U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the quarterly period ended September 30, 2003
[_] Transition report under Section 13 or 15(d) of the Exchange Act for the
transition period from ___ to ___
Commission file number: 1-9009
DEFENSE INDUSTRIES INTERNATIONAL, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
NEVADA 84-1421483
------ ----------
(State of Incorporation) (I.R.S. Employer Identification No.)
INDUSTRIAL ZONE EREZ, P.O. BOX 779, ASHKELON 78101, ISRAEL
(Address of Principal Executive Offices)
(011) 972-7-689-1611
(Issuer's Telephone Number, Including Area Code)
______________________________________________
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes [X] No [_]
APPLICABLE ONLY TO CORPORATE ISSUERS
As of November 13, 2003 the Issuer had 25,350,000 shares of Common Stock,
0.0001 value per share, outstanding.
Transitional Small Business Disclosure Format (check one):
Yes [_] No [X]
DEFENSE INDUSTRIES INTERNATIONAL, INC.
(FORMERLY PAWNBROKERS EXCHANGE, INC.) AND SUBSIDIARIES
INDEX
PAGE
PART I - FINANCIAL INFORMATION:
Item 1. Condensed Consolidated Balance Sheets as of September 30, 2003
(Unaudited) and December 31, 2002 1
Condensed Consolidated Statements of Income and Comprehensive Income
for the Three and Nine Months Ended September 30, 2003 and 2002
(Unaudited) 3
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2003 and 2002 (Unaudited) 5
Notes to Condensed Consolidated Financial Statements
(Unaudited) 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Item 3. Controls and Procedures 17
PART II - OTHER INFORMATION:
Item 4. Submission of Matters to a Vote of Shareholders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
PART I - FINANCIAL INFORMATION
ITEM 1.
DEFENSE INDUSTRIES INTERNATIONAL, INC.
(FORMERLY PAWNBROKERS EXCHANGE, INC.) AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2003
ASSETS (Unaudited) December 31, 2002
------ ------------------ -----------------
CURRENT ASSETS
Cash and cash equivalents $ 474,528 $ 831,820
Trade accounts receivable, net 2,133,809 1,965,918
Trade accounts receivable - related parties, net 236,080 209,165
Inventories 2,494,909 1,734,966
Note receivable - officer - 380,986
Deferred taxes 164,534 153,294
Other assets 304,565 186,868
---------- ----------
Total Current Assets 5,808,425 5,463,017
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, NET 1,739,612 1,847,642
---------- ----------
OTHER ASSETS
Investment in Israeli and U.S. marketable securities 594,422 479,595
Deposits for the severance of employer-employee relations 462,928 414,350
Deferred taxes 171,703 171,703
Intangible assets 43,064 47,475
---------- ----------
Total Other Assets 1,272,117 1,113,123
---------- ----------
TOTAL ASSETS $8,820,154 $8,423,782
========== ==========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
1
PART I - FINANCIAL INFORMATION
DEFENSE INDUSTRIES INTERNATIONAL, INC.
(FORMERLY PAWNBROKERS EXCHANGE, INC.) AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONT.)
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
September 30, 2003
(Unaudited) December 31, 2002
------------------ -----------------
CURRENT LIABILITIES
Short-term line of credit $ 678,333 $ 425,998
Trade accounts payable 1,088,972 982,802
Current portion of long-term debt 423,768 435,152
Other liabilities 662,800 748,188
----------- -----------
Total Current Liabilities 2,853,873 2,592,140
----------- -----------
LONG-TERM LIABILITIES
Long-term portion of debt 505,627 762,732
Provision for the severance of employer-employee relations 376,583 397,936
Minority interest 847,014 817,888
----------- -----------
Total Long-Term Liabilities 1,729,224 1,978,556
----------- -----------
TOTAL LIABILITIES 4,583,097 4,570,696
----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, $.0001 par value, 50,000,000 shares
authorized, none issued and outstanding - -
Common stock, $.0001 par value, 250,000,000 shares
authorized, 25,350,000 and 25,100,000 issued and
outstanding, respectively 2,535 2,510
Common stock to be issued (250,000 shares) - 25
Additional paid-in capital 1,711,450 1,711,450
Retained earnings 2,782,614 2,640,010
Accumulated other comprehensive loss (259,542) (457,909)
Deferred consulting expense - (43,000)
----------- -----------
Total Shareholders' Equity 4,237,057 3,853,086
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 8,820,154 $ 8,423,782
=========== ===========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
DEFENSE INDUSTRIES INTERNATIONAL, INC.
