---

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# UNITED STATES
SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549

# FORM 10-Q

|x | Quarterly
report pursuant to Section 13 or 15(d) of the Securities Exchange Act
                    of 1934 for the quarterly period ended March 31, 2009
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------

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

Commission file number:
0-30105

DEFENSE
INDUSTRIES INTERNATIONAL, INC.
(Exact Name of
Registrant as Specified in Its Charter)

|                                                                       |                                                                                                                                                                                                                                                                  |                                                 
|---------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------
|Nevada 
(State or Other Jurisdiction of
Incorporation or Organization) | 8 Brisel Street Industrial Zone Sderot, Israel, 87711 
(Address of Principal
Executive Offices)(011) 972-8-689-1611 
(Registrants
Telephone Number, Including Area Code)N/A 
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last
Report) | 84-1421483 
(I.R.S. Employer
Identification No.)

Indicate by check mark whether the
registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).

Yes o No o

Indicate by check mark whether the
registrant is large accelerated filer, an accelerated filer, or a non-accelerated filer.
See of accelerated filer and large accelerated filer in Rule 12b-2 of the
Exchange Act.

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

Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

As of May 19, 2009 the issuer had
27,941,111 shares of Common Stock, par value $0.0001, outstanding.



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|
|

# DEFENSE INDUSTRIES
INTERNATIONAL, INC. AND SUBSIDIARIES

INDEX

|                                |                                                                                                                      | Page
|------------------------------- | -------------------------------------------------------------------------------------------------------------------- | ----
|
|
|
|
|PART I - FINANCIAL INFORMATION: |                                                                                                                     
|Item 1.                         | Condensed Consolidated Balance Sheets as of March 31, 2009 (Unaudited) and December 31, 2008                         | 3   
|                                | Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2009 and 2008 (Unaudited)       | 5   
|                                | Condensed Consolidated Statement of Changes in Equity for the Three Months Ended March 31, 2009 and 2008 (Unaudited) | 6   
|                                | Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2009 and 2008 (Unaudited)       | 7   
|                                | Notes to Condensed Consolidated Financial Statements (Unaudited)                                                     | 8   
|Item 2.                         | Management's Discussion and Analysis of Financial Condition and Results of Operations                                | 16  
|Item 3.                         | Quantitative and Qualitative Disclosures About Market Risk                                                           | 24  
|Item 4.                         | Controls and Procedures                                                                                              | 24  
|PART II - OTHER INFORMATION:   
|Item 1.                         | Legal Proceedings                                                                                                    | 24  
|Item 1A.                        | Risk Factors                                                                                                         | 25  
|Item 6.                         | Exhibits and Reports on Form 8-K                                                                                     | 25  
|SIGNATURES                      |                                                                                                                      | 26  

2

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DEFENSE INDUSTRIES INTERNATIONAL, INC.
AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2009 (UNAUDITED) AND DECEMBER 31, 2008

ASSETS

|                                                            | March 31,
2009 | December 31,
2008
|----------------------------------------------------------- | -------------- | -----------------
|
|
|
|
|CURRENT ASSETS                                              |                |                  
|Cash and cash equivalents                                   |                |                  
|Restricted bank deposits                                    |                |                  
|Accounts receivable, net of allowance for doubtful accounts |                |                  
|of $279,722 and $298,354, respectively                      |                |                  
|Inventories                                                 |                |                  
|Trading securities                                          |                |                  
|Deferred taxes                                              |                |                  
|Other current assets                                        |                |                  
|                                                            |                |                  
|Total Current Assets                                        |                |                  
|                                                            |                |                  
|                                                            |                |                  
|PROPERTY, PLANT AND EQUIPMENT, NET                          |                |                  
|                                                            |                |                  
|                                                            |                |                  
|OTHER ASSETS                                                |                |                  
|Funds in respect of employee rights upon retirement         |                |                  
|Deferred taxes                                              |                |                  
|Refundable deposits for the purchase of a business (Note 2) |                |                  
|                                                            |                |                  
|Total Other Assets                                          |                |                  
|                                                            |                |                  
|                                                            |                |                  
|TOTAL ASSETS                                                |                |                  
|                                                            |                |                  
|                                                            |                |                  

The
accompanying notes are an integral part of the condensed consolidated financial
statements.

3

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DEFENSE INDUSTRIES INTERNATIONAL, INC.
AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2009 (UNAUDITED) AND DECEMBER 31, 2008

LIABILITIES AND EQUITY

|                                                           | March 31,
2009 | December 31, 2008
|---------------------------------------------------------- | -------------- | -----------------
|
|
|
|
|CURRENT LIABILITIES                                        |                |                  
|Accounts payable                                           |                |                  
|Accounts payable - related parties                         |                |                  
|Short-term debt                                            |                |                  
|Common stock to be issued                                  |                |                  
|Other current liabilities                                  |                |                  
|                                                           |                |                  
|Total Current Liabilities                                  |                |                  
|                                                           |                |                  
|                                                           |                |                  
|LONG-TERM LIABILITIES                                      |                |                  
|Long-term portion of debt                                  |                |                  
|Liability for employee rights upon retirement              |                |                  
|                                                           |                |                  
|                                                           |                |                  
|Total Long-Term Liabilities                                |                |                  
|                                                           |                |                  
|                                                           |                |                  
|TOTAL LIABILITIES                                          |                |                  
|                                                           |                |                  
|                                                           |                |                  
|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, 28,991,111 shares issued and 27,941,111        |                |                  
|shares outstanding at March 31, 2009 and December 31, 2008 |                |                  
|Additional paid-in capital                                 |                |                  
|Treasury stock (1,050,000 shares at cost)                  |                |                  
|Retained earnings                                          |                |                  
|Accumulated other comprehensive (loss) income              |                |                  
|                                                           |                |                  
|Total Equity                                               |                |                  
|                                                           |                |                  
|                                                           |                |                  
|TOTAL LIABILITIES AND EQUITY                               |                |                  
|                                                           |                |                  
|                                                           |                |                  

The accompanying notes are an
integral part of the condensed consolidated financial statements

