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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-K
MARK ONE:
 
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2011
   
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
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
 
10004
New York, New York
 
 (Zip Code)
 (Address of Principal Executive Offices)
   
 
 (646) 224-1234
(Registrant’s telephone number, including area code)
 
Securities registered under Section 12 (b) of the Exchange Act: None
Securities registered under Section 12 (g) of the Exchange Act: Common Stock, $.001 per share
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  o No x
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  o No x
 
Indicate by check mark whether the registrant: (1) has 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 Website, if any, every Interactive Date 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
 
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   Smaller Reporting Company x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o No x
 
The registrant had 17,548,138 shares of common stock, par value $0.001 per share, outstanding as of April 12, 2012.
 
The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant, computed by reference to the closing price of such common stock on the OTC Bulletin Board on June 30, 2011, was approximately $1.5 million.
 
 
 

 

IDO SECURITY INC.
2011 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
       
     
Page
       
 
PART I
   
       
  4
    13
    22
    22
    23
    23
       
 
PART II
   
       
   23
    24
    25
    33
    33
    33
    33
    34
       
 
PART III
   
       
  35
    36
    38
    40
    40
       
 
PART IV
   
       
    42
    44
 
 
2

 
 
FORWARD LOOKING STATEMENTS
 
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND RELATED NOTES CONTAINED ELSEWHERE IN THIS FORM 10-K. CERTAIN STATEMENTS MADE IN THIS DISCUSSION ARE “FORWARD-LOOKING STATEMENTS” WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. FORWARD-LOOKING STATEMENTS CAN BE IDENTIFIED BY TERMINOLOGY SUCH AS “MAY”, “WILL”, “SHOULD”, “EXPECTS”, “INTENDS”, “ANTICIPATES”, “BELIEVES”, “ESTIMATES”, “PREDICTS”, OR “CONTINUE” OR THE NEGATIVE OF THESE TERMS OR OTHER COMPARABLE TERMINOLOGY AND INCLUDE, WITHOUT LIMITATION, STATEMENTS BELOW REGARDING: THE COMPANY’S INTENDED BUSINESS PLANS; EXPECTATIONS AS TO CONTINUING IN BUSINESS; ABILITY TO RAISE EXISTING FUNDS; EXPECTATIONS AS TO PRODUCT PERFORMANCE; EXPECTATIONS AS TO MARKET ACCEPTANCE OF THE COMPANY’S PRODUCTS; AND BELIEF AS TO THE SUFFICIENCY OF CASH RESERVES. BECAUSE FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES, THERE ARE IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY THESE FORWARD-LOOKING STATEMENTS. THESE FACTORS INCLUDE, BUT ARE NOT LIMITED TO, THE COMPANY’S INABILITY TO CONTINUE OPERATIONS; THE COMPANY’S INABILITY TO RAISE FUNDS TO CONTINUE OPERATIONS; THE EFFECT OF A GOING CONCERN STATEMENT BY THE COMPANY’S AUDITORS; THE EFFECT ON THE COMPANY’S ABILITY TO RAISE FUNDS BY ONGOING “CHILL” ON THE USE OF THE DTC ELECTRONIC STOCK TRANSFER  SYSTEM FOR PRIVATELY ISSUED SHARES OF OUR COMMON STOKCK;  THE COMPETITIVE ENVIRONMENT GENERALLY AND IN THE COMPANY’S SPECIFIC MARKET AREAS; CHANGES IN TECHNOLOGY; THE AVAILABILITY OF AND THE TERMS OF FINANCING; INFLATION; CHANGES IN COSTS AND AVAILABILITY OF GOODS AND SERVICES; ECONOMIC CONDITIONS IN GENERAL AND IN THE COMPANY’S SPECIFIC MARKET AREAS; DEMOGRAPHIC CHANGES; CHANGES IN FEDERAL, STATE AND /OR LOCAL GOVERNMENT LAW AND REGULATIONS AFFECTING THE TECHNOLOGY; CHANGES IN OPERATING STRATEGY OR DEVELOPMENT PLANS; AND THE ABILITY TO ATTRACT AND RETAIN QUALIFIED PERSONNEL. ALTHOUGH THE COMPANY BELIEVES THAT EXPECTATIONS REFLECTED IN THE FORWARD-LOOKING STATEMENTS ARE REASONABLE, IT CANNOT GUARANTEE FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS. MOREOVER, NEITHER THE COMPANY NOR ANY OTHER PERSON ASSUMES RESPONSIBILITY FOR THE ACCURACY AND COMPLETENESS OF THESE FORWARD-LOOKING STATEMENTS. THE COMPANY IS UNDER NO DUTY TO UPDATE ANY FORWARD-LOOKING STATEMENTS AFTER THE DATE OF THIS REPORT TO CONFORM SUCH STATEMENTS TO ACTUAL RESULTS.
 
 
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OVERVIEW
 
IDO Security Inc. (referred to herein as “we,” “our,” “us,” “IDO,” or the “Company”) is engaged in the design, development and marketing of shoe scanning device (SSD)  for the homeland security and loss prevention markets that are intended for use in security screening procedures to detect metallic objects concealed on or in footwear, ankles and feet through the use of electro-magnetic fields. These devices were designed specifically for applications in the security screening to complement the current methods for the detection of metallic items during security screenings and at security checkpoints in venues such as airports, prisons, schools, stadiums and other public locations requiring individual security screening. Our common stock trades on the OTC Bulletin Board under the symbol IDOI.
 
IDO Security Inc. (formerly knows as “The Medical Exchange Inc.”) was incorporated in the State of Nevada on January 23, 2004. On July 25, 2006, The Medical Exchange, IDO Security Ltd. (“IDO Ltd.”) and IDO Ltd.’s Selling Shareholders entered into a Securities Purchase Agreement (the “Purchase Agreement”) pursuant to which IDO Security Inc. purchased, in March 2007, all of the issued and outstanding share capital of IDO Ltd. (the “Acquisition Transaction”). Following the Acquisition Transaction, IDO Ltd. became a wholly-owned subsidiary of IDO Security Inc. and we adopted the business of IDO Ltd. In June 2007, we then changed our corporate name to “IDO Security Inc.”
 
From the commencement of operations in March 2002, IDO Ltd. has been engaged in the design, development, manufacturing and marketing of a shoe scanning device (SSD) for the homeland security market that are used in security screening to detect metallic objects (both ferrous and non-ferrous) concealed on or in shoes, ankles and feet through the use of electro-magnetic fields, without the need of removing shoes. IDO conducts its principal design and production operations in Israel through its wholly owned subsidiary IDO Ltd. and revenues are derived principally from shipments to customers in the United States as well as Asian and European countries.
 
We have designed and developed a security screening footwear and lower body 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 , up to 45 centimeters from the ground level. 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 and gives the security personnel the advantage of finding threat or valuable objects up to 45 centimeters from ground level.. Our technology is designed to distinguish between a person’s left and right shoe, analyzing anomalies for each foot but also for both together, and provides comparative screening results. The technology allows for both the detection and assessment of possible threats from the shoe and ankle area posed by foreign metal objects based upon the analysis of the detected metal material(s) and their location in shoes. The MagShoe device has been designed to be portable and to integrate into and complement current security screening arrays and systems.
 
 
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We need to raise additional funds on an immediate basis in order to meet our on-going operating requirements and to realize our business plan.  As of December 31, 2011, we had 10 employees working on a full-time basis. If we are unable to raise capital on an immediate basis, it may be necessary to for us to take further measures to reduce our cash burn including laying-off additional personnel, further curtail marketing efforts or cease operations entirely. Presently, we do not have any financing commitment from any person, and there can be no assurance that additional capital will be available to us on commercially acceptable terms or at all. These conditions raise substantial doubt about our ability to continue as a going concern.
 
We increased revenue from $61,399 in 2010 to $202,787 in 2011. As of December 31, 2011, we have received purchase orders for additional MagShoe™ units. We believe that there are ample opportunities for additional sales of our MagShoe device.
 
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. It is an ideal device 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, Thailand, The Czech Republic, Australia, Italy, Azerbaijan 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.
 
INDUSTRY 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.
 
 
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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.
 
The current screening technologies and procedures for screening of shoes, feet and lower body, do not meet the requirements of homeland security agencies throughout the world and in particular, the TSA and DHS. Most screening technologies and devices in use today, deliver unacceptable performance, having persistent problems with high false alarm rates, slow throughput, operator dependence and high transaction costs. This inherent weakness in the security screening process has necessitated the imposing of the security procedure mandating that passengers remove their shoes prior to a security walk-through gate. This new and imposing security procedure in the United States, for ports-of-entry, is generating delays, requires screening of shoes through baggage scanning equipment which may be insufficient in detecting any items that may be located on a persons shoe, ankle and foot, that are within approximately 10cm (4 inches) of the ground. The current protocols for screening were instituted as stop-gap measures until an effective technology could be implemented to solve the problems.
 
Currently, the cost of screening an individual at a checkpoint may be as high as several dollars per person, per check, depending upon the cost of security personnel. It is anticipated through the use of new technologies that the cost will drop significantly to lower than one dollar per person, per check. Currently, a significant part of that cost of a security screening is the necessity for the handling and instructing of passengers at the checkpoint bottleneck and the manual re-screening of shoes, foot and ankle area subsequent to the passenger passing through the walk-through metal detector. These procedures are labor intensive and as passenger volume increases, the cost of labor will also increase, unless new technologies can be adapted and utilized.
 
The MagShoe utilizes proprietary and patented technologies to deliver a shoe and ankle area screening product that is efficient, non-disruptive and delivers ease and speed of use while increasing the quality and efficacy of the screening process. IDO has developed and manufactured the MagShoe as a portable, easy to use, purpose built metal detector, which can detect metals inside a shoe and next to and on a person’s ankles, in an efficient and non-invasive manner that is complimentary to and easily integrates with current screening practices and security procedures.
 
OUR SOLUTION – The MagShoe
 
The MagShoe responds to the need for a quick, reliable and efficient way of conducting a personal screening of the shoes and ankle area, without the need for removing shoes. The MagShoe, a state-of-the-art device, is designed to create specific electro-magnetic fields which are used to detect and assess possible threats from metallic foreign objects by means of an intelligent detector system that evaluates and analyzes multiple parameters including the location of the object, mass and weight against a baseline of what is normally found in shoes and the ankle area. The MagShoe contains our proprietary and patented technology that allows high volume, highly effective screening without the necessity of shoe removal. Scanning time is no more than 1.6 seconds per person, with no need for the passenger to remove his shoes, thereby significantly reducing bottlenecks at security screening points.
 
 
6

 
 
The MagShoe is portable, weighing approximately 25 kilograms per unit and can be deployed quickly by existing security personnel, who can integrate the MagShoe into their current security protocols and systems. The subject being screened places his feet on the device in the grooves designated for each foot and in less than 1.6 seconds, the scan and check are completed. An audio-visual signal alerts the operator of the results of the check and the results of the check then appear on the control panel in an easily readable format.
 
The MagShoe is an electronic system and consists of three main sub systems: a control unit, magnetic field detectors and a processing unit. The control unit is used to calibrate parameters in the system and to display the shoe screening results. The magnetic field detectors are used to detect the metals in and around the shoes and ankles. The Processing unit interfaces between the metal detectors and the control unit.
 
We believe that the MagShoe scan in conjunction with a walk-through metal detector gate and/or a hand-held metal detector scan, offers a more thorough security solution. The walk through metal detector gate scan is characterized by its inherent weakness when scanning from ground levels up to approximately 10 centimeters (4 inches). MagShoe provides a completely effective coverage for that area without the need to overhaul systems and technology already in place.
 
The MagShoe is manufactured by our subsidiary, IDO Ltd., at its facilities presently located in Rishon Le Zion, Israel. Our manufacturing plant in Israel has been certified by the International Organization for Standardization (“ISO”).  
 
Current Marketing Efforts Relating to  the MagShoe
 
As noted above, the MagShoe has been deployed and is in operation in various countries around the world. 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, the Company received its certification from the Underwriter’s Laboratory (UL) in the United States, which signifies that the MagShoe is safe for sale in the United States.
 
