10,314Accounts
      payable
                
                
                40,833
                
                
                
                59,911Accrued
      expenses and other current liabilities
                
                
                68,444
                
                
                
                19,839Net
      cash used in operating activities
                
                
                (517,431
                )
                
                
                (264,380
                )CASH
      FLOWS FROM  INVESTING ACTIVITIESPurchases
      of property and equipment
                
                
                (3,142
                )
                
                
                (25,742
                )Net
      cash used in investing activities
                
                
                (3,142
                )
                
                
                (25,742
                )CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from issuance of convertible notes and preferred stock
                
                
                100,940
                
                
                
                -Proceeds
      from short-term debt
                
                
                200,000
                
                
                
                -Proceeds
      from bank line of credit
                
                
                263,455
                
                
                
                27,568Net
      cash provided by financing activities
                
                
                564,395
                
                
                
                27,568INCREASE
      (DECREASE) IN CASH AND CASH EQUIVALENTS
                
                
                43,822
                
                
                
                (262,554
                )CASH
      AND CASH EQUIVALENTS - BEGINNING OF PERIOD
                
                
                176,559
                
                
                
                391,569CASH
      AND CASH EQUIVALENTS - END OF PERIOD
                
                $
                220,381
                
                
                $
                129,015Supplemental
      disclosures of cash flow information:Cash
      paid for interest
                
                $
                -
                
                
                $
                -Non-cash
      activitiesIssuance
      of common stock for the conversion ofconvertible
      promissory notes and acrued interest
                
                $
                452,565
                
                
                $
                143,907Issuance
      of common stock for the conversion of convertible preferred
      stock
                
                $
                122,994
                
                
                $
                -Preferred
      stock dividends and deemed dividends
                
                $
                -
                
                
                $
                413,637See
      Notes to Condensed Consolidated Financial Statements.




3




IDO SECURITY INC. AND SUBSIDIARY
 NOTES TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 NOTE
1 - BASIS OF PRESENTATION
 
 The
accompanying unaudited condensed consolidated financial statements of IDO
Security Inc. (hereinafter, “IDO” or the “Company”) have been prepared in
accordance with U.S. generally accepted accounting principles for interim
financial information and with Rule 8-03 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three months ended March 31, 2010, are not necessarily indicative of the results
that may be expected for the year ending December 31, 2010. These unaudited
condensed consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and footnotes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31, 2009,
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 March 31, 2010, the Company
had not achieved profitable operations, had accumulated losses of $31.5 million
(since inception), a working capital deficiency of $10.6 million and expects to
incur further losses in the development of its business. These conditions raise
substantial doubt about the Company’s ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
 
 The
Company’s ability to continue as a going concern is dependent upon its ability
to generate future profitable operations or management’s ability to find sources
of additional equity capital. The Company needs to raise additional funds on an
immediate basis in order to continue to meet its liquidity needs, realize its
business plan and maintain operations.  The Company’s current cash
resources are not sufficient to support its operations as presently conducted or
permit it to take advantage of business opportunities that may arise. Management
of the Company is continuing its efforts to secure funds through equity and/or
debt instruments for its operations. The
Company and representatives of certain potential investors continue to negotiate
the detailed terms of a non-binding proposal with respect to convertible debt
based financing in a significant amount, subject to due diligence and other
conditions, which the Company’s board received; no assurance can be provided
that any successful financing will result. Presently, the Company does
not have any financing commitment from any person, and there can be no assurance
that additional capital will be available to the Company on commercially
acceptable terms or at all.
 
 The
Company has been funding its operations from the net proceeds from the private
placement of its convertible securities. In December 2007 and January 2008, the
Company received net proceeds of approximately $1 million from the proceeds of
the private placement to certain accredited investors (the “2008 Investors”) of
its 10% Secured Convertible Promissory Notes. Between April 2008 and November
2008, the Company received from two previous investors and one stockholder,
gross loan proceeds totaling $442,355.  In December 2008, the Company
raised net proceeds of $548,474 from certain 2008 Investors in a private
placement of convertible notes and preferred stock. Between April 2009 and
December 2009, the Company raised net proceeds of $1,332,500 from certain of its
existing investors. Finally, in January 2010 and March 2010, the Company
raised net proceeds of approximately $301,000 from certain of its existing
investors.  See Note 8 below.
 
 The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty. There can be no assurance that management will be
successful in implementing a business plan or that the successful implementation
of a business plan will actually improve the Company’s operating
results.
 
 4
 
 NOTE
2 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
 
 On
January 1, 2010, the Company adopted the new provisions of Accounting
Standards Update (ASU) No. 2010-06, “Fair Value Measurements and
Disclosures (Topic 820), Improving Disclosures about Fair Value Measurements”(“ASU No. 2010-06”). ASU No. 2010-06 provides revised guidance
on improving disclosures about valuation techniques and inputs to fair value
measurements. The adoption of this standard had no effect on the financial
statements of the Company.
  In
February 2010, the Financial Accounting Standards Board issued an amendment to
accounting standards related to subsequent events. The amendment exempts
Securities and Exchange Commission registrants from the requirement to disclose
the date through which it has evaluated subsequent events for either original or
restated financial statements. The standard is effective February 2010. The
Company adopted this standard in February 2010. The adoption did not impact the
Company’s consolidated financial position or results of operations, other than
additional reporting requirements.
  Management
does not believe that any other recently issued, but not yet effective,
accounting standard if currently adopted would have a material effect on the
accompanying financial statements.
  NOTE
3 - NET LOSS PER SHARE
 
 Basic
loss per share is computed by dividing net loss by the weighted-average number
of shares of common stock outstanding during the period. Diluted loss per share
gives effect to dilutive convertible securities, options, warrants and other
potential common stock outstanding during the period, only in periods in which
such effect is dilutive. The following securities have been excluded from the
calculation of net loss per share, as their effect would be
anti-dilutive:
 
 Shares
      of Common StockIssuable
      upon Conversion/Exerciseas
      ofMarch
      31,2010
              
              
              2009Warrants
              
              
              24,782,047
              
              
              
              14,559,154Convertible
      notes
              
              
              47,372,707
              
              
              
              43,611,427Stock
      options
              
              
              3,490,000
              
              
              
              3,490,000Convertible
      preferred stock
              
              
              46,412,880
              
              
              
              18,073,080
 
 NOTE
4 - FAIR VALUE OF FINANCIAL INSTRUMENTS
 
 Substantially
all of the Company’s financial instruments, consisting primarily of cash
equivalents, accounts payable and accrued expenses, other current liabilities
and convertible notes, are carried at, or approximate, fair value because of
their short-term nature or because they carry market rates of
interest.
 
