ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

You should read the following summary together with the more detailed information and condensed consolidated financial statements and notes thereto and schedules appearing elsewhere in this report. Throughout this report when we refer to the "Company," "Guardian," "we," "our" or "us," we mean Guardian Technologies International, Inc., and its subsidiaries.

This discussion and analysis of our financial condition and results of operations is based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our critical accounting policies and estimates, including those related to revenue recognition, intangible assets, and contingencies. We base our estimates on historical experience, where available, and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions.

Except for historical information, the material contained in this Management's Discussion and Analysis is forward-looking. Our actual results could differ materially from the results discussed in the forward-looking statements, which include certain risks and uncertainties. These risks and uncertainties include the rate of market development and acceptance of our "intelligent imaging informatics" ("3i") technology (particularly for our PinPoint product), the unpredictability of our sales cycle, the limited revenues and significant operating losses generated to date, and the possibility of significant ongoing capital requirements.

Our independent registered public accounting firm's reports on the consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2008, as well as our predecessor independent registered public accounting firm's reports on the consolidated financial statements for the years ended December 31, 2007 and 2006, contain an explanatory paragraph wherein they expressed an opinion that there is substantial doubt about our ability to continue as a going concern. Accordingly, careful consideration of such opinions should be given in determining whether to continue or become our stockholder.

Overview

Guardian Technologies International, Inc. was incorporated in the State of Delaware in February 1996. Guardian Technologies International, Inc. and its subsidiaries are collectively referred to herein as the "Company," "Guardian," "us," "we," or "our."

Guardian is a technology company that designs and develops imaging informatics solutions for delivery to its target markets: aviation/homeland security and healthcare. The Company utilizes imaging technologies and analytics to create integrated information management technology products and services that address critical problems in healthcare and homeland security for corporations and governmental agencies. Each product and service can improve the quality and response time of decision-making, organizational productivity, and efficiency within the enterprise. Our product suite integrates, streamlines, and distributes business and clinical information and images across the enterprise.

Guardian's core technology is an "intelligent imaging informatics" ("3i™") engine that is capable of extracting embedded knowledge from digital images, and has the capacity to analyze and detect image anomalies. The technology is not limited by type of digital format. It can be deployed across divergent digital sources such as still images, x-ray images, video and hyper-spectral imagery. To date, the technology has been tested in the area of threat detection for baggage scanning at airports, for bomb squad applications and the detection of tuberculosis by analyzing digital images of stained sputum slides captured through a photo microscopy system. Varying degrees of research and development have been conducted in the areas of detection for cargo scanning, people scanning, military target acquisition in a hyper-spectral environment, and satellite remote sensing ground surveys. Product development in these areas is ongoing, and while there can be no assurance, we believe that the technology should produce results equal to or greater than those currently achieved in baggage scanning.

Currently, we are focused on providing technology solutions and services in two primary markets, aviation/homeland security and healthcare. However, as new or enhanced solutions are developed, we expect to expand into other markets such as military and defense utilizing hyper-spectral technology, and imaging diagnostics for the medical industry. We may also engage in one or more acquisitions of businesses that are complementary to our business. Further, we may form wholly-owned subsidiaries to operate within defined vertical markets.

The Company continues to be in default on $3,218,205 in outstanding principal amount of its convertible debentures, which became due on November 7, 2008. As the Company continues to have insufficient funds to repay the debentures, three of the eight debenture holders have sent notices of default under such debenture, and Guardian may be considered in default by other debenture holders. The Company is seeking to re-negotiate the terms of the debentures, including the repurchase of the debentures and/or seeking to extend their maturity date. As a condition to any such extension, debenture holders may seek to amend or modify certain other terms of the debentures. There can be no assurances that the Company will be successful in its efforts in renegotiating the terms of the debentures, or receive additional financing, any bank borrowing, and grant funding to repay the debentures.