In July 2009, we introduced a Network Management Control System (NMC-3), facilitating secure, centralized management of multiple MagShoe devices across one or more facilities. The NMC-3 system remotely manages up to 300 MagShoe devices simultaneously from a single site via a secure Ethernet connection, while still allowing each device to be operated individually. This provides an accurate and up-to-date view of the entire system state, offering immediate status and oversight relating activity on all installed units, as well as personnel and usage statistics. NMC-3 collects measurement information across the network and stores it in a central database, offering a range of data analysis tools for users to evaluate unit performance over a given time period, up to a full year. The resulting reports can be exported in Microsoft Excel-compatible format for simple viewing and assessment. In August 2009, the Transportation Security Administration announced that its goal is to put out an RFP during the next calendar year and to test and evaluate technologies in order to decide on a procurement plan. We plan to follow this procedure closely and to attempt to demonstrate the technological advances made by the current MagShoe in metal and non ferrous metal weapons detection in addition to our record keeping capabilities and cost saving measures.
 
 
7

 
 
IDO is working diligently to establish sales through the efforts of its global distributor network and through participation in exhibitions and trade shows in homeland security worldwide. Additionally, in December 2009, we were granted our second patent and our first from the State of Israel.
 
The failed attempt in December 2009 by the “underwear bomber” to detonate an explosive device on a United States commercial passenger aircraft bound for Detroit from the Netherlands, refocused attention on the still existing holes in the airport security screening process. As a result of this and other continuing security breaches, certain RFI’S and RFP’S have once again begun to be issued. These include an RFI from the TSA (Transportation Security Administration) as well as an RFP from Spain where, in March 2009, we demonstrated a prototype model of MagShoe which increases its detection capabilities from 20 centimeters to 45 centimeters. This design development was requested by several countries. Since that time, we have designed , produced and sold the new 45 centimeter model.
 
Notwithstanding these developments, during 2010 our marketing efforts were hampered as a result of two developments. First, our subsidiary, IDO Security Ltd., experienced unforeseen and lengthy delays in obtaining from the Ministry of Defense of the State of Israel the requisite approvals needed for shipment of our MagShoe devices in respect of orders received. These delays prevented us from making timely deliveries on orders received through the third quarter of 2010.  The problem was rectified in the fourth quarter of 2010. Second, our potential customers announced new height and tolerance requirements which required that we redesign and engineer two new models of MagShoe. The product redesign was completed in the fourth quarter of 2010.
 
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 recently resubmitted 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. 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.
 
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.
 
 
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BUSINESS STRATEGY
 
Our vision is to build a profitable business that develops and commercializes new, advanced and affordable technologies and related products, to provide comprehensive security screening solutions that are widely adopted.  
 
To achieve these objectives, the key elements of our strategy include the following:
 
 
Developing and establishing MagShoe brand in the security screening market.
   
Most of the world’s leading security related businesses have strong brand identities enhancing their competitive position. We seek to establish brand identity for our company, communicate our brand and its values to investors and customers, build a relationship with our targeted markets and reinforce the relationship and further trigger recognition
     
 
Consumer Market Analysis and our Product Features. We will seek to implement changes to enhance the performance, applications and functionality of MagShoe based on feedback from users, our constant current marketing analysis and our know-how. We believe that the enhancing MagShoe capabilities will add to its competitiveness and encourage its further usage.
     
 
Research and Development. Our research and development strategy is to continually improve and expand our product offerings by leveraging existing and newly developed proprietary technologies, as well as those of its collaborators, into new product offerings. We are currently focusing our research and development on giving the MagShoe increased capabilities and on expanding its product offerings to additional areas.
     
 
Global Market Expansion through Strategic and Collaborative Relationships.
   
We believe that collaboration with leading scanning device manufacturers and providers is an avenue for us to increase consumer usage of our technology, increase demand for our products and generate revenues. We intend to promote our product sales in different geographic areas, as part of our expanding strategy.
 
No assurance can be provided that we will successfully implement our strategy. We are subject to significant business risks and need to raise additional capital in order to realize our business plan and effectuate the above strategy. See “Risk Factors.”
 
MARKETING PLAN AND SALES ORGANIZATION
 
We have identified a number of markets for our products and have developed programs to gain access to those target markets. Generally, private industry and government facilities that possess sensitive information, valuable assets or by virtue of the nature of their business may be subject to terrorist threats, recognize the need to implement security measures to protect personnel and property. In many instances, laws have been enacted and mandates decreed for compliance with some minimum-security standards. Airport security is a prime example. We target these entities as well as entities where we can demonstrate the need for security measures.
 
The MagShoe is being sold internationally, primarily through independent regional distributors and local agents, on a non-exclusive basis, and in Israel directly to end-users. MagShoe’s primary markets are in the areas of homeland security and include educational institutions, prisons, commercial aviation and maritime facilities, rail transportation, shopping centers/places of entertainment, business facilities bus and train stations, border crossings, government institutions/buildings, critical infrastructure and defense facilities.
 
 
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We presently have no significant steady revenue generating arrangement and no assurance can be provided that we will in fact be able to enter into agreements or arrangements on terms that are commercially acceptable to us. Our success in concluding any revenue generating commercial agreements is premised, in part, on the acceptance of our products. We anticipate that our business may generate disproportionate amount of revenues from one period to another and therefore our financial results will vary significantly from period to period.
 
Our marketing strategy calls for the distributor to market the product to on-site security providers as a system upgrade that enhances the security screening process and that can be used in conjunction with currently used walk-through metal detector gates.
 
We intend to further develop existing channels of sales and to locate additional channels of sales, and to enter into representation agreements with distributors of similar items or entities which operate within the security field. We also intend to target the Original Equipment Manufacturer (OEM) market which will enable us to bundle MagShoe with their walk-through metal detectors suppliers.  
 
According to our tactical marketing program, we have targeted the following market niches: schools, prisons, commercial aviation and maritime facilities, rail transportation, shopping centers/places of entertainment, business facilities bus and train stations, border crossings, government institutions/buildings, critical infrastructure and defense facilities.
 
According to our marketing plan, we have and will continue to run field trials and pilot demonstrations. These are directed toward a variety of goals including developing and demonstrating MagShoe’s capabilities and applications. As of  December 2011, we have completed a series of pilot programs at strategic locations of the type mentioned above.
 
We attend trade shows and other security industry gatherings, on a stand alone basis or partner with our distributors or potential distributors. We use the media and other avenues to bring our products to the attention of decision makers in the security industry.
 
Given our lack of sufficient resources, our marketing efforts described above have been significantly curtailed pending the raising of additional funds. As of the filing of this annual report on Form 10-K, we have no commitment for any such funding and no assurance can be provided that we will be able to raise the needed funds on commercially acceptable terms or at all.
 
SUPPLIERS
 
Core components of the MagShoe are currently assembled by our subsidiary, IDO Ltd. Certain non-core components are manufactured by third party unaffiliated contractors. Testing and assembly of MagShoe units are managed by our subsidiary at its facilities in Israel.
 
 
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SERVICE AND SUPPORT
 
Service and support for our product is primarily provided by our independent distributors in consultation with us. Installation is usually effected by the end-user and maintenance support primarily derives from our independent distributors, supported by our in-house engineering staff. This support generally includes consultations with the independent distributor, repair and unit replacement, traveling to the customer site to explain the technical operation of the system, clarifying the configurations, detailing any necessary software customization and defining any integration issues. Once installed, the systems are supported by our independent distributors. Our product generally carries a one-year warranty and an extended service is offered through a choice of maintenance contracts. Additional support after the expiration of the warranty period is available for a fee.
 
PATENTS AND PROPIETARY RIGHTS
 
Protecting our proprietary rights, such as our brand name and our proprietary technologies, is critical to building consumer loyalty and attracting and retaining customers.
 
We seek to protect our proprietary rights through a combination of copyright, trade secret, patent and trademark law and contractual restrictions, such as confidentiality agreements and proprietary rights agreements. We enter into confidentiality and proprietary rights agreements with our service providers, and generally control access to and distribution of our proprietary information. Despite our efforts to protect our proprietary rights, unauthorized parties may obtain and use our intellectual property, and we cannot be certain that the steps we have taken will prevent misappropriation or confusion among consumers and merchants. If we are unable to procure, protect and enforce our intellectual property rights, then we may not realize the full value of these assets, and our business may suffer.  
 
We hold  two patents. One patent was issued by the United States Patent and Trademark Office (“USPTO”) and the other  by the State of Israel. These patents cover various aspects of our unique technology for the detection of metal objects in and around the areas of the shoes, ankles and lower extremities.
 
Except for the patents referred to above, we currently do not have any registered trademarks or patents.
 
COMPETITION
 
The market for design, development and marketing of devices for the homeland security is highly competitive and we expect competition to intensify in the future. Many of our competitors have longer operating histories, greater name recognition and significantly greater financial, technical, sales and marketing resources than we have. As a result, these competitors are able to devote greater resources to the development, promotion, sale and support of their products. In addition, these entities have large market capitalization or cash reserves and are in a much better position to acquire other companies in order to gain new technologies or products. Many of our competitors also have much greater brand name recognition, more extensive customer bases, more developed distribution channels and broader product offerings than we do. These companies can use their broader customer bases and product offerings and adopt aggressive pricing policies to gain market share.
 
 
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We expect competitors to introduce new and improved products and services with lower prices, and we will need to do the same to remain competitive. We may not be able to compete successfully against either current or future competitors with respect to new products.
 
We expect competition to increase as other companies introduce products that may increase functionality such as multi-threat detection capability or that incorporate technological advances that are not yet developed or implemented by us. Some of our present and potential competitors have financial, marketing and research resources substantially greater than those of us. In order to compete effectively in this environment, we must continually develop and market new and enhanced products and have the resources to invest in significant research and development activities.
 
In addition, new generation full body scan technology may replace the need for the MagShoe. This technology, commonly known as “backscatter” x-rays, uses high-energy X-ray waves that are more likely to scatter than penetrate materials as compared to lower-energy X-rays used in the medical field. The result is a detailed image of what’s underneath a person’s clothing, enabling screeners to easily identify foreign objects strapped to the human body beneath garments. The technology is currently in use in a number of countries but has not been accepted in the United States and other countries due to invasion of privacy concerns. Further, it is extremely expensive and therefore possibly cost-prohibitive in many venues. Recently, the European Union has taken steps to ban full body scanners and certain organizations in the United States are also looking into whether or not their use of radiation poses a health risk to those being screened. The MagShoe does not utilize any radiation waves and does not pose the heath risks increasingly associated with full body scanners. While no assurance can be provided, management believes that these developments may provide the MagShoe with a competitive edge.

A significant number of established and startup companies and leaders in the field of body screening for security may be developing applications that could significantly reduce our worldwide markets. Some of these companies are developing walk through “backscatter” and “magnometer” gates that will provide full head to toe body scan capabilities. If one or more of these approaches is widely adopted, it would significantly reduce the potential market for our product.
 
EMPLOYEES
 
At December 31, 2011, we employed 10 full time employees and consultants, all of whom but for our President and acting Chief Executive Officer, work out of IDO Ltd.’s offices in Israel. None of these employees are subject to collective bargaining agreements.  
 
RESEARCH AND DEVELOPMENT
 
During our 2011 and 2010 fiscal years, we incurred $248,082 and $356,022, respectively, on the research and development of the MagShoe product.
 
AVAILABLE INFORMATION
 
Our Internet website is located at http://www.idosecurityinc.com. The reference to our Internet website does not constitute incorporation by reference of the information contained on or hyperlinked from our Internet website and should not be considered part of this document. The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Rooms by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The SEC’s Internet website is located at http://www.sec.gov.
 
 
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OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS COULD BE MATERIALLY ADVERSELY AFFECTED BY VARIOUS RISKS, INCLUDING, BUT NOT LIMITED TO THE PRINCIPAL RISKS NOTED BELOW.
 
RISKS CONCERNING OUR BUSINESS
 
OUR NEED FOR ADDITIONAL FINANCING IS ACUTE AND FAILURE TO OBTAIN ADEQUATE FINANCING COULD LEAD TO THE FINANCIAL FAILURE OF OUR COMPANY.
 