 NOTE
5 – INVENTORIES
 
 Inventories,
consisting of completed devices, devices partially completed and components are
valued at the lower of cost determined by the moving-average basis or market.
The value of the inventories is adjusted for estimated obsolescence or
unmarketable inventory equal to the difference between the cost of inventory and
the estimated market value based upon assumptions about future demand and market
conditions.
 
 Inventories
at March 31, 2010 and December 31, 2009 consisted of partially completed and
completed devices totaling $62,219.
 
 5
 
 NOTE
6 – BANK LINE OF CREDIT
 
 In March
2010, the Company’s subsidiary was provided with a loan from a commercial
bank in the amount of approximately $270,000. The loan is repayable on September
25, 2010. The loan is guaranteed by a stockholder of the Company. Interest is
payable monthly at the rate of 1.9% per annum. The Company is also required to
pay a fee to the guarantor of 1% of the loan amount per month, plus bank
charges.
 
 NOTE
7 – SHORT-TERM NOTES PAYABLE
 
 In March
2010, the Company issued notes to two of the 2008 Investors in the principal
amount of $200,000. The notes bear interest at the rate of 10% per annum
and are due at the earlier of 150 days or the closing of a new
investment.
 
 NOTE
8 - PRIVATE PLACEMENT OF CONVERTIBLE PROMISSORY NOTES
 
 Convertible
promissory notes consist of the following:
 
 March
      31,
              
              
              December
      31,2010
              
              
              2009(Unaudited)2008
      Notes - secured  and convertible - interest at 10% - see (i)
      below
              
              $
              4,023,029
              
              
              $
              4,362,954December
      2008 Notes - secured  and convertible - interest at 10% - see
      (ii) below
              
              
              1,028,348
              
              
              
              1,028,3492009
      Notes - secured  and convertible - interest at 10% - see (iii)
      below
              
              
              1,533,443
              
              
              
              1,432,500Total
              
              
              6,584,820
              
              
              
              6,823,803Less:
      Discount
              
              
              (749,259
              )
              
              
              (1,027,915
              )5,835,561
              
              
              
              5,795,888Less
      Current Portion
              
              
              (5,717,429
              )
              
              
              (5,724,747
              )Total
              
              $
              118,132
              
              
              $
              71,141
 
 (i)
10% Secured Convertible Promissory Notes
 
 Between
December 5, 2007 and January 24, 2008, the Company raised gross proceeds of
$5,404,550 from the private placement  to certain accredited
institutional and individual investors (the “2008 Investors”) of its two-year
10% Secured Convertible Promissory Notes (collectively, the “2008 Notes”, each
a ”2008 Note”).  The transactions were effected pursuant to a
Subscription Agreement, dated as of December 5, 2007 between the Company and the
2008 Investors.  The Company received net proceeds of $1 million from
the proceeds of the 2008 Notes.
 
 In
connection with the issuance of the 2008 Notes, the Company issued to the 2008
Investors, warrants (the “2008 Investor Warrants”) to purchase up to 5,404,550
shares of the Company’s Common Stock, of which warrants for 2,702,275 shares are
exercisable at a per share exercise price of $2.00 and warrants for 2,702,275
shares are exercisable at a per share exercise price of $3.00. The per share
exercise price of the 2008 Investor Warrants were subsequently reduced to $0.15
in connection with the investment in December 2008 Notes discussed below in
(iii).
  6
  The 2008
Notes were originally convertible into shares of Common Stock at the holder’s
option at any time at an initial conversion price of $1.00 per share (the “Fixed
Conversion Price”), subject to adjustment in the event of certain capital
adjustments or similar transactions, such as a stock split or merger and as
further described below. Interest on the 2008 Notes accrues at the rate of 10%
per annum and is payable upon a required monthly repayment or upon maturity,
whichever occurs first, and will continue to accrue until the 2008 Notes are
fully converted and/or paid in full. The per share Fixed Conversion Price
of the 2008 Notes was subsequently reduced to $0.15 in connection with the
investment in December 2008 Notes discussed below in (iii).
 
 The 2008
Notes matured on December 31, 2009 without being paid out in accordance with the
terms of the Notes. The failure to repay the 2008 Notes constitutes an Event of
Default under the transaction documents with the 2008 Investors. Subsequently,
in March 2010, the holders of approximately 80% of the outstanding principal
amount of the 2008 Notes extended the maturity date of the 2008 Notes to
December 31, 2010 and waived all existing defaults. In consideration of these
actions on May 4, 2010, the Company issued 3,496 shares of Series A Preferred
Stock with a stated value equal to 10% of the principal amount of the 2008 Notes
then held by such investors.  With respect to the remaining 20% of the
principal amount of the 2008 Notes who did not agree to the extension of the
maturity date, the Company issued 164,648,044 shares of the Company’s Common
Stock, in full satisfaction of principal and accrued interest of
$304,599.  Due to the conversion caps contained in the notes whereby
we cannot issue shares to a note holder if, following such issuance, such note
holder (or its affiliates) will hold, in the aggregate, over 4.9% of our then
issued and outstanding shares of Common Stock. Accordingly, $587,990 of
principal amount held by non consenting holders currently remains
payable.
 
 Commencing
on the fourth month anniversary of the issuance of the 2008 Notes and on the
same day of each month thereafter until the principal amount of the 2008 Notes
has been paid in full, the Company was required to prepay 5% of the aggregate
principal amount of the 2008 Notes originally issued, together with all accrued
interest due and payable on the entire outstanding amount up to such repayment
date (each such date, a “Scheduled Payment Date”).
 
 To secure
the Company’s obligations to the 2008 Investors, the Company granted a security
interest in substantially all of its assets, including without limitation, its
intellectual property. The security interest terminates upon payment or
satisfaction of all of Company’s obligations under the 2008 Notes.
 
