---

---

# U.S. SECURITIES AND
EXCHANGE COMMISSIONWashington, D.C. 20549

# FORM 10-QSB/A

# Amendment No. 2

|x | Quarterly
 report  under  Section 13 or 15(d) of the  Securities  Exchange  Act of 1934 for the
 quarterly          period ended March 31, 2007
|- | -----------------------------------------------------------------------------------------------------------------------------------------------

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

Commission file number:
000-30105

|                                                                 
|-----------------------------------------------------------------
|Defense Industries International, Inc.                           
|                                                                 
|(Exact Name of Small Business Issuer as Specified in Its Charter)

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

|                                        
|----------------------------------------
|8 Brussels St. Sderot, 80100, Israel    
|                                        
|(Address of Principal Executive Offices)

|                                                
|------------------------------------------------
|(011) 972-8-689-1611                            
|                                                
|(Issuer's Telephone Number, Including Area Code)

|                                                                                  
|----------------------------------------------------------------------------------
|                                                                                  
|(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)

| | Check
whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of
the Exchange Act during the past 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

# APPLICABLE ONLY TO
CORPORATE ISSUERS

As
of May 6, 2007, the Issuer had 28,867,272 shares of Common Stock, $.0001 par value per
share, outstanding.

Transitional
Small Business Disclosure Format (check one):

Yes  o   No  x



---

---

# EXPLANATORY NOTE

This Amendment No. 2 on Form 10-QSB/A hereby reflects our adoption, as of January 1, 2007,
of FSP EITF 00-19-2, Accounting for Registration Payment Arrangements
(FSP), which addresses an issuers accounting for securities registration
payment arrangements. On January 7, 2008, the Securities and Exchange Commission informed
us that they do not object to our approach in adopting the FSP and continued application
of EITF 00-19, for the classification, as permanent equity component, of certain warrants
originally accounted for as derivatives, as reflected in Amendment No. 1 to our Quarterly
Report on Form 10-QSB/A, filed on October 29, 2007. In addition, this Amendment No. 2
amends Item 3. Controls and Procedures, contained in our Quarterly Report on Form 10-QSB
for the three month period ended March 31, 2007 which was filed on May 15, 2007. This
Amendment No. 2 is not intended to revise other information presented in our Quarterly
Report on Form 10-QSB for the three month period ended March 31, 2007 as originally filed
and all such other information in the original filing, which remains unchanged. As a
result, this Amendment No. 2 to the Quarterly Report on Form 10-QSB continues to speak as
of May 15, 2007, except for the adoption for the first time of the FSP and Item 3.
Controls and Procedures, which speaks as January 16, 2008, the date of the filing of this
Amendment No. 2 to the our Quarterly Report on Form 10-QSB for the three month period
ended March 31, 2007.

For
the convenience of the reader the entire document is being refilled.



---

---



# DEFENSE INDUSTRIES
INTERNATIONAL, INC. AND SUBSIDIARIES

# INDEX

|                                |                                                                | Page 
|------------------------------- | -------------------------------------------------------------- | -----
|
|Part I - Financial Information:
|                               
|Item 1.                         | Condensed Consolidated Balance Sheets as of March 31, 2007     |      
|                                | (Unaudited) and December 31, 2006                              | 3-4  
|                               
|                                | Condensed Consolidated Statements of Operations and            |      
|                                | Comprehensive Income (Loss) for the Three Months               |      
|                                | Ended March 31, 2007 and 2006 (Unaudited)                      | 5    
|                               
|                                | Condensed Consolidated Statements of Cash Flows                |      
|                                | for the Three Months Ended March 31, 2007 and 2006 (Unaudited) | 6    
|                               
|                                | Notes to Condensed Consolidated Financial Statements           |      
|                                | (Unaudited)                                                    | 7-10 
|                               
|Item 2.                         | Management's Discussion or Plan of Operation                   | 11-19
|                               
|Item 3                          | Controls and Procedures                                        | 20   
|                               
|Part II - Other Information:   
|                               
|Item 1.                         | Legal Proceedings                                              | 21   
|                               
|Item 2.                         | Unregistered Sales of Equity Securities and Use of Proceeds    | 21   
|                               
|Item 3.                         | Defaults Upon Senior Securities                                | 21   
|                               
|Item 4.                         | Submission of Matters to a Vote of Security Holders            | 21   
|                               
|Item 5.                         | Other Information                                              | 21   
|                               
|Item 6.                         | Exhibits                                                       | 21-22

2

---

---

DEFENSE INDUSTRIES INTERNATIONAL, INC.
AND SUBSIDIARY COMPANIES

CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS

|                                                                     | March 31, 2007 | December 31, 2006
|-------------------------------------------------------------------- | -------------- | -----------------
|
|
|
|
|CURRENT ASSETS                                                       |                |                  
|Cash and cash equivalents                                            |                |                  
|Accounts receivable, net of allowance for doubtful accounts          |                |                  
|of $221,598 and $223,532, respectively                               |                |                  
|Accounts receivable - related parties, net of allowance for doubtful |                |                  
|accounts of $108,181 and $106,389, 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                                                       |                |                  
|Intangible assets, net                                               |                |                  
|                                                                     |                |                  
|Total Other Assets                                                   |                |                  
|                                                                     |                |                  
|                                                                     |                |                  
|TOTAL ASSETS                                                         |                |                  
|                                                                     |                |                  