During first quarter of 2009, pursuant to its 2008 Private Placement, the Company sold to accredited investors an aggregate of 1,958,517 shares of common stock and 3,917,034 Class L Warrants for gross proceeds of approximately $803,001. The warrants are exercisable at a price of $0.41 per share; contain a cashless exercise provision, a conditional call provision if the market price of each share exceeds $3.00, and certain anti-dilution and other customary provisions. The warrants expire in the first quarter of 2014. Common stock was increased by $1,959 for the par value of the shares and $736,557 to paid-in capital (net of $64,485 of financing fees that were incurred in the private placement). The Company committed to issue to the placement agent as part of its compensation for the placement a number of placement agent's warrants equal to 10% of the number of shares sold in the offering (but excluding the shares underlying the warrants issued to investors), or placement agent warrants to purchase an aggregate of 195,852 shares of common stock (subject to adjustment), each placement agent's warrant exercisable at a price of $0.45 per share for a period of five years from the date of issuance.

During February 2009, certain debenture holders of the Company's outstanding Series A Debentures converted approximately $10,000 in principal amount of such debentures into an aggregate of 24,455 shares of common stock. The conversion price was $0.4089 per share.

On February 4, 2009, the Company signed a Master Development Agreement Aurum Innova (Pty), Ltd., a company related to the Aurum Institute for Health Research, and installed in February 2009 an alpha product of Signature Mapping™ tuberculosis ("TBDx") software in a "retrofit configuration" for an evaluation by the National Health Laboratories ("NHLS") in South Africa. This agreement extends the Company's contractual relationship with Aurum that was first established with the signing of a Memorandum of Understanding on July 25, 2008.
The new agreement provides for the joint development of products and services aimed at the screening, early detection and staging of diseases including TB, silicosis, and malaria. Each product will be the subject of a separate project specifications and the MDA included project specifications for our joint development of an automated TB sputum detection product. Aurum has agreed to clinically evaluate the products, and the parties agreed to jointly market and sell, initially in South Africa but eventually in sub-Saharan Africa, the jointly developed products, including our Signature Mapping™ TBDx™ product, through third parties and/or through Aurum. The Company agreed to pay Aurum a royalty on a product by products basis, based on

the net revenue received by us through our distributors, and to be delineated by the parties. Also, the Company agreed to pay Aurum a commission with regard to sales of the products by Aurum. Further, Aurum has agreed to use every reasonable effort to raise funding to complete the development of a product following completion of the initial proof of concept. Any intellectual property jointly developed by us and Aurum will be jointly owned. The agreement may be terminated on one year's prior written notice by either party, automatically terminates upon completion of project specifications and if no products are being marketed under the agreement, or for cause. The agreement also contains certain confidentiality and indemnification provisions.

The Company was granted by the United States Patent & Trademark Office ("USPTO") two patents related to our underlying 3i technology. The patents are for the "System and Method for Identifying Objects of Interest in Image Data." The patent covering our healthcare products was granted on February 17, 2009, Patent No. US 7,492,937, and the patents covering our security product was granted on February 27, 2009, Patent No. US 7,496,218. As of the date of this report, we have 14 pending patents applications (U.S. and foreign) further covering the implementation of our core 3i technology. We are awaiting official responses for these remaining patent applications. We cannot provide assurance that any or all of the remaining patent applications will issue to patents or that they will not be challenged, or that rights granted to us would actually provide us with an advantage over our competitors. Prior art searches have been conducted and, based on the results of these searches, we believe that we do not infringe any third party patents identified in the searches.

Aviation/Homeland Security Technology Solution - PinPoint™

Our PinPoint™ product is an "intelligent imaging informatics" (3i™) technology for the detection of guns, explosives, and other threat items contained in baggage in the airport environment or for building security applications.
PinPoint™ can identify threat items, notify screeners of the existence of threat items, and speed the security process by eliminating unnecessary baggage checks, provide the screener with an instantaneous second opinion, and reduce processing time spent on false positives (baggage selected for security review that contains no threat items). We propose to market and will seek to license the PinPoint™ product primarily to the United States Transportation Services Administration (TSA) for use in airports, the Federal Protection Services for use in federal buildings and to foreign governments and airport authorities. It is also our intent to distribute the product through various distribution methods.

