IDO Security Inc. - FORM 10-Q

Attached files

file	filename
EX-31 - EXHIBIT 31 - IDO Security Inc.	ex31.htm
EX-32 - EXHIBIT 32 - IDO Security Inc.	ex32.htm
EXCEL - IDEA: XBRL DOCUMENT - IDO Security Inc.	Financial_Report.xls

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

MARK ONE

x	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarterly Period ended June 30, 2012; 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 registrant 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 x No o

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

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

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

As of August 20, 2012, there were 17,548,138 shares of registrant’s common stock, par value $0.001 per share outstanding.

INDEX PAGE

		PAGE

PART I -- FINANCIAL INFORMATION

Item 1	Financial Statements
	Condensed Consolidated Balance Sheets June 30, 2012 (Unaudited) and December 31, 2011 (Audited)	2

	Unaudited Condensed Consolidated Statements of Operations for the six and three months ended June 30, 2012 and 2011	3

	Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2012 and 2011	4

	Notes to Unaudited Condensed Consolidated Financial Statements	5

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13

Item 4	Controls and Procedures	18

	PART II -- OTHER INFORMATION

Item 1	Legal Proceedings	18
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	19
Item 3	Defaults upon Senior Securities	19
Item 4	Mine Safety Disclosures	20
Item 5	Other Information	20
Item 6	Exhibits	20

SIGNATURES

IDO SECURITY INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
	June 30,			December 31,
	2012			2011
	(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	98,253		$	43,726
Accounts receivable		7,127			-
Inventories		205,919			312,853
Prepaid expenses and other current assets		50,393			76,428

Total current assets		361,692			433,007

Property and equipment, net		47,577			51,396
Goodwill		1,215,002			1,215,002

Total assets	$	1,624,271		$	1,699,405

LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable and accrued liabilities	$	4,946,450		$	4,575,810
Loans payable - bank		246,773			97,016
Convertible promissory notes
(net of discount of $55,482 and $800,902)		2,066,677			6,429,007
Redeemable Series A Cumulative Convertible Preferred Stock
(net of discount of $1,366,736 and $2,063,596)		10,753,120			8,911,712
Loans payable - related parties		79,727			80,659

Total current liabilities		18,092,747			20,094,204

NON-CURRENT LIABILITIES
Convertible promissory notes
(net of discount of $3,839,218 and $63,443)		1,924,579			50,734
Redeemable Series A Cumulative Convertible Preferred Stock
(net of discount of $226,934 and $99,743)		154,026			71,090
Accrued severance pay		155,875			154,499

Total liabilities		20,327,227			20,370,527

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIENCY
Preferred Stock
6,600 shares authorized; none outstanding		-			-
Common stock, $.001 par value;
20,000,000 shares authorized,
17,548,138 issued and outstanding		17,548			17,548
Additional paid-in capital		25,999,410			25,999,397
Accumulated other comprehensive loss		(331	)		(331	)
Accumulated deficit		(44,719,583	)		(44,687,736	)

Total stockholders' deficiency		(18,702,956	)		(18,671,122	)

Total liabilities and stockholders' deficiency	$	1,624,271		$	1,699,405


See Notes to Condensed Consolidated Financial Statements.

IDO SECURITY INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

	Six Months			Six Months			Three Months			Three Months
	Ended			Ended			Ended			Ended
	June 30,			June 30,			June 30,			June 30,
	2012			2011			2012			2011
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)


Revenues	$	285,480		$	19,486		$	80,916		$	325

Cost of sales		191,385			38,109			75,532			14,014

Gross profit (loss)		94,095			(18,623	)		5,384			(13,689	)

Operating expenses
Research and development expenses		100,188			132,984			49,626			78,992
Selling, general and administrative expenses		785,056			583,942			383,607			317,522

Total operating expenses		885,244			716,926			433,233			396,514

Loss from operations		(791,149	)		(735,549	)		(427,849	)		(410,203	)

Interest expense (including amortization of debt and preferred stock discounts,
accretion of convertible promissory notes, dividends and deferred finance costs)		(2,161,988	)		(3,185,715	)		(1,139,969	)		(1,345,329	)
Gain on extinguishment of debt		2,926,717			-			-			-
Foreign currency translation		(5,427	)		(5,067	)		(630	)		1,099

Net loss	$	(31,847	)	$	(3,926,331	)	$	(1,568,448	)	$	(1,754,433	)

Basic and diluted loss per share	$	0.00		$	(1.14	)	$	(0.09	)	$	(0.38	)

Weighted average number of shares outstanding
Basic and diluted		17,548,057			3,431,824			17,548,057			4,659,322



See Notes to Condensed Consolidated Financial Statements.

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

	Six Months			Six Months
	Ended			Ended
	June 30,			June 30,
	2012			2011
	(Unaudited)			(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(31,847	)	$	(3,926,331	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		6,455			6,716
Amortization of note discount		1,734,857			2,158,762
Accretion of interest on notes payable		259,759
Intrerest and exhange rate differences		-			1,050
Stock issued in lieu of interest and other charges		-			1,148,893
Gain on extinguishment of debt		(2,926,717	)		-
Decrease in net liability for severance pay		1,376			(454	)
Increase (decrease) in cash attributable to changes in operating assets and liabilities
Accounts receivable		(7,127	)		-
Inventory		106,934			(921	)
Prepaid expenses and other current assets		26,035			62,392
Accounts payable		440,952			66,048
Accrued expenses and other current liabilities		(244,210	)		(68,247	)

Net cash used in operating activities		(633,533	)		(552,092	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment		(2,635	)		(2,933	)

Net cash used in investing activities		(2,635	)		(2,933	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of convertible notes and preferred stock		541,870			370,334
Proceeds from loan payable - bank		149,757			100,338
Repayments of loans payable - related parties		(932	)		-
Repayment of bank line of credit		-			(53,301	)

Net cash provided by financing activities		690,695			417,371

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		54,527			(137,654	)

CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD		43,726			211,970

CASH AND CASH EQUIVALENTS - END OF PERIOD	$	98,253		$	74,316

Supplemental disclosures of cash flow information:
Cash paid for interest	$	-		$	-

Non-cash activities
Issuances of common stock for the conversion of
convertible promissory notes and acrued interest	$	-		$	875,462
Issuances of common stock for the conversion of
convertible preferred stock and accrued dividends	$	-		$	632,517


See Notes to Condensed Consolidated Financial Statements.

