IDO Security Inc. - FORM 10-Q

Attached files

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

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, 2013; 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 May 20, 2013, there were 19,986,471 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 March 31, 2013 (Unaudited) and December 31, 2012 (Audited)	2

	Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2013 and 2012	3

	Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2013 and 2012	4

	Notes to Unaudited Condensed Consolidated Financial Statements	5

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14

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	19
Item 5	Other Information	19
Item 6	Exhibits	20

SIGNATURES

IDO SECURITY INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
	March 31,			December 31,
	2013			2012
	(Unaudited)
ASSETS
CURRENT ASSETS
Cash	$	18,107		$	125,982
Inventories		178,485			183,721
Prepaid expenses and other current assets		29,731			33,830

Total current assets		226,323			343,533

Property and equipment, net		11,599			46,303

Total assets	$	237,922		$	389,836

LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable and accrued liabilities	$	6,683,193		$	6,081,105
Bank line of credit		15,377			-
Convertible promissory notes (net of discount of $34,260 and $49,141)		2,127,482			2,112,601
Redeemable Series A Cumulative Convertible Preferred Stock (net of discount of $1,082,277 and $1,556,297)		12,864,460			12,390,440
Warrant liability		400,000			400,000
Loans payable - related parties		161,376			159,480

Total current liabilities		22,251,888			21,143,626

NON-CURRENT LIABILITIES
Convertible promissory notes (net of discount of $3,760,466 and $4,006,776)		2,198,101			1,951,791
Redeemable Series A Cumulative Convertible Preferred Stock (net of discount of $179,952 and $226,506)		193,760			147,206
Accrued severance pay		-			26,250
Notes payable		169,500			69,500

Total liabilities		24,813,249			23,338,373

COMMITMENT AND CONTINGENCIES

STOCKHOLDERS' DEFICIENCY
Preferred Stock 6,600 shares authorized; none outstanding		-			-
Common stock, $.001 par value; 20,000,000 shares authorized, 19,986,471 shares issued and outstanding		19,986			19,986
Additional paid-in capital		27,624,231			27,624,231
Deferred compensation expense		(398,109	)		(696,691	)
Accumulated other comprehensive loss		(331	)		(331	)
Accumulated deficit		(51,821,104	)		(49,895,732	)

Total stockholders' deficiency		(24,575,327	)		(22,948,537	)

Total liabilities and stockholders' deficiency	$	237,922		$	389,836



See Notes to Condensed Consolidated Financial Statements.

IDO SECURITY INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

	Three Months			Three Months
	Ended			Ended
	March 31,			March 31,
	2013			2012
	(Unaudited)			(Unaudited)


Revenues	$	15,043		$	204,564

Cost of sales		136,757			115,853

Gross loss		(121,714	)		88,711

Operating expenses
Research and development expenses		53,202			50,562
Selling and general and administrative expenses		760,888			401,449

Total operating expenses		814,090			452,011

Loss from operations		(935,804	)		(363,300	)

Interest expense (including amortization of debt and preferred stock discounts, accretion of convertible promissory notes and dividends)		(967,686	)		(1,022,019	)
Gain on extinguishment of debt		-			2,926,717
Foreign currency translation		(21,882	)		(4,797	)

Net (loss) income	$	(1,925,372	)	$	1,536,601

Basic and diluted (loss) income per share	$	(0.10	)	$	0.09

Weighted average number of shares outstanding
Basic and diluted		19,986,471			17,548,057



See Notes to Condensed Consolidated Financial Statements.

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

	Three Months			Three Months
	Ended			Ended
	March 31,			March 31,
	2013			2012
	(Unaudited)			(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income	$	(1,925,372	)	$	1,536,601
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Depreciation and amortization		2,717			3,523
Amortization of note discount		703,295			811,468
Accretion of interest on notes payable		169,751			124,901
Stock based compensation		298,582			-
Interest and exhange rate differences		1,896			-
Gain on extinguishment of debt		-			(2,926,717	)
Loss on disposal and abandonment of property and equipment		31,087			-
(Decrease) increase in net liability for severance pay		(26,250	)		2,636
Increase (decrease) in cash attributable to changes in operating assets and liabilities
Inventory		5,236			65,990
Prepaid expenses and other current assets		4,099			20,533
Accounts payable		100,347			(5,745	)
Accrued expenses and other current liabilities		410,460			91,728