(FORMERLY PAWNBROKERS EXCHANGE, INC.) AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME
(UNAUDITED)
For the Three For the Three For the Nine For the Nine
Months Ended Months Ended Months Ended Months Ended
September 30, September 30, September 30, September 30,
2003 2002 2003 2002
---------- ---------- ---------- ----------
REVENUES $ 1,960,300 $ 2,586,107 $ 7,080,702 $ 7,899,742
Cost of sales and processing 1,464,340 1,778,018 5,142,726 5,045,126
---------- ---------- ---------- ----------
Gross profit 495,960 808,089 1,937,976 2,854,616
---------- ---------- ---------- ----------
OPERATING EXPENSES
Selling 210,417 106,593 592,688 429,276
General and administrative 335,160 349,113 1,029,214 948,278
---------- ---------- ---------- ----------
TOTAL OPERATING EXPENSES 545,577 455,706 1,621,902 1,377,554
---------- ---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS (49,617) 352,383 316,074 1,477,062
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE)
Financial income (expense), net (42,699) (32,988) (200,592) (99,283)
Other income, net 71,275 1,077 97,290 13,997
---------- ---------- ---------- ----------
TOTAL OTHER INCOME (EXPENSE) 28,576 (31,911) (103,302) (85,286)
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES (21,041) 320,472 212,772 1,391,776
Income tax (expense) benefit 59,827 (64,679) (65,086) (472,760)
---------- ---------- ---------- ----------
INCOME BEFORE MINORITY INTEREST 38,786 255,793 147,686 919,016
Minority interest (income) loss 2,102 (112,927) (5,082) (154,267)
---------- ---------- ---------- ----------
NET INCOME $ 40,888 $ 142,866 $ 142,604 $ 764,749
========== ========== ========== ==========
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation gain (loss), net of
minority interest translation gain or loss 83,692 (40,498) 193,239 (203,626)
Unrealized gain (loss) on available-for-sale securities (109,730) (36,682) 5,128 (89,572)
---------- ---------- ---------- ----------
Other comprehensive income (loss) before tax (26,038) (77,180) 198,367 (293,198)
Income tax (expense) benefit related to items of other
comprehensive income 9,374 27,785 (71,412) 105,551
---------- ---------- ---------- ----------
TOTAL OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX (16,664) (49,395) 126,955 (187,647)
---------- ---------- ---------- ----------
COMPREHENSIVE INCOME $ 24,224 $ 93,471 $ 269,559 $ 577,102
========== ========== ========== ==========
Net income per share - basic and diluted - $0.01 $0.01 $0.03
========== ========== ========== ==========
Weighted average number of shares outstanding during the
period - basic and diluted 25,350,000 25,400,000 25,350,000 24,017,582
========== ========== ========== ==========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
DEFENSE INDUSTRIES INTERNATIONAL, INC.
(FORMERLY PAWNBROKERS EXCHANGE, INC.) AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For The Nine For The Nine
Months Ended Months Ended
September 30, September 30,
2003 2002
---------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 142,604 $ 764,749
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 222,187 211,740
Provision for doubtful accounts 7,064 -
Gain from sale of marketable securities (97,290) -
Deferred consulting expense recognized from
stock issued for services 43,000 86,000
Minority interest in income of subsidiary 5,082 154,267
Changes in operating assets and liabilities:
(Increase) decrease in trade accounts receivable (201,870) 348,900
(Increase) decrease in inventory (759,943) 472,232
(Increase) decrease in deferred taxes (11,240) 360,623
(Increase) in other assets (117,697) (114,290)
(Increase) decrease in deposits for employee
severances (48,578) 101,241
Increase (decrease) in trade accounts payable 106,170 (324,135)
(Decrease) in other liabilities (85,388) (557,707)
(Decrease) in provision for employee severance (21,353) (32,123)
-------- ---------
Net Cash (Used In) Provided By Operating
Activities (817,252) 1,471,497
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (66,128) (111,381)
Proceeds from sale of property, plant and
equipment - 3,171
Proceeds from sale of marketable securities 781,685 -
Investment in marketable securities (759,366) (27,753)
Funds advanced on behalf of officer - (400,000)
Proceeds received from repayment of officer note
receivable 380,986 -
-------- ---------
Net Cash Provided By (Used In) Investing
Activities 337,177 (535,963)
-------- ---------
4
DEFENSE INDUSTRIES INTERNATIONAL, INC.
(FORMERLY PAWNBROKERS EXCHANGE, INC.) AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT.)
(UNAUDITED)
For The Nine For The Nine
Months Ended Months Ended
September 30, September 30,
2003 2002
---------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term line of credit, net 252,335 (201,282)
Payments on long term debt (268,489) (755,776)
Loan payable - related party - (47,432)
-------- --------
Net Cash (Used In) Financing Activities (16,154) (1,004,490)
-------- --------
Effect of exchange rate changes on cash 138,937 (101,980)
-------- --------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (357,292) (170,936)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 831,820 781,996
CASH AND CASH EQUIVALENTS - END OF PERIOD $474,528 $611,060
======== ========
INTEREST PAID $147,308 $103,691
======== ========
TAXES PAID $112,895 $ 94,008
======== ========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
DEFENSE INDUSTRIES INTERNATIONAL, INC.
(FORMERLY PAWNBROKERS EXCHANGE, INC.) AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements are presented
in United States dollars under accounting principles generally accepted in
the United States of America.
(B) PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements include the accounts of
Defense Industries International, Inc. (formerly Pawnbrokers Exchange, Inc.
("PEI") (see below)) and its wholly owned subsidiaries, Export Erez, USA,
Inc., 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 Nazareth Elite.
