----

----

| x | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 2010 |
|---|--------------------------------------------------------------------------------------------------------------------------------------|

| 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 x |

----

|            | Page                                                                                                                          |
|--------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------|
|                                                         |                                                                                                                          |
| PART I - FINANCIAL INFORMATION:                              |                                                                                                                          |
|                                                         |                                                                                                                          |
| Item 1.                                                      | Condensed Consolidated Balance Sheets as of June 30, 2010 (Unaudited) and December 31, 2009                                   | 3 |
|                                                         |                                                                                                                          |   |
|                                                         | Condensed Consolidated Statements of Operations for the Three and Six MonthsEnded June 30, 2010 and 2009 (Unaudited)          | 5 |
|                                                         |                                                                                                                          |   |
|                                                         | Condensed Consolidated Statement of Changes in Equity for the Three and Six Months Ended June 30, 2010 0 and 2009 (Unaudited) | 6 |
|                                                         |                                                                                                                          |   |
|                                                         | Condensed Consolidated Statements of Cash Flows for the Six Months EndedJune 30, 2010 and June 30, 2009 (Unaudited)           | 8 |
|                                                         |                                                                                                                          |   |
|                                                         | Notes to Condensed Consolidated Financial Statements (Unaudited)                                                              | 9 |
|                                                         |                                                                                                                          |   |
| Item 2.                                                      | Management’s Discussion and Analysis of Financial Condition and Results of Operations                                   | 17 |
|                                                         |                                                                                                                          |   |
| Item 3.                                                      | Quantitative and Qualitative Disclosures About Market Risk                                                                    | 24 |
|                                                         |                                                                                                                          |   |
| Item 4.                                                      | Controls and Procedures                                                                                                       | 25 |
|                                                         |                                                                                                                          |   |
| PART II - OTHER INFORMATION:                                 |                                                                                                                          |
|                                                         |                                                                                                                          |
| Item 1.                                                      | Legal Proceedings                                                                                                             | 25 |
|                                                         |                                                                                                                          |   |
| Item 1A.                                                     | Risk Factors                                                                                                                  | 26 |
|                                                         |                                                                                                                          |   |
| Item 2.                                                      | Unregistered Sales of Equity Securities and Use of Proceeds                                                                   | 26 |
|                                                         |                                                                                                                          |   |
| Item 3.                                                      | Defaults Upon Senior Securities                                                                                               | 26 |
|                                                         |                                                                                                                          |   |
| Item 4.                                                      | (Removed and Reserved)                                                                                                        | 26 |
|                                                         |                                                                                                                          |   |
| Item 5.                                                      | Other Information                                                                                                             | 26 |
|                                                         |                                                                                                                          |   |
| Item 6.                                                      | Exhibits                                                                                                                      | 26 |
|                                                         |                                                                                                                          |   |
| SIGNATURES                                                   | 27                                                                                                                       |

----

Item 1.

| ASSETS |
|--------|
|                                                                                                           |   | June 30,2010 |       |   | December 31,2009 |   |
|----------------------------------------------------------------------------------------------------------------|--------|--------------|------------|--------|------------------|--------|
|                                                                                                           |   | (Unaudited)  |       |   |             |   |
|                                                                                                           |   |         |       |   |             |   |
| CURRENT ASSETS                                                                                                 |   |         |       |   |             |   |
| Cash and cash equivalents                                                                                      |   | $            | 3,149,841  |   |             | $      | 3,783,631 |   |
| Accounts receivable, net of allowance for doubtful accounts   of $328,860 and $343,629, respectively |   |         | 2,550,624  |   |             |   | 3,352,751 |   |
| Inventories                                                                                                    |   |         | 5,524,030  |   |             |   | 4,124,141 |   |
| Trading securities                                                                                             |   |         | 2,323,542  |   |             |   | 2,312,048 |   |
| Deferred taxes                                                                                                 |   |         | 132,089    |   |             |   | 148,710 |   |
| Other current assets                                                                                           |   |         | 457,389    |   |             |   | 225,112 |   |
| Total Current Assets                                                                                           |   |         | 14,137,515 |   |             |   | 13,946,393 |   |
|                                                                                                           |   |         |       |   |             |   |   |   |
| PROPERTY, PLANT AND EQUIPMENT, NET                                                                             |   |         | 1,535,801  |   |             |   | 1,741,594 |   |
|                                                                                                           |   |         |       |   |             |   |   |   |
| OTHER ASSETS                                                                                                   |   |         |       |   |             |   |   |   |
| Funds in respect of employee rights upon retirement                                                            |   |         | 795,253    |   |             |   | 780,960 |   |
| Deferred taxes                                                                                                 |   |         | 26,879     |   |             |   | 25,659 |   |
| Refundable deposits for the purchase of a business (Note 2)                                                    |   |         | 2,004,328  |   |             |   | 1,993,696 |   |
|          Total Other Assets                                       |   |         | 2,826,460  |   |             |   | 2,800,315 |   |
|                                                                                                           |   |         |       |   |             |   |   |   |
| TOTAL ASSETS                                                                                                   |   | $            | 18,499,776 |   |             | $      | 18,488,302 |   |

----

| LIABILITIES AND EQUITY |
|------------------------|
|                                                                                                                                                                            |   | June 30,2010 |       |   | December 31, 2009 |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------|------------|--------|-------------------|--------|
|                                                                                                                                                                            |   | (Unaudited)  |       |   |              |   |
|                                                                                                                                                                            |   |         |       |   |              |   |
| CURRENT LIABILITIES                                                                                                                                                             |   |         |       |   |              |   |
| Accounts payable                                                                                                                                                                |   | $            | 2,364,770  |   |              | $      | 1,408,741 |   |
| Accounts payable – related parties                                                                                                                                        |   |         | 518,717    |   |              |   | 462,968 |   |
| Short-term debt                                                                                                                                                                 |   |         | 734,785    |   |              |   | 876,554 |   |
| Other current liabilities                                                                                                                                                       |   |         | 1,267,998  |   |              |   | 1,047,771 |   |
| Total Current Liabilities                                                                                                                                                       |   |         | 4,886,270  |   |              |   | 3,796,034 |   |
|                                                                                                                                                                            |   |         |       |   |              |   |   |   |
| LONG-TERM LIABILITIES                                                                                                                                                           |   |         |       |   |              |   |   |   |
| Long-term portion of debt                                                                                                                                                       |   |         | 222,959    |   |              |   | 268,250 |   |
| Deferred tax liability                                                                                                                                                          |   |         | 220,124    |   |              |   | 229,191 |   |
| Liability for employee rights upon retirement                                                                                                                                   |   |         | 945,610    |   |              |   | 911,440 |   |
| Total Long-Term Liabilities                                                                                                                                                     |   |         | 1,388,693  |   |              |   | 1,408,881 |   |
|                                                                                                                                                                            |   |         |       |   |              |   |   |   |
| TOTAL LIABILITIES                                                                                                                                                               |   |         | 6,274,963  |   |              |   | 5,204,915 |   |
|                                                                                                                                                                            |   |         |       |   |              |   |   |   |
| 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 June 30, 2010 and December 31, 2009 |   |         | 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                                                                                                                                                               |   |         | 9,449,616  |   |              |   | 10,176,352 |   |
| Accumulated other comprehensive income                                                                                                                                          |   |         | 26,907     |   |              |   | 358,745 |   |
| Total Equity                                                                                                                                                                    |   |         | 12,224,813 |   |              |   | 13,283,387 |   |
|                                                                                                                                                                            |   |         |       |   |              |   |   |   |
| TOTAL LIABILITIES AND EQUITY                                                                                                                                                    |   | $            | 18,499,776 |   |              | $      | 18,488,302 |   |