IDO SECURITY INC. AND SUBSIDIARY

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of IDO Security Inc. (hereinafter, “IDO” or the “Company”) have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2012, are not necessarily indicative of the results that may be expected for the year ending December 31, 2012. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the Securities and Exchange Commission.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. At June 30, 2012, the Company had not achieved profitable operations, had accumulated losses of $44.7 million (since inception), a working capital deficiency of $17.8 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 equity capital. The Company needs to raise significant funds on an immediate basis in order to continue to meet its liquidity needs, realize its business plan and maintain operations. The Company’s current cash resources are not sufficient to support its operations as presently conducted or permit it to take advantage of business opportunities that may arise. Management of the Company is continuing its efforts to secure funds through equity and/or debt instruments for its operations. 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 placements of its convertible securities. From December 2007 through June 2012, the Company received net proceeds of approximately $6.2 million from the proceeds of the private placement to certain accredited investors of its 10% Secured Convertible Promissory Notes, Convertible Preferred Stock and Bridge Loans.

The financial statements do not include any adjustments that might result from the outcome of this uncertainty. There can be no assurance that management will be successful in implementing a business plan or that the successful implementation of a business plan will actually improve the Company’s operating results.

On December 16, 2011 the Company implemented a reverse stock split of its outstanding common stock and preferred stock at a ratio of 1-for-3,000 shares and the Company’s authorized but unissued capital was proportionately reduced. All share figures and results are reflected on a post-split basis. See Note 8.

NOTE 2 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

On January 1, 2012, the Company adopted ASU 2011-05 (“ASU 2011-05”), “Comprehensive Income (Topic 220): Presentation of Comprehensive Income.” ASU 2011-05 provides that an entity that reports items of other comprehensive income has the option to present comprehensive income in either one continuous financial statement or two consecutive financial statements. ASU 2011-05 is effective for annual periods beginning after December 15, 2011. The adoption of ASU 2011-05 did not have an impact on its financial position and results of operations.

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 INCOME (LOSS) PER SHARE

Basic income (loss) per share is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during the period. Diluted income (loss) per share gives effect to dilutive convertible securities, options, warrants and other potential common stock outstanding during the period, only in periods in which such effect is dilutive. The following securities have been excluded from the calculation of net income (loss) per share, as their effect would be anti-dilutive:

	Shares of Common Stock
	Issuable upon Conversion/Exercise
	as of
	June 30,
	2012		2011
Warrants		15,084		12,260
Convertible notes		19,684		17,199
Stock options		1,130		1,163
Convertible preferred stock		32,665		24,713

NOTE 4 - FAIR VALUE OF FINANCIAL INSTRUMENTS

Substantially all of the Company’s financial instruments, consisting primarily of Cash and cash equivalents, accounts payable and accrued expenses, other current liabilities and certain convertible notes, are carried at, or approximate, fair value because of their short-term nature or because they carry market rates of interest. See Note 7 (vi) for a discussion of the fair value of convertible notes whose terms were modified.

NOTE 5 – INVENTORIES

Inventories, consisting of completed devices, devices partially completed and components are valued at the lower of cost determined by the moving-average basis or market. The value of the inventories is adjusted for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions.

Inventories at June 30, 2012 and December 31, 2011 consisted of components totaling $77,422 and $157,285, and partially completed and completed devices totaling $128,497 and $155,568, respectively.

NOTE 6 – LOANS PAYABLE – BANK

From December 2011 through June 2012, IDO Ltd. received three loans from its commercial bank. The loans bear interest at rates of 1.5% - 3.0% per annum and have maturity dates of three months from issuance, unless extended. As of June 30, 2012, two loans have been extended. At June 30, 2012 and December 31, 2011, the Company owed $246,773 and $97,016, respectively. In August 2012, IDO Ltd. paid the interest and principal balance of one loan totaling 404,404 NIS, (approximately $100,000 as of the date of this filing). In July 2012, a fourth loan in the amount of 200,000 NIS (approximately $49,700 as of the date of this filing) was received from the bank, which bears interest at 2.5% and matures in October 2012. Guarantees for all the loans were given by a 2008 Investor (as defined in Note 7(i) below).

NOTE 7 - PRIVATE PLACEMENT OF CONVERTIBLE PROMISSORY NOTES

Convertible promissory notes consist of the following:

	June 30, 2012			December 31, 2011

2008 Notes - secured and convertible - see (i) below	$	2,518,445		$	2,518,445

December 2008 Notes - secured and convertible – see (ii) below		815,062			815,062

2009 - 2011 Notes - secured and convertible - see (iii) below		4,010,579			4,010,579

2012 Notes - secured and convertible - see (iv) below		541,870			-

Total		7,885,956			7,344,086

Less: Discount		(3,894,700	)		(864,345	)
		3,991,256			6,479,741
Less: Current Portion		(2,066,677	)		(6,429,007	)

Total	$	1,924,579		$	50,734

(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 10% Secured Convertible Promissory Notes (collectively, the “2008 Notes”, each a ”2008 Note”). The transactions were effected pursuant to a Subscription Agreement, dated as of December 5, 2007 between the Company and the 2008 Investors.