Effective March 25, 2002 PEI began doing business as Defense Industries
International, Inc. On July 8, 2002, PEI changed its corporate domicile
from the State of Utah to the State of Nevada (the "re-incorporation"). In
order to accomplish the re-incorporation, PEI merged with and into its
wholly owned subsidiary, Defense Industries International, Inc., a Nevada
corporation organized on July 1, 2002. As a result of the re-incorporation,
PEI's name was changed to Defense Industries International, Inc. Each share
of PEI's capital stock issued and outstanding on the effective date was
converted into and exchanged for one share of Defense Industries
International, Inc. capital stock. Defense Industries International, Inc.
is authorized to issue 250,000,000 shares of $.0001 par value common stock
and 50,000,000 shares of $.0001 par value preferred stock. As a result,
common stock changed from no par value to a par value of $.0001.
All intercompany accounts and transactions have been eliminated in
consolidation.
(C) USE OF ESTIMATES
The preparation of condensed consolidated financial statements in
conformity with accounting principles generally accepted in the United
States of America 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 condensed
consolidated financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from
those estimates.
6
DEFENSE INDUSTRIES INTERNATIONAL, INC.
(FORMERLY PAWNBROKERS EXCHANGE, INC.) AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(D) PER SHARE DATA
Basic net income per common share is computed based on the weighted average
common shares outstanding during the period. Diluted net income per common
share is computed based on the weighted average common shares and common
stock equivalents outstanding during the period. The computation of
weighted average common shares outstanding gives retroactive effect to the
recapitalization discussed in Note 4. There were no common stock
equivalents outstanding 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.
(E) INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated financial statements as of September 30, 2003
and for the three and nine months ended September 30, 2003 and 2002 are
unaudited. In the opinion of management, such condensed consolidated
financial statements include all adjustments (consisting only of normal
recurring accruals) necessary for the fair presentation of the consolidated
financial position and the consolidated results of operations. The
consolidated results of operations for the three and nine months ended
September 30, 2003 and 2002 are not necessarily indicative of the results
to be expected for the full year. The condensed consolidated balance sheet
information as of December 31, 2002 was derived from the audited
consolidated financial statements included in the Company's Annual Report
Form 10-KSB. The interim condensed consolidated financial statements should
be read in conjunction with that report.
(F) RECENT ACCOUNTING PRONOUNCEMENTS
In January 2003, The FASB issued Interpretation No. 46, "CONSOLIDATION OF
VARIABLE INTEREST ENTITIES", an interpretation of Accounting Research
Bulletin ("ARB") No. 51, "Consolidated Financial Statements".
Interpretation No. 46 addresses consolidation by business enterprises of
variable interest entities, which have one or both of the following
characteristics: (i) the equity investment at risk is not sufficient to
permit the entity to finance its activities without additional subordinated
support from other parties, which is provided through other interest that
will absorb some or all of the expected losses of the entity; (ii) the
equity investors lack one or more of the following essential
characteristics of a controlling financial interest: the direct or indirect
ability to make decisions about the entities activities through voting
rights or similar rights; or the obligation to absorb the expected losses
of the entity if they occur, which makes it possible for the entity to
finance its activities; the right to receive the expected residual returns
of the entity if they occur, which is the compensation for the risk of
absorbing the expected losses.
7
DEFENSE INDUSTRIES INTERNATIONAL, INC.
(FORMERLY PAWNBROKERS EXCHANGE, INC.) AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Interpretation No. 46 also requires expanded disclosures by the primary
beneficiary (as defined) of a variable interest entity and by an enterprise
that holds a significant variable interest in a variable interest entity
but is not the primary beneficiary. Interpretation No. 46 applies
immediately to variable interest entities created after January 31, 2003,
and to variable interest entities in which an enterprise obtains an
interest after that date. It applies in the first fiscal year or interim
period beginning after June 15, 2003, to variable interest entities in
which an enterprise holds a variable interest that it acquired before
February 1, 2003.
In June 2003, the FASB issued an Exposure Draft for proposed SFAS entitled
"QUALIFYING SPECIAL PURPOSE ENTITIES ("QSPE") AND ISOLATION OF TRANSFERRED
ASSETS", an amendment of SFAS No. 140 ("The Exposure Draft"). The Exposure
Draft is a proposal that is subject to change and as such, is not yet
authoritative. If the proposal is enacted in its current form, it will
amend and clarify SFAS 140. The Exposure Draft would prohibit an entity
from being a QSPE if it enters into an agreement that obliged a transferor
of financial assets, its affiliates, or its agents to deliver additional
cash or other assets to fulfill the special-purposes entity's obligation to
beneficial interest holders.
The Company believes that the adoption of the recent pronouncement will not
have a material effect on the condensed consolidated financial statements.
NOTE 2 INVENTORY
Inventory consisted of the following:
September 30, December 31,
2003 2002
------------------ -------------------
Raw materials $1,658,709 $ 927,821
Work in process 217,649 584,487
Finished goods 618,551 222,658
---------- ----------
$2,494,909 $1,734,966
========== ==========
NOTE 3 NOTE RECEIVABLE - OFFICER
On January 15, 2002, the Company loaned $400,000 to its controlling
shareholder. The note was for a term of eleven months maturing December 15,
2002, bearing interest of 8% and required quarterly prepaid interest
payments only. As of September 30, 2003, the note and accrued interest of
$33,095 were repaid.