 For
financial reporting purposes, the Company recorded a discount of $4,141,838 to
reflect the value of the 2008 Investor Warrants issued and an additional
discount of $658,219 to reflect the beneficial conversion feature of the 2008
Notes. As discussed above, the term of the 2008 Notes were modified. As a
result, all of the remaining unamortized discounts were expensed. The Company
incurred finder’s fees of $540,455, other offering related fees and expenses
totaling $25,000 in 2007 and issued five-year warrants to purchase up to
1,080,930 shares of Common Stock at an per share exercise price of
$0.15.
 
 The
Company accounted for the modification of the 2008 Notes, as described above, as
an extinguishment of debt. The Company deemed the terms of the amendment to be
substantially different and treated the Convertible Promissory Notes as
extinguished and exchanged for new notes. As such, it was necessary to reflect
the Convertible Promissory Notes at fair market value and record a loss on
extinguishment of debt of approximately $991,000 in 2008.
  The fair
value of the 2008 Notes was determined utilizing level 3 inputs. The fair value
of the 2008 Notes was calculated utilizing the fully diluted market value of the
invested capital of the Company immediately before and after the date of the
debt modification. As a result, the face amount of the remaining principal
balance of $4,963,050 was written down to its fair market value of $3,925,963.
This discount is being amortized to the date of maturity unless converted
earlier.
  7
  The Company undertook to file a
registration statement by a prescribed period under the Securities Act of 1933,
as amended (the “Registration Statement”) with respect to the resale of the
Common Stock underlying the 2008 Notes and 2008 Investor Warrants. The Company
has not filed the Registration Statement and accordingly, the Company owed to
the holders of these notes approximately $540,000 in liquidated damages in
respect of the delay in the filing of the Registration Statement beyond the time
frame specified in the agreements with such holders. At December 31, 2009, the
Company owed to the holders of these notes $516,137 in liquidated
damages. The non-payment of liquidated damages constitutes an Event of
Default under the 2008 Notes. However, the pertinent documents provide that any
action by the investors upon such default (i.e., acceleration of the debt and
other remedies) can only be initiated by the holders of 65% or more of the
outstanding principal amount of the notes. Such action has not been commenced by
the note holders.  The Company does not currently intend to file such
registration statement as the shares issuable upon conversion of the 2008 Notes
and/or the 2008 Investor Warrants are eligible to be resold under Rule
144.
  In March
2010, principal in the amount of $339,923 and accrued interest totaling $112,642
was repaid in the form of 244,629,693 shares of the Company’s Common
Stock   For the period April 1, 2010 to May 13 2010, principal in
the amount of $209,457 and accrued interest totaling $36,663 was repaid in the
form of 344,056,153 shares of the Company’s Common Stock.
 
 (ii)  Secured
Convertible Promissory Note and Series A Convertible Preferred
Stock
 
 Pursuant
to an offering dated October 31, 2008 (the “December 2008 Private Placement”) to
the holders of the 2008 Notes, on December 17, 2008, the Company realized net
proceeds of $548,474, after the payment of offering related fees and expenses of
$19,250, from a private placement of $1,066,540 in principal amount of Secured
Convertible Promissory Notes due April 20, 2010 (“collectively the “December
2008 Notes”) and 26,664 shares of Series A Convertible Preferred Stock, par
value $0.001 per share (the “Series A Preferred Stock”). In addition, in
connection with the issuance of the December 2008 Notes and the Series A
Preferred Stock, the Company issued to the investors warrants (the “Warrants”;
together with the December 2008 Notes and the Series A Preferred Stock, the
“Purchased Securities”) to purchase in the aggregate up to 7,110,268 shares of
the Company’s Common Stock at a per share exercise price equal to $0.25. The
Warrants are exercisable through October 31, 2013 at a per share exercise price
of $0.25.  The warrants include a ‘cashless exercise’
provision.  The amount raised included $478,816 in principal and
accreted interest on loans advanced to the Company between April and November
2008 by two purchasers that were offset against such purchasers’ respective
purchases of the Purchased Securities.
 
 For
financial reporting purposes, the Company recorded a discount of $845,743 to
reflect the value of the Warrants and Preferred Stock issued and an additional
discount of $220,797 to reflect the beneficial conversion feature of the
December 2008 Notes. The estimated value of the warrants was determined using
the Black-Scholes option pricing model under the following assumptions: life of
5 years, risk free interest rate of 1.35%, a dividend yield of 0% and volatility
of 135%. The discounts are being amortized to the date of maturity unless
converted earlier.
 
 The
December 2008 Notes are convertible into shares of Common Stock at the holder’s
option at any time at an initial conversion price of $0.15 per share (the “Fixed
Conversion Price”), subject to adjustment in the event of certain capital
adjustments or similar transactions, such as a stock split or merger and as
further described below. Interest on the December 2008 Notes accrues at the rate
of 10% per annum and is payable upon a required repayment (discussed below) or
upon maturity, whichever occurs first, and will continue to accrue until the
December 2008 Notes are fully converted and/or paid in full. From and after an
event of default under the December 2008 Notes and for so long as the event of
default is continuing, the December 2008 Notes will bear default interest at a
rate of the lesser of 15% per annum or the maximum rate permitted by applicable
law.
 
 Commencing
on April 30, 2009, and thereafter on the last day of each subsequent calendar
month until the principal amount of the December 2008 Notes has been paid in
full, the Company is required to prepay 8.33% of the aggregate principal amount
of the December 2008 Notes originally issued, together with all accrued interest
due and payable on the entire outstanding amount up to such repayment date. The
amount may be paid, at the Company’s election, either in (i) cash, at 110% of
the principal amount due and 100% of all other amounts due or (ii) shares of
Common Stock as defined;provided, that , if such
monthly amount is to be paid with shares of Common Stock, it will be
automatically deferred unless the holder gives notice to the Company at least
five (5) days before a repayment date that the holder will accept payment of
such monthly amount in the form of Common Stock.
  8
  The
Company’s obligations under the December 2008 Notes are secured by a security
interest in substantially all of its assets pursuant to a prior Security
Agreement dated as of December 24, 2007 between it and the purchasers of the
2008 Notes.
 
 Holders
of the Purchased Securities are subject to certain limitations on their rights
to convert the securities. The principal limitation is that the holder may not,
with certain limited exceptions, convert into a number of shares that would,
together with other shares held by the holder, exceed 4.99% or 9.99% of the then
outstanding shares of the Company after such conversion and/or
exercise.
 