4

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DEFENSE INDUSTRIES INTERNATIONAL, INC.
AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008 (UNAUDITED)

|                                                                  | For the Three Months
Ended March 31,
|----------------------------------------------------------------- | ------------------------------------
|
|
|
|
|NET REVENUES                                                      |                                     
|                                                                  |                                     
|COST OF SALES                                                     |                                     
|                                                                  |                                     
|                                                                  |                                     
|GROSS PROFIT                                                      |                                     
|                                                                  |                                     
|OPERATING EXPENSES                                                |                                     
|Selling                                                           |                                     
|General and administrative                                        |                                     
|                                                                  |                                     
|Total Operating Expenses                                          |                                     
|                                                                  |                                     
|INCOME FROM OPERATIONS                                            |                                     
|                                                                  |                                     
|                                                                  |                                     
|OTHER INCOME (EXPENSES)                                           |                                     
|Financial expenses                                                |                                     
|Financial income                                                  |                                     
|Other income (expenses), net                                      |                                     
|                                                                  |                                     
|Total Other Income (Expenses)                                     |                                     
|                                                                  |                                     
|                                                                  |                                     
|INCOME (LOSS) BEFORE INCOME TAXES                                 |                                     
|                                                                  |                                     
|Income tax expenses                                               |                                     
|                                                                  |                                     
|                                                                  |                                     
|NET INCOME (LOSS) BEFORE EXTRAORDINARY INCOME                     |                                     
|                                                                  |                                     
|Extraordinary income, net of tax                                  |                                     
|                                                                  |                                     
|                                                                  |                                     
|NET INCOME                                                        |                                     
|                                                                  |                                     
|Less net income attributable to noncontrolling interest           |                                     
|                                                                  |                                     
|                                                                  |                                     
|NET INCOME attributable to controlling interest                   |                                     
|                                                                  |                                     
|                                                                  |                                     
|Net income (loss) per share attributable to controlling interest  |                                     
|from continuing operations - basic and diluted                    |                                     
|Net extraordinary income per share attributable to controlling    |                                     
|interest - basic and diluted                                      |                                     
|                                                                  |                                     
|                                                                  |                                     
|Net income per share attributable to controlling interest - basic |                                     
|and diluted                                                       |                                     
|                                                                  |                                     
|                                                                  |                                     
|Weighted average number of shares outstanding - basic and diluted |                                     
|                                                                  |                                     
|                                                                  |                                     

The accompanying notes are an integral
part of the condensed consolidated financial statements

5

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DEFENSE INDUSTRIES INTERNATIONAL, INC.
AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008 (UNAUDITED)

|                           | Common Stock | Treasury Stock | Additional
Paid-In
Capital | Retained
Earnings | Accumulated
Other
Comprehensive
Income
(Loss) | Total
Comprehensive
Loss | Total
Shareholders'
Equity | Noncontrolling
Interest | Total
Equity
|-------------------------- | ------------ | -------------- | -------------------------- | ----------------- | --------------------------------------------- | ------------------------ | -------------------------- | ----------------------- | ------------
|
|
|
|
|Balance as of January 1,   |              |                |                            |                   |                                               |                          |                            |                         |             
|2009                       |              |                |                            | 28,991,111        |                                               | $                        | 2,899                      |                         |             
|                           |              |               
|Comprehensive loss:        |              |               
|                           |              |               
|Net income                 |              |                |                            | -                 |                                               |                          | -                          |                         |             
|                           |              |               
|Foreign currency           |              |               
|translation loss           |              |                |                            | -                 |                                               |                          | -                          |                         |             
|                           |              |                |                            |                   |                                               |                          |                            |                         |             
|                           |              |               
|Total comprehensive loss   |              |                |                            |                   |                                               |                          |                            |                         |             
|                           |              |                |                            |                   |                                               |                          |                            |                         |             
|                           |              |               
|Balance as of March 31,    |              |               
|2009                       |              |                |                            | 28,991,111        |                                               | $                        | 2,899                      |                         |             
|                           |              |                |                            |                   |                                               |                          |                            |                         |             
|                           |              |               
|Balance as of January 1,   |              |               
|2008                       |              |                |                            | 28,867,272        |                                               | $                        | 2,886                      |                         |             
|                           |              |               
|Common stock issued to     |              |               
|acquire Rizzo Inc          |              |                |                            | 123,839           |                                               |                          | 13                         |                         |             
|                           |              |               
|Comprehensive income:      |              |               
|                           |              |               
|Net income                 |              |                |                            | -                 |                                               |                          | -                          |                         |             
|                           |              |               
|Foreign currency           |              |               
|translation gain           |              |                |                            | -                 |                                               |                          | -                          |                         |             
|                           |              |                |                            |                   |                                               |                          |                            |                         |             
|                           |              |               
|Total comprehensive income |              |                |                            |                   |                                               |                          |                            |                         |             
|                           |              |                |                            |                   |                                               |                          |                            |                         |             
|                           |              |               
|Balance as of March 31,    |              |               
|2008                       |              |                |                            | 28,991,111        |                                               | $                        | 2,899                      |                         |             
|                           |              |                |                            |                   |                                               |                          |                            |                         |             
|                           |              |                |                            |                   |                                               |                          |                            |                         |             

The
accompanying notes are an integral part of the condensed consolidated financial
statements.

6

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DEFENSE INDUSTRIES INTERNATIONAL, INC.
AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008 (UNAUDITED)

|                                                                            | For the Three Months
Ended March 31,
|--------------------------------------------------------------------------- | ------------------------------------
|
|
|
|
|CASH FLOWS FROM OPERATING ACTIVITIES:                                       |                                     
|Net income                                                                  |                                     
|Less - extraordinary income, net of tax                                     |                                     
|                                                                            |                                     
|                                                                            |                                     
|                                                                            |                                     
|                                                                            |                                     
|Adjustments to reconcile net income to net cash provided by operating       |                                     
|activities:                                                                 |                                     
|Items not effecting cash:                                                   |                                     
|Depreciation and amortization                                               |                                     
|Gain from sale of property, plant and equipment                             |                                     
|Provision for doubtful accounts                                             |                                     
|Deferred taxes                                                              |                                     
|Net unrealized (gain) loss on trading securities                            |                                     
|Accrued interest and exchange rate differences of long-term debt            |                                     
|Accrued interest and exchange rate differences on payments for the          |                                     
|purchase of a business                                                      |                                     
|Accrued interest and exchange rate differences on deposits                  |                                     
|                                                                            |                                     
|Changes in assets and liabilities:                                          |                                     
|(Increase) decrease in accounts receivable                                  |                                     
|Increase in inventories                                                     |                                     
|Decrease in trading securities                                              |                                     
|(Decrease) increase in related parties accounts                             |                                     
|Decrease (increase) in other current assets                                 |                                     
|(Increase) decrease in funds in respect of employee rights upon  retirement |                                     
|Increase in accounts payable                                                |                                     
|Increase in other current liabilities                                       |                                     
|Increase in liability for employee rights upon retirement                   |                                     
|                                                                            |                                     
|Net cash provided by Operating Activities                                   |                                     
|Cash provided by extraordinary items                                        |                                     
|                                                                            |                                     
|                                                                            |                                     
|                                                                            |                                     
|                                                                            |                                     
|CASH FLOWS FROM INVESTING ACTIVITIES:                                       |                                     
|Investment in short-term bank deposit                                       |                                     
|Redemption of restricted bank deposits                                      |                                     
|Purchases of property, plant and equipment                                  |                                     
|Proceeds from sale of property, plant and equipment                         |                                     
|Refundable deposit for purchase of a business                               |                                     
|                                                                            |                                     
|Net cash provided by (used in) Investing Activities                         |                                     
|                                                                            |                                     
|                                                                            |                                     
|CASH FLOWS FROM FINANCING ACTIVITIES:                                       |                                     
|Short-term debt, net                                                        |                                     
|Proceeds from long-term debt                                                |                                     
|Repayment of long-term debt                                                 |                                     
|Redemption of related party creditors                                       |                                     
|                                                                            |                                     
|Net cash used in Financing Activities                                       |                                     
|                                                                            |                                     
|                                                                            |                                     
|EFFECT OF CHANGES IN EXCHANGE RATES ON CASH AND CASH EQUIVALENTS            |                                     
|                                                                            |                                     
|                                                                            |                                     
|NET INCREASE IN CASH AND CASH EQUIVALENTS                                   |                                     
|                                                                            |                                     
|CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD                             |                                     
|                                                                            |                                     
|                                                                            |                                     
|CASH AND CASH EQUIVALENTS - END OF PERIOD                                   |                                     
|                                                                            |                                     
|                                                                            |                                     
|INTEREST PAID                                                               |                                     
|                                                                            |                                     
|                                                                            |                                     
|TAXES PAID                                                                  |                                     
|                                                                            |                                     
|                                                                            |                                     