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 1,802 post-split shares of the Company’s Common Stock at an adjusted per share price of $450.

The 2008 Notes were originally convertible into shares of Common Stock at the holder’s option at any time at an initial conversion price of $3,000 per post-split 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.

Commencing on the fourth month anniversary of the issuance of the 2008 Notes and on the same day of each month thereafter until the principal amount of the 2008 Notes has been paid in full, the Company was required to prepay 5% of the aggregate principal amount of the 2008 Notes originally issued, together with all accrued interest due and payable on the entire outstanding amount up to such repayment date (each such date, a “Scheduled Payment Date”).

The 2008 Notes were originally scheduled to mature in December 2009 and were extended several times to December 31, 2011. The non-payment of the outstanding balance of these notes upon maturity on December 31, 2011 constituted an Event of Default under the transaction documents with the 2008 Investors. 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, representing the requisite Majority in Interest under the transaction documents. Such action had not been commenced by the note holders. In April 2012, the requisite Majority in Interest waived all existing Events of Default through June 30, 2012. In May 2012, the requisite Majority in Interest agreed to certain modifications of the terms of the 2008 Notes ((see (vi) Modification of Debt).

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. At June 30, 2012, 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. The pertinent documents provide that any action by the investors upon such default (i.e., acceleration of the debt and other remedies) can only be initiated by the holders of 65% or more of the outstanding principal amount of the notes. Such action has not been commenced by the note holders. The Company does not currently intend to file such registration statement as the shares issuable upon conversion of the 2008 Notes and/or the 2008 Investor Warrants are eligible to be resold under Rule 144.

(ii) Secured Convertible Promissory Note and Series A Convertible Preferred Stock (“Series A Preferred”)

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 10% Secured Convertible Promissory Notes due April 20, 2010 (“collectively the “December 2008 Notes”) and 8.9 post-split shares of Series A Preferred. In addition, the Company issued to the investors warrants (the “Warrants”; together with the December 2008 Notes and the Series A Preferred, the “Purchased Securities”) to purchase in the aggregate up to 2,370 post-split shares of the Company’s Common Stock at a per share exercise price equal to $750 exercisable through October 31, 2013. The warrants include a ‘cashless exercise’ provision.

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 $450 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.

Commencing on April 30, 2009, and thereafter on the last day of each subsequent calendar month until the principal amount of the December 2008 Notes has been paid in full, the Company is required to prepay 8.33% of the aggregate principal amount of the December 2008 Notes originally issued, together with all accrued interest due and payable on the entire outstanding amount up to such repayment date. The amount may be paid, at the Company’s election, either in (i) cash, at 110% of the principal amount due and 100% of all other amounts due or (ii) shares of Common Stock as defined; provided, that, if such monthly amount is to be paid with shares of Common Stock, it will be automatically deferred unless the holder gives notice to the Company at least five (5) days before a repayment date that the holder will accept payment of such monthly amount in the form of Common Stock.

The Company’s obligations under the December 2008 Notes are secured by a security interest in substantially all of its assets pursuant to a prior Security Agreement dated as of December 24, 2007 between it and the purchasers of the 2008 Notes.

Holders of the Purchased Securities are subject to certain limitations on their rights to convert the securities. The principal limitation is that the holder may not, with certain limited exceptions, convert into a number of shares that would, together with other shares held by the holder, exceed 4.99% or 9.99% of the then outstanding shares of the Company after such conversion and/or exercise.

The December 2008 Notes were originally scheduled to mature on April 30, 2010 and were extended several times to December 31, 2011. The non-payment of the outstanding balance of these notes upon maturity on December 31, 2011 constituted an Event of Default under the transaction documents. 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, representing the requisite Majority in Interest under the transaction documents. Such action had not been commenced by the note holders. In April 2012, the requisite Majority in Interest waived all existing Events of Default through June 30, 2012. In May 2012, the requisite Majority in Interest agreed to certain modifications of the terms of the 2008 Notes (see (vi) Modification of Debt).

(iii) 2009 - 2011 Notes and Series A Preferred

In April 2009, the holders of the 2008 Notes and the December 2008 Notes consented to the placement of 10% secured convertible promissory notes, Series A Preferred and warrants, all on the substantive terms identical to those prevailing with respect to the December 2008 Private Placement discussed at further length in Note 7(ii) above.

●

In 2009, the Company raised net proceeds of $1,332,500 from the private placement to certain holders of the December 2008. The Company issued $1,432,500 in principal amount of 2009 Notes and 11.9 post-split shares of Series A Preferred. In connection with such investment, the Company issued to the holders of the 2009 Notes, five-year warrants to purchase in the aggregate up to 3,183 post-split shares of the Company’s common stock at per share exercise price equal to $750.

●

In 2010, the Company raised net proceeds of $318,940 from the private placement to certain holders of the December 2008 Notes. The Company issued $318,940 in principal amount of 2010 Notes and 2.7 post-split shares of Series A Preferred. In connection with such investment, the Company issued to the holders of the 2010 Notes, five- year warrants to purchase in the aggregate up to 709 post-split shares of the Company’s common stock at per share exercise price equal to $750.

●

In 2011, the Company raised net proceeds of $2,359,134 which includes $1,456,880 of rolled over notes payable and accrued interest in addition to $902,254 of new invested capital, from four holders of the December 2008 Notes. The Company issued $2,359,134 in principal amount of 2011 Notes and 19.7 post-split shares of Series A Preferred. In connection with such investments, the Company issued to the holders of the 2011 Notes, five year warrants to purchase in the aggregate up to 5,242 post-split shares of the Company’s Common Stock at per share exercise price equal to $750.