 The
December 2008 Notes were scheduled to mature on April 30, 2010. However, in
March 2010, the holders of approximately 72% of the outstanding principal amount
of the December 2008 Notes extended the maturity date of the December 2008 Notes
to December 31, 2010. In consideration of the extension, on May 4, 2010, the
Company issued 745 shares of Series A Preferred Stock with a stated value equal
to 10% of the principal amount of the December 2008 Notes then held by such
investors. Due to the conversion caps contained in
the notes, we cannot issue shares to a note holder if, following such issuance,
such note holder (or its affiliates) will hold, in the aggregate, over 4.9% of
our then issued and outstanding shares of Common Stock. Accordingly, $225,054 of
principal amount held by non consenting holders currently remains
payable.
 
 No
payments were made in the period January 1, 2010 through March 31,
2010.  For the period April 1, 2010 to May 13 2010, principal in the
amount of $58,285 and accrued interest totaling $11,375 was repaid in the form
of 129,000,000 shares of the Company’s Common Stock.
 
 (iii)
2009 Notes and Series A Convertible Preferred Stock
 
 In April
2009, the holders of the 2008 Notes and the December 2008 Notes consented to the
placement of secured convertible promissory notes (the “2009 Notes”), Series A
Preferred Stock and warrants, all on the substantive terms identical to those
prevailing with respect to the December 2008 Private Placement discussed at
further length in Note 7(iii) above, for aggregate gross proceeds to not exceed
$1.5 million.  Between April 28, 2009 and December 31, 2009, the
Company raised net proceeds of $1,332,500 ($100,000 was rolled over from the
2008 financing) from the private placement to certain holders of the December
2008 Notes of $1,432,500 in principal amount of 2009 Notes and 35,814 shares of
Series A Preferred Stock. Commencing on the six month anniversary date of the
2009 Notes, and on the same day of each subsequent calendar month thereafter
until the principal amount of the 2009 Notes has been paid in full, the Company
is required to prepay 8.33% of the aggregate principal amount of the 2009 Notes
originally issued, together with all accrued interest due and payable on the
entire outstanding amount up to such repayment date.
 
 In
connection with such investment, the Company issued to the holders of the 2009
Notes, warrants to purchase in the aggregate up to 9,550,000 shares of the
Company’s Common Stock at per share exercise price equal to $0.25. The warrants
are exercisable through the fifth anniversary of issuance. Proceeds of these
funds were used to fund the Company’s continuing operations.
 
 For financial
reporting purposes, the Company recorded a discount of $1,024,732 to reflect the
value of the Warrants and Preferred Stock issued. The estimated value of the
warrants was determined using the Black-Scholes option pricing model under the
following assumptions: life of 5 years, risk free interest rate of 2.41% -
2.71%, a dividend yield of 0% and volatility of 135%. The discounts are being
amortized to the date of maturity unless converted earlier.
 
 In
January 2010 and March 2010, the Company raised net proceeds of $100,940,
which included the repayment of certain accrued expenses, from the private
placement to certain holders of the December 2008 Notes. The Company issued
$100,940 in principal amount of 2009 Notes and 2,524 shares of Series A
Preferred Stock. Commencing on the six month anniversary date of the 2009 Notes,
and on the same day of each subsequent calendar month thereafter until the
principal amount of the 2009 Notes has been paid in full, the Company is
required to prepay 8.33% of the aggregate principal amount of the 2009 Notes
originally issued, together with all accrued interest due and payable on the
entire outstanding amount up to such repayment date.
  9
 In
connection with such investment, the Company issued to the holders of the 2009
Notes, warrants to purchase in the aggregate up to 672,933 shares of the
Company’s Common Stock at per share exercise price equal to $0.25. The warrants
are exercisable through the fifth anniversary of issuance. Proceeds of these
funds were used to fund the Company’s continuing operations.
 
 No
payments were made in the period January 1, 2010 through March 31,
2010.
 
 NOTE
9 - CAPITAL TRANSACTIONS
 
 Common
Stock Issuances
 
 In March
2010, principal and accrued interest of Notes totaling $452,565 was repaid in
the form of 244,629,693 shares of the Company’s Common Stock.  For the
period April 1, 2010 to May 13, 2010, principal and accrued interest of Notes
totaling $317,779 was repaid in the form of 473,056,153 shares of the Company’s
Common Stock.  See Note 8 - Private Placement of Convertible
Promissory Notes.
 
 In March
2010, the Company issued 66,483,163 shares of Common Stock upon the conversion
of 1,230 shares of Convertible Preferred Stock. .  For the period
April 1, 2010 to May 13, 2010, 5,033 shares of Series A Preferred Stock were
converted into 932,135,585 shares of Common Stock.
 
 Convertible
Preferred Stock
 
 The
Series A Preferred Stock was authorized in accordance with a Certificate of
Designation of Preferences, Rights and Limitations of Series A Convertible
Preferred Stock filed with the Nevada Secretary of State.   In
March 2010, the Company’s certificate of incorporation was amended to increase
the number of shares of preferred stock designated as Series A Convertible
Preferred Stock to 115,000 shares.   At March 31, 2010 and
December 31, 2009 63,772 and 62,478 shares of Series A Preferred Stock were
issued and outstanding.
 
 In
December 2008, in connection with the issuance of the December 2008 Notes more
fully discussed above in Note 5(iii), the Company issued to the purchasers of
the December 2008 Notes, 26,664 shares of its Series A Preferred Stock. Each
purchaser of the December 2008 Notes received shares of the Company’s Series A
Preferred Stock with a stated value of $100 equal to 250% of the principal
amount of the December 2008 Notes issued to such investor.
 
 In April
2009 through December 2009, in connection with the issuance of the 2009 Notes
more fully discussed above in Note 5(iv), the Company issued 35,814 shares of
Series A Preferred Stock.
 
 In
January and March 2010, in connection with the issuance of the 2009 Notes more
fully discussed above in Note 5(iv), the Company issued 2,524 shares of Series A
Preferred Stock.
 
 For
financial reporting purposes, the Company recorded a discount to reflect the
difference between the stated value of the shares issued and the fair value of
the shares issued. The discount is being amortized to the redemption dates
unless converted earlier.
 