8
DEFENSE INDUSTRIES INTERNATIONAL, INC.
(FORMERLY PAWNBROKERS EXCHANGE, INC.) AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 SHAREHOLDERS' EQUITY
(A) RECAPITALIZATION
On March 25, 2002, PEI, a reporting public company with no assets,
liabilities or operations at that time, consummated a share exchange
agreement (the "Agreement") with Export Erez USA, Inc., ("Export USA") a
company incorporated in Delaware whereby all of the shareholders in Export
USA had their shares converted into 21,000,000 shares or 84% of the common
stock of PEI.
Under generally accepted accounting principles, a company whose
stockholders 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 the Company and a recapitalization of Export USA. The condensed
consolidated financial statements subsequent to the acquisition include the
following: (1) the balance sheet consists of the net assets of the Company
at historical costs (zero at the acquisition date) and the net assets of
Export USA at historical cost. (2) the statement of operations consists of
the operations of Export USA for the period presented and the operations of
the Company from the recapitalization date.
(B) ISSUANCES OF COMMON STOCK
On July 30, 2002, the Company entered into a one-year agreement with a
consultant whereby the consultant would assist the Company with investor
relations. In return, the Company agreed to issue an aggregate of 700,000
shares (payable in quarterly installments of 175,000 shares each) of common
stock valued at $1,561,000, the fair market value of the common stock on
the effective date of the agreement based on the prevailing market price.
In December 2002, the agreement was canceled. In 2003, 150,000 shares
(shown as to be issued as of December 31, 2002) were issued and no other
shares are due to the consultant. Accordingly, $133,800 was recognized as
consulting expense for the nine months ended September 30, 2002.
On April 8, 2002, the Company entered into a one-year agreement with a
consultant whereby the Company issued 100,000 shares of common stock in
return for future consulting services. The 100,000 shares were valued at
$172,000, the fair market value of the common stock on the grant date based
on the prevailing market price. Consulting expense of $43,000 and $86,000
was recognized for the nine months ended September 30, 2003 and 2002,
respectively.
On November 29, 2001, the Company entered into a one-year agreement with a
consultant whereby the consultant would assist the Company to acquire
public listing on a stock exchange, to raise capital and to settle disputes
the Company made against other companies. In return, the Company agreed to
issue 10,000 shares of the Company's common stock monthly and to reimburse
the consultant for out-of-pocket expenses. For settling the disputes, the
consultant was also entitled to additional equity compensation. The
agreement with the consultant was itself disputed during 2002 and a
settlement was signed on May 1, 2003. Under the terms of the settlement,
the Company agreed to issue 100,000 shares (shown as to be issued as of
December 31, 2002) valued at $60,000 (based on the fair market value of the
services provided since the Company's stock had not yet begun trading at
the time the agreement was executed) and to pay $51,069 for reimbursement
of out-of-pocket expenses.
9
DEFENSE INDUSTRIES INTERNATIONAL, INC.
(FORMERLY PAWNBROKERS EXCHANGE,INC.) AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5 NEW JOINT VENTURE
On May 20, 2003, the Company entered into a joint venture with a South
American company to supply bulletproof vests to a local police authority.
Under the terms of the agreement, the parties will collaborate on the
development, manufacture and supply of products for an initial period of
fifteen months. During the quarter ended September 30, 2003, the Company
received an order for approximately $540,000, which is expected to be
delivered in the fourth quarter.
NOTE 6 COMMITMENTS AND CONTINGENCIES
On July 22, 2003, the Company assigned its licensing agreement with a
firearms manufacturer to another corporation. The Company will still be
able to provide certain products to the assignee to be sold and marketed
under the firearms manufacturer's name. Under the assignment, the Company
is relieved of certain contingent liabilities associated with the agreement
including minimum royalties, the cost of securing and maintaining product
liability insurance, and allotting a substantial marketing budget.
NOTE 7 SEGMENT INFORMATION
The Company has two strategic business units: the civilian market and the
military market. The military market is further separated 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.
Civilian Local Military Local Military Export Consolidated
-------------- -------------- --------------- ------------
Nine Months Ended
SEPTEMBER 30, 2003
Net Sales $1,923,639 $2,155,768 $3,001,295 $7,080,702
Income from operations 73,140 89,664 153,270 316,074
Nine Months Ended
SEPTEMBER 30, 2002
Net Sales $2,699,092 $3,272,312 $1,928,338 $7,899,742
Income from operations 660,149 514,804 302,109 1,477,062
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS. THE DISCUSSION AND ANALYSIS WHICH FOLLOWS MAY CONTAIN
TREND ANALYSIS AND OTHER FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934 WHICH REFLECT OUR CURRENT
VIEWS WITH RESPECT TO FUTURE EVENTS AND FINANCIAL RESULTS. THESE INCLUDE
STATEMENTS REGARDING OUR EARNINGS, PROJECTED GROWTH AND FORECASTS, AND SIMILAR
MATTERS THAT ARE NOT HISTORICAL FACTS. WE REMIND SHAREHOLDERS THAT
FORWARD-LOOKING STATEMENTS ARE MERELY PREDICTIONS AND THEREFORE ARE INHERENTLY
SUBJECT TO UNCERTAINTIES AND OTHER FACTORS THAT COULD CAUSE THE FUTURE RESULTS
TO DIFFER MATERIALLY FROM THOSE DESCRIBED IN THE FORWARD-LOOKING STATEMENTS.