SUPPLEMENTAL SCHEDULE OF
NON-CASH ACTIVITIES:

Pursuant to the agreement signed on
February 28, 2005 to acquire the business of Rizzo Inc. (doing business as Owen Mills
Company), on March 18, 2008 the Company issued 123,839 shares of common stock having a
fair value of $40,000 at the date of issuance to the former shareholders of Rizzo Inc.

The accompanying notes are an
integral part of the condensed consolidated financial statements.

7

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DEFENSE INDUSTRIES INTERNATIONAL, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT
FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008 (UNAUDITED)

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

| | A. | The accompanying unaudited interim consolidated financial statements as of March
               31, 2009 and for the three month period then ended (the interim financial
               statements) were prepared in a condensed form in accordance with the
               instructions for Form 10-Q and, therefore, do not include all disclosures
               necessary for a complete presentation of financial condition, results of
               operations, changes in shareholders equity, cash flows and all the data
               and notes which are required when preparing annual financial statements, in
               conformity with generally accepted accounting principles accepted in the United
               States.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | B. | The accounting principles used in the presentation of the interim financial
               statements are consistent with those principles used in the presentation of the
               latest annual financial statements. All significant accounting policies have
               been applied consistently with the year ended December 31, 2008, except as
               otherwise stated below.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | C. | The preparation of the interim financial statements requires management to
               make estimates and assumptions that affect the reported amounts of assets and
               liabilities, the disclosure of contingent assets and liabilities at the date of
               the financial statements, and the reported amounts of revenues and expenses
               during the reported period. Actual results could differ from those estimates. In
               the opinion of management, all adjustments considered necessary for fair
               presentation of the interim financial statements have been included. The results
               of operations for the three months period ended March 31, 2009, are not
               necessarily indicative of the results that may be expected for the year ending
               December 31, 2009. The interim financial statements should be read in
               conjunction with the Companys annual financial statements as of December
               31, 2008 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), (assets and liabilities  100% as of March 31, 2009
and December 31, 2008, respectively, and operations  100% and 76% in the three
months ended March 31, 2009, and 2008, respectively).
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

8

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DEFENSE INDUSTRIES INTERNATIONAL, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT
FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008 (UNAUDITED)

| | 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 three months ended
March 31, 2009 and 2008 common stock equivalents to purchase 202,500 shares of common
stock were not included in diluted income (loss) per share because their effect is
anti-dilutive.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | Effective
January 1, 2008, the Company adopted Statement of Financial Accounting Standard No. 157,
Fair Value Measurements (SFAS 157), which establishes a framework
for measuring fair value and requires enhanced disclosures about fair value measurements.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | SFAS
157 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. SFAS 157 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).
| | --------------------------------------------------------------------------------------------------------------------------------------

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

| | In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations (SFAS
141(R)).  SFAS 141(R) expands the definition of transactions and events that
qualify as business combinations; requires that the acquired assets and liabilities,
including contingencies, be recorded at the fair value determined on the acquisition date
and changes thereafter reflected in revenue, not goodwill; changes the recognition timing
for restructuring costs; and requires acquisition costs to be expensed as incurred.  Adoption
of SFAS 141(R) is required for annual periods beginning after December 15, 2008.  Early
adoption and retroactive application of SFAS 141(R) to fiscal years preceding the
effective date are not permitted.  The adoption of SFAS 141(R) will be
effective for business combinations consummated in 2009.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

9

---

---

DEFENSE INDUSTRIES INTERNATIONAL, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT
FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008 (UNAUDITED)

| | In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interest in
Consolidated Financial Statements (SFAS 160).  SFAS 160 re-characterizes
minority interests in consolidated subsidiaries as non-controlling interests and requires
the classification of minority interests as a component of equity.  Under SFAS
160, a change in control will be measured at fair value, with any gain or loss recognized
in earnings.  The effective date for SFAS 160 is for annual periods beginning
on or after December 15, 2008.  SFAS 160 requires retroactive adoption of the
presentation and disclosure requirements for existing noncontrolling interests. All other
requirements of SFAS 160 shall be applied prospectively. As a result of the adoption of
SFAS 160, the Company reclassified the noncontrolling interest as a component of
equity in prior years.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
March 2008, the FASB issued SFAS No. 161 (SFAS 161), Disclosures about Derivative
Instruments and Hedging Activities, as an amendment to SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS 161 requires that objectives for
using derivative instruments be disclosed in terms of underlying risk and accounting
designation. The fair value of derivative instruments and their gains and losses will
need to be presented in tabular format in order to present a more complete picture of the
effects of using derivative instruments. SFAS 161 is effective for financial statements
issued for fiscal years beginning after November 15, 2008. The adoption of SFAS 161
did not have a material impact on the Companys interim financial statements.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
April 2008, the FASB issued FSP No. FAS 142-3, Determination of the Useful Life of
Intangible Assets, which amends the list of factors an entity should consider in
developing renewal or extension assumptions used in determining the useful life of
recognized intangible assets under SFAS No. 142, Goodwill and Other Intangible
Assets. The new guidance applies to (1) intangible assets that are acquired
individually or with a group of other assets and (2) intangible assets acquired in
both business combinations and asset acquisitions. Under FSP No. FAS 142-3, entities
estimating the useful life of a recognized intangible asset must consider their
historical experience in renewing or extending similar arrangements or, in the absence of
historical experience, must consider assumptions that market participants would use about
renewal or extension. This FSP will require certain additional disclosures for the Companys
2009 fiscal year and the application to useful life estimates prospectively for
intangible assets acquired after December 15, 2008. The Company adopted FSP No. FAS
142-3 as of the beginning of fiscal year 2009. The Companys adoption of FSP No. FAS
142-3 did not have a material impact on its financial statements
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

