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, 2009;
  or
  o
                  Transition
      Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934 for the transition period from ________ to
  ________
  COMMISSION
FILE NUMBER: 0-51170
  IDO
SECURITY INC.
 (Exact
name of small business issuer as specified in its charter)
  Nevada
                    
                    38-3762886(State
      or other jurisdiction of incorporation or organization)
                    
                    (I.R.S.
      Employer Identification
No.)
  17 State
Street
 New
York, New York 10004
 (Address
of principal executive offices, including zip code)
 
 646-214-1234
 (Issuer's
telephone number, including area code)
  Indicate
by check mark whether the registrant (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes   x    No o
  Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).  Yes 
oNo 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
20, 2009, there were 989,654,070 shares of registrant’s common stock, par value
$0.001 per share outstanding.
 
 
 
 INDEX
PAGE
 
  PAGEPART
      I -- FINANCIAL INFORMATIONItem
      1
                Financial
      StatementsCondensed
      Consolidated Balance Sheets March 31, 2009 (Unaudited) and December 31,
      2008 (Audited)
                1Unaudited
      Condensed Consolidated Statements of Operations for the three months
      ended March 31, 2009 and 2008
                2Unaudited
      Condensed Consolidated Statements of Cash Flows for the three months
      ended March 31, 2009 and 2008
                3Notes
      to Unaudited Condensed Consolidated Financial Statements
                4Item
      2
                Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                11Item
      4T
                Controls
      and Procedures
                14PART
      II -- OTHER INFORMATIONItem
      1
                Legal
      Proceedings
                14Item
      2
                Unregistered
      Sales of Equity Securities and Use of Proceeds
                15Item
      3
                Defaults
      upon Senior Securities
                15Item
      4
                Submission
      of Matters to a Vote of Security Holders
                15Item
      5
                Other
      Information
                15Item
      6
                Exhibits
                15SIGNATURES
                16
 
 
  IDO
      SECURITY INC. AND SUBSIDIARYCONDENSED
      CONSOLIDATED BALANCE SHEETSMarch 31,
                                                                                      
                                                                                      
                                                                                      December
      31,ASSETS
                                                                                      
                                                                                      2009
                                                                                      
                                                                                      
                                                                                      2008CURRENT
      ASSETS
                                                                                      
                                                                                      (Unaudited)
                                                                                      
                                                                                      
                                                                                      (Audited)Cash
      and  cash equivalents
                                                                                      
                                                                                      $
                                                                                      129,015
                                                                                      
                                                                                      
                                                                                      $
                                                                                      391,569Inventories
                                                                                      
                                                                                      
                                                                                      116,693
                                                                                      
                                                                                      
                                                                                      
                                                                                      124,708Prepaid
      expenses and other current assets
                                                                                      
                                                                                      
                                                                                      71,526
                                                                                      
                                                                                      
                                                                                      
                                                                                      81,840Total
      current assets
                                                                                      
                                                                                      
                                                                                      317,234
                                                                                      
                                                                                      
                                                                                      
                                                                                      598,117Property
      and equipment, net
                                                                                      
                                                                                      
                                                                                      62,660
                                                                                      
                                                                                      
                                                                                      
                                                                                      44,875Goodwill
                                                                                      
                                                                                      
                                                                                      1,955,002
                                                                                      
                                                                                      
                                                                                      
                                                                                      1,955,002Deferred
      financing costs, net
                                                                                      
                                                                                      
                                                                                      13,901
                                                                                      
                                                                                      
                                                                                      
                                                                                      17,068Total
      assets
                                                                                      
                                                                                      $
                                                                                      2,348,797
                                                                                      
                                                                                      
                                                                                      $
                                                                                      2,615,062LIABILITIES
      AND STOCKHOLDERS' DEFICIENCYCURRENT
      LIABILITIESAccounts
      payable and accrued liabilities
                                                                                      
                                                                                      $
                                                                                      1,872,937
                                                                                      
                                                                                      
                                                                                      $
                                                                                      1,727,440Bank
      line of credit
                                                                                      
                                                                                      
                                                                                      188,749
                                                                                      
                                                                                      
                                                                                      
                                                                                      161,181Convertible
      promissory notes(net
      of discount of $1,896,757 and $2,236,792)
                                                                                      
                                                                                      
                                                                                      4,065,740
                                                                                      
                                                                                      
                                                                                      
                                                                                      3,526,160Loan
      payable, related party
                                                                                      
                                                                                      
                                                                                      44,826
                                                                                      
                                                                                      
                                                                                      
                                                                                      44,826Total
      current liabilities
                                                                                      
                                                                                      
                                                                                      6,172,252
                                                                                      
                                                                                      
                                                                                      
                                                                                      5,459,607NON-CURRENT
      LIABILITIESConvertible
      promissory notes(net
      of discount of $0 and $236,413)
                                                                                      
                                                                                      
                                                                                      -
                                                                                      
                                                                                      
                                                                                      
                                                                                      30,225Accrued
      severance pay
                                                                                      
                                                                                      
                                                                                      175,674
                                                                                      
                                                                                      
                                                                                      
                                                                                      178,205Total  liabilities
                                                                                      
                                                                                      
                                                                                      6,347,926
                                                                                      
                                                                                      
                                                                                      
                                                                                      5,668,037Redeemable
      Series A Cumulative Convertible Preferred Stock,$.001
      par value; $100 stated value34,000
      shares authorized; 26,664 shares outstanding(net
      of discount of $1,526,850 and $1,874,740)
                                                                                      
                                                                                      
                                                                                      1,139,550
                                                                                      
                                                                                      
                                                                                      
                                                                                      791,660STOCKHOLDERS'
      DEFICIENCYPreferred
      Stock19,660,000
      shares authorized; none outstanding
                                                                                      
                                                                                      
                                                                                      -
                                                                                      
                                                                                      
                                                                                      
                                                                                      -Common
      stock, $.001 par value;2,000,000,000
      and 100,000,000 shares authorized; 119,101,684and
      46,083,070 issued and outstanding, respectively
                                                                                      
                                                                                      
                                                                                      119,102
                                                                                      
                                                                                      
                                                                                      
                                                                                      46,083Additional
      paid-in capital
                                                                                      
                                                                                      
                                                                                      19,041,524
                                                                                      
                                                                                      
                                                                                      
                                                                                      19,306,867Stock
      subscription receivable
                                                                                      
                                                                                      
                                                                                      (25
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (25
                                                                                      )Accumulated
      other comprehensive loss
                                                                                      
                                                                                      
                                                                                      (331
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (331
                                                                                      )Deferred
      stock based compensation
                                                                                      
                                                                                      
                                                                                      (42,064
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (55,007
                                                                                      )Accumulated
      deficit
                                                                                      
                                                                                      
                                                                                      (24,256,885
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (23,142,222
                                                                                      )Total
      stockholders' deficiency
                                                                                      
