----

----

| S | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2011 |
|---|---------------------------------------------------------------------------------------------------------------------------------------|

| o | Transition report pursuant to Section 13 or 15(d) of the Exchange Act for the transition period from ______________ to _________________ |
|---|------------------------------------------------------------------------------------------------------------------------------------------|

| Nevada                                 |   | 84-1421483          |
|----------------------------------------|--------|---------------------|
| (State or Other Jurisdiction of   |   | (I.R.S. Employer    |
| Incorporation or Organization)         |   | Identification No.) |

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

----

|                            | Page                                                                                                                     |
|---------------------------------|--------------------------------------------------------------------------------------------------------------------------|
|                            |                                                                                                                     |
| PART I - FINANCIAL INFORMATION: |                                                                                                                     |
|                            |                                                                                                                     |
| Item 1.                         | Condensed Consolidated Balance Sheets as of March 31, 2011 (Unaudited) and December 31, 2010                             | 3 |
|                            |                                                                                                                     |   |
|                            | Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2011 and 2010 (Unaudited)           | 5 |
|                            |                                                                                                                     |   |
|                            | Condensed Consolidated Statement of Changes in Equity for the Three Months Ended March 31, 2011 and 2010 (Unaudited)     | 6 |
|                            |                                                                                                                     |   |
|                            | Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2011 and March 31, 2010 (Unaudited) | 7 |
|                            |                                                                                                                     |   |
|                            | Notes to Condensed Consolidated Financial Statements (Unaudited)                                                         | 8 |
|                            |                                                                                                                     |   |
| Item 2.                         | Management’s Discussion and Analysis of Financial Condition and Results of Operations                              | 16 |
|                            |                                                                                                                     |   |
| Item 3.                         | Quantitative and Qualitative Disclosures About Market Risk                                                               | 24 |
|                            |                                                                                                                     |   |
| Item 4.                         | Controls and Procedures                                                                                                  | 25 |
|                            |                                                                                                                     |   |
| PART II - OTHER INFORMATION:    |                                                                                                                     |
|                            |                                                                                                                     |
| Item 1.                         | Legal Proceedings                                                                                                        | 26 |
|                            |                                                                                                                     |   |
| Item 1A.                        | Risk Factors                                                                                                             | 27 |
|                            |                                                                                                                     |   |
| Item 2.                         | Unregistered Sales of Equity Securities and Use of Proceeds                                                              | 27 |
|                            |                                                                                                                     |   |
| Item 3.                         | Defaults Upon Senior Securities                                                                                          | 27 |
|                            |                                                                                                                     |   |
| Item 4.                         | (Removed and Reserved)                                                                                                   | 27 |
|                            |                                                                                                                     |   |
| Item 5.                         | Other Information                                                                                                        | 27 |
|                            |                                                                                                                     |   |
| Item 6.                         | Exhibits                                                                                                                 | 27 |
|                            |                                                                                                                     |   |
| SIGNATURES                      |                                                                                                                     |

----

  

DEFENSE 

|                                                                                                 |   | March 31,2011 |       |   | December 31,2010 |   |
|------------------------------------------------------------------------------------------------------|--------|---------------|------------|--------|------------------|--------|
|                                                                                                 |   | (Unaudited)   |       |   |             |   |
|                                                                                                 |   |          |       |   |             |   |
| CURRENT ASSETS                                                                                       |   |          |       |   |             |   |
| Cash and cash equivalents                                                                            |   | $             | 3,064,038  |   |             | $      | 3,502,461 |   |
| Trading securities                                                                                   |   |          | 1,788,598  |   |             |   | 1,894,864 |   |
| Accounts receivable, net of allowance for doubtful accounts of $ 375,963, and $368,477, respectively |   |          | 2,660,362  |   |             |   | 2,324,985 |   |
| Inventories                                                                                          |   |          | 5,677,356  |   |             |   | 4,402,517 |   |
|                                                                                                 |   |          |       |   |             |   |   |   |
| Deferred taxes                                                                                       |   |          | 206,042    |   |             |   | 191,318 |   |
| Other current assets                                                                                 |   |          | 653,991    |   |             |   | 398,297 |   |
| Total Current Assets                                                                                 |   |          | 14,050,387 |   |             |   | 12,714,442 |   |
|                                                                                                 |   |          |       |   |             |   |   |   |
| PROPERTY, PLANT AND EQUIPMENT, NET                                                                   |   |          | 2,261,875  |   |             |   | 1,864,346 |   |
|                                                                                                 |   |          |       |   |             |   |   |   |
| INVESTMENT AND LOANS TO ASSOCIATED COMPANIES                                                         |   |          | 1,314,238  |   |             |   | 1,274,991 |   |
|                                                                                                 |   |          |       |   |             |   |   |   |
| OTHER ASSETS                                                                                         |   |          |       |   |             |   |   |   |
| Funds in respect of employee rights upon retirement                                                  |   |          | 953,633    |   |             |   | 881,184 |   |
| Intangible assets, net                                                                               |   |          | 1,328,307  |   |             |   | 1,300,445 |   |
| Deferred taxes                                                                                       |   |          | 20,543     |   |             |   | 22,155 |   |
|          Total Other Assets                             |   |          | 2,302,483  |   |             |   | 2,203,784 |   |
|                                                                                                 |   |          |       |   |             |   |   |   |
| TOTAL ASSETS                                                                                         |   | $             | 19,928,983 |   |             | $      | 18,057,563 |   |