Commencing on the six month anniversary date of the various notes, and on the same day of each subsequent calendar month thereafter until the principal amount of the various notes has been paid in full, the Company is required to prepay 8.33% of the aggregate principal amount of the various notes originally issued, together with all accrued interest due and payable on the entire outstanding amount up to such repayment date.

The various notes were scheduled to mature at various dates and were extended to December 31, 2011. The non-payment of the outstanding balance of a significant portion of these notes upon maturity on December 31, 2011 constituted an Event of Default under the transaction documents. 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 had not been commenced by the note holders. In April 2012, the requisite Majority in Interest waived all existing Events of Default through June 30, 2012. In May 2012, the requisite Majority in Interest agreed to certain modifications of the terms of the various notes (see (vi) Modification of Debt).

(iv) 2012 Notes and Series A Preferred

For the period January 1, 2012 through June 30, 2012, the Company raised net proceeds $541,870 from holders of the December 2008 Notes and two new investors. The Company issued $541,870 in principal amount of 10% secured convertible promissory notes (“2012 Notes”) and 5.77 post-split shares of Series A Preferred. In connection with such investments, the Company issued five-year warrants to purchase in the aggregate up to 1,204 post-split shares of the Company’s Common Stock at per share exercise price equal to $750.

Commencing on the six month anniversary date of the 2012 Notes, and on the same day of each subsequent calendar month thereafter until the principal amount of the Notes has been paid in full, the Company is required to prepay 8.33% of the aggregate principal amount of the Notes originally issued, together with all accrued interest due and payable on the entire outstanding amount up to such repayment date. In May 2012, the requisite Majority in Interest agreed to certain modifications of the terms of the 2012 Notes (see (vi) Modification of Debt).

For financial reporting purposes, the Company recorded a discount of $387,055 to reflect the value of the Warrants and Series A Preferred issued. The estimated value of the warrants was determined using the Black-Scholes option pricing model under the following assumptions: life of 5 years, risk free interest rate of 0.83%, a dividend yield of 0% and volatility of 135%.

For the period July 1, 2012 through August 20, 2012, the Company raised net proceeds of $300,000 from a holder of the December 2008 Notes . The Company issued $300,000 in principal amount of 2012 Notes, 2.5 post-split shares of Series A Preferred and five-year warrants to purchase in the aggregate up to 667 post-split shares of the Company’s Common Stock at per share exercise price equal to $750.

(v) Priority of Payments of Notes

The holders of approximately 74% of the outstanding principal amount of the Notes have agreed that Notes issued after December 15, 2011 (“New Notes”) shall be accorded first lien priority in the collateral (as defined) and that any repayment obligations currently owing on Notes issued on or before October 26, 2011 shall be subordinated to the repayment obligations incurred by the Company in connection with the New Notes. The consenting holders represent more than the requisite Majority in Interest required under the transaction documents for this matter, and accordingly their agreement is binding upon all note holders.

(vi) Modification of Debt

In May 2012, the holders of approximately 73% of the outstanding principal amount of the Notes waived all Events of Default and consented to a modification of the note terms. Under the modification, effective January 1, 2012:

●

The Company may deem the maturity date of the outstanding notes (including any issued after January 1, 2012) to be December 31, 2015

●

The interest rate payable has been reduced to 2.5% per annum

●

The determination of the number of shares of Common Stock for purposes of the repayment of the Monthly Amount through the issuance of Common Stock shall be made by dividing the Monthly Amount by $0.30 (post-split), subject to further adjustment as provided in the Notes with respect to certain corporate events.

The Company accounted for the modification of the terms of the notes, as described above, as an extinguishment of debt in accordance with FASB ASC Subtopic 470-50, “ Debt: Modifications and Extinguishment .” The Company deemed the terms of the modification to be substantially different and treated the Notes as extinguished and exchanged for new notes. As such, it was necessary to reflect the Notes at fair value. In addition, any remaining unamortized debt discounts were expensed.

In accordance with FASB ASC subtopic 820-10, “Fair Value Measurement – Overall,” the value of the Notes was determined utilizing level 3 inputs. The fair value of the Notes was determined based on an effective rate of return of approximately 31%, which approximates the return of a high risk note. As a result, the face amount of the remaining principal balance of $5,483,839 was written down to its fair market value of $1,566,704. This discount is being amortized to the amended date of maturity unless paid or converted earlier. The Company recognized a gain on debt extinguishment of $2,926,717, which included the expensing of unamortized debt discounts totaling $990,418.

NOTE 8 - CAPITAL TRANSACTIONS

Reverse Stock Split

On December 16, 2011 the Company implemented a reverse stock split of its outstanding common and preferred stock at a ratio of 1-for-3,000 shares. In connection with the reverse stock split, the Company’s Certificate of Incorporation was amended such that the Company’s issued and outstanding common stock and the Series A Preferred, as well as the Company’s authorized but unissued capital, was proportionately reduced.

Convertible Preferred Stock

In January through June 2012, in connection with the issuance of notes payable, the Company issued 5.77 post-split shares of its Series A Preferred. For the period July 1, 2012 through August 20, 2012, the company issued 2.5 post-split shares of Series A Preferred. See Note 7.

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 is outstanding, unless waived by the holders of 66 2/3% of the Series A Preferred then outstanding, the dividend rate shall increase to 15%. In addition, shares of the Series A Preferred 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 post-split value of $300,000 and is convertible into post-split shares of the Company’s common stock at $450 per share.

Commencing on the issuance date, 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 until the stated value and all accrued dividends have been paid in full. Redemption payments on the Series A Preferred 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 was not classified as permanent equity and dividends and deemed dividends are included in interest expense.

