SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   FORM 10-KSB
(Mark One)
                  [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                            For the fiscal year ended
                               December 31, 2001`
   OR
                [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
                  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
                        For the transition period from to
                        Commission file number: 333-39254

                              EXPORT EREZ USA, INC.
               --------------------------------------------------
              (Exact name of small business issuer in its charter)

           Delaware                                  52-2237043
 ------------------------------             ------------------------------
(State or other jurisdiction of                   (I.R.S. Employer
incorporation or organization)                    Identification No.)

                              Industrial Zone Erez
                                  P.O. Box 779
                             Ashkelon, Israel 78101
               ---------------------------------------------------
               (Address of principal executive offices) (zip code)


                  Issuer's Telephone Number: 011 972 7 689 1611

      Securities registered under Section 12(g) of the Exchange Act: Common
                       Stock, $.0001 par value per share

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the last 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 [ ]

The issuer became subject to the filing  requirements of the Securities Exchange
Act in February, 2000 with the effectiveness of its registration statement filed
under the Securities Act of 1933, as amended. Check if there is no disclosure of
delinquent  filers in response to Item 405 of Regulation S-B is not contained in
this form,  and no  disclosure  will be contained,  to the best of  registrant's
knowledge,  in  definitive  proxy  or  information  statements  incorporated  by
reference in Part III of this Form 10-KSB or any  amendment to this Form 10-KSB.
[ ]


State issuer's revenues for its most recent fiscal
year.
$ 8,941,013

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates  computed by reference to the price at which the common equity
was sold,  or the average bid and asked  price of such  common  equity,  as of a
specified date within the past 60 days. $164

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.

                           Class
Outstanding at December 31, 2001
--------------------------------
            Common Stock, par value $0.0001

13,157,900
Documents incorporated by reference: None PART I


                                      -1-
<PAGE>


Item 1. Description of Business

Operations

     Export  Erez USA,  Inc. is a holding  company  whose  subsidiaries  include
Export Erez, Ltd., Mayotex, Ltd., Dragonwear Trading Ltd. and Achidatex Nazareth
Elite Ltd ("Achidatex").

     Export Erez Ltd.  was formed and  registered  on January 23, 1983 under the
name R.T.V.  Ltd. as a limited shares  company under the Companies  Ordinance of
the State of Israel and changed its name to Export Erez Ltd. on April 25,  1987.
Export Erez Ltd. primarily  designs,  produces and markets personal military and
civilian  protective  equipment and supplies  such as body armor,  bomb disposal
suits,  bulletproof vests, and associated heavy fabric products,  such as battle
pouch and combat harness units, tents and other camping equipment.

     Mayotex  Ltd.  was  formed  and  registered  on March 7,  1990 as a limited
liability company under the Companies Ordinance of the State of Israel.  Mayotex
is engaged in  weaving,  improving,  processing,  dyeing,  cutting and sewing of
fabric to make the heavy-duty and sometimes  bulletproof  fabrics used by Export
Erez Ltd. to manufacture its finished products and goods.

     Export  Erez Ltd's  wholly  owned  subsidiary  Dragonwear  Trading  Ltd was
incorporated  in Cyprus in October  2000.  Dragonwear  is involved  with trading
textile products.

     On June 12, 2001,  Export Erez USA,  Inc.  acquired 76% of the  outstanding
shares of  Achidatex  in exchange  for the issuance of shares of common stock of
Export Erez USA  aggregating  657,900  common shares which  represents 5% of its
then  outstanding  shares of common stock.  The acquisition was effected on June
18, 2001. As part of the acquisition,  all patents  connected with Achidatex and
held by its  shareholders  or anyone on their behalf were  transferred to Export
Erez.  Prior to the acquisition,  Achidatex was Export Erez U.S.A.,  Inc.'s main
competitor.  Achidatex is a leading  manufacturer/producer of ballistic shields,
long term storage systems, liquid logistic products,  combat flak jackets, tents
and other personal military and civilian protective equipment and supplies.

Events Subsequent to December 31, 2001.
---------------------------------------

     On March 25, 2002, Export Erez USA, and the stockholders of the Export Erez
entered into a Share Exchange Agreement with Pawnbrokers  Exchange,  Inc. a Utah
corporation  ("Pawnbrokers"),  pursuant to which Pawnbrokers acquired all of the
outstanding  securities of Export Erez USA, and the  stockholders of Export Erez
USA became the controlling stockholders of Pawnbrokers, owning approximately 84%
of its post-Share Exchange Agreement outstanding voting securities.


                                      -2-
<PAGE>


Products

     Export Erez USA's products are designed for four major markets.

     The  major  product  group is aimed at the  international  military/defense
market.  Export Erez USA's  military  products  include body armor,  bulletproof
clothing and combat vests, bomb disposal suits,  battle pouch and combat harness
units,  flak jackets,  dust  protectors,  padded coats,  sleeping bags,  weapons
straps and belts, dry storage units, liquid logistics, tents and vehicle covers.
Products under development  include ballistic  helmets,  stab-resistant  fabric,
ceramic ballistic plates and one-way protective windows.

     The second  product  group is aimed at the civilian  market,  including law
enforcement,  border patrol enforcement, prison forces, special security forces,
corporations,  non-governmental  organizations and individuals worldwide. Export
Erez USA's civilian  market  products  include  adaptations of Export Erez USA's
military  products,  heavy duty clothing and other types of sporting and camping
equipment and clothing including tents and sleeping bags.

     The third  product  group is aimed at the  industrial  market and  includes
special industrial fabrics and cloth tapes.

     The  fourth  product  group is aimed at animal  owners,  and  includes  dog
collars and leashes, items for horses and riders and protective equipment.

                                      -3-
<PAGE>


     The following  table details  Export Erez USA's current  product line,  its
current and future target markets and geographic areas.

<TABLE>
<CAPTION>

                                       Present                                             Future
                                       -------                                             ------


Product description
                         Target market        Geographical area      Target market                  Geographical area
                         -------------        -----------------      -------------                  -----------------

<S>                      <C>                    <C>                 <C>                              <C>
Dust protectors
and various covers ...   Military               International       Military, civilian               International

Padded coats .........   Military               International       Military, civilian               International

Range of protective
vests and flak jackets   Military               International       Military, civilian               International

Cooling jackets ......   Military               International       Military                         International

Range of overalls ....   Military               International       Military, civilian, industrial   International

Vests ................   Military               International       Military, civilian               International

Sleeping bags ........   Military               International       Military, civilian               International

Carriers for
grenade launchers ....   Military               International       Military                         International


Individual bags
and totes ............   Military               International       Military, civilian               International

Tents ................   Military               International       Military, civilian               International

Camp beds ............   Military               International       Military, civilian               International

Personal belts
and weapon straps ....   Military               International       Military, industrial             International

Woven fabrics:
canvas, corduroy, ....   Military, civilian,
nylon ................   industrial             International       Military, civilian, industrial   International

Range of tapes .......   Military, industrial   International       Military, civilian, industrial   International

Bags for riders ......   Civilian - animals     International       Civilian                         International

Horse blankets
and saddles ..........   Civilian - animals     International       Civilian                         International

Collars, harnesses
and leads ............   Civilian - animals     International       Civilian                         International

Protective
vests for riders .....   Civilian - animals     International       Civilian                         International

Leg protectors .......   Civilian - animals     International       Civilian                         International

long term storage ....   Military, industria    International       Military,industria               International
 systems

car covering .........   Civilian               International      Civilian                          nternational
 branch

</TABLE>

                                      -4-
<PAGE>


     Export Erez USA is  currently  developing  new  products  for  military and
civilian markets,  including ballistic helmets,  stab-resistant  fabric, ceramic
ballistic  plates  and  one-way  protective  windows.  Export  Erez  USA is also
developing a new  generation of complex  products for  protective  vests used by
security forces and armies all over the world,  using purchased  materials.  The
vests will offer a very high level of protection with minimum weight and maximum
flexibility.

Customers

     Export Erez USA has customers  throughout the world including in the United
States of America, Israel, several other countries in the Mediterranean, Europe,
Latin America Africa and Asia.

     Export Erez USA's customers can be divided into four main groups:

     -Military  Defense and  Security  Forces in need of personal  military  and
protective equipment such as body armor, bomb disposal suits, bullet proof vests
and  jackets,  ballistic  helmets and plates,  battle  pouch and combat  harness
units,  backpacks,  dry storage  systems,  liquid logistics  systems,  clothing,
tents,  vehicle  covers and sleeping  bags.  These types of equipment  must meet
developed "human engineering" requirements, providing comfort as well as maximum
protection,  preventing  penetration by bullets and knives,  protection  against
fire, collisions and other hazards.

     -Civilian Defense Customers,  including members of civilian security forces
such as law enforcement,  private  security firms,  airport  security,  personal
bodyguards,  and event security guards.  The requirements of these customers for
protective  equipment  are  similar to those of military  defense  and  security
forces.  However,  since their work is mainly in a civilian  environment,  it is
also important to pay attention to esthetic appearance, with protective features
made as unobtrusive as possible.

     -Civilian Customers, which includes campers and hikers of all ages who need
equipment  such as sleeping bags,  tents,  backpacks,  and clothing  adapted for
specific  needs such as  mountain  climbing,  hiking and camping in all types of
climates.  This  customer  group  also  includes  those  civilians  in  need  of
automobile covers for cars, trucks, buses and other large vehicles.

     -Animal  Sports  Fans and  Animal  Owners.  Export  Erez USA  divides  this
category into two groups: individual pet owners, for whom animal accessories are
supplied at three price  levels and  qualities;  and animal sport groups who buy
equipment for specific  animal  sports.  In the case of horse riding  equipment,
"human  engineering"  is very important to ensure maximum comfort for the animal
and the rider.

                                      -5-
<PAGE>



Marketing

     Export Erez USA has  developed a marketing  strategy  designed to penetrate
various  markets by complying with  stringent  quality  standards  instituted in
targeted countries.

     Below are some of the steps Export Erez USA is taking in order to penetrate
different markets with its next generation of products:

     -Locating domestic entities to market its products.

     -Initiating contacts with chambers of commerce in international embassies.

     -Actively  participating  in tenders and bids for  contracts  in  military,
police and  civilian  markets  worldwide.  Export  Erez USA is  negotiating  for
contract bids with the  governments  of Germany,  Turkey,  Argentina,  Chile and
Brazil and the United Nations.

     -Actively participating in international exhibitions of military and police
security equipment.  Export Erez USA recently  participated in Milipol in Paris,
and Fidae in Chile and  exhibited at the IFSEC 2000  security show in the United
Kingdom.

     -Advertising  on the  Internet:  Export Erez USA is investing  resources in
developing  this area of e-commerce,  expanding to new countries and finding new
contacts in areas relating to its activities.

     -Advertising in professional publications appearing annually.

     -Appearing  in  international  databases,  such  as BDI  (Kompass)  various
"yellow pages" directories, Dun & Bradstreet, and other directories.

     -Distributing   brochures  describing  Export  Erez  USA's  procedures  and
products.

     Export Erez USA has  divided  its  marketing  division  into the  following
sections:

     -One section specializing in locating and submitting government bids

     -One section specializing in the civilian sector.