----

DEFENSE 

|                                                                                      |   | For the Three Months Ended June 30, |       |   | For the Six MonthsEnded June 30, |   |
|-------------------------------------------------------------------------------------------|--------|-------------------------------------|------------|--------|----------------------------------|--------|
|                                                                                      |   | 2010                                |       |   | 2009                             |   |   | 2010 |   |   | 2009 |   |
|                                                                                      |   |                                |       |   |                             |   |   |   |   |   |   |   |
| NET REVENUES                                                                              |   | $                                   | 2,887,814  |   |                             | $      | 3,576,137 |   |   | $ | 5,881,545 |   |   | $ | 9,389,425 |   |
|                                                                                      |   |                                |       |   |                             |   |   |   |   |   |   |   |   |   |   |   |
| COST OF SALES                                                                             |   |                                | 2,719,034  |   |                             |   | 2,823,512 |   |   |   | 5,109,386 |   |   |   | 7,145,072 |   |
|                                                                                      |   |                                |       |   |                             |   |   |   |   |   |   |   |   |   |   |   |
| GROSS PROFIT                                                                              |   |                                | 168,780    |   |                             |   | 752,625 |   |   |   | 772,159 |   |   |   | 2,244,353 |   |
|                                                                                      |   |                                |       |   |                             |   |   |   |   |   |   |   |   |   |   |   |
| OPERATING EXPENSES                                                                        |   |                                |       |   |                             |   |   |   |   |   |   |   |   |   |   |   |
| Selling                                                                                   |   |                                | 216,735    |   |                             |   | 148,279 |   |   |   | 332,507 |   |   |   | 332,055 |   |
| General and administrative                                                                |   |                                | 702,886    |   |                             |   | 456,474 |   |   |   | 1,400,295 |   |   |   | 986,368 |   |
| Compensation from government (Note 5)                                                     |   |                                | -          |   |                             |   | (223,913 | ) |   |   | - |   |   |   | (223,913 | ) |
| Total Operating Expenses                                                                  |   |                                | 919,621    |   |                             |   | 380,840 |   |   |   | 1,732,802 |   |   |   | 1,094,510 |   |
|                                                                                      |   |                                |       |   |                             |   |   |   |   |   |   |   |   |   |   |   |
| INCOME (LOSS)  FROM OPERATIONS                                                  |   |                                | (750,841   | )      |                             |   | 371,785 |   |   |   | (960,643 | ) |   |   | 1,149,843 |   |
|                                                                                      |   |                                |       |   |                             |   |   |   |   |   |   |   |   |   |   |   |
| OTHER (EXPENSES) INCOME                                                                   |   |                                |       |   |                             |   |   |   |   |   |   |   |   |   |   |   |
| Financial expenses                                                                        |   |                                | 241,714    |   |                             |   | (444,895 | ) |   |   | 113,822 |   |   |   | (477,582 | ) |
| Financial income                                                                          |   |                                | -          |   |                             |   | 220,839 |   |   |   | 37,858 |   |   |   | 694,551 |   |
| Other income (expenses), net                                                              |   |                                | 39,839     |   |                             |   | 57,001 |   |   |   | 90,211 |   |   |   | 221,205 |   |
| Total Other (Expenses) Income                                                             |   |                                | 281,553    |   |                             |   | (167,055 | ) |   |   | 241,891 |   |   |   | 438,174 |   |
|                                                                                      |   |                                |       |   |                             |   |   |   |   |   |   |   |   |   |   |   |
| INCOME (LOSS) BEFORE INCOME TAXES                                                         |   |                                | (469,288   | )      |                             |   | 204,730 |   |   |   | (718,752 | ) |   |   | 1,588,017 |   |
|                                                                                      |   |                                |       |   |                             |   |   |   |   |   |   |   |   |   |   |   |
| Income tax expenses                                                                       |   |                                | 2,859      |   |                             |   | (73,375 | ) |   |   | (7,984 | ) |   |   | (358,226 | ) |
|                                                                                      |   |                                |       |   |                             |   |   |   |   |   |   |   |   |   |   |   |
| NET INCOME (LOSS)                                                                    |   |                                | (472,147   | )      |                             |   | 131,355 |   |   |   | (726,736 | ) |   |   | 1,229,791 |   |
|                                                                                      |   |                                |       |   |                             |   |   |   |   |   |   |   |   |   |   |   |
| Net income (loss) per share attributable to controlling interest - basic and diluted |   | $                                   | (0.017     | )      |                             | $      | 0.005 |   |   | $ | (0.026 | ) |   | $ | 0.044 |   |
|                                                                                      |   |                                |       |   |                             |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average number of shares outstanding - basic and diluted                         |   |                                | 28,150,535 |   |                             |   | 27,991,741 |   |   |   | 28,150,535 |   |   |   | 27,966,566 |   |