CRITICAL ACCOUNTING POLICIES
We have identified the following policies as critical to the understanding
of our financial statements. The preparation of our condensed consolidated
financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the condensed consolidated
financial statements and the reported amounts of sales and expenses during the
reporting periods. An area where significant judgments are made is inventory
valuation and actual results could differ materially from these estimates. Our
condensed consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America.
REVENUES AND 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. We provide a warranty on
goods ranging from three to four years. Our policy is to consider the
establishment of a reserve for warranty expenses. Based upon historical
experience of no warranty claims, we have not established a reserve at December
31, 2002 and September 30, 2003.
FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS. The functional currency of
Export Erez, Ltd., Mayotex Ltd., and Achidatex Nazareth Elite is the New Israeli
Shekel, or NIS. The functional currency of Dragonwear Trading Ltd. is the Cyprus
Pound, or CYP. The financial statements of Dragonwear are translated into NIS.
The financial statements for all of these entities are then translated into
United States dollars from NIS at quarter-end exchange rates as to assets and
liabilities and 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.
COMPREHENSIVE INCOME (LOSS). Foreign currency translation gains and losses
resulting from the translation of the condensed consolidated financial
statements of our company and its subsidiaries expressed in 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 period 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. A permanent decrease in the value of marketable
securities is reported as a loss in the Statements of Income.
INVENTORIES. Inventories are valued at the lower of cost or market value
using the first-in first-out method. The cost includes expenses of freight-in
transportation. The specific identification method is used for finished goods
since all orders are custom orders for customers. Inventories write-offs and
write-down provisions are provided to cover risks arising from slow-moving items
or technological obsolescence.
11
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. Periodically, we review our long-lived assets
for impairment based on estimated future non discounted cash flows attributed to
the assets. In the event such cash flows are not expected to be sufficient to
recover the recorded value of the assets, the assets are written down to their
estimated fair values.
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.
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 and bullet proof
vests and jackets, ballistic wall covering, helmets, bullet proof ceramic and
polyethylene panels, V.I.P. car armoring and one-way protective windows,
personal military equipment, battle pouch units and combat harness units, dry
storage units, liquid logistics, tents and vehicle covers, winter suits,
sleeping bags and backpacks.
Our strategic objective is to be a leading global provider of personal
military and civilian protective equipment and supplies. We intend to realize
our strategic objective through the following:
o PURSUE STRATEGIC ACQUISITIONS. We intend to selectively pursue
acquisitions that enhance our product lines and geographic presence in
an effort to consolidate our highly fragmented industry and to create
a more diverse and global reach for us in our marketplace.
o FOCUS ON INTERNAL GROWTH. We intend to focus on the internal expansion
of our existing businesses, thereby placing us in a position to offer
a more comprehensive portfolio of products to satisfy all of our
customers' protective equipment needs.
o CAPITALIZE ON INCREASED DEMAND FOR OUR PRODUCTS. As a result of the
terrorist attacks on September 11, 2001, and other recent world
events, 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. We intend to
participate in other existing and future government programs that
require our products.
o EXPAND MARKETING EFFORTS. In the wake of the terrorist attacks of
September 11, 2001, and other recent world events, a greater global
recognition regarding the need for our products has materialized. We
intend to capitalize on this increased interest in our products by
broadening our marketing efforts in an attempt to create better
awareness and global brand recognition of us and our products.
o EXPAND DISTRIBUTION NETWORK AND PRODUCT OFFERINGS. We intend to widen
our distribution network through strategic acquisitions and the
development of new products. We believe that a broader product line
will enable us to both strengthen our relationships with existing
customers and attract new customers.
12
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED WITH THREE MONTHS ENDED SEPTEMBER
30, 2002 RESULTS OF OPERATIONS
SALES AND GROSS PROFIT MARGIN. Sales for the three months ended September
30, 2003 declined to $1,960,300 from $2,586,107 for the same period in 2002.
This decrease is attributable to recession in the Israeli market as well as
decreases in the Israeli military budgets. The decrease in export sales from
$1,132,705 for the three months ended September 30, 2002 to $583,214 in the 2003
period is due to timing of the completion of orders in the 2003 period compared
to the prior period in 2002. Export sales for the nine months ended September
30, 2003 have increased by 56% to $3,001,295 compared to $1,928,338 for the same
period in 2002. We expect that our export sales will continue to increase in the
future because of our marketing efforts to create a better awareness and global
brand recognition of our company as well as for our products. We do not expect
that our sales in Israel will increase until the government implements a new
economic plan and not before the beginning of 2004.