     The export  marketing  division  operated by Export Erez USA  consists of a
marketing  manager who operates on a  self-employed  basis and manages a team of
employees.  This marketing team carries out market surveys, market segmentation,
and  seeks  out  new  markets  for  the  products,   and  new  engagements  with
international  chambers of commerce.  The marketing team earns  commissions that
are determined in advance, according to the scope and nature of the deal.

     The  civilian  market  is  handled  by two  offices,  each  dealing  with a
different geographical region and a different basket of products.

                                      -6-
<PAGE>



Major Competitors

     Export  Erez  Ltd.'s  share of the Israeli  defense  market for  applicable
products in 2001 was approximately 45% of a total market of $10,000,000.  Export
Erez USA has two major competitors: Rabintex with approximately 20%. Export Erez
Ltd.'s share of the Israeli civilian market for applicable products in 2001- was
approximately  9%of a total market of  $25,000,000  with 41% controlled by other
Israeli  companies and 50% made up by imported  goods.  Internationally,  Export
Erez Ltd.'s  competitors in the defense  market include  companies such as Point
Blank,  Safari  Land of Ontario,  California  and A.B.A.  in the United  States,
L.B.A. in England,  Indigo in Spain,  Systema Compositi in Italy,  Hellenic Arms
Industries  in  Greece  and  Barman  in  Sweden.  In each  case,  the  competing
manufacturers  specialize  in a more limited  product line than does Export Erez
USA.

     In the  civilian  market,  Export  Erez USA is aware  of  approximately  20
companies  manufacturing  similar products. A number of major manufacturers with
resources and  reputations  larger than those of Export Erez USA compete for the
same market. Export Erez USA intends to market its products over the Internet as
well as through a network of distributors.

Inventory

     Export  Erez  USA  keeps  low  inventories  for  most of its  products  and
components,  except for  straps,  which are used in a wide range of Export  Erez
USA's products.  Inventory usually is held after production for an average of 54
days.  Inventory normally accounts for approximately 17-20% of Export Erez USA's
total assets.

Raw Materials

     Export Erez USA's products  include raw materials such as fabric  purchased
in Israel and abroad, specialized composite materials such as Kevlar produced by
Dupont Ltd.,  Twaron produced by Akzo Ltd.,  Dyneema produced by D.S.M. Ltd. and
Spectra and Gold Flex produced by  Allied-Signal.  Other  specialized  materials
include  specialized glass mixed with  polycarbonate and various resins.  Export
Erez USA obtains its  supplies by  purchasing  on the basis of an open letter of
credit,  by  specialized  documentary  credit,  or in the case of suppliers that
Export Erez USA has dealt with for years, on open account.  Management  believes
that its  suppliers  are stable,  and it foresees no problems or disruption in a
steady supply of materials.  A disruption to its supply of materials  could have
an adverse impact on Export Erez USA.

Seasonality

     Sales of Export Erez USA's  military  and  security  clothing  products and
industrial  products  are not  seasonal  in nature.  Sales of Export  Erez USA's
camping  equipment and clothing may experience  slight  increases during certain
seasons.

Patents and trademarks

     Pursuant to the acquisition of Achidatex,  Export Erez USA acquired several
patents  respecting  ballistic  wall  covering,  dry  storage  systems  and mine
protective shoes.

                                      -7-
<PAGE>


Regulation

     The  operations  of Export Erez USA are subject to extensive  regulation by
United  States and  Israeli  authorities  and are  subject  to various  laws and
judicial and administrative  decisions imposing requirements and restrictions on
part or all of its operations.

     The following are among the rules and procedures all companies must follow
in order to participate in Ministry of Defense and other government bids in
Israel:

     The bidder must be  registered  as a recognized  supplier.  The bidder must
     have government certification and is authorized to participate in bids only
     up to the limit of its approved security classification.  National Priority
     Area and local  product:  goods  produced in Israel are given priority over
     foreign bidders according to Israeli bid regulations. The bidder must offer
     an  attractive  price.  The bidder must keep to  contractual  schedules and
     milestones.  The  goods  must  pass  final  quality  control  tests  before
     delivery.

Every bid is different,  and different  documents may be required.  There are no
special taxes on bids apart from the Israeli value added tax ("VAT").

     Because Export Erez USA's business is highly regulated, the laws, rules and
regulations  applicable  to Export Erez USA are subject to regular  modification
and change and future laws, rules or regulations may be adopted which could make
compliance  much more difficult or expensive or otherwise  adversely  affect the
business or prospects of Export Erez USA.

Employees

     Export Erez USA, including its subsidiaries Export Erez Ltd., Mayotex Ltd.,
Dragonwear  Ltd. and  Achidatex,  has  approximately  200  full-time  employees,
including  its  executive  officers.  Export Erez USA does not have a collective
bargaining agreement with its employees and is not aware of any labor disputes.

Item 2. Description of Property

     Export  Erez  USA's  executive  offices,   manufacturing,   production  and
distribution facilities encompass two buildings in the Erez Industrial Area. One
building,  owned by Joseph  Postbinder,  is leased to Export Erez USA for $7,119
per month for 2,500  square  meters.  The second  building is owned  directly by
Export Erez USA and is  unencumbered by any mortgage or debt, and contains 1,400
square meters of usable space. Export Erez USA also has a factory in the Netivot
Industrial  Area,  which is leased for  $1,000 per month for 380 square  meters.
Achidatex leases three buildings, two of which are located in Industrial Area of
Nazeret  and are6000  square  meters and 1500 square  meters  respectively,  and
executive offices located in Petah-Tikva which encompass 380 square meters.

Item 3. Legal Proceedings

1.   The Company was sued for NIS 2 million by a former  employee of  Achidatex,
     who claimed payments of commissions plus withholding  differentials linkage
     and interest. The Company filed a counter-claim against the employee, for a
     declaratory  verdict of breach of  employment  contract.  The Company  also
     filed a claim  against  the same  employee in the amount of NIS 550,000 for
     breach of trust.  In January 2002 the company  reached a settlement  out of
     court with the employee  amounting to $45,520 which was included in accrued
     expenses at December 31, 2001.

                                      -8-
<PAGE>


2.   The Company received grants in the past from the Fund for Encouragement of
     Foreign  Sales at the  Ministry  of Industry  and Trade.  The Company is
     required  to pay  royalties  of 3% from the  additional  export  each  year
     compared  with the  calendar  year in which  its  plan was  submitted.  The
     balance of the grants  received less the royalties  paid at December 31,
     2001 is $54,721.

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

     No  matter  was  submitted  to a vote  of  security  holders,  through  the
solicitation  of proxies or otherwise,  during the fourth  quarter of the fiscal
year covered by this report.

                                     PART II

Item 5. Market for Common Equity and Related Stockholder Matters

     The total  number of  authorized  shares of stock of Export Erez USA is one
hundred million  (100,000,000) shares of common stock with a par value of $.0001
per share of which  13,157,900  shares are outstanding  held by approximately 74
shareholders and twenty million (20,000,000) shares of non-designated  preferred
shares  with a par value of $.0001  per share of which none are  designated  and
outstanding. The board of directors is authorized to issue additional shares, on
the terms and conditions and for the consideration as the board of directors may
deem appropriate without further stockholder action.

     Export  Erez USA  presently  does not intend to pay cash  dividends  on its
common stock in the foreseeable future and intends to retain future earnings, if
any,  to finance the  expansion  and  development  of its  business.  Any future
decision of Export Erez USA's board of directors to pay  dividends  will be made
in light of Export Erez USA's earnings, financial position, capital requirements
and other relevant factors then existing.

     There is currently no trading market for the securities of Export Erez USA.

  Item 6. Management's Discussion and Analysis or Plan of Operation

  Overview

     Export Erez USA's strategic  objective is to be the leading global provider
of personal military and civilian protective equipment and supplies. The Company
intends to realize its strategic objective through the following:

     -Pursue Strategic  Acquisitions:  The Company intends to selectively pursue
acquisitions that enhance its product lines and geographic presence in an effort
to consolidate its highly  fragmented  industry and to create a more diverse and
global reach for the Company in its marketplace.

     -Focus  on  Internal  Growth:  The  Company  intends  to focus on  internal
expansion of its existing businesses,  thereby placing it in a position to offer
an  even  more  comprehensive  portfolio  of  products  to  satisfy  all  of its
customers' protective equipment needs.

                                      -9-
<PAGE>


     -Capitalize On Increased  Demand For Company  Products.  As a result of the
terrorist  attacks on September  11, 2001,  an increased  emphasis on safety and
protection now exists worldwide.  This has translated into increased spending on
personal military and civilian  protective  equipment and supplies.  The Company
expects a continued increase in volume for its current major government programs
and expects to participate in other existing and future government programs that
require the Company's products. The Company also expects a continued increase in
sales to the growing civilian market for its products.

     -Expand  Marketing  Efforts:  In the  wake  of  the  terrorist  attacks  of
September  11, 2001, a greater  global  recognition  regarding  the need for the
Company's  products has materialized.  The Company intends to capitalize on this
increased  interest in its products by broadening  its  marketing  efforts in an
attempt to create a better  global  awareness  of the Company  and its  superior
products.

     -Expand Distribution Network and Product Offerings:  The Company intends to
widen  its  distribution   network  through   strategic   acquisitions  and  the
development of new products.  The Company  believes that a broader  product line
will enable the Company to strengthen its relationship  with existing  customers
and attract new customers at the same time.


Results and Plan of Operations

     During 1999,  bulletproof  vests  developed by Export Erez USA were sent to
laboratories  in the United States for testing,  and  following  the tests,  the
products were deemed to have met the American  N.I.G.  standard . Obtaining this
standard  has  enabled  Export  Erez USA to enter the  American  market with its
products, and to encourage development of other markets.

     During 2001,  ballistic  ceramic  boards  developed by Export Erez USA were
sent to  laboratories in the Germany for testing,  and following the tests,  the
products were deemed to have met the German  qualification  standard . Obtaining
this  standard  has  enabled  Export  Erez USA to enter the German and  European
markets with these products.

     During  1999,  Export Erez USA  enlarged  its Internet Web site in order to
participate in the worldwide trend towards more electronic  trade.  The web site
is located at www.exporterez.co.il.

     Expanding its product range requires  Export Erez USA to make  considerable
investments in research and development,  and penetrating markets outside Israel
also involves  heavy  expenses.  Export Erez USA intends to further  develop the
following  products between 2002 and 2003:  anti-stab cloth,  ballistic helmets,
ballistic ceramic plates, one-way protective windows Kevlar fabric, dry storage,
ballistic  wall  coverings,  fuel pillow type storage tanks and mine  protective
shoes.

     Export Erez USA intends to spend funds, when and if available,  if ever, on
commencing  production  and  marketing of new  products,  construction  of a new
equipment and upgrading its existing equipment.