10

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---

DEFENSE INDUSTRIES INTERNATIONAL, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT
FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008 (UNAUDITED)

|NOTE 2 |  | ACQUISITIONS
|------ |  | ------------

| | 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 optical and infra-red night vision products
utilizing the germanium crystals (the Sarino 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 has operational control of Mayosar.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2)
           In consideration of the above, Mayotex will pay Sarino $1 million, out of
          which, $300,000 will be non-refundable to Mayotex upon 24 months following the
          execution of the Isorad agreement, as detailed below 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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (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 March 31, 2009, Mayotex provided loans of $1 million to Sarino and $800,000 to
Mayosar. Such payments are recognized as refundable deposits for the above transaction.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
December 21, 2008, Mayosar, through its wholly owned subsidiary Isorad IR Optics Ltd., (Optics),
entered into an agreement to purchase the Germanium Crystals Business of Isorad Ltd. (Isorad),
consisting of certain know-how, equipment, inventories and production activities of
Germanium Crystals for lenses used in infra-red night vision system applications (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 $119,000 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
$50,000 per year during the following years of the royalties payment period.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

11

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DEFENSE INDUSTRIES INTERNATIONAL, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT
FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008 (UNAUDITED)

| | 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. If the Israeli Government does not approve the 5%
purchase of the Optics shares by Isorad within twelve (12) months of the Effective Date,
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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Isorad
agreement is subject to certain closing conditions, including a resolution to approve the
transaction by Isorad board of directors that as of the balance sheet date have not been
met. The management is of the opinion, based on legal advice received, that the amounts paid
under Sarino and Isorad agreements will be fully refundable to the Company in the event
that Isorad will not succeed to complete the closing conditions.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE 3 |  | RESTRICTED BANK DEPOSITS
|------ |  | ------------------------

| | Restricted
bank deposits consist of bank deposits in US dollars, bearing no interest, with a
maturity date of June 16, 2009. The bank deposits are restricted to secure the Companys
liabilities to its banks.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE 4 |  | INVENTORIES
|------ |  | -----------

| | Consist
of:
| | -----------

| |                   | March 31, 2009 | December 31, 2008
| | ----------------- | -------------- | -----------------
|
|
|
|
| | Raw materials (1) |                |                  
| | Work in progress  |                |                  
| | Finished goods    |                |                  
| |                   |                |                  
| |                   |                |                  
| |                   |                |                  
| |                   |                |                  

| | (1)
           As of March 31, 2009 and December 31, 2008, includes advanced payment to
          purchase inventory for $539,826 and $513,447, respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------

12

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DEFENSE INDUSTRIES INTERNATIONAL, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT
FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008 (UNAUDITED)

|NOTE 5 |  | 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 |  
| | --------------------------- | -------- | -------- | -
|
|
|
|
| | For the three months        |          |          |  
| | ended March 31, 2009:       |          |         
| |                             |          |         
| | Revenue from sales          |          |          | $
| | Gross Profits               |          |          |  
| | Corporate unallocated costs |          |          |  
| | Income from operations      |          |          |  
| |                             |          |         
| | For the three months        |          |         
| | ended March 31, 2008:       |          |         
| |                             |          |         
| | Revenue from sales          |          |          | $
| | Gross Profits               |          |          |  
| | Corporate unallocated costs |          |          |  
| | Income from operations      |          |          |  
| |                             |          |          |  

13

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DEFENSE INDUSTRIES INTERNATIONAL, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT
FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008 (UNAUDITED)

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

| |                 | Three Months Ended
March 31,
| | --------------- | ----------------------------
|
|
|
|
| | Israel          |                             
| | South America   |                             
| | North America   |                             
| | Europe and Asia |                             
| | Africa          |                             
| |                 |                             
| |                 |                             
| | Total Sales     |                             
| |                 |                             
| |                 |                             

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

| |                              | For the three
months ended 
March 31, 2009 | For the three
months ended
March 31, 2008
| | ---------------------------- | ------------------------------------------ | -----------------------------------------
|
|
|
|
| | Customer A (Military Local)  |                                            |                                          
| | Customer B (Military Export) |                                            |                                          
| |                              |                                            |                                          

14

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DEFENSE INDUSTRIES INTERNATIONAL, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT
FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008 (UNAUDITED)

|NOTE 6 |  | COMMITMENTS AND CONTINGENCIES
|------ |  | -----------------------------

| | On
February 11, 2009, a lawsuit was filed in the Jerusalem District Court against the Companys
subsidiaries, Export Erez USA Inc. and Achidatex, and its chief executive officer, Mr.
Avraham Hazor. 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, because Achidatex allegedly failed to register patents for the
technology 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 $2.4
million), and claiming for all rights in the patent. Contemporaneously with the filing of
the claim, the plaintiff also filed a motion seeking an exemption from payment of the
requisite court filing fee, and stated that he would withdraw the lawsuit if the motion
is not granted. On March 12, 2009, Achidatex filed a request to respond to the motion and
requested a 30 day extension to file its statement of defense. On May 24, 2009, Achidatex
filed its statement of defense. The Company believes that it is likely that the plaintiffs
motion for an exemption from payment of the court filing fee will be granted and that the
lawsuit will therefore proceed. The Company believes that the plaintiffs claim is
unfounded and intends to vigorously defend against the claim. Due to the preliminary
stage of the claim, management and its legal advisors cannot currently assess the outcome
or possible adverse effect on its financial position or results of operations, however,
management believes the Company has substantial legal arguments to oppose the
allegations.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE 7 |  | SUBSEQUENT EVENTS
|------ |  | -----------------

| | On
June 8, 2009, the Company issued 209,424 shares of common stock, having a fair value of
$40,000 at the date of issuance, to the former owner of Owen Mills. The shares were
issued as the final payment under the agreement the Company signed on February 28, 2005
to acquire the business of Owen Mills.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

15

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|Item 2. |  | Management's Discussion and Analysis of Financial Condition and Results of Operations
|------- |  | -------------------------------------------------------------------------------------

This
discussion should be read in conjunction with the condensed consolidated financial
statements and notes included in Item 1 of Part I of this Quarterly Report and the
audited consolidated financial statements and notes thereto, and Management's Discussion
and Analysis of Financial Condition and Results of Operations for the Year Ended December
31, 2008 contained in our 2008 Annual Report on Form 10-K. The discussion and analysis
which follows may contain trend analysis and other forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934 which reflect our current
views with respect to future events and financial results. These include statements
regarding our earnings, projected growth and forecasts, and similar matters that are not
historical facts.

We
remind shareholders that forward-looking statements are merely predictions and therefore
are inherently subject to uncertainties and other factors that could cause the future
results to differ materially from those described in the forward-looking statements.

The
following is management's discussion and analysis of certain significant factors which
have affected our financial position and operating results during the periods included in
the accompanying consolidated financial statements, as well as information relating to
the plans of our current management.