The dividends are cumulative commencing on the issue date whether or not declared. For the six months ended June 30, 2012 and 2011, the Company declared dividends totaling $173,897 and $470,578, respectively. For the three months ended June 30, 2012, the company declared dividends totaling $89,500 and $265,215, respectively. At June 30, 2012 and December 31, 2011, dividends payable total $2,198,393 and $2,024,496, respectively, and are included in accounts payable and accrued liabilities. For the six months ended June 30, 2012 and 2011, dividends and deemed dividends totaled $1,720,200 and $1,676,425, respectively. For the three months ended June 30, 2012, dividends and deemed dividends totaled $899,733 and $909,312, respectively. Such amounts have been included in interest expense.

The non-payment of the accrued dividends and the redemption of the Series A Preferred constituted Events of Default under the Certificate of Designation. In May 2012, in connection with the note modification, the stockholders of approximately 71% of the outstanding amount of Series A Preferred agreed that effective January 1, 2012:

1.	Waived the Events of Default under the Certificate of Designation at any time prior to and through May 2012. In addition, the stockholders waived any Events of Default that may arise through December 31, 2015.

2.	To eliminate the 10% dividend on their holdings.

They further agreed that the determination of the number of shares of Common Stock for purposes of the payment of the Monthly Amount through the issuance of Common Stock shall be made by dividing the Monthly Amount by $0.30 (post-split), subject to further adjustment as provided in the Notes with respect to certain corporate events.

The maturities on the Series A Preferred Stock are $6,464,868 past due that were payable in 2009 through 2011, $4,859,837 payable in 2012 and $1,176,110 payable in 2013.

NOTE 9 – CONTINGENCIES

Lawsuits

(i) In its quarterly report on Form 10-Q for the three months ended September 30, 2009, the Company first disclosed that on June 22, 2009, its wholly-owned subsidiary, IDO Ltd., filed an action in the Labor Court, in Tel Aviv, Israel, against one of its former officers and directors. The action asserts claims based on material non-compliance by the former officer with the terms of the employment agreement between him and our subsidiary. The action seeks disgorgement of amounts remitted to the former officer by the subsidiary under the employment agreement in the approximate amount of 1,356,000 NIS (approximately $335,000 based on the exchange rate in effect at the time of the filing of this report on Form 10-Q) voiding the agreement, other equitable relief, and costs and disbursements, including attorneys’ fees. Previously, on May 10, 2009, the former officer/director resigned from all positions held with the subsidiary purportedly for “just cause” under the employment agreement. The resignation followed a request by the subsidiary that the former officer/director attend a meeting with management relating to his performance under the agreement, which request was refused.

On January 3, 2011, the former officer filed an answer. A hearing was held on July 3, 2011. See the discussion below.

(ii) In its quarterly report on Form 10-Q for the three months ended September 30, 2009, the Company first disclosed that on October 10, 2009, the above referenced former officer/director filed an action in the Labor Court in Tel-Aviv against IDO Ltd., as well as a director and the General Manager of IDO Ltd. The action seeks the payment of amounts purportedly due and payable to the officer/director under his employment agreement with IDO Ltd. in the approximate amount of 1,481,000 NIS (approximately $366,000 based on the exchange rate in effect at the time of the filing of this report on Form 10-Q). In January 2010, the Company filed an answer whereby we denied all allegations.

On January 3, 2011, the plaintiff filed his affidavit. A hearing was held on July 3, 2011. See the discussion below.

In October 2011, the former officer submitted to the court its conclusions. The Company submitted its conclusions in December 2011. As of the filing of this report on Form 10-Q, the Court has not rendered judgment.

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

On July 23, 2012, a complaint was filed in the San Diego Superior Court against the Company, certain officers and directors, and other unrelated companies, alleging violations of California restrictions on unsolicited commercial e-mails. Under the relevant California statute, violators are subject to pay damages of up to $1,000 for each spam email to each recipient. The plaintiff alleges he received 19 spam emails relating to the Company. The plaintiff is also seeking preliminary injunction against the defendants.

We believe that this lawsuit, as it applies to the Company, its officers and directors, is baseless and we intend to vigorously defend our rights. We are currently in the process of examining legal recourse available to us. As of the date of the filing of this quarterly report on Form 10-Q, neither the Company or any of its officers/directors have been served.

NOTE 10 – SUBSEQUENT EVENTS

Management has evaluated subsequent events through the date of this filing.

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, 2011 filed with the Securities and Exchange Commission. We undertake no obligation to revise or update any forward-looking statement for any reason.

Company Overview

IDO Security Inc. (“we”, “IDO” or the “Company”) is engaged in the design, development and marketing of a shoe scanning device (SSD) for the homeland security and loss prevention markets 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, high security places and other public locations requiring individual security screening. Our common stock trades on the OTC Bulletin Board under the symbol IDOI.

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

We have designed and developed a security screening device containing proprietary and patented technology known as the MagShoe™. The MagShoe™ creates specific electro-magnetic fields that can intelligently detect the presence of metallic objects inside a person’s footwear as well as next to or above the ankles. The proprietary software included in the MagShoe™ provides for the collation and delivery of the screening data to the operator for immediate analysis. The MagShoe™ obviates the need to remove the footwear being inspected. Our technology is designed to distinguish between a person’s left and right shoe, analyzing anomalies for each foot but also for both together, and provides comparative screening results. The technology allows for both the detection and assessment of possible threats from the shoe and ankle area posed by foreign metal objects based upon the analysis of the detected metal material(s) and their location in shoes. The MagShoe™ device has been designed to integrate into and complement current security screening arrays and systems. The new G3 generation MagShoe is portable and, depending on the model, weighs 48 kilograms (and can scan up to 18 inches from the base of the passenger's footwear) and 33 kilograms (and scans up to 8 inches from the base of the passenger's footwear) and can be deployed quickly by existing security personnel, who can integrate the MagShoe into their current security routine . The subject being screened places his feet on the device in the designated areas for each foot and in three-six seconds, depending on the model, the scan is completed. An audio-visual signal alerts the operator of the results of the check and provides a read-out on the control panel in an easily readable format.

