UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2008

¨ TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission file number: 001-13112

POINT BLANK SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)

Delaware	11-3129361
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification Number)
2102 SW 2nd St. Pompano Beach, Florida	33069
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (954) 630-0900

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b -2 of the Exchange Act.

Large Accelerated Filer  ¨    Accelerated Filer  x    Non-Accelerated Filer  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of November 14, 2008, 51,346,602 shares of the Registrant’s common stock at $0.001 par value were outstanding.

POINT BLANK SOLUTIONS, INC.

TABLE OF CONTENTS

		Page
PART I FINANCIAL INFORMATION
Cautionary Note on Forward-Looking Statements		2
Item 1.	Financial Statements.
	Condensed Consolidated Balance Sheets at September 30, 2008 and December 31, 2007.	3
	Condensed Consolidated Statements of Operations for the Three and Nine Months ended September 30, 2008 and 2007.	4
	Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2008 and 2007.	5
	Notes to Condensed Consolidated Financial Statements.	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	18
Item 4.	Controls and Procedures.	19
PART II OTHER INFORMATION
Item 1.	Legal Proceedings.	19
Item 1A.	Risk Factors.	20
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	25
Item 3.	Defaults Upon Senior Securities.	25
Item 4.	Submission of Matters to a Vote of Security Holders.	25
Item 5.	Other Information.	26
Item 6.	Exhibits.	26
Signatures.		27
Exhibit Index.		28

1

Cautionary Note on Forward-Looking Statements

Certain statements made in this Quarterly Report on Form 10-Q that are not statements of historical or current facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Forward-looking statements may involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from historical results or from any future results expressed or implied by such forward-looking statements.

In addition to statements that explicitly describe such risks and uncertainties, readers are urged to consider statements in future or conditional tenses or, which include terms such as “believes,” “belief,” “expects,” “intends,” “anticipates” or “plans” to be uncertain and forward-looking. Forward-looking statements may include comments as to Point Blank Solutions, Inc.’s (the “Company”) beliefs and expectations as to future events and trends affecting its business. Forward-looking statements are based upon management’s current expectations concerning future events and trends and are necessarily subject to uncertainties, many of which are outside of the Company’s control. The factors set forth in Part II, Item 1A. RISK FACTORS, of this Quarterly Report on Form 10-Q as well as other factors could cause actual results to differ materially from those reflected or predicted in forward-looking statements.

Any forward-looking statements are based on management’s beliefs and assumptions, using information currently available to the Company. The Company assumes no obligation to update these forward-looking statements.

If one or more of these or other risks or uncertainties materialize, or if the underlying assumptions prove to be incorrect, actual results may vary materially from those reflected in, or suggested by, forward-looking statements. Any forward-looking statement included in this Quarterly Report on Form 10-Q reflects the Company’s current views with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to its operations, results of operations, growth strategy and liquidity. All subsequent written and oral forward-looking statements attributable to the Company or individuals acting on its behalf are expressly qualified in their entirety by this paragraph. You should specifically consider the factors identified in Part II, Item 1A. RISK FACTORS of this Quarterly Report on Form 10-Q, which could cause actual results to differ from those referred to in forward-looking statements.

2

PART I – FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

POINT BLANK SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

	September 30, 2008			December 31, 2007
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	273		$	213
Restricted cash		35,200			35,200
Accounts receivable, less allowance for doubtful accounts of $353 and $296, respectively		14,785			25,144
Inventories, net		49,306			43,550
Income tax receivables		12,072			20,285
Deferred income taxes		17,829			21,468
Prepaid expenses and other current assets		2,862			3,150
Total current assets		132,327			149,010
Property and equipment, net		11,076			5,967
Other assets:
Deferred income taxes		1,803			1,312
Deposits and other assets		115			78
Total other assets		1,918			1,390
Total assets	$	145,321		$	156,367
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Revolving line of credit	$	17,506		$	16,254
Note payable		2,700			—
Accounts payable		17,656			15,416
Accrued expenses and other current liabilities		8,811			8,384
Reserve for class action settlement		39,372			39,372
Vest replacement program obligation		417			527
Employment tax withholding obligation		8,154			34,176
Total current liabilities		94,616			114,129
Long term liabilities:
Unrecognized tax benefits		11,060			11,134
Other liabilities		421			525
Total long term liabilities		11,481			11,659
Total liabilities		106,097			125,788
Commitments and contingencies		—			—
Minority and non-controlling interests in consolidated subsidiaries		92			406
Contingently redeemable common stock (related party)		19,326			19,326
Stockholders’ equity:
Common stock, $0.001 par value, 100,000,000 shares authorized, 48,339,503 and 48,016,836 shares issued and outstanding, respectively		48			48
Additional paid in capital		89,635			84,552
Accumulated deficit		(69,877	)		(73,753	)
Total stockholders’ equity		19,806			10,847
Total liabilities and stockholders’ equity	$	145,321		$	156,367

See notes to condensed consolidated financial statements.

3

POINT BLANK SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(In thousands, except per share data)

	For the Three Months Ended						For the Nine Months Ended
	September 30, 2008			September 30, 2007			September 30, 2008			September 30, 2007
Net sales	$	30,327		$	71,843		$	91,314		$	257,469
Cost of goods sold		26,973			60,367			79,508			210,515
Gross profit		3,354			11,476			11,806			46,954
Selling, general and administrative expenses		9,936			9,467			24,716			29,042
Litigation and cost of investigations		2,531			2,203			6,220			7,364
Employment tax withholding charge (credit)		37			—			(26,034	)		(737	)
Total operating costs		12,504			11,670			4,902			35,669
Operating income (loss)		(9,150	)		(194	)		6,904			11,285
Interest expense		281			185			674			465
Other (income) expense		(1	)		30			(216	)		16
Total other expense		280			215			458			481
Income (loss) before income tax expense (benefit)		(9,430	)		(409	)		6,446			10,804
Income tax expense (benefit)		(3,359	)		(180	)		3,134			4,317
Income (loss) before minority and non-controlling interests of subsidiaries		(6,071	)		(229	)		3,312			6,487
Less minority and non-controlling interests of subsidiaries		(302	)		28			(564	)		125
Net income (loss)	$	(5,769	)	$	(257	)	$	3,876		$	6,362
Basic and diluted earnings (loss) per common share	$	(0.12	)	$	(0.01	)	$	0.08		$	0.12

See notes to condensed consolidated financial statements.

4

POINT BLANK SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)

	For the Nine Months Ended September 30,
	2008			2007
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	3,876		$	6,362
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		943			467
Amortization of deferred financing costs		88			49
Deferred income tax expense (benefit)		3,148			1,382
Gain on sale of fixed assets		(3	)		—
Minority and non-controlling interests in consolidated subsidiaries		(564	)		125
Equity based compensation		5,056			2,916
Changes in assets and liabilities:
Accounts receivable		10,359			11,852
Inventories		(5,756	)		(6,549	)
Income tax receivable		8,213			—
Prepaid expenses and other current assets		200			(1,086	)
Deposits and other assets		(37	)		15
Accounts payable		2,666			(821	)
Accrued expenses and other current liabilities		426			(4,537	)
Vest replacement program obligation		(110	)		(1,972	)
Income taxes payable		—			(1,255	)
Unrecognized tax benefits		(74	)		—
Employment tax withholding obligation		(26,022	)		(737	)
Other liabilities		(104	)		(298	)
Net cash provided by operating activities		2,305			5,913
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and equipment		4			—
Purchases of property and equipment		(3,553	)		(3,677	)
Net cash used in investing activities		(3,549	)		(3,677	)
CASH FLOWS FROM FINANCING ACTIVITIES
Bank overdraft		(426	)		(1,226	)
Contribution from minority owners		250			—
Loan from minority owners		200			—
Net proceeds from revolving line of credit		1,252			7,842
Repayment on note payable—bank		—			(8,425	)
Deferred financing costs		—			(343	)
Net proceeds from exercise of stock warrants		28			—
Net cash provided by (used in) financing activities		1,304			(2,152	)
Net increase in cash and cash equivalents		60			84
Cash and cash equivalents at beginning of year		213			177
Cash and cash equivalents at end of period	$	273		$	261
Supplemental cash flow information:
Property and equipment acquired by issuing a note payable	$	2,500		$	—

See notes to condensed consolidated financial statements.

5

POINT BLANK SOLUTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Note 1. BASIS OF PRESENTATION

Interim Financial Information

The accompanying unaudited condensed consolidated financial statements of Point Blank Solutions, Inc. (“Point Blank”) and its subsidiaries (“PBSI”, or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The unaudited financial statements include all adjustments, consisting only of normal and recurring adjustments, which, in the opinion of management, were necessary for a fair presentation of financial condition, results of operations and cash flows for such periods presented. The results of operations for the interim periods are not necessarily indicative of the results for any other interim periods or for an entire year.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted in accordance with published rules and regulations of the Securities and Exchange Commission (the “SEC”). The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes to those financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.

Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of Point Blank and its subsidiaries, Point Blank Body Armor, Inc., Protective Apparel Corporation of America and Life Wear Technologies, Inc. All subsidiaries are wholly owned except for a 0.65% interest in Point Blank Body Armor, Inc. The accounts of Lifestone Materials, LLC (“Lifestone”) are also included in the accompanying condensed consolidated financial statements. Point Blank has a 50% interest and is the primary beneficiary of Lifestone (See Note 8). All intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The Company has prepared the unaudited condensed consolidated financial statements in conformity with GAAP. Such preparation requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates based upon future events. The Company evaluates the estimates on an ongoing basis. In particular, the Company regularly evaluates estimates related to recoverability of accounts receivable and inventory, realization of deferred tax assets and accrued liabilities. The estimates are based on historical experience and on various other specific assumptions that the Company believes to be reasonable. Actual results could differ from those estimates based upon future events.

Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 provides a definition of fair value, establishes acceptable methods of measuring fair value and expands disclosures for fair value measurements required under other accounting pronouncements, but does not change existing guidance as to whether or not an instrument is carried at fair value. SFAS 157 is effective for fiscal years beginning after November 15, 2007. The adoption of SFAS 157 on January 1, 2008 did not have a material impact on the Company’s financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities, including as amendment of FASB Statement No. 115” (“SAFS 159”). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The adoption of SFAS 159 on January 1, 2008 did not have a material impact on the Company’s financial statements.

6

In December 2007, the FASB issued SFAS No. 141R, “Business Combinations,” (“SFAS 141R”) which requires an acquirer to recognize the assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree at the acquisition date, measured at their fair values as of that date. SFAS 141R requires, among other things, that in a business combination achieved through stages (sometimes referred to as a “step acquisition”) that the acquirer recognize the identifiable assets and liabilities, as well as the non-controlling interest in the acquiree, at the full amounts of their fair values (or other amounts determined in accordance with this Statement). SFAS 141R also requires the acquirer to recognize goodwill as of the acquisition date, measured as a residual, which in most types of business combinations will result in measuring goodwill as the excess of the consideration transferred plus the fair value of any non-controlling interest in the acquiree at the acquisition date over the fair values of the identifiable net assets acquired. SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company does not expect that the adoption of SFAS 141R will have a material impact on its financial statements.

In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements” (“SFAS 160”). SFAS 160 changes the way the consolidated income statement is presented. SFAS 160 requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the non-controlling interest. It also requires disclosure, on the face of the consolidated statement of income, of the amounts of consolidated net income attributable to the parent and to the non-controlling interest. Currently, net income attributable to non-controlling interests is reported as an other deduction in arriving at consolidated net income. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The Company does not believe that SFAS 160 will have a material impact on its financial statements.

Note 2. INVENTORIES

The components of inventories as of September 30, 2008 and December 31, 2007 are as follows:

	September 30, 2008		December 31, 2007
Raw materials	$	29,279	$	26,414
Work in process		1,758		8,409
Finished goods		18,269		8,727
	$	49,306	$	43,550

Note 3. DEBT

Revolving Line of Credit

The Company entered into an Amended and Restated Loan and Security Agreement (“Credit Facility”) with its lender in 2007. The Credit Facility provides for a three-year, $35,000 revolving credit line available to the Company’s subsidiaries, jointly and severally, bearing interest at the prime rate plus 0.25% or, at our option, LIBOR plus 2.25%. Borrowings are available in the form of advances or letters of credit granted or issued against a percentage of the Company’s subsidiaries’ eligible accounts receivable and eligible inventory. In accordance with the terms of the Credit Facility, the Company and its lender revised the financial covenants to include a (1) minimum net worth, (2) fixed charge coverage ratio, (3) minimum consolidated earnings before interest, taxes, depreciation, amortization, non-cash compensation, litigation and cost of investigations and restructuring charges, and (4) maximum capital expenditures, all as defined. The revolving credit line is secured by substantially all of the Company’s assets.

On October 31, 2008, the Company entered into an amendment to the Credit Facility with its lender. That amendment provided for the lender to loan the Company $10 million for a three month period, bearing interest at the prime rate plus 0.25% (the “Term Loan”), the proceeds of which were used to pay down the Credit Facility. The structure of this amendment increased borrowing capacity of the Company under the Credit Facility to support its projected short-term working capital needs for manufacturing its current backlog. A third party provided a guarantee in support of the Term Loan and the Company has agreed to use the proceeds solely for the purpose of paying for raw material purchases, labor, packaging, shipping and supplies in connection with certain contracts with the U.S. military.

On November 12, 2008, the Company and its lender amended the Credit Facility. Under the terms of that amendment, the Company will not be subjected to the financial covenants as long as availability under the Credit Facility (as defined) is in excess of $4.0 million for each of the months ending September 30, 2008, October 31, 2008 and November 30, 2008, and following those periods in excess of $12.5 million.

Note Payable

In March 2008, the partner to the Lifestone Materials, LLC (“Lifestone”, See Note 8) contributed property and equipment to Lifestone in exchange for a $2,500 note payable. This loan bears interest at the prime rate plus .25%. Principal and interest are repaid on a quarterly basis from LifeStone’s available cash as determined by Lifestone’s partners.

7

Note 4. COMMITMENTS AND CONTINGENCIES

The Company refers to Item 3 of Part I of our Annual Report on Form 10-K for the year ended December 31, 2007, for disclosures of legal proceedings. Information regarding commitments and contingencies should be read in conjunction with the audited consolidated financial statements and notes to those financial statements included in that Form 10-K.

Securities Class Action and Shareholder Derivative Action

We refer to Item 3 of Part I of our Annual Report on Form 10-K for the year ended December 31, 2007, for a discussion of the securities class action and shareholder derivative action lawsuits filed against us and certain of our directors and officers, and the settlement of those suits, final approval of which was pending before the United States District Court, Eastern District of New York. On June 25, 2008, the Court approved the settlement. The Company has not admitted any wrongdoing. Both the derivative action and the securities class action have been appealed.

Employment Tax Withholding Obligations

From 2003 through early 2006, the Company paid certain cash bonuses to management and other employees. Members of senior management during that time and other employees also exercised warrants to purchase shares of the Company’s common stock between 2003 and 2006 that had previously been granted to them. The payment of cash bonuses and exercise of warrants trigger tax withholding obligations by the Company related to the employees’ share of federal income tax, state income tax and Social Security charges on the compensation associated with the bonuses and warrants. The Company also had to remit to applicable taxing authorities the employer’s share of Social Security and other payroll related taxes.

The Company has determined that income and other payroll related taxes were not withheld and remitted by the Company to the taxing authorities when those bonuses were paid and, with one exception, when the warrants were exercised. The Company self-reported these apparent violations to the relevant taxing authorities, including the Internal Revenue Service.

As of September 30, 2008 and December 31, 2007, the Company has recognized Employment Tax Withholding Obligations, including applicable penalties and interest related to this matter, totaling $8,154 and $34,176, respectively in the accompanying condensed consolidated balance sheets. The Company has been assessed for 2004 through 2006 $2.6 million for Social Security and Medicare taxes, penalties and interest related to the employees’ share of those obligations for the former senior management personnel. This amount is provided for in the accompanying financial statements.

The Company does not believe that it will be required to discharge the liabilities of former senior management personnel for income tax withholding obligations, based on communications with certain federal agencies. Moreover, to the extent that the Company is required to discharge employee income tax withholding obligations for other current and former employees, management is pursuing recovery of those amounts from the affected employees. In July 2006, Mr. Brooks, the Former Chief Executive Officer, signed a memorandum of understanding with the Company in which he represented, warranted and covenanted that he has paid (or will pay) all taxes (including, without limitation, federal and state, Social Security, Medicare, FICA or other withholding taxes or similar amounts) attributable to personal income received by him from the Company, including any fines, penalties or back taxes incurred by the Company solely as a result of personal income paid to him. The Company intends to pursue recovery from Mr. Brooks for any of the foregoing amounts ultimately due and payable by the Company to the taxing authorities. At September 30, 2008, the income tax withholding obligations that may be recoverable from former executive officers were $8,154.

On April 16, 2008, the statute of limitations for the major portion of the 2004 Employment Tax Withholding Obligations expired. Accordingly, the charge and related liability originally recorded during 2004 was reversed during the second quarter of 2008 in the amount of $26.1 million in the accompanying condensed financial statements.

On April 16, 2007, the statute of limitations for the 2003 employment tax withholding obligations expired. Accordingly, the charge and related liability originally recorded during 2003 (totaling $737) was reversed during the second quarter of 2007.

In April 2008, the Company and the Internal Revenue Service agreed to extend the statute of limitations related to federal employment tax withholding obligations for the tax years ended December 31, 2005 and 2006 through December 31, 2010.

8

Patents

On September 6, 2007, Christopher Van Winkle and David Alan Cox filed an action against the United States in the U.S. Court of Federal Claims alleging patent infringement and seeking compensation for the government’s alleged unlicensed use of their patent. The allegedly infringing products were purchased on behalf of the U.S. Army by the General Services Administration (“GSA”) from Point Blank Body Armor Inc., our subsidiary. The relevant contract with the GSA contains a patent infringement indemnity clause. On September 4, 2008, the United States settled with Christopher Van Winkle and David Alan Cox for $10,250,000. The Company expects the U.S. will make a claim for some portion of that amount against the Company. The Company intends to assert defenses. We cannot predict the timing or the outcome of this matter.

Tortious Interference

On April 7, 2008, Point Blank Body Armor filed suit against BAE Systems Specialty Defense Systems of Pennsylvania, Inc (“BAE”) and John Norwood in the Southern District of Florida for tortious interference with an advantageous business relationship. The suit alleges that John Norwood used confidential information regarding Point Blank Body Armor that he obtained while working as a program manager for the U. S. Army to the detriment of Point Blank Body Armor and the advantage of his new employer, BAE. In particular, the confidential information was used to interfere with Point Blank Body Armor’s relationship with one of its suppliers, which in turn interfered with its bid for the production of 230,000 IOTV’s pursuant to a request to submit a bid it had received from the U.S. Army.

Letters of Credit

As of September 30, 2008, the Company had open letters of credit for $626.

Note 5. EQUITY AWARDS

A total of 321,284 deferred stock awards were granted to executive officers and to members of the Board of Directors during the first nine months of 2008.

During the third quarter of 2008, employees (other than the executive officers of the Company) were allowed to convert their options, on a value for value basis, into deferred stock awards. There were 522,000 options exchanged into 385,558 deferred stock awards, with a vesting period of two years. Per the provisions of Financial Accounting Standards No. 123R, Share-Based Payment, no additional compensation charge was required to be recorded for this event.