----

|                                                                                                                                         |   | March 31,2011 |       |   | December 31, 2010 |   |
|----------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------|------------|--------|-------------------|--------|
|                                                                                                                                         |   | (Unaudited)   |       |   |              |   |
|                                                                                                                                         |   |          |       |   |              |   |
| CURRENT LIABILITIES                                                                                                                          |   |          |       |   |              |   |
| Accounts payable                                                                                                                             |   | $             | 2,858,633  |   |              | $      | 1,519,545 |   |
| Accounts payable – related parties                                                                                                     |   |          | 33,362     |   |              |   | 156,753 |   |
| Short-term debt                                                                                                                              |   |          | 1,951,344  |   |              |   | 1,299,546 |   |
| Other current liabilities                                                                                                                    |   |          | 2,388,450  |   |              |   | 1,674,027 |   |
| Total Current Liabilities                                                                                                                    |   |          | 7,231,789  |   |              |   | 4,649,871 |   |
|                                                                                                                                         |   |          |       |   |              |   |   |   |
| LONG-TERM LIABILITIES                                                                                                                        |   |          |       |   |              |   |   |   |
| Long-term portion of debt                                                                                                                    |   |          | 206,612    |   |              |   | 240,945 |   |
| Long-term portion of minimum royalty payment to the Government of Israel                                                                     |   |          | 475,613    |   |              |   | 466,500 |   |
| Deferred tax liability                                                                                                                       |   |          | 275,992    |   |              |   | 261,866 |   |
| Liability for employee rights upon retirement                                                                                                |   |          | 1,029,475  |   |              |   | 967,309 |   |
| Total Long-Term Liabilities                                                                                                                  |   |          | 1,987,692  |   |              |   | 1,936,620 |   |
|                                                                                                                                         |   |          |       |   |              |   |   |   |
| TOTAL LIABILITIES                                                                                                                            |   |          | 9,219,481  |   |              |   | 6,586,491 |   |
|                                                                                                                                         |   |          |       |   |              |   |   |   |
| COMMITMENTS AND CONTINGENCIES                                                                                                                |   |          | ---        |   |              |   | --- |   |
|                                                                                                                                         |   |          |       |   |              |   |   |   |
| EQUITY                                                                                                                                       |   |          |       |   |              |   |   |   |
| Preferred stock, $0.0001 par value, 50,000,000 shares authorized, none issued and outstanding                                                |   |          | ---        |   |              |   | --- |   |
| Common stock, $0.0001 par value, 250,000,000 shares authorized, 29,200,535 shares issued and 28,150,535 shares outstanding at March 31, 2011 |   |          | 2,920      |   |              |   | 2,920 |   |
| Additional paid-in capital                                                                                                                   |   |          | 2,997,370  |   |              |   | 2,997,370 |   |
| Treasury stock (1,050,000 shares at cost)                                                                                                    |   |          | (252,000   | )      |              |   | (252,000 | ) |
| Retained earnings                                                                                                                            |   |          | 6,686,630  |   |              |   | 7, 603,276 |   |
| Accumulated other comprehensive income                                                                                                       |   |          | 1,274,582  |   |              |   | 1,119,506 |   |
| TOTAL PARENT COMPANY SHAREHOLDERS' EQUITY                                                                                                    |   |          | 10,709,502 |   |              |   | 11,471,072 |   |
| Non-controlling interest                                                                                                                     |   |          | ---        |   |              |   | --- |   |
| TOTAL EQUITY                                                                                                                                 |   |          | 10,709,502 |   |              |   | 11,471,072 |   |
|                                                                                                                                         |   |          |       |   |              |   |   |   |
| TOTAL LIABILITIES AND EQUITY                                                                                                                 |   | $             | 19,928,983 |   |              | $      | 18,057,563 |   |