 In March
2010, 1,230 shares of Series A Preferred Stock were converted into 66,483,163
shares of Common Stock.  For the period April 1, 2010 to May 13, 2010,
5,033 shares of Series A Preferred Stock were converted into 932,135,585 shares
of Common Stock.
 
 As
discussed in Note 8, the 2008 Notes matured on December 31, 2009 without being
paid out in accordance with the terms of the Notes. In March 2010, the holders
of approximately 80% of the outstanding principal amount of the 2008 Notes
extended the maturity date of the 2008 Notes to December 31, 2010. In
consideration of these actions, on May 4, 2010, the Company issued 3,496 shares
of Series A Preferred Stock with a stated value equal to 10% of the principal
amount of the 2008 Notes then held by such investors.
  10
  As
discussed in Note 8, in March 2010, the holders of approximately 72% of the
outstanding principal amount of the December 2008 Notes extended the maturity
date of the December 2008 Notes to December 31, 2010. In consideration of the
extension, on May 4, 2010, the Company issued 745 shares of Series A Preferred
Stock with a stated value equal to 10% of the principal amount of the December
2008 Notes then held by such investors.
 
 Shares of
Preferred Stock have not been registered and are restricted under the securities
laws and pay a dividend of 10% per annum on the stated value. So long as the
Series A Preferred Stock is outstanding, unless waived by the holders of 66 2/3%
of the Series A Preferred Stock then outstanding, the dividend rate shall
increase to 15%. In addition, shares of the Series A Preferred Stock do not vote
separately as a class (but do vote on an “as-converted” to common stock basis)
and have a liquidation preference equal to the stated value of the shares. Each
share of Preferred Stock has a stated value of $100 and is convertible into
shares of the Company’s common stock at $.15 per share.  The dividends
are cumulative commencing on the issue date whether or not
declared.  For the three months ended March 31, 2010 and 2009, the
Company declared dividends totaling $156,204 and $65,747, respectively. At March
31, 2010 and December 31, 2009, dividends payable total $586,925 and $430,721,
respectively, and are included in accounts payable and accrued
liabilities.
 
 Commencing
on April 30, 2009, and thereafter on the last day of each subsequent calendar
month, the Company is required to redeem 8.33% of the aggregate outstanding
stated value of the Series A Preferred Stock until the stated value and all
accrued dividends have been paid in full. Redemption payments on the Series A
Preferred Stock may be made, at the election of the Company, in cash or shares
of Common Stock, in the same manner as provided above with respect to the
December 2008 Notes, subject to automatic deferral in the case of payment in
shares unless the holder gives notice to the Company of such holder’s agreement
to accept payment in shares.  As a result of the redemption
provisions, the Series A Preferred Stock was not classified as permanent equity.
The maturities on the Series A Preferred Stock are $5,711,152 payable in 2010
and $666,004 payable in 2011.
 
 Commencing
on July 1, 2009, the Series A Preferred Stock is now being classified as a
liability. As such, all dividends accrued and/or paid and any accretions will
now be classified as part of interest expense and will no longer be classified
as preferred stock dividends and deemed dividends.  For the three
months ended March 31, 2010, dividends and deemed dividends totaled $942,440 and
such amount has been included in interest expense.  For the three
months ended March 31, 2009, dividends and deemed dividends totaled
$413,637.
 
 NOTE 10
– CONTINGENCIES
 
 Lawsuits
 
 (i) In
its quarterly report on Form 10-Q for the three months ended September 30, 2009,
the Company first disclosed  that on June 22, 2009, its wholly-owned
subsidiary, IDO Ltd., filed an action in the Labor Court, in Tel Aviv, Israel,
against one of its former officers and directors. The action asserts claims
based on material non-compliance by the former officer with the terms of the
employment agreement between him and our subsidiary.  The action seeks
disgorgement of amounts remitted to the former officer by the subsidiary under
the employment agreement in the approximate amount of  1,356,000 NIS
(approximately $365,000 based on the exchange rate in effect at the time of the
filing of this report on Form 10-Q) voiding the agreement, other equitable
relief, and costs and disbursements, including attorneys’ fees. Previously, on
May 10, 2009, the former officer/director resigned from all positions held with
the subsidiary purportedly for “just cause” under the employment agreement. The
resignation followed a request by the subsidiary that the former
officer/director attend a meeting with management relating to his performance
under the agreement, which request was refused.
  The
former officer is required to file an answer by June 10, 2010.
 
 (ii) In
its quarterly report on Form 10-Q for the three months ended September 30, 2009,
the Company first disclosed that on October 10, 2009, the above referenced
former officer/director filed an action in the Labor Court in Tel-Aviv against
IDO Ltd., as well as a director and the General Manager of IDO
Ltd.  The action seeks the payment of amounts purportedly due and
payable to the officer/director under his employment agreement with IDO Ltd. in
the approximate amount of 1,481,163 NIS  (approximately $399,000 based
on the exchange rate in effect at the time of the filing of this report on Form
10-Q). In January 2010, the Company filed an answer whereby we denied all
allegations. No hearing date has yet been set as of the filing of this
10-Q.
 
 The
Company believes that these claims are without foundation and that it has
meritorious defenses to them. The Company intends to aggressively defend its
interests.
  11




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





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





CAUTION
REGARDING FORWARD-LOOKING STATEMENTS





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





We
caution readers that forward-looking statements are predictions based on our
current expectations about future events. These forward-looking statements are
not guarantees of future performance and are subject to risks, uncertainties and
assumptions that are difficult to predict. Our actual results, performance or
achievements could differ materially from those expressed or implied by the
forward-looking statements as a result of a number of factors, including but not
limited to the risks and uncertainties discussed in our other filings with the
SEC, including the risk factors section of the Company’s Annual Report on Form
10-K for the year ended December 31, 2009 filed with the Securities and Exchange
Commission. We undertake no obligation to revise or update any forward-looking
statement for any reason.





OVERVIEW





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





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





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





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




12




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





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





Notwithstanding
these developments, our marketing efforts have been hampered. Our subsidiary,
IDO Security Ltd., has experienced unforeseen and lengthy delays in obtaining
from the Ministry of Defense of the State of Israel the requisite approvals
needed for shipment of our MagShoe devices in respect of orders received. These
delays have prevented us from making timely deliveries on orders
received.  We are working to obtain the needed approvals and to
streamline the process in the future. No assurance can however be given that we
will be successful in these efforts. The delay in shipments  have
contributed, in part, to lack of revenues for the three months period covered by
this report, as revenues are not recorded prior to shipment.