On August 19, 2008, the shareholders elected a new board of directors in a contested election. As a result of this change in the Board of Directors, all stock options and deferred stock awards (except for 250,000 deferred stock award granted to executive management during 2008) were accelerated and became fully vested as of that date under the provisions of the Company’s stock option plans. Accordingly, this resulted in recognizing $2.9 million of additional equity-based compensation expense in the accompanying consolidated financial statements, representing the remaining unvested and unamortized fair value of the options and deferred stock awards.

During the first nine months of 2008, 247,709 shares of the Company’s common stock were issued to members of the Board of Directors. A total of 385,558 shares of the Company’s common stock will be issued to employees (other than executive management) pursuant to the terms of the 2005 and 2007 stock plans for the shares of stock associated with the deferred stock awards.

Note 6. BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE

For all periods presented, basic and diluted income (loss) per common share is presented in accordance with SFAS 128, “Earnings per Share,” which provides for the accounting principles used in the calculation of income per share. Basic income (loss) per common share excludes dilution and is calculated by dividing net income (loss) available to common shareholders by the weighted average number of shares of common stock outstanding during the period. Diluted income (loss) per common share reflects the potential dilution from assumed conversion of all dilutive securities such as stock warrants using the treasury stock method. When the effect of the outstanding stock warrants is anti-dilutive, they are not included in the calculation of diluted income per common share.

Basic income (loss) per common share calculations is based on the weighted average number of common shares outstanding during each period: 48,339,503 and 48,016,836 shares for the three and nine months ended September 30, 2008 and 2007 respectively. For the quarters ended September 30, 2008 and 2007, the common stock warrants are anti-dilutive.

9

The computation of basic and diluted income per common share is as follows:

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2008			2007			2008			2007
Common Shareholders
Net income (loss)	$	(5,769	)	$	(257	)	$	3,876		$	6,362
Net income attributable to contingently redeemable common shares		—			—			(227	)		(375	)
Net income (loss) attributable to common shares		(5,769	)		(257	)		3,649			5,987
Weighted-average shares		48,339,503			48,016,836			48,339,503			48,016,836
Common stock equivalents—warrants		—			—			—			167,427
Weighted-average shares and common stock equivalents		48,339,503			48,016,836			48,339,503			48,184,263
Basic and diluted income (loss) per common share	$	(0.12	)	$	(0.01	)	$	0.08		$	0.12
Contingently redeemable common shares
Net income attributed to contingently redeemable shares	$	—		$	—		$	227		$	375
Divided by weighted-average shares		3,007,099			3,007,099			3,007,099			3,007,099
Basic and diluted income per common share	$	—		$	—		$	0.08		$	0.12

A total of 385,558 deferred stock awards (representing 385,558 shares common stock to be issued to employees other than executive management) have not been included in the computation of earnings per share for the three months ended September 30, 2008, because they are anti-dilutive.

Note 7. PROVISION FOR INCOME TAXES

The Company’s effective tax rate was 48.6% and 40.0% for the nine months ended September 30, 2008 and 2007, respectively. The Company’s effective tax rate differs from the statutory rate primarily due to state income tax expense and equity based and officer’s compensation in excess of the Internal Revenue Code Section 162 (m) limitation.

The Company is currently under examination by the Internal Revenue Service for its U.S. Corporate Income Tax Return for the tax years ended December 31, 2003 through 2007. There have been no adjustments proposed in connection with the examination. The Company is also under examination by the State of New York for the years 2002 through 2004 and received a proposed assessment of $1.8 million in additional taxes and interest related to the proposed disallowance of losses on discontinued operations, inter-company interest expense and other inter-company charges. The Company has filed a protest with the State of New York, believes it has a meritorious defense and anticipates the ultimate resolution of the assessment will not result in a material adjustment to the financial statements.

Note 8. LIFESTONE MATERIALS

On March 18, 2008, the Company entered into a strategic alliance with a manufacturer and supplier of technologically advanced lightweight ballistic armor material. Under the terms of the joint venture agreement, an entity Lifestone Materials, LLC (“Lifestone”) was created, which will manufacture and sell woven fabric to both partners. Each partner has a 50% equity ownership in Lifestone. Each partner contributed $250 to provide LifeStone with working capital. The venture partner contributed property and equipment valued at $2,500 in exchange for a note payable (bears interest at the Prime rate plus .25%), and the Company loaned the venture $2,500 to purchase property and equipment. Lifestone leases a manufacturing facility in Anderson, South Carolina.

Note 9. RELATED PARTY

At the Meeting of Stockholders that was held on August 19, 2008, the Company elected a slate of directors that included two employees of Steel Partners II, L.P. (“Steel”). Historically the Company purchased raw materials from a supplier. Steel has an investment in that supplier of the Company as well as in the Company. During the period between August 19, 2008 through September 30, 2008, the Company purchased $1.2 million from that supplier, and the Company owed that supplier $2.2 million as of September 30, 2008, which is included in accounts payable in the accompanying condensed consolidated balance sheet.

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Note 10. PROFORMA BALANCE SHEET

On June 25, 2008, the United States District Court, Eastern District of New York approved the settlement entered into in connection with the securities class action against the Company and certain individual defendants, as well as the related shareholder derivative action (see Note 4). The proforma balance sheet presented below was derived from the application of the pro-forma adjustments to the consolidated financial balance sheet of the Company to give effect to the final non appealable approval of the settlement and payment of the settlement consideration as of September 30, 2008 as if this event occurred effective September 30, 2008.

POINT BLANK SOLUTIONS, INC. AND SUBSIDIARIES

PROFORMA CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)

SEPTEMBER 30, 2008

(In thousands, except share and per share data)

	As Reported			Proforma Adjustments					Proforma
ASSETS
Current assets:
Restricted cash	$	35,200		$	(35,200	)	1	)	$	—
Other current assets		97,127			—					97,127
Total current assets		132,327			(35,200	)				97,127
Non Current Assets		12,994			—					12,994
Total assets	$	145,321		$	(35,200	)			$	110,121
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Reserve for class action settlement	$	39,372		$	(39,372	)	2	)	$	—
Other current liabilities		55,244			—					55,244
Total current liabilities		94,616			(39,372	)				55,244
Total long term liabilities		11,481			—					11,481
Total liabilities		106,097			(39,372	)				66,725
Minority and non-controlling interests in consolidated subsidiaries		92								92
Contingently redeemable common stock (related party)		19,326			(19,326	)	3	)		—
Stockholders’ equity:
Common stock		48			6		4	)		54
Additional paid in capital		89,635			23,492		4	)		113,127
Accumulated deficit		(69,877	)		—					(69,877	)
Total stockholders’ equity		19,806			23,498					43,304
Total liabilities and stockholders’ equity	$	145,321		$	(35,200	)			$	110,121

Proforma Adjustments:

1) Restricted Cash (funded in 2006) used to liquidate portion of the reserve for class action settlement.

2) Liquidate reserve for class action settlement by paying $35.2 million of restricted cash and the issuance of 3,184,713 shares of common stock (valued at $4,194,974 as of the date the settlement was entered into).

3) Contingently redeemable stock reclassified to permanent equity.

4) Recognize the impact on stockholder’s equity for issuance of common stock upon final settlement and for reclassification of contingently redeemable common stock to permanent equity.

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

Introduction

The following should be read in conjunction with the Company’s unaudited condensed consolidated financial statements, including the respective notes thereto, all of which are included in this Form 10-Q. Unless stated to the contrary, or unless the context otherwise requires, references to “PBSI,” “the Company,” “we,” “our” or “us” in this report include Point Blank Solutions, Inc. and subsidiaries.

We are a leading manufacturer and provider of bullet, fragmentation and stab resistant apparel and related ballistic accessories, which are used domestically and internationally by military, law enforcement, security and corrections personnel, as well as governmental agencies. We also manufacture and distribute sports medicine, health support and other products, including a variety of knee, ankle, elbow, wrist and back supports and braces that assist serious athletes, weekend sports enthusiasts and general consumers in their respective sports and everyday activities.

We are organized as a holding company that currently conducts business through three operating subsidiaries. Sales to the U.S. military comprise the largest portion of our business, followed by sales to federal, state and local law enforcement agencies, including correctional facilities. Accordingly, any substantial increase, reduction in or delay in government spending or change in emphasis in defense and law enforcement programs would have a material effect on our business.

We derive substantially all of our revenue from sales of our products. Our ability to increase revenue levels is highly dependent on continued demand for body armor and projectile-resistant clothing. There is no assurance, however, that in the event that governmental agencies refocus their expenditures due to changed circumstances, that we will be able to diversify into alternate markets or alternate products, or that we will be able to increase market share through acquisitions of other businesses.

Our market share is highly dependent upon the quality of our products and our ability to deliver products in a prompt and timely fashion. Our current strategic focus is on product quality and accelerated delivery, which we believe are the key elements in obtaining additional orders under new as well as existing procurement contracts with the U.S. military and other governmental agencies.

Critical Accounting Policies

Our management believes that our critical accounting policies include:

Revenue recognition—We recognize revenue when there is persuasive evidence of an arrangement, delivery of the product has occurred, the price for the goods is fixed or determinable and collectibility is reasonably assured.

We enter into contracts with all of our customers. These contracts specify the material terms and conditions of each sale, including prices and delivery terms for each product sold.

Ballistics apparel and accessory products sold to the U.S. military are manufactured to specifications provided by the U.S. military. Prior to shipment, each manufactured product is inspected by U.S. military representatives. Once the goods pass inspection by the U.S. Government Quality Assurance Specialist (denoted on Form DD 250), the U.S military immediately accepts risk of ownership associated with those goods.

Non-military contracts specify that customers may return products to us only if such products do not meet agreed upon specifications. Ballistics apparel products sold to other customers besides the U.S. military for use in combat comply with National Institute of Justice (“NIJ”) standards, and are subjected to internal and external quality control procedures. Because of these internal and external quality control procedures, warranty returns of products sold to law enforcement agencies and to distributors are minimal.