                                                                                      
                                                                                      (5,138,679
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (3,844,635
                                                                                      )Total
      liabilities and stockholders' deficiency
                                                                                      
                                                                                      $
                                                                                      2,348,797
                                                                                      
                                                                                      
                                                                                      $
                                                                                      2,615,062See
      Notes to Condensed Consolidated Financial Statements.
  1
  IDO
      SECURITY INC. AND SUBSIDIARYCONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONSThree
      Months
                                                                                    
                                                                                    
                                                                                    Three
      MonthsEnded
                                                                                    
                                                                                    
                                                                                    EndedMarch
      31,
                                                                                    
                                                                                    
                                                                                    March
      31,2009
                                                                                    
                                                                                    
                                                                                    2008(Unaudited)
                                                                                    
                                                                                    
                                                                                    (Unaudited)Revenues
                                                                                    
                                                                                    $
                                                                                    20,093
                                                                                    
                                                                                    
                                                                                    $
                                                                                    -Cost
      of sales
                                                                                    
                                                                                    
                                                                                    16,255
                                                                                    
                                                                                    
                                                                                    
                                                                                    -Gross
      profit
                                                                                    
                                                                                    
                                                                                    3,838
                                                                                    
                                                                                    
                                                                                    
                                                                                    -Operating
      expensesResearch
      and development expenses
                                                                                    
                                                                                    
                                                                                    59,911
                                                                                    
                                                                                    
                                                                                    
                                                                                    112,658Selling,
      general and administrative expenses
                                                                                    
                                                                                    
                                                                                    302,178
                                                                                    
                                                                                    
                                                                                    
                                                                                    633,123Stock
      based compensation - selling, general and administrative
                                                                                    
                                                                                    
                                                                                    90,349
                                                                                    
                                                                                    
                                                                                    
                                                                                    608,647Total
      operating expenses
                                                                                    
                                                                                    
                                                                                    452,438
                                                                                    
                                                                                    
                                                                                    
                                                                                    1,354,428Loss
      from operations
                                                                                    
                                                                                    
                                                                                    (448,600
                                                                                    )
                                                                                    
                                                                                    
                                                                                    (1,354,428
                                                                                    )Interest
      expense (including amortization of debt discount,beneficial
      conversion features and deferred finance costs)
                                                                                    
                                                                                    
                                                                                    (702,155
                                                                                    )
                                                                                    
                                                                                    
                                                                                    (765,924
                                                                                    )Interest
      income
                                                                                    
                                                                                    
                                                                                    4
                                                                                    
                                                                                    
                                                                                    
                                                                                    1,626Foreign
      currency translation
                                                                                    
                                                                                    
                                                                                    36,088
                                                                                    
                                                                                    
                                                                                    
                                                                                    (22,320
                                                                                    )Net
      loss
                                                                                    
                                                                                    
                                                                                    (1,114,663
                                                                                    )
                                                                                    
                                                                                    
                                                                                    (2,141,046
                                                                                    )Preferred
      stock dividends and deemed dividends
                                                                                    
                                                                                    
                                                                                    (413,637
                                                                                    )
                                                                                    
                                                                                    
                                                                                    -Net
      loss attibutable to common stockholders
                                                                                    
                                                                                    $
                                                                                    (1,528,300
                                                                                    )
                                                                                    
                                                                                    $
                                                                                    (2,141,046
                                                                                    )Basic
      and diluted loss per share:
                                                                                    
                                                                                    $
                                                                                    (0.02
                                                                                    )
                                                                                    
                                                                                    $
                                                                                    (0.06
                                                                                    )Weighted
      average number of shares outstandingBasic
      and diluted
                                                                                    
                                                                                    
                                                                                    69,636,252
                                                                                    
                                                                                    
                                                                                    
                                                                                    38,577,553See
      Notes to Condensed Consolidated Financial Statements.
  2
  IDO
      SECURITY INC. AND SUBSIDIARYCONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWSThree
      Months
                                                                  
                                                                  
                                                                  Three
      MonthsEnded
                                                                  
                                                                  
                                                                  EndedMarch
      31,
                                                                  
                                                                  
                                                                  March
      31,2009
                                                                  
                                                                  
                                                                  2008(Unaudited)
                                                                  
                                                                  
                                                                  (Unaudited)CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
                                                                  
                                                                  $
                                                                  (1,114,663
                                                                  )
                                                                  
                                                                  $
                                                                  (2,141,046
                                                                  )Adjustments
      to reconcile net loss to net cashused
      in operating activities:Depreciation
      and amortization
                                                                  
                                                                  
                                                                  11,124
                                                                  
                                                                  
                                                                  
                                                                  101,689Amortization
      of note discount
                                                                  
                                                                  
                                                                  540,119
                                                                  
                                                                  
                                                                  
                                                                  388,938Amortization
      of beneficial conversion feature of convertible debt
                                                                  
                                                                  
                                                                  36,329
                                                                  
                                                                  
                                                                  
                                                                  57,083Accretion
      of interest on notes payable
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  5,475Stock
      based compensation
                                                                  
                                                                  
                                                                  90,349
                                                                  
                                                                  
                                                                  
                                                                  608,647Stock
      issued in lieu of interest and other charges
                                                                  
                                                                  
                                                                  58,120
                                                                  
                                                                  
                                                                  
                                                                  -Interest
      related to note payable settlement
                                                                  
                                                                  
                                                                  18,694
                                                                  
                                                                  
                                                                  
                                                                  -Loss
      on sale of property and equipment
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  2,553(Decrease)
      increase in net liability for severance pay
                                                                  
                                                                  
                                                                  (2,531
                                                                  )
                                                                  
                                                                  
                                                                  14,544Increase
      (decrease) in cash attributable to changes in operating assets and
      liabilitiesInventory
                                                                  
                                                                  
                                                                  8,015
                                                                  
                                                                  
                                                                  
                                                                  (79,146
                                                                  )Prepaid
      expenses and other current assets
                                                                  
                                                                  
                                                                  10,314
                                                                  
                                                                  
                                                                  
                                                                  16,974Accounts
      payable
                                                                  
                                                                  
                                                                  59,911
                                                                  
                                                                  
                                                                  
                                                                  35,222Accrued
      expenses and other current liabilities
                                                                  
                                                                  
                                                                  19,839
                                                                  
                                                                  
                                                                  
                                                                  121,790Net
      cash used in operating activities
                                                                  
                                                                  
                                                                  (264,380
                                                                  )
                                                                  
                                                                  
                                                                  (867,277
                                                                  )CASH
      FLOWS FROM  INVESTING ACTIVITIESProceeds
      from sale of property and equipment
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  1,006Purchases
      of property and equipment
                                                                  
                                                                  
                                                                  (25,742
                                                                  )
                                                                  