----

DEFENSE 

|                                     |   | Common Stock |       |   | Treasury Stock |   |   | Additional Paid-In |   |   | Retained  |   |   | Accumulated Other Comprehensive |     |   | Total Comprehensive |   |      | Total         |   |
|------------------------------------------|--------|--------------|------------|--------|----------------|--------|--------|--------------------|--------|--------|-----------|--------|--------|---------------------------------|----------|--------|---------------------|--------|-----------|---------------|--------|
|                                     |   | Shares       |       |   | Dollars        |   |   | Shares             |   |   | Dollars   |   |   | Capital                         |     |   | Earnings            |   |      | Income (Loss) |   |   | Loss |   |   | Equity |   |
|                                     |   |         |       |   |           |   |   |               |   |   |      |   |   |                            |     |   |                |   |      |          |   |   |   |   |   |   |   |
| 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                                 |   |         | -          |   |           |   | -      |               |   |   | -         |   |   |                            | -        |   |                |   | -         |          |   |   | (726,736 | ) |   |   | - |   |   | $ | (726,736 | ) |   |   | (726,736 | ) |
| Foreign currency translation gain        |   |         | -          |   |           |   | -      |               |   |   | -         |   |   |                            | -        |   |                |   | -         |          |   |   | - |   |   |   | (331,838 | ) |   |   | (331,838 | ) |   |   | (331,838 | ) |
|                                     |   |         |       |   |           |   |   |               |   |   |      |   |   |                            |     |   |                |   |      |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total comprehensive loss                 |   |         |       |   |           |   |   |               |   |   |      |   |   |                            |     |   |                |   |      |          |   |   |   |   |   |   |   |   |   | $ | (1,058,574 | ) |   |   |   |   |
|                                     |   |         |       |   |           |   |   |               |   |   |      |   |   |                            |     |   |                |   |      |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance as of June 30, 2010              |   |         | 29,200,535 |   |           | $      | 2,920  |               |   |   | 1,050,000 |   |   | $                               | (252,000 | )      |                | $      | 2,997,370 |          |   | $ | 9,449,616 |   |   | $ | 26,907 |   |   |   |   |   |   | $ | 12,224,813 |   |
|                                     |   |         |       |   |           |   |   |               |   |   |      |   |   |                            |     |   |                |   |      |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance as of January 1, 2009            |   |         | 28,991,111 |   |           | $      | 2,899  |               |   |   | 1,050,000 |   |   | $                               | (252,000 | )      |                | $      | 2,957,391 |          |   | $ | 9,654,086 |   |   | $ | 236,503 |   |   |   |   |   |   | $ | 12,598,879 |   |
| Common stock issued to acquire Rizzo Inc |   |         | 209,424    |   |           |   | 21     |               |   |   |      |   |   |                            |     |   |                |   | 39,979    |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 40,000 |   |
|                                     |   |         |       |   |           |   |   |               |   |   |      |   |   |                            |     |   |                |   |      |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Comprehensive loss:                      |   |         |       |   |           |   |   |               |   |   |      |   |   |                            |     |   |                |   |      |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income                               |   |         | -          |   |           |   | -      |               |   |   | -         |   |   |                            | -        |   |                |   | -         |          |   |   | 1,229,791 |   |   |   | - |   |   | $ | 1,229,791 |   |   |   | 1,229,791 |   |
| Foreign currency translation loss        |   |         | -          |   |           |   | -      |               |   |   | -         |   |   |                            | -        |   |                |   | -         |          |   |   | - |   |   |   | (321,754 | ) |   |   | (321,754 | ) |   |   | (321,754 | ) |
|                                     |   |         |       |   |           |   |   |               |   |   |      |   |   |                            |     |   |                |   |      |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total comprehensive loss                 |   |         |       |   |           |   |   |               |   |   |      |   |   |                            |     |   |                |   |      |          |   |   |   |   |   |   |   |   |   | $ | 908,037 |   |   |   |   |   |
|                                     |   |         |       |   |           |   |   |               |   |   |      |   |   |                            |     |   |                |   |      |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance as of June 30 2009               |   |         | 29,200,535 |   |           | $      | 2,920  |               |   |   | 1,050,000 |   |   | $                               | (252,000 | )      |                | $      | 2,997,370 |          |   | $ | 10,883,877 |   |   | $ | (85,251 | ) |   |   |   |   |   | $ | 13,546,916 |   |

----

|                                      |   | Common Stock |       |   | Treasury Stock |   |   | Additional Paid-In |   |   | Retained  |   |   | Accumulated Other Comprehensive |     |   | Total Comprehensive |   |      | Total Shareholders' |   |
|-------------------------------------------|--------|--------------|------------|--------|----------------|--------|--------|--------------------|--------|--------|-----------|--------|--------|---------------------------------|----------|--------|---------------------|--------|-----------|---------------------|--------|
|                                      |   | Shares       |       |   | Dollars        |   |   | Shares             |   |   | Dollars   |   |   | Capital                         |     |   | Earnings            |   |      | Income (Loss)       |   |   | Income |   |   | Equity |   |
|                                      |   |         |       |   |           |   |   |               |   |   |      |   |   |                            |     |   |                |   |      |                |   |   |   |   |   |   |   |
| Balance as of April 1, 2010               |   |         | 29,200,535 |   |           | $      | 2,920  |               |   |   | 1,050,000 |   |   | $                               | (252,000 | )      |                | $      | 2,997,370 |                |   | $ | 9,921,763 |   |   | $ | 586,400 |   |   |   |   |   | $ | 13,256,453 |   |
| Common stock issued to acquire Rizzo Inc. |   |         |       |   |           |   |   |               |   |   | -         |   |   |                            | -        |   |                |   |      |                |   |   | - |   |   |   | - |   |   |   |   |   |   |   |   |
| Comprehensive income:                     |   |         |       |   |           |   |   |               |   |   |      |   |   |                            |     |   |                |   |      |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income                                |   |         | -          |   |           |   | -      |               |   |   | -         |   |   |                            | -        |   |                |   | -         |                |   |   | (472,147 | ) |   |   | - |   |   | $ | (472,147 | ) |   |   | (472,147 | ) |
| Foreign currency translation gain         |   |         | -          |   |           |   | -      |               |   |   | -         |   |   |                            | -        |   |                |   | -         |                |   |   | - |   |   |   | (559,493 | ) |   |   | (559,493 | ) |   |   | (559,493 | ) |
|                                      |   |         |       |   |           |   |   |               |   |   |      |   |   |                            |     |   |                |   |      |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total comprehensive income                |   |         |       |   |           |   |   |               |   |   |      |   |   |                            |     |   |                |   |      |                |   |   |   |   |   |   |   |   |   | $ | 1,031,640 |   |   |   |   |   |
| Balance as of June 30, 2010               |   |         | 29,200,535 |   |           | $      | 2,920  |               |   |   | 1,050,000 |   |   | $                               | (252,000 | )      |                | $      | 2,997,370 |                |   | $ | 9,449,616 |   |   | $ | 26,907 |   |   |   |   |   |   | $ | 12,224,813 |   |
|                                      |   |         |       |   |           |   |   |               |   |   |      |   |   |                            |     |   |                |   |      |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance as of April 1, 2009               |   |         | 28,991,111 |   |           | $      | 2,899  |               |   |   | 1,050,000 |   |   | $                               | (252,000 | )      |                | $      | 2,957,391 |                |   | $ | 10,752,522 |   |   | $ | (955,134 | ) |   |   |   |   |   | $ | 12,505,678 |   |
|                                      |   |         |       |   |           |   |   |               |   |   |      |   |   |                            |     |   |                |   |      |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common stock issued to acquire Rizzo Inc. |   |         | 209,424    |   |           |   | 21     |               |   |   | -         |   |   |                            | -        |   |                |   | 39,979    |                |   |   | - |   |   |   | - |   |   |   |   |   |   |   | 40,000 |   |
| Comprehensive income:                     |   |         |       |   |           |   |   |               |   |   |      |   |   |                            |     |   |                |   |      |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                      |   |         |       |   |           |   |   |               |   |   |      |   |   |                            |     |   |                |   |      |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income                                |   |         | -          |   |           |   | -      |               |   |   | -         |   |   |                            | -        |   |                |   | -         |                |   |   | 131,355 |   |   |   | - |   |   | $ | 131,355 |   |   |   | 131,355 |   |
|                                      |   |         |       |   |           |   |   |               |   |   |      |   |   |                            |     |   |                |   |      |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Foreign currency translation gain         |   |         | -          |   |           |   | -      |               |   |   | -         |   |   |                            | -        |   |                |   | -         |                |   |   | - |   |   |   | 869,883 |   |   |   | 869,883 |   |   |   | 869,883 |   |
| Total comprehensive income                |   |         |       |   |           |   |   |               |   |   |      |   |   |                            |     |   |                |   |      |                |   |   |   |   |   |   |   |   |   | $ | 1,001,238 |   |   |   |   |   |
| Balance as of June 30, 2009               |   |         | 29,200,535 |   |           | $      | 2,920  |               |   |   | 1,050,000 |   |   | $                               | (252,000 | )      |                | $      | 2,997,370 |                |   | $ | 10,883,877 |   |   | $ | (85,251 | ) |   |   |   |   |   | $ | 13,546,916 |   |