     Export Erez USA intends to apply for listing on the NASD OTC Bulletin Board
or for quotation of its  securities on the Nasdaq Small Cap Market.  Export Erez
USA anticipates that it will offer additional  shares of its common stock to the
public with a view toward raising additional capital with which to effect its


                                      -10-
<PAGE>


development  plans.  Management also believes that if Export Erez USA is able to
establish  a public  trading  market  on the NASD OTC  Bulletin  Board or Nasdaq
SmallCap  Market it will  increase  Export  ErezUSA's  visibility  to government
authorities and additional potential civilian customers.

     In March 1999, Export Erez USA signed a limited partnership  agreement with
Orlite  Ltd.,  a public  company  whose  stock is traded  on the Tel Aviv  stock
exchange,  for the production of ballistic  helmets for export from Israel.  The
partnership  operated  throughout  1999 on a limited  basis  only,  because  the
approval  required  from the Business  Restrictions  Authority  has not yet been
given. The partners decided to terminate the partnership.  Export Erez purchased
all of the equipment from the partnership and intends to  independently  produce
the ballistic helmets.

     On June 12, 2001,  Export Erez USA,  Inc.  entered  into an agreement  with
Achidatex and the  shareholders  of Achidatex for the  acquisition of 76% of the
outstanding shares of Achidatex in exchange for the issuance of shares of common
stock of Export Erez USA aggregating  657,900 common shares which  represents 5%
of its then outstanding  shares of common stock. The acquisition was effected on
June 18, 2001. As part of the acquisition,  all patents connected with Achidatex
and held by its  shareholders  or anyone on their  behalf  were  transferred  to
Export Erez. Achidatex is the  manufacturer/producer  of ballistic shields, long
term storage systems, combat flak jackets and tents.


The Year Ended December 31, 2001 compared to the Year Ended December 31, 2000

     In 2001,  revenues were  $8,941,013,  as compared to $4,490,961 in 2000. In
2001,  the  cost of  sales  and  processing  were  $6,230,974,  as  compared  to
$2,856,626  in  2000.  In  2001,  general  and   administrative   expenses  were
$1,188,041,  as  compared  to  $602,606  in 2000.  In  2001,  gross  profit  was
$2,710,039, as compared to $1,634,335 in 2000.

     Most company  sales are the result of winning  tenders in both the domestic
market and the world market.  The tenders are obtained  through agents which the
company operates in the local and overseas market.

     Selling expenses for 2001 were $341,536, as compared to $328,012 in 2000.

     In 2001, financial expenses, net were $154,117, as compared to increased to
$113,027 in 2000.

     In 2001,  net cash  provided  by  operating  activities  was  $923,836,  as
compared to $357,739 in 2000.

     In  2001,  net  cash  provided  by  (used  in)  investing   activities  was
($478,576), as compared to $938,374 in 2000.

     In  2001,  net  cash  (used  in)  provided  by  financing   activities  was
$(259,320), as compared to $(1,333,604) in 2000.

                                      -11-
<PAGE>


Cash and cash  equivalents  at December 31, 2001 were  $781,996,  as compared to
cash and cash equivalents at December 31, 2000 of $663,295.

Open Orders

     Unfulfilled  open orders at December  31, 2001 totaled  $3,000,000  and are
scheduled for filling within the four months.

Liquidity and Capital Resources

     Export Erez USA's  current  activities  are financed by short and long term
bank loans balanced by short term deposits. The decision regarding the amount of
the short term loans was derived from considerations of the yield on the deposit
which is generally in foreign currency (receipts from overseas sales),  compared
to the cost of short term loans.  Export Erez USA has positive  working  capital
(current  assets  less  current  liabilities).  Long  term  loans  derived  from
aquisition of Achidatex their due spread over five years

     In the years 2001 and 2002,  Export  Erez USA  anticipates  increasing  its
research  and  development  of certain  items,  primarily ,  ballistic  helmets,
stab-resistant  fabric, ceramic ballistic plates and one-way protective windows.
Export Erez  anticipates  total research and  development  expenses for 2002 and
2003at  approximately  $1,950,000  and  $750,000  respectively.  Export Erez USA
anticipates  that in the year 2003 research and development  expenses would drop
to approximately $350,000.

     The development of these products will be with staff engineers. Export Erez
USA work in development of the ballistic  helmets.  Export Erez USA  anticipates
that these  products will be  approximately  in 20%  production in the year 2002
increasing to full production by the year 2005.  Export Erez anticipates that in
order to fund the research and development for these products,  it may effect an
offering  of its  equity  securities.  If  Export  Erez is  unable  to effect an
offering of its securities, it may fund its research and development through its
operating  funds.  In such event,  the timing of its  anticipated  research  and
development and subsequent production schedule would be slowed.

Item 7. Financial Statements

     The  financial  statements  as of December  31, 2001 and 2000 for the years
     then ended are attached to this filing.

Item 8.  Changes  in  and  Disagreements  with  Accountants  on  Accounting  and
     Financial Disclosure: NONE


                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act

                                      -12-
<PAGE>


Officers and Directors

     The  following  table sets forth certain  information  with respect to Erez
USA's directors, executive officers and key consultants:

Name                           Position

Joseph Postbinder     Chairman, President and Director

Meira Postbinder      Vice President of Financing, Secretary,
                      Treasurer and Director

Dan Zarchin           Vice President of Marketing and International Business
                      Development and Director

Tsippy Moldovan       Deputy Managing Director of Finance and Director

Shlomo M. Lev-Yehudi  Director

     All directors hold office until the next annual meeting of stockholders and
until their  successors are elected.  Officers are elected to serve,  subject to
the discretion of the board of directors,  until their successors are appointed.
Directors do not receive cash compensation for their services to Export Erez USA
as directors,  but are reimbursed for expenses  actually  incurred in connection
with attending meetings of the board of directors.

     Joseph  Postbinder,  53, Chairman,  president and a director of Export Erez
USA and Chief Executive Officer of Export Erez Ltd. and Mayotex, has a technical
background  in fine  mechanics.  He has been in charge of Export  Erez  since he
founded Export Erez USA in 1983. He is the husband of Meira Postbinder.

     Meira Postbinder,  54, manages the financing  division and is a director of
Export Erez USA and Export Erez Ltd. which  positions she has held for more than
the last five years. She is the wife of Joseph Postbinder.

     Dan  Zarchin,   52,  Manager  of  Marketing  and   International   Business
Development  and a director of Export Erez USA, is a textile  engineer.  He is a
consultant  to  Export  Erez  USA  and  has  been  doing   business  as  Zarchin
Consultants,  Tel-Aviv, Israel, since 1981. Previously, he was Marketing Manager
for Kibbutz  Noam-Urim,  Israel.  The kibbutz's products included textile goods.
Mr.Zarchin  received a Bachelor of Arts degree in Textile  Engineering  from the
College of Textile Science in Philadelphia,  Pennsylvania  1973 and a Masters of
Business Administration from Tel-Aviv University, Tel-Aviv, Israel, in 1979.

     Tsippy  Moldovan,  45, is the Deputy  Managing  Director  of Finance  and a
director  for  Export  Erez USA and has been the  Deputy  Managing  Director  of
Finance  of Export  Erez  Ltd.  for the past 12 years.  Mrs.  Moldovan  attended
Buchnich  Accounting  School in Ashkelon,  Israel,  and completed course work in
economics and management accounting from the Mishlav School, Tel Aviv,Israel.

     Shlomo M.  Lev-Yehudi,  73,  has been a director  of Export  Erez USA since
April 2000. Mr.  Lev-Yehudi has been a certified public  accountant in Tel-Aviv,
Israel since 1957, and was Export Erez USA's accountant from 1987 until 1997.

     Employment Agreements

     Export Erez USA has not entered into any employment agreements with its


                                      -13-
<PAGE>


executive  officers  or  other  employees  to  date.  Erez  USA may  enter  into
employment agreements with them in the future.

Item 10. Executive Compensation

     No officer or director received compensation from Export Erez USA in excess
of US$100,000 in 2001.



                           SUMMARY COMPENSATION TABLE

        Name and Principal Position Year Salary
                                         2001              2000

        Joseph Postbinder        $     39,747        $   79,303


Item 11. Security Ownership of Certain Beneficial Owners and Management

     The following  table sets forth, as of December 31, 2001, each person known
by the  Company  to be the  beneficial  owner  of  five  percent  or more of the
Company's common stock and the directors and officers of the Company.  Except as
noted,  the holder thereof has sole voting and investment  power with respect to
the shares shown.


Name, Position and Address   Shares of common stock      Percentage of Shares)
                             Beneficially Owned (1)
                               Of Class Owned (2)

Joseph Postbinder                       11,490,212(3)               87%
Chairman, President and
Director
36 Htziunut Street
Gani Barnea Ashkelon, Israel 78741

Meira Postbinder                             9,788(3)                 *
Vice President of Financing
Secretary, Treasurer, and Director
36 Htziunut Street
Gani Barnea Ashkelon, Israel 78741

Dan Zarchin(4)                               5,000                    *
Vice President of Marketing
Director
16 Hannahal Street
Raanana, Israel

Tsippy Moldovan                             10,000                    *
Managing Director of Finance
Director
34 Hazionut Street
Ashkelon, Israel

                                      -14-
<PAGE>


Shlomo M. Lev- Yehudi                            0                    0
Director
1 Klee Street
Tel-Aviv 62336, Israel

All officers and directors
as a whole (4 persons)                  11,515,000                  88%
*       Less than 1% percent

(1)  Based upon 13,157,900 shares outstanding.
(2)  Does not include 250,000 shares which may be issued upon exercise of
     warrants.
(3)  Meira Postbinder is the spouse of Joseph Postbinder.

                                      -15-
<PAGE>


Item 12. Certain Relationships and Related Transactions

     Export Erez USA leases a building, owned by Joseph Postbinder, president
and a director of Export Erez USA, for $7,119 per month for 2,500 square meters.
The terms of the lease were not the result of an arms' length transaction.


Item 13. Exhibits and Reports on Form 8-K
         (a) Exhibits

         (b) No Form 8-K was filed with the Securities and Exchange Commission
during the last quarter of the year covered by this report.




                                   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.


                            EXPORT EREZ USA, INC.


                            By: /s/Joseph Postbinder
                               ----------------------
                                   Joseph Postbinder
                                   President

          Dated: April 15, 2002

                        In accordance with the Exchange Act of 1934, this report
          has been signed below by the following persons on behalf of
          theregistrant and in the capacities and on the dates indicated.