                                                                  
                                                                  (9,410
                                                                  )Net
      cash used in investing activities
                                                                  
                                                                  
                                                                  (25,742
                                                                  )
                                                                  
                                                                  
                                                                  (8,404
                                                                  )CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from issuance of secured convertible notes
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  600,000Proceeds
      from escrow agent
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  1,150,000Payments
      of deferred finance costs
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  (160,455
                                                                  )Proceeds
      from bank line of credit
                                                                  
                                                                  
                                                                  27,568
                                                                  
                                                                  
                                                                  
                                                                  -Repayment
      of notes payable
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  (879,767
                                                                  )Net
      cash provided by financing activities
                                                                  
                                                                  
                                                                  27,568
                                                                  
                                                                  
                                                                  
                                                                  709,778DECREASE  IN
      CASH AND CASH EQUIVALENTS
                                                                  
                                                                  
                                                                  (262,554
                                                                  )
                                                                  
                                                                  
                                                                  (165,903
                                                                  )CASH
      AND CASH EQUIVALENTS - BEGINNING OF PERIOD
                                                                  
                                                                  
                                                                  391,569
                                                                  
                                                                  
                                                                  
                                                                  353,701CASH
      AND CASH EQUIVALENTS - END OF PERIOD
                                                                  
                                                                  $
                                                                  129,015
                                                                  
                                                                  
                                                                  $
                                                                  187,798Supplemental
      disclosures of cash flow information:Cash
      paid for interest
                                                                  
                                                                  $
                                                                  -
                                                                  
                                                                  
                                                                  $
                                                                  49,266Non-cash
      activitiesIssuance
      of common stock and warrants relatingto
      convertible promissory notes
                                                                  
                                                                  $
                                                                  143,907
                                                                  
                                                                  
                                                                  $
                                                                  1,538,471Issuance
      of common stock for cashless exercise of warrants
                                                                  
                                                                  $
                                                                  -
                                                                  
                                                                  
                                                                  $
                                                                  8,341Preferred
      stock dividends and deemed dividends
                                                                  
                                                                  $
                                                                  413,637
                                                                  
                                                                  
                                                                  $
                                                                  -See
      Notes to Condensed Consolidated Financial Statements.
 3
  IDO
SECURITY INC. AND SUBSIDIARY
 NOTES TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
  NOTE
1 - BASIS OF PRESENTATION
 
 The
accompanying unaudited condensed consolidated financial statements
of  IDO Security Inc. (hereinafter, “IDO” or the “Company”) have been
prepared in accordance with U.S. generally accepted accounting principles for
interim financial information and with Rule 8-03 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three months ended March 31, 2009, are not necessarily
indicative of the results that may be expected for the year ending December 31,
2009. These unaudited consolidated financial statements should be read in
conjunction with the audited condensed consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2008, as filed with the Securities and Exchange
Commission
 
 The
accompanying condensed consolidated financial statements have been prepared
assuming the Company will continue as a going concern. At March 31, 2009,
the Company had not achieved profitable operations, had accumulated losses of
$24 million (since inception), a working capital deficiency of $5.8 million and
expects to incur further losses in the development of its business. These
conditions raise substantial doubt about the Company’s ability to continue as a
going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
 
 The
Company’s ability to continue as a going concern is dependent upon its ability
to generate future profitable operations or management's ability to find sources
of additional equity capital. The Company needs to raise additional funds to
continue to meet its liquidity needs and realize its business plan and maintain
operations.  The Company’s current cash resources are not sufficient
to support any unforeseen contingencies that may arise or permit the Company to
take advantage of business opportunities that may arise. Management of the
Company is continuing its efforts to secure funds through equity and/or debt
instruments for its operations. Presently, the Company does not have any
financing commitment from any person, and there can be no assurance that
additional capital will be available to the Company on commercially acceptable
terms or at all.
 
 The
Company has been funding its operations from the net proceeds from the private
placement of its convertible securities.  In December 2007 and January
2008, the Company received net proceeds of approximately $1 million from the
proceeds of the private placement to certain accredited investors (the “December
2007 Investors”) its 10% Secured Convertible Promissory Notes which are
scheduled to mature on December 2009. Between April and November 2008, the
Company received from two previous investors and one stockholder, gross loan
proceeds totaling $442,355, which are discussed below in Note 6
below.  In December 2008, the Company raised net proceeds of $548,474
from certain December 2007 Investors in a private placement of convertible notes
and preferred stock, as further discussed in Note 6. Finally, in April and May
2009, the Company raised net proceeds of $70,000 from certain of the December
2007 Investors, discussed in Note 8 below.
 
 Certain
amounts in the condensed consolidated statements of operations for the three
months ended March 31, 2008 have been reclassified to conform to the 2009
presentation.  In prior periods, the Company included gains (losses) on
foreign currency transactions as part of interest expense.  The Company is
now segregating such amounts.
  NOTE
2 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
  Effective
January 1, 2009, the Company adopted Financial Accounting Standards Board’s
(FASB) Staff Position 157-2, “Effective Date of FASB Statement No. 157,” which
delays the effective date of SFAS No. 157 until January 1, 2009 for all
nonfinancial assets and nonfinancial liabilities, except for items that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually). The adoption of the delayed items of SFAS No. 157 did
not have a material impact on the Company’s consolidated financial statements as
of and for the three months ended March 31, 2009.
  4
  In
June 2008, the FASB issued FSP No. EITF 03-6-1, “Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities” (“FSP
EITF 03-6-1”). FSP EITF 03-6-1 concludes that unvested share-based payment
awards that contain rights to receive non-forfeitable dividends or dividend
equivalents are participating securities, and thus, should be included in the
two-class method of computing earnings per share (“EPS”). FSP EITF 03-6-1 is
effective for fiscal years beginning after December 15, 2008, and interim
periods within those years. Early application of EITF 03-6-1 is prohibited. This
FSP also requires that all prior-period EPS data be adjusted retrospectively.
The Company is currently evaluating the impact FSP EITF 03-6-1 will have on its
consolidated financial statements.
  In
April 2009, the FASB issued FSP FAS 107-1 and Accounting Principles Board
(APB) 28-1 "Interim Disclosures about Fair Value of Financial Instruments". The
FSP amends SFAS No. 107 "Disclosures about Fair Value of Financial
Instruments" to require an entity to provide disclosures about fair value of
financial instruments in interim financial information. This FSP is to be
applied prospectively and is effective for interim and annual periods ending
after June 15, 2009 with early adoption permitted for periods ending after
March 15, 2009. The Company will include the required disclosures in its
quarter ending June 30, 2009.
  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
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
      312009
                                      
                                      
                                      2008Warrants
                                      
                                      
                                      14,559,154
                                      
                                      
                                      
                                      6,160,066Convertible
      notes
                                      
                                      
                                      43,611,427
                                      
                                      
                                      
                                      3,890,000Stock
      options
                                      
                                      
                                      3,490,000
                                      
                                      
                                      
                                      5,480,550Convertible
      preferred stock
                                      
                                      
                                      18,073,080
                                      
                                      
                                      
                                      --
  NOTE
4 – 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, 2009 consisted of components totaling $65,100 and partially
completed and completed devices totaling $51,593.   Inventories
at December 31, 2008 consisted of components totaling $65,100 and partially
completed and completed devices totaling $59,608.
 