----

DEFENSE 

|                                                                                                 |   | For the Six MonthsEnded June 30, |       |
|------------------------------------------------------------------------------------------------------|--------|----------------------------------|------------|
|                                                                                                 |   | 2010                             |       |   | 2009 |   |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                                                |   |                             |       |   |   |   |
| Net income (loss)                                                                                    |   | $                                | (726,737   | ) |   | $ | 1,229,791 |   |
|                                                                                                 |   |                             |       |   |   |   |   |   |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities:             |   |                             |       |   |   |   |   |   |
| Items not effecting cash:                                                                            |   |                             |       |   |   |   |   |   |
| Depreciation and amortization                                                                        |   |                             | 284,890    |   |   |   | 273,116 |   |
| Gain from sale of property, plant and equipment                                                      |   |                             | -          |   |   |   | (20,559 | ) |
| Provision for doubtful accounts                                                                      |   |                             | (7,064     | ) |   |   | (2,138 | ) |
| Deferred taxes                                                                                       |   |                             | 7,984      |   |   |   | 74,495 |   |
| Net unrealized (gain) on trading securities                                                          |   |                             | (51,347    | ) |   |   | (115,284 | ) |
| Gain from the disposal of Dragonwear Trading Ltd.                                                    |   |                             | (13,911    | ) |   |   | - |   |
| Gain from settlement of long term note                                                               |   |                             | (8,968     | ) |   |   | - |   |
| Accrued interest and exchange rate differences of long-term debt                                     |   |                             | (245       | ) |   |   | (848 | ) |
| Accrued interest and exchange rate differences on refundable deposits for the purchase of a business |   |                             | (15,320    | ) |   |   | (52,581 | ) |
| Accrued interest and exchange rate differences on deposits                                           |   |                             | -          |   |   |   | (171,870 | ) |
|                                                                                                 |   |                             |       |   |   |   |   |   |
| Changes in assets and liabilities:                                                                   |   |                             |       |   |   |   |   |   |
| Decrease (increase) in accounts receivable                                                           |   |                             | 749,306    |   |   |   | (155,519 | ) |
| Decrease (increase) in inventories                                                                   |   |                             | (1,537,363 | ) |   |   | (58,235 | ) |
| (Increase) decrease in trading securities                                                            |   |                             | (21,278    | ) |   |   | 268,088 |   |
| Decrease in related parties accounts                                                                 |   |                             | 69,189     |   |   |   | (178,138 | ) |
| (Increase) decrease in other current assets                                                          |   |                             | (256,113   | ) |   |   | 417,792 |   |
| Increase in funds in respect of employee rights upon  retirement                           |   |                             | (35,495    | ) |   |   | (81,240 | ) |
| Increase in accounts payable                                                                         |   |                             | 1,018,418  |   |   |   | (237,215 | ) |
| (Decrease) increase in other current liabilities                                                     |   |                             | 269,240    |   |   |   | (245,656 | ) |
| Increase in liability for employee rights upon retirement                                            |   |                             | 59,446     |   |   |   | 39,639 |   |
| Net cash provided by Operating Activities                                                            |   |                             | (216,068   | ) |   |   | 983,638 |   |
|                                                                                                 |   |                             |       |   |   |   |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                                                |   |                             |       |   |   |   |   |   |
| Redemption of restricted bank deposits                                                               |   |                             | -          |   |   |   | 3,000,000 |   |
| Purchases of property, plant and equipment                                                           |   |                             | (113,729   | ) |   |   | (76,594 | ) |
| Proceeds from sale of property, plant and equipment                                                  |   |                             | -          |   |   |   | 23,658 |   |
| Refundable deposits for purchase of a business                                                       |   |                             | (13,782    | ) |   |   | (880,934 | ) |
| Net cash (used in)  provided by Investing Activities                                       |   |                             | (127,511   | ) |   |   | 2,066,130 |   |
|                                                                                                 |   |                             |       |   |   |   |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                                                |   |                             |       |   |   |   |   |   |
| Short-term debt, net                                                                                 |   |                             | (97,615    | ) |   |   | (46,314 | ) |
| Proceeds from long-term debt                                                                         |   |                             | 85,319     |   |   |   | - |   |
| Repayment of long-term debt                                                                          |   |                             | (148,961   | ) |   |   | (185,635 | ) |
| Redemption of related party creditors                                                                |   |                             | -          |   |   |   | (1,200,000 | ) |
| Net cash used in Financing Activities                                                                |   |                             | (161,257   | ) |   |   | (1,431,949 | ) |
|                                                                                                 |   |                             |       |   |   |   |   |   |
| EFFECT OF CHANGES IN EXCHANGE RATES ON CASH AND CASH EQUIVALENTS                                     |   |                             | (128,953   | ) |   |   | 73,752 |   |
|                                                                                                 |   |                             |       |   |   |   |   |   |
| NET INCREASE IN CASH AND CASH EQUIVALENTS                                                            |   |                             | (633,789   | ) |   |   | 1,691,571 |   |
|                                                                                                 |   |                             |       |   |   |   |   |   |
| CASH AND CASH EQUIVALENTS – BEGINNING OF PERIOD                                                |   |                             | 3,783,631  |   |   |   | 1,719,921 |   |
|                                                                                                 |   |                             |       |   |   |   |   |   |
| CASH AND CASH EQUIVALENTS – END OF PERIOD                                                      |   | $                                | 3,149,842  |   |   | $ | 3,411,492 |   |
|                                                                                                 |   |                             |       |   |   |   |   |   |
| INTEREST PAID                                                                                        |   | $                                | 22,099     |   |   | $ | 29,573 |   |
|                                                                                                 |   |                             |       |   |   |   |   |   |
| TAXES PAID                                                                                           |   | $                                | 132,309    |   |   | $ | 490,292 |   |