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

3

---

---

DEFENSE INDUSTRIES INTERNATIONAL, INC.
AND SUBSIDIARY COMPANIES

CONDENSED CONSOLIDATED BALANCE SHEETS

LIABILITIES AND SHAREHOLDERS' EQUITY

|                                                                                                      | March 31,2007 | December 31, 2006
|----------------------------------------------------------------------------------------------------- | ------------- | -----------------
|
|
|
|
|CURRENT LIABILITIES                                                                                   |               |                  
|Accounts payable                                                                                      |               |                  
|Short-term debt                                                                                       |               |                  
|Common stock to be issued                                                                             |               |                  
|Other current liabilities                                                                             |               |                  
|                                                                                                      |               |                  
|Total Current Liabilities                                                                             |               |                  
|                                                                                                      |               |                  
|                                                                                                      |               |                  
|LONG-TERM LIABILITIES                                                                                 |               |                  
|Long-term portion of debts                                                                            |               |                  
|Liability for employee rights upon retirement                                                         |               |                  
|Common stock to be issued                                                                             |               |                  
|Embedded derivatives at fair value                                                                    |               |                  
|                                                                                                      |               |                  
|Total Long-term Liabilities                                                                           |               |                  
|                                                                                                      |               |                  
|                                                                                                      |               |                  
|TOTAL LIABILITIES                                                                                     |               |                  
|                                                                                                      |               |                  
|                                                                                                      |               |                  
|Minority interest                                                                                     |               |                  
|                                                                                                      |               |                  
|                                                                                                      |               |                  
|COMMITMENTS AND CONTINGENCIES                                                                         |               |                  
|                                                                                                      |               |                  
|SHAREHOLDERS' EQUITY                                                                                  |               |                  
|Preferred stock, $.0001 par value, 50,000,000 shares authorized, none issued and outstanding          |               |                  
|Common stock, $.0001 par value, 250,000,000 shares authorized, 
    28,793,198 issued and outstanding |               |                  
|Additional paid-in capital                                                                            |               |                  
|Warrants                                                                                              |               |                  
|Retained earnings                                                                                     |               |                  
|Cumulative effect of adopting new
accounting pronouncement (*)                                        |               |                  
|Accumulated other comprehensive loss                                                                  |               |                  
|                                                                                                      |               |                  
|Total Shareholders' Equity                                                                            |               |                  
|                                                                                                      |               |                  
|                                                                                                      |               |                  
|TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                                            |               |                  
|                                                                                                      |               |                  

|(*) | As
restated, see Note 1 G.
|--- | --------------------------

4

---

---

DEFENSE INDUSTRIES INTERNATIONAL, INC.
AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

|                                                                                    | For the Three Months
Ended March 31, 2007 | For the
Three Months Ended
March 31, 2006
|----------------------------------------------------------------------------------- | ----------------------------------------- | -----------------------------------------
|
|
|
|
|NET REVENUES                                                                        |                                           |                                          
|                                                                                    |                                           |                                          
|COST OF SALES                                                                       |                                           |                                          
|                                                                                    |                                           |                                          
|                                                                                    |                                           |                                          
|GROSS PROFIT                                                                        |                                           |                                          
|                                                                                    |                                           |                                          
|                                                                                    |                                           |                                          
|OPERATING EXPENSES                                                                  |                                           |                                          
|Selling                                                                             |                                           |                                          
|General and administrative                                                          |                                           |                                          
|                                                                                    |                                           |                                          
|Total Operating Expenses                                                            |                                           |                                          
|                                                                                    |                                           |                                          
|                                                                                    |                                           |                                          
|INCOME (LOSS) FROM OPERATIONS                                                       |                                           |                                          
|                                                                                    |                                           |                                          
|                                                                                    |                                           |                                          
|OTHER (EXPENSES) INCOME                                                             |                                           |                                          
|Financial expenses, net                                                             |                                           |                                          
|(Loss) gain on fair value adjustment to embedded derivatives                        |                                           |                                          
|Other income, net                                                                   |                                           |                                          
|                                                                                    |                                           |                                          
|Total Other (Expenses) Income                                                       |                                           |                                          
|                                                                                    |                                           |                                          
|                                                                                    |                                           |                                          
|INCOME (LOSS) BEFORE INCOME TAXES                                                   |                                           |                                          
|                                                                                    |                                           |                                          
|Income tax expenses                                                                 |                                           |                                          
|                                                                                    |                                           |                                          
|                                                                                    |                                           |                                          
|Income (loss) before minority interest                                              |                                           |                                          
|                                                                                    |                                           |                                          
|Minority interest (income) loss                                                     |                                           |                                          
|                                                                                    |                                           |                                          
|                                                                                    |                                           |                                          
|NET INCOME (LOSS)                                                                   |                                           |                                          
|                                                                                    |                                           |                                          
|OTHER COMPREHENSIVE INCOME (LOSS)                                                   |                                           |                                          
|Foreign currency translation gain (loss), net of minority interest portion          |                                           |                                          
|Income tax (expenses) benefit related to items of other comprehensive income (loss) |                                           |                                          
|                                                                                    |                                           |                                          
|                                                                                    |                                           |                                          
|TOTAL OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX                                 |                                           |                                          
|                                                                                    |                                           |                                          
|                                                                                    |                                           |                                          
|COMPREHENSIVE INCOME (LOSS)                                                         |                                           |                                          
|                                                                                    |                                           |                                          
|                                                                                    |                                           |                                          
|Net income (loss) per share - basic and diluted                                     |                                           |                                          
|                                                                                    |                                           |                                          
|                                                                                    |                                           |                                          
|Weighted average number of shares outstanding - basic and diluted                   |                                           |                                          
|                                                                                    |                                           |                                          

|(*) | As
restated, see Note 1 G.
|--- | --------------------------

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

5

---

---

DEFENSE INDUSTRIES INTERNATIONAL, INC.
AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006 (UNAUDITED)