----

DEFENSE 

|                                                                       |   | For the Three MonthsEnded March 31, |       |
|----------------------------------------------------------------------------|--------|-------------------------------------|------------|
|                                                                       |   | 2011                                |       |   | 2010 |   |
|                                                                       |   |                                |       |   |   |   |
| NET REVENUES                                                               |   | $                                   | 3,593,437  |   |   | $ | 2,993,731 |   |
|                                                                       |   |                                |       |   |   |   |   |   |
| COST OF SALES                                                              |   |                                | 2,929,917  |   |   |   | 2,390,352 |   |
|                                                                       |   |                                |       |   |   |   |   |   |
| GROSS PROFIT                                                               |   |                                | 663,520    |   |   |   | 603,379 |   |
|                                                                       |   |                                |       |   |   |   |   |   |
| OPERATING EXPENSES                                                         |   |                                |       |   |   |   |   |   |
| Selling                                                                    |   |                                | 777,044    |   |   |   | 115,772 |   |
| General and administrative                                                 |   |                                | 721,895    |   |   |   | 697,409 |   |
|         Total Operating Expenses   |   |                                | 1,498,939  |   |   |   | 813,181 |   |
|                                                                       |   |                                |       |   |   |   |   |   |
| LOSS FROM OPERATIONS                                                       |   |                                | (835,419   | ) |   |   | (209,802 | ) |
|                                                                       |   |                                |       |   |   |   |   |   |
| OTHER INCOME (EXPENSES)                                                    |   |                                |       |   |   |   |   |   |
| Financial expenses                                                         |   |                                | (85,231    | ) |   |   | (127,892 | ) |
| Financial income                                                           |   |                                | 82         |   |   |   | 37,858 |   |
| Other income (expenses), net                                               |   |                                | (3,718     | ) |   |   | 50,372 |   |
|          Total Other Expenses |   |                                | (88,867    | ) |   |   | (39,662 | ) |
|                                                                       |   |                                |       |   |   |   |   |   |
| LOSS BEFORE INCOME TAXES                                                   |   |                                | (924,286   | ) |   |   | (249,464 | ) |
|                                                                       |   |                                |       |   |   |   |   |   |
| Tax expenses                                                               |   |                                | (865       | )  |   |   | (5,125 | ) |
|                                                                       |   |                                |       |   |   |   |   |   |
| LOSS BEFORE SHARE IN PROFIT OF ASSOCIATED COMPANY                          |   | $                                   | (925,151   | ) |   | $ | (254,589 | ) |
|                                                                       |   |                                |       |   |   |   |   |   |
| Share in profit of associated company                                      |   |                                | 8,505      |   |   |   | --- |   |
|                                                                       |   |                                |       |   |   |   |   |   |
| NET LOSS                                                                   |   |                                | (916,646   | ) |   |   | (254,589 | ) |
|                                                                       |   |                                |       |   |   |   |   |   |
| Net loss attributable to controlling interest                              |   |                                | (916,646   | ) |   |   | (254,589 | ) |
|                                                                       |   |                                |       |   |   |   |   |   |
| Basic and diluted net loss per share attributable to controlling interest  |   |                                | (0.033     | ) |   |   | (0.091 | ) |
| Weighted average number of shares outstanding - basic and diluted          |   |                                | 28,150,535 |   |   |   | 28,150,535 |   |