----

DEFENSE INDUSTRIES INTERNATIONAL, INC.

| NOTE 1 | BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES |
|--------|-----------------------------------------------------------|

|   | A. | The accompanying unaudited interim consolidated financial statements as of June 30, 2010 and for the six 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 latest annual financial statements. All significant accounting policies have been applied consistently with the year ended December 31, 2009. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 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 six months period ended June 30, 2010, are not necessarily indicative of the results that may be expected for the year ending December 31, 2010. The interim financial statements should be read in conjunction with the Company’s annual financial statements as of December 31, 2009 and for the year then ended and the accompanying notes thereto. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | The interim financial statements include the accounts of Defense Industries International, Inc., its wholly owned subsidiaries, Export Erez USA, Inc., Rizzo Inc.(doing business as Owen Mills Company), Export Erez, Ltd. (“Export Erez”), Mayotex, Ltd. (“Mayotex”), Dragonwear Trading Ltd. (“Dragonwear”), and Achidatex Nazareth Elite (1977) Ltd. (“Achidatex”). |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | During 2009, Dragonwear ceased its operations and was dissolved and deleted from the Register of Companies on March, 14, 2010. Dragonwear had no operational activities, therefore, its discontinuance had no impact for measurement and disclosure purposes in all reported periods. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | All significant inter-company accounts and transactions have been eliminated in consolidation. |
|--------|------------------------------------------------------------------------------------------------|

----

| NOTE 1 | BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Continue) |   |
|--------|----------------------------------------------------------------------|--------|

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

|   | Basic net income per share of common stock is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted net income per share of common stock is computed based on the weighted average number of shares of common stock and common stock equivalents outstanding during the period. For the six months ended June 30, 2010 and 2009 common stock underlying a warrant instrument, dated June 15 2005, exercisable into  202,500 shares of common stock were not included in diluted income (loss) per share because their effect is anti-dilutive. Such warrant instrument has expired on June 30, 2010 and has no further force and effect. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | The Company categorizes the fair value of its financial assets and liabilities according to the hierarchy of Financial Accounting Standard Board (“FASB”) Accounting Standards Codification (“ASC”) No. 820 "Fair Value Measurements and Disclosures", which establishes a framework for measuring fair value and requires enhanced disclosures about fair value measurements. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | FASB ASC 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. FASB ASC 820 also requires disclosure about how fair value is determined for assets and liabilities and establishes a hierarchy for which these assets and liabilities must be grouped, based on significant levels of inputs, as follows: |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Level 1 | Quoted prices in active markets for identical assets or liabilities; |
|--------|---------|----------------------------------------------------------------------|

|   | Level 2 | Quoted prices in active markets for similar assets and liabilities and inputs that are observable for the asset or liability; or |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------|

|   | Level 3 | Unobservable inputs, such as discounted cash flow models or valuations. |
|--------|---------|-------------------------------------------------------------------------|

|   | The Company’s trading securities and bank deposits are measured at fair value based on quoted market prices in active markets for identical assets (Level 1). |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company funds in respect to employees’ rights upon retirement are measured at fair value based upon unobservable inputs (Level 3). |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------|

|   | In addition to the assets and liabilities described above, our financial instruments also include cash, accounts receivable, other receivables, accounts payable, accounts payable to related parties, accrued expenses and other payables. The fair value of these financial instruments was not materially different from their carrying value at June 30, 2010 and December 31, 2009 due to the short-term maturity of these instruments. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| NOTE 1 | BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Continue) |   |
|--------|----------------------------------------------------------------------|--------|

|   | H. | Recent accounting pronouncements issued and adopted in the reported period |
|--------|----|----------------------------------------------------------------------------|

|   | With the exception of those stated below, there have been no recent accounting pronouncements or changes in accounting pronouncements during the six months ended June 30, 2010, as compared to the recent accounting pronouncements described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009, that are of material significance, or have potential material significance, to the Company. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Effective January 1, 2010, the Company adopted the FASB’s ASU No. 2010-06 "Improving Disclosures about Fair Value Measurements". The updated guidance related to fair value measurements and disclosures, which requires a reporting entity to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and to describe the reasons for the transfers. In addition, in the reconciliation for fair value measurements using significant unobservable inputs, or Level 3, a reporting entity should disclose separately information about purchases, sales, issuances and settlements (that is, on a gross basis rather than one net number). The updated guidance also requires that an entity should provide fair value measurement disclosures for each class of assets and liabilities and disclosures about the valuation techniques and inputs used to measure fair value for both recurring and non-recurring fair value measurements for Level 2 and Level 3 fair value measurements. The guidance is effective for interim or annual financial reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the roll forward activity in Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. The Company has updated its disclosures to comply with the updated guidance; however, adoption of the updated guidance did not have an impact on the Company’s consolidated results of operations or financial condition. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| NOTE 2 | ISORAD AGREEMENT |
|--------|------------------|

|   | On December 17, 2008, Mayotex entered into an agreement with Sarino Crystal Technologies Ltd. and Sarino Optronics Ltd. (“Sarino”) to cooperate in the manufacture of optical grade Germanium crystals and sales of lenses to be used in optical and infra-red night vision products utilizing the Germanium crystals (the "Sarino Agreement”). |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | On December 21, 2008, Mayosar Ltd. (incorporated by Mayotex and Sarino) (“Mayosar”), through its wholly owned subsidiary Isorad IR Optics Ltd., (“Optics”), entered into an agreement to purchase the Germanium Crystals Business of Isorad Ltd., an Israeli governmental company (“Isorad”). The Isorad Agreement provided for the purchase of certain know-how, equipment, inventories and production activities of Germanium Crystals for lenses used in infra-red night vision system applications (“Isorad Agreement”). As of June 30, 2010, Isorad has not met certain conditions set out in the Isorad Agreement and, based on a legal advice received, this agreement has not been consummated. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Subsequent to the balance date, in August 2010, Mayosar, Optics and Isorad Ltd. executed an addendum to the 2008 agreement, according to which the parties confirmed the validity of the Isorad Agreement.  |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Pursuant to the Sarino Agreement: |
|--------|-----------------------------------|