 5
  NOTE
5 – BANK LINE OF CREDIT
 
 The
Company’s subsidiary has a line of credit for up to approximately
$250,000.  The line bears interest at rates ranging from 9.3% per
annum on amounts up to $200,000 of indebtedness and 12.55% on amounts over that.
The line is collateralized by substantially all the assets of the
subsidiary. As of March 31, 2009 and December 31, 2008, $188,749 and $161,181,
respectively, was outstanding under the line of credit.
 
 NOTE
6 - PRIVATE PLACEMENT OF CONVERTIBLE PROMISSORY NOTES
 
 Convertible
promissory notes consist of the following:
 
 March
      31,
                      
                      
                      December
      31,2009
                      
                      
                      2008(Unaudited)
                      
                      
                      (Audited)2008
      Notes - secured  and convertible - interest at 10% - see (i)
      below
                      
                      $
                      4,895,957
                      
                      
                      $
                      4,963,050December
      2008 Notes - secured  and convertible - interest at 10% - see
      (ii) below
                      
                      
                      1,066,540
                      
                      
                      
                      1,066,540Total
                      
                      
                      5,962,497
                      
                      
                      
                      6,029,590Less:
      Discount
                      
                      
                      (1,896,757
                      )
                      
                      
                      (2,473,205
                      )4,065,740
                      
                      
                      
                      3,556,385Less
      Current Portion
                      
                      
                      (4,065,740
                      )
                      
                      
                      (3,526,160
                      )Total
                      
                      $
                      --
                      
                      
                      $
                      30,225
 
 (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”). Of such amount, $3,916,160 was raised in December 2007 and
$1,488,390 was raised in January 2008.    The transactions
were effected pursuant to a Subscription Agreement, dated as of December 5,
2007, between the Company and the 2008 Investors.  The Company
received net proceeds of $1 million from the proceeds of the 2008 Notes, after
the payment of offering related fees and expenses and after the repayment of
bridge loans that that came due in November 2007. Certain remaining note holders
from a private placement of 2007 Notes and the October 2007 note holders
participated in the private placement and the gross proceeds raised include
amounts the Company owed to these investors in the approximate amount of $2.6
million that were offset against such investors’ respective purchases of the
2008 Notes.
  In
connection with the issuance of the 2008 Notes, the Company issued to the 2008
Investors, warrants (the “2008 Investor Warrants”) to purchase up to 5,404,550
shares of the Company’s Common Stock, of which warrants for 2,702,275 shares are
exercisable at a per share exercise price of $2.00 and warrants for 2,702,275
shares are exercisable at a per share exercise price of $3.00. The per share
exercise price of the 2008 Investor Warrants were subsequently reduced to $0.15
in connection with the investment in December 2008 Notes discussed below in
(ii).
 
 The 2008
Notes are scheduled to mature on December 31, 2009 and were originally
convertible into shares of Common Stock at the holder's option at any time at an
initial conversion price of $1.00 per share (the “Fixed Conversion Price”),
subject to adjustment in the event of certain capital adjustments or similar
transactions, such as a stock split or merger and as further described below.
Interest on the 2008 Notes accrues at the rate of 10% per annum and is payable
upon a required monthly repayment or upon maturity, whichever occurs first, and
will continue to accrue until the 2008 Notes are fully converted and/or paid in
full. The per share Fixed Conversion Price of the 2008 Notes was
subsequently reduced to $0.15 in connection with the investment in December 2008
Notes discussed below in (ii).
  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 required to prepay 5% of the aggregate
principal amount of the 2008 Notes originally issued, together with all accrued
interest due and payable on the entire outstanding amount up to such repayment
date (each such date, a "Scheduled Payment Date"). The amount may be paid either
in (i) cash, at 110% of the principal amount due and 100% of all other amounts
due or (ii) shares of Common Stock at a rate equal to the lower of (A) the Fixed
Conversion Price or (B) 75% of the average of the closing bid price of the
Common Stock for the five trading days ending on the trading day immediately
preceding the Scheduled Payment Date, provided, that, if such monthly amount is
to be paid with shares of Common Stock, 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. In addition, under certain conditions, the Company may prepay the
amounts outstanding on the 2008 Notes by giving advance notice and paying an
amount equal to 115% of the sum of (x) the principal being prepaid plus (y) the
accrued interest thereon. Holders will continue to have the right to convert
their 2008 Notes prior to the actual prepayment. For the period January 1, 2009
to March 31, 2009, principal in the total amount of $85,787 and accrued interest
totaling $58,120 was repaid in the form of 73,019,216 shares of the Company’s
Common Stock.   For the period April 1, 2009 through May 20,
2009, principal and accrued interest totaling $365,343 was repaid in the form of
870,552,386  shares of the Company’s Common Stock.
 
 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 if the Registration
Statement is not in effect at the time of exercise.
  The Fixed
Conversion Price of the 2008 Notes and the exercise price of the 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.
 
 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. In July 2008, the Company issued to an investor 24,600 shares of
Common Stock in respect of liquidated damages of $24,600. At March 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.
  7
 (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 Series A Convertible Preferred Stock, par value $0.001 per
share (the "Series A Preferred Stock"). In addition, in connection with the
issuance of the December 2008 Notes and the Series A Preferred Stock, the
Company issued to the investors warrants (the “Warrants”; together with the
December 2008 Notes and the Series A Preferred Stock, the “Purchased
Securities”) to purchase in the aggregate up to 7,110,268 shares of the
Company’s Common Stock at a per share exercise price equal to $0.25. The
Warrants are exercisable through October 31, 2013 at a per share exercise price
of $0.25.  The warrants include a ‘cashless exercise’
provision.  The amount raised included $478,816 in principal and
accreted interest on loans advanced to the Company between April and November
2008 by two purchasers that were offset against such purchasers’ respective
purchases of the Purchased Securities.
 
 The
December 2008 Notes are convertible into shares of Common Stock at the holder's
option at any time at an initial conversion price of $0.15 per share (the “Fixed
Conversion Price”), subject to adjustment in the event of certain capital
adjustments or similar transactions, such as a stock split or merger and as
further described below. Interest on the December 2008 Notes accrues at the rate
of 10% per annum and is payable upon a required repayment (discussed below) or
upon maturity, whichever occurs first, and will continue to accrue until the
December 2008 Notes are fully converted and/or paid in full. From and after an
event of default under the December 2008 Notes and for so long as the event of
default is continuing, the December 2008 Notes will bear default interest at a
rate of the lesser of 15% per annum or the maximum rate permitted by applicable
law.
 