----

DEFENSE 

|                         |   | Common Stock |       |   | Treasury Stock |   |   | Additional Paid-In |   |   | Retained  |   |   | Accumulated Other Comprehensive |     |   | Total Comprehensive |   |      | Total ParentCompanyShareholders' |   |   | Non-controlling |   |   | Total  |      |
|-----------------------------------|--------|--------------|------------|--------|----------------|--------|--------|--------------------|--------|--------|-----------|--------|--------|---------------------------------|----------|--------|---------------------|--------|-----------|----------------------------------|--------|--------|-----------------|--------|--------|--------|-----------|
|                              |   | Shares       |       |   | Dollars        |   |   | Shares             |   |   | Dollars   |   |   | Capital                         |     |   | Earnings            |   |      | Income (Loss)                    |   |   | Loss            |   |   | Equity |      |   | Interest |   |   | Equity |   |
|                              |   |         |       |   |           |   |   |               |   |   |      |   |   |                            |     |   |                |   |      |                             |   |   |            |   |   |   |      |   |   |   |   |   |   |
| Balance as of January 1, 2011     |   |         | 29,200,535 |   |           | $      | 2,920  |               |   |   | 1,050,000 |   |   | $                               | (252,000 | )      |                | $      | 2,997,370 |                             |   | $      | 7,603,276       |   |   | $      | 1,119,506 |   |   |   | (1,812,315 | ) |   |   | 11,471,072 |   |   |   | -- |   |   | $ | 11,471,072 |   |
|                              |   |         |       |   |           |   |   |               |   |   |      |   |   |                            |     |   |                |   |      |                             |   |   |            |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Comprehensive loss:               |   |         |       |   |           |   |   |               |   |   |      |   |   |                            |     |   |                |   |      |                             |   |   |            |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                              |   |         |       |   |           |   |   |               |   |   |      |   |   |                            |     |   |                |   |      |                             |   |   |            |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net loss                          |   |         |       |   |           |   |   |               |   |   |      |   |   |                            |     |   |                |   |      |                             |   |   | (916,646        | )      |   |   |      |   |   |   | (916,646 | ) |   |   | (916,646 | ) |   |   |   |   |   |   | (916,646 | ) |
|                              |   |         |       |   |           |   |   |               |   |   |      |   |   |                            |     |   |                |   |      |                             |   |   |            |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Foreign currency translation gain |   |         |       |   |           |   |   |               |   |   |      |   |   |                            |     |   |                |   |      |                             |   |   |            |   |   |   | 155,076   |   |   |   | 155,076 |   |   |   | 155,076 |   |   |   |   |   |   |   | 155,076 |   |
|                              |   |         |       |   |           |   |   |               |   |   |      |   |   |                            |     |   |                |   |      |                             |   |   |            |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total comprehensive loss          |   |         |       |   |           |   |   |               |   |   |      |   |   |                            |     |   |                |   |      |                             |   |   |            |   |   |   |      |   |   |   | (761,570 | ) |   |   |   |   |   |   |   |   |   |   |   |   |
|                              |   |         |       |   |           |   |   |               |   |   |      |   |   |                            |     |   |                |   |      |                             |   |   |            |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance as of March 31, 2011      |   |         | 29,200,535 |   |           |   | 2,920  |               |   |   | 1,050,000 |   |   |                            | (252,000 | )      |                |   | 2,997,370 |                             |   |   | 6,686,630       |   |   |   | 1,274,582 |   |   |   |   |   |   |   | 10,709,502 |   |   |   |   |   |   |   | 10,709,502 |   |
|                              |   |         |       |   |           |   |   |               |   |   |      |   |   |                            |     |   |                |   |      |                             |   |   |            |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance as of January 1, 2010     |   |         | 29,200,535 |   |           | $      | 2,920  |               |   |   | 1,050,000 |   |   | $                               | (252,000 | )      |                | $      | 2,997,370 |                             |   | $      | 10,176,352      |   |   | $      | 358,745   |   |   |   |   |   |   |   | -- |   |   |   | -- |   |   | $ | 13,283,387 |   |
|                              |   |         |       |   |           |   |   |               |   |   |      |   |   |                            |     |   |                |   |      |                             |   |   |            |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Comprehensive loss:               |   |         |       |   |           |   |   |               |   |   |      |   |   |                            |     |   |                |   |      |                             |   |   |            |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                              |   |         |       |   |           |   |   |               |   |   |      |   |   |                            |     |   |                |   |      |                             |   |   |            |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net loss                          |   |         | -          |   |           |   | -      |               |   |   | -         |   |   |                            | -        |   |                |   | -         |                             |   |   | (254,589        | )      |   |   | -         |   |   | $ | (254,589 | ) |   |   | -- |   |   |   | -- |   |   |   | (254,589 | ) |
|                              |   |         |       |   |           |   |   |               |   |   |      |   |   |                            |     |   |                |   |      |                             |   |   |            |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Foreign currency translation gain |   |         | -          |   |           |   | -      |               |   |   | -         |   |   |                            | -        |   |                |   | -         |                             |   |   | -               |   |   |   | 227,655   |   |   |   | 227,655 |   |   |   | -- |   |   |   | -- |   |   |   | 227,655 |   |
|                              |   |         |       |   |           |   |   |               |   |   |      |   |   |                            |     |   |                |   |      |                             |   |   |            |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total comprehensive loss          |   |         |       |   |           |   |   |               |   |   |      |   |   |                            |     |   |                |   |      |                             |   |   |            |   |   |   |      |   |   | $ | (26,933 | ) |   |   |   |   |   |   |   |   |   |   |   |   |
|                              |   |         |       |   |           |   |   |               |   |   |      |   |   |                            |     |   |                |   |      |                             |   |   |            |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance as of March 31, 2010      |   |         | 29,200,535 |   |           | $      | 2,920  |               |   |   | 1,050,000 |   |   | $                               | (252,000 | )      |                | $      | 2,997,370 |                             |   | $      | 9,921,763       |   |   | $      | 586,400   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | $ | 13,256,453 |   |