The breakdown of our sales for the three months ended September 30, 2003
and 2002 is as follows:
2003 2002
---------- ----------
Sales to the local civilian market $717,952 $687,433
Sales to the local military market 659,134 765,969
Export military sales 583,214 1,132,705
---------- ----------
$1,960,300 $2,586,107
========== ==========
Our gross profit for the three months ended September 30, 2003 was $495,960
compared to $808,089 for the same period in 2002. This decrease in gross profit
is attributable to the decrease in total sales as well as to the drastic change
of approximately 18% in the ratio between the Euro (the currency we use for
purchasing the majority of our raw materials) and the US dollar (the currency we
receive for the majority of our sales), the contraction of the local market and
the product mix of our sales that was sold during the period. We believe that
our overseas sales will continue to grow, but that the level of profit from
future export sales will be higher as a result of a change in the composition of
the products to be exported. As a result, our gross profit margin for the three
months ended September 30, 2003 was 25.3% compared to 31.2% for the same period
in 2002.
Our cost of sales for the three months ended September 30, 2003 was
$1,464,340 compared to $ 1,778,018 for the same the same period in 2002. This
decrease is primarily attributable to the decrease in sales.
GENERAL AND ADMINISTRATIVE EXPENSES AND SELLING EXPENSES. General and
administrative costs for three months ended September 30, 2003 remained
relatively constant at $335,160 compared to $349,113 for the same period in
2002. Selling expenses for the three months ended September 30, 2003 were
$210,417 compared to $106,593 for the same period in 2002. This increase is
primarily attributable to increased costs associated with our export sales.
INCOME TAX EXPENSES. Income tax benefit for the three months ended
September 30, 2003 was $59,827 as compared to income tax expenses of $64,679 for
the comparable period in 2002, reflecting the decline in net income.
13
TOTAL OTHER INCOME (EXPENSE). Total other income, net for the three months
ended September 30, 2003 was $28,576 as compared to an expense of $31,911 for
the same period in 2002. This income is attributable to the realization of
profit from the sale of marketable securities.
MINORITY INTEREST. For the three months ended September 30, 2003 we
recognized and recorded the minority interest share in our loss of $2,102
compared to their share in our income of $112,927 for the same period in 2002.
NET INCOME. As a result of the foregoing our net income for the three
months ended September 30, 2003 was $40,888 compared to net income of $142,866
for the 2002 period.
TOTAL OTHER COMPREHENSIVE LOSS. For the three months ended September 30,
2003 we reported total other comprehensive loss of $16,664, net of tax, compared
to a loss of $49,395, net of tax, in the 2002 period. In the 2003 period we had
foreign currency translation gains of $83,692 arising from the decline of the
dollar against the NIS, compared to a loss of $40,498 in the 2002 period. We
also had $109,730 of unrealized loss on securities held that are available for
sale, as compared to a loss of $36,682 in the 2002 period. This other
comprehensive income in 2003 was offset in part by the tax benefit of $9,374. In
2002 we had other comprehensive tax benefit of $27,785.
NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 2002 RESULTS OF OPERATIONS
SALES AND GROSS PROFIT MARGIN. Sales for the nine months ended September
30, 2003 decreased to $7,080,702 from $7,899,742 for the same period in 2002.
This decrease resulted from the recession in the Israeli market as well as the
decreases in the Israeli military budgets. The increase in export sales from
$1,928,338 for the nine months ended September 30, 2002 to $3,001,295 in the
2003 period was due to the successful implementation of our growth plan.
The breakdown of our sales for the nine months ended September 30, 2003 and
2002 is as follows:
2003 2002
----------- -----------
Sales to the local civilian market 1,923,639 $ 2,699,092
Sales to the local military market 2,155,768 3,272,312
Export military sales 3,001,295 1,928,338
----------- -----------
$ 7,080,702 $ 7,899,742
=========== ===========
Gross profit for the nine months ended September 30, 2003 decreased to
$1,937,976 from $2,854,616 for the same period in 2002. This decrease is
attributable to the decrease in total sales, and to the increase in overseas
sales, which are characterized by lower margins compared to local sales, as well
as to the drastic change of approximately 18% in the ratio between the Euro (the
currency we use for purchasing the majority of our raw materials) and the US
dollar (the currency we receive for the majority of our sales), the contraction
of the local market and the product mix of our sales that was sold during the
period. As a result, our gross profit margin for the nine months ended September
30, 2003 was 27.4% compared to 36.1% for the same period in 2002.
The cost of sales for the nine months ended September 30, 2003 was
$5,142,726 compared to $5,045,126 for the same the same period in 2002. This
increase is primarily attributable to increased overseas sales, which generally
consist of products that are more expensive to produce as well as to the drastic
change of approximately 18% in the ratio between the Euro (the currency we use
for purchasing the majority of our raw materials) and the US dollar (the
currency we receive for the majority of our sales), the contraction of the local
market and the product mix of our sales that was sold during the period.