MagShoetm fills a critical void in today’s detectors by extending screening to the lower body and feet. MagShoeTM’s “shoes-on” design maximizes security, thoroughness and accuracy while eliminating the need to remove shoes for increased convenience and safety. The MagShoeTM is neither invasive nor harmful to the body as some of the other screening devices currently use in the marketplace. Ideal for security and loss prevention at virtually any facility, MagShoeTM is currently in use at international airports, cruise lines, government agencies and more.

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

Worldwide, we believe that there are in excess of 1,200,000 walk through metal detectors (WTMD) installed in various high security locations and that detection devices, such as the MagShoe™, are a necessary part of any security measures in place in those installations as well as other areas where there are no walk through metal detectors. The MagShoe™ acts as a complementary device to any and all walk through metal detectors, insuring that all who pass through have no metallic weapons in the area that the metal detectors are inherently weak.

General Background

The September 11, 2001 terrorist attacks on the World Trade Center and the Pentagon using hijacked airliners led to nationwide shifts in transportation and facilities security policies. Shortly following these attacks, the U.S. Congress passed the Aviation and Transportation Security Act and integrated many U.S. security-related agencies, including the Federal Aviation Administration, into the U.S. Department of Homeland Security (“DHS”). Under its directive from Congress, the DHS has undertaken numerous initiatives to prevent terrorists from entering the country, hijacking airliners, and obtaining and trafficking in weapons of mass destruction and their components, to secure sensitive U.S. technologies and to identify and screen high-risk cargo containers before they are loaded onto vessels destined for the U.S., among others.

These government-sponsored initiatives have also stimulated security programs in other areas of the world as the U.S initiatives call on other nations to bolster their port security strategies, including acquiring or improving their security and inspection equipment.

The U.S. Department of Defense has also begun to invest more heavily in technologies and services that screen would-be attackers before they are able to harm U.S. and allied forces.

Similar initiatives by international organizations such as the European Union have also resulted in a growing worldwide demand for airline, cargo, port and border inspection technologies. For example, the European Union has tasked a working group to establish uniform performance standards for people, cargo, mail & parcel and hold baggage ETD screening systems, just as it has with X-Ray and liquid explosives detection systems.

In October 2010, we entered into a distribution arrangement with JEI, Inc. a California based company with an extensive history of selling state of the art audio recording devices, a vital security apparatus, to the Federal, State and local governments throughout the United States. As part of that arrangement, JEI has submitted the MagShoe to the U.S. General Services Administration (GSA) for approval and ultimate sale to the various Federal Agencies. Of course no guarantee can be provided that the MagShoe will be approved by the GSA and, even if approved, that ultimately, will be sold to the agencies. GSA has informed us that in order to fairly price our product line and place it in its catalogue, we will need to sell new models valued at least $100,000 in the United States. JEI has demonstrated the MagShoe device at several governmental facilities while we attempt to obtain our GSA listing.

We are currently intensifying our efforts to identify and team up appropriate collaborators in the coming months with a view toward enabling us to bring the MagShoe to our various core markets in the United States and throughout the world while also beginning the process of seeking other state of the art security devices to put through our distribution system to increase the awareness of IDO as a seller and supplier of security devices.

Current Operational Highlights

We recorded revenues of approximately $203,000 for the year ended December 31, 2011, representing our strongest year-end revenues to date. We recorded revenues of $204,564 for the three months ended March 31, 2012 and $80,916 for the three months ended June 30, 2012. The positive direction of our operations and results in the past year is attributable, in part, to the activities of Mr. Yaniv Beran, who has been serving as the acting General Manager of our Israeli based subsidiary following the departure in May 2011 of the management team overseeing the subsidiary. Prior to working for IDO, Mr. Beran served as the chief technology officer of various companies active in the homeland security and medical device fields. Mr. Beran is the author of several patents in the field of particle collection for explosive detection devices. As of June 30, 2012, we have received purchase orders for additional MagShoe™ units. We believe that there are opportunities for additional sales of our MagShoe device.

Subject to raising the needed funds, our goal is to incorporate our SSD proprietary technology as a complementary technology to the existing walk through metal detectors (WTMD), thereby augmenting the security equipment and procedures currently used throughout the world. We are also exploring options of integrating our technology with other non-metallic based detection systems.

However, we will need to raise additional funds on an immediate basis in order to further explore these options as well as to meet our on-going operating requirements and to realize our business plan. Our actions to raise the needed capital have been hampered by, among other things, certain other developments referred to below.

On June 20, 2012, The Depository Trust Company (“DTC”), a subsidiary of The Depository Trust & Clearing Corporation which provides custody and asset servicing for 3.6 million securities issues from the United States and 121 other countries and territories and enables “book-entry” changes to ownership of those securities, advised the Company that it has resumed accepting additional deposits of the Company’s stock and book entry transfer services, thereby ending the “Chill” status of the Company’s stock which has been in effect since June 2011. In June 2011, DTC applied a “Chill” on the use of the DTC electronic stock transfer system for privately issued shares of our common stock. We believe the DTC exercised its discretionary authority in response to the large number of shares that we were required to issue in repayment of loan obligations to holders of our convertible securities.

On December 16, 2011, we implemented a reverse stock split of our issued and outstanding shares of common stock at a ratio of 1-for 3,000 shares (the “Reverse Split”). The Reverse Split has been reflected in this Quarterly Report on Form 10-Q.