----

MONTHS 

|                                                                                                 |   | For the Three MonthsEnded March 31, |       |
|------------------------------------------------------------------------------------------------------|--------|-------------------------------------|------------|
|                                                                                                 |   | 2011                                |       |   | 2010 |   |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                                                |   |                                |       |   |   |   |
| Net loss                                                                                             |   | $                                   | (916,646   | ) |   | $ | (254,589 | ) |
|                                                                                                 |   |                                |       |   |   |   |   |   |
| Adjustments to reconcile net loss to net cash provided by operating activities:                      |   |                                |       |   |   |   |   |   |
| Items not effecting cash:                                                                            |   |                                |       |   |   |   |   |   |
| Depreciation and amortization                                                                        |   |                                | 192,713    |   |   |   | 144,606 |   |
| Provision for doubtful accounts                                                                      |   |                                | 975        |   |   |   | (9,058 | ) |
| Deferred taxes                                                                                       |   |                                | 65         |   |   |   | 1,024 |   |
| Net unrealized loss (gain) on trading securities                                                     |   |                                | 14,699     |   |   |   | (18,686 | ) |
| Gain from the disposal of Dragonwear Trading Ltd.                                                    |   |                                | ---        |   |   |   | (13,717 | ) |
| Gain from settlement of long term note                                                               |   |                                | ---        |   |   |   | (8,968 | ) |
| Accrued interest and exchange rate differences of long-term debt                                     |   |                                | (23,853    | ) |   |   | 1,685 |   |
| Accrued interest and exchange rate differences on refundable deposits for the purchase of a business |   |                                | (33,148    | ) |   |   | (15,320 | ) |
|                                                                                                 |   |                                |       |   |   |   |   |   |
| Changes in assets and liabilities:                                                                   |   |                                |       |   |   |   |   |   |
| Decrease (increase) in accounts receivable                                                           |   |                                | (281,140   | ) |   |   | 942,143 |   |
| Decrease (increase) in inventories                                                                   |   |                                | (1,421,726 | ) |   |   | 134,069 |   |
| (Increase) decrease in trading securities                                                            |   |                                | 123,424    |   |   |   | (24,221 | ) |
| Decrease in related parties accounts                                                                 |   |                                | (121,499   | ) |   |   | (15,177 | ) |
| (Increase) decrease in other current assets                                                          |   |                                | 103,473    |   |   |   | (17,600 | ) |
| Increase in funds in respect of employee rights upon  retirement                           |   |                                | (53,247    | ) |   |   | (20,288 | ) |
| Increase in accounts payable                                                                         |   |                                | 1,208,464  |   |   |   | 170,580 |   |
| (Decrease) increase in other current liabilities                                                     |   |                                | 923,853    |   |   |   | (82,935 | ) |
| Increase in liability for employee rights upon retirement                                            |   |                                | 41,712     |   |   |   | 29,219 |   |
| Net cash  (used in) provided by Operating Activities                                            |   |                                | (241,881   | ) |   |   | 942,767 |   |
|                                                                                                 |   |                                |       |   |   |   |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                                                |   |                                |       |   |   |   |   |   |
| Purchases of property, plant and equipment                                                           |   |                                | (495,361   | ) |   |   | (107,817 | ) |
| Refundable deposits for purchase of a business                                                       |   |                                | ---        |   |   |   | (13,782 | ) |
| Net cash used in Investing Activities                                                                |   |                                | (495,361   | ) |   |   | (121,599 | ) |
|                                                                                                 |   |                                |       |   |   |   |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                                                |   |                                |       |   |   |   |   |   |
| Short-term debt, net                                                                                 |   |                                | 368,873    |   |   |   | (219,301 | ) |
| Proceeds from long-term debt                                                                         |   |                                | ---        |   |   |   | 85,920 |   |
| Repayment of long-term debt                                                                          |   |                                | (51,759    | ) |   |   | (78,161 | ) |
| Net cash used in Financing Activities                                                                |   |                                | 317,114    |   |   |   | (211,542 | ) |
|                                                                                                 |   |                                |       |   |   |   |   |   |
| EFFECT OF CHANGES IN EXCHANGE RATES ON CASH AND CASH EQUIVALENTS                                     |   |                                | (18,295    | ) |   |   | 106,621 |   |
|                                                                                                 |   |                                |       |   |   |   |   |   |
| NET INCREASE IN CASH AND CASH EQUIVALENTS                                                            |   |                                | (438,423   | ) |   |   | 716,247 |   |
|                                                                                                 |   |                                |       |   |   |   |   |   |
| CASH AND CASH EQUIVALENTS – BEGINNING OF PERIOD                                                |   |                                | 3,502,461  |   |   |   | 3,783,631 |   |
|                                                                                                 |   |                                |       |   |   |   |   |   |
| CASH AND CASH EQUIVALENTS – END OF PERIOD                                                      |   | $                                   | 3,064,038  |   |   | $ | 4,499,878 |   |
|                                                                                                 |   |                                |       |   |   |   |   |   |
|     INTEREST PAID                                                                     |   | $                                   | 25,919     |   |   | $ | 13,480 |   |
|                                                                                                 |   |                                |       |   |   |   |   |   |
|     TAXES PAID                                                                        |   | $                                   | 39,751     |   |   |  $ | 91,879 |   |

----

DEFENSE 

|   | A. | The accompanying unaudited interim consolidated financial statements as of March 31, 2011 and for the three-month period then ended (the “interim financial statements”) were prepared in a condensed form in accordance with the instructions for Form 10-Q and, therefore, do not include all disclosures necessary for a complete presentation of financial condition, results of operations, changes in shareholders’ equity, cash flows and all the data and notes which are required when preparing annual financial statements, in conformity with generally accepted accounting principles accepted in the United States. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | B. | The accounting principles used in the presentation of the interim financial statements are consistent with those principles used in the presentation of the Company's latest annual financial statements. All significant accounting policies have been applied consistently with the year ended December 31, 2010. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | C. | The preparation of the interim financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. In the opinion of management, all adjustments considered necessary for fair presentation of the interim financial statements have been included. The results of operations for the three-month period ended March 31, 2011, are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. The interim financial statements should be read in conjunction with the Company’s annual financial statements as of December 31, 2010 and for the year then ended and the accompanying notes thereto. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | D. | Principles of Consolidation |
|--------|----|-----------------------------|