|   | (1) Mayotex and Sarino agreed to incorporate Mayosar, with Mayotex being the majority shareholder owning 50.1% and Sarino owning 49.9%. As majority shareholder, Mayotex will have operational control of Mayosar. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) In consideration of the above, Mayotex paid Sarino $1 million, out of which, $300,000 will be non-refundable to Mayotex upon 24 months following the execution of the Isorad Agreement, 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 annum. The refundable consideration is secured by Sarino’s interest in Mayosar and personal guarantees provided by Sarino Crystal Technologies Ltd.'s controlling shareholders. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) Mayotex agreed to provide Mayosar with a loan of up to $2 million. Such loan will bear interest at the rate of Libor + 2%, and is payable from profits generated by Mayosar. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | As of June 30, 2010, Mayotex provided loans of $1 million to Sarino and $1 million to Mayosar. Such payments are recognized as refundable deposits pending resolution of the Isorad Agreement. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Pursuant to the Isorad Agreement, Optics is to pay royalties of 3% out of sales for a period of 15 years commencing the effective date of the Isorad Agreement (the “Effective Date”), with a minimum amount of approximately $133,000 payable per year during the first 18 months or until the date of completion of the transfer of the site of the Germanium Crystals Business, whichever is earlier (this payment includes a reimbursement of costs for the usage of the site and equipment in this initial period), and approximately $53,000 per year during the following years of the royalties payment period. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| NOTE 2 | ISORAD AGREEMENT (Continue) |
|--------|-----------------------------|

|   | Pursuant to the Isorad Agreement, Isorad was granted the right to acquire 5% of the share capital of Optics on a fully diluted basis for their nominal value during the 24 month period beginning on the Effective Date. Such right was recently extended for an additional 12-month period. If the Israeli Government does not approve the 5% purchase of the Optics shares by Isorad within the above period, the right to acquire the shares will expire and Isorad will be entitled to a payment of $75,000. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In the event of an allotment of shares to Isorad, representing 5% of Optics’ share capital, Mayosar will issue to Mayotex additional shares of Mayosar on a pro rata basis, in order for Mayotex to retain a 50.01% indirect interest in Optics’ share capital. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Optics has the right during the four year period following the Effective Date to redeem and purchase from Isorad its option to purchase 5% of its shares and to cancel its commitment to pay royalties under the Isorad agreement, in consideration of a fixed payment of $750,000, less all royalties paid to Isorad through that date. As of the balance sheet date Management asses its legal position and is of the opinion, based on legal advice received, that the amounts paid under the Sarino and Isorad agreements should be fully refunded to the Company in the event that the Isorad Agreement is not consummated. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| NOTE 3 | INVENTORIES |
|--------|-------------|

|              |   | June 30, 2010 |      |   | December 31, 2009 |   |
|-------------------|--------|--------------------|-----------|--------|-------------------|--------|
|              |   |               |      |   |              |   |
| Raw materials (1) |   | $                  | 3,994,296 |   |              | $      | 2,597,759 |   |
| Work in progress  |   |               | 579,656   |   |              |   | 642,132 |   |
| Finished goods    |   |               | 950,077   |   |              |   | 884,250 |   |
|              |   |               |      |   |              |   |   |   |
|              |   | $                  | 5,524,030 |   |              | $      | 4,124,141 |   |

|   | (1) As of June 30, 2010 and December 31, 2009, includes advanced payments to purchase inventory for $340,931 and $52,894, respectively. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------|

----

| NOTE 4 | SEGMENT INFORMATION AND CONCENTRATIONS |
|--------|----------------------------------------|

|   | The Company has two strategic business segments: sales to the civilian market and the military market. |
|--------|--------------------------------------------------------------------------------------------------------|

|   | The military and the civilian markets are further broken down between Israel (local) and other (export) sales in order to better analyze trends in sales and profit margins. The Company does not allocate assets between segments because assets are used in more than one segment and any allocation would be impractical. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|                                     |   | Civilian |      |   | Military |   |    |   |   |
|------------------------------------------|--------|----------|-----------|--------|----------|--------|---------|--------|--------|
|                                     |   | Local    |      |   | Export   |   |    | Local  |   |   | Export |   |   | Consolidated |   |
|                                     |   |     |      |   |     |   |    |   |   |   |   |   |   |   |   |
| For the six monthsended June 30, 2010:   |   |     |      |   |     |   |    |   |   |   |   |   |   |   |   |
|                                     |   |     |      |   |     |   |    |   |   |   |   |   |   |   |   |
| Revenue from sales                       |   | $        | 1,685,147 |   |     | $      | 608,718 |   |   | $ | 2,675,768 |   |   | $ | 911,912 |   |   | $ | 5,881,545 |   |
| Gross Profits                            |   |     | 229,520   |   |     |   | 82,789  |   |   |   | 357,808 |   |   |   | 102,042 |   |   |   | 772,159 |   |
| Corporate unallocated costs              |   |     |      |   |     |   |    |   |   |   |   |   |   |   |   |   |   |   | 1,732,802 |   |
| Loss from operations                     |   |     |      |   |     |   |    |   |   |   |   |   |   |   |   |   |   |   | (960,643 | ) |
|                                     |   |     |      |   |     |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| For the three monthsended June 30, 2010: |   |     |      |   |     |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                     |   |     |      |   |     |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenue from sales                       |   | $        | 651,489   |   |     | $      | 379,087 |   |   | $ | 1,510,626 |   |   | $ | 346,612 |   |   | $ | 2,887,814 |   |
| Gross Profits                            |   |     | 50,320    |   |     |   | 57,495  |   |   |   | 85,500 |   |   |   | (24,535 | ) |   |   | 168,780 |   |
| Corporate unallocated costs              |   |     |      |   |     |   |    |   |   |   |   |   |   |   |   |   |   |   | 919,621 |   |
| Loss from operations                     |   |     |      |   |     |   |    |   |   |   |   |   |   |   |   |   |   |   | (750,841 | ) |