|                                                                                         | For the
Three Months Ended
March 31, 2007 | For the
Three Months Ended
March 31, 2006
|---------------------------------------------------------------------------------------- | ----------------------------------------- | -----------------------------------------
|
|
|
|
|CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:                                             |                                           |                                          
|Net income (loss)                                                                        |                                           |                                          
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |                                           |                                          
|Items not affecting cash:                                                                |                                           |                                          
|Depreciation and amortization                                                            |                                           |                                          
|Gain from sale of property, plant and equipment                                          |                                           |                                          
|Provision for doubtful accounts                                                          |                                           |                                          
|Gain on fair value adjustment to embedded derivatives                                    |                                           |                                          
|Deferred taxes                                                                           |                                           |                                          
|Net realized and unrealized gain on trading securities                                   |                                           |                                          
|Minority interest in income (loss) of subsidiary                                         |                                           |                                          
|Changes in assets and liabilities:                                                       |                                           |                                          
|(Increase) decrease in accounts receivable                                               |                                           |                                          
|Decrease in other assets                                                                 |                                           |                                          
|(Increase) decrease in inventories                                                       |                                           |                                          
|(Increase) decrease in trading securities                                                |                                           |                                          
|Increase in funds in respect of employee rights upon retirement                          |                                           |                                          
|Increase (decrease) in accounts payable                                                  |                                           |                                          
|Decrease in other liabilities                                                            |                                           |                                          
|Decrease in  liability for employee rights upon retirement                               |                                           |                                          
|                                                                                         |                                           |                                          
|Net Cash provided by (used in) Operating Activities                                      |                                           |                                          
|                                                                                         |                                           |                                          
|                                                                                         |                                           |                                          
|CASH FLOWS USED IN INVESTING ACTIVITIES:                                                 |                                           |                                          
|Purchases of property, plant and equipment                                               |                                           |                                          
|Proceeds from sale of property, plant and equipment                                      |                                           |                                          
|                                                                                         |                                           |                                          
|Net Cash used in Investing Activities                                                    |                                           |                                          
|                                                                                         |                                           |                                          
|                                                                                         |                                           |                                          
|CASH FLOWS (USED IN) PROVIDED BY FINANCING ACTIVITIES:                                   |                                           |                                          
|Short-term debt, net                                                                     |                                           |                                          
|Repayments of long-term debt                                                             |                                           |                                          
|                                                                                         |                                           |                                          
|Net Cash (used in) provided by Financing Activities                                      |                                           |                                          
|                                                                                         |                                           |                                          
|                                                                                         |                                           |                                          
|EFFECT OF CHANGES IN EXCHANGE RATES ON CASH                                              |                                           |                                          
|                                                                                         |                                           |                                          
|                                                                                         |                                           |                                          
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                     |                                           |                                          
|                                                                                         |                                           |                                          
|CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD                                          |                                           |                                          
|                                                                                         |                                           |                                          
|                                                                                         |                                           |                                          
|CASH AND CASH EQUIVALENTS - END OF PERIOD                                                |                                           |                                          
|                                                                                         |                                           |                                          
|                                                                                         |                                           |                                          
|INTEREST PAID                                                                            |                                           |                                          
|                                                                                         |                                           |                                          
|TAXES PAID                                                                               |                                           |                                          
|                                                                                         |                                           |                                          

|(*) | As
restated, see Note 1 G.
|--- | --------------------------

SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES:

On February 28, 2006, the Company
issued 123,077 shares of its common stock having a fair value of $40,000 at the date of
issuance.

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

6

---

---

DEFENSE INDUSTRIES INTERNATIONAL, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006

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

| | A. | The
accompanying unaudited interim consolidated financial statements as of March
               31, 2007 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, 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 year ended December 31, 2006 as noted in G
bellow.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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, 2007, are not                necessarily indicative of the results that may be
expected for the year ending                December 31, 2007. The Interim Financial
Statements should be read in                conjunction with the Companys annual
financial statements as of December                31, 2006 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. and its wholly owned subsidiaries, Export Erez, USA, Inc., Export Erez, Ltd.,
Mayotex, Ltd., Dragonwear Trading Ltd, Rizzo, Inc. (d/b/a Owen Mills) and its 76% owned
subsidiary Achidatex Nazareth Elite (1997) Ltd. for all periods presented (collectively,
the Company). The minority interest represents the minority shareholdersproportionate
share of Achidatex Nazareth Elite (1997) Ltd. All significant intercompany accounts and
transactions have been eliminated in consolidation.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

7

---

---

DEFENSE INDUSTRIES INTERNATIONAL, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006

| | E. | Earnings
per common share
| | -- | -------------------------

| | Basic
and diluted earning per common share is presented in conformity with SFAS No.128, Earnings
Per Share for all periods presented. Basic earnings per common share is computed by
dividing net income, by the weighted average number of shares of outstanding common
shares. Diluted earnings per common share is computed by dividing net income, by the
weighted average number of shares of outstanding common shares adjusted to include
incremental common shares that would have been outstanding if potentially dilutive common
shares had been issued.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | F. | Recent
accounting pronouncements
| | -- | --------------------------------

| | In
March 2007, the Financial Accounting Standards Board (FASB) ratified Emerging
Issues Task Force (EITF) Issue No. 06-10, Accounting for Collateral
Assignment Split-Dollar Life Insurance Arrangements (EITF No. 06-10). EITF
No. 06-10 requires an employer to recognize a liability for the postretirement benefit
related to a collateral assignment split-dollar life insurance arrangement in accordance
with either Statement of Financial Accounting Standards (SFAS) No. 106 or
Accounting Principles Board (APB) Opinion No. 12 if the employer has agreed
to maintain a life insurance policy during the employees retirement or provide the
employee with a death benefit. EITF No. 06-10 also requires an employer to recognize and
measure an asset based on the nature and substance of the collateral assignment
split-dollar life insurance arrangement. EITF No. 06-10 is effective for fiscal years
beginning after December 15, 2007 with early adoption permitted. The Company is
evaluating the impact that the adoption of EITF No. 06-10 will have on its financial
statements.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | G. | First
adoption of new accounting standards
| | -- | ------------------------------------------