----

|   | E. | Per share data |
|--------|----|----------------|

|   | F. | Fair value |
|--------|----|------------|

----

|                                                                        |   |   |      |
|-----------------------------------------------------------------------------|--------|--------|-----------|
| Cash payment to Isorad (in the form of a deposit paid in January 2009)      |   | $      | 698,570   |   |
| Minimum guaranteed royalty payments                                         |   |   | 750,000   |   |
| Total consideration                                                         |   |   | 1,448,570 |   |
|                                                                        |   |   |      |   |
| Recognized amounts of identifiable assets acquired and liabilities assumed: |   |   |      |   |
| Current assets (including cash and cash equivalents of $82,947)             |   |   | 196,539   |   |
| Property and equipment                                                      |   |   | 152,284   |   |
| Intellectual properties and technology                                      |   |   | 817,000   |   |
| Non-compete agreement                                                       |   |   | 50,000    |   |
| Customer relationships                                                      |   |   | 100,000   |   |
| Trade name                                                                  |   |   | 300,000   |   |
| Accounts payable and other current liabilities                              |   |   | (92,253   | ) |
| Deferred income taxes liabilities                                           |   |   | (75,000   | ) |
| Total identifiable net assets acquired                                      |   | $      | 1,448,570 |   |

----

|                                |   | For the Three MonthsEnded March 31, 2011 |      |   | For the Three MonthsEnded March 31, 2010 |   |
|-------------------------------------|--------|------------------------------------------|-----------|--------|------------------------------------------|--------|
|                                |   | Unaudited                                |      |
|                                |   |                                     |      |   |                                     |   |
| Net revenues                        |   |                                     | 3,593,437 |   |                                     |   | 3,238,788 |   |
|                                |   |                                     |      |   |                                     |   |   |   |
| Net loss                            |   |                                     | (916,646  | )      |                                     |   | (396,971 | ) |
|                                |   |                                     |      |   |                                     |   |   |   |
| Basic net loss  per share |   |                                     | (0.033    | )      |                                     |   | (0.014 | ) |
|                                |   |                                     |      |   |                                     |   |   |   |
| Diluted net loss per share          |   |                                     | (0.033    | )      |                                     |   | (0.014 | ) |

| Fixed assets              |   | $      | 22,205 |   |
|---------------------------|--------|--------|--------|--------|
| Inventory                 |   |   | 1,830  |   |
| Customer list and backlog |   |   | 28,445 |   |

----

|              |   | March 31, 2011 |      |   | December 31, 2010 |   |
|-------------------|--------|----------------|-----------|--------|-------------------|--------|
|              |   |           |      |   |              |   |
| Raw materials (1) |   |           | 3,512,076 |   |              |   | 3,030,442 |   |
| Work in progress  |   |           | 1,177,470 |   |              |   | 607,328 |   |
| Finished goods    |   |           | 987,810   |   |              |   | 764,747 |   |
|              |   |           |      |   |              |   |   |   |
|              |   |           | 5,677,356 |   |              |   | 4,402,517 |   |

----

|   | A.  | Sales and Income from Operations: |
|--------|----------|-----------------------------------|

|                                       |   | Civilian |      |   | Military |   |    |   |   |
|--------------------------------------------|--------|----------|-----------|--------|----------|--------|---------|--------|--------|
|                                       |   | Local    |      |   | Export   |   |    | Local  |   |   | Export |   |   | Consolidated |   |
|                                       |   |     |      |   |     |   |    |   |   |   |   |   |   |   |   |
| For the three months ended March 31, 2011: |   |     |      |   |     |   |    |   |   |   |   |   |   |   |   |
|                                       |   |     |      |   |     |   |    |   |   |   |   |   |   |   |   |
| Revenue from sales                         |   |     | 573,182   |   |     |   | 436,431 |   |   |   | 1,014,989 |   |   |   | 1,568,835 |   |   |   | 3,593,437 |   |
| Gross Profits (Loss)                       |   |     | 216,953   |   |     |   | (16,383 | )      |   |   | 126,809 |   |   |   | 336,141 |   |   |   | 663,520 |   |
| Corporate unallocated costs                |   |     |      |   |     |   |    |   |   |   |   |   |   |   |   |   |   |   | 1,498,939 |   |
| Loss from operations                       |   |     |      |   |     |   |    |   |   |   |   |   |   |   |   |   |   |   | (835,419 | ) |
|                                       |   |     |      |   |     |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| For the three months ended March 31, 2010: |   |     |      |   |     |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                       |   |     |      |   |     |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenue from sales                         |   | $        | 1,033,658 |   |     | $      | 229,631 |   |   | $ | 1,165,142 |   |   | $ | 565,300 |   |   | $ | 2,993,731 |   |
| Gross Profits                              |   |     | 179,200   |   |     |   | 25,294  |   |   |   | 272,308 |   |   |   | 126,577 |   |   |   | 603,379 |   |
| Corporate unallocated costs                |   |     |      |   |     |   |    |   |   |   |   |   |   |   |   |   |   |   | 813,181 |   |
| Loss from operations                       |   |     |      |   |     |   |    |   |   |   |   |   |   |   |   |   |   |   | (209,802 | ) |