          NAME                            OFFICE                   DATE
          ----                            ------                   ----



   By: /s/Joseph Postbiner       Chairman, President           April 15, 2002
      -----------------------    and a Director
          Joseph Postbinder


  By: /s/Meira Postbinder        Vice President of Financing   April 15, 2002
      ----------------------     and a Director
         Meira Postbinder


  By: /s/Shlomo M. Lev-Yehudi    Director                      April 15, 2002
      -----------------------
         Shlomo M. Lev-Yehudi


  By: /s/Tsippy Moldovan         Director                      April 15, 2002
      -----------------------
         Tsippy Moldovan


  By: /s/Dan Zarchin             Director                      April 15, 2002
      -----------------------
         Dan Zarchin


                                      -16-
<PAGE>


                    EXPORT EREZ USA, INC. AND SUBSIDIARIES
                      CONSOLIDATED FINANCIAL STATEMENTS
                       AS OF DECEMBER 31, 2001 AND 2000




<PAGE>





                    EXPORT EREZ USA, INC. AND SUBSIDIARIES



                                   CONTENTS
                                   --------


PAGE          1      INDEPENDENT AUDITORS' REPORT

PAGES       2 - 3    CONSOLIDATED  BALANCE  SHEETS AS OF DECEMBER  31, 2001 AND
                     2000

PAGE          4      CONSOLIDATED   STATEMENTS  OF  INCOME  AND   COMPREHENSIVE
                     INCOME  (LOSS) FOR THE YEARS ENDED  DECEMBER  31, 2001 AND
                     2000

PAGE          5      CONSOLIDATED   STATEMENTS  OF  CHANGES  IN   SHAREHOLDERS'
                     EQUITY FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000

PAGE          6      CONSOLIDATED  STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
                     DECEMBER 31, 2001 AND 2000

PAGES       7 - 25   NOTES TO CONSOLIDATED  FINANCIAL STATEMENTS AS OF DECEMBER
                     31, 2001 AND 2000




<PAGE>




                         INDEPENDENT AUDITORS' REPORT



To the Board of Directors of:
 Export Erez USA, Inc. and Subsidiaries

We have audited the  accompanying  consolidated  balance sheets of Export Erez
USA,  Inc. and  Subsidiaries  as of December 31, 2001 and 2000 and the related
consolidated  statements of income and comprehensive income (loss), changes in
shareholders'   equity  and  cash  flows  for  the  years  then  ended.  These
consolidated  financial  statements  are the  responsibility  of the Company's
management.   Our   responsibility   is  to   express   an  opinion  on  these
consolidated financial statements based on our audits.

We  conducted  our audits in  accordance  with  auditing  standards  generally
accepted in the United  States of America.  Those  standards  require  that we
plan and perform the audits to obtain  reasonable  assurance about whether the
consolidated  financial  statements  are free of  material  misstatements.  An
audit includes  examining,  on a test basis,  evidence  supporting the amounts
and  disclosures  in the  consolidated  financial  statements.  An audit  also
includes  assessing the accounting  principles used and significant  estimates
made by  management,  as well as evaluating  the overall  financial  statement
presentation.  We believe that our audits  provide a reasonable  basis for our
opinion.

In our  opinion,  the  consolidated  financial  statements  referred to above,
present fairly,  in all material  respects,  the financial  position of Export
Erez USA,  Inc.  and  Subsidiaries  as of  December  31, 2001 and 2000 and the
results of their  operations and their cash flows for the years then ended, in
conformity with accounting  principles generally accepted in the United States
of America.




WEINBERG & COMPANY, P.A.



Boca Raton, Florida
April 8, 2002





                                      -1-
<PAGE>

                   EXPORT EREZ USA, INC. AND SUBSIDIARIES
                         CONSOLIDATED BALANCE SHEETS
                          DECEMBER 31, 2001 AND 2000

<TABLE>
<CAPTION>


                                     ASSETS
                                                                  2001             2000
                                                         --------------   --------------
<S>                                                         <C>                <C>
CURRENT ASSETS
 Cash and cash equivalents                             $      781,996   $      663,295
 Trade accounts receivable, net                             2,461,671          901,382
 Trade accounts receivable - related parties, net             181,059            6,049
 Other receivables and debit balances                         274,840           37,228
 Inventories                                                1,956,072          892,466
 Deferred taxes                                                97,761           33,077
                                                         --------------   --------------

     Total current assets                                   5,753,399        2,533,497
                                                         --------------   --------------


PROPERTY, PLANT AND EQUIPMENT, NET                          2,023,200          404,751
                                                         --------------   --------------

OTHER ASSETS
 Investment in marketable securities                          616,105          795,074
 Deposits for the severance of employer-employee
 relations                                                    472,421          261,095
 Deferred taxes, long-term                                    400,689           52,952
 Intangible assets                                             61,452           77,963
                                                         --------------   --------------
     Total OTHER ASSETS                                     1,550,667        1,187,084
                                                         --------------   --------------
Total assets                                           $    9,327,266   $    4,125,332
------------                                             ==============   ==============
</TABLE>





                                      -2-
<PAGE>

                     EXPORT EREZ USA, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2001 AND 2000

<TABLE>
<CAPTION>


                      LIABILITIES AND SHAREHOLDERS' EQUITY
                      ------------------------------------

                                                                  2001             2000
                                                              --------------   -------------
<S>                                                              <C>             <C>
CURRENT LIABILITIES
 Short-term bank credit                                     $      894,981   $     716,482
 Trade accounts payable                                          1,551,470       1,085,755
 Current portion of long-term debt                                 371,344            -
 Other accounts payable and credit balances                      1,011,062         277,966
                                                              --------------   -------------
     Total current liabilities                                   3,828,857       2,080,203
                                                              --------------   -------------

LONG-TERM LIABILITIES
 Long-term loans                                                 1,295,440          10,885
 Long-term loan - related party                                     47,432            -
 Provision for the severance of employer-employee relations        431,522         180,121
 Minority interest                                                 572,106            -
                                                              --------------   -------------
     TOTAL LONG-TERM LIABILITIES                                 2,346,500         191,006
                                                              --------------   -------------
     Total liabilities                                           6,175,357       2,271,209
                                                              --------------   -------------

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY
 Preferred stock, $.0001 par value, 20,000,000 shares
  authorized, none issued and outstanding                             -               -
 Common stock, $.0001 par value, 100,000,000 shares
  authorized, 13,157,900 and 12,500,000 issued and
  outstanding, respectively                                          1,316           1,250
 Additional paid-in capital                                      1,146,169         159,385
 Retained earnings                                               2,468,669       1,823,902
 Accumulated other comprehensive loss                             (464,245)       (130,414)
                                                              --------------   -------------
     Total shareholders' equity                                  3,151,909       1,854,123
                                                              --------------   -------------
Total liabilities and shareholders' equity                  $    9,327,266   $   4,125,332
------------------------------------------                    ==============   =============

</TABLE>



                                      -3-
<PAGE>



                     EXPORT EREZ USA, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF INCOME AND
                           COMPREHENSIVE INCOME (LOSS)
                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
                 ----------------------------------------------

<TABLE>
<CAPTION>

                                                                          2001           2000
                                                                      ------------   ------------
<S>                                                                 <C>            <C>
NET REVENUES                                                        $  8,941,013   $  4,490,961

COST OF SALES AND PROCESSING                                           6,230,974      2,856,626
                                                                      ------------   ------------
GROSS PROFIT                                                           2,710,039      1,634,335
                                                                      ------------   ------------

OPERATING EXPENSES
 Selling expenses                                                        341,536        328,012
 General and administrative expenses                                   1,188,041        602,606
                                                                      ------------   ------------
     Total Operating Expenses                                          1,529,577        930,618
                                                                      ------------   ------------

INCOME FROM OPERATIONS                                                 1,180,462        703,717
                                                                      ------------   ------------

OTHER INCOME (EXPENSE)
 Financial income (expense), net                                        (154,117)      (113,027)
 Other income                                                             59,692          5,607
                                                                      ------------   ------------
     Total Other Income (Expense)                                        (94,425)      (107,420)
                                                                      ------------   ------------

INCOME BEFORE INCOME TAXES                                             1,086,037        596,297

Less: income tax expense                                                 333,789        215,787
                                                                      ------------   ------------

Income before minority interest                                          752,248        380,510

Minority interest                                                         107,481         -
                                                                      ------------   ------------

NET INCOME                                                                644,767       380,510
                                                                      ------------   ------------

OTHER COMPREHENSIVE INCOME (LOSS)
 Foreign currency translation gain (loss), net of minority
  interest loss of $4,997 and $0, respectively                          (179,474)        40,852
 Unrealized loss on available-for-sale securities                       (149,360)      (156,069)
                                                                      ------------   ------------

 Other comprehensive loss before tax                                    (328,834)      (115,217)
 Income tax benefit related to items of other comprehensive
 income (loss)                                                            118,380        41,480
                                                                      ------------   ------------

  TOTAL OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX                   (210,454)       (73,737)
                                                                      ------------   ------------

COMPREHENSIVE INCOME                                                $     434,313  $    306,773
--------------------                                                  ============   ============

Net income per share - basic and diluted                            $        0.05  $       0.03
                                                                      ============   ============

Weighted average number of shares outstanding - basic and diluted      12,855,086    12,301,913
                                                                      ============   ============
</TABLE>



                                      -4-
<PAGE>



                     EXPORT EREZ USA, INC. AND SUBSIDIARIES
            CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
                 ----------------------------------------------

<TABLE>
<CAPTION>

                                            Common Stock           Additional      Retained       Accumulated
                                                                     Paid-In                         Other
                                                                     Capital                     Comprehensive
                                        Shares         Amount                      Earnings      Income (Loss)       Total
                                      ------------   -----------   ------------   ------------   --------------   ------------

<S>               <C> <C>             <C>          <C>           <C>            <C>            <C>              <C>
Balance, December 31, 1999            12,000,000   $     1,200   $      5,535   $  1,443,392   $      (15,197)  $  1,434,930

Issuance of common stock for
 services                                500,000            50        153,850           -                -           153,900

Foreign currency translation gain           -             -              -              -              40,852         40,852

Unrealized loss on available for
 sale securities                            -             -              -              -            (156,069)      (156,069)

Net income 2000                             -             -              -           380,510             -           380,510
                                      ------------   -----------   ------------   ------------   --------------   ------------

Balance, December 31, 2000            12,500,000         1,250        159,385      1,823,902         (130,414)     1,854,123

Issuance of common stock to
 acquire Achidatex Ltd.                  657,900            66        986,784           -                -           986,850

Foreign currency translation loss           -             -              -              -            (184,471)      (184,471)

Unrealized loss on available for
 sale securities                            -             -              -              -            (149,360)      (149,360)

Net income 2001                             -             -              -           644,767             -           644,767
                                      ------------   -----------   ------------   ------------   --------------   ------------
BALANCE, DECEMBER 31, 2001            13,157,900   $     1,316   $  1,146,169   $  2,468,669   $     (464,245)  $  3,151,909
--------------------------            ============   ===========   ============   ============   ==============   ============

</TABLE>



                                      -5-
<PAGE>



                     EXPORT EREZ USA, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
                 ----------------------------------------------