We believe that our existing cash resources are insufficient to enable us to maintain operations as presently conducted and meet our obligations as they come due. 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 or commercially and may have to restructure our operations or even cease operations entirely. Without adequate funding, we also may not be able to accelerate the development and deployment of the MagShoe, respond to competitive pressures, develop new or enhanced products or take advantage of unanticipated acquisition opportunities. At the present time, we have no commitments for any financing, and there can be no assurance that capital will be available to us on commercially acceptable terms or at all. We may have difficulty obtaining additional funds as and when needed, and we may have to accept terms that would adversely affect our stockholders. Any failure to achieve adequate funding will delay our development programs and product launches and could lead to abandonment of one or more of our development initiatives, as well as prevent us from responding to competitive pressures or take advantage of unanticipated acquisition opportunities. The recent and continuing turmoil in the credit and equity markets may adversely affect our ability to raise the needed funds.
 
WE HAVE A HISTORY OF OPERATING LOSSES THAT MAY CONTINUE FOR THE FORESEEABLE FUTURE, THUS RAISING SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN.
 
Since inception, we have incurred significant operating losses. As of December 31, 2011, we have incurred losses totaling $44.7 million. We believe that we will continue to incur net losses for the foreseeable future as we continue to further develop and promote the MagShoe and related products. We cannot assure you that we will achieve or sustain profitability or that our operating losses will not increase in the future. If we do achieve profitability, we cannot be certain that we can sustain or increase profitability on a quarterly or annual basis in the future. We expect to expend substantial financial resources on research and development, marketing and administration as we continue to develop our products. These expenditures will necessarily precede the realization of substantial revenues from the sales of our single product line, if any, which may result in future operating losses.
 
 
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The report of our independent registered public accounting firm for our financial statements for the year ended December 31, 2011 includes an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern. This “going concern” paragraph may have an adverse effect on our ability to obtain financing for operations and to further develop and market products. If we do not receive additional capital when and in the amounts needed in the near future, our ability to continue as a going concern is in substantial doubt.  
  
FUTURE ECONOMIC CONDITIONS IN THE U.S. AND GLOBAL MARKETS MAY HAVE A MATERIAL ADVERSE IMPACT ON OUR BUSINESS AND FINANCIAL CONDITION THAT WE CURRENTLY CANNOT PREDICT.
 
The U.S. and other global world economies are slowly recovering from a recession that began in 2008 and extended into 2009. Although economic growth has resumed, it remains modest and the timing of an economic recovery is uncertain. There are likely to be significant long-term effects resulting from the recession and credit market crisis, including a future global economic growth rate that is slower than what was experienced in recent years. Unemployment rates remain high and businesses and consumer confidence levels have not yet fully recovered to pre-recession levels. In addition, more volatility may occur before a sustainable, yet lower, growth rate is achieved. This could result in reductions in sales of our products and services, slower adoption of new technologies and increase price competition. Any of these events would likely harm our business, results of operations and financial conditions.
 
THE CONTINUING CHILL ON THE USE OF THE DTC ELECTRONIC STOCK TRANSFER SYSTEM MAY JEAPORDIZE OUR ABILITY TO CONTINUE OUR BUSINESS

In June 2011, 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, 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. The DTC Chill applies to all shares newly issued after the Chill went into effect on June 24, 2011 as well as all shares newly released from private placement sales restrictions after the Chill went into effect.  The holders of these shares are key investors whose funds have been supporting the operation and expansion of our business.  We are in dialogue with the DTC to  resolve this matter, but can make no assurances when and/or if the Chill will be lifted.

Until the Chill is resolved, the DTC action is likely to make it more difficult and more costly for us to obtain new sources of capital. Our failure to obtain adequate additional financing would require us to delay, curtail or scale back some or all of our operations, hinders our ability to implement our business plans and could jeopardize our ability to continue our business.

HOLDERS OF OUR SECURED CONVERTIBLE PROMISSORY NOTES HAVE LIENS ON SUBSTANTIALLY ALL OF OUR ASSETS AND COULD FORECLOSE IN THE EVENT THAT WE DEFAULT UNDER THE NOTES.
 
Under the terms of the agreements with the holders of our secured promissory notes that we issued in December 2007 through December 2011, the note holders have a first priority lien on substantially all of our assets, including our cash balances. If we default under the notes, the note holders would be entitled to, among other things, foreclose on our assets (whether inside or outside a bankruptcy proceeding) in order to satisfy our obligations under the credit facility.
 
 
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OUR SHAREHOLDERS MAY EXPERIENCE SIGNIFICANT DILUTION UPON THE CONVERSION OF OUR OUTSTANDING DEBENTURES AND PREFERRED STOCK BECAUSE THESE SECURITIES CONVERT AT A DISCOUNT TO THE MARKET PRICE OF OUR COMMON STOCK AT THE TIME OF CONVERSION.
 
We currently have outstanding approximately $7.3 million of our 10% secured convertible promissory notes due between December 2011 and  August 2013 (the “Investor Notes”) and approximately $11.5 million in stated value of Series A Convertible Preferred Stock, par value $0.001 per share (the “Series A Preferred”). We are required to make monthly payments with respect to the accrued principal and interest on the notes (dividends, in the case of the Series A Preferred). These payments may be made, at our option, in shares of our Common Stock at a rate equal to 75% of the average of the closing bid prices of the common stock for the five trading days preceding the payment date.
 
There is an inverse relationship between our stock price and the number of shares issuable upon conversion of these securities. That is, the higher the market price of our Common stock at the time a Debenture is converted or a payment is made with respect to a Series A Preferred Stock, the fewer shares we would be required to issue, and the lower the market price of our Common Stock at the time payment is made with respect to a security, the more shares we would be required to issue. Between January 1, 2011 and December 31, 2011, we issued 8,065,825 post-split shares of our common stock in payment of $2,088,723 of principal and accrued interest in respect of the convertible promissory notes, at a average per share price of $0.259. In addition, between January 1, 2011 and December 31, 2011, we issued 7,816,504 post-split shares of our common stock for the conversion of approximately $2.2 million in Series A Preferred and accrued dividends.
        
WE HAVE A LIMITED OPERATING HISTORY IN THE FIELD OF DESIGN DEVELOPMENT AND MARKETING OF DEVICES FOR THE HOMELAND SECURITY MARKET AND CONSEQUENTLY, THERE IS LIMITED HISTORICAL FINANCIAL DATA UPON WHICH AN EVALUATION OF OUR BUSINESS PROSPECTS CAN BE MADE.
 
Our wholly-owned subsidiary, IDO Ltd. has been engaged in the design, development and marketing of devices for the homeland security market that are used in security screening to detect metallic objects concealed on or in shoes, ankles and feet through the use of electro-magnetic fields, without the need of removing shoes. We have released only one single product line and have generated limited revenues since inception. As a result, we have limited historical financial data that can be used to evaluate our business prospects and to project future operating results. For example, we cannot predict operating expenses based on our historical results, and we have instead to forecast expenses based in part on future revenue projections. In addition, our ability to accurately forecast our revenue going forward is limited.
 
 
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WE ARE RELIANT ON REVENUES FROM ONE SINGLE PRODUCT AND OUR PRODUCT MAY BE SUBJECT TO FURTHER DEVELOPMENT AND TESTING.
 
We currently have only one product that is being marketed and sold, the MagShoe. While the product is unique and we currently believe that we will generate revenues from the MagShoe in the foreseeable future, there is no assurance that this will be the case.
 
While there is not widely known current direct competition to the MagShoe, there can be no assurance that competitors will not develop and market a superior or more competitively priced product or that the nature of security screenings will change and no longer include the type of screening that the MagShoe was designated for.
 
Our success is highly dependent on market acceptance of our product, acceptance which is uncertain. If the market for MagShoe (or any related product we develop) fails to grow, develops more slowly than we expect, or becomes saturated with competing products or services, then our business, financial condition and results of operations will be materially adversely affected.
 
Investors should consider the risks and uncertainties that we may encounter in a new and unproven market. These uncertainties include:
 
 
our ability to re-design our present product, if required, and design and develop additional products having the desired technological features in a cost efficient manner;
     
 
demand for and acceptance of our product utilizing our technologies;
     
 
our ability to demonstrate the benefits of our product to end users;
     
 
non-predictable unfavorable economic conditions in the industry; and
     
 
our ability to raise funds when needed on commercially acceptable terms.
 
OUR REVENUES DEPEND ON CUSTOMERS’ PROCUREMENT PROCEDURES AND PRACTICES. A SUBSTANTIAL DECREASE IN OUR CUSTOMERS’ BUDGETS WOULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.
 
The MagShoe is primarily sold to entities, governmental, public or private, many of which have complex and time-consuming procurement procedures. A substantial period of time often elapses from the time we begin marketing a product until we actually sell that product to a particular customer. In addition, our intended sales to governmental agencies, authorities and companies are directly affected by their budgetary constraints and the priority given in their budgets to the procurement of our products. A decrease in the priorities of our customers’ budgets for the acquisition of our product may adversely affect our results of operations.
 
WE MAY NOT BE ABLE TO IMPLEMENT OUR GROWTH STRATEGY.
 
As part of our growth strategy, we seek to further develop MagShoe as a product, become interested in acquiring or invest in complementary, including competitive, businesses, products and technologies. We currently have no commitments or agreements with respect to any acquisitions or investments and we may not be able to consummate any acquisition or investment. Even if we do acquire or invest in these businesses, products or technology, the process of integrating acquired additional technologies and/or assets into our operations may result in unforeseen operating difficulties and expenditures and may absorb significant management attention that would otherwise be available for the ongoing development of our business. In addition, we have limited experience in making acquisitions and managing growth. We may not be able to realize the anticipated benefits of any synergic technologies and/or businesses.
 
 
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OUR PRODUCT MAY CONTAIN TECHNOLOGICAL FLAWS WHICH COULD RESULT IN THE FAILURE OF OUR PRODUCT TO ACHIEVE MARKET ACCEPTANCE
 
Complex technological products like ours often contain unpredictable or non-detectable errors or failures when first introduced or as new versions are released. Despite testing by us, the occurrence of these errors could result in delays or failure to achieve market acceptance of our product, which could have a material adverse effect on our business, financial condition and results of operations.

WE MAY BE SUBJECT TO LOSS IN MARKET SHARE AND MARKET ACCEPTANCE AS A RESULT OF MANUFACTURING ERRORS, DELAYS AND SHORTAGES
 
Performance failure in our products may cause loss of market share, delay in or loss of market acceptance, warranty expense or product recall, or other contractual liabilities. We have no experience in high volume manufacturing which may lead to delays or shortages in the availability of our only product. The negative effects of any delay or failure could be exacerbated if failure occurs in the products. If a product or service launch is delayed or is the subject of an availability shortage because of problems with our ability to manufacture or assemble the product or service successfully on a timely basis, or if a product or service otherwise fails to meet performance criteria, we may lose revenue opportunities entirely and/or experience delays in revenue recognition associated with a product or service in addition to incurring higher operating expenses during the period required to correct the defects. There is a risk that for unforeseen reasons we may be required to repair or replace a substantial number of products in use or to reimburse customers for products that fail to work or meet strict performance criteria.
 
In addition, given the sensitive nature of the product and its market niche, a failure of the product at the point of deployment could potentially result in a security breach at that may result in significant physical and financial harm.  
 
FAILURE BY US TO MAINTAIN AND PROTECT THE PROPIETARY NATURE OF OUR TECHNOLOGY, INTELLECTUAL PROPERTY AND MANUFACTURING PROCESSES COULD HAVE MATERIAL ADVERSE EFFECT ON OUR BUSINESS, OPERATIONAL RESULTS, FINANCIAL CONDITION AND STOCK PRICE AND OUR ABILITY TO COMPETE EFFECTIVELY.
 
We rely upon patent, trade secret and contract law to establish and protect our proprietary rights. There is a risk that claims allowed on any patents we hold may not be broad enough to protect our technology. In addition, our patents may be challenged, invalidated or circumvented and we cannot be certain that the rights granted thereunder will provide competitive advantages to us. Moreover, any current or future issued or licensed patents, or currently existing or future developed trade secrets or know-how may not afford sufficient protection against competitors with similar technologies or processes, and the possibility exists that certain of our already issued patents may infringe upon third party patents or trademarks or be designed around by others. In addition, there is a risk that others may independently develop proprietary technologies and processes, which are the same as, substantially equivalent or superior to ours, or become available in the market at a lower price.
 
 
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There is a risk that we may have infringed or in the future will infringe patents owned by others, that we will need to acquire licenses under patents belonging to others for technology potentially useful or necessary to us, and that licenses will not be available to us on acceptable terms, if at all.
 