Net cash used in operating activities		(224,152	)		(275,082	)

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposal of property and equipment		900			-
Purchases of property and equipment		-			(1,792	)

Net cash provided by (used in) investing activities		900			(1,792	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable		100,000			-
Proceeds from bank line of credit		15,377			-
Proceeds from loans payable - related parties		-			1,023
Proceeds from issuance of convertible notes and preferred stock		-			176,500
Proceeds from loan payable		-			110,782

Net cash provided by financing activities		115,377			288,305

(DECREASE) INCREASE IN CASH		(107,875	)		11,431

CASH - BEGINNING OF PERIOD		125,982			43,726

CASH - END OF PERIOD	$	18,107		$	55,157

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



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 three months ended March 31, 2013, are not necessarily indicative of the results that may be expected for the year ending December 31, 2013. 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, 2012, as filed with the Securities and Exchange Commission.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. At March 31, 2013, the Company had not achieved profitable operations, had accumulated losses of $51.8 million (since inception), a working capital deficiency of $22 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 March 2013, the Company received net proceeds of approximately $7.4 million from the proceeds of the private placement to certain accredited investors of its 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.

NOTE 2 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

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
	March 31,
	2013	2012
Warrants	4,014,477	14,059
Convertible notes	20,837	18,680
Stock options	667	1,130
Convertible preferred stock	37,249	30,346

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.

NOTE 5 – INVENTORIES

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

Inventories at March 31, 2013 consisted of components totaling $63,426 and partially completed and completed devices totaling $115,059. Inventories at December 31, 2012 consisted of components totaling $60,667 and partially completed and completed devices totaling $123,054.

NOTE 6 – BANK LINE OF CREDIT

During the three months ended March 31, 2013, one of the banks of IDO Ltd. in Israel honored credit card payment obligations to vendors. At March 31, 2013, the Company owed the bank $15, 377.

NOTE 7 – NOTES PAYABLE

In November 2012, the Company issued a note to a 2008 Investor in the aggregate amount of $69,500. The note bears interest at the rate of 2.5% and is due at the earlier of (i) April 1, 2014 or (ii) the receipt by the Company of the amount of a Threshold New Transaction (as defined).

In March 2013, the Company issued a note to a 2008 Investor in the aggregate amount of $100,000. The note bears interest at the rate of 2.5% and is due at the earlier of (i) April 1, 2014 or (ii) the receipt by the Company of the amount of a Threshold New Transaction (as defined).

At March 31, 2013 and December 31, 2012, notes payable amounted to $169,500 and $69,500, respectively.

In April 2013, the Company issued a note to a 2008 Investor in the aggregate amount of $50,000. The note bears interest at the rate of 2.5% and is due at the earlier of (i) April 1, 2014 or (ii) the receipt by the Company of the amount of a Threshold New Transaction (as defined).

In May 2013, the Company issued a note to a 2008 Investor in the aggregate amount of $120,000. The note bears interest at the rate of 2.5% and is due at the earlier of (i) May 8, 2014 or (ii) the receipt by the Company of the amount of a Threshold New Transaction (as defined).

NOTE 8 - PRIVATE PLACEMENT OF CONVERTIBLE PROMISSORY NOTES

Convertible promissory notes consist of the following:

	March 31, 2013			December 31, 2012
	(Unaudited)

2008 Notes - secured and convertible - see (i) below	$	1,956,945		$	1,956,945

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		1,337,723			1,337,723

Total		8,120,309			8,120,309

Less: Discount		(3,794,726	)		(4,055,917	)
		4,325,583			4,064,392
Less: Current Portion		(2,127,482	)		(2,112,601	)

Total	$	2,198,101		$	1,951,791

(i) 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 warrants include a ‘cashless exercise’ provision.

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 December 31, 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.

There were no payments of principal or interest in 2013

(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).

There were no payments of principal or interest in 2013.

(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.

The warrants include a ‘cashless exercise’ provision.

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).

There were no payments of principal or interest in 2013.