| For the six monthsended June 30, 2009:   |   |   |      |   |   |   |    |   |   |   |      |   |   |   |      |
|------------------------------------------|--------|--------|-----------|--------|--------|--------|---------|--------|--------|--------|-----------|--------|--------|--------|-----------|
|                                     |   |   |      |   |   |   |    |   |   |   |      |   |   |   |      |
| Revenue from sales                       |   | $      | 1,155,330 |   |   | $      | 422,853 |   |   | $      | 4,206,024 |   |   | $      | 3,605,218 |   |   | $ | 9,389,425 |   |
| Gross Profits                            |   |   | 388,704   |   |   |   | 54,562  |   |   |   | 873,311   |   |   |   | 927,776   |   |   |   | 2,244,353 |   |
| Corporate unallocated costs              |   |   |      |   |   |   |    |   |   |   |      |   |   |   |      |   |   |   | 1,094,510 |   |
| Income from operations                   |   |   |      |   |   |   |    |   |   |   |      |   |   |   |      |   |   |   | 1,149,843 |   |
|                                     |   |   |      |   |   |   |    |   |   |   |      |   |   |   |      |   |   |   |   |   |
| For the three monthsended June 30, 2009: |   |   |      |   |   |   |    |   |   |   |      |   |   |   |      |   |   |   |   |   |
|                                     |   |   |      |   |   |   |    |   |   |   |      |   |   |   |      |   |   |   |   |   |
| Revenue from sales                       |   | $      | 334,054   |   |   | $      | 262,394 |   |   | $      | 1,775,087 |   |   | $      | 1,204,602 |   |   | $ | 3,576,137 |   |
| Gross Profits                            |   |   | 67,581    |   |   |   | 92,608  |   |   |   | 349,665   |   |   |   | 242,771   |   |   |   | 752,625 |   |
| Corporate unallocated costs              |   |   |      |   |   |   |    |   |   |   |      |   |   |   |      |   |   |   | 380,840 |   |
| Income from operations                   |   |   |      |   |   |   |    |   |   |   |      |   |   |   |      |   |   |   | 371,785 |   |

----

| NOTE 4 | SEGMENT INFORMATION AND CONCENTRATIONS (Continue) |
|--------|---------------------------------------------------|

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

|                                                  |   | Three Months EndedJune 30, |      |   | Six Months EndedJune 30, |   |
|-------------------------------------------------------|--------|----------------------------|-----------|--------|--------------------------|--------|
|                                                  |   | 2010                       |      |   | 2009                     |   |   | 2010 |   |   | 2009 |   |
|                                                  |   |                       |      |   |                     |   |   |   |   |   |   |   |
| Israel                                                |   | $                          | 2,162,115 |   |                     | $      | 2,109,141 |   |   | $ | 4,360,915 |   |   | $ | 5,361,354 |   |
| South America                                         |   |                       | 249,083   |   |                     |   | 453,889 |   |   |   | 467,443 |   |   |   | 1,208,416 |   |
| North America                                         |   |                       | 374,798   |   |                     |   | 439,048 |   |   |   | 605,743 |   |   |   | 599,507 |   |
| Europe and Asia                                       |   |                       | 101,734   |   |                     |   | 372,923 |   |   |   | 445,183 |   |   |   | 832,657 |   |
| Africa                                                |   |                       | 84        |   |                     |   | 201,136 |   |   |   | 2,261 |   |   |   | 1,387,491 |   |
|                                                  |   |                       |      |   |                     |   |   |   |   |   |   |   |   |   |   |   |
|        Total Sales |   | $                          | 2,887,815 |   |                     | $      | 3,576,137 |   |   | $ | 5,881,545 |   |   | $ | 9,389,425 |   |

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

|                         |   | For the ThreeMonths EndedJune 30, |      |   | For the SixMonths EndedJune 30, |   |
|------------------------------|--------|-----------------------------------|-----------|--------|---------------------------------|--------|
|                         |   | 2010                              |      |   | 2009                            |   |   | 2010 |   |   | 2009 |   |
|                         |   |                              |      |   |                            |   |   |   |   |   |   |   |
| Customer A (Military Local)  |   | $                                 | 1,316,296 |   |                            | $      | 1,710,202 |   |   | $ | 2,455,772 |   |   | $ | 4,141,138 |   |
| Customer B (Military Export) |   |                              | -         |   |                            |   | 91,282 |   |   |   | - |   |   |   | 1,155,205 |   |

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| NOTE 5 | COMMITMENTS AND CONTINGENCIES |
|--------|-------------------------------|

|   | A. | On February 11, 2009, a lawsuit was filed in the Jerusalem District Court (the "Court") against our subsidiary, Achidatex, its chief executive officer, Mr. Avraham Haztor, and our subsidiary Export Erez USA Inc. The plaintiff filed a petition to add Export Erez Ltd., or Export Erez, as a defendant in the claim. Export Erez objected to the plaintiff's petition, however, the Court accepted the petition and ruled that Export Erez will be added as a defendant in the claim. The suit alleges that Achidatex materially breached its agreement with the plaintiff, dated February 22, 2000, relating to the development of inflatable mine-field crossing enabling sandals, by failing to register patents for the technology underlying the sandals worldwide and 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 $2.6 million). Achidatex filed a statement of defense rejecting the plaintiff's claims and a claim against the plaintiff and others for a declaratory judgment that the plaintiff has breached his contractual undertakings towards Achidatex. Achidatex's petition to consolidate its claim with the plaintiff's claim was ordered by the Court and the claims are now being heard together. Achidatex also filed a petition to remove the claim against Mr. Haztor and Export Erez USA Inc. based on the assertion that there is no contractual or any other kind of privity between the plaintiff and Mr. Haztor and Export Erez USA Inc. and, therefore, no cause of action against them exists. This petition is pending. The Company intends to vigorously defend against the claim. Due to the preliminary stage of the above claims, the Company and its legal advisors cannot currently assess the outcome or possible adverse effect on our financial position or results of operations. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | B. | On April 7, 2010, a lawsuit was filed against Achidatex and another lawsuit was filed against Export Erez in the Nazareth Magistrates' Court (the "Nazareth Court"), each to obtain an eviction order for the premises leased by these subsidiaries. The plaintiffs in the suits, a company owned by the former shareholders of Achidatex and a company owned by the Company's principal shareholder, allege that Achidatex and Export Erez each materially breached their respective lease agreement with the plaintiff, dated January 1, 2008. The premises from which the plaintiff seeks to evict Achidatex and Export Erez, are used by Achidatex and Export Erez to conduct their operational activities. The parties to the above claim have reached a settlement of the dispute and the lawsuit was withdrawn by the plaintiff. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | C. | On July 12 2010, a lawsuit was filed in the Tel-Aviv Regional Labor Court (the "Labor Court") against the Company, its subsidiaries Mayotex and Export Erez (the "Group") and against an officer of the Group, by a former employee. The plaintiff alleges that the Group breached her employment agreement and violated certain Israeli labor related legislation, by not paying her severance payment, payment in lieu of vacation, recuperation payments, contribution to Study Fund, due to her claiming to being subject to sexual harassment and consequently violation of certain applicable Israeli legislation, not making the payments due to the employee during the prior notice period and compensation for overtime. The amount claimed under the above claim is      NIS 1,472,035 ($379,880). The Company believes that the amounts under the claim are exaggerated and that the exposure of the claim (if any) is not material to the business of the Group. The Company intends to vigorously defend its position. The Labor Court has imposed a gag order on the parties to the lawsuit. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| NOTE 6 | SUBSEQUENT EVENTS |
|--------|-------------------|

|   | On August 2010, Mayosar, Optics and Isorad Ltd. executed an addendum to the Isorad Agreement, according to which the parties confirmed the validity of the Isorad Agreement. (For further information regarding the Isorad Agreement see Note 2). |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