We may have to litigate to enforce our patents or to determine the scope and validity of other parties’ proprietary rights. Litigation could be very costly and divert management’s attention. An adverse outcome in any litigation may have a severe negative impact on our financial results and stock price. To determine the priority of inventions, we may have to participate in interference proceedings declared by the United States Patent and Trademark Office or oppositions in foreign patent and trademark offices, which could result in substantial cost to the Company and limitations on the scope or validity of our patents.
 
We also rely on trade secrets and proprietary know-how, which we seek to protect by confidentiality agreements with our employees, consultants, service providers and third parties. There is a risk that these agreements may be breached, and that the remedies available to us may not be adequate. In addition, our trade secrets and proprietary know-how may otherwise become known to or be independently discovered by others.
 
WE ARE DEVELOPING OUR CURRENT PRODUCT LINES INDEPENDENTLY FROM ANY COLLABORATIVE PARTNERS, WHICH WILL REQUIRE US TO ACCESS ADDITIONAL CAPITAL AND TO DEVELOP ADDITIONAL SKILLS TO PRODUCE, MARKET AND DISTRIBUTE THESE PRODUCTS.
 
We are independently developing, manufacturing, marketing and distributing our MagShoe product. Once our sales increase, these activities may require additional resources and skills that we will need to secure. There is no assurance that we will be able to raise sufficient capital or attract and retain skilled personnel to enable us to ramp up manufacturing, develop new products and market these products. Thus, there can be no assurance that we will be able to fully commercialize the MagShoe or any future products.
 
GOVERNMENT REGULATIONS AND STANDARDS ARE CONSTANTLY EVOLVING AND UNFAVORABLE CHANGES COULD SUBSTANTIALLY HARM OUR BUSINESS AND RESULTS OF OPERATIONS. REGULATION AND STANDARDS IN CERTAIN COUNTRIES, COULD DELAY OR PREVENT OUR ABILITY TO SELL OUR PRODUCT IN THOSE OR OTHER JURISDICTIONS.
 
Existing and future laws and regulations may impede the viability and commercialization of our product. These regulations and laws may cover taxation, restrictions on imports and exports, customs, tariffs, user privacy, data protection, pricing, content, copyrights, distribution, electronic contracts and other communications, consumer protection, and the characteristics and quality of products and services. It is not clear how existing laws governing issues such as property ownership, sales and other taxes, libel and personal privacy apply to our field of business. Unfavorable resolution of these issues may substantially harm our business and results of operations.  
 
 
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OUR FAILURE TO RAPIDLY RESPOND TO TECHNOLOGICAL CHANGE AND MARKET NEEDS COULD RESULT IN OUR SERVICES OR SYSTEMS BECOMING OBSOLETE AND SUBSTANTIALLY HARM OUR BUSINESS AND RESULTS OF OPERATIONS.
 
With the rapid evolvement of technologies for Homeland Security and such market needs we may be required to license emerging technologies useful in our business, enhance our existing product, develop new products and technologies that address the increasingly sophisticated and varied needs of our prospective customers and respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis. We may not be able to adequately implement new technologies or adapt our business accordingly.

          RISKS ASSOCIATED WITH OUR SECURITIES AND CAPITAL STRUCTURE
 
FUTURE SALES OF COMMON STOCK OR OTHER DILUTIVE EVENTS MAY ADVERSELY AFFECT PREVAILING MARKET PRICES FOR OUR COMMON STOCK.
 
As of April 12, 2012, we had 20,000,000 authorized post-split shares of Common Stock, of which 17,548,138 shares of our Common Stock were issued and outstanding as of such date. Except with respect to the Investor Notes and the Series A Preferred, approximately 14,190 shares have been reserved for issuance upon exercise of outstanding options and warrants as of April 10, 2012. The effective conversion price of the Investor Notes and the Series A Preferred Stock is variable, and is based upon a 25% discount to the average of the closing bid prices for our common stock for the five trading days preceding the conversion date (not to exceed $450 per share). The occurrence of any such event or the exercise or conversion of any of the options, warrants or convertible securities described above would dilute the interest in our company represented by each share of Common Stock and may adversely affect the prevailing market price of our Common Stock.
 
Our board of directors has the authority, without further action or vote of our stockholders, to issue all or any part of the shares of our Common Stock that are authorized for issuance and neither issued nor reserved for issuance. Additionally, we require additional funds to continue to meet our liquidity needs and maintain our operations as presently conducted and to realize our business plan. Such stock issuances may be made at a price that reflects a discount from the then-current trading price of our Common Stock. In order to raise capital that we need at today’s stock prices, we would likely need to issue securities that are convertible into or exercisable for a significant number of shares of our Common Stock.  
 
OUR BOARD OF DIRECTORS’ RIGHT TO AUTHORIZE THE ISSUANCE OF PREFERRED STOCK COULD ADVERSELY IMPACT THE RIGHTS OF HOLDERS OF OUR COMMON STOCK.
 
Our board of directors currently has the right to designate and authorize the issuance of our preferred stock, in one or more series, with such voting, dividend and other rights as our directors may determine. The board of directors can designate new series of preferred stock without the approval of the holders of our Common Stock. The rights of holders of our Common Stock may be adversely affected by the rights of any holders of shares of preferred stock that may be issued in the future, including without limitation dilution of the equity ownership percentage of our holders of Common Stock and their voting power if we issue preferred stock with voting rights. Additionally, the issuance of preferred stock could make it more difficult for a third party to acquire a majority of our outstanding voting stock.
 
 
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THERE IS NO ASSURANCE OF AN ESTABLISHED PUBLIC TRADING MARKET, WHICH WOULD ADVERSELY AFFECT THE ABILITY OF INVESTORS TO SELL THEIR SECURITIES IN THE PUBLIC MARKET.
 
Although our common stock is listed on the OTC Bulletin Board, a regular trading market for the securities does not yet exist and may not exist or be sustained in the future. The OTC Bulletin Board is an inter-dealer, over-the-counter market that provides significantly less liquidity than the NASD’s automated quotation system (the “NASDAQ Stock Market”). Quotes for stocks included on the OTC Bulletin Board are not listed in the financial sections of newspapers as are those for the NASDAQ Stock Market. Therefore, prices for securities traded solely on the OTC Bulletin Board may be difficult to obtain and holders of common stock may be unable to resell their securities at or near their original offering price or at any price. Market prices for its common stock will be influenced by a number of factors, including:
 
 
the issuance of new equity securities;
     
 
competitive developments, including announcements by competitors of new products or services or significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments;
     
 
Variations in quarterly operating results;
     
 
change in financial estimates by securities analysts;
     
 
the depth and liquidity of the market for our common stock;
     
 
investor perceptions of our company and the security industry generally; and
     
 
general economic conditions.

OUR COMMON STOCK IS SUBJECT TO THE PENNY STOCK RULES, YOU MAY EXPERIENCE SUBSTANTIAL DIFFICULTY IN SELLING YOUR SHARES. ADDITIONAL BURDENS IMPOSED UPON BROKER-DEALERS BY THE APPLICATION OF THE “PENNY STOCK” RULES TO OUR COMMON STOCK MAY LIMIT THE MARKET FOR OUR COMMON STOCK.
 
Our common stock is considered a penny stock. Broker-dealer practices in connection with transactions in “penny stocks” are regulated by certain penny stock rules adopted by the Securities and Exchange Commission. Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current prices and volume information with respect to transactions in such securities are provided by the exchange or system). If our Common Stock continues to be offered at a market price less than $5.00 per share, and does not qualify for any exemption from the penny stock regulations, our Common Stock will continue to be subject to these additional regulations relating to low-priced stocks.  
 
 
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The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. In addition, the penny stock rules generally require that prior to a transaction in a penny stock the broker-dealer make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These requirements have historically resulted in reducing the level of trading activity in securities that become subject to the penny stock rules.
 
The additional burdens imposed upon broker-dealers by these penny stock requirements may discourage broker-dealers from effecting transactions in the Common Stock, which could severely limit the market liquidity of our Common Stock and our shareholders’ ability to sell our Common Stock in the market.
 
RISKS RELATED TO OPERATIONS IN ISRAEL
 
DETERIORATION OF POLITICAL, ECONOMIC AND SECURITY CONDITIONS IN ISRAEL MAY ADVERSELY AFFECT OUR OPERATIONS.

Most of the subsidiary’s laboratory capacity, principal research and development and manufacturing facilities are located in the State of Israel and accordingly, all these may be affected by economic, political and military conditions in the State of Israel. Any major hostilities involving Israel, a substantial decline in the prevailing regional security situation or the interruption or curtailment of trade between Israel and its present trading partners could have a material adverse effect on our operations. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its Arab neighbors and a state of hostility, varying in degree and intensity, has led to security and economic problems for Israel. Beginning in September 2000, the overall relationship and security situation between Israel and the Palestinians deteriorated significantly and continues to be marked by ongoing violence, also varying in its degree of severity. During the summer of 2006, Israel was engaged in an armed conflict with Hezbollah, a Lebanese Islamist Shiite militia group and political party; and during the winter of 2008-2009, Israel was engaged in an armed conflict with Hamas, a militia group and political party operating in the Gaza Strip. These conflicts involved missile strikes against civilian targets in various parts of. To date, these matters have not had any material effect on our business and results of operations, but there can be no assurance that they will not do so in the future.

In addition, civil unrest, often accompanied by violence, has spread throughout the region. Protestors have demanded economic and political reforms, and to date, there have been several regime changes in other countries. Civil unrest could continue to spread throughout the region or grow in intensity, leading to regime changes resulting in governments that are hostile to the US, civil wars, or regional conflict.  There have also been rising international tensions over Iran, which was censured by the United Nations over suspicions that it is trying to develop nuclear weapons. Certain countries have considered actions ranging from economic sanctions to pre-emptive strikes on suspected nuclear sites, and Iranian officials have threatened retaliation by, among other actions, closing the Strait of Hormuz, through which a significant portion of the global crude oil supply is transported.
 
 
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Prolonged and/or widespread regional conflict in the Middle East could have the following results, among others:
 
 
Capital market reassessment of risk and subsequent redeployment of capital to more stable areas making it more difficult for us to obtain financing for potential development projects;
 
 
security concerns in Israel, making it more difficult for our personnel or supplies to enter or exit the country; 
 
 
inability of our service and equipment providers to deliver items necessary for us to conduct  our operations in, resulting in delays. 
 
Loss of property and/or interruption of our business plans resulting from hostile acts could have a significant negative impact on our earnings and cash flow. In addition, we may not have enough insurance to cover any loss of property or other claims resulting from these risks.
          
WE HAVE BEEN AND MAY CONTINUE TO BE ADVERSELY AFFECTED FROM FOREIGN CURRENCY MARKET FLUCTUATIONS.
 
A significant portion of our expenses, primarily labor expenses and certain supplier contracts, are denominated in New Israeli Shekels “NIS”. As a result, we have significant exposure to the risk of fluctuating exchange rates with the US Dollar, our primary reporting currency. The recent volatility in the international currency markets has been equally reflected against NIS and this may continue in the future. Owing to the lack of cash flow resources and financing, we are limited in our ability to hedge against currency fluctuations.
 
WE DEPEND ON A SINGLE DEVELOPING AND MANUFACTURING FACILITY IN ISRAEL AND ARE SUSCEPTIBLE TO ANY EVENT THAT WOULD ADVERSELY AFFECT ITS CONDITION. CONDUCTING OUR SINGLE DEVELOPING AND MANUFACTURING FACILITY IN ISRAEL ENTAILS SPECIAL RISKS.
 
Most of the subsidiary’s laboratory capacity, principal research and development and manufacturing facilities are located in the State of Israel and accordingly, all these may be affected by economic, political and military conditions in the State of Israel. In addition, fire, natural disaster or any other cause of material disruption in our operation in this location could have a material adverse effect on our business, financial condition and operating results. As discussed above, to remain competitive in the Homeland Security industry, we must respond quickly to technological developments. Damage to our facility in Israel could cause serious delays in the development of new products and services and, therefore, could adversely affect our business. In addition, the particular risks relating to our location in Israel are described below.
  
 
Not Applicable.
 
 
We do not own any real property. We lease our corporate offices are located at 17 State Street, New York, NY 10004.
 