| | The
Company adopted FIN 48 as of January 1, 2007, Accounting for Uncertainty in Income
Taxes, an interpretation of SFAS 109, Accounting for Income Taxes. FIN
48 clarifies the accounting for uncertain tax positions and prescribes a comprehensive
model for how companies should recognize, measure, present and disclose in their
financial statements uncertain tax positions taken or expected to be taken on a tax
return. Under FIN 48, tax positions shall initially be recognized in the financial
statements when it is more likely than not the position will be sustained upon
examination by the tax authorities. Such tax positions shall initially and subsequently
be measured as the largest amount of tax benefit that is greater than 50% likely of being
realized upon ultimate settlement with the tax authority, assuming full knowledge of the
position and all relevant facts. The effect of first adoption was not material.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The Company adopted FSP EITF 00-19-2,
as of January 1, 2007, Accounting for Registration Payment Arrangements
(FSP), which addresses an issuers accounting for registration payment
arrangements. Previously filed 2007 interim financial statements did not reflect the
adoption of this FSP. This FSP specifies that the contingent obligation to make future
payments or otherwise transfer consideration under a registration payment arrangement,
whether issued as a separate agreement or included as a provision of a financial
instrument or other agreement, should be separately recognized and measured in accordance
with FASB Statement No. 5, Accounting for Contingencies. This FSP further
clarifies that a financial instrument subject to a registration payment arrangement should
be accounted for in accordance with other applicable generally accepted accounting
principles (GAAP) without regard to the contingent obligation to transfer consideration
pursuant to the registration payment arrangement.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As a result of our adoption of the
FSP for the first time, the Interim Financial Statements includes a commutative-effect
adjustment to the opening balance of retained earnings and liabilities as follows:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                   | As of January 1, 2007
| | ----------------- | ---------------------
|
|
|
|
| | Total liabilities |                      
| |                   |                      
| | Retained earning  |                      
| |                   |                      
| | Warrants          |                      

| | The Interim Financial Statements has
been restated, as they did not originally reflect the adoption of the FSP. The restatement
had the following impact on the following financial statement captions:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                   | As of March 31, 2007
| | ----------------- | --------------------
|
|
| | Total liabilities |                     
| |                   |                     
| | Retained earning  |                     
| |                   |                     
| | Warrants          |                     

| |                      | For the three months ended March 31, 2007
| | -------------------- | -----------------------------------------
|
|
| | Net income           |                                          
| |                      |                                          
| | Comprehensive income |                                          

8

---

---

DEFENSE INDUSTRIES INTERNATIONAL, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006

|NOTE 2 |  | INVENTORIES
|------ |  | -----------

| | Inventories
consist of:
| | -----------------------

| |                  | March 31,2007 | December 31, 2006
| | ---------------- | ------------- | -----------------
|
|
|
|
| | Raw materials    |               |                  
| | Work in progress |               |                  
| | Finished goods   |               |                  
| |                  |               |                  
| |                  |               |                  
| |                  |               |                  
| |                  |               |                  

|NOTE 3 |  | SEGMENT INFORMATION AND CONCENTRATION OF CREDIT RISK
|------ |  | ----------------------------------------------------

| | The
Company has two strategic business units: the civilian market and the military market.
The military and the civilian markets are further broken down between local and export
sales in order to better analyze trends in sales and profit margins. The Company does not
allocate assets between segments because several 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, 2007 |          |          |  
|                                          |          |         
|Revenue from sales                        |          |          | $
|Profit from operations                    |          |          |  
|                                          |          |         
|For the three months ended March 31,2006  |          |         
|                                          |          |         
|Revenue from sales                        |          |          | $
|Loss from operations                      |          |          |  
|                                          |          |          |  

9

---

---

DEFENSE INDUSTRIES INTERNATIONAL, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006

| | B. | Geographic
Areas  Financial Data:
| | -- | ----------------------------------

|                    | Revenue from Sales
|------------------- | ------------------
|
|
|
|
|South America       |                   
|North America       |                   
|Europe              |                   
|Australia           |                   
|Other International |                   
|Israel              |                   
|                    |                   
|Total               |                   
|                    |                   

| | C. | Revenues
from Sales to Single Customers Exceeding 10% of Sales:
| | -- | ---------------------------------------------------------------

| |                              | For the Three
Months Ended
March 31, 2007 | For the Three
Months Ended
March 31, 2006
| | ---------------------------- | ----------------------------------------- | -----------------------------------------
|
|
|
|
| | Customer A (Military Local)  |                                           |                                          
| | Customer B (Civilian Export) |                                           |                                          

|NOTE 4 |  | SUBSEQUENT EVENTS
|------ |  | -----------------

| | On
May 1, 2007, the Company issued 74,074 shares of common stock, having a fair value of
$40,000 at date of issuance, to the former owner of Owen Mills. The shares were issued
pursuant to the agreement we signed on February 28, 2005 to acquire the business of Owen
Mills.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

10

---

---

|Item 2. |  | Managements Discussion and Analysis or Plan of Operation
|------- |  | ---------------------------------------------------------

This
information 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,
2006 contained in our 2006 Annual Report on Form 10-KSB. 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.

# Critical Accounting
Policies

We
have identified the following policies as critical to the understanding of our financial
statements. The preparation of our financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of sales and expenses during the reporting periods. Our financial
statements have been prepared in accordance with accounting principles generally accepted
in the United States.