We warrant that our ballistics apparel products will be free from manufacturing defects for a period of five years from the date of purchase. From time to time, individual ballistics apparel products may be returned because they are the incorrect size. In most cases, the product returned for sizing is retailored and reshipped to the customer. Returns for sizing, along with the cost involved in tailoring the units, are minimal.

We do not offer any general rights of return, express or implied, associated with any of our military sales or our sports medicine and health support sales. Ballistic resistant apparel and other accessories sold to non-military customers have a 30-day right of return. At the time of sale, the sales transactions meet the conditions of Financial Accounting Standards Board (“FASB”) Statement No. 48, “Revenue Recognition When Right of Return Exists,” and revenue is recognized at the time of sale.

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All our contracts specify that products will be shipped FOB shipping point or FOB destination. Shipments to the U.S. military are made FOB shipping point. We recognize revenue for military sales and for those non-military sales sent FOB shipping point when the related products are shipped. We defer revenue recognition for those sales that are shipped FOB destination until the related goods are received at the customers’ designated receiving locations.

Inventories—Inventories are stated at the lower of cost (determined on the first-in, first-out basis) or market. An allowance for potential non-saleable inventory due to excess stock, obsolescence or defects in quality is based upon a detailed review of inventory components, past history, and expected future usage.

Stock Compensation—New, modified and unvested equity-based payment transactions with employees, such as stock options (which we refer to as warrants) and restricted stock, are recognized in our consolidated financial statements based on their fair value and as compensation expense over the service period, in our case, the vesting period.

Income taxes—We use the asset and liability approach to account for income taxes. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax bases using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period when the change is enacted. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Other—Judgments and estimates underlying our accounting policies vary based on the nature of the judgment or estimate. We use judgments and estimates to determine our allowance for doubtful accounts, which are determined through analysis of the aging of the accounts receivable at the date of the consolidated financial statements, assessments of collectibles based on an evaluation of historic and anticipated trends, the financial condition of customers and an evaluation of the impact of economic conditions. We also use judgments and estimates to determine the valuation allowances on our deferred tax assets to establish reserves for income taxes, each of which relate to our income taxes critical accounting policy. We base these estimates on projections of future earnings, effective tax rates and the impact of economic conditions. These judgments and estimates are based upon empirical data as applied to present facts and circumstances. Judgments and estimates are susceptible to change because the projections that they are based upon do not always turn out to be correct and unanticipated issues may arise that are not considered in our assumptions.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and contingent assets and liabilities in the financial statements and accompanying notes. Significant estimates inherent in the preparation of the accompanying consolidated financial statements include the carrying value of long-lived assets and allowances for receivables and inventories. Actual results could differ from these estimates and the differences could be material.

Result of Operations

The events that occurred in 2008 presented a significant challenge to our Company, Stockholders, Vendors, Directors and Management. Although we disclosed in previous annual and quarterly reports about the risks associated with our current business model, our dependence on government contracting for body armor, and the budgetary risks associated with our non-military customer base, it was difficult to anticipate the perfect storm in our industry. The significant delays in the military’s contracting for body armor and related products and in evaluations of incoming raw material quality assessments, the uncertainties in the transition from the current NIJ 05 standard to the NIJ 06 standard, the continuing and deepening economic challenges facing our country, as well as the crisis in the credit markets substantially reduced sales during 2008. While this storm created a difficult reporting period for us, we believe that it also highlighted the value and correctness of our Strategic Vision and Plan to build upon our current platform in a way that makes us less dependent on sales of body armor to the government.

The first nine months of the year were particularly difficult in the body armor industry. Lay-offs, plant closings, and other cost cutting measures were employed industry-wide in an attempt to cope with the dramatic down tick in sales. While we did take some cost cutting measures to include lay-offs and not replacing personnel that left the Company, we were able to find savings and manage our way through this difficult period without taking the draconian steps that would have adversely affected our ability to reach our normal capability quickly. By preserving important capabilities, we believe that we are in position to provide the US Army with vests to meet their Bridge Buy of 150,000 units, as well as the Outer tactical vest and the ballistic components order while at the same time completing our current and anticipated orders. We believe that we have the capacity and continue to pursue additional business consistent with our strategic plan.

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Our current business plan and structure withstood a significant downturn. With the additional funding provided by our lender for the short-term period, we believe that we have sufficient access to capital to fund our operations. Our Company accomplished this in a period of dramatic decrease in sales and with continuing legacy costs that, are still significant. We believe that this reinforces the soundness of our Company and our strength as a solid platform for growth consistent with our Strategic Vision. Sales and backlog have increased significantly at the end of the Third Quarter and during the Fourth Quarter. In large part, this change is due to our successful proposal in the US Army’s Bridge Buy for 150,000 Improved Outer Tactical Vests, OTVs and ballistic components and we believe that sales will continue to grow in the Fourth Quarter.

NINE MONTHS ENDED SEPTEMBER 30, 2008 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2007

ANALYSIS OF NET SALES

Nine Months Ended September 30, 2008 and 2007

(In thousands)

	2008				2007				Dollar Change
Net sales
Military and Federal Government	$	49,912	54.7	%	$	221,169	85.9	%	$	(171,257	)
Domestic/Distributors		26,447	29.0	%		30,213	11.7	%		(3,766	)
International		10,940	12.0	%		526	0.2	%		10,414
Sports and Health Products		4,599	5.0	%		6,207	2.4	%		(1,608	)
Other		—	0.0	%		46	0.0	%		(46	)
Total		91,898	100.6	%		258,161	100.3	%		(166,263	)
Less Discounts, Returns and Allowances		584	0.6	%		692	0.3	%		(108	)
Net Sales	$	91,314	100.0	%	$	257,469	100.0	%	$	(166,155	)

For the nine months ended September 30, 2008, our consolidated net sales were $91.3 million, a decrease of 64.5 % over consolidated net sales of $257.5 million for the nine months ended September 30, 2007. Soft and body armor products net sales decreased 65.3% from $251.9 million for the nine months ended September 30, 2007 to $87.3 million for the nine months ended September 30, 2008 due primarily to delays in military and contract awards. Over the last nine months, we had several solicitations extended, including for the 150,000 Improved Outer Tactical Vests (IOTV’s) contract. These delays have significantly affected net sales and results of operations. Because of the delay in the timing of such awards, revenues associated with such awards may be reflected in future periods, if at all. Additionally, during the first nine months of 2007, we targeted certain contract opportunities for aggressive pricing strategy.

For the nine months ended September 30, 2008, Domestic/Distributor sales were $26.4 million, a decrease of 12.5% from the comparable prior year period of $30.2 million. This decrease was due to the domestic/distributor market’s anticipation of the upcoming change in NIJ standards for soft body armor, as well as higher fuel costs and the economic downturn in the national economy, which had a direct impact on state and local governments’ spending.

We believe that it is important to understand the nature of contracting with the federal government and the possible effect of the federal government’s budgeting process on operating results and production backlog in any given year. Frequently, there may be events surrounding the U.S. and defense budgets that create fluctuations in our backlog and portfolio of contracts with the federal government. These include availability of year-end monies to accomplish important last minute contracts for supplies and services, enactment of a continuing resolution which limits spending to the previous year’s level until a budget is signed into law, late approval of a new budget, use and timing of a supplemental appropriation and other possible events. These events can significantly affect the amount of orders we have in backlog and the number as well as size of major contracts we have for our products. In fact, requests for proposals and the awarding of contracts continued to be delayed and impacted this quarter.

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For the nine months ended September 30, 2008, International sales were $10.9 million compared to $526,000 for the comparable period. This increase is due to contract awards for the soft and body armor products to the Middle East.

For the nine months ended September 30, 2008, Sports and Health Product sales were $4.6 million, a decrease of 25.9% over the comparable period. This decrease is due to a decline in revenues associated with a contract completed in early 2008 and the loss of a retail customer.

Gross profit for the nine months ended September 30, 2008 was $11.8 million (12.9% of net sales), as compared to $47.0 million (18.2% of net sales) for the same period in 2007. The decline in gross profit margin as a percentage of net sales is due primarily to lower volume as a result of delays in contract awards, constraints on price increases due to the competitive market, higher raw materials costs and under absorbed overhead costs as a result of our levels of production. To offset increases in raw material prices, we entered into a joint venture agreement on March 18, 2008 for the purpose of manufacturing woven ballistic fabric for our body armor products. As a result of this strategic action, we believe we are the only soft body armor manufacturer with a vertically-integrated weaving operation, which is intended to reduce material costs and allow us to competitively price our products to grow top line sales as well as improve our margins. Additionally, 50% of the operating results generated from the joint venture will be consolidated into our Consolidated Statement of Operations. In order to capture a greater share of this market, we adopted an aggressive pricing structure on certain military contracts. Improving gross profit margin will require passing on material cost increases to our customers, enhancing the manufacturing process, planning inventory purchases carefully and reducing costs. These initiatives will be balanced with a marketing and sales strategy that addresses an unusually competitive environment.

OPERATING COSTS

Nine Months Ended September 30, 2008 and 2007

(In thousands)

	2008			2007			Dollar Change
Selling and Marketing	$	6,461		$	6,965		$	(504	)
Research and Development		1,251			1,519			(268	)
Equity-Based Compensation		5,056			2,916			2,140
Other General and Administrative		11,948			17,642			(5,694	)
Selling, general and administrative expenses		24,716			29,042			(4,326	)
Litigation and Cost of Investigations		6,220			7,364			(1,144	)
Employment Tax Withholding Credit		(26,034	)		(737	)		(25,297	)
Total Operating Costs	$	4,902		$	35,669		$	(30,767	)

Operating costs were $4.9 million or 5.4% of net sales for the nine months ended September 30, 2008 versus $35.7 million or 13.8% of net sales for the nine months ended September 30, 2007. The decrease in operating costs for the nine months ended September 30, 2008 of $30.8 million from the nine months ended September 30, 2007 was principally due to the following:

• During the second quarter of 2008, the statute of limitations for the major portion of the 2004 employment tax withholding obligations expired. Accordingly, the charge and related liability originally recorded during 2004, totaling $26.1 million, was reversed during the second quarter of 2008. Operating costs for the first nine months of 2007 include a credit to earnings of approximately $.7 million for the employment tax withholding obligation relating to that period.