RESULTS OF OPERATIONS

COMPARISON OF THE SIX AND THREE MONTHS ENDED JUNE 30, 2012 TO THE SIX AND THREE MONTHS ENDED JUNE 30, 2011

Revenues and costs of goods sold – Revenues for the six and three months ended June 30, 2012 were $285,480 and $80,916, respectively, compared to $19,486 and $325 for the corresponding periods in 2011. All revenues were derived from sales of our MagShoe™ device. Costs of goods sold during each of the six and three months ended June 20, 2012 were $191,385 and $75,532, respectively, as compared to $38,109 and $14,014 for the corresponding periods in 2011.

The increase in revenues and the cost of goods sold during each of the six and three months ended June 30, 2012 compared to the corresponding periods in 2011 is primarily attributable to the substantial increase in the number of MagShoe™ devices delivered to customers in Africa, Europe and the Far East.

Research and development expenses - Research and development expenses consist primarily of expenses incurred in designing, developing and field testing the MagShoe™ device. These expenses consist primarily of salaries and related expenses for personnel, contract design and testing services, supplies used and consulting and license fees paid to third parties. We incurred research and development expenses for the six and three months ended June 30, 2012 of $100,188 and $49,626, respectively, compared to $132,984 and $78,992, respectively, for the corresponding periods in 2011. The decrease in research and development expenses is principally attributable to the near completion of the new product design and modifications.

Selling, general and administrative expenses - Selling, general and administrative expenses primarily consist of salaries/fees and other related costs for personnel in marketing, sales, executive and other administrative functions and consultants. Other significant costs include professional fees for legal, accounting and other services. We incurred selling, general and administrative expenses for the six and three months ended June 30, 2012 of $785,056 and $383,607, respectively, compared to $583,942 and $317,522, respectively, for the corresponding periods in 2011. The increase in selling, general and administrative expenses is principally attributable to increased marketing and public relations efforts.

Interest expense- Interest expense for the six and three months ended June 30, 2012 was $167,372 and $81,722, respectively, compared to $1,026,953 and $178,330 in the corresponding periods in 2011. Interest expense relates primarily to the placement of our convertible promissory notes. Interest expense for the six months’ ended June 30, 2011 includes $641,373 related to the issuance in of 6,229 shares of Series A Preferred Stock as consideration for the extending the terms of certain convertible debt Nominal interest decreased in 2012 due to the reduction of the interest rate from 10% to 2.5% as a result of the modification of the terms of certain of the notes. See Note 7(vi) in the condensed consolidated financial statements.

Amortizations – The amortizations are included in interest expense in the statement of operations. During the six and three months ended June 30, 2012, we recorded amortization of $283,416, and $158,515, respectively, compared to $482,337 and $257,637 for the corresponding period in 2011. Amortization in 2012 also includes the accretion of interest relating to the write-down to fair value of extinguished debt. Amortization costs in 2011 relate to the debt discount and deferred finance costs incurred in connection with the placement of our convertible promissory notes. These costs are amortized to the date of maturity of the debt unless converted earlier.

Gain on extinguishment of debt – In May 2012, the holders of approximately 73% of the outstanding principal amount of the Notes agreed to waive all existing defaults and consented to a modification of the terms of the Notes. We accounted for the modification of the terms as an extinguishment of debt. In accordance with FASB ASC subtopic 470-50, the face amount of the remaining balance of $5,483,839 was written down to its fair market value of $1,566,704. We recognized a gain on debt extinguishment of $2,926,717, which included the expensing of unamortized debt discounts totaling $990,418. The reduction to the fair market value will be accreted to interest expense through the new maturity date of December 31, 2015, the date consented to by the waiving note holders.

Preferred stock dividends– In connection with our financing arrangements we have issued shares of Series A Preferred Stock. The shares accrue a dividend of 10% per annum. The dividends are cumulative commencing on the issue date whether or not declared. For financial reporting purposes, we recorded a discount to reflect the difference in the amount of proceeds allocable to the Series A Preferred Stock in the offering based on relative fair values and the stated value. The discounts were being amortized as deemed dividends on preferred stock to the date of maturity unless converted earlier. As a result of the redemption provisions, the Series A Preferred was not classified as permanent equity and dividends and deemed dividends are included in interest expense. As such, all dividends accrued and/or paid and any accretions are classified as part of interest expense. For the six and three months ended June 30, 2012, dividends and deemed dividends totaled $1,711,200 and $899,732, respectively, and such amount has been included in interest expense. For the six and three months ended June 30, 2011, dividends and deemed dividends totaled $1,676,425, and $909,312.

Net loss – For the six and three months ended June 30, 2012, we had a net loss of $31,847 and $1,568,448, respectively as compared to a net loss of $3,926,331 and $1,754,433 for the corresponding periods in 2011.

LIQUIDITY AND CAPITAL RESOURCES

We need to raise additional funds on an immediate basis in order to be able to satisfy our cash requirements and fulfill our business plan over the next twelve months. 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. At the present time, we have no commitments for financing and no assurance can be given that we will be able to raise capital on commercially acceptable terms or at all. Even if we raise cash to meet our immediate working capital needs, our cash needs could be heavier than anticipated in which case we could be forced to raise additional capital. Our limited availability of authorized and unissued may impair our ability to raise significant funds from current or new investors. In addition, our auditors included a “going concern” qualification in their auditors’ report for the three months ended June 30, 2012. Such “going concern” qualification may make it more difficult for us to raise funds when needed. Moreover, the current economic situation may further complicate our capital raising efforts. If we are unable to raise additional capital on an immediate basis, we may be forced to lay-off additional employees and either restructure or cease operations entirely.

As of June 30, 2012, we had a cash balance of $98,253 compared to $43,726 at December 31, 2011.

Cash used in operating activities was $633,533 in 2012. The decrease in cash was primarily attributable to funding the operating loss for the period.

Cash used in investing activities was $2,635 in 2012 and represented the acquisition of property and equipment.