 
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We lease our facility in Rishon Le’Zion, Israel, comprised of approximately 370 square meters. The lease was scheduled to expire in November 2011 but was renewed for a period of two months and then renewed again in January 2012 for a period of three months through April 2012.
 
We believe that our facilities are generally in good condition and suitable to carry on our business. We also believe that, if required, suitable alternative or additional space will be available to us on commercially reasonable terms.
 
 
(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 $393,000 based on the exchange rate in effect at the time of the filing of this report on Form 10-K) 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.
 
(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 $429,000 based on the exchange rate in effect at the time of the filing of this report on Form 10-K). 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 annual report on Form 10-K, the Court has not rendered judgment.
           
 
Not Applicable
 
 
 
Our Common Stock is quoted on the OTC Bulletin Board under the symbol “IDOI.” Until May 2007, there was only sporadic trading in our stock. As of May 31, 2007, a more active though limited trading market developed. There can be no assurance that an established trading market will develop, that the current market will be maintained or that a liquid market for our Common Stock will be available in the future. Investors should not rely on historical stock price performance as an indication of future price performance.  
 
 
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The following table shows the quarterly high and low bid prices for our Common Stock over the last two completed fiscal years, as quoted on the OTC Bulletin Board. The prices represent quotations by dealers without adjustments for retail mark-ups, mark-downs or commission and may not represent actual transactions. The prices have been adjusted to reflect the 1- for -3,000 reverse stock split of our common stock that became effective on December 19, 2011.
 
   
LOW
   
HIGH
 
Year Ended December 31, 2011
           
First Quarter
 
$
0.30
   
$
3.94
 
Second Quarter
 
$
0.30
   
$
0.61
 
Third Quarter
 
$
0.30
   
$
0.30
 
Fourth Quarter
 
$
0.14
   
$
0.30
 
 
   
LOW
   
HIGH
 
Year Ended December 31, 2010
           
First Quarter
 
$
4.55
   
$
15.15
 
Second Quarter
 
$
1.52
   
$
5.15
 
Third Quarter
 
$
1.21
   
$
3.03
 
Fourth Quarter
 
$
2.12
   
$
6.06
 
 
As of March 30, 2012, there were 53 holders of record of our Common Stock. A significant number of shares of our Common Stock are held in either nominee name or street name brokerage accounts, and consequently, we are unable to determine the number of beneficial owners of our stock.
 
DIVIDEND POLICY
 
We have not paid dividends on our Common Stock and do not expect to pay cash dividends in the foreseeable future. It is the present policy of the Board to retain all earnings to provide funds for the growth of our company. The declaration and payment of dividends in the future will be determined by the Board based upon our earnings, financial condition, capital requirements and such other factors as the Board may deem relevant.
  
 
Not Applicable.
 
 
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THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL STATEMENTS AND THE NOTES RELATED TO THOSE STATEMENTS. SOME OF OUR DISCUSSION IS FORWARD-LOOKING AND INVOLVES RISKS AND UNCERTAINTIES. FOR INFORMATION REGARDING RISK FACTORS THAT COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, REFER TO THE RISK FACTORS SECTION OF THIS ANNUAL REPORT.
 
OVERVIEW
 
IDO Security Inc. 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, up to 45 centimeters from the ground level. The proprietary software included in the MagShoe™ provides for the collation and delivery of the screening data to the operator for immediate analysis. The MagShoe™ obviates the need to remove the footwear being inspected. Our technology is designed to distinguish between a person’s left and right shoe, analyzing anomalies for each foot but also for both together, and provides comparative screening results. The technology allows for both the detection and assessment of possible threats from the shoe and ankle area posed by foreign metal objects based upon the analysis of the detected metal material(s) and their location in shoes. The MagShoe™ device has been designed to be portable and to integrate into and complement current security screening arrays and systems.
 
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.
 
 
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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.  
 
 
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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 recently resubmitted 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 with an aggregate value at least $100,000. We believe that through recent sales of the MagShoe in Africa, Europe and the Far East we have reached that threshold number; however, no assurance can be provided that we will be successful in obtaining a listing with GSA. 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. 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 December 31, 2011, 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.
 
In June 2011, 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, 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. Until the Chill is resolved, the DTC action is likely to make it more difficult and more costly for us to obtain new sources of capital. Our failure to obtain adequate additional financing would require us to delay, curtail or scale back some or all of our operations, hinders our ability to implement our business plans and could jeopardize our ability to continue our business.
 
 
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The DTC Chill applies to all shares newly issued after the Chill went into effect on June 24, 2011 as well as all shares newly released from private placement sales restrictions after the Chill went into effect.  The holders of these shares are key investors whose funds have been supporting the operation and expansion of our business. Following the recent order by the Securities and Exchange Commission in March 2012 requiring DTC to conduct a hearing for companies whose stock has been “chilled,” we requested of DTC that we be provided a hearing. As of the filing of this report on Form 10-K, we have not received any response from DTC. No assurances when and/or if the Chill will be lifted.
 
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 Annual Report on Form 10-K.
 
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
 
Our financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these financial statements required management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. We continually evaluate the accounting policies and estimates it uses to prepare the consolidated financial statements and bases its estimates on historical experiences and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates made by management.
 
          We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.
 
          Our significant accounting policies are summarized in Note 2 of Notes to Consolidated Financial Statements. While all these significant accounting policies impact its financial condition and results of operations, the Company views certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our consolidated financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause effect on our consolidated results of operations, financial position or liquidity for the presented in this report.  
 
RESULTS OF OPERATIONS
 
COMPARISON OF THE YEAR ENDED DECEMBER 31, 2011 (the “2011 Period”) TO THE YEAR ENDED DECEMBER 31, 2010 (the “2010 Period”)
 
Revenues and cost of goods sold – Revenues for the 2011 Period were $202,787 compared to $61,399 for the 2010 Period, all of which were derived from sales of the MagShoe units.
 
 
28

 
 
Costs of goods sold for the 2011 Period were $159,772 compared to $72,498 in the 2010 Period.
 
The increase in revenues and the cost of goods sold during the 2011 Period as compared to the 2010 Period is primarily attributable to the substantial increase in the number of MagShoe™ devices delivered to customers in Africa, Europe and the Far East.  In 2010, gross profit was negative as a result of the allocation of fixed manufacturing costs.
 
Research and Development - Research and development expense consist primarily of expenses incurred in designing, developing and field testing our products. These expenses consist primarily of salaries/fees and related expenses for personnel, contract design and testing services, supplies used and consulting and license fees paid to third parties. We incurred research and development expenses in the amount of $248,082 in the 2011 Period compared to $356,022 in the 2010 Period. The decrease in research and development expenses in the 2011 Period as compared to the 2010 Period is principally attributable to near completion of the new product design and modifications.
 
Selling, general and administrative expenses - We incurred selling, general and administrative expenses of $1,151,366 in the 2011 Period as compared to $1,205,778 in the 2010 Period. These expenses primarily consist of salaries/fees and other related costs for personnel in executive and other administrative functions and consultants. Other significant costs include professional fees for legal, accounting and other services. The slight decrease in selling, general and administrative expenses during the 2011 Period as compared to the 2010 Period is principally attributable to reduced costs for consultants as well as the reduction in management’s salaries.
 
Impairment of Goodwill - Goodwill consists of the excess of cost over net assets acquired of IDO Ltd. on March 8, 2007. During the annual impairment evaluation in the fourth quarter of 2010, the results of the impairment analysis indicated the carrying value of goodwill exceeded the fair value and we recorded an impairment charge of $740,000 for 2010.  No impairment was recorded for 2011.
 
Stock Based Compensation - In May 2010, we issued 4,000,000 shares of our Common Stock to a consultant.  Stock based compensation totaled $0 and $2,400 for the years ended December 31, 2011 and 2010, respectively. Stock-based compensation is non-cash and, therefore, has no impact on cash flow or liquidity.
 
Interest expense - Interest expense for the 2011 period was $1,389,983 and $1,205,800 for the 2010 Period. Interest expense related primarily to the placement of our convertible promissory notes. Also included in interest expense for 2010 is $477,500 related to the issuance in May 2010 of 1.6 post-split shares of Series A Preferred Stock as consideration for the extending the terms of certain convertible debt.
 
Amortizations – The amortizations are included in interest expense in the statement of operations.  Amortization for the 2011 Period was $1,022,083 and $1,058,743 for the 2010 Period. Amortization costs relate to the debt discount, beneficial conversion feature, and deferred finance costs incurred in connection with the placement of our convertible promissory notes. These costs are amortized to the date of maturity of the debt unless converted earlier.
 
 
29

 
 
Preferred Stock Dividends – In connection with our financing arrangements in 2011 and 2010, we have issued a total of 21.7 and 2.7 post-split shares, respectively, of Series A Preferred Stock. The shares accrue a dividend of 10% per annum. The dividends are cumulative commencing on the issue date whether or not declared. For financial reporting purposes, we recorded a discount to reflect the difference in the amount of proceeds allocable to the Series A Preferred Stock in the offering based on relative fair values and the stated value. The discounts were being amortized as deemed dividends on preferred stock to the date of maturity unless converted earlier. Commencing on July 1, 2009, the Series A Preferred Stock is now being classified as a liability. As such, all dividends accrued and/or paid and any accretions are now classified as part of interest expense and are no longer classified as preferred stock dividends and deemed dividends.  For the year ended December 31, 2011, dividends and deemed dividends totaled $3,593,275 and such amount has been included in interest expense. For the year ended December 31, 2010, dividends and deemed dividends totaled $3,174,284.
          
Net loss attributable to common stockholders – For year ended December 31, 2011, we had a net loss of $7,363,057 as compared to a net loss of $7,779,041 for the year ended December 31, 2010.
 
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 year ended December 31, 2011. Such “going concern” qualification may make it more difficult for us to raise funds when needed. Moreover, the current economic situation may further complicate our capital raising efforts. If we are unable to raise additional capital on an immediate basis, we may be forced lay-off additional employees and either restructure or cease operations entirely. Finally, the DTC “chill” and related matters discussed above are likely to adversely affect our ability to raise capital. If we are unable to raise additional capital on an immediate basis, we may be forced lay-off additional employees and either restructure or cease operations entirely
 
As of December 31, 2011, we had a cash balance of $43,726 compared to $211,970 at December 31, 2010.   
 
Cash used in operating activities was $1,188,289 for the year ended December 31, 2011. The decrease in cash was primarily attributable to funding the loss for the period.
 
Cash used in investing activities was $6,066 for the year ended December 31, 2011 attributable to the addition of property and equipment.
 
Cash provided by financing activities was $1,026,111 for the year ended December 31, 2011. We received proceeds of $985,335 from the issuance of convertible notes.  We also received proceeds from a bank loan received by our subsidiary of $97,016.  These receipts were offset by the repayment of advances under our subsidiary’s line of credit of $53,301 and the repayment of related party loans of $2,939.
 
 
30

 
 
To date we have financed our operations primarily from the sale of our securities. Our recent financings are discussed below.
 
Between December 5, 2007 and January 24, 2008, we issued notes totaling $5,404,550 in connection with the private placement to certain accredited institutional and individual investors (the “2008 Investors”) of our 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. Approximately $2.6 million of amounts the Company owed to these investors from previous financings were offset against such investors’ respective purchases of the 2008 Notes. The 2008 Notes were originally scheduled to mature in December 2009, but were extended to December 31, 2010 and subsequently further extended to December 31, 2011. To date, the Company has repaid principal of $1.87 million in the form of 2.2 million post-split shares of the Company’s Common Stock.
 
Between April 29, 2008 and November 25, 2008 (the “April-November 2008 Loans”), we received gross loan proceeds of $442,355 from two 2008 investors and one stockholder. All of these loans were rolled into the financing consummated in December 2008 as discussed below.  
 
Pursuant to an offering dated October 30, 2008 to the holders of the 2008 Notes, on December 17, 2008, the Company realized net proceeds of $548,474, before the payment of offering related fees and expenses, from a private placement of $1,066,540 in principal amount of Secured Convertible Promissory Notes (“collectively the “December 2008 Notes”). The December 2008 Notes were originally scheduled to mature on April 30, 2010, but were extended to December 31, 2010 and subsequently extended to December 31, 2011. To date, the Company has repaid principal of $233,168 in the form of 309,000 post-split shares of the Company’s Common Stock.
 