(iv) 2012 Notes and Series A Preferred

For the year ended December 31, 2012, the Company raised net proceeds $1,337,723 from holders of the December 2008 Notes and two new investors. The Company issued 1,337,723 in principal amount of 10% secured convertible promissory notes (“2012 Notes”) and 11.14 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 2,972 post-split shares of the Company’s Common Stock at per share exercise price equal to $750.The warrants include a ‘cashless exercise’ provision.

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).

There were no payments of principal or interest in 2013.

(v) Priority of Payments of Notes

In December 2011, the holders of approximately 74% of the outstanding principal amount of the Notes at that time 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 represented 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.

(vii) Maturities of Convertible Promissory Notes

The maturities on the Notes are $2,090,914 were payable through 2013, $70,833 payable in 2014 and $5,958,562 payable in 2015.

NOTE 9 - CAPITAL TRANSACTIONS

Convertible Preferred Stock

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 three months ended March 31, 2013 and 2012, the Company declared dividends totaling $91,281 and $84,397, respectively. At March 31, 2013 and December 31, 2012, dividends payable total $2,441,553 and $2,350,272, respectively, and are included in accounts payable and accrued liabilities. For the three months ended March 31, 2013 and 2012, dividends and deemed dividends totaled $611,855 and $811,468, 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:

	●	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.

	●	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 $13,946,737 that were payable through 2013 and $373,712 payable in 2014.

Derivative Liabilities

In connection with the issuances of equity instruments or debt, the Company may issue options or warrants to purchase common stock. In certain circumstances, these options or warrants may be classified as liabilities, rather than as equity. In addition, the equity instrument or debt may contain embedded derivative instruments, such as conversion options or listing requirements, which in certain circumstances may be required to be bifurcated from the associated host instrument and accounted for separately as a derivative liability instrument. The Company accounts for derivative liability instruments under the provisions of FASB ASC 815, “Derivatives and Hedging.”

The Company issued warrants, Series A Preferred and Notes under various private placements. On October 22, 2012, the Company issued Common Stock for the conversion of Series A Preferred and Notes. Due to these issuances, the Company did not have enough available shares of authorized Common Stock to issue to the various security holders had all of the convertible securities been converted and/or exercised. As a result, the value of the warrants has to be recognized as a liability. In addition, the Company evaluated the conversion terms of the Notes and Series A Preferred to determine if such terms gave rise to embedded derivatives that would need to be accounted for separately. The Company determined that the lack of authorized shares to satisfy the conversion requirements if all of the securities were converted resulted in the conversion features being embedded derivatives that must be bifurcated and recorded as derivative liabilities. In addition, the Company would be required to revalue the derivative liabilities at the end of each reporting period with the change in value reported on the statement of operations. The Company did not account for these derivative liabilities in its financial statements as it was determined to not be material.

On November 8, 2012, the Company issued a warrant to purchase 4 million shares of Common Stock that contained a put option. As defined in the warrant, the warrant holder has the right to put the warrant back to the Company on or before May 6, 2013 if the Company does not file a proxy statement (as defined). The warrant holder is entitled to receive the greater of (i) the difference between the exercise price of the warrants of $0.30 and the 20-day average price of the Company’s Common Stock for the period preceding May 6, 2013 and (ii) $0.10 per share. The put option created a derivative liability which the Company valued at $0.10 per share as the Company’s stock price was below the strike price and has declined further since issuance. At both March 31, 2013 and December 31, 2012, the value of the warrant liability was $400,000.

Deferred Compensation and Stock Based Compensation

As discussed above, a warrant to purchase 4 million shares of Common Stock, valued at $895,745, was issued on November 8, 2012 as partial consideration for a nine-month advisory agreement. The value of the warrant was recognized as deferred compensation and is being amortized over the term of the agreement. At March 31, 2013 and December 31, 2012, the unamortized balance of deferred compensation was $398,109 and $696,691, respectively. For the three months ended March 31, 2013,the Company recognized stock compensation expense of $298,582 and such expense is included in selling and general and administrative expenses.

NOTE 10 – RELATED PARTY TRANSACTIONS

At March 31, 2013 and December 31, 2012, loans payable to related parties amounted to $161,376 and $159,480, respectively. Transactions were as follows:

IDO Ltd. received non-interest bearing advances from a 2008 Investor (as defined in Note 8(i)). The advances are due on demand. At December31, 2012 and 2011, the Company owed $38,821 and $35,833, respectively.