We need
to raise additional funds on an immediate basis in order to meet our on-going
operating requirements and to realize our business plan. In response to the
deteriorating global economic conditions that began in 2008, we have taken
certain measures in an effort to reduce operating expenses and conserve our cash
resources. Beginning in April 2008, we have significantly curtailed our
non-essential product design and development, marketing activities. Our senior
and other employees have agreed to defer, in part, salaries and benefits. As of
March 31, 2010, we had 10 employees working on a full-time basis. If we are
unable to raise capital on an immediate basis, it may be necessary to for us to
take further measures to reduce our cash burn including laying-off additional
personnel, further curtail marketing efforts or cease operations entirely.
Presently, we do not have any financing commitment from any person, and there
can be no assurance that additional capital will be available to us
(from these or any other persons) on commercially acceptable terms or
at all. These conditions raise substantial doubt about our ability to continue
as a going concern.





Subject
to raising additional working capital, we intend to pursue our business plan
over the next twelve months with respect to product development and enhancement
and field testing, as well as initial marketing efforts. We have been expanding
our contact base and are aggressively seeking collaborative arrangements
worldwide for our MagShoe product.





RESULTS
OF OPERATIONS





COMPARISON
OF THE THREE MONTHS ENDED MARCH 31, 2010 TO THE THREE MONTHS ENDED MARCH 31,
2009





Revenues and costs of goods
sold  - All revenues were derived from sales of our Magshoe device.
We did not record revenues for the three months ended March 31, 2010. Revenues
for the three months ended March 31, 2009 were $20,093. Costs of goods sold for
the three months ended March 31, 2010 were $0 and $16,255,
respectively.





The
decrease in revenues and cost of goods sold during the 2010 period as
compared to the 2009 period was primarily attributable the design and
development of two new prototypes of the Magshoe device in response to greater
height requirements and networking capability requested by potential end-users.
The design of the prototypes was completed
in April 2010. We expect, subject to and pending raising additional capital,
to
be able to commercially launch the new models.





Research and development expenses - Research and development
expenses consist primarily of expenses incurred in designing, developing and
field testing our products. These expenses consist primarily of salaries and
related expenses for personnel, contract design and testing services, supplies
used and consulting and license fees paid to third parties. We incurred research
and development expenses for the three months ended March 31, 2010 and 2009 of
$163,549 and $59,911, respectively. The increase in research and development
expenses during the 2010 period as compared to the corresponding period in 2009
is principally attributable to expenses incurred in producing prototypes of the
new third generation MagShoe.





Selling, general and administrative
expenses - Selling, general and administrative expenses primarily consist
of salaries, consulting and other professional fees, and other costs related to
administrative functions.   We incurred selling, general and
administrative expenses for the three months ended March 31, 2010 and 2009 of
$343,140 and $302,178, respectively. The increase in selling, general and
administrative expenses during the 2010 period as compared to the corresponding
period in 2009 is principally attributable to participation in international
trade shows in our industry, launching the new generation MagShoe, as well as
travel to on site tests and pre-sale demonstrations of the new
prototypes.




13




Stock based compensation -
Between June and April 2008, we granted stock options to employees and
consultants. The value of these options was being amortized over the vesting
periods of each grant. Stock based compensation totaled $0 and $90,349 for the
three months ended March 31, 2010 and 2009, 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, 2010 and 2009 were $219,096 and
$122,540, respectively. Interest expense related primarily to the placement of
our convertible promissory notes. The increase in interest expense during the
three months ended March 31, 2010 is primarily attributable to the increased
debt incurred by us between April 2009 and March 2010 in the principal amount of
$1,733,000 for purposes of continuing our operations.





Amortizations – The
amortizations are included in interest expense in the statement of
operations.  During the three months ended March 31, 2010, we recorded
amortization of $353,980, compared to $579,615 for the corresponding period in
2009. Amortization costs relates to the debt discount, beneficial conversion
feature, and deferred finance costs incurred in connection with the placement of
our convertible promissory notes. These costs are amortized to the date of
maturity of the debt unless converted earlier.





Preferred stock dividends – In
connection with our financing arrangements we have issued a total of 65,002
shares of  Series A Preferred Stock. The shares accrue a dividend of
10% per annum. The dividends are cumulative commencing on the issue date whether
or not declared. For financial reporting purposes, we recorded a discount to
reflect the difference in the amount of proceeds allocable to the Series A
Preferred Stock in the offering based on relative fair values and the stated
value. The discounts were being amortized as deemed dividends on preferred stock
to the date of maturity unless converted earlier. Commencing on July 1, 2009,
the Series A Preferred Stock is now being classified as a liability. As such,
all dividends accrued and/or paid and any accretions are now be classified as
part of interest expense and are no longer classified as preferred stock
dividends and deemed dividends.  For the three months ended March 31,
2010, dividends and deemed dividends totaled $942,440 and such amount has been
included in interest expense. For the three months ended March 31, 2009,
dividends  and deemed dividends totaled $413,637





Net loss – For the three
months ended March 31, 2010, we had a net loss of $2,016,234 compared to a net
loss of $1,114,663 for the corresponding period in 2009.





LIQUIDITY
AND CAPITAL RESOURCES





We need
to raise additional funds on an immediate basis in order to be able to satisfy
our cash requirements and fulfill our business plan over the next twelve months.
In response to the general deterioration in the general economic environment
which began in 2008, we have taken several cost-cutting measures. We have
laid-off a number of our employees and as of March 31, 2010, we have 10 full
time remaining employees on staff. Additionally, we have been forced to delay
payments to most of our vendors and defer salaries for management and employees.
Nonetheless, without raising additional funds on an immediate basis, whether
through the issuance of our securities, licensing fees for our technology or
otherwise, we will also not be able to maintain operations as presently
conducted. As previously disclosed in our periodic reports, we have been
actively seeking additional capital. We and
representatives of certain potential investors continue to negotiate the
detailed terms of a non-binding proposal with respect to convertible debt based
financing in a significant amount, subject to due diligence and other
conditions, which our board received; no assurance can be provided that any
successful financing will result.Presently, we do 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. At the present time, we have no commitments for financing and no assurance
can be given that we will be able to raise capital (from these or any other
persons) on commercially acceptable terms or at all. Even if we raise cash
to meet our immediate working capital needs, our cash needs could be heavier
than anticipated in which case we could be forced to raise additional capital.
Our auditors included a “going concern” qualification in their auditors’ report
for the quarter ended March 31, 2010. Such “going concern” qualification may
make it more difficult for us to raise funds when needed. Moreover, the current
economic situation may further complicate our capital raising efforts. If we are
unable to raise additional capital on an immediate basis, we may be forced
lay-off additional employees and either restructure or cease operations
entirely.





