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

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

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

Overview

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

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

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

Material Trends

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

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

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

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

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

                                       Three Months Ended
                                            March 31,
                                    -------------------------
                                        2009         2008
                                    ------------- -----------


Sales to South America              $   754,527   $  44,987
Sales to North America                        -     106,679
Sales to Europe and Asia                459,734     272,597
Sales to Africa                       1,186,355     187,603
    Total Export Military Sales     $ 2,400,616   $ 611,866
                                    -----------   ---------

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

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

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

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

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

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

Operations in the Erez Industrial Zone

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

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

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

New Product Line

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

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

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

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

Results of Operations

Key Indicators

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

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

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

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

                               Three Months Ended
                                    March 31,
                           ---------------------------
                               2009          2008
                           ------------- -------------


Local civilian market      $   821,276   $   920,157
Export civilian market         160,459       267,217
Local military market        2,430,937     1,326,062
Export military market       2,400,616       611,866
                           -----------   -----------
            Total          $ 5,813,288   $ 3,125,302
                           -----------   -----------

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

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

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

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

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

Extraordinary Income. We didn't record any extraordinary income for the three months ended March 31, 2009. For the three months ended March 31, 2008, we recognized and recorded extraordinary income of $4,681,838, net of tax, from the payments to our three subsidiaries, Export Erez, Mayotex and Achidatex, by the Israeli Government with respect to their evacuation from the Gaza Industrial Zone.

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

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

Liquidity and Capital Resources

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

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

Cash Flows

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

                                                                     Three months ended
                                                             -----------------------------------
                                                              March 31, 2009    March 31, 2008
                                                             ----------------- -----------------


Net cash provided by operating activities                     $      622,727    $    1,392,523
Cash provided by extraordinary items                                       -         2,691,838
Net cash provided by (used in) investing activities                1,126,092        (1,047,722 )
Net cash used in financing activities                               (840,557 )        (279,064 )
Net increase in cash and cash equivalents                            829,219         2,817,234
Cash and cash equivalents at beginning of period                   1,719,921         1,120,054
Cash and cash equivalents at end of period                         2,549,140         3,937,288

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

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

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

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

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

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

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

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

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

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

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

Inflation and Seasonality

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

Off-balance Sheet Arrangements

    None.

Contractual Obligations

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

Contractual Obligations                                              Payments due by Period
-------------------------------               ---------------------------------------------------------------------
                                    Total      Less than 1 year   2 -3 years    4 -5 years     more than 5 years
                                ------------- ------------------ ------------- ------------- ----------------------


Long-term debt obligations      $   728,537    $       299,232    $  360,953    $   68,352        $        -
Estimated interest
payments on long-term debt
. . .