• The decrease in operating costs during the third quarter of 2008 was partially offset by an increase in equity-based compensation of $2.9 million due to a change in the majority of the Board of Directors of the Company. At the Annual Meeting of Stockholders that was held on August 19, 2008, five nominees from Steel Partners II, L.P. were elected to the Board of Directors of the Company. This change triggered an acceleration of the equity-based compensation expense and the total unvested and unamortized fair value of the equity-based compensation became vested immediately and was expensed in the accompanying financial statements.

• Lower general and administrative expenses due mainly to lower legal and professional fees in 2008 compared to 2007 of $2.8 million. Additionally, there was a decrease in salaries of approximately $2.3 million principally due to reductions in incentive compensation and personnel.

• Lower litigation and costs of investigations expenses. We will continue to incur costs associated with the investigations described in Part II, Item 1 of this Form 10-Q in future periods and these costs could be material.

Interest expense for the nine months ended September 30, 2008 was $0.7 million compared to $ 0.5 for the same period in 2007. The increase is attributable to higher outstanding balances in our revolving line of credit for the nine month period ended September 30, 2008 compared to the same period in 2007. In addition, interest expense was incurred during 2008 on the $2,500 note payable for Lifestone.

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Our effective tax rate was 48.6% and 40.0% for the nine months ended September 30, 2008 and 2007, respectively. The effective tax rate differs from the statutory rate primarily due to state income tax expense and equity based and officer’s compensation in excess of the Internal Revenue Code Section 162 (m) limitation.

We are currently under examination by the Internal Revenue Service for our U.S. Corporate Income Tax Return for the tax years ended December 31, 2003 through 2007. There have been no adjustments proposed in connection with the examination. We are also under examination by the State of New York for the years 2002 through 2004 and received a proposed assessment of $1.8 million in additional taxes and interest related to the proposed disallowance of losses on discontinued operations, inter-company interest expense and other inter-company charges. We filed a protest with the State of New York. We believe we have a meritorious defense and anticipate the ultimate resolution of the assessment will not result in a material adjustment to our financial statements.

THREE MONTHS ENDED SEPTEMBER 30, 2008, COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2007

ANALYSIS OF NET SALES

Three Months Ended September 30, 2008 and 2007

(In thousands)

	2008				2007				Dollar Change
Net sales
Military and Federal Government	$	9,619	31.7	%	$	61,681	85.9	%	$	(52,062	)
Domestic/Distributors		9,375	30.9	%		7,922	11.0	%		1,453
International		9,959	32.8	%		50	0.1	%		9,909
Sports and Health Products		1,503	5.0	%		2,352	3.3	%		(849	)
Other		—	0.0	%		14	0.0	%		(14	)
Total		30,456	100.4	%		72,019	100.2	%		(41,563	)
Less Discounts, Returns and Allowances		129	0.4	%		176	0.2	%		(47	)
Net Sales	$	30,327	100.0	%	$	71,843	100.0	%	$	(41,516	)

For the three months ended September 30, 2008, our consolidated net sales were $ 30.3 million, a decrease of 57.8% over consolidated net sales of $71.8 million for the three months ended September 30, 2007. Soft and Body armor products net sales decreased 58.4% from $69.7 million for the three months ended September 30, 2007 to $29.0 million for the three months ended September 30, 2008 due primarily to delays in military and contract awards. We had several solicitations extended, including for the 150,000 Improved Outer Tactical Vests (IOTV’s) contract. These delays have significantly affected net sales and results of operations. Because of the delay in the timing of such awards, revenues associated with such awards may be reflected in future periods, if at all.

For the three months ended September 30, 2008, Domestic/Distributor sales were $9.4 million, an increase of 18.3% from the comparable prior year period of $7.9 million. These represent sales to wholesalers, non-military and non-federal buyers. This category of sales allows us to diversify our revenue base. We plan to focus our marketing efforts on this customer category going forward.

For the three months ended September 30, 2008, International sales were $10.0 million compared to $0.1 million for the comparable period. This increase is due to contract awards for the soft and body armor products to the Middle East.

For the three months ended September 30, 2008, Sports and Health Product sales were $1.5 million, a decrease of 36.1 % over the comparable period. This decrease is due to a decline in revenues associated with a contract completed in early 2008 and the loss of a retail customer.

Gross profit for the quarter ended September 30, 2008 was $3.4 million (11.1% of net sales), as compared to $11.5 million (16.0% of net sales) for the three months ended September 30, 2007. The decline in gross profit margin as a percentage of net sales is due primarily to lower volume as a result of delays in contract awards, constraints on price increases due to the competitive market, higher raw materials costs and overhead costs incurred and not capitalized resulting from lower production levels. To offset increases in raw material prices, we entered into a joint venture agreement on March 18, 2008 for the purpose of manufacturing woven ballistic fabric for our body armor products. As a result of this strategic action, we believe we are the only soft body armor manufacturer with a vertically-integrated weaving operation, which is intended to reduce material costs and allow us to competitively price our products to grow top line sales as well as improve our margins. Additionally, 50% of the net income generated from the joint venture will be accretive to our earnings. In order to capture a greater share of this market, we adopted an aggressive pricing structure on certain military contracts. Improving gross profit margin will require passing on material cost increases to our customers, enhancing the manufacturing process, planning inventory purchases carefully and reducing costs. These initiatives will be balanced with a marketing and sales strategy that addresses an unusually competitive environment.

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OPERATING COSTS

Three Months Ended September 30, 2008 and 2007

(In thousands)

	2008		2007		Dollar Change
Selling and Marketing	$	2,030	$	2,033	$	(3	)
Research and Development		466		543		(77	)
Equity-Based Compensation		3,341		1,212		2,129
Other General and Administrative		4,099		5,679		(1,580	)
Selling, general and administrative expenses		9,936		9,467		469
Litigation and Cost of Investigations		2,531		2,203		328
Employment Tax Withholding Credit		37		—		37
Total Operating Costs	$	12,504	$	11,670	$	834

Operating costs were $12.5 million or 41.2% of net sales for the three months ended September 30, 2008 as compared to $11.7 million or 16.2% of net sales for the three months ended September 30, 2007. The increase in expenses for the three months ended September 30, 2008 of $.8 million from the three months ended September 30, 2007 was principally due to the following:

• The increase in operating costs during the third quarter of 2008 was mainly due to an increase in equity-based compensation of $2.9 million due to a change in the majority of the Board of Directors of the Company. At the Annual Meeting of Stockholders that was held on August 19, 2008, five nominees from Steel Partners II, L.P. were elected to the Board of Directors of the Company. This change triggered an acceleration of the equity-based compensation expense and the total unvested and unamortized fair value of the equity-based compensation became vested immediately and was expensed in the accompanying financial statements.

• Higher litigation and cost of investigations expenses for the quarter, as a result of ongoing legal proceedings and the contested board election. We will continue to incur costs associated with the investigations described in Part II, Item 1 of this Form 10-Q in future periods and these costs could be material.

• The increase in operating expenses were partially offset by lower general and administrative expenses due mainly to lower legal and professional fees in 2008 compared to 2007 of $.6 million. Additionally, compensation expense decreased by $.7 million principally due to reductions in incentive compensation and personnel.

Interest expense for the three months ended September 30, 2008 was $0.3 million compared to $0.2 for the same period in 2007.

Inflation and Changing Prices

Our profitability is dependent upon, among other things, our ability to anticipate and react to changes in the cost of key operating resources, including labor and raw materials. Substantial increases in costs and expenses could impact our operating results to the extent that such increases cannot be passed along to our customers. We take steps to mitigate the risk of rising prices by prudent purchasing practices and inventory management techniques. However, there can be no assurance that future supplies of raw materials and labor will not fluctuate due to market conditions outside of our ability to control.

Certain operating costs, such as rent, utilities and taxes continue to increase with the general level of inflation or are higher, and may be subject to other cost and supply fluctuations outside of the Company’s control.

While we have been able to react to inflation through effective negotiation of our sales contracts, efficient purchasing practices, and constant management of our raw materials inventory levels, there can be no assurance that we will be able to do so in the future. Additionally, competitive conditions could limit our ability to pass on cost increases to our customers.

Liquidity and Capital Resources

We intend to fund our cash requirements with cash flows from operating activities and, when necessary, borrowings under our Credit Facility, as amended. As of September 30, 2008, our working capital was approximately $37.7 million compared to $34.9 million at December 31, 2007. The increase in working capital at September 30, 2008, as compared to December 31, 2007 is mainly due to the reduction in the employment tax withholding obligation of approximately $26.1 million. This reduction was partially offset by lower levels of accounts receivable (due to cash collections and lower levels of sales); tax asset accounts; refunds of income taxes; and funding our investment in Lifestone Materials.

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The accounts receivable days outstanding decreased to 30 days at September 30, 2008 as compared to 36 days at December 31, 2007. This change in days outstanding was primarily due to an improvement in collections of receivables from our customers.

In order to meet the demands for working capital, we maintain a revolving credit line with a major financial institution, which is discussed below. The purpose of this facility is to provide liquidity when needed, on a short term basis. Our major material suppliers’ payment terms are normally 7 to 30 days from date of purchase, and our terms with customers range between 30 to 60 days from the date of sale. Any shortfall in working capital may lead us to borrow under our revolving credit line to maintain liquidity.