As of
March 31, 2010, we had a cash balance of $220,381 compared to $176,559 at
December 31, 2009.  As of May 14, 2010,
our cash balances are significantly less than the amount at March 31,
2010.





Cash used
in operating activities was $517,431 for the three months ended March 31, 2010.
The decrease in cash was primarily attributable to funding the loss for the
period.





Cash used
in investing activities was $3,142 for the three months ended March 31, 2010
attributable to the addition of property and equipment.





Cash
provided by financing activities was $564,395 for the three months ended March
31, 2010. We received proceeds of $100,940 from the issuance of the 2009
Notes.  We received advances on our wholly-owned subsidiary’s line of
credit totaling $263,455. In March 2010, we received short-term loans in the
amount of $200,000 from two of our 2008 investors.





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





14




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”) which were
originally scheduled to mature in December 2009. We received net proceeds
of $1million from the proceeds of the 2008 Notes, after the payment of offering
related fees and expenses and after the repayment of bridge loans then due and
owing. Holders of certain notes outstanding participated in the private
placement and the gross proceeds raised include amounts that we owed to these
investors in the approximate amount of $2.7 million that were offset against
such investors’ respective purchases of the 2008 Notes. Commencing on the fourth
month anniversary of the issuance of the 2008 Notes and on the same day of
each month thereafter until the principal amount of the 2008 Notes has been paid
in full, we are required to prepay 5% of the aggregate principal amount of the
2008 Notes originally issued, together with all accrued interest due and payable
up to such repayment date (each such date, a “Scheduled Payment Date.”). The
amount may be paid either in (i) cash, at 110% of the principal amount due and
100% of all other amounts due or (ii) shares of Common Stock at a rate equal to
the lower of (A) the Fixed Conversion Price or (B) 75% of the average closing
bid price of the Common Stock for the five trading days ending on the trading
day immediately preceding the Scheduled Payment Date, provided that at the time
of payment there is then in effect an effective Registration Statement (as
defined below) or the shares so issued can be resold under Rule 144 promulgated
under the Securities Act of 1933, as amended (“Rule 144”); provided, that, if
such monthly amount is to be paid with shares of Common Stock, it will be
automatically deferred unless the holder gives notice to the Company at least
five (5) days before a repayment date that the holder will accept payment of
such monthly amount in the form of Common Stock. During 2009, we repaid
principal and accrued interest in the amount of $1,103,139 in the form of
1,732,727,414 shares of our Common Stock.  As of December 31, 2009,
approximately $4.36 million remained outstanding on the 2008 Notes.
Additionally, as of December 31, 2009, we owed approximately $516,000 to these
investors as liquidated damages in respect of the non-filing of a registration
statement in respect of the resale of the Common Stock underlying the 2008 Notes
and the warrants issued in connection therewith. The 2008
Notes matured on December 31, 2009, without being paid out in accordance with
the terms of the Notes. Subsequently, in March 2010, the holders of
approximately 80% of the outstanding principal amount of the 2008 Notes extended
to December 31, 2010 the maturity date of the 2008 Notes.  In
consideration of their consents we have agreed to issue to them Series A
Preferred Shares in a stated amount equal to 10% of the outstanding balance of
their Notes. With respect to the holders of the remaining 20% of the principal
amount of the 2008 Notes who did not agree to the extension of the maturity
date, we issued 164,648,044 shares of the Company’s Common Stock to retire
$304,599 of principal and interest. Due to the conversion caps contained in the
notes, we cannot issue shares to a note holder if, following such issuance, such
note holder (or its affiliates) will hold, in the aggregate, over 4.9% of our
then issued and outstanding shares of Common Stock. Accordingly, $535,829 of
principal amount held by non consenting holders currently remains
payable.





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





Pursuant
to an offering dated October 30, 2008 to the holders of the 2008 Notes, on
December 17, 2008, the Company realized net proceeds of $548,474, before the
payment of offering related fees and expenses, from a private placement of
$1,066,540 in principal amount of Secured Convertible Promissory Note originally
due April 20, 2010 (“collectively the “December 2008 Notes”) and Series A
Convertible Preferred Stock, par value $0.001 per share (the “Series A Preferred
Stock”). The amount raised included $478,816 in principal and accreted interest
on the April-November 2008 Loans that were offset against such purchasers’
respective purchases of the Purchased Securities. Commencing on April 30, 2009,
and thereafter on the last day of each subsequent calendar month until the
principal amount of the December 2008 Notes has been paid in full (each a
“Scheduled “Repayment Date”), we are required to prepay 8.33% of the aggregate
principal amount of the December 2008 Notes originally issued, together with all
accrued interest due and payable on the entire outstanding amount up to such
repayment date. The amount may be paid, at the Company’s election, either in (i)
cash, at 110% of the principal amount due and 100% of all other amounts due or
(ii) shares of Common Stock at a rate equal to the lower of (A) the Fixed
Conversion Price of $0.15 or (B) 75% of the average of the closing bid price of
the Common Stock for the five trading days ending on the trading day immediately
preceding the Scheduled Repayment Date; provided, that, if such monthly amount
is to be paid with shares of Common Stock, it will be automatically deferred
unless the holder gives notice to the Company at least five (5) days before a
repayment date that the holder will accept payment of such monthly amount in the
form of Common Stock. Commencing on April 30, 2009, and thereafter on the last
day of each subsequent calendar month, we are also required to redeem 8.33% of
the aggregate outstanding stated value of the Series A Preferred Stock until the
stated value and all accrued dividends have been paid in full. Redemption
payments on the Series A Preferred Stock may be made, at our election, in cash
or shares of Common Stock, in the same manner as provided above with respect to
the December 2008 Notes, subject to automatic deferral in the case of payment in
shares unless the holder gives notice to us of such holder’s agreement to accept
payment in shares. During 2009, we repaid principal and accrued interest in the
amount of $100,115 on the December 2008 Notes in the form of 204,107,106 shares
of our Common Stock. As of December 31, 2009, approximately $1 million
remains outstanding on the December 2008 Notes. None of the Series A Preferred
Stock were redeemed.  The December 2008 Notes matured on April 30,
2010. However, in March 2010, the holders of approximately 72% of the
outstanding principal amount of the December 2008 Notes extended
the maturity date of the December 2008 Notes to December 31,
2010.  Due to the conversion caps contained in the notes, we cannot
issue shares to a note holder if, following such issuance, such note holder (or
its affiliates) will hold, in the aggregate, over 4.9% of our then issued and
outstanding shares of Common Stock. Accordingly, $225,054 of principal amount
held by non consenting holders currently remains payable.