 Commencing
on April 30, 2009, and thereafter on the last day of each subsequent calendar
month until the principal amount of the December 2008 Notes has been paid in
full, the Company is required to prepay 8.33% of the aggregate principal amount
of the December 2008 Notes originally issued, together with all accrued interest
due and payable on the entire outstanding amount up to such repayment date. The
amount may be paid, at the Company’s election, either in (i) cash, at 110% of
the principal amount due and 100% of all other amounts due or (ii) shares of
Common Stock at a rate equal to the lower of (A) the Fixed Conversion Price of
$0.15 or (B) 75% of the average of the closing bid price of the Common Stock for
the ten trading days ending on the trading day immediately preceding the
Scheduled Payment Date;provided, that , if such
monthly amount is to be paid with shares of Common Stock, it will be
automatically deferred unless the holder gives notice to the Company at least
five (5) days before a repayment date that the holder will accept payment of
such monthly amount in the form of Common Stock.
 
 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.
 
 Under the
subscription agreement of the December 2008 Private Placement, the Company also
agreed that other than in connection with certain excepted issuances, if at any
time any of the Purchased Securities are outstanding, the Company shall offer,
issue or agree to issue (the “Lower Price Issuance”) any Common Stock or
securities convertible into or exercisable for shares of Common Stock (or modify
any of the foregoing which may be outstanding) to any person or entity at a
price per share or conversion or exercise price per share which shall be less
than the conversion or exercise price in respect of the Purchased Securities,
without the consent of Subscribers holding 66.67% of the outstanding principal
amount of the December 2008 Notes, then the Company shall issue, for each such
occasion, additional shares of Common Stock to each subscriber respecting each
of the Purchased Securities that remain outstanding at the time of the Lower
Price Issuance so that the average per share purchase price of the shares of
Common Stock issued to the subscriber (of only the Common Stock or Warrant
Shares still owned by the Subscriber) is equal to such other lower price per
share and the conversion price and exercise price, as the case may be, of each
of the outstanding Purchased Securities shall automatically be reduced to such
other lower price.
  8
  The
Company also agreed that until the expiration of the Exclusion Period (defined
below) and during the pendency of an Event of Default, except for certain
excepted issuances, the Company agreed to not enter into an agreement to nor
issue any equity, convertible debt or other securities convertible into common
stock or equity of the Company nor modify any of the foregoing which may be
outstanding at anytime, without the prior written consent of investors, which
consent may be withheld for any reason.   For so long as any of the
Purchased Securities is outstanding, except for such excepted issuances, the
Company will not enter into any equity line of credit or similar agreement, nor
issue nor agree to issue any floating or variable priced equity linked
instruments nor any of the foregoing or equity with price reset rights. 
The “Exclusion Period” ends on the first to occur of (i) April 30, 2009, or (ii)
until all the shares issuable upon exercise of the December 2008 Notes and
Warrants have been resold or transferred by the subscribers pursuant to Rule
144, without regard to volume limitations.  Under certain circumstances,
the Exclusion Period will be tolled.
 
 In
addition, for a period of one year, investors will have a right of first refusal
to participate, in proportion to the their holdings in any proposed sale by the
Company of its common stock or other securities or debt obligations, other than
with respect to shares issued in connection with mergers, employee stock option
plans and capital raises where the shares issued will not be
registered.
 
 NOTE
7 - CAPITAL TRANSACTIONS
 
 Authorized
Shares
 
 On
December 29, 2008, Company’s Board of Directors and the majority of Company’s
stockholders authorized an increase in the number of shares of Common Stock from
100,000,000 to 2,000,000,000. The increase became effective in March
2009.
 
 Reverse
Stock Split
 
 On
December 29, 2008, Company’s Board of Directors and the majority of Company’s
stockholders approved an amendment to the Company's certificate of incorporation
to effect a reverse stock split at any ratio within an approved range (defined
as between 10-to-1 to 50-to-1) at any time on or before December 31,
2009.  The board of directors has the sole discretion to determine
whether or not to effect the reverse stock split and if so, at what ratio within
the approved range.
 
 Stock
Issuances
 
 For the
period January 1, 2009 through May 20, 2009, principal and accrued interest
totaling $509,250 for the 2008 Notes was repaid in the form
of  943,571,602 shares of the Company’s Common Stock.
 
 Convertible
Preferred Stock
 
 In
December 2008, in connection with the issuance of the December 2008 Notes more
fully discussed above in Note 5(ii), the Company issued to the purchasers of the
December 2008 Notes 26,664 shares of its newly created 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.
 
 The
Series A Preferred Stock was authorized in accordance with a Certificate of
Designation of Preferences, Rights and Limitations of Series A Convertible
Preferred Stock filed with the Nevada Secretary of State, effective as of
December 11, 2008. A total of 34,000 shares of Series A Preferred Stock
were so authorized.
  9
  Shares of
Preferred Stock have not been registered and are restricted under the securities
laws and pay a dividend of 10% per annum on the stated value. So long as the
Series A Preferred Stock is outstanding, unless waived by the holders of 66 2/3%
of the Series A Preferred Stock then outstanding, the dividend rate shall
increase to 15%. In addition, shares of the Series A Preferred Stock do not vote
separately as a class (but do vote on an “as-converted” to common stock basis)
and have a liquidation preference equal to the stated value of the shares. Each
share of Preferred Stock has a stated value of $100 and is convertible into
shares of the Company’s common stock at $.15 per share.  The dividends
are cumulative commencing on the issue date whether or not
declared.  For the three months ended March 31, 2009, dividends
totaled $65,747. At March 31, 2009 and December 31, 2008, dividends payable
total $110,309 and $44,562, 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.
 