Overview

We
are a manufacturer and global provider of personal military and civilian protective
equipment and supplies. Our products are used by military, law enforcement, border patrol
enforcement, and other special security forces, corporations, non-governmental
organizations and individuals throughout the world.

Our
main products include body armor, bomb disposal suits, bullet proof vests and jackets,
ballistic wall coverings, bullet proof ceramic and polyethylene panels, V.I.P. car
armoring and lightweight armor kits for vehicles, personal military equipment, dry
storage systems, liquid logistic products, tents and other camping, travel gear and
Optical Germanium for night vision infra-red applications .

While
we believe that current international tensions, the war on terrorism, and the continuing
conflict in Iraq are all likely to result in additional interest in our products, and
that the demand for our products will continue to grow, the recent global economic
turmoil and the instability in the financial markets may result in reduction in
governmental spending for military and security budgets.  We expect to address the growth
indication by offering a comprehensive array of high quality branded security products
that meet our customers' increasingly complex security products requirements.  We intend
to enhance our position in the industry through additional strategic acquisitions that
will broaden our portfolio of products.

Material Trends

Local
Military Market.  After the war between Israel and the Hezbollah in Lebanon in July and
August of 2006, increased orders from the Israeli Ministry of Defense increased the
demand for our products in this market.  We benefited from this trend for the reminder of
2006 and through 2007.  During 2008 the demand for our products decreased compared to the
same period of 2007, but was significantly higher than in 2006.  We believe that the
demand for our products from the Israeli Ministry of Defense will continue at the current
levels for the first half of 2009.

As
of June 10, 2009, we had a backlog of firm orders from the Israeli Ministry of Defense of
approximately $1.9 million, including orders of approximately $0.4 million that we
received subsequent to March 31, 2009.  In the three month periods ended March 31, 2009
and 2008, sales to the Israeli Ministry of Defense were $2.4 million and $1.1 million,
accounting for 40.5% and 35.6% of our sales, respectively.

16

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Export
Military Market. Our customers in this market are military and law enforcement
organizations mostly in South America, North America, Africa and Europe. Their budgets
fluctuate and as a result we cannot identify definite trends in these markets.

Since
2003, we have increased our export efforts as a consequence of the worldwide environment
resulting from the events of September 11, 2001, the subsequent war on terrorism and the
continuing conflict in Iraq.  We are continuing our efforts to strengthen our position in
our existing export markets in North America, South America, Asia and Europe, and to
extend our presence to new export markets in Australia and Africa.  We believe that
although the demands for our products from these markets are inconsistent, they are
growing and that any future success in such markets is mainly dependant on our ability to
be competitive in our pricing and the quality of our products.

Since
January 2008, we have experienced an increased demand for armored vehicles, from central
and South African countries.  We believe that the armor car business is growing and will
become even more significant for us in the near future.  The armor car business is
characterized by higher gross margins than our traditional military products.

The
following table presents details of our export military sales during the three periods
ended March 31, 2009 and 2008:

|                            | Three Months Ended
March 31,
|--------------------------- | ----------------------------
|
|
|
|
|Sales to South America      |                             
|Sales to North America      |                             
|Sales to Europe and Asia    |                             
|Sales to Africa             |                             
|Total Export Military Sales |                             
|                            |                             

Local
Civilian Market. Our product range to the civilian market is diversified. In 2008, our
local market business remained at a level consistent with 2007. We expect a moderate
increase in this market during 2009.

Backlog.          We
had approximately $6 million of unfilled customer orders at March 31, 2009,
          compared to $5.7 million of unfilled customer orders at March 31, 2008. As of
          March 31, 2009, our backlog included approximately $2.2 million of orders that
          were attributable to the Israeli Ministry of Defense, approximately $1.1
million           of orders that were attributable to military customers in Africa,
approximately           $0.2 million of orders that were attributable to civilian
customers in North           America, approximately $0.6 millions of orders that were
attributable to the           local civilian market, and approximately $1.9 million of
orders that were           attributable to military customers in South America.

Current
Economic Overview. We generate revenues from sales of our products to the civilian and
military markets. Accordingly, our business is affected by economic conditions. The
volatile economic conditions have slowed-down our sales process and complicated our
ability to conduct transactions. The current economic climate and the uncertainty in the
global economic conditions could impact the ability of our customers to make capital
expenditures, thereby affecting their ability to purchase our products. In addition, the
turmoil in the financial markets may limit our ability to obtain financing in 2009. Our
business and financial performance, including collection of our accounts receivable,
realization of inventory and recoverability of assets including investments, may be
adversely affected if economic conditions deteriorate or continue to be volatile. Our
profitability may also be adversely affected by our fixed costs and the possibility that
we would be unable to scale back other costs within a time frame sufficient to match any
decreases in revenue relating to changes in market and economic conditions. The turmoil in
the financial markets may limit our ability to obtain financing for our working capital
requirements.

17

---

---

Exchange
rate fluctuation. Exchange rate fluctuation affects our financial results in several
ways. Most of our deposits and a portion of our tradable securities are linked to the rate
of exchange between the U.S. dollar and the NIS. Accordingly, devaluation of the U.S.
dollar against the NIS is reflected as comprehensive income in our consolidated statement.

In
addition, we develop products in Israel and sell them in Israel, North and South America,
Asia, Africa and several European countries. Our sales in Israel are denominated in NIS,
while most of our export sales are denominated in U.S. dollars. Under U.S. GAAP we report
all of our sales in U.S. dollars. Accordingly, appreciation of the U.S. dollar against the
NIS reduces our reported sales while the devaluation of the U.S. dollar against the
NIS increases our reported sales.

Our
cost of sales and operating expenses are affected in the same manner.  Most of our
purchases of raw material are made in U.S. dollars while most of our labor and other
operating expenses are in NIS, however, under U.S. GAAP we report our cost of sales and
operating expenses in U.S. dollars. Accordingly, appreciation of the U.S. dollar against
the NIS reduces our reported cost of sales and operating expenses while the
devaluation of the U.S. dollar against the NIS increases our reported cost of sales and
operating expenses.

In
the quarter ended March 31, 2009, the NIS depreciated against the U.S. dollar by
approximately 10.1%, and our financial results were negatively impacted. However, because
exchange rates between the U.S. dollar and the NIS fluctuate continuously, exchange rate
fluctuations and especially larger periodic devaluations will have an impact on our
profitability and period-to-period comparisons of our results. We cannot assure you that
in the future our results of operations may not be materially adversely affected by
currency fluctuations.

# Operations in the Erez
Industrial Zone

During
2004, the Israeli Government decided to evacuate the Erez Industrial Zone in the Gaza
Strip, where part of our operations were located. We owned facilities, leased other
facilities and maintained equipment and inventory within this area. In 2005, we moved our
light cut and sew operation from the Erez Industrial Zone to Sderot and some
of our webbing equipment to Nazareth. In August 2005, we evacuated our remaining
operations and abandoned the buildings we owned and leased in the Erez Industrial Zone.