Between April 28, 2009 and December 31, 2009, we raised net proceeds of $1,432,500 from the private placement to certain holders of the December 2008 Notes of $1,432,500 in principal amount of Secured Convertible Promissory Notes (“2009 Notes”) originally due 18 months following issuance The maturity dates of the 2009 Notes were extended to December 31, 2011. Proceeds of these funds were used to fund our continuing operations as well as pay down amounts outstanding under a line of credit with a commercial bank in the approximate amount of $267,000 for the benefit of our subsidiary IDO Ltd. In 2010, we raised an additional net proceeds of $318,940, which included the repayment of certain accrued expenses, from the private placement to certain holders of the December 2008 Notes (the “2010 Notes”). To date, the Company has repaid principal of $100,000 in the form of 128,000 post-split shares of the Company’s Common Stock.
    
In 2011, the Company raised an additional net proceeds of $902,254 from the private placement to certain holders of the December 2008 Notes (the “2011 Notes”) on terms substantially identical with the other Notes issued with maturity dates from November 2012 to August 2013.
 
    Additionally, in December 2011, the holders of approximately 74% of the outstanding principal amount of the Notes have agreed that Notes issued after December 15, 2011 are to be accorded first lien priority in the collateral securing the repayment obligations of the notes and that any repayment obligations currently owing on all notes issued prior to December 15, 2011 are subordinated to the repayment obligations incurred by the Company in connection with the new notes issued on or after December 15, 2011. 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.
 
 
In April 2012, the holders of approximately 67% of the outstanding principal amount of the Notes, representing the requisite Majority in Interest under the transaction documents, waived all existing Events of Default through June 30, 2012, including those associated with past due maturity dates on certain 2008 Notes, December 2008 Notes, 2009 Notes, 2010 Notes and 2011 Notes.
 
 
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For the period January 1, 2012 through April 5, 2012, the Company raised net proceeds of $254,370 on terms substantially identical with the other Notes issued with maturities from July 2013 through September 2013.
 
In 2010, we issued short-term notes to certain of the 2008 Investors in the principal amount of $1,305,000. The outstanding notes bore interest at the rate of 10% per annum and were due at various dates through May 2011 or the closing of a new investment.  In February 2011, the outstanding principal amounts and accrued interest on these Notes were rolled into two year Secured Convertible Notes substantially identical with the “2009 and 2010 Notes” with maturity dates in August 2012.
 
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
 
On January 1, 2011, we adopted Accounting Statement Update (“ASU”) 2009-13 (“ASU 2009-13”), Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements,” which eliminates the residual method of allocation, and instead requires companies to use the relative selling price method when allocating revenue in a multiple deliverable arrangement. When applying the relative selling price method, the selling price for each deliverable shall be determined using vendor specific objective evidence of selling price, if it exists and otherwise using third-party evidence of selling price. If neither vendor specific objective evidence nor third-party evidence of selling price exists for a deliverable, companies shall use their best estimate of the selling price for that deliverable when applying the relative selling price method.  The adoption of the provisions of ASU 2009-13 did not have a material effect on our financial position, results of operations or cash flows. 
 
On January 1, 2011, we adopted ASU 2010-17 (“ASU 2010-17”), “Revenue Recognition-Milestone Method (Topic 605): Milestone Method of Revenue Recognition.” The amendments in this Update are effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. The adoption of the provisions of ASU 2010-17 did not have a material effect on our financial position, results of operations or cash flows.
 
In June 2011, the Financial Accounting Standards Board (“FASB”) issued 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. We do not expect ASU 2011-05 to have any impact on our financial position and results of operations.
 
In September 2011, the FASB issued ASU 2011-08 (“ASU 2011-08”), “Intangibles–Goodwill and Other (Topic 350): Testing Goodwill for Impairment.”  This update simplifies the assessment of goodwill for impairment by allowing companies to consider qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount before performing the two step impairment review process. It also amends the examples of events or circumstances that would be considered in a goodwill impairment evaluation. We have elected to early adopt this update to be effective for the fiscal year beginning January 1, 2011. Our annual goodwill impairment test is conducted in the fourth quarter. The adoption of ASU 2011-08 did not have a material effect on our financial position, results of operations or cash flows.
 
 
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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.
 
 
Not Applicable.
 
 
The information called for by this Item 8 is included following the “Index to Consolidated Financial Statements” contained in this Annual Report on Form 10-K.
 
 
None.
 
 
EVALUATION OF DISCLOSURE 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 President and Chief Executive Officer (who also serves as our 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-15(e).
 
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 President and Chief Executive Officer (who also serves as our principal financial and accounting officer), of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our President and Chief Executive Officer concluded that our disclosure controls and procedures were effective.
 
 
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 MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING; CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING.
 
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. We carried out an evaluation, under the supervision and with participation of management, including our President and Acting Chief Executive Officer (who also serves as our principal financial and accounting officer), of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on his evaluation under the framework in Internal Control - Integrated Framework , our management concluded that our internal control over financial reporting was effective as of December 31, 2011.
 
During the quarter ended December 31, 2011, there have been no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, out internal control over financial reporting.  
 

None 

 
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          The names, ages and positions of our directors, executive officers and key employees are as follows:
         
Name
 
Age
 
Position
Michael Goldberg
 
61
 
President, Acting Chief Executive Officer and Director
         
John Mitola
 
44
 
Director
 
 
Business Experience
 
The following is a brief account of the education and business experience of each director, executive officer and key employee during at least the past five years, indicating each person’s business experience, principal occupation during the period, and the name and principal business of the organization by which he was employed.
 
Michael Goldberg   has served as a director and Acting Chief Executive Officer since July 2006, and President since June 2007. Mr. Goldberg serves as Chief Executive Officer of Rx Medical Services Corp., a position he has held from May 1991. RXM was a medical company, which at one time managed and owned small rural hospitals, clinical laboratories and MRI/CT centers and is now inactive. Mr. Goldberg currently also serves as a Director of Kreisler Industries a publicly traded aero-space engineering company and serves on its Audit and Compensation committee. Mr. Goldberg also consults for both private and public companies. Mr. Goldberg’s experience in managing and overseeing a diversified business practice equip him with the skill set needed to meet the challenges that we expect our board to face.
  
John Mitola   has served as a director since September 2007. Mr. Mitola is currently a managing partner with Kingsdale Capital International, a private equity and capital advisory firm specializing in merchant banking. Mr. Mitola also currently serves as Chairman of the Illinois Toll Highway Authority, a position to which he was appointed in March 2003. From January 2000 to February 2006, he served as chief executive officer of Electric City Corp. He possesses over 20 years experience in the energy and environmental industries, real estate development, venture capital, engineering and construction. Mr. Mitola’s background and experience in related industries furnishes to our board access to a greater understanding of financial and investor relations issues.
          
Section 16(A) Beneficial Ownership Reporting Compliance
 
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires each of our officers and directors and each person who owns more than 10% of a registered class of our equity securities to file with the SEC an initial report of ownership and subsequent reports of changes in such ownership. Such persons are further required by SEC regulation to furnish us with copies of all Section 16(a) forms (including Forms 3, 4 and 5) that they file. Based solely on our review of the copies of such forms received by us with respect to fiscal year 2011, or written representations from certain reporting persons, we believe all of our directors and executive officers met all applicable filing requirements for the fiscal year ended December 31, 2011.
 
 
35

 
 
Code of Ethics
 
          We have adopted a code of ethics in compliance with Item 406 of Regulation S-B that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. We undertake herewith to provide by mail to any person without charge, upon request, a copy of such code of ethics if we receive the request in writing by mail to the address listed on the cover page of this Report on Form 10-K.
 
 Audit Committee and Audit Committee Financial Expert
 
          At present we do not have a separately designated standing audit committee. The entire board of directors is acting as our Company’s Audit Committee, as specified in section 3(a)(58)(b) of the Exchange Act. The board of directors has determined that at present we have no audit committee financial expert serving on the Audit Committee. Our Company, at present, does not have significant operations.
 
 
Summary Compensation Table
 
          The following table sets forth all compensation for each of the last two fiscal years awarded to, or earned by, our Chief Executive Officer and the most highly compensated executive officer other than the Chief Executive Officer serving as such at the end of 2011 whose total compensation exceeded $100,000 for the year ended December 31, 2010.
 
Name and
                 
Principal
     
Option
 
All Other
     
Position(s)
Year
Salary
 
Awards
 
Compensation
 
Total
 
                   
Michael
                 
Goldberg,
2011
 
$
198,000
(1) 
$
--
 
$
--
   
$
198,000
 
President and
                             
Acting Chief
2010
 
$
198,000
(2)
$
--
 
$
--
   
$
198,000
 
Executive
                             
Officer
                             
(and Principal
                             
Financial
                             
Officer)
                             
                               
                               
Henry Shabbat,
                             
Chief
2011
 
$
24,000
 
$
--
 
$
18,000(4)
   
$
42,000
 
Operating
                             
Officer of IDO
2010
 
$
81,000
(3)
$
--
 
$
--
   
$
81,000
 
Security Ltd.
                             
 
1. Of the amount earned, approximately $86,000 was paid and $112,000 was deferred as of December 31, 2011.  See “Michael Goldberg”, below.
 
 
36

 
 
2. Of the amount earned, approximately $90,000 was paid and $108,000 was deferred as of December 31, 2010. See “Michael Goldberg”, below.
 
3. Of the amount earned, approximately $72,000 was paid and $9,000 was deferred as of December 31, 2010.  See “Henry Shabbat”, below.
 
4. Represents severance payment.   See “Henry Shabbat”, below.
 
Employment/Consulting Agreements
 
          Michael Goldberg. On June 20, 2007, we entered into an employment agreement with Mr. Goldberg, which became effective as of July 2, 2007, pursuant to which Mr. Goldberg was retained as our President. The employment agreement has an initial term of one year; thereafter, the employment agreement provides that it is to be renewed automatically for additional one year periods unless either party shall advise the other 90 days before expiration of the initial (or a renewal term) of its intention to not renew the agreement beyond its then scheduled expiration date. Mr. Goldberg is entitled to an annual salary of $198,000, payable monthly.  However, in order to reduce operating expenses and conserve cash, since October 2008, Mr. Goldberg has been deferring a part of his salary until such time as our cash position permits payment of salary in full without interfering with our ability to pursue our plan of operations, and, as of December 31, 2010, such deferred amount totaled an aggregate of $315,292. Mr. Goldberg can terminate the employment agreement and the relationship thereunder at any time upon 60 days’ notice. If during the initial term the Company were to terminate the agreement for any reason other than “Just Cause” (as defined the employment agreement), then the Company is to pay to Mr. Goldberg the salary then payable under the agreement through the scheduled expiration of the initial term; if such termination for any reason other than “Just Cause” were to take place during a renewal period, then the Company is to pay to Mr. Goldberg an amount equal to three months’ salary. Under the agreement, Mr. Goldberg was awarded options to purchase 400 post-split shares of the Company’s common stock, of which options for 175 post-split shares, at a per share purchase price of $510, were fully vested at the time of grant and options for the remaining shares, which have vested, are exercisable at per share exercise prices ranging between $750 and $3,750. Mr. Goldberg has served as our Acting Chief Executive Officer since June 2006.
 
          Henry Shabbat. On July 1, 2007, IDO Ltd. and Henry Shabat Ltd., a company owned by Mr. Henry Shabat, entered into a Management Agreement pursuant to which Mr. Shabat served as IDO Ltd.’s Chief Operating Officer until his resignation from the Company’s employment in May 2011. Under the management agreement, Mr. Shabat was paid a monthly fee of $6,000. However, in order to reduce operating expenses and conserve cash, since December 2008, Mr. Shabbat has been deferring a part of his salary.

          On May 18, 2011, Mr. Henry Shabat resigned from his position as General Manger of IDO Security Ltd. In connection with his resignation, IDO Security Ltd. and Mr. Shabat entered into an agreement pursuant to which IDO Security Ltd. remitted to Mr. Shabbat $18,000.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END — DECEMBER 31, 2011
 
          The following table sets forth information as of December 31, 2011, concerning unexercised options for the purchase of common stock held by the named executive officers.   The table reflects post-split shares and share prices.
 