In November 2012, IDO Ltd. borrowed $75,000 under a loan agreement with the same 2008 Investor. The loan bears interest at the rate of 10%per annum and is secured by the inventory held by IDO Ltd. The principal and accrued interest are due on demand. At both March 31, 2013 and December 31, 2012, the Company owed principal of $75,000. Accrued interest owed at March 31, 2013 and December 31, 2012 was $2,729 and $833, respectively. Interest expense incurred for the three months ended March 31, 2013 was $1,896.

The Company received working capital loans from certain non-management affiliated stockholders of IDO Ltd. Amounts owed on the loans aggregated to $44,826 at both March 31, 2013 and December 31, 2012.

NOTE 11 – COMMITMENT & CONTINGENCIES

Lawsuits

(i) As the Company previously disclosed, in November 2012, the Tel-Aviv District Labor Court (the “District Court”) ruled in favor of Mr. Gil Stiss (“Stiss”), a former officer/director of IDO Ltd., in the lawsuit brought by Stiss against IDO Ltd. In the lawsuit which Stiss commenced in October 2009 against IDO Ltd. and a former director and the then General Manager of IDO Ltd., and which was first disclosed in the Company’s quarterly report on Form 10-Q for the quarter ended September 30, 2009, Stiss sought the payment of amounts purportedly due and payable to him under his employment agreement with IDO Ltd. Stiss was awarded judgment in the approximate amount of 1,475,000 in New Israeli Shekels (ILS), with interest and cost of living index adjustments computed from May 10, 2009 (“Judgment”). Stiss’ suit against the then officers/directors of IDO Ltd. was dismissed. The Company was not a party to the lawsuit.

On December 20, 2012, IDO Ltd. filed a motion with the District Court to stay execution of the Judgment pending appeal and, on December 23, 2012, IDO Ltd. filed its appeal (the “Appeal”) of the Judgment with the National Labor Court (“National Court”). On January 13, 2013, the District Court partially accepted the motion to stay execution of the Judgment in excess of ILS 500,000 provided that, IDO Ltd. paid the amount of ILS 500,000 into the District Court by February 15, 2013. IDO Ltd. elected to not make such payment. On January 17, 2013, IDO Ltd. filed a follow-up motion with the National Court to stay execution of the Judgment pending appeal. On March 5, 2013 the National Court dismissed the motion to stay execution of the Judgment. In March 2013, Stiss moved to collect on the judgment and in connection therewith, has obtained liens on assets and bank accounts of IDO Ltd. As of the filing of this report, the Company estimates that the total amount due under the Judgment, including interest and living costs adjustments amounts as well as collection costs are approximately ILS 2,000,000, which is equivalent to approximately $548,000 at March 31, 2013 and at the time of the filing of this report. Contacts with Stiss respecting a resolution and settlement of the matter are ongoing. No assurance can be provided that any successful resolution is possible or will in fact be reached. A reserve for lawsuit in the amount of $548,000 and $470,000 has been accrued at March 31, 2013 and December 31, 2012, respectively.

As of the date of this report, the Appeal of the Judgment with the National Court is pending and no assurances can be provided as to the ultimate disposition of the Appeal. In April 2013, Stiss filed a motion to dismiss the Appeal as IDO Ltd. has not complied with the Judgment (payment of amounts due).

In light of the foregoing, in April 2013, IDO Ltd. has terminated all commercial activities in Israel. All employees have been terminated and office premises have been closed. There is no substantial activity currently being undertaken by IDO Ltd. For the three months ended March 31, 2013, IDO Ltd. disposed of or abandoned most of its property and equipment and recognized a loss of $31,087, which is included in selling and general and administrative expenses.

Effective March 11, 2013, we and a third party engaged in the distribution, operation and maintenance of medical devices entered into a representation and manufacturing agreement pursuant to which the third party has been granted non-exclusive manufacturing rights of Company products and will also be granted the right to assist the Company in the management of sales, marketing and distribution of our products. While no assurance can be provided, we believe that the manufacturing activities formerly conducted by IDO Ltd. can be satisfactorily performed by such third party.