 NOTE
8 - SUBSEQUENT EVENT
 
 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 at further length in Note 6(ii) above,
for aggregate gross proceeds to not exceed $1.5 million.  Between
April 28 and May 15, 2009, the Company raised net proceeds of $70,000 from the
private placement to certain holders of the December 2008 Notes of $70,000 in
principal amount of Secured Convertible Promissory Notes due 18 months following
issuance and 1,750 shares of Series A preferred Stock. In connection with such
investment, the Company issued to the providers of these funds warrants to
purchase in the aggregate up to 466,667 shares of the Company’s Common Stock at
per share exercise price equal to $0.25. The warrants are exercisable through
the fifth anniversary of issuance. The placement of the notes, the Series A
Preferred Stock and the warrants were effected on substantive terms and
condition identical to the placement consummated in December 2008 and discussed
above in Note 6(ii). Proceeds of these funds were used to fund the Company’s
continuing operations.
 10
  ITEM
      2.
                MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
      OPERATION
 
 We urge
you to read the following discussion in conjunction with our condensed
consolidated financial statements and the notes thereto included elsewhere
herein.
  CAUTION
REGARDING FORWARD-LOOKING STATEMENTS
  Our
prospects are subject to uncertainties and risks. In this Quarterly Report on
Form 10-Q, we make forward-looking statements in this Item 2 and elsewhere that
also involve substantial uncertainties and risks. These forward-looking
statements are based upon our current expectations, estimates and projections
about our business and our industry, and reflect our beliefs and assumptions
based upon information available to us at the date of this report. In some
cases, you can identify these statements by words such as “if,” “may,” “might,”
“will, “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,”
“predicts,” “potential,” “continue,” and other similar terms. These
forward-looking statements include, among other things, projections of our
future financial performance and our anticipated growth, descriptions of our
strategies, our product and market development plans, the trends we anticipate
in our business and the markets in which we operate, and the competitive nature
and anticipated growth of those markets.
  We
caution readers that forward-looking statements are predictions based on our
current expectations about future events. These forward-looking statements are
not guarantees of future performance and are subject to risks, uncertainties and
assumptions that are difficult to predict. Our actual results, performance or
achievements could differ materially from those expressed or implied by the
forward-looking statements as a result of a number of factors, including but not
limited to the risks and uncertainties discussed in our other filings with the
SEC, including the risk factors section of the Company’s Annual Report on Form
10-K for the year ended December 31, 2008 filed with the Securities and Exchange
Commission. We undertake no obligation to revise or update any forward-looking
statement for any reason.
  OVERVIEW
 
 IDO
Security Inc. (“we”, “IDO” or the “Company”) is engaged in the design,
development and marketing of devices for the homeland security and loss
prevention markets that are intended for use in security screening procedures to
detect metallic objects concealed on or in footwear, ankles and feet through the
use of electro-magnetic fields. These devices were designed specifically for
applications in the security screening to complement the current methods for the
detection of metallic items during security screenings and at security
checkpoints in venues such as airports, prisons, schools, stadiums and
other public locations requiring individual security screening. Our common stock
trades on the OTC Bulletin Board under the symbol IDOI.
  IDO
Security Inc. (formerly known as “The Medical Exchange Inc.”) was incorporated
in the State of Nevada on January 23, 2004. On July 25, 2006, we, IDO Security
Ltd. (“IDO Ltd.”) and IDO Ltd.’s Selling Shareholders entered into a Securities
Purchase Agreement (the “Purchase Agreement”) pursuant to which we purchased, in
March 2007, all of the issued and outstanding share capital of IDO Ltd. (the
“Acquisition Transaction”). Following the Acquisition Transaction, IDO Ltd.
became a wholly-owned subsidiary of the Company and Med Ex adopted the business
of IDO Ltd. In June 2007, the Company changed its name to “IDO Security
Inc.”
 
 We
believe that the market for security and inspection products will continue to be
positively impacted by the threat of terrorist activities and by new government
regulations and appropriations for security and inspection products and
procedures. We anticipate that the promulgation of new governmental regulation
and standards will establish performance baselines against which we will be able
to direct certain of our continued research and development spending and market
our products to customers, worldwide. In addition, we believe that the
increasing awareness of security, in general, will bring increased awareness of
available products and methods, such as ours, for anti-crime and loss prevention
fields.
 
 We have
designed and developed a security screening device containing proprietary and
patented technology known as the MagShoe. The MagShoe creates specific
electro-magnetic fields that can intelligently detect the presence of metallic
objects inside a person’s footwear, as well as next to or above the ankles. The
proprietary software included in the MagShoe provides for the collation and
delivery of the screening data to the operator for immediate analysis. The
MagShoe obviates the need to remove the footwear being inspected. Our technology
is designed to distinguish between a person’s left and right shoe, analyzing
anomalies for each foot but also for both together, and provides comparative
screening results. The technology allows for both the detection and assessment
of possible threats from the shoe and ankle area posed by foreign metal objects
based upon the analysis of the detected metal material(s) and their location in
shoes. The MagShoe device has been designed to be portable and to integrate into
and complement current security screening arrays and systems.
  The
MagShoe has been deployed and is in operation in various countries including
Israel, Spain, Poland, The Czech Republic, and Australia. During the fourth
quarter of 2008, we began to penetrate the China based market, which we believe
may be one of our more significant markets. Subject to raising additional
capital, we expect to actively pursue certain Requests for Proposals ( RFP) for
footwear scanners that we are beginning to receive from sources in various
countries.We
believe that these RFPs further validate the need for our product. In addition,
in January 2006, the MagShoe was approved for use by the Department for
Transport in the United Kingdom, after field trials were conducted for the Home
Office’s Police Scientific Development Branch. In addition, we have been
certified by the International Organization for Standardization (“ISO”) under
ISO 9001:2000 compliance for the design, development and manufacture of
electronic, electro-optic and electro-mechanical systems. In December of 2008,
the Company received its certification from the Underwriter’s Laboratory (UL) in
the United States, which signifies that the MagShoe is safe for sale in the
United States.
  11
  We need
to raise additional funds on an immediate basis in order to meet our on-going
operating requirements and to realize our business plan. In response to the
deteriorating global economic conditions that began in 2008, we have taken
certain measures in an effort to reduce operating expenses and conserve our cash
resources. Beginning in April 2008, we have significantly curtailed our
non-essential product design and development. Our senior and other employees
have agrees to, defer, in part, salaries and benefits. As of May 15, 2009, we
had 10
employees working on a full-time basis. If we are unable to raise capital on an
immediate basis, it may be necessary to for us to take further cost cutting
measures to reduce our cash burn including laying-off additional personnel. We
are currently in discussion with certain of our investors regarding the
possibility of additional investments in IDO by these investors. No assurance
can be given that we will be able to raise the needed capital on commercially
acceptable terms or at all. These conditions raise substantial doubt about our
ability to continue as a going concern.
  Subject
to raising additional working capital, we intend to pursue our business plan
over the next twelve months with respect to product development and enhancement
and field testing, as well as initial marketing efforts. We have been expanding
our contact base and are aggressively seeking collaborative arrangements
worldwide for our MagShoe product. In May 2008, we selected a leading contract
manufacturer for high volume production of MagShoe and in June 2008, we
announced the availability of an elite network of industry leading distributors
and systems integrators for the MagShoe device which, together with the high
volume production capabilities that we established in the second quarter of
2008, significantly strengthens our infrastructure to commercially manufacture
and distribute the MagShoe device. In July 2008, we announced our entry into a
collaborative relationship with Bryant Integrated Technologies, a leading
security and consulting firm, to lead our product distribution efforts in the
United States, and with Hwan Technology and Trade Co., one of China’s largest
distributors of walk-through metal detectors, to lead our distribution efforts
in China. Shortly thereafter, we announced our initial sale of the MagShoe Unit
(through Bryant) in the United States to a leading commercial cruise line which
intends to use the MagShoe device to significantly reduce passenger waiting
lines while improving security. In addition, as a result of the recent terror
attacks in Mumbai, India, we have targeted that area for special attention by
our marketing department. This follows a successful test of the MagShoe at both
the Mumbai and New Delhi airport several months ago. Recently, in April 2009, we
announced the delivery of multiple MagShoe devices to the Xinjiang Airport in
Northwestern China as well as initial sales of MagShoe devices to a large United
States based international cruise lines where the devices are to be used in the
cargo holders so as to primarily prevent theft of valuables.
  RESULTS
OF OPERATIONS
 