The
Israeli Governments decision to evacuate the Gaza Strip was supported by certain
resolutions, including the Evacuation Compensation Law that was adopted by the
Israeli Parliament to compensate the Israeli Gaza Strip settlers as well as business and
property owners in the Gaza Strip and in the Erez Industrial Zone. In February 2006, three
of our subsidiaries, Export Erez, Mayotex and Achidatex filed claims for compensation
pursuant to the Evacuation Compensation Law. In 2006, we were notified that we would
receive advance payments in the aggregate amount of $523,000. We applied this payment
against the receivable established in 2005 and recorded the excess payment of $240,658,
net of taxes, as extraordinary gain.

On
February 18, 2008 Export Erez, Mayotex and Achidatex signed definitive agreements with
SELA, a government agency, established pursuant to the Evacuation Compensation Law, for
compensation of approximately $6.0 million, net of 5% related taxes, receipt of the
previous advance payment and the other associated costs.

# New Product Line

On
December 17, 2008, our Mayotex subsidiary entered into an investment agreement, or the
Sarino Agreement, with Sarino Crystal Technologies Ltd. and Sarino Optronics Ltd.,
together Sarino, to cooperate in the manufacture of optical grade germanium crystals and
the sale of optical and infra-red night vision products utilizing the germanium crystals.
Pursuant to the Sarino Agreement, Mayotex and Sarino incorporated Mayosar Technologies
Ltd., or Mayosar, in which Mayotex holds 50.1% of the outstanding shares and Sarino holds
the remaining 49.9% of the outstanding shares.

Mayotex
agreed to provide a shareholder loan to Mayosar of up to $2 million, under a timetable to
be determined by Mayosars board of directors, which is controlled by Mayotex. The
loan accrues interest at the rate of Libor + 2%. In addition, Mayotex agreed to pay Sarino
Crystal Technologies Ltd. $1 million. Of such amount, $300,000 will be forgiven at the end
of 24 months from the commencement of operations. In the event Mayosar reaches $10 million
in sales during the 36 month period following the commencement of operations, the
remaining $700,000 will not have to be repaid.

18

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---

On
December 21, 2008, Mayosar signed an agreement with Isorad Ltd., an Israeli governmental
company, or Isorad, to purchase certain knowledge, know how, equipment and inventory and
the activity of a factory that manufactures germanium crystals for lenses used in
infra-red night vision system applications, or the Isorad Agreement.

Mayosar
incorporated a wholly owned subsidiary named Isorad Optronics Ltd. that later changed its
name to Isorad IR Optics Ltd., or Isorad IR, to acquire the Isorad assets. Mayosar agreed
to pay Isorad royalties of 3% of total sales with no deductions, except transportation
costs and VAT, for a period of 15 years commencing the effective date of the Isorad Agreement (the "Effective Date"). The minimum royalty
will be NIS 500,000 (approximately $119,000) per year for the period beginning the Effective Date and ending on completion of the transfer of all activity from Isorads
facilities (no later than 18 months from the Effective Date) and NIS 200,000 (approximately
$48,800) per year or $50,000, whichever is greater, thereafter. Beginning the Effective Date,
and for a 24 month period, Isorad has the right to acquire 5% of the outstanding share
capital of Isorad IR. In the event that such shares are issued to Isorad, Mayosar will
issue an additional 539 of its shares to Mayotex, so that Mayotex will retain a 50.1%
ownership interest in the entire operation. During the four year period commencing the Effective Date, Mayosar has the option to purchase from Isorad the 5% interest in Isorad IR (if
acquired by it) and the right to extinguish its royalty obligation to Isorad in
consideration for $750,000 less all the royalties paid to Isorad by Mayosar. If the
Israeli government does not approve the ownership of the Isorad IR shares by Isorad before
December 31, 2009, Isorad will be paid $75,000 or NIS 300,000, whichever is greater, and
the option to purchase the shares will terminate.

The
Isorad Agreement is subject to certain closing conditions, including a resolution to
approve the transaction by Isorads board of directors that as of the balance sheet
date have not been met. We are of the opinion, based on legal advice received, that the
amounts paid under Sarino and Isorad agreements will be fully refundable to us in the
event that Isorad will not fulfill the closing conditions.

# Results of Operations

Key Indicators

Our
management views revenues, the sources of our revenues, gross profit margin and the level
of inventory compared to revenues as the key performance indicators in assessing our
companys financial condition and results of operations. While our management
believes that demand for our products will continue to grow, our business is subject to a
high degree of volatility because of the impact of geopolitical events, government
budgeting, and competition.

Three Months Ended March 31, 2009 Compared with Three Months Ended March 31, 2008

Net
Revenues. Net revenues for the three months ended March 31, 2009 increased to
$5,813,288 from $3,125,302 in the three months ended March 31, 2008, an increase of 86%.
The increase is mainly attributable to an increase in our local military and export
military market segments. In the period ended March 31, 2009, revenues from our local
military market segment increased by approximately $1.1 million and our military export
market segment grew by approximately $1.9 million. The increased revenues in our local
military market segment are attributable to a general increase in demand for our products.
The increased revenues in our export military market segment are attributable to a general
increase in demand for our products, especially armored vehicles.

The
following table sets forth the breakdown of sales by segment for the three months ended
March 31, 2009 and 2008.

|                       | Three Months Ended
March 31,
|---------------------- | ----------------------------
|
|
|
|
|Local civilian market  |                             
|Export civilian market |                             
|Local military market  |                             
|Export military market |                             
|                       |                             
|Total                  |                             
|                       |                             

19

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Gross
Profit. Gross profit for the three months ended March 31, 2009 was $1,491,728 compared
to $743,144 for the three months ended March 31, 2008. This increase in gross profit
is primarily attributable to the increase in revenues from sales. Our gross profit margin
for the three months ended March 31, 2009 increased to 25.7% compared to 23.8% for the
three months ended March 31, 2008.

Selling
Expenses. Selling expenses for the three months ended March 31, 2009 increased by
16.9% to $183,776 from $157,144 for the three months ended March 31, 2008. The increase
in our selling expenses was attributable primarily to the increase in export sales and
commissions paid on export sales.

General
and Administrative Expenses. General and administrative expenses for the three months
ended March 31, 2009 decreased by 1.6% to $529,894 from $538,325 for the three months
ended March 31, 2008. This stability is primarily due to our successful effort to keep
expenses consistent.

Financial
(Expenses) Income, Net. We had financial income, net of $441,025 for the three months
ended March 31, 2009 compared to financial expenses, net of $115,258 for the three months
ended March 31, 2008. Our financial income is primarily due to the change in the U.S.
dollar exchange rate versus the NIS, which resulted in a gain of $390,967 for the three
months ended March 31, 2009 compared to a loss of $112,778 for the three months ended
March 31, 2008.