15




Between
April 28, 2009 and December 31, 2009, we raised net proceeds of $1,432,500 from
the private placement to certain holders of the December 2008 Notes of
$1,432,500 in principal amount of Secured Convertible Promissory Notes due 18
months following issuance and 35,813 shares of Series A Preferred Stock. In
connection with such investment, we issued to the providers of these funds
warrants to purchase in the aggregate up to 9,550,000 shares of our Common Stock
at per share exercise price equal to $0.25. The warrants are exercisable through
the fifth anniversary of issuance. The placement of the notes, the Series A
Preferred Stock and the warrants were effected on substantive terms and
condition identical to the placement consummated in December 2008 and discussed
above. In April 2009, the holders of the 2008 Notes and the December 2008 Notes
consented to the placement of secured convertible notes, Series A Preferred
Stock and warrants, all on the substantive terms identical to those prevailing
with respect to the December 2008 Private Placement discussed above, for
aggregate gross proceeds to not exceed $1.5 million. Proceeds of these funds
were used to fund our continuing operations as well as pay down amounts
outstanding under a line of credit with a commercial bank in the approximate
amount of $267,000 for the benefit of our subsidiary IDO Ltd. In January
2010 and March 2010, we raised an additional net proceeds of $100,940,
which included the repayment of certain accrued expenses, from the private
placement to certain holders of the December 2008 Notes. We issued $100,940 in
principal amount of notes and 2,524 shares of Series A Preferred Stock. In
connection with such investment, we issued to the holders of the notes, warrants
to purchase in the aggregate up to 672,933 shares of the Company’s Common Stock
at per share exercise price equal to $0.25.





In
February and March 2010, we received short-term loans from two of the 2008
Investors in the principal amount of $200,000. The outstanding balances bear
interest at the rate of 10% per annum are due at the earlier of 150
days or the closing of a new investment.





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, 2010, there have been no changes in our internal
controls over financial reporting that have materially affected, or are
reasonably likely to materially affect, these controls.





PART II - OTHER
INFORMATION





ITEM
      1.
            LEGAL
      PROCEEDINGS.





(i) In
our quarterly report on Form 10-Q for the three months ended September 30, 2009,
we first disclosed  that on June 22, 2009, our wholly-owned
subsidiary, IDO Ltd., filed an action in the Labor Court, in Tel Aviv, Israel,
against one of its former officers and directors. The action asserts claims
based on material non-compliance by the former officer with the terms of the
employment agreement between him and our subsidiary.  The action seeks
disgorgement of amounts remitted to the former officer by the subsidiary under
the employment agreement in the approximate amount of  1,356,000 NIS
(approximately $365,000 based on the exchange rate in effect at the time of the
filing of this report on Form 10-Q) voiding the agreement, other equitable
relief, and costs and disbursements, including attorneys’ fees. Previously, on
May 10, 2009, the former officer/director resigned from all positions held with
the subsidiary purportedly for “just cause” under the employment agreement. The
resignation followed a request by the subsidiary that the former
officer/director attend a meeting with management relating to his performance
under the agreement, which request was refused.





The
former officer is required to file an answer by June 10, 2010.





(ii) In
our quarterly report on Form 10-Q for the three months ended September 30, 2009,
we first disclosed that on October 10, 2009, the above referenced former
officer/director filed an action in the Labor Court in Tel-Aviv against IDO
Ltd., as well as a director and the General Manager of IDO Ltd.  The
action seeks the payment of amounts purportedly due and payable to the
officer/director under his employment agreement with IDO Ltd. in the approximate
amount of 1,481,163 NIS  (approximately $399,000 based on the exchange
rate in effect at the time of the filing of this report on Form 10-Q). In
January 2010, we filed an answer whereby we denied all allegations. As of the
date of the filing of this report on Form 10-K. No hearing date has been set as
of the filing of this quarterly report on form 10-Q.





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





16


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





The
following paragraph sets forth certain information with respect to all
securities sold by us during the three months ended March 31, 2010 without
registration under the Securities Act:





(i)  Between
January and March 31, 2010, we issued 18 month secured convertible promissory
notes in the principal amount of $100,940, 2,524 shares of Series A
Preferred Stock and five year warrants to purchase, in the aggregate,
672,933 shares of our Common Stock at a per share price of $0.25.





(ii)  Between
January and March 31, 2010, we issued 244,629,693 shares of stock to the holders
of the 2008 Notes in respect of principal and accrued interest in the aggregate
amount of $452,565.





(iii)
Between January and March 31, 2010, we issued 66,483,163 shares of common stock
upon the conversion of 1,230 shares of Series A Preferred Stock.  The
stated value of the Series A Preferred Stock converted totaled
$122,994.





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





ITEM
      3.
            DEFAULTS
      UPON SENIOR SECURITIES.





None.





ITEM
      4.
            (REMOVED
      AND RESERVED)





None.





ITEM
      5.
            OTHER
      INFORMATION.





None.





ITEM
      6.
            EXHIBITS.





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





17





SIGNATURES





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





IDO
      SECURITY INC.Date:
      May 17, 2010
            
            /s/ MICHAEL
      GOLDBERGMICHAEL
      GOLDBERG
              ACTING
      CHIEF EXECUTIVE OFFICER (PRINCIPAL
              EXECUTIVE
      OFFICER AND PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER) AND
      PRESIDENT