We entered into an Amended and Restated Loan and Security Agreement (“Credit Facility”) with our lender in 2007. The Credit Facility provides for a three-year, $35 million revolving credit line available to the Company’s subsidiaries, jointly and severally, bearing interest at the prime rate plus 0.25% or, at our option, LIBOR plus 2.25%. Borrowings are available in the form of advances or letters of credit granted or issued against a percentage of the Company’s subsidiaries’ eligible accounts receivable and eligible inventory. In accordance with the terms of our Credit Facility, we revised the financial covenants to include (1) minimum net worth, (2) fixed charge coverage ratio, (3) minimum consolidated earnings before interest, taxes, depreciation, amortization, non-cash compensation, litigation and cost of investigations and restructuring charges, and (4) maximum capital expenditures, all as defined. The revolving credit line is secured by substantially all of our assets.

On October 31, 2008, we entered into an amendment to the Credit Facility with its lender. That amendment provided for the lender to loan us $10 million for a three month period, bearing interest at the prime rate plus 0.25%, the proceeds of which were used to pay down the Credit Facility. The structure of this amendment increased our borrowing capacity under the Credit Facility to support our projected short-term working capital needs for manufacturing our current backlog. A third party provided a guarantee in support of the term loan and we agreed to use the term loan proceeds solely for the purpose of paying for raw material purchases, labor, packaging, shipping and supplies in connection with certain contracts with the U.S. military.

On November 12, 2008, we and our lender amended the Credit Facility. Under the terms of that amendment, we will not be subjected to the financial covenants as long as availability under the Credit Facility (as defined) is in excess of $4.0 million for each of the months ending September 30, 2008, October 31, 2008 and November 30, 2008, and following those periods in excess of $12.5 million.

In March 2008, the partner to the Lifestone Materials, LLC (“Lifestone”) contributed property and equipment to Lifestone in exchange for a $2,500 note payable. This loan bears interest at the Prime rate plus .25%. Principal and interest are repaid on a quarterly basis from Lifestone’s available cash as determined by Lifestone’s partners.

Our capital expenditures for the nine months ended September 30, 2008 were approximately $3.6 million (which includes $2.5 million of property and equipment acquired through the Lifestone joint venture), compared to $3.7 million for the nine months ended September 30, 2007. Our capital budget is intended to replace fixed asset equipment as needed and to take advantage of technological improvements that would improve productivity. Beginning in the second quarter of 2007, we increased capital expenditures to improve our systems for inventory control, manufacturing and accounting processes. These expenditures will continue in subsequent periods. We anticipate our capital expenditures for the remainder of 2008 to be approximately $0.6 million.

We believe that the existing Credit Facility, as amended, together with funds generated from operations and income tax refunds, will be adequate to sustain operations, including projected capital expenditures, for the foreseeable future. There can be no assurance that we will be able to obtain increases in our Credit Facility if needed. We may be required to explore other potential sources of financing (including the issuance of equity securities and, subject to the consent of our lender, other debt financing) if we experience escalating demands for our products or delays in sales. However, there can be no assurance that such sources will be available or, if available, provide terms satisfactory to us.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We do not issue or invest in financial instruments or their derivatives for trading or speculative purposes. Our market risk is limited to fluctuations in interest rates pertaining to our borrowings under our Credit Facility, as amended. We therefore are exposed to market risk from changes in interest rates on funded debt. We can borrow at the prime rate plus 0.25% or LIBOR plus 2.25%. Any increase in these reference rates could adversely affect our interest expense. Our current credit agreement provides for the establishment of performance pricing to be established at a future date. The extent of market rate risk associated with fluctuations in interest rates is not quantifiable or predictable because of the volatility of future interest rates and business financing requirements. We do not use derivative products to hedge or mitigate interest rate risk.

We purchase materials for use in our products based on market prices established with our suppliers. Many of the materials purchased can be subject to volatility due to market supply and demand factors outside our control. To mitigate this risk, in part, we attempt to enter into fixed price purchase agreements with reasonable terms.

Based on the outstanding balance on our revolving line of credit as of December 31, 2007, a 1% increase in interest rates would cost us approximately $0.2 million annually.

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ITEM 4. CONTROLS AND PROCEDURES.

We evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”), as of September 30, 2008. Our principal executive and financial officers supervised and participated in the evaluation. Based on the evaluation, and in light of the previously identified material weaknesses in internal control over financial reporting, as of December 31, 2007, described within the 2007 Annual Report on Form 10-K, our principal executive and financial officers each concluded that, as of September 30, 2008, our disclosure controls and procedures were not effective in providing reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s (the “SEC”) form and rules.

Changes in Internal Control Over Financial Reporting

The following changes were made subsequent to December 31, 2007, to our internal control over financial reporting and have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting:

• We developed a detailed remediation plan to improve our internal control over financial reporting and disclosure controls and procedures. Senior level employees have been tasked with execution of the plan, which also includes target dates for completion of each of the items.

• The information technology infrastructure and enterprise systems (which were in the process of being installed and implemented at December 31, 2007) are now functional and operational.

• We implemented environmental controls to ensure the integrity and reliability of the data. We developed a detailed IT strategic plan and formal policies and procedures, which we believe clearly define segregation of duties and external review of IT compliance issues.

• We defined and implemented access controls to financial reporting applications and data. Specific controls include restricted access to programs and data. A periodic review and monitoring of such access within clearly defined policies and procedures has also been implemented.

• Controls have been implemented to ensure that IT program and data changes are adequately tested for accuracy, appropriate implementation and authorized by our change management process.

• We established operational controls to ensure that the Company has the ability to process, retrieve and protect its computer programs and data. Specifically, adequate backups on a periodic basis have been established. A disaster contingency plan has also been implemented to deal with unplanned interruptions.

• We hired a highly qualified Controller/Director of Financial Reporting, who is a Certified Public Accountant with over twenty years of experience in both public and corporate accounting.

• We developed accounting and closing procedures to ensure that performance of accounting functions, and evidence of review and approval of such performance, is done timely (including review of journal entries, bank reconciliations, analytical reviews, consolidation work papers and disclosure checklists).

• We established a resource center, containing accounting, disclosure, internal control, regulatory reporting and other related materials which are available to management and the accounting staff.

• We enhanced a recurring financial closing and quarterly reporting process. As part of this process, we have strengthened controls over the financial closing and reporting process and used process-reengineering techniques and technology to simplify the financial closing process and implement additional controls.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

We refer to Item 3 of Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2007, for a description of legal proceedings outstanding at the time of the filing of that report as to which no material developments occurred during the nine months ended September 30, 2008.

Securities Class Action and Shareholder Derivative Action

We refer to Item 3 of Part I of our Annual Report on Form 10-K for the year ended December 31, 2007, for a discussion of the securities class action and shareholder derivative action lawsuits filed against us and certain of our directors and officers, and

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the settlement of those suits, final approval of which was pending before the United States District Court, Eastern District of New York. On June 25, 2008, the Court approved the settlement. The Company has not admitted any wrongdoing. Both the derivative action and the securities class action settlements have been appealed.

Patents

On September 6, 2007, Christopher Van Winkle and David Alan Cox filed an action against the United States in the U.S. Court of Federal Claims alleging patent infringement and seeking compensation for the government’s alleged unlicensed use of their patent. The allegedly infringing products were purchased on behalf of the U.S. Army by the General Services Administration (“GSA”) from Point Blank Body Armor Inc., our subsidiary. The relevant contract with the GSA contains a patent indemnity clause. On September 4, 2008, the United States settled with Christopher Van Winkle and David Alan Cox for $10,250,000. We expect the U.S. will make a claim for some portion of that amount against us. We intend to assert defenses. We cannot predict the timing or the outcome of this matter.

Tortious Interference

On April 7, 2008, Point Blank Body Armor filed suit against BAE Systems Specialty Defense Systems of Pennsylvania, Inc (“BAE”) and John Norwood in the Southern District of Florida for tortious interference with advantageous business relationship. The suit alleges that John Norwood used confidential information regarding Point Blank Body Armor that he obtained while working as a program manager for the U. S. Army to the detriment of Point Blank Body Armor and the advantage of his new employer, BAE. In particular, the confidential information was used to interfere with Point Blank Body Armor’s relationship with one of its major suppliers, which in turn interfered with its bid for the production of 230,000 IOTV’s pursuant to a request to submit a bid it had received from the U.S. Army.

ITEM 1A. RISK FACTORS

We refer to Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2007, for a description of risk factors outstanding at the time of the filing of that report, as to which no material developments occurred since the date of that report.

The risks and uncertainties described below are not the only risks and uncertainties that we face. Additional risks and uncertainties not currently known or currently deemed not to be material also may impair business operations. If any of the following risks actually occur, our business, results of operations and financial condition could be adversely affected.

Business and Operational Risks

A substantial portion of our revenue is dependent on U.S. military business, and a decrease or delay in contract awards in such business could have a material adverse effect on us.

U.S. military contracts account for a significant amount of our revenue. The U.S. military funds its contracts in increments based on annual authorization and appropriation, as well as supplemental bills passed by Congress and approved by the President, which may not be enacted or may provide funding that is greater than or less than the amount of the contract. Changes in the U.S. military’s budget, spending allocations or the timing of such spending could adversely affect our ability to receive future contracts. Our contracts with the U.S. military do not have a minimum purchase commitment, and the U.S. military generally has the right to cancel our contracts unilaterally with limited notice. A significant reduction or delay in U.S. military expenditures for ballistic-resistant products would have a material adverse effect on our business, financial condition, results of operations and liquidity.

Recent turmoil in the credit markets and the financial services industry may negatively impact our business, results of operations, financial condition or liquidity.

Recently, the credit markets and the financial services industry have been experiencing a period of unprecedented turmoil and upheaval characterized by the bankruptcy, failure, collapse or sale of various financial institutions and an unprecedented level of intervention from the United States federal government. While the ultimate outcome of these events cannot be predicted, they may have a material adverse effect on our liquidity and financial condition if our ability to obtain credit from trade creditors were to be impaired. In addition, the recent economic crisis could also adversely impact some of our customers’ ability to finance the purchase of systems from us or our suppliers’ ability to provide us with product, either of which may negatively impact our business and results of operations.

Many of our customers have fluctuating budgets, which may cause fluctuations in our results of operations.