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

----

|                                                                  |   | Three Months EndedJune 30, |    |   | Six Months EndedJune 30, |   |
|-----------------------------------------------------------------------|--------|----------------------------|---------|--------|--------------------------|--------|
|                                                                  |   | 2010                       |    |   | 2009                     |   |   | 2010 |   |   | 2009 |   |
|                                                                  |   |                       |    |   |                     |   |   |   |   |   |   |   |
| Sales to South America                                                |   | $                          | 249,083 |   |                     | $      | 453,889 |   |   | $ | 467,443 |   |   | $ | 1,208,416 |   |
| Sales to North America                                                |   |                       | 6,042   |   |                     |   | 176,654 |   |   |   | 7,356 |   |   |   | 176,654 |   |
| Sales to Europe and Asia                                              |   |                       | 91,403  |   |                     |   | 372,923 |   |   |   | 434,852 |   |   |   | 832,657 |   |
| Sales to Africa                                                       |   |                       | 84      |   |                     |   | 201,136 |   |   |   | 2,261 |   |   |   | 1,387,491 |   |
|        Total Export Military Sales |   | $                          | 346,612 |   |                     | $      | 1,204,602 |   |   | $ | 911,912 |   |   | $ | 3,605,218 |   |

|                                                                                                                                                  |   | Three Months EndedJune 30, |      |   | Six Months EndedJune 30, |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------|-----------|--------|--------------------------|--------|
|                                                                                                                                                  |   | 2010                       |      |   | 2009                     |   |   | 2010 |   |   | 2009 |   |
|                                                                                                                                                  |   |                       |      |   |                     |   |   |   |   |   |   |   |
| Local civilian market                                                                                                                                 |   | $                          | 651,489   |   |                     | $      | 334,054 |   |   | $ | 1,685,147 |   |   | $ | 1,155,330 |   |
| Export civilian market                                                                                                                                |   |                       | 379,087   |   |                     |   | 262,394 |   |   |   | 608,718 |   |   |   | 422,853 |   |
| Local military market                                                                                                                                 |   |                       | 1,510,626 |   |                     |   | 1,775,087 |   |   |   | 2,675,768 |   |   |   | 4,206,024 |   |
| Export military market                                                                                                                                |   |                       | 346,612   |   |                     |   | 1,204,602 |   |   |   | 911,912 |   |   |   | 3,605,218 |   |
|                         Total |   | $                          | 2,887,814 |   |                     | $      | 3,576,137 |   |   | $ | 5,881,545 |   |   | $ | 9,389,425 |   |

----

| ● | Mayotex and Sarino agreed to incorporate Mayosar, with Mayotex being the majority shareholder owning 50.1% and Sarino owning 49.9%. As majority shareholder, Mayotex will have operational control of Mayosar. |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ● | In consideration of the above, Mayotex paid Sarino $1 million, out of which $300,000 is non-refundable to Mayotex upon 24 months following the execution of the Isorad Agreement, 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 annum. 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. |
|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

----

|                                                           |   | Six months ended |      |
|----------------------------------------------------------------|--------|------------------|-----------|
|                                                           |   | June 30, 2010    |      |   | June 30, 2009 |   |
|                                                           |   |             |      |   |   |   |
| Net cash (used in) provided by operating activities            |   | $                | (216,068  | ) |   | $ | 983,638 |   |
| Net cash (used in) provided by  investing activities |   |             | (127,511  | ) |   |   | 2,066,130 |   |
| Net cash used in financing activities                          |   |             | (161,257  | ) |   |   | (1,431,949 | ) |
| Net increase in cash and cash equivalents                      |   |             | (633,789  | ) |   |   | 1,691,571 |   |
| Cash and cash equivalents at beginning of period               |   |             | 3,783,631 |   |   |   | 1,719,921 |   |
| Cash and cash equivalents at end of period                     |   |             | 3,149,842 |   |   |   | 3,411,492 |   |

----

| 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                                |   | $      | 476,621   |   |                   | $      | 253,662 |   |   | $ | 218,658 |   |   | $ | 4,301 |   |   | $ | - |   |
| Estimated interest payments on long-term debt obligations |   |   | 31,522    |   |                   |   | 19,942 |   |   |   | 11,557 |   |   |   | 23 |   |   |   | - |   |
| Operating lease obligations                               |   |   | 758,590   |   |                   |   | 507,565 |   |   |   | 251,025 |   |   |   | - |   |   |   | - |   |
|                                                      |   |   |      |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                                                     |   | $      | 1,266,733 |   |                   | $      | 781,169 |   |   | $ | 481,240 |   |   | $ | 4,324 |   |   | $ | - |   |

| Critical Accounting Policies |
|------------------------------|

| Item 3.     Quantitative and Qualitative Disclosures About Market Risk |
|---------------------------------------------------------------------------------------|

----

Item 4.     Controls and Procedures

| Item 1.     Legal Proceedings |
|---------------------------------------------------|

----

Item 1A.    Risk Factors

| Item 2.       Unregistered Sales of Equity Securities and Use of Proceeds |
|---------------------------------------------------------------------------------------------------------|

| Item 3.       Defaults Upon Senior Securities |
|-----------------------------------------------------------------------------|

|      None. |
|--------------------------------|

| Item 4.       (Removed and Reserved) |
|--------------------------------------------------------------------|

| Item 5.       Other Information |
|---------------------------------------------------------------|

|      None. |
|--------------------------------|

| Item 6.       Exhibits |
|-----------------------------------------------------------|

| 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. |
|------|--------------------------------------------------------------------------------------------------------------------------------------------|

----

SIGNATURES

|                  | DEFENSE INDUSTRIES INTERNATIONAL, INC. |                                                     |
|-----------------------|----------------------------------------|----------------------------------------------------------|
|                  |                                   |                                                     |   |
| Date: August 15, 2010 | By:                                    | /s/ Uri Nissani                                     |   |
|                  |                                   | Name: Uri Nissani                                        |   |
|                  |                                   | Title:   Chief Executive Officer and President |   |
|                  |                                   |                                                     |   |

----

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