<TABLE>
<CAPTION>

                                                                        2001           2000
                                                                        ----           ----
<S>                                                                <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                                       $    644,767   $    380,510
  Adjustments to reconcile net income to net cash provided by
   operating activities:
  Depreciation and amortization                                         119,124         84,069
  Stock issued for services                                                -           153,900
  Decrease in provision for the severance of employer-employee
   relations                                                             10,752         32,956
  Deferred taxes                                                        288,733        (55,266)
  Minority interest in income of subsidiary                             107,480           -
  Gain from sale of investments in marketable securities                   -            (3,278)
  Gain from sale of fixed assets                                        (25,336)        (5,607)
  Decrease (increase) in trade accounts receivable                       29,590            667
  Decrease (increase) in other receivables and debit balances           214,296         65,769
  Decrease (increase) in deposits for employee severance                (10,911)          -
  Decrease (increase) in inventory                                      217,234       (180,570)
  Increase (decrease) in trade accounts payable                        (983,713)      (184,027)
  Increase (decrease) in other accounts payable and credit
  balances                                                              311,820         68,616
                                                                     ------------   ------------
      Net Cash Provided By Operating Activities                         923,836        357,739
                                                                     ------------   ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property and equipment                                  (108,129)       (83,130)
  Proceeds from sale of property and equipment                           51,206         17,233
  Cash acquired in acquisition of Achidatex                              39,147        (88,410)
  Advances related to acquisition                                        56,820          -
  Pre-acquisition loan to subsidiary                                   (480,000)          -
  Proceeds from sale of marketable securities                              -         1,424,264
  Purchases of marketable securities                                    (37,620)      (331,583)
                                                                     ------------   ------------
      Net Cash (Used In) Provided By Investing Activities              (478,576)       938,374
                                                                     ------------   ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Short-term bank credit, net                                        (1,899,604)    (1,344,393)
  Proceeds from long term debt                                        1,592,852         10,789
  Loan payable - related party                                           47,432           -
                                                                     ------------   ------------
      Net Cash Used In Financing Activities                            (259,320)    (1,333,604)
                                                                     ------------   ------------

EFFECT OF EXCHANGE RATES ON CASH                                        (67,239)        19,495
                                                                     ------------   ------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                    118,701        (17,996)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                          663,295        681,291
                                                                     ------------   ------------

CASH AND CASH EQUIVALENTS AT END OF YEAR                           $    781,996   $    663,295
----------------------------------------                             ============   ============

INTEREST PAID                                                      $       -      $    145,047
                                                                     ============   ============

TAXES PAID                                                         $       -      $    234,656
                                                                     ============   ============

</TABLE>



SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:
---------------------------------------------------------

On June 8, 2001,  the Company issued 657,900 shares of common stock to acquire
Achidatex  Nazareth  Elite (1977) Ltd. The Company  acquired  assets  totaling
approximately $6,240,000 and assumed liabilities of approximately $5,250,000.



                                      -6-
<PAGE>



                     EXPORT EREZ USA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000


NOTE 1      DESCRIPTION OF BUSINESS
------      -----------------------

      Export Erez, Ltd. was  incorporated  in Israel and commenced  operations
      in 1983 under the name R.T.V  Ltd.,  which was  changed to Export  Erez,
      Ltd. in 1987. Export Erez, Ltd.  manufactures  textile products designed
      mainly  for the  defense  industry,  although  in  recent  years  it has
      penetrated  additional  markets  in  Israel  and  overseas,  in both the
      military and civilian industries.

      Export  Erez,   Ltd.'s  wholly  owned   subsidiary   Mayotex  Ltd.,  was
      incorporated  in Israel in 1990.  Mayotex is  engaged in weaving  fabric
      and tapes,  which it sells to Export Erez, Ltd. and to other  customers.
      It also produces end products for civilian  industries  requiring fabric
      with  special  qualities  (high  degrees  of  strength,   waterproofing,
      etc.).  Mayotex also produces animal products such as stripes,  collars,
      etc.

      Export Erez Ltd.'s wholly owned subsidiary  Dragonwear Trading Ltd., was
      incorporated  in Cyprus in October  2000.  Dragonwear  is involved  with
      trading textile products.

      On April 21,  2000,  Export Erez USA,  Inc.  ("Export  USA"),  a totally
      inactive   corporation,   consummated   an   Agreement   and   Plan   of
      Reorganization  (the "Agreement") with Export Erez, Ltd. ("Export Ltd.")
      whereby  all of  the  shareholders  in  Export  Ltd.  had  their  shares
      converted into 11,500,000  shares of Export USA, or approximately 96% of
      the common stock of Export USA.

      Under  generally  accepted  accounting   principles,   a  company  whose
      shareolders  receive  over fifty  percent of the stock of the  surviving
      entity  in  a  business  combination  is  considered  the  acquirer  for
      accounting purposes.  Accordingly,  the transaction was accounted for as
      an acquisition of Export USA and a  recapitalization  of Export Ltd. The
      consolidated  financial statements subsequent to the acquisition include
      the  following:  (1) the balance  sheet as of December 31, 2000 consists
      of the net  assets  of  Export  USA at  historical  costs  (zero  at the
      acquisition   date)  and  the  net  assets  of  Export   Ltd.   and  its
      subsidiaries  at  historical  cost,  and (2) the statement of operations
      for the year ended  December  31,  2000  consists of the  operations  of
      Export  Ltd.  and its  subsidiaries  for the  period  presented  and the
      operations of Export USA from the recapitalization date.

      On June 18, 2001,  Export USA acquired 76% of the total share capital of
      Achidatex  Nazareth  Elite  (1977) Ltd.  ("Achidatex")  (See Note 24 for
      business  combination  and See Note 25 for  subsequent  acquisition  and
      recapitalization and name change).

NOTE 2      SIGNIFICANT ACCOUNTING POLICIES
------      -------------------------------

      (A) Basis of Presentation
      -------------------------

      The  accompanying  consolidated  financial  statements  are presented in
      United States dollars under accounting  principles generally accepted in
      the United States of America.



                                      -7-
<PAGE>

                     EXPORT EREZ USA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------

      (B) Principles of Consolidation
      -------------------------------

      The consolidated  financial  statements for 2001 include the accounts of
      Export Erez USA,  Inc. and its wholly owned  subsidiaries,  Export Erez,
      Ltd.,  Mayotex  Ltd.  and  Dragonwear  Trading  Ltd.  and its 76%  owned
      subsidiary Achidatex Nazareth Elite (collectively,  the "Company").  The
      minority interest  represents the minority  shareholders'  proportionate
      share of Achidatex.

      The consolidated  financial  statements for 2000 include the accounts of
      Export Erez USA,  Inc. and its wholly owned  subsidiaries,  Export Erez,
      Ltd., Mayotex Ltd. and Dragonwear Trading Ltd.

      All  intercompany  accounts and  transactions  have been  eliminated  in
      consolidation.

      (C) Foreign Currency Translation and Transactions
      -------------------------------------------------

      The  accompanying  consolidated  financial  statements  are presented in
      United States  dollars.  The  functional  currency of Export Erez,  Ltd.
      and its  subsidiary  Mayotex Ltd. is the New Israeli  Shekel (NIS).  The
      functional  currency of  Dragonwear  Trading  Ltd.  is the Cyprus  Pound
      (CYP).  The  financial  statements  of Dragonwear  are  translated  into
      NIS.  The  financial  statements  for all of  these  entities  are  then
      translated into United States dollars from the NIS at year-end  exchange
      rates as to assets and liabilities and weighted  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.  During 2001 and 2000,  gains of
      $27,048  and   $15,233,   respectively   are   included   in   financial
      income-interest on short-term loans, net.

      (D) Comprehensive Income (Loss)
      -------------------------------

      The foreign  currency  translation  gains  (losses)  resulting  from the
      translation  of  the  financial   statements  of  the  Company  and  its
      subsidiaries  expressed in New Israeli  Shekels  (NIS) to United  States
      dollars  are  reported  as  Other  Comprehensive  Income  (Loss)  in the
      Statement  of  Income  and as  Accumulated  Other  Comprehensive  Income
      (Loss) in the Statement of Shareholders' Equity.

      The  unrealized  gains  and  losses,  net of  tax,  resulting  from  the
      valuation of  available-for-sale  securities  at their fair market value
      at year end are  reported as Other  Comprehensive  Income  (Loss) in the
      Statement  of  Income  and as  Accumulated  Other  Comprehensive  Income
      (Loss) in the Statement of Shareholders' Equity.



                                      -8-
<PAGE>

                     EXPORT EREZ USA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------

      Amounts  reported in net income and other  comprehensive  income for the
      years ended  December 31, 2001 and 2000 are  presented net of an assumed
      tax rate of 36% as follows:

                                                          2001          2000
                                                       -----------   -----------
      Net income:
       Gain (loss) on sales of securities            $      -      $     3,278
       Income tax benefit (expense)                         -           (1,180)
                                                       -----------   -----------
                                                     $      -      $     2,098
                                                       ===========   ===========
      Other comprehensive income (loss):
       Holding gain (loss) arising during period,
       net of tax                                    $   (95,590)  $   (97,786)
       Reclassification adjustment, net of tax              -           (2,098)
                                                       -----------   -----------
        Net gain (loss) recognized in other
         comprehensive income                        $   (95,590)  $   (99,884)
                                                       ===========   ===========

      (E) Use of Estimates
      --------------------

      The  preparation  of financial  statements in conformity  with generally
      accepted  accounting  principles  ("GAAP")  requires  management to make
      estimates  and  assumptions  that effect the reported  amounts of assets
      and  liabilities  and  disclose  the  nature of  contingent  assets  and
      liabilities  at the date of the  financial  statements  and the reported
      amounts of revenues and expenses  during the reporting  periods.  Actual
      results could differ from those estimates.

      (F) Cash and Cash Equivalents
      -----------------------------

      The Company  considers all highly liquid  investments  purchased  with a
      maturity of three months or less to be cash equivalents.

      (G) Investment in Marketable Securities
      ---------------------------------------

      The   Company's   policy  is  to  invest  in  various   equity  or  debt
      instruments.  Management  determines the appropriate  classification  of
      its  investments  at  the  time  of  acquisition  and  reevaluates  such
      determination  at  each  balance  sheet  date.  Trading  securities  are
      carried  at  fair  value,  with  unrealized  trading  gains  and  losses
      included  in  earnings.  Available-for-sale  securities  are  carried at
      fair value, with unrealized gains and losses,  net of tax, reported as a
      separate component of shareholders'  equity.  Investments  classified as
      held-to-maturity   are  carried  at  amortized   cost.  In   determining
      realized gains and losses,  the cost of the securities  sold is based on
      the specific identification method.

      (H) Inventories
      ---------------

      Inventories  are valued at the lower of cost or market  value  using the
      first-in   first-out  method  for  raw  materials.   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.



                                      -9-
<PAGE>

                     EXPORT EREZ USA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------

      (I) Property 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.  At
      each year end, the Company reviews its long-lived  assets for impairment
      based on estimated  future  nondiscounted  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.

      (J) Intangible Assets
      ---------------------

      Intangible  assets are being  amortized using the  straight-line  method
      over the estimated useful life of eight years.

      (K) Revenue Recognition
      -----------------------

      Revenues  from sales of  products  are  recognized  under the  completed
      contract  method upon  shipment to  customers.  The  contracts are short
      term,  generally  under two months.  The Company  provides a warranty on
      goods  ranging  from three to four  years.  The  Company's  policy is to
      consider the  establishment  of a reserve for warranty  expenses.  Based
      upon historical  experience of no warranty  claims,  the Company has not
      established a reserve at December 31, 2001 and 2000.