14
GENERAL AND ADMINISTRATIVE EXPENSES AND SELLING EXPENSES. General and
administrative costs for nine months ended September 30, 2003 increased to
$1,029,214 from $948,278 for the same period in 2002. This increase is due to
increased professional expenditures, such as legal fees advertising, consultants
and market analysts. Selling expenses for the nine months ended September 30,
2003 were $592,688 compared to $429,276 for the same period in 2002. The
increase in selling expenses is attributable to the Company's effort's to
penetrate the global marketplace and expand the awareness and market recognition
of our company and products.
INCOME TAX EXPENSES. Income tax expense for the nine months ended September
30, 2003 was $65,086 as compared to $472,760 for the comparable period in 2002.
The reduction in income taxes is a result of the decrease in net income.
TOTAL OTHER EXPENSE. Total other expense, net for the nine months ended
September 30, 2003 was $103,302 as compared to $85,286 for the same period in
2002. This increase is attributable to increased financial expenses, arising
from higher interest rates in the 2003 period.
MINORITY INTEREST. For the nine months ended September 30, 2003 we
recognized and recorded minority interest income of $5,082 compared to $154,267
for the same period in 2002.
NET INCOME. As a result of the foregoing, our net income for the nine
months ended September 30, 2003 was $142,604 compared to $764,749 for the 2002
period.
TOTAL OTHER COMPREHENSIVE INCOME (LOSS). For the nine months ended
September 30, 2003 we reported total other comprehensive income of $126,955, net
of tax, compared to a total other comprehensive loss of $187,647, net of tax in
the 2002 period. In the 2003 period we had foreign currency translation gains of
$193,239 compared to a loss of $203,626 in the comparable 2002 period. This
resulted from the decrease in the NIS against the dollar in the 2002 period and
the increase of the NIS against the dollar in the 2003 period. In the 2003
period we also had $5,128 of unrealized gain on securities available for sale as
compared to a loss of $89,572 in the 2002 period. As a result of the gains in
the 2003 period we recorded $71,412 in tax expenses as compared to a tax benefit
of $105,551 in 2002.
RECENT ACCOUNTING PRONOUNCEMENTS
In January 2003, The FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities", an interpretation of Accounting Research Bulletin
("ARB") No. 51, "Consolidated Financial Statements". Interpretation No. 46
addresses consolidation by business enterprises of variable interest entities,
which have one or both of the following characteristics: (i) the equity
investment at risk is not sufficient to permit the entity to finance its
activities without additional subordinated support from other parties, which is
provided through other interest that will absorb some or all of the expected
losses of the entity; (ii) the equity investors lack one or more of the
following essential characteristics of a controlling financial interest: the
direct or indirect ability to make decisions about the entities activities
through voting rights or similar rights; or the obligation to absorb the
expected losses of the entity if they occur, which makes it possible for the
entity to finance its activities; the right to receive the expected residual
returns of the entity if they occur, which is the compensation for the risk of
absorbing the expected losses.
Interpretation No. 46 also requires expanded disclosures by the primary
beneficiary (as defined) of a variable interest entity and by an enterprise that
holds a significant variable interest in a variable interest entity but is not
the primary beneficiary. Interpretation No. 46 applies immediately to variable
interest entities created after January 31, 2003, and to variable interest
entities in which an enterprise obtains an interest after that date. It applies
in the first fiscal year or interim period beginning after June 15, 2003, to
variable interest entities in which an enterprise holds a variable interest that
it acquired before February 1, 2003.
15
In June 2003, the FASB issued an Exposure Draft for proposed SFAS entitled
"Qualifying Special Purpose Entities ("QSPE") and Isolation of transferred
Assets", an amendment of SFAS No. 140 ("The Exposure Draft"). The Exposure Draft
is a proposal that is subject to change and as such, is not yet authoritative.
If the proposal is enacted in its current form, it will amend and clarify SFAS
140. The Exposure Draft would prohibit an entity from being a QSPE if it enters
into an agreement that obliged a transferor of financial assets, its affiliates,
or its agents to deliver additional cash or other assets to fulfill the
special-purposes entity's obligation to beneficial interest holders.
The Company believes that the adoption of the recent pronouncement will not
have a material effect on the condensed consolidated financial statements.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2003, we had $474,528 in cash and cash equivalents and
our working capital was $2,954,552. Our current activities are financed by short
and long term bank loans offset by short term deposits. Our decision to incur
additional short term debt this year was based on our consideration of the
prevailing yields on our deposits compared to the cost of short term loans. Our
long term loans arose from acquisition of Achidatex and are payable over five
years.
Net cash used in operating activities was $817,252 for the nine months
September 30, 2003. Out of this amount, $201,870 was attributable to increase in
trade accounts receivable, $117,697 was attributable to increase in other
assets, $759,943 was attributable to increase in inventory and $85,388 was
attributable to decrease in other liabilities. This was offset by an increase in
trade accounts payable of $106,170.
The increase in accounts receivable at September 30, 2003 compared to year
end was the result of the increase in overseas sales in the third quarter of
2003 as well as the fact that the Israeli Ministry of Defense has extended
payment terms for an additional 30 days. The increase in inventory for the nine
months ended September 30, 2003 was primarily due to our anticipation of
upcoming orders.