The extended alpha version working model of PinPoint™ has been tested successfully at live carry-on baggage checkpoints in three international airports. Integration within currently deployed manufacturers' scanning equipment is a requisite to anticipated sales, and is considered a significant development risk. PinPoint™ is available for sale to customers; however no sales are anticipated until we are able to seamlessly integrate with the manufacturers' scanning equipment. We signed a Strategic Alliance and Joint Development Agreement with Control Screening (d.b.a. AutoClear), a scanner manufacturer, and are integrating our PinPoint™ technology with their threat detection hardware (AutoClear 6040 baggage scanner and multi-view AT prototype scanner).

Currently, there are limited standards within the aviation security marketplace for the testing and validation of software technology solutions. To date, the marketplace has placed a premium on the newest innovations in hardware technology and has failed to grasp how a threat detection software solution can succeed.

A major joint initiative between the Department of Homeland Security (DHS) and the National Electrical Manufacturers Association (NEMA) is expected to open a path to both increase the interoperability of security equipment as well as providing a mechanism to use third party threat detection software as part of the screening solution. This enabling initiative is the Digital Imaging and Communications in Security (DICOS) standard, similar to the Digital Imaging and Communications in Medicine (DICOM) standard. With a defined standard for the output of each screening device, complimentary automated threat detection software can be appended to any x-ray equipment. The schedule for publication of this standard is being driven by the expected purchase by DHS/TSA of new security screening equipment for over 400 US airports. Guardian personnel are participating in, and co chair of, one of the three NEMA working groups drafting the DICOS standards.

The market for contraband detection systems is anticipated to become intensely competitive and many of our competitors are better capitalized and have greater marketing and other resources than Guardian. PinPoint™ continues to be developed to address the market for contraband detection.

Management believes that international market acceptance of PinPoint™ as a viable threat detection solution will not only enhance our ability to sell worldwide, but it will open additional opportunities for the development of PinPoint™ as the "intelligent image" analysis solution for areas such as military target acquisition, satellite remote sensing, and additional opportunities within aviation security such as people portals and cargo scanning. Additionally, we will seek support of the U.S. Congress and the equipment manufacturers through lobbying and other efforts. We remain focused on the ongoing development of PinPoint™, particularly with respect to field test results. This focus must be even sharper as we enter the pilot test arena where the duration of the pilot test, the conditions under which the pilot test is conducted, and the definition of success and failure will vary country-by-country. Market acceptance is a key to our future success.

Recent Developments - PinPoint™

Guardian continues to perform research and development activities in accordance with the terms of its February 17, 2009 extension for two years of the Cooperative Research and Development Agreement ("CRDA") with the Transportation Security Administration ("TSA") that was initially signed on August 18, 2006, and previously renewed on August 8, 2007 and February 12, 2008, with the United States Department of Homeland Security Science and Technology Directorate, for testing and validation of the PinPoint™ product capabilities at the Transportation Security Labs (TSL). The project began on September 5, 2006 for explosive image collection, which is being followed by refinement of the development and testing of PinPoint™. While TSA certification is not absolutely essential to the acceptance of Guardian's PinPoint™ product, we believe that having TSA certification and a business relationship with the TSA is important to our strategic growth plans, as the relationship represents an important opportunity to obtain contracts for the licensing of our baggage scanning applications and for future aviation and transportation security applications and solutions that we develop or enhance.

In November 2008, we received a funded research and development contract with the U.S. Department of Homeland Security ("DHS"), which was completed on February 27, 2009. As part of the project, we have also entered into a Mutual Non-Disclosure Agreement with DHS. The scope of work is focused on the expansion of PinPoint's™ capabilities to include the detection of certain TSA specified explosives for future deployment on both existing and future deployed scanners.

In July 2008, we submitted to DHS Science and Technology group, under the auspices of the Support Anti-terrorism by Fostering Effective Technologies Act of 2002 (the "SAFETY Act"), a pre-application for designation valuation, a type of certification under the SAFETY Act. In late August 2008, we received a pre-application review by the Staff of the Office of SAFETY Act Implementation. Our final application for designation valuation will be submitted in 2009.

Also, we have submitted proposals to provide PinPoint™ for private facility security locations within the U.S. that are designated "high threat targets." These opportunities would permit Guardian to have deployed sites in a public facility as well as other advantages. We will continue to pursue opportunities for the deployment of our PinPoint™ product.