      (L) Income Taxes
      ----------------

      Deferred tax assets and  liabilities  are  recognized for the future tax
      consequences   attributable   to   differences   between  the  financial
      statement  carrying amounts of existing assets and liabilities and their
      respective tax bases.  Deferred tax assets and  liabilities are measured
      using  enacted  tax rates  expected  to apply to  taxable  income in the
      years in which those temporary  differences are expected to be recovered
      or  settled.  The effect on  deferred  tax assets and  liabilities  of a
      change in tax rates is  recognized in income in the period that includes
      the enactment date.

      (M) Per Share Data
      ------------------

      Basic net income  per common  share is  computed  based on the  weighted
      average common shares  outstanding  during the year.  Diluted net income
      per  common  share is  computed  based on the  weighted  average  common
      shares and common stock  equivalents  outstanding  during the year.  The
      computation  of  weighted  average  common  shares   outstanding   gives
      retroactive  effect to the  recapitalization  discussed in Note 1. There
      were no common stock  equivalents  outstanding  at December 31, 2001 and
      2000  because  the  exercise  price  of  the  common  stock  equivalents
      exceeded  the  average  market  price  of  the  stock.  Accordingly,   a
      reconciliation  between  basic  and  diluted  earnings  per share is not
      presented.



                                      -10-
<PAGE>

                     EXPORT EREZ USA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------

      (N) New Accounting Pronouncements
      ---------------------------------

      The Financial  Accounting  Standards  Board has recently  issued several
      new  Statements of Financial  Accounting  Standards.  Statement No. 141,
      "Business  Combinations"  ("SFAS 141")  supersedes  APB  Opinion  16 and
      various  related  pronouncements.  Pursuant to the new  guidance in SFAS
      141, all business  combinations must be accounted for under the purchase
      method  of  accounting;  the  pooling-of-interests  method  is no longer
      permitted.   SFAS  141  also   establishes  new  rules   concerning  the
      recognition  of  goodwill  and  other  intangible  assets  arising  in a
      purchase   business   combination   and  requires   disclosure  of  more
      information  concerning a business combination in the period in which it
      is  completed.  This  statement  is  generally  effective  for  business
      combinations initiated on or after July 1, 2001.

      Statement No. 142,  "Goodwill and Other Intangible  Assets" ("SFAS 142")
      supercedes  APB  Opinion  17  and  related  interpretations.   SFAS  142
      establishes  new rules on accounting  for the  acquisition of intangible
      assets not  acquired in a business  combination  and the manner in which
      goodwill and all other  intangibles  should be accounted for  subsequent
      to their initial  recognition  in a business  combination  accounted for
      under SFAS 141.  Under SFAS 142,  intangible  assets  should be recorded
      at fair value.  Intangible  assets with finite  useful  lives  should be
      amortized  over such period and those with  indefinite  lives should not
      be amortized.  All  intangible  assets being  amortized as well as those
      that are not, are both subject to review for potential  impairment under
      SFAS 121,  "Accounting  for the Impairment of Long-Lived  Assets and for
      Long-Lived  Assets  to be  Disposed  of".  SFAS 142 also  requires  that
      goodwill arising in a business  combination  should not be amortized but
      is subject to impairment  testing at the  reporting  unit level to which
      the goodwill was assigned to at the date of the business combination.

      SFAS 142 is effective  for fiscal  years  beginning  after  December 15,
      2001  and  must be  applied  as of the  beginning  of  such  year to all
      goodwill and other intangible  assets that have already been recorded in
      the  balance  sheet as of the first day in which  SFAS 142 is  initially
      applied,   regardless  of  when  such  assets  were  acquired.  Goodwill
      acquired  in a  business  combination  whose  acquisition  date is on or
      after July 1, 2001, should not be amortized,  but should be reviewed for
      impairment  pursuant to SFAS 121,  even though SFAS 142 has not yet been
      adopted.  However,  previously  acquired  goodwill should continue to be
      amortized until SFAS 142 is first adopted.

      Statement  143  "Accounting  for Asset  Retirement  Obligations"  ("SFAS
      143") establishes  standards for the initial  measurement and subsequent
      accounting for  obligations  associated with the sale,  abandonment,  or
      other type of disposal of long-lived  tangible  assets  arising from the
      acquisition,  construction,  or development  and/or normal  operation of
      such assets.  SFAS 143 is effective  for fiscal  years  beginning  after
      June 15, 2002, with earlier application encouraged.

      The adoption of these  pronouncements will not have a material effect on
      the Company's financial position or results of operations.



                                      -11-
<PAGE>

                     EXPORT EREZ USA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------

NOTE 3      TRADE ACCOUNTS RECEIVABLE
------      -------------------------

      (A) Third Parties
      -----------------

                                                        2001           2000
                                                     ------------   ------------
      Customers in Israel
       Open accounts                               $  1,969,802   $    497,300
       Post dated checks received from customers        256,263        220,089


      Overseas customers                                329,259        199,013
       Less allowance for doubtful accounts             (93,653)       (15,020)
                                                     ------------   ------------
                                                   $  2,461,671   $    901,382
                                                     ============   ============

      It is standard business practice to issue post-dated checks in Israel.

      (B) Related Parties
      -------------------

                                                          2001          2000
                                                       -----------   -----------
      Customers in Israel
       Open accounts - related parties (See Note
       20(C))                                        $   268,810   $    82,910
       Less allowance for doubtful accounts              (87,751)      (76,861)
                                                       -----------   -----------
                                                     $   181,059   $     6,049
                                                       ===========   ===========

      Trade accounts  receivable - related  parties are due from two companies
      (the "affiliates")  whereby the principal  shareholder of the Company is
      a principal  shareholder of those  affiliates.  The receivable  resulted
      from  the sale of  products  in a prior  year in the  normal  course  of
      business.  Certain  amounts are in dispute and the Company has initiated
      legal  proceedings.  Although  the Company  believes it will  prevail in
      the legal  proceedings,  full  collection  is  doubtful.  Therefore,  an
      allowance has been established.



                                      -12-
<PAGE>

                     EXPORT EREZ USA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------

NOTE 4      OTHER RECEIVABLES AND DEBIT BALANCES
------      ------------------------------------

                                                          2001          2000
                                                       -----------   -----------

      Government institutions                        $   118,500   $     9,342
      Employees and institutions for wage                 34,124           748
      Advances to suppliers and service providers         83,255         1,732
      Prepaid expenses                                    11,723        14,683
      Lease deposit                                        9,861        10,723
      Shareholder   loans   receivable  (See  Note        17,377          -
      20(C))
                                                       -----------   -----------
                                                     $   274,840   $    37,228
                                                       ===========   ===========

NOTE 5      INVESTMENT IN MARKETABLE SECURITIES
------      -----------------------------------

      The  investments  in  marketable   securities  represent   participation
      certificates  in mutual funds.  The Company  classifies its  investments
      in  marketable  securities as available  for sale  securities,  which it
      intends  to hold for  more  than  one  year as  non-current.  Unrealized
      holding  gains and  losses  are  reported  as a  separate  component  of
      shareholders'  equity  as  part of  other  comprehensive  income,  until
      realized.  A  reconciliation  of original  cost to fair market value for
      securities held at December 31, 2001 and 2000 follows:

                                                          2001          2000
                                                       -----------   -----------

      Investment in marketable securities, at
      cost                                           $   786,089   $   815,698
      Unrealized loss                                   (169,984)      (20,624)
                                                       -----------   -----------
      Investment in marketable securities at fair        616,105       795,074
       market value
         Less current portion                               -            -
                                                       -----------   -----------
          Non-current portion                        $   616,105   $   795,074
                                                       ===========   ===========

NOTE 6      INVENTORIES
------      -----------

      Inventories at December 31, 2001 and 2000 consist of the following:

                                                        2001           2000
                                                     ------------   ------------

      Raw materials                                $  1,166,086   $    619,306
      Work in progress                                  491,237        114,437
      Finished goods                                    298,749        158,723
                                                     ------------   ------------
                                                   $  1,956,072   $    892,466
                                                     ============   ============



                                      -13-
<PAGE>

                     EXPORT EREZ USA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------


NOTE 7      BUSINESS SEGMENTS
------      -----------------

      During 2001 and 2000,  the  Company  operated  and managed two  strategic
      business  units:  the  civilian  market  and  the  military  market.  The
      military  market is 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
      (See Note 21(A) for segment information).

NOTE 8      PROPERTY, PLANT AND EQUIPMENT
------      -----------------------------

      Property,  plant and equipment at December 31, 2001 and 2000 consisted of
      the following:

                                          2001           2000       Estimated
                                                                   Useful Life
                                       ------------   -----------  -------------

                                                                        15 - 25
      Buildings                      $    156,814   $   165,257           Years
      Leasehold improvements              237,814          -
      Motor Vehicles                      267,501       194,449     5 - 7 Years
      Office Equipment and
        Furniture                         251,113       112,087    3 - 14 Years
      Equipment                         2,405,034       376,753         5 Years
                                       ------------   -----------
                                        3,318,276       848,546
      Less: Accumulated
        Depreciation                   (1,295,076)     (443,795)
                                       ------------   -----------
                                     $  2,023,200   $   404,751
                                       ============   ===========

NOTE 9      INTANGIBLE ASSETS
------      -----------------


      In October  2000,  the Company  purchased  the  knowledge to  manufacture
      ceramic plates with a ballistic  cloth covering for $89,100.  This amount
      is being amortized over the estimated useful life of eight years.

      Intangible  assets  at  December  31,  2001  and  2000  consisted  of the
      following:

                                                          2001          2000
                                                       -----------   -----------

      Purchased manufacturing knowledge              $    89,100   $    89,100
      Less accumulated amortization                      (27,648)      (11,137)
                                                       -----------   -----------
                                                     $    61,452   $    77,963
                                                       ===========   ===========

      Amortization  expense for the purchased  manufacturing  knowledge for the
      year  ended   December  31,  2001  and  2000  was  $16,511  and  $11,137,
      respectively.



                                      -14-
<PAGE>

                     EXPORT EREZ USA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------

NOTE 10     SHORT-TERM BANK CREDIT
------      ----------------------


      Short-term bank credit at December 31, 2001 and 2000 was comprised as
      follows:

                                     Interest Rates       2001          2000
                                     ---------------   -----------   -----------

      Overdraft credit                 7.3% - 12%    $   604,636   $   477,919
      Loans linked to the Consumer
       Price Index                     6% - 9.5%          38,934       238,563
      Short-term bank loan            7.3% - 10.5%       251,411          -
                                                       -----------   -----------
                                                     $   894,981   $   716,482
                                                       ===========   ===========

      The overdraft credit is a revolving  credit facility due on demand.  The
      loans  linked  to the CPI  are due in  monthly  principal  and  interest
      installments  totaling  $17,980.  The  short-term  bank loan consists of
      $228,651 due in full in January 2002,  and $22,760 due in twelve monthly
      installments of approximately  $1,900 per installment.  (With respect to
      liens see Note 17).

NOTE 11     TRADE ACCOUNTS PAYABLE
------      ----------------------


      Trade  accounts  payable at December 31, 2001 and 2000  consisted of the
      following:

                                                        2001           2000
                                                     -----------    ------------

      Open accounts                                $   844,471    $    427,223
      Post-dated checks given to suppliers             706,999         658,532
                                                     -----------    ------------
                                                   $ 1,551,470    $  1,085,755
                                                     ===========    ============

      It is standard business practice to issue post-dated checks in Israel.