Revenue
Recognition. Revenues from sales of products are recognized upon shipment to
customers. We provide a warranty on goods ranging from three to four years. Our policy is
to consider the establishment of a reserve for warranty expenses, based upon our
historical experience. We have not established a reserve at March 31, 2007 and December
31, 2006. If we change any of our assumptions with regard to our recognition of revenues,
or if there is a change with respect to warranties expenses our financial position and
results of operations may change materially.

Foreign
Currency Translation and Transactions. The functional currency of Export Erez, Ltd.,
Mayotex Ltd., and Achidatex Nazareth Elite is the New Israeli Shekel, or NIS. The
functional currency of Dragonwear Trading Ltd. is the Cyprus Pound, or CYP. The financial
statements of Dragonwear are translated into NIS. The financial statements for all of
these entities are then translated into U.S. dollars from NIS at period-end exchange rates
as to assets and liabilities and at average exchange rates as to revenues and expenses.
Capital accounts are translated at their historical exchange rates when the capital
transactions occurred. Foreign currency transaction gains or losses from transactions
denominated in currencies other than NIS are recognized in net income in the period the
gain or loss occurs. Any change in exchange rates may have a material impact on our
financial position and results of operations.

11

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Accounts
Receivable. Accounts receivable consist primarily of receivables from customers and
institutions. We record a provision for doubtful accounts, when appropriate, to allow for
any amounts which may be unrecoverable based upon an analysis of our prior collection
experience, customer creditworthiness and current economic trends.

Inventories. Inventories are valued at the lower of cost or market value using the
          first-in first-out method. The cost includes expenses of freight-in
          transportation. The specific identification method is used for finished goods
          since all orders are custom orders for customers. Inventories write-offs and
          write-down provisions are provided to cover risks arising from slow-moving
items           or technological obsolescence. Any change in our assumptions with respect
to the           need to write-off or write-down the value of our inventories may have a
material           affect on our financial position or results of operations.

Property
Plant and Equipment. Fixed assets are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated useful lives of
three to twenty-five years. These long-lived assets are generally evaluated on an
individual basis in making a determination as to whether such assets are impaired.
Periodically, we review our long-lived assets for impairment based on estimated future
non-discounted cash flows attributed to the assets. In the event such cash flows are not
expected to be sufficient to recover the recorded value of the assets, the assets are
written down to their estimated fair values. The use of different assumptions with respect
to the expected cash flows from our assets and other economic variables, primarily the
discount rate, may lead to different conclusions regarding the recoverability of our
assets carrying values and to the potential need to record an impairment loss for
our long-lived assets.

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, 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 and travel gear.

We
believe that current international tensions, the events of September 11, 2001 as well as
terror attacks in Europe, Asia and Africa in recent years, the continuing 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.

We
expect to address this growth 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 and we believe that these acquisitions will also assist us to
broaden our portfolio of products.

12

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The
following elements define our growth strategy:

| |  | Expansion
of our research and development activities in order to be able to provide new and
innovativeproducts and solutions. In 2005, we built a ballistic laboratory in
our facilities in the Nazareth Industrial Area, and purchased equipment for ballistic
research and development. In 2006, we allocated part of the proceeds of our 2005 private
placement for research and development of new ballistic solutions.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Pursuit
of strategic acquisitions. In addition to our acquisition of Owen Mills and of the
operations of Chemoplast, we intend to continue to selectively pursue strategic
acquisitions that complement our product offerings, provide access to new geographic
markets, and provide additional distribution channels and new customer relations.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Expansion
of our distribution networks and product offerings. We expect to continue to
strengthen our distribution network by expanding our range of branded law enforcement
equipment through the acquisition of and by investing in development of new and enhanced
products which complement our existing offerings. We believe that a broader product line
will strengthen our relationships with distributors and enhance our brand appeal with
military, law enforcement and other end users.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Material Trends

Local
Military Market. The Israeli Military defense budget has been subject to reductions
since the second half of the 2003. As a result, the demand for our products declined in
the second half of 2003 and stabilized at a lower level during the three years ended
December 31, 2006.

In
the second half of 2005, the Israeli Government evacuated the Gaza strip. As a result of
the Israeli Governments decisions and the evacuation, the Israeli Defense Forces, or
IDF, indicated that it will slightly reduce its manpower and that its battlefield
equipment will be stored for long periods in environments that will promote battlefield
readiness and the capability of quick deployment. In addition, as a result of the war
between Israel and the Hezbollah in Lebanon, which started in July 2006, many Israeli
reserve forces were activated, and a large amount of stored equipment was removed from
dry-storage compartments and mobilized. In light of this event, we believe that our
military business will grow as a result of an increase in the demand for our dry storage
systems products, bulletproof vests and other military gear. Such increase was reflected
in the fourth quarter of 2006, continued in the first quarter of 2007 and we expect the
trend to continue into the rest of 2007. In the first three months of 2006 and 2007, sales
to the Israeli Ministry of Defense were $427,393 and $1,541,446 accounting for 23.3% and
39.4% of our sales.

13

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Export
Military Market. Our customers in this market are military and law enforcement
organizations, mostly in South America, North America 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 the U.S., South America, Asia and Europe, and to extend our
presence to new export markets in South America and Europe and Australia. We believe that
those markets are growing and that any future success in such markets is mainly dependent
on our ability to be competitive in our pricing and the quality of our products.

For
the three months ended March 31, 2007 and 2006 ,our export military sales were $1,068,242
and $497,168, respectively. In the first three months of 2006 and 2007, we had sales of
$67,673 and $610,331 in South America, sales of $93,497 and $23,104 in North America,
sales of $265,816 and $85,087 in Europe, and no sales in Australia in 2006 comparable to
$349,720 in 2007.

As
a result of the above, we expect that our export military business will grow in the next
two to three years.