 COMPARISON
OF THE THREE MONTHS ENDED MARCH 31, 2009 TO THE THREE MONTHS ENDED MARCH 31,
2008
  On March
8, 2007, we completed the acquisition of IDO Ltd. As we were a shell company
prior to the acquisition, IDO Ltd. is deemed to be our predecessor.
 
 Revenues and costs of goods
sold – Revenues for the three months ended March 31, 2009 and 2008 were
$20,093 and $0, respectively, all of which were derived from sales of our
MagShoe device. Costs of goods sold were $16,255 for the three months ended
March 31, 2009.
  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, 2009 and 2008 in
the amount of $59,911 and $112,658, respectively. The decrease in research and
development expenses during the three months ended March 31, 2009 as compared to
the corresponding period in 2008 is principally attributable to our product, the
MagShoe device, being substantially developed and needing less research and
development.
 
 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, 2009 and 2008 of
$302,178 and $633,123, respectively. The decrease in selling, general and
administrative expenses during the three month period ended March 31, 2009 as
compared to the corresponding period in 2008 is principally attributable to
reduced costs for consultants as well as the Company incurred liquidated damages
totaling $216,182 in the 2008 period in respect of the non-filing of a
registration statement.
 
 Stock based compensationBetween June and September 2007, we granted stock options to employees
and consultants valued at $7.5 million. The value of these options is being
amortized over the vesting periods of each grant. Stock based compensation
totaled $90,349 and $608,647 for the three months ended March 31, 2009 and 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, 2009 and 2008 was $122,540 and
$243,405, respectively. Interest expense related primarily to the placement of
our convertible promissory notes.
 
 Amortizations -During the
three months ended March 31, 2009, we recorded amortization of $579,615 compared
to $544,839 for the corresponding period in 2008. Amortization costs relates to
the debt discount, beneficial conversion feature and deferred finance costs
incurred in connection with the placement of our convertible promissory notes
which were issued in  2008 and 2007. These costs are amortized to the
date of maturity of the debt unless converted earlier.
  12
  Net loss - We had a net loss of $1,114,663 for
the three months ended March 31, 2009 as compared to $2,141,046 for the three
months ended March 31, 2008.
  Preferred stock dividends – In December 2008,
we issued 26,664 shares of newly created Series A Preferred Stock. The shares
accrue a dividend of 10% per annum. The dividends are cumulative commencing on
the issue date whether or not declared. For the three months ended March 31,
2009, we declared dividends totaling $65,747. For financial reporting purposes,
we recorded a discount of $1,562,395 to reflect the difference in the amount of
proceeds allocable to the Series A Preferred Stock in the offering based on
relative fair values and the stated value. In addition, in accordance with EITF
No. 00-27, an additional discount of $552,003 was recorded to reflect the
beneficial conversion feature. The discounts are being amortized as deemed
dividends on preferred stock to the date of maturity unless converted earlier.
Amortization of discounts for three months ended March 31, 2009 amounted to
$347,890.
 
 LIQUIDITY
AND CAPITAL RESOURCES
 
 As of
March 31, 2009, we had a cash balance of $129,015 compared to $391,569 at
December 31, 2008.
 
 Cash used
in operating activities was $264,380 for the three months ended March 31, 2009.
The decrease in cash was primarily attributable to funding the loss for the
period.
 
 Cash used
in investing activities was $25,742 for the three months ended March 31, 2009
attributable to the addition of property and equipment.
 
 Cash
provided by financing activities was $27,568 for the three months ended March
31, 2009 from proceeds from our line of credit.
 
 To date
we have financed our operations primarily from the sale of our securities. Our
recent financings are discussed below.
 