Cash provided by financing activities was $690,695 during the six months ended June 30, 2012. We received proceeds of $541,870 from the issuance of convertible notes and $149,757 from bank loans was drawn by our wholly-owned subsidiary.

To date, we have financed our operations primarily from the sale of our securities (secured convertible notes, Series A Preferred Stock and warrants). See Note 7 in our Condensed Consolidated Financial Statements.

Between January and June 30, 2012, we raised $541,870 from the private placement to certain holders of our secured convertible promissory notes which we issued in December 2008 and new investors. From July through August 2012, we raised an additional $300,000 from a holder of these notes.

Modification of Debt Terms

In May 2012, the holders of approximately 73% of the outstanding principal amount of the Notes, representing the requisite Majority in Interest under the transaction documents, agreed to the following: (i) waive all events of default that may arise in the future under the notes except for certain specified events; (ii) that the operative maturity date of the outstanding notes should be December 31, 2015 and the Company’s failure to treat an earlier date as the maturity date shall not be deemed and Event of Default; (iii) effective January 1, 2012, the interest payable by us shall be at two and one-half percent (2.5%) per annum and the Company’s failure to any other rate shall not be deemed an event of default; (iv) waive the default interest rate and the Company’s failure to honor the default interest rate shall not be deemed an event of default; (v) effective January 1, 2012, fix the rate at which monthly principal and accrued interest payment on the outstanding notes is made in shares at the rate of $0.30 (post split) per share, as compared to the floating rate heretofore in effect based on the price of the Company’s publicly traded stock for the period preceding the payment date.

ITEM 4.

CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our acting Chief Executive Officer (and Principal Financial and Accounting Officer), to allow timely decisions regarding required disclosure based closely on the definition of “disclosure controls and procedures” in Rule 13a-14(c).

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with participation of management, including our acting Chief Executive Officer (and Principal Financial and Accounting Officer), of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our acting Chief Executive Officer (and Principal Financial and Accounting Officer) concluded that our disclosure controls and procedures were effective.

During the quarter ended June 30, 2012, there have been no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, these controls.

PART II - OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS.

(i) On July 23, 2012, George A. Sharp ("Sharp") filed a Complaint in the San Diego Superior Court, Case No. 37-2012-00101057-CU-NP-CTL (the "Case") against the Company, certain officers and directors, and other unrelated companies, alleging violations of California restrictions on unsolicited commercial e-mails. Under the relevant California statute, violators are subject to pay damages of up to $1,000 for each spam email to each recipient. Sharp alleges he received 19 spam emails relating to the Company. Sharp is also seeking preliminary injunction against the defendants.

(ii) In its quarterly report on Form 10-Q for the three months ended September 30, 2009, the Company first disclosed that on June 22, 2009, its wholly-owned subsidiary, IDO Ltd., filed an action in the Labor Court, in Tel Aviv, Israel, against one of its former officers and directors. The action asserts claims based on material non-compliance by the former officer with the terms of the employment agreement between him and our subsidiary. The action seeks disgorgement of amounts remitted to the former officer by the subsidiary under the employment agreement in the approximate amount of 1,356,000 NIS (approximately $335,000 based on the exchange rate in effect at the time of the filing of this report on Form 10-Q) voiding the agreement, other equitable relief, and costs and disbursements, including attorneys’ fees. Previously, on May 10, 2009, the former officer/director resigned from all positions held with the subsidiary purportedly for “just cause” under the employment agreement. The resignation followed a request by the subsidiary that the former officer/director attend a meeting with management relating to his performance under the agreement, which request was refused.

(iii) In its quarterly report on Form 10-Q for the three months ended September 30, 2009, the Company first disclosed that on October 10, 2009, the above referenced former officer/director filed an action in the Labor Court in Tel-Aviv against IDO Ltd., as well as a director and the General Manager of IDO Ltd. The action seeks the payment of amounts purportedly due and payable to the officer/director under his employment agreement with IDO Ltd. in the approximate amount of 1,481,000 NIS (approximately $366,000 based on the exchange rate in effect at the time of the filing of this report on Form 10-Q). In January 2010, the Company filed an answer whereby we denied all allegations.

A hearing was held on July 3, 2011. In October 2011, the former officer submitted to the court its conclusions. The Company submitted its conclusions in December 2011. As of the filing of this quarterly report on Form 10-Q, the Court has not rendered judgment.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following paragraph sets forth certain information with respect to all securities sold by us during the three months ended June 30, 2012 without registration under the Securities Act:

Between April 1 and June 30, 2012, we issued convertible notes to certain holders of the 2008 Notes in the principal amount of $365,370 and 3.0448 post-split shares of Series A convertible Preferred Shares, and warrants to purchase 812 post-split shares of our Common Stock.

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.

MINE SAFETY DISCLOSURES

None.

ITEM 5.

OTHER INFORMATION.

None.

ITEM 6.

EXHIBITS.

Exhibit Number		Description

31		Certification Pursuant to Rule 13a-14a of the Securities Exchange Act of 1934, as amended

32		Certification Pursuant to Section 906 of Sarbanes-Oxley Act of 2002

101.INS*		XBRL Instance Document

101.SCH*		XBRL Taxonomy Extension Schema

101.CAL*		XBRL Taxonomy Extension Calculation Linkbase

101.DEF*		XBRL Taxonomy Extension Definition Linkbase

101.LAB*		XBRL Taxonomy Extension Label Linkbase

101.PRE*		XBRL Taxonomy Extension Presentation Linkbase

Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.

SIGNATURES

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


		IDO SECURITY INC.


Date: August 20, 2012		/s/ MICHAEL GOLDBERG
		MICHAEL GOLDBERG ACTING CHIEF EXECUTIVE OFFICER (PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER) AND PRESIDENT

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