Customers for our products include federal, state, municipal, foreign, military, law enforcement and other government agencies. Government tax revenues and budgetary constraints, which fluctuate from time to time, can affect budgetary allocations for these customers. Many domestic and foreign government agencies have in the past experienced budget deficits that have led to decreased spending in defense, law enforcement and other military and security areas. Our results of operations may be subject to substantial period-to-period fluctuations because of these and other factors affecting military, law enforcement and other government spending. A reduction of funding for federal, state, municipal, foreign and other government agencies could have a material adverse effect on sales of our products and our business, financial condition, results of operations and liquidity.

Our business is subject to various laws and regulations favoring the U.S. government’s contractual position, and our failure to comply with such laws and regulations could harm operating results and prospects.

As a contractor to the U.S. government, we must comply with laws and regulations relating to the formation, administration and performance of the federal government contracts that affect how we do business with our U.S. government customers and may impose

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added costs on our business. These rules generally favor the U.S. government’s contractual position. For example, these regulations and laws include provisions that subject our federal government contracts to protest or challenge by unsuccessful bidders and unilateral termination, reduction or modification by the U.S. government, including requiring certain manufacturing or operating standards. Failure to comply with these or other laws and regulations could result in contract termination, suspension or debarment from contracting with the federal government, civil fines and damages and criminal prosecution and penalties, any of which could have a material adverse effect on our business, financial condition, results of operations and liquidity.

We rely on certain vendors to supply us with ballistics materials and to sew non-ballistic products that if we were unable to obtain could adversely affect our business.

We have relationships with key ballistic and non-ballistic materials vendors, as well as with key subcontractors who sew certain of our non-ballistic products. We also rely on suppliers for vendor trade creditor financing for our purchases of products from them. Any inability to obtain materials or services in the volumes required and at competitive prices from our major trading partners, the loss of any major trading partner, or the discontinuation of vendor financing may seriously harm our business because we may not be able to manufacture and sell our customers products on a timely basis in sufficient quantities or at all. Other factors, including reduced access to credit by our vendors resulting from economic conditions, may impair our vendors’ ability to provide products in a timely manner or at competitive prices. We also rely on other vendors for critical services such as transportation, supply chain and professional services. Any negative impacts to our business or liquidity could adversely impact our ability to establish or maintain these relationships.

Growth of operations may strain resources and if we fail to manage growth successfully, our business could be adversely affected.

Increased orders for body armor, as well as the introduction of new products, have placed, and may continue to place, a strain on our operational, financial and managerial resources and personnel. Any failure to manage growth effectively could have a material adverse effect on our business, operating results, financial condition and liquidity.

Increases in the prices paid for raw materials or labor costs may adversely affect profit margins.

If we experience significant increases in the prices paid for raw materials or labor costs, we may not be able to pass through to our customers such increases in those costs. Even if we are able to pass through all or a portion of such cost increases to our customers, profit margins on such products may be reduced. Fixed price contracts are especially susceptible to such profit margin reductions.

Our products are used in situations that are inherently risky. Accordingly, we may face product liability and exposure to other claims for which we may not be able to obtain adequate insurance.

The products that we manufacture are typically used in applications and situations that involve high levels of risk of personal injury. Failure to use these products for their intended purposes, failure to use these products properly, malfunction of these products and, in some circumstances, even correct use of these products could result in serious bodily injury or death. We cannot guarantee that our insurance coverage would be sufficient to cover the payment of any potential claim arising out of the use of our products. Any substantial uninsured loss thus would have to be paid out of our assets as applicable and may have a material adverse effect on our business, financial condition, results of operations and liquidity. In addition, we cannot guarantee that our current insurance or any other insurance coverage will continue to be available or, if available, that it will be obtainable at a reasonable cost. The cost of obtaining insurance coverage has risen substantially due to increased sales levels and increased volatility within the reinsurance industry. Any material uninsured loss could have a material adverse effect on our business, financial condition, results of operations and liquidity. If we are unable to obtain product liability coverage, then we may be prohibited from bidding for orders from certain government customers because many governmental agencies currently require such insurance coverage. Any inability to bid for government contracts as a result of insufficient insurance coverage would have a material adverse effect on our business, financial condition, results of operations and liquidity.

We are engaged in a highly competitive marketplace, which demands that producers continue to develop new products. Our business will be adversely affected if we are not able to continue to develop new and competitive products.

Our customers continually seek improvements in body armor and similar products that we manufacture and market. As a result, in order to meet our customers’ needs, we must continue to develop new products and innovations and enhancements to existing products. Many of our competitors have significantly more capital than we have and as a result have the ability to devote more resources to research and development and to marketing of their products. In order to remain competitive, we must continue to devote a material portion of our financial resources to research and development and there is no assurance that we will be successful in our product improvement efforts in our competitive marketplace.

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We face continuous pricing pressure from our customers and our competitors. This will affect our margins and therefore our profitability and cash flow unless we can manage efficiently our manufacturing costs and market our products based on superior quality.

Our customers often award contracts based on product pricing, and we believe we have not received some awards due to pricing discounts given by our competitors. Many of our competitors have significantly greater financial resources than we have, and as a result may be able to withstand the adverse effect of discounted pricing and reduced margins in order to build market share. While one of our strategies is also to discount to retain and increase market share, and to seek to manage our manufacturing efficiently to sustain acceptable margins, we may not be able to maintain appropriate prices or to manage product manufacturing costs sufficiently to sustain acceptable margins. Similarly, we seek to compete based on product quality rather than price, but we may not be successful in these efforts with enough contract awards to offset the need to reduce prices for other products. This could adversely affect our profitability, our liquidity and our market share.

We may have difficulty protecting our proprietary technology.

Intellectual property and proprietary technology are important to the success of our business. While we actively police the use of our intellectual property and proprietary technology, it is difficult to monitor all possible misappropriations and unauthorized access to our intellectual property and technology. Further, litigation involving these matters can be costly, with no guarantee of ultimate success. Dissemination or dilution of the aforementioned property and technology also could have an adverse effect on our business, financial condition, results of operations and liquidity.

If we are unable to successfully retain executive leadership and other key personnel, our ability to successfully develop and market our products and operate our business may be harmed.

We are substantially dependent on the personal efforts and abilities of General Larry Ellis, our President and CEO; James F. Anderson, our CFO; and Samuel White, our Executive Vice President Global Sales, Marketing and Research and Development. General Larry Ellis, our President and CEO, has assumed the COO functions following the resignation of our former COO, John C. Siemer, as of October 3, 2008. Our relationship with certain of our customers, particularly the U.S. military, is substantially dependent on certain of our management personnel. Changes to our executive officers or the inability to retain our key personnel could delay the development and introduction of new products, harm our ability to sell our products and damage the image of our brands and negatively impact our credibility with key customers. We believe that retention of our key personnel is critical to executing our business strategy and our operations going forward and the failure to retain our key personnel may impact our financial condition and results of operations

We have launched and expect to continue to launch strategic and operational initiatives which if not successful could adversely affect our business.

We believe that in order to stay competitive and generate positive earnings and cash flow, we must successfully implement our strategies. In connection with the implementation of our strategies, we have launched, and expect to continue to launch, several operational and strategic initiatives. However, the success of any of these initiatives may not be achieved if:

• we do not maintain adequate levels of liquidity to finance such initiatives or are unable to meet the financial ratios and other covenants contained in our revolving line of credit agreement;

• they are not accepted by our customers and vendors;

• they do not result in revenue growth, generate cash flow, reduce operating costs or reduce our working capital investments; or

• we are unable to provide the products necessary to implement these initiatives successfully or other products are introduced to the marketplace that result in our strategies being of less value to customers.

Failure to implement one or more of our strategies and related initiatives successfully could materially and adversely affect our business, financial condition or results of operations.

We rely significantly on our credit facility for liquidity needs. The available credit under the facility is linked to a borrowing base, and reductions in eligible receivables and inventory will reduce our ability to draw on the line. The terms of the facility include various covenants, and failure to meet these covenants could affect our ability to borrow. These factors could affect our liquidity.

Our liquidity depends on cash generated from operations and the availability of funding under our credit agreement. The borrowing base under our credit agreement is limited to eligible receivables and inventories, as described in the agreement. Our availability of financing under the credit agreement also depends on the satisfaction of a number of other conditions, including meeting financial and other covenants. If we are unable to continue meeting these covenants, our lender could declare us in default, among other possible courses of action.

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We continue to strive to grow our business, and if we are successful we may have increasing needs for liquidity through our credit facility and to increase the amount that we can borrow. While we have been able to negotiate increases in availability of credit in the past, it may not be possible to do so in the future. We may be required to seek other sources of financing. We may not be able to obtain additional sources of financing, and this could affect our ability to grow our business.

The credit agreement governing our financing contains representations, warranties and covenants that, among other things, limit our ability to: (1) incur additional indebtedness; (2) incur liens; (3) pay dividends or make other restricted payments; (4) make certain investments; (5) sell or make certain dispositions of assets or engage in sale and leaseback transactions; (6) engage in certain business activities; (7) engage in mergers, acquisitions or consolidations; and (8) enter into certain contractual obligations. In addition, the credit agreement contains customary financial covenants that we must comply with on a monthly basis. The credit agreement also contains financial covenants that we must comply with on a periodic basis relating to our cumulative sales levels and an annual capital expenditure threshold. We are in compliance with the terms of the credit agreement at September 30, 2008.

In the event of default under the terms of our credit facility, we may be required to negotiate changes to our financial covenants with, or to obtain waivers of certain of these covenants from, the lender or to negotiate replacement financing arrangements with one or more other financial institutions. If such actions become necessary, we believe that we will be able to negotiate such changes, waivers and/or replacement financings, but no assurance can be given that we will be successful or as to the terms of any such arrangements. At September 30, 2008, we had $17.5 million outstanding under our credit facility, as more fully described in Note 3. Debt to our Condensed Consolidated Financial Statements. Additionally, as of October 31, 2008, as more fully described in Note 3. Debt to our Condensed Consolidated Financial Statements, the Company has a 90-day term loan for $10 million with its lender. While we believe we will be able to pay the term loan on a timely basis, no assurances can be given that we will be successful or that we will be able to extend the term of the term loan.