----

|   | B. | Geographic Areas – Revenues: |
|--------|----|------------------------------------|

|                                                    |   | Three Months EndedMarch 31, |      |
|---------------------------------------------------------|--------|-----------------------------|-----------|
|                                                    |   | 2011                        |      |   | 2010 |   |
|                                                    |   |                        |      |   |   |   |
| Israel                                                  |   |                        | 1,588,172 |   |   | $ | 2,198,800 |   |
| South America                                           |   |                        | 290,184   |   |   |   | 218,360 |   |
| North America                                           |   |                        | 469,355   |   |   |   | 230,945 |   |
| Europe and Asia                                         |   |                        | 458,976   |   |   |   | 343,449 |   |
| Africa                                                  |   |                        | 786,750   |   |   |   | 2,177 |   |
|                                                    |   |                        |      |   |   |   |   |   |
|        Total Revenue |   |                        | 3,593,437 |   |   | $ | 2,993,731 |   |

|   | C. | Single Customer Exceeding 10% of Sales: |
|--------|----|-----------------------------------------|

|                         |   | For the three months ended March 31, 2011 |    |   | For the three months ended March 31, 2010 |   |
|------------------------------|--------|-------------------------------------------|---------|--------|-------------------------------------------|--------|
|                         |   |                                      |    |   |                                      |   |
|                         |   |                                      |    |   |                                      |   |
| Customer A (Military Local)  |   |                                      | 926,801 |   |                                      | $      | 1,139,476 |   |
| Customer B (Military Export) |   |                                      | ---     |   |                                      | $      | 939,219 |   |

----

|   | A. | On February 11, 2009, a lawsuit was filed in the Jerusalem District Court (the "Court"), against the Company’s subsidiary, Achidatex, Mr. Avraham Haztor, its then chief executive officer, and the Company’s subsidiary Export Erez USA Inc. ("Export Inc."), and an additional subsidiary Export Erez was subsequently added as a defendant in the action. The suit alleges that Achidatex materially breached its February 22, 2000 agreement with the plaintiff, relating to the development of inflatable mine-field crossing enabling sandals, by failing to register patents for the technology underlying the sandals, worldwide as it only registered patents in the United States. The plaintiff further claims that the defendants, jointly and severally, committed a breach of trust. The plaintiff is seeking damages in the amount of NIS 10 million (approximately $2.8 million) at March 31, 2011. The defendants filed a statement of defense rejecting the plaintiff's claims and asserted a claim against the plaintiff and others for a declaratory judgment that the plaintiff breached his contractual undertakings towards Achidatex. The petition to consolidate the counter-claim with the plaintiff's claim was ordered by the Court and the claims are now being heard together. The proceedings are currently at the stage at which the parties have to submit affidavits stating evidence to support their case. The Company believes that the exposure under the above lawsuit is not material to the business of our subsidiaries. The Company intends to vigorously defend its position against the lawsuit. Recently the plaintiff requested that the court permit the plaintiff to amend it statement of claims to increase the amount of damages sought to NIS 20 million (approximately $5.6 million). This motion is pending. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | B.  | On July 12, 2010, a lawsuit was filed in the Tel-Aviv Regional Labor Court (the "Labor Court") against the Company, its subsidiaries, Mayotex Ltd. and Export Erez, and against an officer of the Company, by a former employee. The plaintiff alleges that the above breached her employment agreement and violated certain Israeli labor related legislation by not paying her severance payment in lieu of vacation, recuperation payments, contribution to a study fund, payments due during a prior notice period and compensation for unpaid overtime. The plaintiff also claimed that she was the subject of sexual harassment and consequently the Company violated certain applicable Israeli legislation. The plaintiff is seeking damages of $414,775. Management believes that the damages sought are exaggerated and that the exposure, if any, is not material to the Company's and its subsidiaries' business.  The defendants have filed their statement of defense rejecting the former employee's claims and initiated a counter claim for $28,129 in respect of libel and slander. The Company intends to vigorously defend its position. The Labor Court has imposed a gag order on the parties to the lawsuit. |
|--------|----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

  

----

|                                                                  |   | Three Months EndedMarch 31, |      |
|-----------------------------------------------------------------------|--------|-----------------------------|-----------|
|                                                                  |   | 2011                        |      |   | 2010 |   |
|                                                                  |   |                        |      |   |   |   |
| Sales to South America                                                |   | $                           | 290,184   |   |   | $ | 218,360 |   |
| Sales to North America                                                |   |                        | 32,924    |   |   |   | 230,945 |   |
| Sales to Europe and Asia                                              |   |                        | 458,976   |   |   |   | 343,449 |   |
| Sales to Africa                                                       |   |                        | 786,750   |   |   |   | 2,177 |   |
|        Total Export Military Sales |   | $                           | 1,568,835 |   |   | $ | 794,931 |   |