Local
Civilian Market. Our product range to the civilian market is diversified. In 2006 and
2005, our local market business grew as a result of the improvement of the economic
situation in Israel. We expect an increase in this market in 2007 and in the future.

Export
Civilian Market. Our product range to the export civilian market consists of a range
of several similar products to the agriculture sector to a single US based customer. The
products we manufacture are distributed by us directly to the end users located worldwide.

Industry
Consolidation. Prior to 2005, we encountered additional competition as a result of a
trend toward consolidation among our competitors. This trend abated in 2006 and is not as
relevant at present. However, there can be no assurance that additional consolidation
among our competitors will not take place in the future.

Gross
Profit Margins. Our pricing policy, although slightly different from one product to
the other, is based on our existing overall gross margin. We do not expect a material
change in our gross profit margins in the foreseeable in future.

Backlog. We
had approximately $7.53 million of unfilled customer orders at March 31,           2007,
out of which approximately $5.3 million was attributable to the Israeli
          Ministry of Defense, approximately $210,000 was attributable to the Israeli
          civilian market, approximately $1.3 million was attributable to the U.S.
market,           $400,000 was attributable to orders from military customers in South
America,           and approximately $320,000 was attributable to orders from Europe,
Asia and           Africa.

14

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# Prior operations in the
Erez Industrial Zone

During
2004, the Israeli Government decided to evacuate persons and companies from the Erez
Industrial Zone in the Gaza Strip where part of our operations was located. During the
second half of 2004, we prepared for the eventual evacuation of facilities we owned and
leased within this area by merging existing production facilities. We moved one of our
light cut and sew operations to Sderot and some of our webbing equipment to
Nazareth. We evacuated our remaining operations from the Erez Industrial Zone in August
2005. The Israeli Governments decision to evacuate the Gaza Strip was supported by
certain resolutions as well as the Israeli Evacuation Compensation Law (2005) 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. On
November 30, 2006, we were notified that the Israeli Government determined that Export
Erez Ltd. and Mayotex Ltd. are entitled to advanced payments in the amounts of
approximately $452,000 and $71,000, respectively, which amount exceed the amount of the
receivables on our financial statements. During January 2007 we received those sums.
Further negotiations are currently taking place with respect to the final amount of
compensation to be paid to our subsidiaries under their claims. However, we cannot provide
any assurance that the claims, will be approved in full, or to what extent, or when the
compensation will be paid.

# Results of Operations

# Three Months Ended March
31, 2007 Compared with Three Months Ended March 31, 2006

# Results of Operations

Net
Revenues and Gross Profit Margin. Net revenues for the three months ended March 31,
2007 increased to $3,914,572 from $1,833,371 in the same period in 2006, an increase of
113.5%. The increase is primarily attributable to a general increase in all of our market
segments. In the three months ended March 31, 2007, Achidatex, Export Erez and Owen Mills
accounted for $1,108,330 or 28.3%, $2,528,265 or 64.6%, and $277,977 or 7.1% of our
revenues, respectively. In the three months ended March 31, 2006 Achidatex, Export Erez,
and Owen Mills accounted for $1,977,844 or 53.7%, $1,624,523 or 44.1%, and $82,113 or 2.2%
of our revenues, respectively.

15

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The
following table sets forth the breakdown of sales by segment for the three months ended
March 31, 2007 and 2006.

|                                    | Three months ended March 31,
|----------------------------------- | ----------------------------
|
|
|
|
|Sales to the local civilian market  |                             
|Sales to the export civilian market |                             
|Sales to the local military market  |                             
|Export military sales               |                             
|                                    |                             
|Total                               |                             
|                                    |                             

Gross
profit for the three months ended March 31, 2007 was $1,288,167 compared to $308,898 for
the same period in 2006. This increase in gross profit is principally attributable to the
increase in sales, the increase in production resulting in the increased absorption of
fixed manufacturing expenses and sales of higher margin product during the three months
ended March 31, 2007 compared to the same period in 2006. In the three months ended March
31, 2007 Achidatex, Export Erez, and Owen Mills accounted for 32.0%, 59.8% and 8.2%, of
our gross profit, respectively. In the three months ended March 31, 2006, Achidatex,
Export Erez and Owen Mills accounted for 42.8%, 41.9%, and 15.3%, of our gross profit,
respectively.

Selling
Expenses. Selling expenses for the three months ended March 31, 2007 increased to
$239,765from $135,689 for the same period in 2006. The increase in our selling
expenses was attributable to the increase in the export sales. Achidatexs
selling expenses for the three months ended March 31, 2007 were $76,364 compared to
$88,147 for the three months ended March 31, 2006. Export Erezs selling expenses for
the three months ended March 31, 2007 were $156,458 compared to $45,500 for the three
months ended March 31, 2006. Owen Mills selling expenses for the three months ended
March 31, 2007 were $6,943 compared to $2,042 for the three months ended March 31, 2006.

General
and Administrative Expenses. General and administrative expenses for the three months
ended March 31, 2007 increased to $413,893 from $394,250 for the same period in 2006,
mainly as a result of our increased level of operations.

Financial
Expenses. We had financial expenses, net of $84,272 for the three months ended March
31, 2007 as compared to financial expenses, net of $7,383 for the same period in 2006. The
change increase is primarily due to the change in the US Dollar exchange rate versus the
NIS, which resulted in a loss of $50,567atMarch 31, 2007 and a gain of
$24,077 at March 31, 2006.

16

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Other
Income (Expenses), Net. We had other income, net for the three months ended March 31,
2007 of $42,004 as compared to other income, net of $30,288 for the same period in 2006.
Our other income in 2007 is attributable to profit from sales of tradable securities and
from sales of fixed assets.