Other
Income (Expense), Net. We had other income, net for the three months ended March 31,
2009 of $164,204 as compared to other expense, net of $40,480 for the three months ended
March 31, 2008. Our other income in three months ended March 31, 2009 is mainly
attributable to a gain derived from sales of tradable securities of $19,875 and an
unrealized gain of $105,578 on tradable securities. Our other expense in three months
ended March 31, 2008 is mainly attributable to a loss of $50,207 derived from sales of
tradable securities.

Income
Tax Expense. Our income tax expense for the three months ended March 31, 2009 was
$284,851 compared to income tax expense of $79,694 for the three months ended March 31,
2008. The increase in income tax expense was mainly due to the increase in our operating
income in the three months ended March 31, 2009.

Extraordinary
Income. We didnt record any extraordinary income for the three months ended
March 31, 2009. For the three months ended March 31, 2008, we recognized and recorded
extraordinary income of $4,681,838, net of tax, from the payments to our three
subsidiaries, Export Erez, Mayotex and Achidatex, by the Israeli Government with respect
to their evacuation from the Gaza Industrial Zone.

Noncontrolling
Interest. For the three months ended March 31, 2009, we did not recognize or record
any noncontrolling interest, compared with the noncontrolling interest in our profit of
$41,417 for the three months ended March 31, 2008.

Net
Income. In the three months ended March 31, 2009 our consolidated net income of
controlling interest was $1,098,436, compared to of $4,452,664 for the three months ended
March 31, 2008.

# Liquidity and Capital
Resources

As
of March 31, 2009, we had $2,549,140 in cash and cash equivalents, $1,796,171 in trading
securities and working capital of $9,271,253 as compared to $ $1,719,921 in cash and cash
equivalents, $2,384,727 in trading securities and working capital of $10,088,528 at
December 31, 2008. The decrease in our working capital position at March 31, 2009 reflects
our increased accounts receivable arising from the increase in revenues.

20

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---

The
current economic climate and the uncertainty in the global financial markets resulting
from the recent disruption in credit markets may affect our ability to raise additional
funds in the future, if required. There can be no assurance that such additional financing
will be available to us, or if available, will be on terms favorable to our company.

On
October 30, 2008, our Board of Directors authorized a stock repurchase program, which
authorizes the use of up to $450,000 for the purchase of shares of common stock of our
company over a period of six months. As of May 10, 2009 we have not purchased any shares
as part of this program, but we repurchased 1,050,000 shares purchased from the former
minority shareholders in December 31, 2008 in connection with our purchase of their
minority interests.

# Cash Flows

The
following table summarizes our cash flows for the periods presented:

|                                                    | Three months ended
|--------------------------------------------------- | ------------------
|
|
|
|
|Net cash provided by operating activities           |                   
|Cash provided by extraordinary items                |                   
|Net cash provided by (used in) investing activities |                   
|Net cash used in financing activities               |                   
|Net increase in cash and cash equivalents           |                   
|Cash and cash equivalents at beginning of period    |                   
|Cash and cash equivalents at end of period          |                   

Net
cash provided by operating activities was $622,727 for the three months ended March 31,
2009 as compared to $1,392,523 provided by operating activities in the three months ended
March 31, 2008. This was primarily provided from net income of $1,098,436, an increase in
accounts payable of $286,337, a decrease in trading securities of $486,105, and a decrease
in other current assets of $458,564, offset by an increase in accounts receivable of
$1,052,033, and an increase in inventories of $290,005.

Net
cash provided by investing activities was $1,126,092 for the three months ended March 31,
2009 as compared to $1,047,722 net cash used in the three months March 31, 2008. During
the three months ended March 31, 2009, $2,000,000 was provided from the redemption of
bank deposits, $41,455 was used to purchase fixed assets and $832,453 was used to
purchase of a business.

Net
cash used in financing activities was $840,557 for the three months ended March 31, 2009
as compared to $279,064 net cash used in financing activities for the three months ended
March 31, 2008. During the three months March 31, 2009, we incurred further short-term
debt of $166,459, repaid $101,295 of long-term debt and repaid $905,721 to related party
creditors for the purchase of Achidatex shares.

Most
of our large contracts, which are Israeli Governmental contracts, are supported by
letters of credit. As a result, we believe that we have limited exposure to doubtful
accounts receivables. We have strived to balance our accounts payable and accounts
receivable.

Subject
to an unexpected growth in inventories as a result of future growth in sales and to a
significant change in raw material prices, we intend to use our cash flow from operations
for the acquisition of companies or equipment to expand our capabilities.

We
anticipate that our research and development expenses in 2009 will total approximately
$140,000.

We
believe that we have sufficient working capital and borrowing capability to sustain our
current level of operations for the next twelve months.

21

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# Foreign Currency
Exchange Risk

We
develop products in Israel and sell them in Israel, North and South America, Asia, Africa
and several European countries. Our sales in Israel are denominated in NIS while most of
our export sales are denominated in U.S. dollars. In addition, our labor expenses are
primarily paid in NIS while our expenses for raw materials are paid in U.S. dollars and
Euros. As a result, our financial results could be affected by factors such as changes in
foreign currency exchange rates or weak economic conditions in foreign markets.

Our
foreign currency exposure with respect to our sales is mitigated, and we expect it will
continue to be mitigated, through salaries, materials and support operations, in which
part of these costs are denominated in NIS.

In
the year ended December 31, 2008, the inflation rate in Israel was 3.8% and the NIS
appreciated in relation to the U.S. dollar at a rate of 1.14%, from NIS 3.846per
$1 on December 31, 2007 to NIS 3.802 per $1 on December 31, 2008. In the period ending in
March 31, 2009 deflation in Israel was0.1% while the NIS devaluated in relation to
the U.S. dollar at a rate of 10.1%. If future inflation in Israel exceeds the devaluation
of the NIS against the U.S. dollar or if the timing of such devaluation lags behind
increases in inflation in Israel, our results of operations may be materially adversely
affected.

We
did not enter into any foreign exchange contracts or hedging transactions in the three
months ended March 31, 2009.

# Inflation and Seasonality

We
do not believe that our operating results have been materially affected by inflation
during the preceding two years. There can be no assurance, however, that our operating
results will not be affected by inflation in the future. Our business is subject to
minimal seasonal variations with slightly increased sales historically in the second and
third quarters of fiscal year.

# Off-balance Sheet
Arrangements

None.

# Contractual Obligations

The
following table summarizes our contractual obligations and commercial commitments as of
March 31, 2009.

|Contractual Obligations     |  | Payments due by Period
|--------------------------- |  | ----------------------
|
|
|
|
|Long-term debt obligations  |  |                       
|Estimated interest          |  |                       
|payments on long-term debt  |  |                       
|obligations                 |  |                       
|Operating lease obligations |  |                       
|                            |  |                       
|Total                       |  |                       
|                            |  |                       

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# Critical Accounting
Policies

A
discussion of our critical accounting policies was provided in Item 7 of our Annual Report
on Form 10-K for the year ended December 31, 2008. There were no significant changes to
these policies in the three months ended March 31, 2009.