----

----

|   | · | Mayotex will have operational control of Mayosar. |
|--------|--------|-------------------------------------------------------------|

|   | · | Mayotex paid Sarino Crystal Technologies Ltd. $1 million, or the Sarino Payment, out of which $300,000 is non-refundable to Mayotex and the remaining $700,000 will be earned by Sarino based on 10% of sales over $3 million and up to $10 million during the first 36 months of operations. Amounts not earned are to be refunded to Mayotex, including interest of Libor + 2% per year. The refundable consideration is secured by Sarino’s interest in Mayosar and personal guarantees provided by Sarino Crystal Technologies Ltd.'s controlling shareholders. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Mayotex agreed to provide Mayosar with a loan in the aggregate amount of $2 million under a timetable to be determined by Mayosar’s board of directors. Such loan will bear interest at the rate of Libor + 2%, and is payable from profits generated by Mayosar. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | Three Months EndedMarch 31, |      |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|-----------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | 2011                        |      |   | 2010 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                        |      |   |   |   |
| Local civilian market                                                                                                                                                                                             |   | $                           | 573,182   |   |   | $ | 1,033,658 |   |
| Export civilian market                                                                                                                                                                                            |   |                        | 436,431   |   |   |   | 229,631 |   |
| Local military market                                                                                                                                                                                             |   |                        | 1,014,989 |   |   |   | 1,165,142 |   |
| Export military market                                                                                                                                                                                            |   |                        | 1,568,835 |   |   |   | 565,300 |   |
|                         Total                                                             |   | $                           | 3,593,437 |   |   | $ | 2,993,731 |   |

----

----

|                                                     |   | Three months ended |      |
|----------------------------------------------------------|--------|--------------------|-----------|
|                                                     |   | March 31, 2011     |      |   | March 31, 2010 |   |
|                                                     |   |               |      |   |   |   |
| Net cash (used in) provided by operating activities |   | $                  | (241,881  | ) |   | $ | 942,767 |   |
| Net cash used in investing activities                    |   |               | (495,361  | ) |   |   | (121,599 | ) |
| Net cash provided by (used) in financing activities      |   |               | 317,114   |   |   |   | (211,542 | ) |
| Net increase in cash and cash equivalents                |   |               | (438,423  | ) |   |   | 716,247 |   |
| Cash and cash equivalents at beginning of period         |   |               | 3,502,461 |   |   |   | 3,783,631 |   |
| Cash and cash equivalents at end of period               |   | $                  | 3,064,038 |   |   | $ | 4,499,878 |   |

----

----

| Contractual Obligations                                   |   |   |      |   | Payments due by Period |
|-----------------------------------------------------------|--------|--------|-----------|--------|------------------------|
|                                                      |   | Total  |      |   | Less than 1 year       |   |   | 2 -3 years |   |   | 4 -5 years |   |   |  more than 5 years |
| Long-term debt obligations                                |   | $      | 376,509   |   |                   | $ | 169,874 |   |   | $ | 185,785 |   |   | $ | 20,850 |   |   |   |   |
| Estimated interest payments on long-term debt obligations |   |   | 27,105    |   |                   |   | 13,094 |   |   |   | 8,821 |   |   |   | 5,190 |   |   |   |   |
| Operating lease obligations                               |   |   | 1,904,748 |   |                   |   | 659,157 |   |   |   | 970,043 |   |   |   | 275,548 |   |   |   |   |
| Total                                                     |   | $      | 2,308,361 |   |                   | $ | 842,125 |   |   | $ | 1,164,648 |   |   | $ | 301,588 |   |   |   |   |

  

----

  

| • | we have recruited a new chief financial officer and continue to recruit and hire additional accounting staff with technical expertise to ensure the proper application of accounting principles generally accepted in the United States; |
|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| • | we are implementing revised policies and procedures and enhancing our review of complex transactions to ensure consistent application of U.S. GAAP and enhanced internal control over financial reporting; and |
|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| • | we are increasing the level of preparation and review of our financial statements, and in connection therewith, we are implementing additional control procedures as part of our quarter and year-end close processes as well as adding resources in connection with our review of key financial estimates. |
|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

  

----

  

  

  

  

  

| 31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act, as amended. |
|------|-----------------------------------------------------------------------------------------------------------------|

| 31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act, as amended. |
|------|-----------------------------------------------------------------------------------------------------------------|

| 32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|------|--------------------------------------------------------------------------------------------------------------------------------------------|

| 32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|------|--------------------------------------------------------------------------------------------------------------------------------------------|

----

  

|                                 | DEFENSE INDUSTRIES INTERNATIONAL, INC. |
|--------------------------------------|----------------------------------------|
|                                 |                                   |
|  Dated: May  16, 2011 | /s/ Uri Nissani                        |
|                                 | Uri Nissani                            |
|                                 | Chief Executive Officer and President  |
|                                 |                                   |
|                                 | /s/ Chaim Hadad                        |
|                                 | Chaim Hadad                            |
|                                 | Chief Accounting and Financial Officer |

----

----