Income
Tax Expense (Benefit). Our income tax expense for the three months ended March 31,
2007 was $165,221 as compared to an income tax expense of $15,222 for the comparable
period in 2006. As an Israeli taxpayer, we are unable to include the losses of Owen Mills
in our consolidated income tax filings in Israel. Achidatexs income tax expense for
the three months ended March 31, 2007 was $34,329 compared to $921 for the three months
ended March 31, 2006. Export Erezs income tax expense for the three months ended
March 31, 2007 was $130,892 compared to income tax expense of $13,501 for the three months
ended March 31, 2006. The increases in income tax expense was due to our improved
operating results in the period. In 2007, the corporate statutory tax rate in Israel was
reduced to 29%. Defense Industries did not have any tax expense for the three months
ended March 31, 2007 and 2006. Owen Mills did not have any tax expense for the three
months ended March 31, 2007 compared to $800 for the three months ended March 31, 2006.

Minority
Interest. Minority interest in the profits and losses of one of our consolidated
subsidiaries represents the minority shareholders share of the profits or losses in
such majority owned subsidiary. For the three months ended March 31, 2007, we recognized
and recorded minority share in our profit of $23,110 compared to minority share in our
loss of $28,130 for the three months ended March 31, 2006.

Net
Income (Loss). In the three months ended March 31, 2007 our consolidated
net income was $403,910 compared to net loss of $156,010 for the three months ended March
31, 2006. Achidatexs net income for the three months ended March 31, 2007 was
$73,181 compared to a net loss of $89,077 for the three months ended March 31, 2006.
Export Erezs net income for the three months ended March 31, 2007 was $384,208
compared to a net loss of $14,221 for the three months ended March 31, 2006. Owen
Mills net loss for the three months ended March 31, 2007 was $61,771 compared to a
net loss of $40,495 for the three months ended March 31, 2006. Defense Industries
net income for the three months ended March 31, 2007 was $69,446 compared to a net loss of
$12,217 for the three months ended March 31, 2006.

Other
Comprehensive Income (Loss). We had other comprehensive income, for the three months
ended March 31, 2007 of $12,645 compared to other comprehensive loss of $59,810 for the
three months ended March 31, 2006. This comprehensive income is principally attributable
to change in US Dollar exchange rate versus the NIS.

17

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# Liquidity and Capital
Resources

As of March 31, 2007,
we had $1,737,038 in cash and cash equivalents, $847,470 in trading securities and working capital of
$5,164,706 as compared to $1,670,912 in cash and cash equivalents, $804,963 in marketable
securities and $4,803,629 in working capital at December 31, 2006.

Net
cash provided by operating activities was $402,567 for the three months ended March 31,
2007 as compared to net cash used in operating activities of $442 for the same period in
2006. This was primarily attributable to increase in accounts payable by $1,578,980,
decrease in other assets of $511,629, depreciation of $119,048, and net income of $339,473
offset by increase in inventory by $1,431,923, increase in accounts receivable by $652,401
and a decrease in other liabilities of $89,475.

Net
cash used in investing activities was $68,611 for the three months ended March 31, 2007 as
compared to $71,762 in the three months ended March 31, 2006. During the three months
ended March 31, 2007, purchases of fixed assets were $94,779 and proceeds from the sale of
fixed assets were $26,168.

Net
cash used in financing activities was $246,546 for the three months ended March 31, 2007
as compared to $126,663 net cash provided by financing activities for the three months
ended March 31, 2006. During the three months ended March 31, 2007, we decreased our
short-term debt by $27,609 and we repaid $218,937 of long-term debt.

Most
of our large purchase orders are supported by letters of credit. As a result, we believe
that we have limited exposure to doubtful accounts receivables. We have historically
achieved net profits on an annual basis, but our quarterly profits are not consistent on a
quarter to quarter basis. Nevertheless, we have striven to balance our accounts payable
and accounts receivable.

We
believe that our spending for research and development in 2007 will be $80,000.

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

Recent Accounting
Pronouncements

In
March 2007, the Financial Accounting Standards Board (FASB) ratified Emerging
Issues Task Force (EITF) Issue No. 06-10, Accounting for Collateral Assignment
Split-Dollar Life Insurance Arrangements (EITF No. 06-10). EITF No. 06-10
requires an employer to recognize a liability for the postretirement benefit related to a
collateral assignment split-dollar life insurance arrangement in accordance with either
Statement of Financial Accounting Standards (SFAS) No. 106 or Accounting
Principles Board (APB) Opinion No. 12 if the employer has agreed to maintain a
life insurance policy during the employees retirement or provide the employee with a
death benefit. EITF No. 06-10 also requires an employer to recognize and measure an asset
based on the nature and substance of the collateral assignment split-dollar life insurance
arrangement. EITF No. 06-10 is effective for fiscal years beginning after December 15,
2007 with early adoption permitted. The Company is evaluating the impact that the adoption
of EITF No. 06-10 will have on its financial statements.

18

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# Foreign Currency
Exchange Risk

We
develop products in Israel and sell them in North and South America, Asia, Africa and
several European countries. 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.

During
2006, the NIS rose approximately 8.2% against the dollar. In the period ending in March
31, 2007, there was deflation in Israel of 0.23% and the NIS appreciated in relation to
the U.S. dollar at a rate of 1.66%, from NIS 4.225 per $1.00 on December 31, 2006 to NIS
4.155 per $1 on March 31, 2007. 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
will also be adversely affected if the dollar depreciates against the Euro, the currency
used for many of our purchases of raw material.

We
did not enter into any foreign exchange contracts in the year ended December 31, 2006 and
the three months ended March 31, 2007.