(ii) 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.

On September 24, 2012, the Company filed its answer denying the allegations and asserted affirmative defenses and the Company's officers and directors named in the Complaint filed a separate motion to quash service on September 24, 2012. On October 9, 2012, the plaintiff filed a demurrer to the answer. Decisions on the plaintiff's demurrer and the officers' and directors' motion to quash are pending. 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.

Representation and Manufacturing Agreement

As discussed above, the Company signed a representation and management agreement. In consideration for all services rendered, the Company agreed to pay a monthly fee of $40,000 commencing January 1, 2013.

NOTE 12 – 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, 2012 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. 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.

Current Operational Highlights

Effective April 2013, our subsidiary IDO Ltd. has terminated all commercial activities in Israel. All employees have been terminated and office premises have been closed. The cessation of activities by IDO Ltd. is a result of the litigation outcome discussed in Item 1 of Part II in this Quarterly Report on Form 10-Q.

In order to maintain orderly operations, we and a third party engaged in the distribution, operation and maintenance of medical devices have entered, as of April 15, 2013, into a representation and manufacturing agreement pursuant to which the third party has been granted non exclusive manufacturing rights of our products as well as the right to assist us in the management of sales, marketing and distribution of our products. While no assurance can be provided, we believe that the manufacturing activities formerly conducted by IDO Ltd. can be satisfactorily performed by such third party.

If a resolution or settlement is not reached with respect to the litigation discussed in Item 1 of Part II in this Quarterly Report on Form 10-Q , no assurance can be provided that the proposed restructure of our activities will not be legally challenged and, if so challenged, no assurance can be provided that such challenge will not succeed.

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.

RESULTS OF OPERATIONS

COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2013 TO THE THREE MONTHS ENDED MARCH 31, 2012

Revenues and costs of goods sold – Revenues for the three months ended March 31, 2013 were $15,043 compared to $204,564 for the corresponding periods in 2012. All revenues were derived from sales of our MagShoe™ device. Costs of goods sold during the three months ended March 31, 2013 were $136,757, as compared to $115,853 for the corresponding period in 2012.

The decrease in revenues during the three months ended March 31, 2013 compared to the corresponding nine month period in 2012 is primarily attributable to the substantial decrease in the number of MagShoe™ devices delivered to customers worldwide. The Company had a gross loss in 2013 due to fixed manufacturing overhead.

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 three months ended March 31, 2013 of $53,202 respectively, compared to $50,562 for the corresponding period in 2012. The increase in research and development expenses during the three months ended March 31, 2013 as compared to the corresponding period in 2012 is principally attributable to expenses incurred in connection with the exploration of options relating to incorporating our technology into a walk-through metal detector.

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 three months ended March 31, 2013 of $760,888 compared to $401,449 for the corresponding period in 2012. The increase in selling, general and administrative expenses during the three months ended March 31, 2013 compared to the corresponding period in 2012 is principally attributable to increased payroll costs (including severance) relating to the shutdown of operations of IDO Ltd. and stock compensation of $298,582 relating to the issuance of shares in November 2012 for a nine-month consulting agreement.

Interest expense- Interest expense for the three months ended March 31, 2013 was $94,640 compared to $85,650 in the corresponding period in 2012. Interest expense relates primarily to the placement of our convertible promissory notes.

Amortizations –– The amortizations are included in interest expense in the statement of operations. In 2013, we recorded amortization of $261,191 compared to $124,901 in 2012. Amortization represents the accretion of interest relating to the write-down to fair value of extinguished debt as well as amortization related to the debt discount 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 Series A Preferred Stock. The shares accrue a dividend of 10% per annum. Effective January 1, 2012, a majority of the Series A Preferred stockholders eliminated their dividends. The dividends are cumulative commencing on the issue date whether or not declared. For financial reporting purposes, we recorded a discount to reflect the difference in the amount of proceeds allocable to the Series A Preferred Stock in the offering based on relative fair values and the stated value. The discounts were being amortized as deemed dividends on preferred stock to the date of maturity unless converted earlier. Commencing on July 1, 2009, the Series A Preferred Stock is now being classified as a liability. As such, all dividends accrued and/or paid and any accretions are now classified as part of interest expense and are no longer classified as preferred stock dividends and deemed dividends. For the three months ended March 31, 2013 and 2012, dividends and deemed dividends totaled $611,855 and $811,468, respectively and such amounts are included in interest expense.