Environmental issues could adversely affect our business.

We are subject to various federal, state and local laws and regulations governing the use, discharge and disposal of hazardous material. Compliance with current laws and regulations has not had and is not expected to have a material adverse effect on our financial condition. It is possible, however, that environmental issues may arise in the future that we cannot currently predict and which may have a material adverse effect on our business, financial condition, results of operations and liquidity.

We may incur additional costs or material shortages due to new NIJ certification and testing standards.

Body armor ballistic protection packages require certification to government standards in order to be sold to law enforcement and military customers. Law enforcement certification standards are set by the NIJ and for the military; the military specifications are set for each individual contract. Internationally, standards vary based on the country with whom we are dealing, though most will adhere to the NIJ certification requirements. The NIJ is in the process of revising their standard, which may result in a more complex and costly testing protocol. Any major change in testing procedures and performance standards carries both capital costs to build the testing protocol to meet the new standards, and potential material and production costs to build to the new standard. Additionally, expanding into international markets increases the likelihood that new certification standards will be required, leading to increased costs.

Risks Relating to Our Financial Controls and Historical Financial Statements

We face continuing risks in connection with the restatement of our financial statements for the years ended December 31, 2004 and 2003, and quarterly financial statements for 2005 and 2004, as reported in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2006.

Notwithstanding our efforts to date to identify and remedy all material errors in those financial statements, we may discover other errors in those financial statements in the future. Moreover, the cost of identifying and remedying those errors may be substantial.

We have identified a number of material weaknesses in our internal control over financial reporting, which could continue to impact negatively our ability to report our results of operations and financial condition accurately and in a timely manner.

As required by Section 404 of the Sarbanes-Oxley Act of 2002, our management has conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2007. We identified a number of material weaknesses in our internal control over financial reporting and concluded that, as of December 31, 2007, we did not maintain effective control over financial reporting based in part on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. For a detailed description of these material weaknesses, please see Item 9A. CONTROLS AND PROCEDURES in our Annual Report on Form 10-K for the period ended December 31, 2007. Each of the material weaknesses results in more than a remote likelihood that a material misstatement of our annual or interim financial statements

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will not be prevented or detected. As a result, we must perform extensive additional work to obtain reasonable assurance regarding the reliability of our financial statements. Even with this additional work, given the number of material weaknesses identified, there is a risk of additional errors not being prevented or detected, which could result in additional restatements. Moreover, other material weaknesses may be identified.

We have extensive work remaining to remedy the material weaknesses in our internal control over financial reporting.

We are in the process of remedying the identified material weaknesses, and this work will continue during 2008 and perhaps beyond. For a detailed description of these remedial efforts, please see Item 9A. CONTROLS AND PROCEDURES in our Annual Report on Form 10-K for the period ended December 31, 2007. There can be no assurance as to when all of the material weaknesses will be remedied. Until the remedial efforts are completed, management will continue to devote significant time and attention to these efforts, which may be to the detriment of our operations. We will continue to incur expenses associated with the additional procedures and resources required to prepare our consolidated financial statements. Certain of the remedial actions will be ongoing and will result in the incurrence of additional costs even after the material weaknesses are remedied. As a result, our financial condition and results of operations may be negatively affected by the cost of these remediation measures.

If internal control over financial reporting remains ineffective, our business and future prospects may suffer.

If we are unsuccessful in implementing or following our remediation plan, or fail to update our internal control over financial reporting as our business evolves or to integrate acquired businesses into our control system, we may not be able to timely or accurately report our financial condition, results of operations or cash flows or to maintain effective disclosure controls and procedures. If we are unable to report financial information in a timely and accurate manner or to maintain effective disclosure controls and procedures, we could be subject to, among other things, regulatory or enforcement actions by the SEC and a general loss of investor confidence, any one of which could adversely affect our business prospects and the market value of our common stock.

Further, there are inherent limitations to the effectiveness of any system of controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. We could face additional litigation exposure and additional SEC enforcement or other regulatory action if further restatements were to occur or other accounting-related problems emerge. In addition, any future restatements or other accounting-related problems may adversely affect our financial condition, results of operations and liquidity.

Risks Relating to the Securities Markets and Our Stock Price

Our stock price is volatile because it is affected by numerous factors out of our control.

The market price and trading volume of our common stock is subject to significant volatility and this trend may continue. The general economic, political, and stock market conditions that may affect the market prices of our common stock are beyond our control. The value of our common stock may decline regardless of our operating performance or prospects. Factors affecting market price include, but are not limited to: (i) variations in our operating results and whether we have achieved our key business targets; (ii) the limited number of shares of our common stock available for purchase or sale in the public markets; (iii) sales or purchases of large blocks of stock; (iv) changes in, or failure to meet, earnings estimates; (v) changes in securities analysts’ buy/sell recommendations; (vi) differences between reported results and those expected by investors and securities analysts; and (vii) announcements of new contracts by us or by our competitors. In the past, securities class action litigation has been instituted against companies following periods of volatility in the market price of their securities. We are presently a defendant in such litigation. Additionally, we are being investigated by the SEC and the U.S. Department of Justice. The outcomes of these investigations could result in increased volatility of the market price of our common stock. Please see Item 3. Legal Proceedings in our Annual Report on Form 10-K for the period ended December 31, 2007 for a detailed discussion of these investigations.

Our stock is quoted on the Pink Sheets, which may decrease the liquidity of our common stock.

On August 29, 2006, the American Stock Exchange de-listed our common stock because we were not able to file certain periodic reports with the SEC in a timely manner. Since that time our common stock has been quoted on the Pink Sheets through October 31, 2007, under the symbol “DHBT.PK” and as of November 1, 2007, under the symbol “PBSO.PK”. Broker-dealers often decline to trade in Pink Sheet stocks given that the market for such securities is often limited, the stocks are more volatile, and the risk to investors is greater than with stocks listed on other national securities exchanges. Consequently, selling our common stock can be difficult because smaller quantities of shares can be bought and sold, transactions can be delayed and securities analyst and news media coverage of our Company may be reduced. These factors could result in lower prices and larger spreads in the bid and ask prices for shares of our common stock as well as lower trading volume. We intend to apply for the listing of our common stock on a national securities exchange now that we are current in our periodic reporting obligations with the SEC. We cannot guarantee that we will be successful in those efforts. Investors should realize that they may be unable to sell shares of our common stock that they purchase. Accordingly, investors must be able to bear the financial risks associated with losing their entire investment in our common stock.

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Our common stock may be subject to penny stock rules, which may make it more difficult for our stockholders to sell their common stock.

Our common stock may be considered a “penny stock” pursuant to Rule 3a51-1 of the Exchange Act. Broker-dealer practices in connection with transactions in penny stocks are regulated by certain penny stock rules adopted by the SEC. Penny stocks generally are defined as equity securities with a price of less than $5.00 per share. The penny stock rules require a broker-dealer, prior to purchase or sale of a penny stock not otherwise exempt from the rules, to deliver to the customer a standardized risk disclosure document that provides information about penny stocks and the risks associated with the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer account. In addition, the penny stock rules generally require that, prior to a transaction in a penny stock, the broker-dealer make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market of a stock that becomes subject to the penny stock rules.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

Not applicable

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

Not applicable

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

The Company’s Annual Meeting of Shareholders was held on August 19, 2008 (the “Annual Meeting”). At the close of business on the record date for the meeting (which was July 29, 2008), there were 51,140,169 shares of Common Stock outstanding and entitled to vote at the meeting. Holders of 40,735,520 shares of Common Stock (representing a like number of votes) were present at the meeting, either in person or by proxy.

In the contested election at the Annual Meeting, the following individuals were elected to the Company’s Board of Directors to hold office for a term of one year and until their respective successors are duly elected and qualified, by the following vote:

Nominee	In Favor	Withheld
James R. Henderson	33,227,638	173,362
Terry R. Gibson	33,222,438	178,562
Merrill A. McPeak	33,223,213	177,787
Bernard C. Bailey	33,222,388	178,612
Robert Chefitz	33,221,838	179,162
Martin R. Berndt	6,995,140	339,380
Maurice Hannigan	6,993,490	341,030

The following individuals were not elected to the Company’s Board of Directors:

Nominee	In Favor	Withheld
William P. Campbell	6,988,990	345,530
Larry Ellis	6,984,990	349,530
David Bell	6,976,490	358,030
Jack A. Henry	6,985,890	348,630
Suzanne M. Hopgood	6,973,540	360,980

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ITEM 5. OTHER INFORMATION.

Not applicable.

ITEM 6. EXHIBITS.

Exhibit	Description
10.1	Sixth Amendment to Loan and Security agreement, dated October 31, 2008 with Bank of America N.A.
10.2	Seventh Amendment to Loan and Security agreement, dated November 12, 2008 with Bank of America N.A.
31.1	Certification of President and Chief Executive Officer pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.
32.1	Certification of President and Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

Pursuant to the requirements 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.

	POINT BLANK SOLUTIONS, INC.
Dated November 17, 2008	/s/ Larry Ellis
	President and Chief Executive Officer (Principal Executive Officer)
Dated November 17, 2008	/s/ James F. Anderson
	Chief Financial Officer, Senior Vice President and Chief Accounting Officer (Principal Financial Officer and Principal Accounting Officer)

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INDEX OF EXHIBITS

Exhibit	Description
10.1	Sixth Amendment to Loan and Security agreement, dated October 31, 2008 with Bank of America N.A.
10.2	Seventh Amendment to Loan and Security agreement, dated November 12, 2008 with Bank of America N.A.
31.1	Certification of President and Chief Executive Officer pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.
32.1	Certification of President and Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

28