 
37

 
 
Name
 
Number of
Securities
Underlying
Unexercised
Options
Exercisable
   
Number
of Securities
Underlying
Unexercised
Options
Unexercisable
   
Option
Exercise
Price
 
Option
Expiration
Date
Michael Goldberg
   
175
     
   
$
510
 
6/20/14
     
28
     
     
750
 
9/30/14
     
28
     
     
1,260
 
12/30/14
     
28
     
     
1,740
 
3/31/15
     
28
     
     
2,160
 
6/30/15
     
28
     
     
2,850
 
9/30/15
     
28
     
     
3,240
 
12/30/15
     
28
     
     
3,510
 
3/31/16
     
28
     
     
3,750
 
6/30/16
Henry Shabat
   
10
     
   
$
510
 
9/30/12
     
10
     
     
750
 
12/31/12
     
10
     
     
1,260
 
3/31/13
     
10
     
     
1,740
 
6/30/13
     
10
     
     
2,160
 
9/30/13
     
10
     
     
2,850
 
12/31/13
     
10
     
     
3,240
 
3/31/14
     
10
     
     
3,510
 
6/30/14
 
  Compensation of Directors
 
           It is our policy to reimburse our directors for reasonable expenses incurred in traveling to and from board or committee meetings.
 
   The following table sets forth all compensation for the last fiscal year awarded to, or earned by, our Directors during 2011.

                   
Name
 
Fees Earned
(1)
   
Option
Awards
   
Total
 
Irit Reiner (1)
 
$
2,476
   
$
   
$
2,476
 
John Mitola
 
$
3,000
   
$
   
$
3,000
 
                         
                         
 
 
(1)
Ms. Reiner resigned from her directorship on June 30, 2011.
 
 
 
 
Beneficial Ownership of Certain Shareholders, Directors and Executive Officers
 
           The following table sets forth information as of the close of business on April 7, 2011, concerning shares of our common stock beneficially owned by: (i) each director; (ii) each named executive officer; ( iii) all directors and executive officers as a group; and (iv) each person known by the Company to own beneficially more than 5% of the outstanding shares of common stock.
 
 
38

 
 
            In accordance with the rules of the SEC, the table gives effect to the shares of common stock that could be issued upon the exercise of outstanding options and warrants within 60 days of March 30, 2012. Unless otherwise noted in the footnotes to the table and subject to community property laws where applicable, the following individuals have sole voting and investment control with respect to the shares beneficially owned by them. We have calculated the percentages of shares beneficially owned based on 17,548,120 post-split shares of common stock outstanding at March 30, 2012.
 
Name and Address of
Beneficial Owner
 
Common
Stock
Beneficially
Owned
   
Percentage
of
Common
Stock
 
Michael Goldberg
President and acting Chief Executive Officer
c/o 17 State Street
New York, NY
   
400
 (1)
   
*
 
 
Henry Shabat
Chief Operating Officer of IDO Security Ltd.
c/o 17 State Street
New York,, NY (2)
   
-
 
   
*
 
 
John Mitola
Director
c/o 17 State Street
New York, NY
   
33
 (3)
   
*
 
 
All directors and officers as a group (2 persons)
 
   
 433
 
     
*
 
 
* Less than 1%. 
   
(1)
Represent shares of Common stock issuable upon exercise of employee stock options.
(2)
Mr. Shabbat resigned from the Company on May 18, 2011.
(3)
Represent shares of Common stock issuable upon exercise of employee stock options.
 
 
39

 
 
Securities Authorized for Issuance Under Equity Compensation Plans
 
          We have two compensation plans (excluding individual stock option grants outside of such plans) under which our equity securities are authorized for issuance to employees, directors and consultants in exchange for services - the 2007 Equity Incentive Plan (the “2007 Plan”) and the 2007 Non-Employee Directors Stock Option Plan (the “2007 Directors Plan”; together with the 2007 Plan, the “Plans”). Our shareholders have approved these Plans. 
 
          The following table sets forth certain information with respect to securities authorized for issuance under equity compensation plans as of December 31, 2011. The table reflects post-split shares and share prices.
 
Plan Category
 
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
(a)
   
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
   
Number of securities
remaining available for future
issuance under equity
compensation plans
(excluding securities reflected
in column (a))
(c)
 
                   
Equity compensation plans approved by security holders:
    1,130     $ 1,130       170  
                         
Equity compensation plans not approved by security holders:
                 
TOTAL
    1,130     $ 1,130       170  
 
 
Certain Relationships and Related Transactions
 
          There have been no transactions since the beginning of our last fiscal year or any proposed transactions in which the Company was or is a party, in which the amount involved exceeded $120,000 and in which any of our directors, officers, including nominees for director, and/or holders of more than 5% of our Common Stock or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest.
 
Director Independence
 
          The Board believes that John Mitola meets the independence criteria set out in Rule 4200(a)(14) of the Marketplace Rules of the National Association of Securities Dealers and the rules and other requirements of the SEC. 
 
 
Audit and Non-Audit Fees
 
          Aggregate fees for professional services rendered for the Company by Rotenberg Meril Solomon Bertiger & Guttilla, P.C., our independent registered public accounting firm, for the fiscal years ended December 31, 2011 and 2010 are set forth below.

 
40

 
 
   
Fiscal Year Ended
December 31, 2011
   
Fiscal Year Ended
December 31, 2010
 
             
Audit Fees
 
$
82,500
   
$
82,500
 
                 
Audit Related Fees
 
$
3,000
   
$
3,705
 
                 
Tax Fees
 
$
   
$
 
                 
All Other Fees
 
$
   
$
 
                 
Total
 
$
85,500
   
$
86,205
 
 
          Audit Fees were for professional services rendered for the audits of our consolidated financial statements, quarterly review of the financial statements included in Quarterly Reports on Form 10-Q, consents, and other assistance required to complete the year-end audit of the consolidated financial statements.
           
          Audit-Related Fees were for assurance and related services reasonably related to the performance of the audit or review of financial statements and not reported under the caption Audit Fees.  The fees in 2011 and 2010 related to the Company’s responses to comment letters received from the SEC.
 
          Tax Fees were for professional services related to tax compliance, tax authority audit support and tax planning. All Other Fees include any other fees charged by our auditors that are not otherwise specified.
 
          All Other Fees include professional advisory fees relating tour efforts to raise funds through a private placement of our securities.
 
          Our full Board pre-approves all audit and permissible non-audit services to be provided by our independent registered public accountants and the estimated fees for these services. None of the services provided by the independent registered public accountants that are described above were approved by the Audit Committee pursuant to a waiver of the pre-approval requirements of the SEC’s rules and regulations.
 
 
41

 
PART IV
 
 
          The following exhibits are incorporated herein by reference or are filed with this report as indicated below.
     
EXHIBIT NO.
 
EXHIBIT
     
2.1
 
Securities Purchase Agreement dated as of July 19, 2006 among The Medical Exchange Inc., IDO Security Ltd. and the selling shareholders identified therein, filed as an Exhibit to the Current Report filed on March 14, 2007 and incorporated herein by reference.
     
3.1
 
Amended and Restated Certificate of Incorporation of the Company filed as an exhibit to IDO’s annual report on Form 10-KSB for the year ended December 31, 2007.
     
3.2*
 
Amendment to Amended and Restated Certificate of Incorporation.
     
3.3
 
Bylaws of the Company, filed as an exhibit to IDO’s annual report on Form 10-KSB for the year ended December 31, 2007.
     
3.4
 
Certificate of Designation of Series A Preferred Stock filed December 11, 2008, filed as an exhibit to IDO’s current report on Form 8-K filed on December 23, 2008.
     
4.1
 
Form of Promissory Note issued to certain investors, filed as an exhibit to IDO’s annual report on Form 10-KSB for the year ended December 31, 2008.
     
4.2
 
Form of Class A Common Stock Purchase Warrant, filed as an exhibit to the Current Report on Form 8-K filed on April 6, 2007.
     
4.3
 
Form of Warrant filed as an exhibit to IDO’s annual report on Form 10-KSB for the year ended December 31, 2008.
     
4.4
 
Form of Promissory Note issued on July 30, 2008, filed as an exhibit to IDO’s quarterly report on Form 10-Q for the three months ended June 30, 2008.
     
4.5
 
Form of Secured Convertible Promissory Note due April 30, 2010, filed as an exhibit to IDO’s current report on Form 8-K filed on December 23, 2008.
     
4.6
 
Form of Warrant issued as of October 31, 2008, filed as an exhibit to IDO’s current report on Form 8-K filed on December 23, 2008.
     
4.7
 
Form of Secured Promissory Note filed as an exhibit to the Annual Report on Form 10-K for the Year ended Decemgber 31, 2010.
     
10.1
 
Form of subscription Agreement, dated as of December 24, 2007, with certain investors filed as an exhibit to IDO’s annual report on Form 10-K for the year ended December 31, 2008.
     
10.2
 
Form of Security Interest Agreement filed as an exhibit to IDO’s annual report on Form 10-KSB for the year ended December 31, 2008.
     
10.3
 
Subscription Agreement dated as of October 31, 2008 by and between IDO Security Inc and the investors, filed as an exhibit to IDO’s quarterly report on Form 10-Q for the three months ended June 30, 2008.
     
10.4
 
Modification, Waiver and Consent Agreement dated as of December 17, 2008 between IDO Security Inc. and certain of the holders of certain of the Company’s previously issued notes, filed as an exhibit to IDO’s quarterly report on Form 10-Q for the three months ended June 30, 2008.
     
10.5
 
Employment Agreement dated as of June 1, 2007 between IDO Security Inc. and Michael Goldberg, filed as an exhibit to the Quarterly Report on Form 10-QSB for the three months ended June 30, 2007. +
     
10.6
 
Management Agreement dated as of July 1, 2007 between IDO Security Ltd. and Henry Shabat Ltd., filed as an exhibit to the Quarterly Report on Form 10-QSB for the three months ended June 30, 2007. +
     
10.7
 
Company’s 2007 Equity Incentive plan, filed as an exhibit to the Company’s information statement filed on February 26, 2008.
     
10.8
 
Company’s 2007 Non-Employee Directors Stock option Plan, filed as an exhibit to the Company’s information statement filed on February 26, 2008.
 
 
42

 
 
31
  **
Certification of the Chief Executive Officer (Principal Executive Officer and Principal Financial and Accounting Officer)  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
32
  **
Certification of the Chief Executive Officer (Principal Executive Officer and Principal Financial and Accounting Officer) pursuant to Section 906 of the 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.
 

**
Attached hereto
 
 
43

 
 
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

     
 
DATE: April 16, 2012
 
   
IDO SECURITY INC.
     
   
/s/ MICHAEL GOLDBERG
   
MICHAEL GOLDBERG
   
ACTING CHIEF EXECUTIVE OFFICER
   
(PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER) AND PRESIDENT
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

         
SIGNATURE
 
TITLE
 
DATE
         
/s/ Michael Goldberg
 
President, Acting Chief Executive Officer and Director
 
April 16, 2012
Michael Goldberg
       
         
/s/ John Mitola
 
Director
 
April 16, 2012
John Mitola
       
 
 
44

 
 
IDO SECURITY INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
 
 
 
 

 
 
 
To the Board of Directors and Stockholders of
IDO Security, Inc.
 
We have audited the accompanying consolidated balance sheets of IDO Security, Inc. and Subsidiary (the “Company”) as of December 31, 2011 and 2010 and the related consolidated statements of operations, changes in stockholders’ deficiency and cash flows for the years then ended. The consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2011 and 2010 and the results of their operations and cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
 
The financial statements referred to above have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has not achieved profitable operations, has incurred recurring losses, has a working capital deficiency and expects to incur further losses in the development of the business, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 1. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
/s/ ROTENBERG MERIL SOLOMON BERTIGER & GUTTILLA, P.C.
 