# Recent Accounting
Pronouncements adopted in the reported period

In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations (SFAS
141(R)).  SFAS 141(R) expands the definition of transactions and events that
qualify as business combinations; requires that the acquired assets and liabilities,
including contingencies, be recorded at the fair value determined on the acquisition date
and changes thereafter reflected in revenue, not goodwill; changes the recognition timing
for restructuring costs; and requires acquisition costs to be expensed as
incurred.  Adoption of SFAS 141(R) is required for annual periods beginning
after December 15, 2008.  Early adoption and retroactive application of SFAS
141(R) to fiscal years preceding the effective date are not permitted.  The
adoption of SFAS 141(R) will be effective for business combinations consummated in
2009.

In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interest in
Consolidated Financial Statements   (SFAS 160).  SFAS 160
re-characterizes minority interests in consolidated subsidiaries as non-controlling
interests and  requires the classification of
minority interests as a component of equity.  Under SFAS 160, a change in
control will be measured at fair value, with any gain or loss recognized in
earnings.  The effective date for SFAS 160 is for annual periods beginning on or
after December 15, 2008.  SFAS 160 requires retroactive adoption of the
presentation and disclosure requirements for existing noncontrolling interests. All other
requirements of SFAS 160 shall be applied prospectively. As a result of the adoption of
SFAS 160, we reclassified the noncontrolling interest as a component of equity in
prior years.

In
March 2008, the FASB issued SFAS No. 161 (SFAS 161), Disclosures about Derivative
Instruments and Hedging Activities, as an amendment to SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS 161 requires that objectives for using
derivative instruments be disclosed in terms of underlying risk and accounting
designation. The fair value of derivative instruments and their gains and losses will need
to be presented in tabular format in order to present a more complete picture of the
effects of using derivative instruments. SFAS 161 is effective for financial statements
issued for fiscal years beginning after November 15, 2008. The adoption of SFAS 161
did not have a material impact on our interim financial statements.

In
April 2008, the FASB issued FSP No. FAS 142-3, Determination of the Useful Life of
Intangible Assets, which amends the list of factors an entity should consider in
developing renewal or extension assumptions used in determining the useful life of
recognized intangible assets under SFAS No. 142, Goodwill and Other Intangible
Assets. The new guidance applies to (1) intangible assets that are acquired
individually or with a group of other assets and (2) intangible assets acquired in
both business combinations and asset acquisitions. Under FSP No. FAS 142-3, entities
estimating the useful life of a recognized intangible asset must consider their historical
experience in renewing or extending similar arrangements or, in the absence of historical
experience, must consider assumptions that market participants would use about renewal or
extension. This FSP will require certain additional disclosures for the Companys
2009 fiscal year and the application to useful life estimates prospectively for intangible
assets acquired after December 15, 2008. The Company adopted FSP No. FAS 142-3 as of
the beginning of fiscal year 2009. Our adoption of FSP No. FAS 142-3 did not have a
material impact on its financial statements.

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

# Interest Rate Risk

We
do not believe that we have any material exposure to interest rate risk other than
sensitivity to prevailing interest rates that may affect income from our cash deposits
and marketable securities.

Foreign Exchange Risk

Most
of our sales are currently denominated in dollars, while the majority of our operating
expenses are incurred in foreign currencies, principally the NIS. As a result, the
decrease in the value of the U.S. dollar against these currencies has resulted in
increased expenses for our company. In 2006, 2007 and 2008, the U.S dollar depreciated
against the NIS by approximately 8%, 9%, 1%, respectively. In the first fiscal quarter of
2009, the U.S dollar appreciated in relation to the NIS by approximately 10%.

|Item 4. |  | Controls
and Procedures
|------- |  | -----------------------

We
maintain disclosure controls and procedures that are designed to ensure that information
required to be disclosed in our Securities Exchange Act of 1934, or the Exchange Act,
reports is recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commissions rules and forms, and that such
information is accumulated and communicated to our chief executive officer and chief
financial officer to allow timely decisions regarding required disclosure. Our
management, including our chief executive officer and chief financial officer, conducted
an evaluation of the effectiveness of our disclosure controls and procedures, as defined
under Exchange Act Rule 13a-15(e), as of the end of the period covered by this Quarterly
Report on Form 10-Q. Based upon that evaluation, our chief executive officer and chief
financial officer have concluded that, as of such date, our disclosure controls and
procedures were effective.

# Changes in Internal
Control over Financial Reporting

There
was no change in our internal control over financial reporting that occurred during the
quarter ended March 31, 2009 that has materially affected, or is reasonably likely to
materially affect, our internal controls over financial reporting.

# PART II  OTHER
INFORMATION:

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

On
February 11, 2009, a lawsuit was filed in the Jerusalem District Court against our
subsidiaries, Export Erez USA Inc. and Achidatex, and its chief executive officer, Mr.
Avraham Hazor. 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, because Achidatex allegedly failed to register patents for the
technology 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 $2.4
million), and claiming for all rights in the patent. Contemporaneously with the filing of
the claim, the plaintiff also filed a motion seeking an exemption from payment of the
requisite court filing fee, and stated that he would withdraw the lawsuit if the motion is
not granted. On March 12, 2009, Achidatex filed a request to respond to the motion and
requested a 30 day extension to file its statement of defense. On May 24, 2009, We filed
our statement of defense. We believe that it is likely that the plaintiffs motion
for an exemption from payment of the court filing fee will be granted and that the lawsuit
will therefore proceed. We believe that the plaintiffs claim is unfounded and intend
to vigorously defend against the claim. Due to the preliminary stage of the claim, we and
our legal advisors cannot currently assess the outcome or possible adverse effect on our
financial position or results of operations, however, we believe we have substantial legal
arguments to oppose the allegations.

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|Item 1A. |  | Risk Factors
|-------- |  | ------------

Our business may be
negatively affected by the current global economic and credit crisis.

The
current economic climate and the uncertainty in the global economic conditions resulting
from the recent disruption in credit markets pose a risk to the overall economy that could
impact customer demand for our products, as well as our ability to manage normal
commercial relationships with our customers, suppliers and creditors. If the current
situation deteriorates significantly, our business could be negatively impacted, including
such areas as reduced demand for our products from a slow-down in the general economy, or
supplier or customer disruptions resulting from tighter credit markets.

There
have been no other material changes to our Risk Factors set forth in our
Annual Report on Form 10-K for the year ended December 31, 2008.

|Item 6. |  | Exhibits and Reports on Form 8-K
|------- |  | --------------------------------

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

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

|(b) | Reports
on Form 8-K
|--- | -------------------

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# SIGNATURES

In
accordance with the requirements of the Exchange Act, the registrant caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

|Dated: June 11, 2009 |  | DEFENSE INDUSTRIES INTERNATIONAL, INC.By: /s/ Joseph Postbinder
Joseph PostbinderChairman and Chief Executive Officer
|-------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------

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