# Contractual Obligations

The
following table summarizes our contractual obligations and commercial commitments as of
March 31, 2007.

|Contractual Obligations                                   | Payments due by Period
|--------------------------------------------------------- | ----------------------
|
|
|
|
|Long-term debt obligations                                |                       
|Estimated
interest payments
on long-term debt
obligations |                       
|Capital (finance) lease obligations                       |                       
|Operating lease obligations                               |                       
|Purchase obligations                                      |                       
|Other long-term liabilities reflected on the              |                       
|Company's balance sheet under  U.S. GAAP                  |                       
|                                                          |                       
|Total                                                     |                       
|                                                          |                       

19

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|Item 3. |  | Controls and Procedures
|------- |  | -----------------------

We maintain disclosure controls and
procedures designed to ensure that information required to be disclosed in our Securities
and Exchange Commission reports is recorded, processed, summarized and reported within
applicable time periods. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be disclosed by us
in our reports that we file or submit under the Securities Exchange Act of 1934 (the
Exchange Act) is accumulated and communicated to management, including our
Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosure.

Our
management reconsidered, with the participation of our Chief Executive Officer and Chief
Financial Officer, the effectiveness of our disclosure controls and procedures (as defined
in Rules 13a-15(e) under the Securities Exchange Act of 1934) as of March 31, 2007. Based
on the revaluation, our Chief Executive Officer and Chief Financial Officer concluded that
our disclosure controls and procedures were not effective.

During
the revaluation it was determined that our accounting resources were inadequate to ensure
that our accounting staff is able to research all applicable accounting standards and
pronouncements as they relate to our financial statements and underlying disclosures. We
are currently working towards correcting this material weakness.

# Changes in Internal
Controls over Financial Reporting

There
were no changes to our internal controls over financial reporting that occurred during the
period covered by this quarterly report on Form 10-QSB/A that have materially affected, or
are reasonably likely to materially affect, our internal controls over financial
reporting.

However,
given the identification of the material weakness described above, we have enhanced the capabilities of our
accounting team by hiring a controller having a prior public company experience
 and have initiated a program to provide
our accounting team with continued educational programs.

# Compliance with Section
404 of Sarbanes-Oxley Act

Pursuant
to Section 404 of the Sarbanes-Oxley Act of 2002 (the Act), beginning with our Annual
Report on Form 10-KSB for our 2007 fiscal year, we will be required to furnish a report by
our management on our internal controls over financial reporting. This report will
contain, among other matters, an assessment of the effectiveness of our internal controls
over financial reporting as of the end of our fiscal year, including a statement as to
whether or not our internal controls over financial reporting is effective. This
assessment must include disclosure of any material weaknesses in our internal controls
over financial reporting identified by management. If we identify one or more material
weaknesses in our internal controls over financial reporting, we will be unable to assert
our internal controls over financial reporting is effective. Currently, our independent
registered public accountants will be required to issue an attestation report on
managements assessment of such internal controls and a conclusion on the operating
effectiveness of those controls for our 2008 fiscal year.

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# PART II  OTHER
INFORMATION

# DEFENSE INDUSTRIES
INTERNATIONAL, INC. AND SUBSIDIARIES

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

We
are not a party to any pending or to the best of our knowledge, any threatening legal
proceedings. None of our directors, officers or affiliates, or owner of record of more
than five percent (5%) of our shares, or any affiliate of any such director, officer or
security holder is a party adverse to us or has a material interest adverse to us in
reference to a pending litigation.

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

On
May 1, 2007, the Company issued 74,074 shares of common stock, having a fair value of
$40,000 at date of issuance, to the former owner of Owen Mills. The shares were issued
pursuant to the agreement we signed on February 28, 2005 to acquire the business of Owen
Mills. The shares were issued pursuant to the exemption afforded by Section 4(2) of the
Securities Act of 1933.

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

| | None.
| | -----

|Item 4. |  | Submission of Matters to a Vote of Security Holders
|------- |  | ---------------------------------------------------

| | None.
| | -----

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

| | None.
| | -----

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

|(a) | Exhibits
|--- | --------

| | 3.1 | Certificate
 of  Incorporation,  incorporated  herein by reference from the filing on Form 10-KSB
                  for the year ended December 31, 2001.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3.1.1 | Certificate
of Amendment to the Certificate of  Incorporation,  incorporated  herein by reference
                  from the Filing on Schedule 14C, filed with the Commission on December
30, 2002.
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3.2 | By-laws,
 incorporated  herein by  reference  from the  Filing on  Schedule  14C,  filed with the
                  Commission on June 14, 2002.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------

21

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| | 10.1 | Translation
 of  Employment  Agreement  with Mr. Tosh,  incorporated  herein by  reference  from the
                  filing on Form 10-KSB for the year ended December 31, 2003.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 31.1 | Certification
 by  Chief  Executive  Officer  Pursuant  to  Section  302 of the
                  Sarbanes-Oxley Act of 2002.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------

| | 31.2 | Certification
 by  Chief  Financial  Officer  Pursuant  to  Section  302 of the
                  Sarbanes-Oxley Act of 2002.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------

| | 32.1 | Certification
by Chief Executive  Officer  Pursuant to 18 U.S.C.  Section 1350,                   As
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 32.2 | Certification
by Chief Financial  Officer  Pursuant to 18 U.S.C.  Section 1350,                   As
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

22

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# SIGNATURES

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

| |  | DEFENSE INDUSTRIES INTERNATIONAL, INC.(Registrant)
By: /s/ Joseph Postbinder
Joseph PostbinderChief Executive Officer
| |  | -----------------------------------------------------------------------------------------------------------------------------------

| |  | By: /s/ Tsippy Moldovan 
Tsippy MoldovanChief Accounting and Financial Officer
| |  | --------------------------------------------------------------------------------------------

Date: January 16, 2008

23

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