ROTENBERG MERIL SOLOMON BERTIGER & GUTTILLA, P.C.
Saddle Brook, New Jersey
April 16, 2012
 
 
F-1

 
 
IDO SECURITY INC. AND SUBSIDIARY

   
December 31,
   
December 31,
 
ASSETS
 
2011
   
2010
 
CURRENT ASSETS
           
     Cash and cash equivalents
  $ 43,726     $ 211,970  
     Accounts receivable
    -       -  
     Inventories
    312,853       288,311  
     Prepaid expenses and other current assets
    76,428       98,595  
                 
               Total current assets
    433,007       598,876  
                 
Property and equipment, net
    51,396       59,381  
Goodwill
    1,215,002       1,215,002  
                 
               Total assets
  $ 1,699,405     $ 1,873,259  
                 
LIABILITIES AND STOCKHOLDERS DEFICIENCY
               
CURRENT LIABILITIES
               
     Accounts payable and accrued liabilities
  $ 4,575,810     $ 3,494,861  
     Bank line of credit
    -       53,301  
     Loans payable - bank
    97,016       -  
     Convertible promissory notes
               
             (net of discount of $800,902 and $201,284)
    6,429,007       6,160,224  
Redeemable Series A Cumulative Convertible Preferred Stock
               
            (net of discount of $2,063,596 and $503,210)
    8,911,712       6,227,330  
     Loans payable - related parties
    80,659       83,598  
                 
               Total current liabilities
    20,094,204       16,019,314  
                 
NON-CURRENT LIABILITIES
               
    Convertible promissory notes
               
            (net of discount of $63,443 and $-0-)
    50,734       -  
Redeemable Series A Cumulative Convertible Preferred Stock
               
            (net of discount of $99,743 and $-0-)
    71,090       -  
    Accrued severance pay
    154,499       156,868  
    Notes payable
    -       1,305,000  
                 
               Total  liabilities
    20,370,527       17,481,182  
                 
COMMITMENTS AND CONTINGENCIES
               
                 
STOCKHOLDERS’ DEFICIENCY
               
    Preferred Stock
               
      6,600 shares authorized; none outstanding
    -       -  
    Common stock, $.001 par value;
               
     20,000,000 shares authorized, respectively;
               
       17,548,138 and  1,665,728  issued and outstanding, respectively
    17,548       1,666  
     Additional paid-in capital
    25,999,397       21,715,421  
     Accumulated other comprehensive loss
    (331 )     (331 )
     Accumulated deficit
    (44,687,736 )     (37,324,679 )
                 
               Total stockholders’ deficiency
    (18,671,122 )     (15,607,923 )
                 
               Total liabilities and stockholders’ deficiency
  $ 1,699,405     $ 1,873,259  
 
See Notes to Consolidated Financial Statements.

 
F-2

 

IDO SECURITY INC. AND SUBSIDIARY

   
Year
   
Year
 
   
Ended
   
Ended
 
   
December 31,
   
December 31,
 
   
2011
   
2010
 
             
Revenues
  $ 202,787     $ 61,399  
                 
Cost of sales
    159,772       72,498  
                 
Gross profit (loss)
    43,015       (11,099 )
                 
Operating expenses
               
     Research and development expenses
    248,082       356,022  
     Selling, general and administrative expenses
    1,151,366       1,205,778  
     Stock based compensation - selling, general and administrative
    -       2,400  
     Impairment of goodwill
    -       740,000  
                 
Total operating expenses
    1,399,448       2,304,200  
                 
Loss from operations
    (1,356,433 )     (2,315,299 )
                 
Interest expense (including amortization of debt and preferred stock discount,
               
     beneficial conversion features, dividends and deferred finance costs)
    (6,005,341 )     (5,438,827 )
Interest income
    -       15  
Foreign currency translation
    (1,283 )     (24,930 )
                 
Net loss
  $ (7,363,057 )   $ (7,779,041 )
                 
Basic and diluted loss per share:
  $ (0.90 )   $ (6.01 )
                 
Weighted average number of shares outstanding
               
   Basic and diluted
    8,199,175       1,293,301  
 
See Notes to Consolidated Financial Statements.

 
F-3

 
 
IDO SECURITY INC. AND SUBSIDIARY

                                       
Accumulated
                   
                           
Additional
         
Other
   
Common
   
Deferred
       
   
Preferred Stock
   
Common Stock
   
Paid-in
   
Accumulated
   
Comprehensive
   
Stock
   
Stock Based
       
   
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
Deficit
   
Loss
   
Subscribed
   
Compensation
   
Total
 
                                                             
Balances at January 1, 2010
    -     $ -       660,973     $ 661     $ 19,807,912     $ (29,545,638 )     (331 )     -       -       (9,737,396 )
                                                                                 
    Conversion of convertible
                                                                               
          promissory notes and
                                                                               
          accrued interest and fees
    -       -       517,031       517       1,113,225       -       -       -       -       1,113,742  
    Conversion of convertible
                                                                               
          Preferred stock
                    486,392       487       791,623                                       792,110  
    Warrants issued in connection
                                                                               
          with debt placement
    -       -       -       -           262       -       -       -       -       262  
    Shares issued for services
                    1,332       1       2,399                                       2,400  
     Net loss
    -       -       -       -       -       (7,779,041 )     -       -       -       (7,779,041 )
                                                                                 
Balances at December 31, 2010
    -       -       1,665,728       1,666       21,715,421       (37,324,679 )     (331 )     -       -       (15,607,923 )
                                                                                 
    Conversion of convertible
                                                                               
          promissory notes and
                                                                               
          accrued interest and fees
    -       -       8,065,825       8,066       2,080,657                                       2,088,723  
    Conversion of convertible
                                                                               
          Preferred stock
                    7,816,585       7,816       2,203,150       -       -       -       -       2,210,966  
    Warrants issued in connection
                                                                               
          with debt placement
    -       -       -       -       169       -       -       -       -       169  
    Shares issued for services
                                                                               
     Net loss
    -       -               -       -       (7,363,057 )     -       -       -       (7,363,057 )
                                                                                 
Balances at December 31, 2011
    -     $ -       17,548,138     $ 17,548     $ 25,999,397     $ (44,687,736 )   $ (331 )   $ -     $ -     $ (18,671,122 )
 
See Notes to Consolidated Financial Statements.

 
F-4

 
 
IDO SECURITY INC. AND SUBSIDIARY
   
Year
   
Year
 
   
Ended
   
Ended
 
   
December 31,
   
December 31,
 
   
2011
   
2010
 
             
CASH FLOWS FROM OPERATING ACTIVITIES
           
     Net loss
  $ (7,363,057 )   $ (7,779,041 )
     Adjustments to reconcile net loss to net cash
               
 used in operating activities:
               
         Depreciation and amortization
    14,050       21,187  
         Amortization of note discount
    4,615,358       4,180,365  
         Amortization of beneficial conversion feature of convertible debt
    -       48,439  
         Stock based compensation
    -       2,400  
         Intrerest and exhange rate differences
    -       -  
         Stock issued in lieu of interest and other charges
    1,351,745       810,007  
         Impairment of goodwill
    -       740,000  
         Decrease in net liability for severance pay
    (2,369 )     (5,343 )
          Increase (decrease) in cash attributable to changes in operating assets and liabilities
               
              Accounts receivable
    -       4,360  
              Inventory
    (24,542 )     (226,092 )
              Prepaid expenses and other current assets
    22,167       (32,982 )
              Accounts payable
    (348,988 )     196,907  
              Accrued expenses and other current liabilities
    547,347       379,329  
                 
Net cash used in operating activities
    (1,188,289 )     (1,660,464 )
                 
CASH FLOWS FROM  INVESTING ACTIVITIES
               
         Purchases of property and equipment
    (6,066 )     (14,269 )
                 
Net cash used in investing activities
    (6,066 )     (14,269 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
         Proceeds from issuance of convertible notes and preferred stock
    985,335       318,940  
         Proceeds from loan payable - bank
    97,016       -  
         (Repayments of) proceeds from loans payable - related parties
    (2,939 )     38,772  
         Proceeds from short-term debt
    -       1,305,000  
         (Repayment) proceeds from bank line of credit
    (53,301 )     47,432  
                 
Net cash provided by financing activities
    1,026,111       1,710,144  
                 
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
    (168,244 )     35,411  
                 
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR
    211,970       176,559  
                 
CASH AND CASH EQUIVALENTS - END OF YEAR
  $ 43,726     $ 211,970  
                 
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
  $ 2,088,723     $ 1,113,742  
  Issuances of common stock for the conversion of
               
        convertible preferred stock and accrued dividends
  $ 2,210,966     $ 792,110  
 
See Notes to Consolidated Financial Statements.

 
F-5

 
 
IDO SECURITY INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - GENERAL
 
IDO Security Inc. (hereinafter, “IDO” or the “Company”) was incorporated in the State of Nevada on January 23, 2004 and is engaged in the design, development and marketing of a footwear scanning device (SSD) for the homeland security and loss prevention markets that are intended for use in security screening procedures and are designed to detect concealed metallic objects 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 and detection market to complement the current detection methods for detecting metallic items during security screenings at security checkpoints in venues such as airports, prisons, schools, stadiums and other public locations requiring individual security screening. The consolidated financial statements include the accounts of IDO and IDO Security Ltd. (“IDO Ltd.”), its wholly-owned subsidiary (collectively the “Company”).

IDO was incorporated in the State of Nevada on January 23, 2004 under the name “The Medical Exchange, Inc.”  On July 25, 2006, IDO Ltd. and the holders of all of the issued and outstanding share capital of IDO Ltd. (collectively the “IDO Selling Shareholders”) entered into a Securities Purchase Agreement pursuant to which The Medical Exchange Inc. (“Med Ex”) agreed to purchase all of the issued and outstanding share capital of IDO Ltd. (the “Acquisition Transaction”). On March 8, 2007, the Acquisition Transaction was consummated. Following the consummation of the Acquisition Transaction, IDO Ltd. became a wholly-owned subsidiary of Med Ex and Med Ex adopted the business of IDO Ltd.  In June 2007, Med Ex changed its name to “IDO Security Inc.”
 
IDO conducts its principal design and production operations in Israel and revenues are derived principally from shipments to customers in the United States as well as Asian and European countries.
 
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 9.

Basis of presentation
 
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. At December 31, 2011, the Company had not achieved profitable operations, had accumulated losses of $44.7 million (since inception), a working capital deficiency of $19.6 million and expects to incur further losses in the development of its business. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations or management’s ability to find sources of 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 December 2011, the Company received net proceeds of approximately $5.9 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. See Notes 7 and 8 below.

The financial statements do not include any adjustments that might result from the outcome of this uncertainty. There can be no assurance that management will be successful in implementing a business plan or that the successful implementation of a business plan will actually improve the Company’s operating results.
 
 
F-6

 
 
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of IDO Ltd., the Company’s wholly-owned subsidiary. All significant inter-company balances and transactions have been eliminated.
 
Cash Equivalents
The Company considers all highly liquid investments purchased with a maturity date of three months or less at the date acquired to be cash equivalents.  The Company had no cash equivalents at December 31, 2011.  Cash equivalents consist of a money market account at December 31, 2010.
 
 Use of Estimates
These financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. The Company continually evaluates the accounting policies and estimates we use to prepare the consolidated financial statements. The Company bases its estimates on historical experiences and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates made by management.
 
Functional Currency
The majority of Company’s sales are in United States dollars. In addition, the majority of the Company’s investing and financing activities are in United States dollars. Accordingly, the Company has determined the United States dollar as the currency of its primary economic environment and thus, its functional and reporting currency. Non-dollar transactions and balances have been measured in United States dollars in accordance with FASB ASC 830, “Foreign Currency Matters.”  All transaction gains and losses from the measurement of monetary balance sheet items denominated in non-dollar currencies are reflected in the statement of operations as financial income or expenses, as appropriate.
 
Revenue Recognition
Revenue is recognized upon shipment of the product to the customer, subject to the following criteria: (i) persuasive evidence of an arrangement exists, (ii) the selling price is fixed and determinable and (iii) no significant obligations remain to the Company and collection of the related receivable is reasonable assured. When the above stated revenue recognition criteria are not met, the Company will record deferred revenue.
  
Warranties
The Company accounts for its warranties under the FASB ASC 450 “Contingencies.” The Company generally warrants that its products are free from defects in material and workmanship for a period of one year from the date of initial acceptance by our customers. The warranty does not cover any losses or damage that occurs as a result of improper installation, misuse or neglect or repair or modification by anyone other than the Company or its authorized repair agent. The Company’s policy is to accrue anticipated warranty costs based upon historical percentages of items returned for repair within one year of the initial sale. The Company’s repair rate of products under warranty has been minimal, and a historical percentage has not been established. The Company has not provided for any reserves for such warranty liability.