 Between
December 5, 2007 and January 24, 2008, we raised gross proceeds of $5,404,550
from the private placement to certain accredited institutional and individual
investors (the “2008 Investors”) of our two-year 10% Secured Convertible
Promissory Notes (collectively, the “December 2007 Notes”, each a “December 2007
Note”) are scheduled to mature in December 2009. We received net proceeds
of $1 million from the proceeds of the December 2007 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 December 2007 Notes. Commencing on
the fourth month anniversary of the issuance of the December 2007 Notes and on
the same day of each month thereafter until the principal amount of the December
2007 Notes has been paid in full, we are required to prepay 5% of the aggregate
principal amount of the December 2007 Notes originally issued, together with all
accrued interest due and payable up to such repayment date (each such date, a
“Scheduled Payment Date.”). The amount may be paid either in (i) cash, at 110%
of the principal amount due and 100% of all other amounts due or (ii) shares of
Common Stock at a rate equal to the lower of (A) the Fixed Conversion Price or
(B) 75% of the average closing bid price of the Common Stock for the five
trading days ending on the trading day immediately preceding the Scheduled
Payment Date, provided that at the time of payment there is then in effect an
effective Registration Statement (as defined below) or the shares so issued can
be resold under Rule 144 promulgated under the Securities Act of 1933, as
amended (“Rule 144”); provided, that, if such monthly amount is to be paid with
shares of Common Stock, it will be automatically deferred unless the holder
gives notice to the Company at least five (5) days before a repayment date that
the holder will accept payment of such monthly amount in the form of Common
Stock. During the three months ended March 31, 2009, we repaid principal and
accrued interest in the amount of $143,907 in the form of 73,019,216 shares of
our Common Stock. For the period from April 1 to May 20, 2009, we paid an
additional $365,343 of principal and accrued interest in the form of 870,552,386
shares of common stock.  As of May 20, 2009, approximately $4.7
million remains outstanding on the December 2007 Notes. Additionally, as of
March 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 December 2007 Notes and the
warrants issued in connection therewith.
  Between
April 29, 2008 and November 25, 2008 (the “April-November 2008 Loans”), we
received gross loan proceeds of $442,355 from two 2008 investors and one
stockholder. All of these loans were rolled into the financing consummated in
December 2008 and discussed below.
  Pursuant
to an offering dated October 30, 2008 to the holders of the 2008 Notes, on
December 17, 2008, the Company realized net proceeds of $548,474, before the
payment of offering related fees and expenses, from a private placement of
$1,066,540 in principal amount of Secured Convertible Promissory Note due April
20, 2010 (“collectively the “December 2008 Notes”) and Series A Convertible
Preferred Stock, par value $0.001 per share (the “Series A Preferred Stock”).
The amount raised included $478,816 in principal and accreted interest on the
April-November 2008 Loans that were offset against such purchasers’ respective
purchases of the Purchased Securities. Commencing on April 30, 2009, and
thereafter on the last day of each subsequent calendar month until the principal
amount of the December 2008 Notes has been paid in full (each a “Scheduled
“Repayment Date”), we are required to prepay 8.33% of the aggregate principal
amount of the December 2008 Notes originally issued, together with all accrued
interest due and payable on the entire outstanding amount up to such repayment
date. The amount may be paid, at the Company’s election, either in (i) cash, at
110% of the principal amount due and 100% of all other amounts due or (ii)
shares of Common Stock at a rate equal to the lower of (A) the Fixed Conversion
Price of $0.15 or (B) 75% of the average of the closing bid price of the Common
Stock for the five trading days ending on the trading day immediately preceding
the Scheduled Repayment Date; provided, that, if such monthly amount is to be
paid with shares of Common Stock, it will be automatically deferred unless the
holder gives notice to the Company at least five (5) days before a repayment
date that the holder will accept payment of such monthly amount in the form of
Common Stock. Commencing on April 30, 2009, and thereafter on the last day of
each subsequent calendar month, we are also required to redeem 8.33% of the
aggregate outstanding stated value of the Series A Preferred Stock until the
stated value and all accrued dividends have been paid in full. Redemption
payments on the Series A Preferred Stock may be made, at our election, in cash
or shares of Common Stock, in the same manner as provided above with respect to
the December 2008 Notes, subject to automatic deferral in the case of payment in
shares unless the holder gives notice to us of such holder’s agreement to accept
payment in shares.
  13
  Between April 28 and May 15, 2009, we
raised net proceeds of $70,000 from the private placement to certain holders of
the December 2008 Notes of $70,000 in principal amount of Secured Convertible
Promissory Notes due 18 months following issuance and 1,750 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 466,667 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 noted
above, we need to raise additional funds on an immediate basis in order to be
able to satisfy our cash requirements and fulfill our business plan over the
next twelve months. In response to the general deterioration in the general
economic environment which began in 2008, we have taken several cost-cutting
measures. We have laid-off a number of our employees and as of May 15, 2009, we
have 10 full time remaining employees on staff. Additionally, we have been
forced to delay payments to most of our vendors and defer salaries for
management and employees. Nonetheless, without raising additional funds on an
immediate basis, whether through the issuance of our securities, licensing fees
for our technology or otherwise, we will also not be able to maintain operations
as presently conducted. As previously disclosed in our periodic reports, we have
been actively seeking additional capital. We are in discussions with certain of
our investors as to the possibility of additional investments in our company. As
noted above, between April 28 and May 15, 2009, existing investors made
additional investments in our company. However, at the present time, we have no
commitments for any such financing and no assurance can be given that we will be
able to raise capital on commercially acceptable terms (or at all). Our limited
availability of authorized and unissued shares of Common Stock, after taking
into account the shares that we anticipate needing to issue on or about May 24,
2009, may impair our ability to raise additional funds. Even if we raise cash to
meet our immediate working capital needs, our cash needs could be heavier than
anticipated in which case we could be forced to raise additional capital. Our
auditors included a “going concern” qualification in their auditors’ report for
the year ended December 31, 2008. While we raised approximately gross $1 million
during the year ended December 31, 2008 as well as an additional $70,000 during
2009, such “going concern” qualification may make it more difficult for us to
raise funds when needed. In addition, the current economic situation further
complicates our capital raising efforts. If we are unable to raise additional
capital on an immediate basis, we may be forced lay-off additional employees and
either restructure or cease operations entirely.
  ITEM
      4T.
                CONTROLS
      AND PROCEDURES
  We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms, and that such information is accumulated and communicated
to management, including our acting Chief Executive Officer (and Principal
Financial and Accounting Officer), to allow timely decisions regarding required
disclosure based closely on the definition of "disclosure controls and
procedures" in Rule 13a-14(c).
  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, 2009, there have been no changes in our internal
controls over financial reporting that have materially affected, or are
reasonably likely to materially affect, these controls.
 
 PART
II - OTHER INFORMATION
 
 ITEM
      1.
                LEGAL
      PROCEEDINGS.
  In our
quarterly report on Form 10-Q for the three months ended June 30, 2008, we first
disclosed that a certain stockholder the “Stockholder”) who holds 2,250,000 of
our issued and outstanding shares of Common Stock (representing approximately
5.2% of our then issued and outstanding holdings) initiated a suit against
Company and an officer and director of its Subsidiary (the “Affiliate”) in the
District Court in Petah Tikva, Israel.
 
 We and
the stockholder were in settlement negotiations under the auspices of the court
since August 2008. In May 2009, the District Court approved a settlement that we
reached with the Stockholder whereby the Stockholder’s suit was discontinued and
the parties furnished to each other mutual releases.
  14
  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, 2009 without
registration under the Securities Act:
 
 Between
January and March 31, 2009, we issued 73,019,216 shares of restricted stock to
the holders of the 2008 notes in respect of principal and accrued interest in
the aggregate amount of $143,907.
 
 All of
the securities issued in the transactions described above were issued without
registration under the Securities Act in reliance upon the exemptions provided
in Section 4(2) of the Securities Act or Regulation S under such Securities Act.
Except with respect to securities sold under Regulation S, the recipients of
securities in each such transaction acquired the securities for investment only
and not with a view to or for sale in connection with any distribution thereof.
Appropriate legends were affixed to the share certificates issued in all of the
above transactions. Each of the recipients represented that they were
“accredited investors” within the meaning of Rule 501(a) of Regulation D under
the Securities Act, or had such knowledge and experience in financial and
business matters as to be able to evaluate the merits and risks of an investment
in its common stock. All recipients had adequate access, through their
relationships with the Company and its officers and directors, to information
about the Company. None of the transactions described above involved general
solicitation or advertising.
  ITEM
      3.
                DEFAULTS
      UPON SENIOR SECURITIES.
  None.
  ITEM
      4.
                SUBM1ISSION
      OF MATTERS TO A VOTE OF SECURITY
HOLDERS.
  None.
  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
 
 15
 
 SIGNATURES
  Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
   DATE: May
      20, 2009IDO
      SECURITY INC./s/
      MICHAEL GOLDBERGMICHAEL
      GOLDBERGACTING
      CHIEF EXECUTIVE OFFICER (PRINCIPALEXECUTIVE
      OFFICER AND PRINCIPAL FINANCIAL ANDACCOUNTING
      OFFICER) AND PRESIDENT
  16