Net cash provided by investing activities was $337,177 for the nine months
ended September 30, 2003. During the nine months ended September 30, 2003, we
used $66,128 for the purchases of property and equipment and $759,366 for
investment in marketable securities. This was offset by $781,685 from the
proceeds of the sale of the marketable securities and the $380,986 repayment of
a note receivable and accrued interest by an officer.
We anticipate increasing our research and development expenditures in 2003
and 2004, primarily with respect to ballistic helmets, stab-resistant fabric,
ceramic ballistic plates, ballistic wall covering and one-way protective
windows. We anticipate total research and development expenses for 2003 and 2004
will be approximately $150,000 and $750,000, respectively. The development of
these products will be by staff engineers. We expect that production of these
products will start by the end of 2003, increasing to full production by the
year 2006. We anticipate that in order to fund the research and development for
these products, we may seek to raise capital by means of an offering of our
equity securities. If we are unable to effect an offering of our securities, we
may fund our research and development expenditures through our operating funds.
In such event, the timing of our anticipated research and development and
subsequent production schedule would be delayed.
We believe that we have sufficient funds to fund our operations during the
remainder of 2003.
16
MARKET RISK
At September 30, 2003 and December 31, 2002, we held cash and cash
equivalents in the aggregate amount of $474,528 and $831,820, respectively, 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, we
do not anticipate losses in respect to these items.
The majority of our sales are made to government institutions and private
industry in Israel. Consequently, we believe that our exposure to credit risks
relating to trade receivables is limited. Overseas sales are usually covered by
a letter of credit and are performed through major financial institutions;
therefore the exposure risk is limited. We perform ongoing credit evaluations of
our customers and generally do not require collateral. An appropriate allowance
for doubtful accounts is included in trade accounts receivable.
ITEM 3. CONTROLS AND PROCEDURES
Based on their evaluations, as of the end of the period covered by this
quarterly report on Form 10-QSB, our principal executive officer and principal
financial officer have concluded that the Company's disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and
Exchange Act of 1934 (the "Exchange Act")) are effective in timely alerting them
to material information required to be included in our periodic Securities and
Exchange Commission filings. There have been no changes in the Company's
internal control over financial reporting during the third fiscal quarter of
2003 that have materially affected, or are reasonably likely to materially
affect, the Company's internal control over financial reporting including any
corrective actions with regard to significant deficiencies and material
weaknesses.
17
PART II - OTHER INFORMATION
DEFENSE INDUSTRIES INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
None.
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
31.1 Certification by Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification by Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Certification by Chief Executive Officer Pursuant to 18 U.S.C. Section
1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification by Chief Financial Officer Pursuant to 18 U.S.C. Section
1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
----------
(B) Reports on Form 8-K:
18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
DEFENSE INDUSTRIES INTERNATIONAL, INC.
(Registrant)
/S/ JOSEPH POSTBINDER
----------------------
Name: Joseph Postbinder
Chief Executive Officer
/S/ TSIPPY MOLDOVAN
----------------------
Name: Tsippy Moldovan
Chief Financial Officer
19
EXHIBIT 31.1
CERTIFICATION PURSUANT TO SECTION 302(A)
OF THE SARBANES-OXLEY ACT OF 2002
I, Joseph Postbinder, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Defense Industries
International, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and we have:
a) designed such disclosure controls and procedures or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent fiscal
quarter (or the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the company's internal control over financial reporting
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financing reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information and;
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: November __, 2003
/S/ JOSEPH POSTBINDER
----------------------
Joseph Postbinder
Chief Financial Officer
EXHIBIT 31.2
CERTIFICATION PURSUANT TO SECTION 302(A)
OF THE SARBANES-OXLEY ACT OF 2002
I, Tsippy Moldoven, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Defense Industries
International, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and we have:
a) designed such disclosure controls and procedures or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent fiscal
quarter (or the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the company's internal control over financial reporting
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financing reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information and;
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: November __, 2003
/S/ TSIPPY MOLDOVEN
-------------------
Tsippy Moldoven
Chief Financial Officer
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Defense Industries
International, Inc. (the "Company") on Form 10-QSB for the period ending
September 3o, 2003 as filed with the Securities and Exchange Commission on the
date hereof (the "Report"), I, Joseph Postbinder, Chief Executive Officer of the
Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906
of the Sarbanes-Oxley Act of 2002, that:
(1)The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
/S/ JOSEPH POSTBINDER
---------------------
Joseph Postbinder
Chief Executive Officer
November __, 2003
EXHIBIT 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Defense Industries
International, Inc. (the "Company") on Form 10-QSB for the period ending
September 30, 2003 as filed with the Securities and Exchange Commission on the
date hereof (the "Report"), I, Tsippy Moldovan, Chief Financial Officer of the
Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906
of the Sarbanes-Oxley Act of 2002, that:
(1)The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
/S/ TSIPPY MOLDOVAN
-------------------
Tsippy Moldovan
Chief Financial Officer
November __, 2003