Net (loss) income – In 2013, we had a net loss of $1,925,372 compared to net income of $1,536,601 in 2012, for the reasons stated above.

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 auditors included a “going concern” qualification in their auditors’ report for the three months ended March 31, 2013. 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.

As of March 31, 2013, we had a cash balance of $18,107 compared to $125,982 at December 31, 2012.

Cash used in operating activities was $224,152 for the three months ended March 31, 2013. The decrease in cash was primarily attributable to funding the operating loss for the period

Cash provided by investing activities was $900 during the three months ended March 31, 2013 and represented the proceeds from the sale of property and equipment

Cash provided by financing activities was $115,377. We received proceeds of $75,000 from the issuance of notes and $15,377 was drawn by our wholly-owned subsidiary on its line of credit.

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 8 in our Condensed Consolidated Financial Statements.

Between April 1 to May 17, 2013, we raised $170,000 from the private placement to certain holders of our secured convertible promissory notes.

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 March 31, 2013, 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) As the Company previously disclosed, in November 2012 the Tel-Aviv District Labor Court (the “District Court”) ruled in favor of Mr. Gil Stiss (“Stiss”), a former officer/director of the Company’s wholly-owned subsidiary, IDO Ltd., in the lawsuit brought by Stiss against IDO Ltd.. In the lawsuit, which Stiss commenced in October 2009 against IDO Ltd. and a former director and the then General Manager of IDO Ltd., and which was first disclosed in the Company’s quarterly report on Form 10-Q for the quarter ended September 30, 2009, Stiss sought the payment of amounts purportedly due and payable to him under his employment agreement with IDO Ltd. Stiss was awarded judgment in the approximate amount of 1,475,000 in New Israeli Shekels (ILS), which is equivalent to approximately $410,000 at the time of the filing of this report, with interest and cost of living index adjustments computed from May 10, 2009 (“Judgment”). Stiss’ suit against the then officers/directors of IDO Ltd. was dismissed. The Company was not a party to the lawsuit.

On December 20, 2012, IDO Ltd. filed a motion with the District Court to stay execution of the Judgment pending appeal and, on December 23, 2012, IDO Ltd. filed its appeal (the “Appeal”) of the Judgment with the National Labor Court (“National Court”). On January 13, 2013, the District Court partially accepted the motion to stay execution of the Judgment in excess of ILS 500,000 provided that, IDO Ltd. paid the amount of ILS 500,000 into the District Court by February 15, 2013. IDO Ltd. elected to not make such payment. On January 17, 2013, IDO Ltd. filed a follow-up motion with the National Court to stay execution of the Judgment pending appeal. On March 5, 2013 the National Court dismissed the motion to stay execution of the Judgment. In March 2013, Stiss moved to collect on the judgment and in connection therewith, has obtained liens on assets and bank accounts of IDO Ltd. As of the filing of this report, the Company estimates that the total amount due under the Judgment, including interest and living costs adjustments amounts as well as collection costs are approximately ILS 2,000,000, which is equivalent to approximately $548,000 at the time of the filing of this report. Contacts with Stiss respecting a resolution and settlement of the matter are ongoing. No assurance can be provided that any successful resolution is possible or will in fact be reached.

On April 15, 2013, we and a third party engaged in the distribution, operation and maintenance of medical devices entered into a representation and manufacturing agreement pursuant to which the third party has been granted non-exclusive manufacturing rights of Company products and will also be granted the right to assist the Company in the management of sales, marketing and distribution of our products. While no assurance can provided, we believe that the manufacturing activities formerly conducted by IDO Ltd. can be satisfactorily performed by such third party.

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.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

No securities were sold by us during the three months ended March 31, 2013 without registration under the Securities Act:

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: May 20, 2013		/s/ MICHAEL GOLDBERG
		MICHAEL GOLDBERG ACTING CHIEF EXECUTIVE OFFICER (PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER) AND PRESIDENT

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