NOTE 12     OTHER ACCOUNTS PAYABLE AND CREDIT BALANCES
------      ------------------------------------------


                                                        2001           2000
                                                     -----------    ------------

      Employees and institutions for wage          $   425,869    $     54,522
      Shareholder loans payable (See Note 20(C))        19,703            -
      Advances from customers                          228,169             972
      Accrued expenses and taxes                       337,321         222,472
                                                     -----------    ------------
                                                   $ 1,011,062    $    277,966
                                                     ===========    ============




                                      -15-
<PAGE>

                     EXPORT EREZ USA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------

NOTE 13     LONG-TERM LOANS
------      ---------------


      On June 18, 2001, the Company  borrowed  $455,200 at an interest rate of
      10%.  The terms are 60 monthly  payments  commencing  July 18, 2001 with
      each payment  consisting of principal  along with accrued  interest.  As
      of December 31,  2001,  the balance of the loan was  $419,919,  of which
      $341,629  is  included  in  long-term  loans and  $78,290 is included in
      short-term bank credit.

      On November 1, 2001, the Company  borrowed  $113,800 at an interest rate
      of 6%. The terms are 24 monthly  payments  commencing  December  1, 2001
      with each payment  consisting of a fixed amount of principal  along with
      accrued  interest.  As of December 31, 2001, the balance of the loan was
      $109,578,  of which  $52,678 is included in long-term  loans and $56,900
      is included in short-term bank credit.

      On November  4, 2001,  the Company  borrowed  $1,138,000  at an interest
      rate of 7.3%. The terms are 60 monthly payments  commencing  December 4,
      2001 with each payment  consisting of a fixed amount of principal  along
      with  accrued  interest.  As of December  31,  2001,  the balance of the
      loan was  $1,125,743,  of which $227,600 is included in short-term  bank
      credit and $898,143 is included in long-term loans.

      On March 7, 2000,  the Company  borrowed  $27,500 at an interest rate of
      8.2%. The terms are 36 monthly  payments  commencing  April 1, 2000 with
      each  payment  consisting  of a fixed  amount of  principal  along  with
      accrued  interest.  As of December 31, 2001, the balance of the loan was
      $11,544,  of which  $8,554 is  included  in  short-term  bank credit and
      $2,990 is included in long-term loans.

      All of the Company's  long-term loans listed above are collateralized by
      a floating  guarantee of  essentially  all of the Company's  assets (See
      Note 17(A)).

      Required principal payments  (including current maturities) on long-term
      loans at December 31, 2001 are as follows:

                Year                                Amount
                ----                             ------------
                2002                            $    371,344
                2003                                 370,695
                2004                                 323,567
                2005                                 332,956
                2006                                 268,222
                                                  ------------
                                                   1,666,784
                Less: current portion               (371,344)
                                                  ------------
                Long-term loans                 $  1,295,440
                                                  ============



                                      -16-
<PAGE>

                     EXPORT EREZ USA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------

                                                        2001           2000
                                                     ------------   ------------
      Liabilities  to related  parties linked to
       the  Consumer  Price Index  comprised  as
       follows (See Note 20(C)):                    $     47,432   $       -
                                                     ============   ============

NOTE 14     DEPOSITS AND PROVISIONS FOR THE SEVERANCE OF EMPLOYER-EMPLOYEE
------      --------------------------------------------------------------

      RELATIONS
      ---------

                                                        2001           2000
                                                     ------------   ------------
      Deposits for the severance of                $    472,421   $    261,095
        employer-employee relations
      Provision for the severance of
        employer-employee relations                $    431,522   $    180,121

      Under the  Israeli  Severance  Pay Law,  the Company is required to make
      severance  payments to  terminated  employees  who have been employed at
      least  one  year.  The  calculation  is based on the  employee's  latest
      salary and the period  employed  whereby the employee is entitled to one
      month of severance pay for each year employed  based on the last month's
      salary. For certain employees,  including  officers,  the obligation for
      severance  pay  is  discharged  by  payment  of  premiums  to  insurance
      companies under approved plans.

      Certain   classes  of  the   Company's   employees  are  included  in  a
      comprehensive  defined  contribution pension plan for industrial workers
      and the Company is  contributing  to a pension fund in order to secure a
      pension  for  such  employees.   The  Company  contributes  13%  of  the
      employee's salary each week to the pension fund.  Contributions  charged
      to operations were  approximately  $98,000 and $22,000 in 2001 and 2000,
      respectively.  Part  of  the  Company's  contributions  relates  to  the
      Company's  liability for severance  pay for the period  commencing  from
      the date when the employee  joined the program.  The amount  required to
      cover the liability of the Company for  severance pay to such  employees
      prior to their  joining the program was  deposited  with a severance pay
      fund. For employees  other than those  referred to above,  the Company's
      liability is covered by regular payments to severance pay funds.

      The amounts  maintained  with  insurance  companies and the pension fund
      are not under  control of the Company and therefore are not reflected in
      the financial  statements.  The deposits  presented in the balance sheet
      include  profits  accumulated  to the balance  sheet  date.  The amounts
      deposited may be withdrawn  only after  fulfillment  of the  obligations
      under the Severance Pay Law as discussed above.




                                      -17-
<PAGE>

                     EXPORT EREZ USA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------

NOTE 15     INCOME TAXES
------      ------------


      The  Company  is taxed in Israel at a flat rate of 36% and is subject to
      the Israel Income Tax Law  (Inflation  Adjustment)  of 1985.  Under this
      law,  results of operations for income tax purposes are measured in real
      terms in  accordance  with the  changes in the  Israeli  Consumer  Price
      Index.  The  inflation  adjustment  is expressed  as financing  costs or
      income and is applied as an  adjustment  to book income for  purposes of
      computing income taxes.

      Income tax expense  expressed  in U.S.  Dollars for 2001 and 2000 are as
      follows:
                                                        2001           2000
                                                     ------------   ------------

      Current United States                        $      6,828   $      7,359
      Current Israel                                    338,412        215,001
      Deferred Israel                                   (11,451)        (6,573)
                                                     ------------   ------------
                                                   $    333,789   $    215,787
                                                     ============   ============

      The actual tax expense  differs from the  "expected" tax expense for the
      years ended  December  31, 2001 and 2000  (computed  by applying  United
      States  statutory  rates and the Israeli  flat tax rate of 36 percent to
      income before taxes) as follows:

                                                        2001           2000
                                                     ------------   ------------

      Computed "expected" tax expense              $    381,558   $    204,364
      Non-tax deductible expenses                        17,143         31,145
      Inflationary adjustment                           (11,451)        (6,572)
      Tax exempt revenues or taxable at
        different rate                                  (53,461)       (13,150)
                                                     ------------   ------------
                                                   $    333,789   $    215,787
                                                     ============   ============

      The tax effects of temporary differences that give rise to significant
      portions of deferred tax assets and liabilities at December 31, 2001
      and 2000 are as follows:

                                                         2001          2000
                                                      -----------   ------------
      Deferred taxes asset - current - in respect of:
        Allowance for doubtful accounts             $    65,305   $     33,077
        Provision for vacation and supplementary
         holiday                                         32,456           -
                                                      -----------   ------------
                                                    $    97,761   $     33,077
                                                      ===========   ============

      Deferred taxes asset, net - non current -
      in respect of:
        Depreciable fixed assets                    $   (11,848)  $     (2,460)
        Shares issued for employee services              50,957         55,412
        Net operating loss carryforward                 361,580           -
                                                      -----------   ------------
                                                    $   400,689   $     52,952
                                                      ===========   ============



                                      -18-
<PAGE>

                     EXPORT EREZ USA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------

NOTE 16     COMMITMENTS AND CONTINGENCIES
-------     -----------------------------

      (A) Lease Agreements

      1.Under a lease  agreement dated January 1, 1998 between the Company and
        a  principal  shareholder  of  the  Company,  the  Company  leases  an
        industrial  building  located  in the Erez  Industrial  Zone (See Note
        20(A)).  The  lease  term  is for one  year  and is  renewable  for an
        additional  period  of one year at the end of each  term.  The  annual
        rent  payments  totaled  approximately  $85,500  based on the  average
        exchange rate for the latest period presented.

        The  Company is  subleasing  one-third  of the  building to its wholly
        owned  subsidiary,  Mayotex Ltd. The sublease  terms are  identical to
        the  Company's  and the annual  proceeds  from rent  payments  totaled
        approximately $14,400.

      2.Under a lease agreement  effective January 1, 1998 between the Company
        and M.L.  Investments Ltd. ("M.L."),  the Company leases an industrial
        building located near the city of Netivot.

        The lease term is for two years and is renewable  up to an  additional
        three years.  The annual rent payments totaled  approximately  $12,500
        based on the average  exchange rate for the latest  period  presented.
        The lease was extended to December 31, 2002, under the same terms.

      3.The factories and offices of the Company's subsidiary,  Achidatex, are
        in leased  buildings.  Most of the lease  periods end in 2002 and 2003
        and the annual rents are linked to the CPI.  The annual rent  payments
        totaled approximately  $212,000 based on the average exchange rate for
        the latest period  presented.  Some of the leased  buildings are owned
        by related parties (See Note 20(A)).

      (B) Long-Term Contracts

      On March  16,  1999,  the  Company  signed a limited  partnership  ("the
      partnership")  agreement with Orlight  Industries (1959) Ltd.  ("O.I.").
      According to the agreement,  the partnership  intended to operate in the
      field of  production  and marketing of helmets,  for exporting  purposes
      only.

      On  May  9,  2001,  the  partnership  was  terminated  and  the  Company
      purchased  from O.I.  $7,200 of equipment and $12,900  inventory used in
      the  production of ballistic  helmets  including  intangible  knowledge.
      Thereafter,  the Company began  manufacturing  ballistic helmets and the
      results  are  included  in  the  accompanying   consolidated   financial
      statements.



                                      -19-
<PAGE>

                     EXPORT EREZ USA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------

      (C) Contingencies

1.   The  Company's  subsidiary,  Achidatex,  was sued for  $476,000 by a former
     employee,   who  claimed   payments   of   commissions   plus   withholding
     differentials  linkage  and  interest.  The Company  filed a  counter-claim
     against the  employee,  for a  declaratory  verdict of breach of employment
     contract  and also  filed a claim  against  the  employee  in the amount of
     $131,000  for  breach of trust.  In January  2002,  the  Company  reached a
     settlement out of court with the employee  amounting to $45,520,  which was
     included in accrued expenses in the accompanying consolidated balance sheet
     at December 31, 2001.

2.   The Company's subsidiary,  Achidatex,  received grants in the past from the
     Fund for  Encouragement  of Foreign  Sales at the  Ministry of Industry and
     Trade.  The Company is required to pay royalties of 3% from the  additional
     export  each year  compared  with the  calendar  year in which its plan was
     submitted.  The balance of the grants  received less the royalties  paid at
     December 31, 2001 is $54,721.

NOTE 17     LIENS
------      -----

      (A) To secure its  short-term  liabilities,  the Company has  registered
          unlimited  charges  on its assets in favor of Bank  Hapoalim,  Ltd.,
          Bank Leumi Ltd. and Union Bank Ltd. as detailed below:

      1.  Current  liens on all  assets,  securities,  notes and  other  trade
          instruments  which are  deposited  with Bank  Hapoalim,  Ltd.,  Bank
          Leumi Ltd. and Union Bank Ltd.

      2.  The  amounts of credit  secured  with  these  liens are shown in the
          following  items  (See Notes  10 and  13) of the  Company's  balance
          sheets:

                                                          2001          2000
                                                       -----------   -----------

          Short term credit                          $   894,981   $   716,482
                                                       ===========   ===========

          Long-term debt including current portion   $ 1,666,784   $      -
                                                       ===========   ===========

      3.  In  addition,   liens   remain  on  the  assets  of  the   Company's
          subsidiary,  Achidatex,  in favor of the State of Israel in  respect
          of grants  that the  Company  received in the past and for which the
          Company  received final  implementation  approval in the past. These
          liens have not yet been removed.




                                      -20-
<PAGE>

                     EXPORT EREZ USA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------

     (B)  To ensure the  Company's  performance  on  contracts  with the Israeli
          Ministry of Defense and the Israeli  Police,  the  Company's  bank has
          reserved  $398,400 and $910,  respectively,  of its  revolving  credit
          facility.  The  Company's  revolving  credit  facility  has also  been
          reserved by $5,700 for security to the Company's landlord.

NOTE 18     SHAREHOLDERS' EQUITY
-------     --------------------

      Effective  June 18,  2001,  the  Company  issued  657,900  shares of its
      common  stock to acquire a 76%  interest  in  Achidatex  Nazareth  Elite
      (1977) (See Note 24).

      On May 25,  2000,  the Company  issued  500,000  common  shares to sixty
      employees,   consultants   and  service   providers  for  past  services
      rendered.  For financial  accounting  purposes the shares were valued at
      the  selling  security  holders  offering  price of $.3078  per share as
      indicated  in the  Company's  Form  SB-2,  as  amended  (See  Note  23).
      Accordingly,  the Company  recognized  an expense of $153,900,  which is
      included in general and administrative expenses.

      At  December  31,  2001 and 2000 the common  stock of the  Company is as
      follows after giving effect to the  acquisition of Achidatex in 2001 and
      the recapitalization in 2000 discussed in Note 1:

                                                        Number of Shares
                                                 -------------------------------
                                Common Stock      Issued and
                                   Amount         Outstanding       Authorized
                               ---------------   --------------   --------------

              2001           $         1,316       13,157,900      100,000,000
                               ===============   ==============   ==============
              2000           $         1,250       12,500,000      100,000,000
                               ===============   ==============   ==============

NOTE 19     FINANCIAL INSTRUMENTS
-------     ---------------------

      (A) Fair Value of Financial Instruments

      The  Company's  financial  instruments  are  principally  non-derivative
      assets and  non-derivative  liabilities  (non-derivative  assets include
      cash  and  cash  equivalents,  deposits  in banks  and  other  financial
      institutions,  marketable securities,  trade accounts receivable,  other
      receivables  and  debit  balances;  non-derivative  liabilities  include
      short-term  credit from banks and others,  trade accounts  payable,  and
      other  payables  and  credit  balances).  Because of the nature of these
      financial  instruments,  fair value generally equals or approximates the
      amounts presented in the financial statements.

      (B) Interest Rate Risk

      The interest rates of the loans are disclosed in Notes 10 and 13.



                                      -21-
<PAGE>

                     EXPORT EREZ USA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------

      (C) Concentrations of Credit Risk

      At  December  31,  2001  and  2000,  the  Company  held  cash  and  cash
      equivalents,   in  the  aggregate   amount  of  $781,996  and  $663,295,
      respectively,  and most of these  amounts  were  deposited  with Israeli
      banks.  Under Israeli law, the Bank of Israel  insures all bank deposits
      without  limits  on  the  amount.   Therefore,   the  Company  does  not
      anticipate losses in respect to these items.

      The majority of the Company's sales are made to government  institutions
      and private  industry in Israel.  Consequently,  the  exposure to credit
      risks relating to trade receivables is limited.

      The Company  performs  ongoing  credit  evaluations of its customers and
      generally  does not require  collateral.  An  appropriate  allowance for
      doubtful accounts is included in trade accounts receivable.


NOTE 20     RELATED PARTIES
-------     ---------------

      (A) Transactions with Related Parties

      The Company has signed lease  agreements with the principal  shareholder
      of  the  Company  and  a  sublease   agreement  with  its  wholly  owned
      subsidiary,   Mayotex   Ltd.   (See  Note   16(A)(1)).   The   Company's
      subsidiary,   Achidatex,  has  signed  lease  agreements  with  minority
      shareholders  of  Achidatex  (See Note  16(A)(3)).  The  Company is also
      indebted to its principal  shareholder  for a loan payable in the amount
      of $19,703 (See Note 12).

      (B) Income and (Expenses) from Transactions with Related Parties

                                                       2001            2000
                                                    ------------   -------------

      Salaries and related expenses               $   (158,994)  $     (9,303)
      Lease and rent expenses                         (176,066)       (83,391)
      Purchase of inventory                           (913,696)           -
      Income from management fee                        12,815            -
      Sale of inventory                                384,145            -

      (C) Balances with Related Parties

                                                       2001            2000
                                                    ------------   -------------

      Trade accounts receivable, net (See Note
      3(B))                                       $    181,059   $       6,049
      Shareholder loans receivable (payable) -
        net
       (See Notes 4 and 12)                             (2,326)           -
      Loan payable - long-term (from party
       related to minority shareholder) (See
       Note 13)                                        (47,432)           -



                                      -22-
<PAGE>

                     EXPORT EREZ USA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------

NOTE 21     SEGMENT INFORMATION AND CONCENTRATIONS
-------     --------------------------------------

      (A) Sales and Income from Operations:

      1.    Segment information:

                            Civilian    Military     Military
                              Local       Local        Export     Consolidated
                            ----------  -----------  -----------  ------------
      December 31, 2001
       Net Sales          $ 3,449,993 $ 4,959,197  $   531,823  $  8,941,013
       Income from
        operations           367,880      631,376      181,206     1,180,462

      December 31, 2000
       Net Sales          $ 1,630,860 $ 1,580,334  $ 1,279,767  $  4,490,961
       Income from
        operations           268,432      203,744      231,541       703,717

      2.    Sales to Single Customers Exceeding 10% of Sales

                                                       2001           2000
                                                  ------------   ------------

        Customer A                               $  3,940,697   $  1,213,781

NOTE 22     AGREEMENT
-------     ---------

      In November  1998,  the Company  executed an agreement with a consultant
      whereby the consultant  would provide  services with regard to assisting
      the  Company to become a public  company in the United  States (See Note
      23).  The  fee to be paid  by the  Company  was  $140,000  and a  5-year
      transferable  warrant to acquire up to 250,000  registered shares of the
      Company's  common  stock at an  exercise  price of $1.00 per share.  The
      Company paid the  consultant  $130,000  from the period of its inception
      in  1998  through   December 31,   2001  in  full   settlement  of  this
      agreement.  The  warrants  were  valued at zero under the  Black-Scholes
      method since the exercise  price  greatly  exceeded the  estimated  fair
      market  value of the  shares of the  Company  and such  warrants  remain
      unexercised as of the date of this report.

NOTE 23     REGISTRATION STATEMENT - EFFECTIVE DATE
-------     ---------------------------------------

      The   Securities   and  Exchange   Commission   declared  the  Company's
      previously filed SB-2 registration  statement  effective on February 13,
      2001.




                                      -23-
<PAGE>

                     EXPORT EREZ USA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------

NOTE 24     BUSINESS COMBINATION
-------     --------------------

      Effective  June 18, 2001,  the Company  acquired 76% of the total common
      stock of Achidatex  Nazareth Elite (1977) Ltd.  ("Achidatex") by issuing
      657,900  shares of its common stock valued at $1.50 per share  resulting
      in a total  purchase price of $986,850.  Achidatex is a private  company
      (incorporated   in  Israel  in  1977)  that   manufactures  and  markets
      ballistic  shields.   The  acquisition  has  been  accounted  for  as  a
      purchase,  and accordingly,  the consolidated  financial  statements for
      2001  have been  prepared  to  include  the  results  of  operations  of
      Achidatex  beginning  from the date of  acquisition.  The  excess of the
      total net fair  value of the  assets  acquired  of  $1,471,314  over the
      purchase  price  of  $986,850,  in the  amount  of  $484,464,  has  been
      recorded as a reduction in the fair market  value  assigned to the fixed
      assets of Achidatex.

      Following are the summarized  unaudited pro forma  consolidated  results
      of operations for the years ended  December 31, 2001 and 2000,  assuming
      the  acquisition  had  taken  place  at the  beginning  of each of those
      fiscal  years.  The  unaudited  pro forma  results  are not  necessarily
      indicative of future  earnings or earnings that would have been reported
      had the acquisition been completed when assumed.

                                                        2001           2000
                                                     ------------   ------------

      Net revenues                                 $ 11,825,534   $ 10,033,617
      Income (loss) before income taxes               1,470,028       (592,688)
       Income tax expense                               298,719        215,787
      Minority interest earnings (losses), net
      of tax                                            351,440       (285,356)
      Net income (loss)                               1,417,307       (523,119)
      Net income (loss) per share                          0.11          (0.04)




                                      -24-
<PAGE>

                     EXPORT EREZ USA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------

NOTE 25     SUBSEQUENT EVENTS
-------     -----------------

      (A) Acquisition and Recapitalization

      Under a share  exchange  agreement  (the  "Agreement")  entered  into on
      March 25, 2002,  Pawnbrokers Exchange,  Inc. ("PEI"), a reporting public
      company with no  operations  at that time,  acquired  100% of the issued
      and  outstanding  common stock of Export Erez USA, Inc. (the  "Company")
      in exchange for  21,000,000  shares of common stock of PEI.  Immediately
      after   the   acquisition,   there   were   25,000,000   shares  of  PEI
      outstanding.  As a result of the exchange,  the Company  became a wholly
      owned  subsidiary  of PEI and the  shareholders  of the  Company  became
      shareholders   of   approximately   84%  of  PEI.   Generally   accepted
      accounting  principles  require  that  the  Company  whose  shareholders
      retain a majority  interest in a business  combination be treated as the
      acquirer  for  accounting  purposes.  As  a  result,  the  exchange  was
      treated as an acquisition  of PEI by the Company and a  recapitalization
      of  the  Company.   Accordingly,  the  2002  financial  statements  will
      include the following:

      (1) The balance  sheet will consist of the net assets of the acquirer at
          historical  cost and the net assets of the  acquiree  at  historical
          cost on the date of the acquisition.

     (2)  The  statements  of  operations  will  include the  operations  of the
          acquirer for the periods  presented and the operations of the acquiree
          from the date of the acquisition.

      (B) Name Change

      Effective  March 25, 2002,  the Company began doing  business as Defense
      Industries International, Inc.


                                      -25-
<PAGE>